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-   -   How can an "edge" wear off - Shouldn't it be the opposite? (https://www.forexfactory.com/thread/1024492-how-can-an-edge-wear-off-shouldnt)

ionone Sep 6, 2020 3:31am | Post# 1

How can an "edge" wear off - Shouldn't it be the opposite?
 
I don't understand how releasing a working strategy to the public can make it stop working
If a lot of people trade at the same time in the same direction, price will go in the right direction strongly.
The only problem can be a diminution of liquidity, but I don't understand how it could affect the edge ?
It should enhance it at best, no?
please enlighten me

thanks

Jeff

Rennaissance Sep 6, 2020 10:26am | Post# 2

I don't understand how releasing a working strategy to the public can make it stop working If a lot of people trade at the same time in the same direction, price will go in the right direction strongly. The only problem can be a diminution of liquidity, but I don't understand how it could affect the edge ? It should enhance it at best, no? please enlighten me thanks Jeff
If the USA gives away their defense secrets to the rest of the world what do you think will happen? Will it make their defense better? What about Google giving away their search algorithm?

ionone Sep 6, 2020 10:38am | Post# 3

{quote} If the USA gives away their defense secrets to the rest of the world what do you think will happen? Will it make their defense better? What about Google giving away their search algorithm?
not the same thing.

do you think scientists sharing their discoveries will improve science ? YES it will

Rennaissance Sep 7, 2020 1:06am | Post# 4

{quote} not the same thing. do you think scientists sharing their discoveries will improve science ? YES it will
So far as the area the discovery is made is not competitive. Yes! Scientists involved in competitive fields dont publish their findings. Not everything we know of as a specie is in textbooks. From my experience real, tangible and pertinent information is not found in textbooks.

ionone Sep 7, 2020 1:44am | Post# 5

{quote} So far as the area the discovery is made is not competitive. Yes! Scientists involved in competitive fields dont publish their findings. Not everything we know of as a specie is in textbooks. From my experience real, tangible and pertinent information is not found in textbooks.
can you explain with detail how the edge woul wear off in case of trading only?

Rennaissance Sep 7, 2020 2:31am | Post# 6

{quote} can you explain with detail how the edge woul wear off in case of trading only?
You will be competing at your entry price. Lets say you want to buy at 10, you believe the price is going to 15. If alot of traders come to know of that information, everyone places buy stops at 10. Because there are too many buyers at 10, price will jump to 13 or 15 instanly. So instead of getting filled at 10, you might only be filled at 13 or 14. Wiping away all your profit potential.

Second, even if the market is liquid enough to were you can all get filled at 10; who will be left to bid the price to 15. You need others to buy after you and bid the price to 15 to make a profit. Result, price starts moving in the opposite direction and take away all your stop losses ( we say the market is bought out).

Third, if you want to buy at 10; someone has to sell at 10. Trading being a zero sum game. If the people who are bearish get to know that they will get swindled at 10, they will not be willing to take the other side of your trade. Result, price stays at 10. These are the ranges you see on your charts. A range is simply a phase of the market when buyers and sellers don't want to do business with each other. Everyone suspecting the other side has some information or advantage on them.

These things happen on a micro level which then translates to a macro level. The price is simply the sum total of these descisions made by traders. Cheers

ionone Sep 7, 2020 9:03am | Post# 7

when you set a slippage value in the OrderSend function, if price jumps to 13 or 15, won't the order be canceled if you set a slippage value small enough ?
i'm not sure about it.

Cogra Sep 20, 2020 11:00am | Post# 8

In my opinion, it looks strange because I don't see a pattern that profit depends on the number of people who trade in one direction or another. Then what's the point of forums if we can't share information and observations here, because that's what helps us to find some new ways and learn something new. I don't think it's good not to share information with other traders. But in general, it's probably a personal matter of everyone, probably, there are traders who are convinced that they should keep silent about everything and enjoy all the benefits only by themselves. I don't know, it's a difficult question... Probably, I should think about it in more detail.

