Our System Development Philosophy

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      Follow the Trend, Limit Your Losses

      React to Market Moves - Don't Try to Predict Them

      Only Try to Capture a Portion of the Major Market Moves

      Perform Complete Back-Testing and Provide Full Disclosure

      No -Optimization (Ever !)

      Summary of Trading System Development Criteria

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     Follow the Trend, Limit Your Losses

How often have you heard either of the two following phrases in the past: "The Trend is Your Friend" or "Limit Your Losses, Let Your Profits Run".

These maxims are at the heart of longtermtrading.com's trading philosophy. Although all of our systems use different trading philosophies, they are all similar in the above respects. Every one of our systems is designed to have you enter the market in the direction of the major trend. Entry occurs after a series of specific price movements or activities tip the markets' hands as to the likely future direction they will take. Each system we sell is different and unique, however, in that it has a fundamentally different entry technique to ensure diversification across systems. Once in the market, we allow price movement itself to tell us when a long-term reversal takes place and we try to exit the market favorably with a trailing stop. Every one of our systems also has a money management stop to limit losses and prevent a bad trade from turning into a catastrophic trade and a percent profit retention stop designed to avoid giving back all large open profits in spike markets.

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     React to Market Moves - Don't Try to Predict Them

Our trading systems are also reactive rather than predictive. By this we mean that we allow the market itself to tell us the direction it is probably going and we follow suit with our trading. Once we are in a position we allow the market to tell us when it is changing direction and then we exit the trade. We fundamentally do not predict price levels to which prices should rise or fall. It is humbling, but we have finally recognized that we don't have a clue about future price movements. From a fundamental perspective, we believe the enormous amount of information of information that is considered in determining market pricing is now easily available to the average trader…often instantly. However, the volume of this information simply overwhelms the individual trader. 

Similarly, we simply have not seen nor been able to develop any completely mechanical trading systems that can accurately predict future prices based on past history. We know the Gann and Elliot and Fibonacci theorists will take issue with this. Many have proposed that they, in fact, have developed the Holy Grail…but they just can't or won't prove it through a program of rigorous backtesting. More often than not, this is because their methods cannot be quantified sufficiently to code it into a programming language. Without the benefit of backtesting, however, their claims ring hollow.

Instead of predicting where market prices are going to go based on fundamental or technical analysis, longtermtrading.com's systems are designed to simply go where the market goes. Once the precise mechanical analytical techniques we have developed tell us a market wave is going to go up, we buy it. At that point we really don't have a clue whether the trade is going to last a week or a year. Once we are in a move, though, the greatest profits accrue in those trades that develop over a number of months. All the while we steadily protect and lock in profits by slowing tightening our trailing protective stops. If we were wrong when we took a trade, we get out quickly to avoid having a mistake turn into a disaster.

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     Only Try to Capture a Portion of the Major Market Waves

We don't try to pick tops and bottoms. There are so many long term megamoves in the commodity markets unfolding every year that this isn't necessary. Instead, we try to grab a good chunk of every major market move knowing in advance that this will provide an excellent long term return. 

We also don't like to trade the smaller waves in a market. We like to compare our trading philosophy with that of an experienced surfer. You can always tell the new surfers from the old hands at any surf alley. The newcomers are always excited and try to catch every little wave that comes along. Most don't pan out but they'll ride them in anyhow. But they then have to repaddle back out and try to catch another one. After a few hours of this, their strength is gone and they head for the shore. 

In contrast, the experienced surfers are patient and willing to wait for just the right wave. They know the frequency and timing of the good waves changes. If the good waves are not here right now, they'll come back…they always do. The good surfers just patiently sit on their boards bobbing and waiting outside the surf line. When the good waves invariably do come in, their strength has been conserved and they are able to catch the biggest and fastest waves. And often they will have them all to themselves because all the inexperienced surfers have burned out and gone in to land. If the experienced surfers grab a wave, though, and it doesn't develop the way they expected, they will bail out immediately so as not to have to paddle all the way back out to catch the next wave.

We like to trade like experienced surfers. With most of our systems we wait on the sidelines most of the time - conserving capital (our strength) and patiently wait for the megaprice waves to roll in . We aren't in any hurry. If there is not a wave right now we'll just sit and wait until they come back. We know they will and that our wait will be worth it. Once the price waves start up again and we catch one, we ride it for all its worth. If it breaks prematurely and the wave is suddenly gone, we bail out without risking too much capital strength enabling us to wait for the next big wave to come along. We know that all the waves we get on will not workout and, like experienced surfers, we are prepared to quickly bail out of those waves with a small loss instead of hanging on and risking a big wipeout.

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     Perform Complete Back-Testing & Provide Full Disclosure

We never cease to be amazed at the number of commodity trading systems that are foisted on the public each year by supposed icons in the industry that have no verifiable, published track record. Either the rules are not fully disclosed sufficient to mechanically backtest the system and compare it to the published track record or there is no track record at all!…just vague promises of untold future riches based on how one or two traders have supposedly done using the system. Even if there is a track record published, it is often scanty and incomplete and completely insufficient to allow a reasonably quantitative trader to ascertain the likelihood of success if they should purchase the system and start to trade it. We abhor such practices that are designed solely to separate a trader from their money. 

