Ask Colin

What is your view on system testing?

I think you must now be feeling like Thomas Edison, who tested thousands of ideas before he found the right one. He said each one took him one step closer to his answer. System testing is like this. It is the nature of the game. I am not a system trader, so I do not bother with it. I have a belief, based on experience, that simple systems do not work. The nature of the problem is just too complex. Also, it is a matter of personality, attitudes and beliefs - I find that I need to have some discretion and use judgement to try to get an edge in the market. However, that said, there are many ways to make money in the markets and systems trading is only one. If it is what fascinates you, go for it. However, unless you have a passion for it, you will not stick it through. So, then find something that really fascinates you. If there is nothing, find a good fund manager and find your niche somewhere else in life.

Testing in general, though is very important. It is only through testing that you develop faith in your method, whatever it is. I have spent countless hours constructing charts by hand from newspaper files in the years before we had computers, testing and refining my methods. To some extent this process is never finished. However, you need to get to the stage where you can act on a chart without hesitation, before you use real money in the market. It does not have to be system testing, but you have to do it. Dan Gramza told a friend of mine when he was last in Sydney that he often spends up to eighteen hours testing a single idea before he would even think of using it. That is what successful professionals do.