Hope the life and the markets are treating you well.

The Market Maven ‘To review’ pile is growing all the time, but please do keep the emails coming. Let me know what you’re looking at and how you’re getting on. It’s always good to get a feel for what everyone is up to.

After wading my way through some quite frankly abysmal systems recently, This last week I’ve been thinking, ‘heck I can do better than this’, so I’ve been having a scout around for some software to test my ideas.

My favourite method of trading is discretionary, which works well for me most of the time, but it does tend to take up more time than I’d like it to. Discretionary trading generally involves lots of chart reading and line drawing. I don’t think I’ll ever drop this style of trading but it would be really neat to have my own system that just throws up buy and sell signals without having to spend so much time trawling through charts.

I know from the many emails I’ve received that easy to follow ‘buy here, sell here’ type trading systems are what many of you are also looking for. Creating your own system has many advantages, not least the fact that you’re in control of it. You know its limits and its capabilities. It’s your baby!

Use these resources to create your own trading systems?

You could do what I did years ago and come up with an idea which you manually back test using past chart data. Using this method you replay time one second at a time and take the signals as they develop.

Highly time consuming and hardly the most sociable use of your time. After one particularly boring evening eyeballing charts a few years ago I experienced a brain freeze worse than watching back to back episodes of Eastenders.

Back then I was wet behind the years and looking for the ‘holy grail’ of systems: that wonder system that would predict the markets with near perfect accuracy and make my fortune.

Unfortunately, there is no holy grail as I discovered, but I did learn some useful things about various indicators as well as leading me to the discretionary approach that I enjoy today.

But I’ve never stopped thinking about ‘that’ system. I often use excel to test ideas like what happens the next day if the market drops 2% the day before, but I’ve not really put it all together in one system. Up until now I’ve used it more to provide more colour to my own trades.

The fortunate thing is that now, it has never been easier to create and test your own system. I’m not looking for the holy grail, but I’m confident we’ll be able to create a system that creates decent long term returns.

Creating your own system using fancy software

Unlike a few years ago, there are now stacks of system testing programs on the market, with many thankfully requiring very little programming language. You plug in the parameters like “buy when the market rises above it’s moving average, sell when it drops below it” and the program will display all kinds of performance stats including your expected profit.

Here’s a quick run down of the different programs you can use. I’ll go into more detail on some of them for the next edition of What Really Profits.

Pro Real Timehttp://www.prorealtime.com

User friendly web based trading platform with back testing functionality. Free end of day data is available on many markets and you can get a free 7 day trial of their live real time data.

Blocks Playerhttp://www.blocks.com/

From the excellent Worden brothers, makers of Telechart comes Blocks player which unfortunately is unavailable at the moment pending the release of version 3.0. I used the previous version last year and was impressed with how easy it was to play around with systems. I believe they’re starting to roll out version 3.0 as we speak so watch this space!

Trade Stationhttp://www.tradestation.com

A top draw trading platform that allows you to create and test your own trading strategy using their trademark Easy Language coding. Tradestation is also a broker that is gaining popularity in the UK, it is rather pricey if you do not take up the brokerage options, but many traders swear by it. Their Easy Language isn’t that easy to master though.


A coder’s dream. You can easily create and test your own trading system but unless you’re a tech head then the programming language will make this out of reach of most people. You can get a free download of Metastock via Alpari – It’s a very useful free real time charting program for forex. Go to http://www.alpari-idc.com/ to download.

Strategy Runnerhttp://www.strategyrunner.com

Unfortunately some coding required to create systems, but what makes this nifty is the Strategy exchange where profitable systems can be rented to create automatic buy and sell signals on the Strategy runner platform. You can get free trials of these systems like http://www.gigoroom.com/. Expensive, but they do look good.

Trading Patternshttp://www.tradingpatterns.com

A very interesting one this, it comes in from the other end. You type in the type of system you want with the sort of results you want to see and it uses complex algorithms to find systems that match your criteria. You can then use these systems in programs like MetaStock, tradestation, Wealth lab or Telechart.

Wealth Labhttp://www.wealth-lab.com

I’ve had a good play around with this one and so far it seems to be the most useful and user friendly of all the programs. There’s also a friendly forum with people sharing ideas for strategy.

Right Edge Systemshttp://www.rightedgesystems.com

Similar to Wealth Lab, their easy to use programming method allows you to create your own systems or test those provided by others.

Testing a simple system

Next week I’ll put a simple system involving Bollinger bands to the test to see what we can find out. My favourite strategy tester of all the above has been Wealth lab so I’ll see what I can discover over the next week or so.

My trades

A nice couple of spread bets on oil and gold last week as commodities peel back from their highs. I thought I was king of the world making such nice trades just a few days back from holiday, but the market provided a nice reminded that egos are dangerous in trading.

I made a real pig of a trade on the EUR/ USD forex exchange rate that wiped the smile off my case and any gains I made on the earlier two trades. Still roughly break even for the week, but a useful lesson in following your own rules and not getting over confident!

I took a very small position long the FTSE yesterday on the strength of the intraday bounce, could be foolhardy, but I think there’s room for optimism. My stop is incredibly tight and I’ve now moved it to break even (today’s) open. Time will tell!

This week’s hot trading buttons

There could be some more explosive action this coming week, with some top tier economic announcements due. Today brings US ISM manufacturing index later this afternoon. Midday on Wednesday will be a turbulent time for European traders, with the release of US ADP Non- farm Employment Change, and Fed Chairman Ben Bernanke speaking. Friday tops the bill with the release of Non-farm payroll change and US employment rates.

A long, ugly, deep recession. was how Chryslers chief financial officer Jerry York described his outlook for America’s economy at a recent gathering of fellow finance executives. A recent poll of financial officers indicates that this isn’t an isolated viewpoint. In America, economists with a pessimistic outlook outnumber the positive by a 9-1 margin, while in Europe the margin is 6-1. (via www.invivoanalytics.com)

As I indicated last week, there’s a heck of a lot of pessimism out there. (Sorry there was a typo last week, the conclusion should have read that maybe, just maybe things won’t be as bad as feared).

I’m no economist but when everyone is dreadfully gloomy, it does prick my contrarian ears. Is today’s headline in the Independent “USA 2008, The Great Depression” a unwelcome but accurate prophecy or a massive contrarian indicator? Economists are notorious for getting it wrong so if most are so gloomy I’m tempted to look for the opposite to happen.

Heck, I’m no expert, but one of the great things about trading is that you don’t have to be right all the time. You can take a position and if it doesn’t work out, you can cut it for break even or a small loss. The worse thing you can do is doggedly hold onto your positions because you don’t want to be seen as being wrong.

Trading wisdom

“Buy at the point of maximum pessimism and sell at the point of maximum optimism”. Sir John Templeton, (founder of Templeton Funds)