Readers reviews of BREAKING THE BLACK BOX

Daryl Guppy This extract copyright 2000.

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Thinking of buying a $15,000 black box trading program? Buy this book first. It could save you thousands of dollars. This is no idle claim as Martin Pring shows you how to get behind many of the methods used by these systems. Many ‘secrets’ are easily programmed in Metastock, which for an all up cost of a few hundred dollars, is an effective and cheaper solution than the black box system.

All successful traders apply a systematic trading approach to the task of trading the market. The elements of this approach usually include a series of mechanical trading rules. They may be as simple as buying a stock when two moving averages cross over and selling it when confirmation is received from a rate of change indicator. There are countless combinations which will deliver trading profits and many are unnecessarily complex.

Complexity is sometimes a barrier to success and Pring demonstrates convincingly how systems constructed on sound basics can deliver steady and consistent profits. He explains how to develop a system that performs consistently well over a wide set of markets and stocks and for a long time. This objective is to develop a robust system to help traders develop a professional approach to market survival.

The bull market seems to breed many black box systems, all offering astounding profits for just a few thousand dollars down.

A black box trading system usually relies on a series of ‘secret’ indicators, or indicator manipulations, that promise to identify winning trading opportunities. Some systems are accompanied by restrictive non-disclosure contract agreements, which is one of the reasons users are reluctant to talk about failures using these systems.

When experienced traders look at some of these black box systems they find complex systems of multiple indicators carefully optimized, or curve fitted, to match bull market conditions. Complex systems have a tendency to offer specific solutions to specific market conditions. These complex collections are less successful when the specific market condition changes, or when the general market changes from a raging bull to an extended sideways market or a seemingly never ending bear market.

All customers are unique, and all traders are unique. The systematic approach you select must match your needs and personality. If it does not then it is difficult to trade the system, and to have confidence in the ability of the system to perform.

Pring takes the reader by the hand to show the underlying principles of constructing these aspects of a trading system. He starts with the real advantages of a mechanical trading system. They include the ability to remove emotion from trading which makes it easier to apply a disciplined approach. This helps develop consistency in trading decisions and makes it easier to identify and manage risk. This is good material, clearly explained and based on sound reasoning and experience.

This is a practical book that moves smoothly from the necessary theoretical understanding to was to identify time frames, methodologies, market environments and tools for risk management. Pring shows the reader the necessary implementation steps in an easy to follow processes. Other books on the subject are less practical in comparison. Pring gives the reader processes which can be immediately and easily applied to any data base of stocks. For readers developing their first system these steps are invaluable,. For readers trying to fine tune or modify an existing trading system the information is indispensable.

Every black box trading system comes with pages of usually hypothetical results showing astronomical gains. The Australian Securities and Investments Commission warns that if results ‘look too good to be true then they probably are not true." Despite this, these back of the box results are alluring. Pring gives the reader a full tutorial on making effective use of the Metastock system tester to back test results properly.

The system tester in Metastock is an under utilized feature of the program partly because people are unsure of how to use it and even more uncertain of how to understand the results. Then he shows how to read and really understand systems results. Next time you see a set you will know how to spot the suspect returns.

This book is worth its weight in any number of black box trading systems. There are no promises of instant wealth but there are clear steps in developing systems to generate steady respectable gains on capital in current market conditions. Good traders are not infallible, but they are profitable in the long term over a series of trades.

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