Rennaissance Sep 20, 2020 11:06am | Post# 9

In my opinion, it looks strange because I don't see a pattern that profit depends on the number of people who trade in one direction or another. Then what's the point of forums if we can't share information and observations here, because that's what helps us to find some new ways and learn something new. I don't think it's good not to share information with other traders. But in general, it's probably a personal matter of everyone, probably, there are traders who are convinced that they should keep silent about everything and enjoy all the benefits...
Yeah you should. Find a gold mine and go tell the whole world about it huh ..

alphaomega Sep 20, 2020 11:50am | Post# 10

{quote} Yeah you should. Find a gold mine and go tell the whole world about it huh ..
It depends on the gold mine. Not All gold mines are the same. There is gold almost everywhere, but the concentrations are low and most of it is not cost effective for mining. The spending required for investment and energy cost cannot be covered by the profit from the extracted gold. In other words the return on investment ROI is below 1 and so you have negative expectancy. Forex trading is exactly the same. Most of the easy/high RR gold is depleted. Now you have to dig deeper in harder places. Most cases you are lucky if break even.

Wavegarrick Sep 20, 2020 11:51am | Post# 11

Hi Guys,
An edge wears off for a trend trader when markets start ranging. For a range trader, an edge wears off when the markets start trending. Strike a balance between both and you could be onto something. Layman's term answer.
There never ever will be an agreement with price and this keeps the market ticking. There never ever will be an appropriate answer to all these questions.
Just my .02 cents.

Cheers.

mtako Sep 20, 2020 12:01pm | Post# 12

Except on extremely rare occasions (and never caused by small retail traders alone), its an illusion. So in our case, and I know this goes against what many here believe, but its not the edge that wears off, Its the strategy. All strategies wear off, as the market is forever changing. The successful traders adapt or drop their strategy as the market changes constantly and forever will. Creating a successful strategy is the easy part, as pompous as that sounds ....

Sometimes we just dont want to share our hard work for many other reasons but rather repeat the common answer and lie (sometime to ourselves), than tell the truth.

Last time I shared one of my strats, the person I thought was goodhearted put it up for sale....

Headland Sep 20, 2020 1:32pm | Post# 13

{quote} You will be competing at your entry price...... . Cheers
This pretty much says it all...and in any event, why would anyone with a proven edge want to? (I'm not saying you do and understand you are probably asking just an academic question.) Going off to a tangent a bit from the original question but related to it - Trading is s competitive business..we should see other market participants or potential market participants as our competitors. To this extent you would not reveal the mechanics behind your usp/competitive edge to competitors in any other commercial field, and it follows then that you would not in trading.

mtako Sep 20, 2020 1:38pm | Post# 14

{quote} This pretty much says it all...and in any event, why would anyone with a proven edge want to? Going off to a tangent a bit from the original question but related to it - Trading is s competitive business..we should see other market participants or potential market participants as our competitors. To this extent you would not reveal the mechanics behind your usp/competitive edge to competitors in any other commercial field, and it follows then that you would not in trading.

I 100% agree with you, for a group of million$ market moving traders. But all that reasoning does not apply, and far from it, to us. The little-medium traders are not in competition with each other at all, but I get your point.

mtruefx Sep 20, 2020 1:49pm | Post# 15

I don't understand how releasing a working strategy to the public can make it stop working If a lot of people trade at the same time in the same direction, price will go in the right direction strongly. The only problem can be a diminution of liquidity, but I don't understand how it could affect the edge ? It should enhance it at best, no? please enlighten me thanks Jeff
The market makers move in the opposite direction of retail traders, so if retail traders are doing the same the MM's will move it in the opposite direction.. as simple as that.. I suggest you to lookup 'IG Market sentiment'

mtako Sep 20, 2020 2:01pm | Post# 16

{quote} The market makers move in the opposite direction of retail traders, so if retail traders are doing the same the MM's will move it in the opposite direction.. as simple as that.. I suggest you to lookup 'IG Market sentiment'

Exactly ! But if ENOUGH retail traders are doing the same. Forex forums will not make the difference, and far from it.

Varkeer Sep 20, 2020 2:21pm | Post# 17

Retail traders aren't going to change the price. They account for less than 5%.

mtako Sep 20, 2020 2:24pm | Post# 18

{quote} Definately, the most successfull traders are going under the radar.. not going to forex forums, selling signals or mentoring
Very true, but that doesnt mean their strategy 's success will last any longer than if they shared it. But I get why one would need to believe that.

MoneyZilla Sep 20, 2020 3:36pm | Post# 19

First of all, it is controversial, as most, if not all trend strategies, if traded on the annual trend ONLY, do have an edge, nobody or nothing can wipe it out... Annual trend only, with just fewer trades in use.

