23 Mar Even Perfect Isn’t Perfect
Even Perfect Isn’t Perfect
Mar. 23, 2022
Let’s say you did your homework and found your perfect coach.
He fixes all your strokes and can deal with your inevitable doubts.
You’re on the ideal path and everything is as good as it can possibly be.
The road to Wimbledon would still be outrageously hard. So hard that almost no one can make it to the finish line.
Even with perfect coaching, here’s what would happen between now and then.
- You’ll have horrible losses after having big leads.
- You’ll have parents and coaches heckling you into defeat.
- You’ll have fights with your coach because you wanted to go out on Friday night before a Saturday match.
- You’ll have injuries that can sideline you for days, weeks, or permanently.
- You also might run out of money or your coach may need to stop traveling due to personal reasons.
Even a perfect coach teaching perfect fundamentals is hard. Even inevitability can be sabotaged.
And trading is no different.
Many systems are bad, don’t get me wrong. Many hustlers are fraudulent and a lot of information out there is predatory misinformation.
That’s a big hurdle to overcome.
But even then, times can be tough.
Take, for example, the ultimate perfect system: an index fund. This is the only perfect system out there (according to willfully ignorant academics), and look at what you get.
- You get to lose almost all your money from 2000-2003.
- You get to lose most of your money in 2008.
- You get to make 0% for over twelve years starting in 2000.
- You get losing years all the time.
But trading a superior system is also very difficult.
Here is an Equity Curve for the Dragonfly robot (I’ve traded this since 2021). From 2003-2021 trading 1 lot on the GBPJPY only, here’s what the “Dragonfly Small Stop” hypothetically did:
That equity curve beats the market so badly it’s almost criminal. And it’s based on a timeless methodology using a huge sample size that wasn’t over-optimized. It’s a no-brainer.
Furthermore, here’s the Equity Curve from 2021 to now:
Still really good. Everything is wonderful.
But let’s say you found some random guy on the internet who talked about a system he used in a World Trading Contest and you decided to try it.
And then you started in December 2021. Here’s what your life has been like up until March 20, 2022:
We’re going on three months with no profits and no profits in sight. The GBPJPY has been in one of its tightest ranges in recent history and reversals have been the norm.
Is it over? Is the system finished?
Logic would say no. The Equity Curve would definitely say no.
But that doesn’t change the fact that the past three months have been miserable. And it could go on several more months. Trend following can do poorly for a long time.
Long-term, this looks like a nearly-perfect system.
Short-term this looks like the worst thing in the world.
Should the coach be fired? Should the system be trashed?
Almost certainly not.
(By the way, the GBPJPY has seen a massive revival in the past few days.)
But that’s the tough question every trader has to face.
In our next Newsletter, we’ll look at some more systems.
Talk to you soon.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.