Why Would Someone Sell a Highly Profitable System? | Forex Factory

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Why Would Someone Sell a Highly Profitable System?

  • #1
  • First Post: Jul 4, 2014 5:38am Jul 4, 2014 5:38am
Realistically, you have to ask yourself why someone would sell you a trading system that they claim consistently makes over 100 percent every year. If the system is so great, why would you let the whole world use it?

There are several explanations to those questions. First of all, the trading system might be a piece of garbage and the developer is looking for some suckers to buy it. Or, sometimes system developers will only sell a limited quantity of their systems.

One of the best explanations is that a forex trader could give away the holy grail of systems to the world and it wouldn’t have much of an impact on his success. The reasoning is that most people won’t have the discipline or patience to follow the rules exactly and they will likely have dismal results and toss they system.

To Buy or Not to Buy a Trading System?

I would be very careful buying any trading system. Certainly, I would not buy any system that is hyping unbelievable profits of “100% returns every month!” Also, adjust your expectations much lower than what the system claims – returns are never better than the claims.
  • #2
  • Jul 4, 2014 6:26am Jul 4, 2014 6:26am
Quoting PoundTrader
Realistically, you have to ask yourself why someone would sell you a trading system that they claim consistently makes over 100 percent every year. If the system is so great, why would you let the whole world use it? There are several explanations to those questions. First of all, the trading system might be a piece of garbage and the developer is looking for some suckers to buy it. Or, sometimes system developers will only sell a limited quantity of their systems. One of the best explanations is that a forex trader could give...
this. the ones that actually work CONSISTENTLY and are automated with EA's are NOT going to be put out there.
  • #3
  • Jul 4, 2014 9:29am Jul 4, 2014 9:29am
Quoting justin7
{quote} this. the ones that actually work CONSISTENTLY and are automated with EA's are NOT going to be put out there.
i agree
  • #4
  • Jul 4, 2014 10:43am Jul 4, 2014 10:43am
Quoting PoundTrader
{quote}i agree
that would be the reason that things are released. because they can't be counted on and aren't consistent
  • #5
  • Jul 4, 2014 2:14pm Jul 4, 2014 2:14pm
Why do you think a system will (eventually) stop working in the first place?
"See the ball. Hit the ball."
  • #6
  • Jul 4, 2014 3:04pm Jul 4, 2014 3:04pm
Quoting now0pen
Why do you think a system will (eventually) stop working in the first place?
they don't stop working they just were never good to begin with
  • #7
  • Jul 4, 2014 3:11pm Jul 4, 2014 3:11pm
1. Yes, correct. REALLY good systems, especially EA's won't be sold. Save your money.

2. Who said that ALL systems/EA's fail...? Yes, most of them do, the same way as 95% of retail traders will fail or get nowhere. But there is always that 5%...

And why? Markets show thousands of faces and patterns AND anything can happen at anytime. Mostly randomly. There are very few, rare and small ineffiiciencies which can be exploited as an Edge. Finding those inefficiencies and EDGES is the key. Following indicators won't give an edge, especially commerical ones don't.

If you want to read some really interesting and serious statistical analysis of ALL MAJOR INDICATORS, have a look at this thread: http://www.forexfactory.com/showthread.php?t=487974
  • #8
  • Jul 4, 2014 3:18pm Jul 4, 2014 3:18pm
Quoting PoundTrader
Realistically, you have to ask yourself why someone would sell you a trading system that they claim consistently makes over 100 percent every year. If the system is so great, why would you let the whole world use it? There are several explanations to those questions. First of all, the trading system might be a piece of garbage and the developer is looking for some suckers to buy it. Or, sometimes system developers will only sell a limited quantity of their systems. One of the best explanations is that a forex trader could give away the holy...
Or the system developer him or herself hasn't the discipline to trade the method that he/she thinks is very profitable, so sells it to others to at least make money that way.

