What is the difference between a trader and an investor?
Qualitatively, an investor will purchase an issue on the belief in the underlying value of the issue based on factors such as earnings or supply and demand. A trader seeks instead to profit from changes in the price of an issue without concern for the fundamental factors which motivate investor activity
Quantitatively, a trader is more likely to use such techniques as buying and selling derivatives, trading on margin (using leverage) and going short as well as long. A trader is also more inclined to enter and exit trades more frequently than an investor although this is by no means the rule.
Why trade a mechanical system?
In spite of the remarkable success of some discretionary traders, trading based on "gut feel" carries with it a number of pitfalls. All traders will inevitably experience losing periods. For the systems trader, the solution is to continue to trade the system. In the case of the discretionary trader, it's tempting to cut back too much or stop trading at all just before a recovery opportunity. At the same time, there is a temptation to engage in the opposite error, trading recklessly large positions or entering setups that would otherwise be disregarded. By trading a mechanical system where a computer is responsible for all decisions, including entry, exit, position size and diversification, these pitfalls of discretionary trading are avoided.
How do you deal with risk?
Risk in trading is a cost of doing business. It can also become a serious problem if a series of losses has the power to keep a trader from continuing to trade. As a countermeasure against this undesirable outcome, no trade should ever be large enough to cause more than a small fraction of total trading equity to be lost. For more information, see our article on money management.
I have a uniquely high (or low) tolerance for risk. Can I use your system?
That's entirely up to you. For some, any trading is too risky to be appropriate for their financial condition. For others, our risk management may be too conservative. Those who wish to trade the system with less risk might consider trading positions half the size listed in the newsletters. Those who prefer to be more aggressive might trade positions one and a half times the size in the newsletters.
What indicators do you use in your analysis?
Our system is designed to react to trend direction and volatility changes, however no conventional indicators such as moving averages, standard deviation (Bollinger) bands, and absolutely no three letter acronym indicators such as RSI or OBV are used. We have a totally unique approach to trend analysis which distinguishes our systems from other popular methods.
How has your system performed?
In backtesting, our system has done remarkably well trading in a variety of markets, far better than any of the traditional benchmarks such as the Standard and Poor indices. Because such testing always enjoys the benefit of hindsight, you will find no mention of backtest performance numbers here. Instead, we explain our approach to the markets through the articles here which illustrate how and why the system works. For those who are interested in seeing a track record, we offer our prior system alerts here.
What about drawdowns?
All systems have drawdowns, including ours. Before judging a system based on drawdowns, consider that buying a lottery ticket each day will never lose more than $365 in a year. Despite the small drawdown, it's still not a good proposition because the absolute return is negative. On the other hand, our system may have rare several month losing periods, but in terms of absolute return, it can be quite rewarding.
What are the best books to read about trading?
No books are necessary for trading success. Many very successful traders have been very profitable using methods invented entirely on their own. Also, many of the most important concerns in trading are not discussed in most books on trading. However, there are some books which do hold valuable insights which a trader can integrate into his own trading plan. Click here to view our book list.
What software is useful to a trader?
By far the most important software for a trader to have is a good accounting tool. Excel does a very good job in fulfilling this role, although it's not a requirement. For the generation of trading signals, we use a handful of data gathering, analysis and reporting tools which run on a unix machine which is on around the clock.
But aren't markets random?
If, by random, you mean unpredictable, then markets are certainly random. However, it's improper to conclude that randomness in the markets negates the potential for profitable trading. Firstly, understand that there are many types of randomness. So long as you trade with an understanding of the type of randomness at work, you can make money. For illustrative purposes, we consider the problem of profiting in a market which behaves according to the Gaussian model of randomness popular in academia. Here's the article. Note that the material in the article is not intended as a guide for trading in real markets.
Is fundamental analysis used in the iSigma approach?
No. We don't deny that fundamentals such as earnings or interest rates can affect markets. We just don't see the need to wait until the fundamentals reach the newsstand. In the best trades the system has had, the entry signal was generated well ahead of the news story about the related fundamental events.
Isn't money management (position size) more important than entry and exit timing?
Money management is the area most commonly overlooked, but nothing supercedes trade timing. If your entry and exit strategy is invalid, your money management strategy will just serve to ensure that you lose money slowly. If a system is supposed to be profitable due mostly to money management, what would happen if you took the opposite trades but with the same position size?
If the system is so effective in the market, why are you selling newsletters?
Because given the choice between the money we can make in the markets or the money we can make in the markets, plus the money from our subscribers, we prefer the combination.
Why is the system not fully disclosed?
First of all, a great deal of the system is disclosed within the site. We don't sell the exact rules for a few reasons. For one, it's unfair for anyone to ask for a lump sum of money in exchange for system rules when you'd have to spend more money to buy software to generate alerts from those rules, winding up with a bill possibly in the thousands before you even get a chance to decide whether or not you like the system. With a newsletter, you have the option to use the system only for as long as you feel it's worth the price.
Also, fully disclosed systems never seem to remain disclosed only to paying clients for very long. All of the better known systems out there (turtle, abberation, trendchannel, catscan, etc.) eventually wind up being disclosed to nonclients over newsgroups and message boards. While we don't condone the practice of compromising intellectual property, it's worth noting that with these other systems there is no way to share a little bit with a friend. With our newsletter, we don't mind if you share a few days' emails with a friend.
What about system pricing?
We charge $25 US per month, per newsletter. This amounts to $300 per year, far less than the profits from just a few good months. Compared to other systems and newsletters, we believe our pricing is quite competitive. Also, there's no commitment required. If you decide that you're no longer interested, just contact us using one of the contact links and we'll unsubscribe you, no questions asked.
What is the meaning of the name iSigma?
The "i" stands for infinite. Sigma is the Greek letter used to represent the second moment of a distribution (equivalent to standard deviation). Our trading method is based in large part on the market model developed principally by Benoit Mandelbrot who initially put forth the idea that price changes have an infinite second moment. For a better understanding of why this is important to the effectiveness of our method, see this article.
Is there any independent source of information that reviews the newsletters?
We are not aware of any outside reviewer covering us at this time. Partly, this is because our public presence is relatively new. Also, the groups that track newsletters seem primarily interested in tracking newsletters composed of vague comments about the economy as a whole, (e.g., "The market seems bearish based on the President's last speech.") In order to get reviewed, we'd have to reduce the amount of information (and quality) in our newsletters in order to have a product that reviewing services know how to deal with.
If anyone does claim to be providing an objective review of our newsletters, beware. We don't currently have any reviewing services in our subscriber list, so anything claiming to be a review of us is produced without access to our newsletters.
I just subscribed to one of the newsletters and there hasn't been any activity for days. What's wrong?
This can happen from time to time. The system algorithms are built to respond to market conditions. If the relevant conditions don't dictate to do something different, the system will stand pat. Other times, the newsletters will contain a great deal of activity.
