SST Money Management Warning & Backtesting

[bharding22 10]

I thought I would give a warning based on my trading experience using SST

 

I have blown 50% + of my account following a profitable system, heres how.

 

I used a 2% risk money management system. (2% of the average back tested Loss)

I appear to have over traded in that I traded every entry signal, so if ten different pairs/time frames had entrys at the same time I got into all 10 plus. (my partner looked after half the pairs on the laptop) I was so strick with my rules that I took every entry even when I could see that the market was very choppy. I had back tested for 2 months prior to trading so knew that I had an edge.

 

After my account was down by 40%+ I changed to 1% risk money management system and my account continued to go down.

 

 

Please Note: my shorter term backtesting has been narrowed down to suit Australian 5pm-midnight as I work the other 11hrs of the day.

Recomendation:

Only trade small number of pairs(As suggested during netpick owners annual webinar)

Get back into winning trades that were stopped out early

Use Risk management based on entry stop lose, not average.

Stop trading at pre determined level eg 5% or 10% max loss per day

 

I have taken a break from SST for obvious reasons(confidence shattered). Don't let this happen to your account!

 

I have included my backtesting spreadsheet (a bit messy) hope it helps someone. I would be happy to forward the SST settings used for each pair/timefame

Note all back testing was using mt4 measuring pips with curser for speed so not 100% accurate as doing the math

 

Brent

Pips per account dollarfor Forum.xls

[MadMarketScientist 11]

Clearly this is a case of not the system that got you in trouble but way, way, way overdoing it. And, you really don't need a spreadsheet to tell you that.

 

It's a lesson learned. Consider it tuition. No matter what trading approach you follow you will get yourself into a world of hurt if you think trading forex at 2% risk x 10 pairs is just 2% risk. You could have a system that wins 90% of the time - and none do - and I guarantee you'd end up with a 40% - 60% drawdown in the first 30 days.

 

Forex pairs do correlate and if you catch in a choppy period you basically are not risking 2% you are risking 20% per trade -- probably not quite to that extreme because it's not really that correlated but for dramatic impact you get the idea.

 

Don't give up on your system but you have to give it a chance to work. Have to have staying power to last a while -- and you need to cut your pairs way, way, way down. Trade 1 -3 pairs max. 1% - 2% risk max.

 

Good luck!

 

MMS

[bharding22 10]

Totaly agree,

just thought others should know this example as not one mentor/coach has never explained it to me untill the netpicks owners yearly webinar

[SIUYA 11]

There are a lot of systems that focus only on % winners etc......all well and good when trading only one instrument

This is very very different from looking at things from the point of view of a portfolio.

 

Ten different trades may in fact be the same trade from a risk point of view. You need to take the thought process to the next level, and a lot of systems/ideas/seminars dont do that.

[MightyMouse 12]

I thought I would give a warning based on my trading experience using SST

 

I have blown 50% + of my account following a profitable system, heres how.

 

I used a 2% risk money management system. (2% of the average back tested Loss)

I appear to have over traded in that I traded every entry signal, so if ten different pairs/time frames had entrys at the same time I got into all 10 plus. (my partner looked after half the pairs on the laptop) I was so strick with my rules that I took every entry even when I could see that the market was very choppy. I had back tested for 2 months prior to trading so knew that I had an edge.

 

After my account was down by 40%+ I changed to 1% risk money management system and my account continued to go down.

 

 

Please Note: my shorter term backtesting has been narrowed down to suit Australian 5pm-midnight as I work the other 11hrs of the day.

Recomendation:

Only trade small number of pairs(As suggested during netpick owners annual webinar)

Get back into winning trades that were stopped out early

Use Risk management based on entry stop lose, not average.

Stop trading at pre determined level eg 5% or 10% max loss per day

 

I have taken a break from SST for obvious reasons(confidence shattered). Don't let this happen to your account!

 

I have included my backtesting spreadsheet (a bit messy) hope it helps someone. I would be happy to forward the SST settings used for each pair/timefame

Note all back testing was using mt4 measuring pips with curser for speed so not 100% accurate as doing the math

 

Brent

 

Forgive my ignorance, but what is SST?