I've thought of doing this myself hundreds of times
Come with me if you want to live....
  • #9
  • Jul 4, 2014 3:21pm Jul 4, 2014 3:21pm
Quoting justin7
{quote} they don't stop working they just were never good to begin with
I once met this trader in a local meetup. He says that he is part of a group that trade forex using EAs. He was the group's computer scientist. They also had a market analyst and a financier. He claims that they used to have this EA that, after after months of backtesting and finetuning the system, grew a $300 account to $30,000 in two months--and then the system stopped working. That, once they have a winning system, they'd run them on several currency pairs altogether, then use leverage to increase profits. On a roll, they would risk as much as 60% of their bankroll on every trade.

I couldn't get him to give me details about the system though, and his group doesn't intend to sell any of their systems, working or not.

I am teaching myself computer programming, and used to play online poker. There's a group of programmers that create poker bots that make money. If this were possible with online poker, shouldn't it be possible to create an algorithm that can trade the forex markets consistently well?
"See the ball. Hit the ball."
  • #10
  • Edited 3:53pm Jul 4, 2014 3:32pm | Edited 3:53pm
Again, yes. It is possible to create constantly profitable algorithms/EAs. They do exist (see one of them below). But they will never be for sale...

I guess, when you find YOURS, you won't be selling it on a website...

Also, you don't need to become a programmer really. It is enough if you can develop algorithms and experienced programmers can build EAs from them for reasonable price. It saves a LOT OF time which can be spent by R&D and living life.
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  • #11
  • Jul 4, 2014 3:38pm Jul 4, 2014 3:38pm
Quoting now0pen
{quote} I once met this trader in a local meetup. He says that he is part of a group that trade forex using EAs. He was the group's computer scientist. They also had a market analyst and a financier. He claims that they used to have this EA that, after after months of backtesting and finetuning the system, grew a $300 account to $30,000 in two months--and then the system stopped working. That, once they have a winning system, they'd run them on several currency pairs altogether, then use leverage to increase profits. On a roll, they would risk as...
of course they won't.

but yeah if a system works so well why would people sell it instead of using it over and over to become millionaires? because the commercial ones are inconsistent and not self working that's why. the EA's that are created and self sustaining and atleast consistent (not necessarily even 100%, but atleast maximum risk), are not going to just be put on a forum and say here you go put this on your chart with these settings and let it run.
  • #12
  • Jul 4, 2014 3:41pm Jul 4, 2014 3:41pm
Quoting justin7
{quote} of course they won't. but yeah if a system works so well why would people sell it instead of using it over and over to become millionaires? because the commercial ones are inconsistent and not self working that's why. the EA's that are created and self sustaining and atleast consistent (not necessarily even 100%, but atleast maximum risk), are not going to just be put on a forum and say here you go put this on your chart with these settings and let it run.
Well summarized.

So do yourself a favor, stop hunting for commercial startegies/EAs. FIND YOURS! It will be free for you and last forever...
  • #13
  • Jul 4, 2014 7:42pm Jul 4, 2014 7:42pm
Quoting Ill-b-back
{quote} Or the system developer him or herself hasn't the discipline to trade the method that he/she thinks is very profitable, so sells it to others to at least make money that way. I've thought of doing this myself hundreds of times
  • #14
  • Edited Jul 7, 2014 12:36am Jul 6, 2014 9:11pm | Edited Jul 7, 2014 12:36am
The Autotrade system on myfxbook isn't too bad for someone contemplating selling a profitable system. Traders subscribe to your system and their trades are linked with yours.

For this you can pick up 0.5 pips per winning trade per subscriber. Apparently there are 90,000 members so even if you just picked up 25 subsribers and were a high frequency trader that could be hundreds of pips per week.
  • #15
  • Edited Jul 15, 2014 12:15am Jul 14, 2014 4:58pm | Edited Jul 15, 2014 12:15am
Quoting PoundTrader
Realistically, you have to ask yourself why someone would sell you a trading system that they claim consistently makes over 100 percent every year. If the system is so great, why would you let the whole world use it?
Good question.