Now the controversial part. There are NONE, zero, nil, public strategies, offering an egde, in anything below the annual trend.

There are successful private strategies. Probably their number is not so low, my uneducated guess is, likely, they will never go public.

And we can see? The annual trend? It is successful, but nobody cares... As the account is not doubled every day/week/month and 1,000%, 4,400%, 10,000% or higher %s never get reached with that...

How is that, there is not any edge around, or the edge just wears off?!?

ionone Sep 21, 2020 4:14am | Post# 20

{quote} The market makers move in the opposite direction of retail traders, so if retail traders are doing the same the MM's will move it in the opposite direction.. as simple as that.. I suggest you to lookup 'IG Market sentiment'
market makers don't move the markets, they just provide liquidity and make money on the spread

mtruefx Sep 21, 2020 7:13am | Post# 21

{quote} market makers don't move the markets, they just provide liquidity and make money on the spread
Who do you consider being market makers?

ionone Sep 22, 2020 3:48am | Post# 22

{quote} Who do you consider being market makers?
market makers buy at bid and sell at ask and profit from difference

Nickpadovani Sep 23, 2020 7:30am | Post# 23

In what your OP is referencing to, you have to acknowledge the fact that trading is in fact competitive by nature. The closer to the chest a particularly strategy is, the harder it is for others to emulate. If you happened to magically make the "next big thing" and released it to the public, if it was in fact profitable, everyone would use it, competition would temporarily dwindle, and the big players in the market would compensate for this shift. This is all theoretical of course, but that is what would likely happen. We as retail traders are merely pawns in a massive game of chess, and the banks and institutions are the players. The best we can ever hope to do is trade as closely as they do, because otherwise we're just going against them and will lose our asses.

As a personal aside, I feel like said big players are really only interested in price movements on the 1H and up charts. Anything less is just a byproduct of market movement. So I feel like the easiest way to trade against the big players but still be successful is to trade the smallest timeframe you can comfortably trade. A properly set up smaller trade on the 1m chart can be equally as effective and profitable as a larger trader on the 1H or 4H chart. For me, it's always a matter of finding the safest stop loss I can use while making it as small as necessary, so that I can take a larger position and get more bang for my buck. My one seemingly inconsequential trade on the 1m chart is nothing more than a passing candle consolidation to the big players. Just some food for thought.

Seneca pilot Sep 23, 2020 11:29pm | Post# 24

Richard Dennis once said he could advertise his trading rules on the front page of the Wall Street Journal and it would cause him no trouble because almost no one can follow the rules. He was right. You can post your winning strategy here and nothing will happen.

Most traders fail because they fight the trend and won't get out of losers. That is the secret. Trade with the trend and kill losers and you will become profitable. The entry style doesn't really matter all that much.

wmram Sep 23, 2020 11:45pm | Post# 25

How do you kill losers in a working environment that is as dynamic as forex markets without dying a death of a thousand cuts; even if you're trading on one and four charts being reactive without being too reactive consistently is easier said than done.

Seneca pilot Sep 24, 2020 12:00am | Post# 26

How do you kill losers in a working environment that is as dynamic as forex markets without dying a death of a thousand cuts; even if you're trading on one and four charts being reactive without being too reactive consistently is easier said than done.

I had a thread on here where I went into detail on how to set stops. I use ATR so the dynamic nature of the market is taken into consideration. I don't advocate using fixed stops but either structure based or ATR based. You can also use an arbitrary "oh shit" stop. My point is that you have to draw a line somewhere because price doesn't always come back.

alphaomega Sep 24, 2020 4:43am | Post# 27

Richard Dennis once said he could advertise his trading rules on the front page of the Wall Street Journal and it would cause him no trouble because almost no one can follow the rules. He was right. You can post your winning strategy here and nothing will happen. Most traders fail because they fight the trend and won't get out of losers. That is the secret. Trade with the trend and kill losers and you will become profitable. The entry style doesn't really matter all that much.
Richard Dennis and his famous trend following turtles story is full of shit.
Blind Trend following based on technical analysis does not work in today's markets and it barely worked 50 years ago and this is super easy to proof for anyone who can write code and know how to build and test automated systems. The trend following systems in general are the easiest systems to code because their rules are very simple and straightforward. There is no complicated pattern recognition. The definitions for trends are simple and clear. So if these systems really worked everyone would be making money because there are enough good programmers around the world to automate all possible trend following systems.