If you have been trading for any appreciable period of time, you yourself have undoubtedly been enticed to purchase some highly promoted and touted trading tools or systems based on such glowing promotions. If you’re like 99% of traders, you found that these tools and systems invariably failed in real time trading to even come close to living up to the performance promised by the system developer. 

In contrast, every single system available from longtermtrading.com  has been extensively back-tested on the same diversified portfolio of 21 major markets going back to 1970 - over 550 years worth of market data! And we make this information available to every person before they buy a system from us. Full disclosure makes you a more informed customer and a more informed customer is a better customer. We never make statements about historical performance of our system that we cannot completely back up with cold, hard, completely objective facts - see for yourself.

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     ^{No Optimization (Ever !)}   

Even more frustrating is purchasing a system with a published track record only to find that it too fails in the real world. Why does this occur again and again? In virtually every case the common thread of failure is that the particular tool or system was optimized to produce a spectacular track record over only a specific limited time period or for only for one or two commodities. There have been innumerable articles written about the dangers of trading optimized systems yet the proliferation of such optimized systems being offered to an unsuspecting public is rampant. Many unscrupulous system developers know that a published track record (however flawed through optimization) has a irresistible lure to an investor who is blinded by hope and greed and is desperately seeking to find that one elusive system that actually works. Eventually, of course, almost all such optimized systems fail in real time - often catastrophically. (Yes, we too have succumbed to the lure and have a drawer full of $2,000 - $3,000 Holy Grail systems that crashed and burned on us. We put our own personal market losses on trading these systems over the years at over $30,000). 

In fairness, though, there are a small handful of honest vendors that accurately disclose to potential purchasers that their systems have been optimized in one way or another. There are fewer still that provide, as we do, a suite of trading systems with fully disclosed, completely non-optimized system results that have been tested and have a published, verifiable track record over an extended time frame of 25 – 30 years with the exact same large basket of 21 diversified major commodities. 

Our commodity selection criteria are simple but very stringent. Within each of the 8 main groups of commodities, the 3 largest commodities in terms of daily contract volume are selected providing that they have an average daily trailing volume of at least 5,000 contracts per day and have traded for at least 10 years. This is designed to represent a real world, tradable portfolio with broad diversification in only the most liquid markets. Every single system we develop is tested on exactly the same stringently selected set of commodities – no exceptions!! 

Following is our "Standardized" 21-commodity testing portfolio:

Group                       Commodities

Interest Rates           Treasury Bonds, 10 Year Treasury Notes, Eurodollars

Energy                      Crude Oil, Reformulated Blendstock Gasoline (RBOB), Natural Gas

Currencies                Japanese Yen, Euro FX Currency, British Pound

Metals                       Gold, Silver, Copper

Grains                       Soybeans, Corn, Wheat

Fibers                        Cotton

Meats                        Live Cattle, Lean Hogs

Tropicals                   Coffee, Cocoa, Sugar

Every single one of the systems offered by longtermtrading.com meet every single one of these stringent portfolio selection criteria without fail. No other vendor can honestly make this statement.. We are firmly committed to providing our clients with the most thoroughly tested and robust long term systems available today. 

Of course, our open platform approach allows you to optimize every single parameter in every one of our systems. Or you can trade them on other less liquid commodities if you choose and the results are equally spectacular in many cases. However, we will not report results from these optimization exercises and report them to prospective purchasers as representative of expected system performance.

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     Summary of Trading System Development Criteria

Summarizing the criteria for inclusion into our suite of trading systems, any system sold by longtermtrading.com must meet the following rigid standards:

·   Simple – Every system must be based on simple, time-proven market principles with a single entry method, a single trailing stop exit method exit and/or a percent profit retention stop, and a money management exit.

·   100% Mechanical – Every system must be without any subjective input and be able to be programmed into TradeStation Easy Language.

·   Broadly Profitable – Every system must be broadly profitable across the entire spectrum of commodities using the same parameters for both time frames. All orders must be placed as open orders before the market opens each Monday morning.

·   Completely Non-Optimized System Parameters - Every system must be completely nonoptimized – all commodities must use exactly the same parameters. All parameters must be a Fibonacci number or a 10^x multiple of a Fibonacci number. Each system must use the same market adaptive technology in the same manner for all parameters.

·   Standardized Testing Portfolio – Every system track record is generated by back testing using the same standardized diversified portfolio of back-adjusted continuous contracts in the most liquid commodities. Every commodity in the portfolio is among the 3 most actively traded in each commodity group (i.e. 3 most actively traded grains, 3 most actively traded metals, etc.). Every commodity in the portfolio must also have an average total daily volume greater than 5,000 contracts with at least a 10 year trading history. The testing period includes the entire length of the contract life or going back to 1/1/1970 – whichever is later. All back adjusted, continuous contracts are created in an identical manner by rolling the contracts and back adjusting on the day that the new contract volume or open interest exceeded that of the old contract.

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