Hi, Andrea Unger here. And this time, I try to answer a question that is often heard in the trading business. The question is: a trading system, to be considered good, does it have to perform well on many markets?
Well, basically, this question derives from a partial knowledge about trading systems because there are two types of trading systems—systems that were born trying to identify the balance between forces of buyers and sellers in the market, and so they try to, let’s say, fight inside this balance and take advantage, obviously, from the moves that derive from these fights. And there are systems who, on the contrary, were born on a specific market.
The first kind of system, the first type, normally works on the dynamics of prices generally, and these systems are normally used on the basket of instruments. So, we will take a system with its logics, we will put it at work on a number of instruments—different instruments, and then we get a balance among all the gains and losses that we get in these instruments. On none of them there will be a perfect performance, and probably on none there would be a disaster. There is a good balance because it’s a system that works on the dynamics of markets.
Then there are systems that derive from a deep study of a single market, of the characteristics of the market and of what the market is used to do. So, this kind of system tries to take advantage of the characteristic of the market, and this system, once it is born, tested and validated, most probably will not be as effective on another market simply because the other market is different. So, it’s like a suit tailored on a certain kind of physique, and this is only for that one.
So, we have two families. A family for price dynamics, normally a parametrical system, and a family for a single, specific market. The first should work normally good on most of the markets they are applied to. The second normally perform well only on the market or the family of markets they were born on just because they specifically identify what those markets normally do. It’s your turn now. Develop your systems; stay tuned.