Strategies vs. Systems (Part II)

In Part I (http://www.optionfanatic.com/2012/05/07/strategies-vs-systems-part-i/) I argued that trading strategies are optionScam.com.  A second reason for this claim is because trading strategies often assume you can predict the future.

Many option education programs teach you how to place trades to optimize the current trend of the market.  I have subscribed to two of these programs in my trading career at a cost of over $6,000 each.  One program teaches “form a market opinion and place a trade to optimize that market trend.”   The second program teaches “don’t try to predict market direction” and advises placement of non-directional “income trades” that make money if the market trades up a little, down a little, or sideways.

Although both programs spend hours teaching you how to place the “correct” trades, what actually determines profitability is whether your market expectation is correct.  Neither program spends more than a couple hours on this!  With regard to placing the trades correctly, I can save you $6,000 by listing a number of books under $30 or free web sites providing this content.  The only way to know if your process will sufficiently determine future market direction (sideways included) is to perform a valid backtest.

System development is the real work to be done and these “educational programs” teach nothing about it.

Because your market expectation may be wrong, both programs teach you to trade small to limit risk.  Trading small also limits gains, though.  The key question is whether these approaches even have positive expectancy.  This is a complicated question still up for debate and if the answer is no then at $6,000-a-pop you will be learning nothing more than how to lose all your money slower rather than faster.

Save your retirement account.  Give me a couple grand and call it good.