The only answer I can think of is diversification: two streams of income are better than one. And if you share a profitable system, it's unlikely that enough buyers will have the knowledge or the personal qualities necessary to trade it successfully, to the point where they start eating up the liquidity that you require, given that you will continue to trade yourself. In other words, you're unlikely to generate too much competition for yourself.

I suppose it's possible that somebody could have an excellent system but be unable to trade it due to personal reasons (lack of nerve; insufficient starting capital; etc). But that's unlikely.

Also, keep in mind that forex is completely scalable, e.g. if it's possible to make 30% per year, then it's possible to use the same system to make up to 900% per year, if you can handle the increased drawdown (the numbers are explained here). That's why pros talk about risk-adjusted-return, while amateurs are interested only in returns.

But having said that, I'd still be wary of systems that make returns that seem "too good to be true", even those that are third-party verified (e.g. trade explorer, myfxbook), because they're likely to be using unsustainable MM (e.g. no strategy to exit losses; averaging down indiscriminately; hedging; martingale variants, etc). Here and here are two recent examples (the first generated consistent income for more than 1900 trades before imploding suddenly; the second maintained a 92% win rate before likewise imploding).

Of course none of this changes the fact that the vast majority of vended systems are snake oil; just as the vast majority of free systems touted on trading forums eventually fail likewise.
  • #16
  • Jul 14, 2014 8:05pm Jul 14, 2014 8:05pm
The reality is, this could be a legitimate product if the programmer just doesn't want to trade. It's not too crazy to think that some people don't want to trade and would rather program / create products / whatever. Trading isn't exactly fun, even if you've developed a EA that people would perceive as "easy money".

Trading isn't for everyone, no matter the payoff.
  • #17
  • Jul 16, 2014 6:10am Jul 16, 2014 6:10am
Quoting PoundTrader
Realistically, you have to ask yourself why someone would sell you a trading system that they claim consistently makes over 100 percent every year. If the system is so great, why would you let the whole world use it? There are several explanations to those questions. First of all, the trading system might be a piece of garbage and the developer is looking for some suckers to buy it. Or, sometimes system developers will only sell a limited quantity of their systems. One of the best explanations is that a forex trader could give away the holy grail...
Ok, so selling a crappy EA do some dumb schmucks who cant tell a carrot from an axe, thats a normal every day scam routine so of course halfwits and greedy people will do that. Selling a limited quantity seems like a lie, just to make it more "special" in the eyes of the paying schmucks.

A few years ago when someone wanted to give me money to trade this is what i said: No. Because people want guarantees. They want clear statistics. They want certainty. Like someone who wants a mechanical system that does this or that to this or that level of certainty.

A good proven EA that doubles equity within a year. Let say someone had that. If that person wants say 10 million $ and has say 2.5 million $, then no its probably not so smart to sell that system, its better to just wait two years and all is done. But on the other hand say that someone who has a system like that has only 10.000 $ and want 10 million $. It would take 10 years to get to 10 million $ that way. And that someone might think that 10 years is too long. Then maybe that person sell that system for 10 million $. But selling information for 10 million $ is a VERY tricky thing. How can you be certain your buyer/adversary wont just steal that information instead? Its probably cheaper, and people who are ready to buy information for 10 million $, are probably ready to pay 100.000 $ to someone who can steal it instead. If it fails, maybe pay 300.000 $ to the next "thief", and that 400.000 $ is a lot less then 10 million $.

All this is of course just theory Im only thinking out aloud.
My signature is: "Classified".
  • #18
  • Jul 16, 2014 11:22am Jul 16, 2014 11:22am
Hi, interesting question.
Let me introduce myself first, I'm a computer guy, a techie, living in Spain. With a lot of years of experience in programming and Internet.

A couple years ago I was approached by a some traders, they wanted to enter the 'automated style' and I (out of curiosity mostly) accepted to help them.

I've been browsing the forum every now and then but this thread was interesting enough for me to register and add my first post!

I've been working a couple years now on trading systems, algos, platforms... and while I have to confess that getting consistently a profit is much harder than I initially expected it (seems) I'm on the right track now.

