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  • Taking Advantage Of Statistical Based Trading Tactics

    From seekingalpha.com

    Before you consider risking your money in a trading account, it might be a good idea to make sure you have a rule based trading plan in place that works in both up and down markets. The advantage of a static, rule based plan is you can gauge the validity of it before risking money in the market. We call the process of testing a trading method in the different environments markets throw at us "statistical validation". Once you have studied the method and seen the performance first hand, you can gauge the probability that the method will produce desirable results into the future. When we say ... (full story)

Geez! More math garbage to detour traders onto another rabbit trail and de-focus them.

The markets are businesses run by the Market Makers for profit. They introduce randomness, deceptions and cloaking such that no math driven technique will ever allow traders to decipher market moves and conform the essence of certain patterns into nice little cookie molds to stamp out profits.

Over the decades mathematicians of great skill have attempted to do this and all have failed, and for the reasons just mentioned.

Successful trading is not the pre-empted domain of mathematicians, math crunching indicators, or super fast computers. Successful trading comes from not wasting time going down such futile rabbit trails, keeping a clean chart so you can focus on PA, volume and S&R, being picky about the setups you trade, and exercising patience.
That is my way of trading , it's all statistics based .
  •  Guest
  • | IP XXX.XX.36.112
Jay, thank you, once again, for an excellent article. I try never to miss any of your posts. I’m an Elliot practitioner, and since that is also based on Dow Theory, you speak a language I can easily understand.

How one can approach “this crazy little thing called trading” without knowing what P/L to expect from your system in the different environments you describe, is beyond me. It is much easier to deal with losses if they fall within the boundaries of your system stats. The moment they don’t, you know there is something wrong. It helps to avoid expensive lessons and debilitating draw-downs.

I started life as a professional musician and as such, was only required to count up to 4. (As a paperboy I expect you had to count a bit further) Yes, the quants can come up with equations and algos that make you feel smaller than birdshit, but they aren’t always doing that well either, are they?

It seems to me the maths required to manage a trading account profitably is well within the reach of most people. But to do without it completely, is like stumbling around in a dark forest without a flashlight. Now that’s a rabbit hole I would avoid with fervor.
Nice article ! Thank you
Though I am not trading this way, I always wanted to understand the multi timeframe positioning based on signals. Sorry, but an article is too short for me to grasp the idea. Jay, can you produce an example table of actions taken to enter and exit a position on premise of buying dips on trend continuation? How must the trader act when any of the time frame signals change? Or maybe there is a way to create a set of rules for extreme overbought/oversold conditions for counter-trend trading?
doing the maths seems like crap to me, I've cone to understand that there is no one way to trading.
trading is more psychological in nature than statistical.
all I need is a strategy and I'm good to go..
Whoah...you might be posting for free but you can't call your public out like that. And although its free you have an agenda. And let's be honest the majority of trading articles are pap filler, yours included.


Quoting Trout
Traderathome,

Let me guess, you read a headline, and jumped right in with your unconstructive nonsense?

The problem with writing academic pieces and publishing them for free is it's the same as giving away peanuts on the street corner -- your going to attract some monkeys.

Forgive me for that comparison but it's actually polite .

Jay Norris
This is not an easy concept, and difficult mathematics. Not everyone can follow it, I don't. We usually trade support and resistance, seldom see any patterns. Trading on patterns are certainly not easy, especially evolving changing patterns.

Good luck with them, but I will stick to my conventional method.
  •  Guest
  • | IP XX.XXX.222.82
Great article Trout!
Traditional mathematical models will always fail to model the market because they invariably fit the formula to the market and filters out what appears to be non-essential or that which does not fit in the model (i.e. "Outliers")
I do not believe the correct and true model will ever be created..
Actually and despite jays criticism, that's not a bad shout. Other than despite many of the markets being rigged you can still take cash out. But you might want to dial down the paranoia, you're coming across as someone who has had their arse handed to them recently. Your choice to trade pal, no one is forcing it on you. If you can't figure out how to win at this game after a few years then more fool you.


Quoting traderathome
Geez! More math garbage to detour traders onto another rabbit trail and de-focus them.

The markets are businesses run by the Market Makers for profit. They introduce randomness, deceptions and cloaking such that no math driven technique will ever allow traders to decipher market moves and conform the essence of certain patterns into nice little cookie molds to stamp out profits.

Over the decades mathematicians of great skill have attempted to do this and all have failed, and for the reasons just mentioned.

Successful trading is not the...
  •  Guest
  • | IP XXX.XX.255.66
Quoting traderathome
Geez! More math garbage to detour traders onto another rabbit trail and de-focus them.

The markets are businesses run by the Market Makers for profit. They introduce randomness, deceptions and cloaking such that no math driven technique will ever allow traders to decipher market moves and conform the essence of certain patterns into nice little cookie molds to stamp out profits.

Over the decades mathematicians of great skill have attempted to do this and all have failed, and for the reasons just mentioned.