So you see it's not a case of psychology and discipline at all. You don't have to struggle to follow some set of rules. You just write a robot and the robot will execute these rules perfectly without errors day after day forever until the end of time. If the rules really work you will make tons of money. But they don't work unfortunately.

In the end of the day this is true for all technical systems. If you find some set of technical rules that produce positive result during backtesting there is 100% chance that many people already have found these rules before you and already made automated systems based on these rules. The edge will disappear almost immediately after the discovery. And this is the essence of the efficient market. All edges die instantly after they are discovered.
And then we also have the problem with curve fitting and randomness..... This is why everywhere you see the legal disclaimer "Past performance is not indicative of future results". Because many smart people before us have made their homework/research the right way to know what is true.

MoneyZilla Sep 24, 2020 9:08am | Post# 28

Blind Trend following based on technical analysis does not work in today's markets and it barely worked 50 years ago and this is super easy to proof for anyone who can write code and know how to build and test automated systems.

?!?Hello?!?
I am from Africa.

Where are you from?
UNBELIEVABLE!

So, you don't know how to catch trend?!? From the data provided by the chart alone? Really?

In Africa, we do know how to catch the trend, as this is the simplest thing to do, in trading...

Seneca pilot Sep 24, 2020 9:16am | Post# 29

{quote} Richard Dennis and his famous trend following turtles story is full of shit. Blind Trend following based on technical analysis does not work in today's markets and it barely worked 50 years ago and this is super easy to proof for anyone who can write code and know how to build and test automated systems. The trend following systems in general are the easiest systems to code because their rules are very simple and straightforward. There is no complicated pattern recognition. The definitions for trends are simple and clear. So if these systems...

You missed the entire point of the post.

Please quote the part of my post where I said anything about trading with the Turtle method.

MoneyZilla Sep 24, 2020 9:26am | Post# 30

{quote} You missed the entire point of the post. Please quote the part of my post where I said anything about trading with the Turtle method.

Like in the other tread, he is sky-arrogant here, too.

He should start with:

I CAN'T TRADE TRENDS...
I don't know how to trade trends...
I have not got the skills to trade trends...
ext.

Instead of saying trend trading stopped working like 50 yrs ago (Hello?!?)!? Which is nowhere near any reality I know or I am familiar with.

alphaomega Sep 24, 2020 9:30am | Post# 31

{quote} You missed the entire point of the post. Please quote the part of my post where I said anything about trading with the Turtle method.
What I wanted to say is that the psychological problems are not real problems. The are mostly a result of lack of knowledge and skills.

The people who are not programmers think that they fail because they cant follow their own rules. Their common believe is: "I broke my rules again and I lost. My strategy is good. If only I could follow my rules perfectly I could make millions".

On the other side, the people who are programmers and understand statistics and probability theory already made this strategy into a robot and backtested and forward tested this robot and already found that it does not work when you increase the trade sample. There is no edge. So even if you follow the rules perfectly you still lose in the long run.

Do you see the difference?

alphaomega Sep 24, 2020 9:33am | Post# 32

{quote} Like in the other tread, he is sky-arrogant here, too. He should start with: I CAN'T TRADE TRENDS... I don't know how to trade trends... I have not got the skills to trade trends... ext. Instead of saying trend trading stopped working like 50 yrs ago (Hello?!?)!? Which is nowhere near any reality I know or I am familiar with.
You just downgraded your IQ to 68 points. Congratulations!

MoneyZilla Sep 24, 2020 9:35am | Post# 33

{quote} You just downgraded your IQ to 68 points. Congratulations!

I know you are SMART! You gotta be ABSOLUTELY RIGHT!

Seneca pilot Sep 24, 2020 9:48am | Post# 34

{quote} What I wanted to say is that the psychological problems are not real problems. The are mostly a result of lack of knowledge and skills. The people who are not programmers think that they fail because they cant follow their own rules. Their common believe is: "I broke my rules again and I lost. My strategy is good. If only I could follow my rules perfectly I could make millions". On the other side, the people who are programmers and understand statistics and probability theory already made this strategy into a robot and backtested and forward...