So to answer the initial question let's assume I had 3 or 4 systems that are really good EAs. A good EA for me, to summarize,
1) Is profitable in the long term (one year)
2) Is profitable in the medium term (one month)
3) Operates in many symbols (currency, metals and indexes), with a single configuration running only one instance (in a single chart)
4) Operates a lot, at least 4 operations per day.
5) Frequent stops, if someone shows you a graph of profit with time without loses he is obviously cheating. The more stops the better in order to have statistically relevant data.
6) Max drawdown (or better max drop from peak of previous equity) has to be controlled, let's say it has to be less than the expected monthly profit.
7) All ops have security TP & SL, to minimize the disasters
8) If some kind of recovery is done to an operation (compensating, edging, martingale) it will always be limited in the number of additional orders and volume.

Assuming that there it is a good EA, why the hell would I sell it??

In my case there are several reasons, I'll give you 5:
- first of all the BUSINESS concept: I do software, I sell software. Change the business model is not easy.
- 2nd, RISK. Even is the EA is well behaved, and performs, and has track record of several months (sorry, no more, this is new) who is to be sure market conditions will not change in a way we can not expect?
using the EA to make a living is a possibility BUT it's better to diversify.
- 3rd, MONEY, assuming, in the best case scenario, EA can do a 10% monthly consistently you need a respectable amount of money to make a living of it.
- 4th, TECHNOLOGY, in my case only, the EA is not simple. It needs a couple of 'demo' accounts running with massive bidirectional multi-symbol operations,
those acccounts send info to a web platform where the info is stored in a database a several crunching-number algos generate the signals. Maintaining the infrastructure has monthly costs, alleviated because I do have the servers and databases and the manpower for other non-trading projects but I need a source of revenue to pay for that infrastructure.
- 5th LEGAL, in many countries trading with your money (or with others' money!) has legal and tax implications. Selling software is an easy thing instead.

So, now I'm considering selling an EA. And browsing Internet to see how people sells EAs and which type of EAs are sold I'm considering a radical approach:
* The EA will be documented, explaining how it works and not hiding the fact that it connects to Internet to several websites to gather signals and news and such.
* The EA will be free to download and use in any account, only at the end of the month AND ONLY IF THE EA HAS BEHAVED CORRECTLY (net profit>5%, max DD<10% during the month)
a payment of, say, 30$ will be requested.
* Accounts having used the EA during the month (when the EA has performed as expected) and not paying the fee will not receive the signals.

That's my case. Those my reasons.

tacticat.
  • #19
  • Jul 16, 2014 3:40pm Jul 16, 2014 3:40pm
Quoting hanover
{quote} Also, keep in mind that forex is completely scalable, e.g. if it's possible to make 30% per year, then it's possible to use the same system to make up to 900% per year, if you can handle the increased drawdown (the numbers are explained here). That's why pros talk about risk-adjusted-return, while amateurs are interested only in returns.
Hi Hanover, although its possible to simply multiply up, the likelihood of margin call is similarly multiplied. Multiplying risk x 2 increases the likelihood of margin calls more than 2 (depending on the probabilities of the system used), and reduces the 'lifetime' of the system by considerably more.
  • #20
  • Jul 16, 2014 5:12pm Jul 16, 2014 5:12pm
Quoting goldenmember
{quote} Hi Hanover, although its possible to simply multiply up, the likelihood of margin call is similarly multiplied. Multiplying risk x 2 increases the likelihood of margin calls more than 2 (depending on the probabilities of the system used), and reduces the 'lifetime' of the system by considerably more.
Absolutely correct: as trade sizes increase, the risk of ruin grows exponentially. Preservation of capital should always be the first priority of every trader.

The point which I was trying to make (and probably didn't explain myself very well) is that the difference between (say) 5% per month and 20% per month is not necessarily the fact that one trader's expertise is 4 times as good as the other's. Return is also a function of other factors like the risk model that's being employed, trading frequency, and money (account) management.
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