Does copying someone else's trading system improve your chances of success?

Question

I think indepenent, discretionary traders who just follow their own system are barking up the wrong tree. Say you know someone that runs a hedge fund or you know a trader with a great track record. You're bound to find someone much better than you. Isn't it better to just replicate whatever they're doing instead of trying to come up with trading ideas yourself? Assume you want to be 100% mechanical, that is, there is no discretion involved at all. You learn a method, you set up parameters to generate a signal and you have precise targets, all established already through backtesting by the system creator. You already know the probabilities of your trading setups' possible outcomes. Other than just being comfortable with the actual risk, the idea that you should find a system that suits your personality seems sort of meaningless to me if you're just going to be totally mechanical. Isn't this a much better way to become a successful trader? Why not just copy?

Answer 1

No , unless your system is no system and things are not working. Some use a dart, others pick a stock and do all types of research, still others just follow along with everybody els. Surprisingly enough your rate of success will be...........

Answer 2

First if you can find someone that is at least 99% of the time get the right direction. Otherwise you will be sorry to your hard earned money.
Second, the most tough question is how can you be sure that the other person that you copy from is 99% right...
In my experience, I have encountered so many trader that claim they are the best, 11 out of 10 (which means none) are no good. These people always over express their minimal success but hide their big losses. So getting info from such person may as well flip a coin to determine the direction for the market.
Unless you have solid proof from such person (I only see once in my life) that in all his past transaction of trades it shows you the 99% of positive inflow of cash then you may try to copy.
Third, if such person is really exist then you may need to find he /she out, then you need to have such person show you the proof, and then you need to have he/she to let you know their next move in the market. I believe the chance is very slim.
Fourth, even you find one and get the proof and have the permission to do the trade at the same time as they enter the market; Do you have the enough capital for the trade... and Do you bold enough to do what he/she do... and Do you emotionally power enough to keep your fear under control before you can make any profit.
For what I know people that 99% right for the market direction is because they have money, lots of money that can support the losses and still keeping them in the market to wait for the coming wave. Once the wave come, all the losses become profits.
Are you sure you are one of them... think twice before you act.

Answer 3

First of all, you don't really know what private trades do. So how can you copy what you don't know? Take Warren Buffet for example. You know which stocks he invests in, but you typically don't know (until after the fact) when he makes speculative bets on U.S. Treasury bonds or silver futures (both of which happened in 1990s).

Second, you may not have access to the same markets on the same terms as more established traders with substantial capital. For example, one of the common hedge fund strategies is fixed-income arbitrage; you buy one bond, short-sell another, and do it at 20:1 leverage. Hedge funds can do it because they have lending relationships and use special brokerage service called "prime brokerage". For the retail investor, neither short sale of bonds nor 20:1 leverage is achievable. Same goes for convertible arbitrage or investing in MBS; you can't take a cost-effective position in convertible bonds or mortgage strips, unless you are willing to commit at least a few hundred thousand dollars per position.

Third, no system works well all the time. In order to succeed in the long-run, you need to either diversify between systems or have a system for switching systems.

Answer 4

Yes and no. End of the day, trading is about yourself. Everybody timeframe of trading is different. If you must follow, ask a few things first ? What is the their timeframe ? No point following a swing trader when you are a position taker vice versa. Everybody propensity is different so is their pocket, what works for one does not work for the other. What you are suggesting is like program trading look at what happen in 1987. Think for yourself and improve. Nobody can play your golf game except you. We can learnt but we must adapt.

Answer 5

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Answer 6

It's just like the math tests in school. Make sure that the person you copy from knows what is going on. It's a great idea, because if you loose all your money you don't have to blame yourself.