 

Also, what was the draw down during your back test period and how many different 2 month periods did you look at?

[bharding22 10]

Forgive my ignorance, but what is SST?

 

Also, what was the draw down during your back test period and how many different 2 month periods did you look at?

 

SST Seven Summits Trading is a Trading system which can be adapted to suit any market or timeframe developed by Netpicks.

 

Check out the excel spreadsheet for my backtesting results (Shows a definite profitable trading edge)

[MightyMouse 12]

SST Seven Summits Trading is a Trading system which can be adapted to suit any market or timeframe developed by Netpicks.

 

Check out the excel spreadsheet for my backtesting results (Shows a definite profitable trading edge)

 

I'll pass and trade it vicariously through you. Good luck

 

Curious, though. You lost half your account with it. Why do you think it has an edge?

[MadMarketScientist 11]

I feel the point he was trying to make was his win/loss was fine with the system, just when he hit a short losing streak he was way over-leveraged - not necessarily on an individual trade basis but by trading a large group of currency pairs all at once that tend to follow the same pattern/direction. It would be like daytrading the Nasdaq, S&P, Russell and Dow e-Mini futures all at the same time with perhaps modest risk per trade, but in sum you will likely see them all move in same direction - increasing risk substantially.

[MightyMouse 12]

I feel the point he was trying to make was his win/loss was fine with the system, just when he hit a short losing streak he was way over-leveraged - not necessarily on an individual trade basis but by trading a large group of currency pairs all at once that tend to follow the same pattern/direction. It would be like daytrading the Nasdaq, S&P, Russell and Dow e-Mini futures all at the same time with perhaps modest risk per trade, but in sum you will likely see them all move in same direction - increasing risk substantially.

 

If the system he is trading gives him an edge, he should take every single signal the system gives him. Otherwise, the system only gives him signals and it is his discretion that gives him the edge. In which case it isn't much of a mechanical system at all. Its a finite set of instructions that paints a green or red dot when a,b,&c happens.

 

The system should take into account whether or not there is a lot of capital betting in related instruments in the same direction.

 

During the back test that provided the positive expectancy, you, then, have to expect that there were also instances where the system bet in the same direction on multiple pairs and it led to a positive result. That was OK, but its not OK when betting in the same direction leads to a large draw down. Can't have you cake and eat it too.

 

 

Accept the draw down or return the system for a refund.

 

 

MM

[MadMarketScientist 11]

I respectfully disagree.

 

If you have a trading system/style that can be attached to limitless number of charts I don't think you can say that you should take every set-up. Nor do I feel a system/strategy has to always be responsible for also having you trade the ideal number of positions.

 

If it works, and is effective across dozens/hundreds of charts over time than as traders it is our responsibility to trade it responsibly - meaning using the correct leverage, using the correct number of pair and not over trading. I think this was a case where someone had over-used the system they were following. Which I think many do and get themselves into trouble when it turns out it's not the system itself, more likely the abuse of it (and I mean that tongue in cheek)

 

MMS

[MightyMouse 12]

I respectfully disagree.

 

If you have a trading system/style that can be attached to limitless number of charts I don't think you can say that you should take every set-up. Nor do I feel a system/strategy has to always be responsible for also having you trade the ideal number of positions.

 

If it works, and is effective across dozens/hundreds of charts over time than as traders it is our responsibility to trade it responsibly - meaning using the correct leverage, using the correct number of pair and not over trading. I think this was a case where someone had over-used the system they were following. Which I think many do and get themselves into trouble when it turns out it's not the system itself, more likely the abuse of it (and I mean that tongue in cheek)

 

MMS

 

MMS,

 

Disagreement is good.

 

My point regarding the above is that if during the back test period trades where taken that resulted in the system being over leveraged and those over leveraged trades contributed to the positive expectation of the system, then if you want to trade the system, you have to expect to get over leveraged.

 

Whatever you do to generate the edge in the back test, you should do exactly the same in real time to gain that same edge if you are of the mindset that you can trade mechanically. If that means over leveraging then, then you have to over leverage, if it means trading without a stop, then you have to trade without a stop. You can't data mine and expect to duplicate the same results or make them better.

