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OPENING POSITION

February 2001 

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A while back -- almost a decade ago -- I was asked to take part in a public forum about the future of trading. I was asked if I thought the then-upcoming introduction of the CD-ROM would make a significant difference to traders. Just to show you my mindset, I couldn't think of a single way that such a tool would help traders think creatively about new technical indicators or new ways of analysis. So in one of my worst calls ever, I said no, I didn't think it would have much of an impact.

In contrast, my fellow panelists were brighter (and better marketers) than I. They enthusiastically endorsed the whole idea. They knew that huge amounts of data could be loaded on CDs along with courses, software, documentation -- you name it. Boy, did I miss the point!

However, the need for creative thinking is especially evident in technical analysis these days; that's clear from my viewpoint as Editor of STOCKS & COMMODITIES. The number of trading systems submitted in the form of articles has gone way down in the last several years, years in which the number of traders in general has skyrocketed. The number of black-box systems being peddled has also skyrocketed, so my guess is that budding system developers have discovered that virtually anything can be sold over the Internet, just as it once was by direct mail.

In addition, as far as I'm concerned, the golden age of indicators has faded. Witness the fact that we don't receive nearly as many of these as we once did, and this is happening at a time when there are literally thousands of new minds approaching the subject. Maybe they are just getting up to speed; it's a steady track from a chart, to a trendline, to an indicator, to a trading system, but it does take some time to make that journey. Now that equity markets have stopped rising inexorably, trading is becoming thoughtful activity rather than reflex.

Since 1982, the year S&C began publication, we have published hundreds of articles about trading systems, believing that a rigorous approach was much better than seat-of-the-pants trading, especially for the novice. Many more articles have dealt with the ins and outs of trading systematically. Sometime S&C contributor Greg Morris even once went to the trouble of compiling all the systems into code for MetaStock, Omega Research, and Window On Wall Street software, so fertile was the ground. He'd have a much harder time today!

Undaunted, I challenge each reader to come up with a fresh and successful trading system by December 2001. We'll publish the results in the March 2002 issue, an issue that we will be devoting to trading systems. The work can be done by hand or with software, preferably using one of the packages regularly featured in Traders' Tips so we can verify results. The tradable can be anything you choose, though systems that work well on a variety of trading vehicles will be highlighted. Nor do I restrict technique; any replicable procedure from chart patterns to probability scans is fine with me.

I especially hope this idea appeals to our newer readers. It's fine to play with charts and existing indicators, but the fun of technical analysis is taking your own idea, implementing it rigorously, and then testing it on old and current data. There's the frustration of failure, of course, but also that taste of glory when things start working. Give it a try. You'll be disappointed sometimes, but then there will be those times that victory will be yours -- and that will make it all worthwhile.