Stocks & Commodities V. 24:2 (68-70): The System Behind The System by Merlin Jeffries
Tired of finding systems that worked well in the past but are deficient in predicting the future?
Back when I was a novice system developer, I would get excited by every marble-smooth equity curve I stumbled upon. Incredible backtest results in hand, I would start trading those systems with real money, only to find they were big losers in real-time. What happened?
What happened is that the systems I was finding, while
excellent at predicting the past, were deficient when it came predicting the future. This variety of trading system was almost impossible for me to distinguish from the futurepredicting kind; until, that is, I started following a process for developing my systems.
THE MEANS JUSTIFY THE END
In the world of system development, the means justify the end. We cannot judge a trading system based upon a backtest result (the end); we must instead consider how the backtest result was achieved (the means). The means, or the system behind the system, is a strategically designed process for developing trading systems, and itís a traderís main defense against being tricked into putting real money behind a hindsight-based system.