No, it is 100% about following rules and discipline. You have decided that a math based automated approach is the only way to do this. You are wrong. There are thousands of discretional traders making a living in the markets. Is a small percentage of the population? Absolutely, just like success in any other area. Only a small percentage of the people have the discipline to be the best in any field.

Rennaissance Sep 24, 2020 9:52am | Post# 35

{quote} What I wanted to say is that the psychological problems are not real problems. The are mostly a result of lack of knowledge and skills. The people who are not programmers think that they fail because they cant follow their own rules. Their common believe is: "I broke my rules again and I lost. My strategy is good. If only I could follow my rules perfectly I could make millions". On the other side, the people who are programmers and understand statistics and probability theory already made this strategy into a robot and backtested and forward...
I side with you on : people fail because they dont have an edge. But alot of people that have an edge also fail initially, even if temporary. Because they can't follow their rules. It takes alot of discipline to trade successful. From my research, it shows conclusively that markets trend. If they dont , then they are efficient and technical analysis is all vodoo. The caveat is that they don't trend all the time. Those trends happen only when there are strong shifts in the fundamentals. The market goes from trend to range back to trend, and so on. I will call a successful approach, one that can break even in a range and make money when the trends come. Cheers

Seneca pilot Sep 24, 2020 10:08am | Post# 36

{quote} I side with you on : people fail because they dont have an edge. But alot of people that have an edge also fail initially, even if temporary. Because they can't follow their rules. It takes alot of discipline to trade successful. From my research, it shows conclusively that markets trend. If they dont , then they are efficient and technical analysis is all vodoo. The caveat is that they don't trend all the time. Those trends happen only when there are strong shifts in the fundamentals. The market goes from trend to range back to trend, and...

Even better is a method that ignores large trends but capitalizes on the small local trends that occur on a daily basis.

Rennaissance Sep 24, 2020 10:11am | Post# 37

{quote} Even better is a method that ignores large trends but capitalizes on the small local trends that occur on a daily basis.
Yeah agree.

alphaomega Sep 24, 2020 10:19am | Post# 38

{quote} I side with you on : people fail because they dont have an edge. But alot of people that have an edge also fail initially, even if temporary. Because they can't follow their rules. It takes alot of discipline to trade successful. From my research, it shows conclusively that markets trend. If they dont , then they are efficient and technical analysis is all vodoo. The caveat is that they don't trend all the time. Those trends happen only when there are strong shifts in the fundamentals. The market goes from trend to range back to trend, and...
Here is the basic recipe for what you're looking for:

1. Wait for massive strength and sudden increase in volatility when there are no real reasons for it. Multiple big days in a row but still no news, nothing. Everyone on the internet is asking WTF is going on with this market.
2. Then, buy at the highest price if the movement is bullish. Or sell at the lowest price if the movement is bearish and set trailing stop at 33% of the move.
3. As long as the trend is on, continue to add larger and larger lots to your winning position at fixed intervals like there is no tomorrow.
4. If at some point the profit looks huge and you have the strong urge to take it - now is the time to remove your take profits orders (if any), close your platform, turn off your computer and go on vacation for a few days.

5. Congratulations. You just won the jackpot.

At least that's how I imagine it.

Seneca pilot Sep 24, 2020 11:20am | Post# 39

{quote} Here is the basic recipe for what you're looking for: 1. Wait for massive strength and sudden increase in volatility when there are no real reasons for it. Multiple big days in a row but still no news, nothing. Everyone on the internet is asking WTF is going on with this market. 2. Then, buy at the highest price if the movement is bullish. Or sell at the lowest price if the movement is bearish and set trailing stop at 33% of the move. 3. As long as the trend is on, continue to add larger and larger lots to your winning position at fixed...

You seem to be stuck on one type of trend follower. Yes long term trends are tougher and fewer today. There are many more market participants and they are far more educated than they were then. I trade with the trend of now. I am in and out of the ES three to six times per day. My average hold is less than five minutes. I buy when the market is moving up and sell when it is moving down. I am a trend trader. I don't care what the trend is on a daily chart I care what the trend is now. I may sell at 9:30 and be buying like mad at 9:50 Did that today in fact.

HiddenGap Sep 24, 2020 11:44am | Post# 40

. I trade with the trend of now. emphasis added
Brillant.


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