 

If he didn't want to get into a situation where he had 10 times the risk in 10 correlated positions, why did he? Is it the systems fault or his fault?

 

If you are running an EA on 10 currencies at the same time, you have to expect that at some point they are all going to have some bullish or bearish reaction to the, say, US dollar, and a system will generate a signal that can end up being wrong and you will pay with 10 times the hide.

 

 

MM

[dollartrader 10]

At first I found your message very disturbing since I am a new member to the SST. I was afraid, like you, I was duped. After giving it some thought I find your posting very irresponsible.

The SST has only been on the market since August 2010. So assuming you were one of the first to purchase the system and did your 2 months of backtesting that would put you into mid October before you could have possibly started trading. You must have taken way too many trades in 2 1/2 months to blow through half your account. Also, with any system if you're talking about having 70% winners that would basically mean 8 winning months and 4 losing months. With any trading method you have to expect draw down periods. November has only 2 1/2 weeks of trading with the sst if you consider many traders stay out of the market a few days before the first Friday of the month and Thanksgiving week. If you traded then you did not have the volatility needed for the system to work properly. December is a month that historically has choppy price action. If I'm looking at a years period and know the odds are I'll have 4 losing months I would say you just started your trading during 2 of them and I would expect 2 more during the summer. I just started using the sst live this week and by no means am I off to a blazing start. But I will give the system more than 2 months before blasting it in a public forum. If you can not stomach draw down periods than perhaps you are in the wrong line of work.

[MadMarketScientist 11]

Dollartrader,

This is why most traders fail. They simply freak out at the first sign of anything negative. The expectations of perfection, and the moment that reality presents a different picture they crumble.

 

Not wanting to be harsh but here's the reality. You can put 10 people in a room, teach them a quality system and I guarantee you at least 8 will still fail and blame the system, the broker, their neighbor, the dog, the cat, whatever. It's amazing how people find a way to fail especially when it comes to trading.

 

The parameters mentioned on the system sound fine -- get realistic, trade it responsibly, follow the rules - sounds like you'll be fine. Don't be one of the panicky 8 out of 10.

 

MMS

[MightyMouse 12]

Dollartrader,

This is why most traders fail. They simply freak out at the first sign of anything negative. The expectations of perfection, and the moment that reality presents a different picture they crumble.

 

Not wanting to be harsh but here's the reality. You can put 10 people in a room, teach them a quality system and I guarantee you at least 8 will still fail and blame the system, the broker, their neighbor, the dog, the cat, whatever. It's amazing how people find a way to fail especially when it comes to trading.

 

The parameters mentioned on the system sound fine -- get realistic, trade it responsibly, follow the rules - sounds like you'll be fine. Don't be one of the panicky 8 out of 10.

 

MMS

 

It's delusional for a trader to blame his system, broker, neighbor, dog or cat when deep down he knows that only his wife is to blame.

[MadMarketScientist 11]

MightyMouse,

 

Hilarious. Well done.

[PhilBell 10]

At first I found your message very disturbing since I am a new member to the SST. I was afraid, like you, I was duped. After giving it some thought I find your posting very irresponsible................ But I will give the system more than 2 months before blasting it in a public forum. If you can not stomach draw down periods than perhaps you are in the wrong line of work.

 

 

Dollartrader :

 

I think your "blasting" comment is a bit harsh. A more charitable view of the original post is that it was posted by someone believes SST gives an edge, was carried away by that belief and screwed up, and is trying to help by publicly admitting the screw up as a warning to others who might make the same mistake? bharding seems to still believe in the SST method, and is now working to recover from their over-enthusiasm?

 

Phil Bell

[razor99 10]

Gotta side with Mr MMS on this one. Of course I can't vouch for the SST (its a trend follower I believe), but if I am playing the CL and ES with 2% risk (even with a significant edge)on each that may be okay, but if I add NQ, RUT, YM and some others at the same time, a bad chop spell will surely cripple me.

