"A positive expectation is
no guarantee of success."
Measured over a lengthy period, the rules of a trader's system must be capable
of producing a positive return otherwise there will be no financial benefit
which he can turn to his advantage.
However, by itself, being able to demonstrate this positive expectation is no
guarantee of success.
That's because it is only the starting point - much more has to be done to turn
a 'good set of rules' into a successful trading system.
Although it is not generally appreciated by newcomers to trading - if a system
with positive expectation is badly traded it can lose an unlimited amount of
At the outset, any system that is being considered for use must be fully
evaluated. For this task the trader must have a method which will exploit the rules
by applying specialized knowledge and techniques.
His very first job is to determine the trading goals this particular system
must meet so that its performance can be meaningfully assessed.
Then the system must be thoroughly tested under simulated live trading
conditions to see if it is capable of delivering the sort of results required.
Knowing that his software has a sound pedigree (i.e. it is used successfully by other professional traders) the trader can safely trust it to apply the
techniques for position sizing, risk management and money management that are
essential to exploit the opportunities presented by the system.
By producing a system he will be comfortable trading and applying all the
specialized trading knowledge available to him, the professional trader gives
himself every chance of turning the positive expectation of his rules into solid success.
Although it is easy to calculate the expectation of a system, professional
traders bypass this unnecessary step and prefer to judge any system on merit after
subjecting it to full evaluation.
Copyright David Bromley 2006
All Rights Reserved.