Successful trading is not the pre-empted...

====

Yes but that is not the only way. And supercomputers with the right algorithm that regularly predicts high-prob moves are NOT illusionary, many hedge funds are making billions based upon that and not on S/R lines.

I do my own algorithm and it does work regularly with unseen data and live trading.
it is possible.

Having said that, I do NOT use statistical methods because they distort Price information, by averaging lots of data in the past. This is the cause of two errors: old data is no longer relevant as market conditions change, therefore old data generates wrong parameters for the future.
Second error is that averaging takes out important information on extreme peaks (highs and lows) to make a mean price. What you like about S/R is found in extreme peaks and averaging destroys one of the few available relevant information with Price, which can quickly degrade your designed system performance.
Quoting Mingary
Traditional mathematical models will always fail to model the market because they invariably fit the formula to the market and filters out what appears to be non-essential or that which does not fit in the model (i.e. "Outliers")
I do not believe the correct and true model will ever be created..
I agree Mingary,
Mine is a common sense tactic based on simple math. One does not need a computer to see repeating ratios.
Osmo,
no doubt trading is still psychological, even after you have proven to yourself that your method has the statistical chops to continue to produce desirable results. So much of our behavior is determined by things that happened when we were very young and had no control over.
Thanks Tafed & Vothie!
HI and Thanks Guest 122, I was lucky enuf to have had a mentor who was a very successful trader and Elliotician. he instilled in me that market are definitely fractal based and as such scalable. It is all pattern and repeating ratios.
OK guys, enough blood letting. The fact is there is a methodology for each trader and it is up to that trader to determine what it is. The statement about the psychology of trading is very true. No matter how you choose to trade, managing you own emotions is the most difficult part of it of all. Even when you have established those trading rules, and first that you must do, it is still difficult to follow them because we are human beings not machines. And because we are, that is what makes trading the joy that it is.
For sure Tradewind, why can't we have the same confidence prior to putting the trade on as we do after seeing how it worked out. Of course we need to be on the screen at the time of the set-up.
Traderathome and Squeeze, there is much truth in what you both say, particularly about market makers. But this shows up plan as day in the patterns and ratios also. And always has. And one does not need a computer, or even a calculator to see this.
Thank you Guest 66!

I agree with you that averaging -- 99% of technical indicators -- is a suckers game, and old data is old. Any data to me must be measured in the context of the environment. And if you have the capability to measure past environment you know when that environment shifted, so you know what the current environment is! When you have this capability or framework -- which is maddeningly simple and based on a tenet of Dow Theory -- you have a filter that will make a decent method or system great.

No comments yet have addressed my original premise of the value of a framework that accounts for market shifts and can measure any time frame scale as up or down.

Indicators that measure direction are destined to fail. It is the pattern in the diff scales of time that need to be measured, not momentum of individual bars or candles.
Managing emotions? What are they...? There's a clue there if you can see it



Quoting tradewind
OK guys, enough blood letting. The fact is there is a methodology for each trader and it is up to that trader to determine what it is. The statement about the psychology of trading is very true. No matter how you choose to trade, managing you own emotions is the most difficult part of it of all. Even when you have established those trading rules, and first that you must do, it is still difficult to follow them because we are human beings not machines. And because we are, that is what makes trading the joy that it is.
  •  Guest
  • | IP XX.XXX.252.129
Trout, you are close but you are still looking at a byproduct or proxy of something else. Once you grasp the deeper (driver) then you'll really have it.
I don't see ever ending discussions about indicators and patterns ever since they are started. The problem is everybody has their own proofs and their own rejection of proofs.

Now we are introduced to new variables called emotions and environment. These are very fuzzy concepts. Are we tricked by the market or our brains bleep?
  •  Guest
  • | IP XX.XXX.252.129
I see qualify proof as market participation not patterns or indicators or emotion for that matter
it is true there is more than 1 way to carve a cow, but it is interesting that a % of participants are still critical of something as basic and as helpful has statistically validating a method prior to trading.
Jay Norris or Jack Norris?????
Trout validating a method would give some hard evidence that the system is as useless as an ejection seat on a helicopter. Not everyone wants evidence tho.
forget about tomorrow, just steal away into the night
Hi Spekitox,
Exactly...well said.
When the trader does know he can pass the stats test he can then stop looking at the past to figure out the future and focus on right now.

Hi Guess 129, That sounds intriquing. To get any closer I think I'd have to get into cause. As it stands now I'm very happy w/ effect.
Quoting Guest
Trout, you are close but you are still looking at a byproduct or proxy of something else. Once you grasp the deeper (driver) then you'll really have it.
I never forgot this comment. I believe Risk Tolerance Threshold Theory is aptly named and I believe I've discovered that deeper driver.
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  •  Guest
  • | IP XX.XXX.94.236
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  • Story Stats
  • Posted: Feb 2, 2014 7:10pm
  • Submitted by:
     Trout
    Category: Educational News
    Comments: 29  /  Views: 10,779