 

razor

[Tiobingo 10]

I thought I'd give a warning based on my own experience using the new hydraulic nail gun I got for christmas. This thing really flies. I could build a new fence in my back yard 10 times faster than swinging a hammer. And, no more painful purple finger nails. In fact, no more finger nails at all. I have blown off 5 of my ten fingers in no time at all. And I still don't have a fence. Guess I should have read the rules more carefully, taken the responsibility to get better trained, and come up with a plan that didn't have my fingers as part of it. What a lousy nail gun.

[tjnoon 10]

Ha ha! Lol.. Very funny Tio. But all jokes aside, I think you make two very important points. Rules! What about the rules? A trade system is only as good as the rules that go with it. Bharding talked about sticking to his rules but it appears the rules were drastically flawed. Also, taking responsibility for one's own trade decisions. I like to blame my wife too, but I always end up losing worse when I do that. She's always right!

 

SST stands for Seven Summits Trader. The reason we chose that name was to remind traders of the Seven Keys to Successful Trading. It appears to me that bharding forgot about or neglected to pay attention to 3 critical 'summits' or keys; Tradeplans, Capital Preservation and Total Immersion Training (and please realize that I say this with complete respect and empathy with what he experienced and only mean this to be constructive). But we talk about key level adjustments, standing down for news events, dynamic goal setting that allows you to take what the market will give you, NOT what you impose on the market -- we call it, the Power of Quitting and believe me, there IS tremendous power in quitting at the right time each session, when to trade and more importantly, when not to trade, etc. These things are also part of the SST.

 

Bharding mentions that not one coach explained to him the need to trade a small number of pairs. I think it is up to the trader to seek out and get the total immersion training that is needed. We do our best to make it available with a live traderoom, active owner's club, video walkthrus and recaps, published tradeplans with tight and concise rules, free informational webinars, etc. We have often talked about correlation in markets and even held a free informational webinar specific to that very topic. I think you would be far better off to actually take responsibility for your own trade decisions rather then try to blame the dog, wife, Netpicks coaches, etc.. Again, I say this constructively in an attempt to help you become a better trader. In the end, whether we like it or not, we wind up taking responsibility anyways as reflected in the balances of our own trade accounts.

 

A few questions came to mind when I read your post. What timeframes were you trading (what charts)? WHY are you trading for 7 straight hours (5 to midnight)? Netpicks coaches always talk about 'less is more.' You mentioned 2 months of backtesting. What did you backtest for 2 months? ALL the markets you traded? Did you actually put in your time to do your 25 consecutive mistake free trades on each in a live sim accnt -- as pounded by all the NP coaches AND as suggested in the Quick Start guide that came with the SST training materials? Did you start over again at trade zero when you made a mistake on say, trade number 23? (I mean, not even a super human could trade 7 straight hours a day on ten markets without making mistakes which incidentally, would really hurt one's trade results, at no fault to the system.) This is critical to PROVE you can actually trade your tradeplan according to its rules. It helps reinforce your knowledge of the system (what if you were unknowingly making mistakes? Yikes that would lead to a disastrous end result!) while also putting your tradeplan to the test to see if the stats continue to hold up while you practice actually 'executing' your trades in real time. By the way, did you actually produce a document, a written out 'official' tradeplan? If so, you can now go back and identify the problems with it and improve it. If not, then you really don't have a tradeplan at all. At least, not one that you can hold accountable.

 

You also mentioned your messy spreadsheet. As an NP coach myself (and a musician), I ALWAYS talk about practicing how you intend to play. Practice hard, play hard. Practice 'messy,' play 'messy.' We have a tool called the UTA which when used properly, would never allow you to practice messy. Ironically, that is what this sponsored forum began as. Are you using the UTA? Bad habits are hard to break so one is better off developing 'best practice' habits from square one.

 

I like to compare trading to piloting an airplane. If you don't master the instruments, rules of flight, physical ability to use all the levers and buttons, put in the necessary hours of practice time, etc. then there is a high probability that you will crash and burn. Treat your trading with the same respect OR expect to also crash and burn. As MadScientist suggested, consider it tuition, learn from the experience and hopefully what you have learned will help you get closer to becoming successful and recouping. But it begins with taking responsibility for crashing and burning on your own and NOT because of something that someone else failed to teach you. We can all learn something from bharding's experience.

Edited January 16, 2011 by tjnoon