Three of the Worst Trading Systems (ever)

A brief look at failed trading systems and what we can learn from them.



Babson - Sacred Geometry
 
 
Babson Performance Chart
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FAILED SYSTEM #2: Babson

Babson is System ID 50288258
in the Collective2 database

The Collective2 database ranks and analyzes all trading systems submitted to us. There are 16,540 systems in our database.

Collective2 users can trade any system in their brokerage account automatically.

  • People who traded Babson in real accounts: 19
  • Dollars lost in real-life trading:* ($49,056)
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even golden harmonics and hidden geometry couldn't save it

This system developer burst onto the Collective2 scene back in June, with a flurry of public posts on the Collective2 Public Forums, proclaiming a nearly-magical system that uses "Hidden Sacred Geometry" and that bases its "buys and sells ... upon the laws of physics."

The developer must have been referring to this particular law of physics - "what goes up must come down" - because that is exactly what we have witnessed here:

The system, and its history on C2, is a perfect example of how easy it is to be fooled by randomness (hat tip, Nassim Taleb). The system started off amazingly strong (look at the run-up between June and August, at extreme left of the chart). Maybe its success was due to some kind of Hidden Sacred Geometry. Or maybe it was due to plain old dumb luck.

Whichever the cause, the early run-up gave the system developer a strong platform for promoting his system on Collective2, and for attracting a surprisingly large number of AutoTraders. The system - and its subscribers - all subsequently rode the system equity curve back down to where it began.

And C2 can't escape a poke in the eye, either. Every system on Collective2 is assigned a numerical "C2 Score" of between 100 and 999. The C2 Score takes into account many different mathematical factors, but one of the factors most heavily weighted is the amount of real-world autotrading being done by system subscribers. (The theory being: Investors will only put money into good systems, so C2 relies strongly on their judgment.) Because of this, Babson still has an embarrassingly high C2 Score of 995. Shame on us.