v2v disclaimer

#v2vDisclaimer (https://www.forexfactory.com/showthread.php?t=838137)

1. My post here at FF makes no guarantees as to the accuracy or completeness of the views expressed, including timeliness, suitability of any information - e.g. indicators, videos, images/charts, and documents posted or shared herein. All contents I posted here at FF are subject to change (bound by ForexFactory's & Thread Owner's rules and restrictions) and may have become unreliable for various reasons, including changes in the market conditions or economic circumstances.

1. In addition, please be reminded that there is always the potential for loss. Your trading results may vary. Unique experiences and past performances do not guarantee future results. Hence, it is highly recommended to seek a duly licensed professional for investment advice whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal.

☝ If you don't like my post, simply click ignore option and I'll do the same... Otherwise, I can simply ignore anyone whenever I am damn well, please...

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☀ You may agree or disagree... ; )- but here are the collected reasons why traders fail to be successful in trading... #whytradersfail (https://www.forexfactory.com/showthread.php?p=11614716#post11614716) ─ by Hanover

☛ No proven methodological edge
☛ Lack of knowledge and experience
☛ No trading plan
☛ Failure to accept losses (causes recovery systems, irrecoverable open losses, revenge trading)
☛ Poor or non-existent risk management (i.e. focusing on the return over everything else)
☛ Making decisions based on P/L rather than market probabilities/behavior (focusing on the money, rather than the process)
☛ Undercapitalization (causes greed, over trading, over-leveraging) -- [NOTE: according to many br0kers, this is the most common cause of failure]
☛ Over-reliance on money management (including ideas like same-pair hedges, baskets, grids, averaging down recklessly, martingale variants)
☛ Complacency: a lack of respect for the market
☛ Laziness: trying to find a color-by-number shortcut to riches (i.e. make the most money in the shortest time with the least effort)
☛ Adherence to "$250 to $100,000 in 6 months" type notions
☛ Adherence to trading myths
☛ Lack of discipline
☛ Lack of patience
☛ Lack of resilience (unable to bounce back after losses)
☛ Lack of composure/nerve (afraid to "pull the trigger")
☛ Lack of stamina (quit too quickly)
☛ Lack of dedication (failure to put in the required number of hours of study)
☛ Failure to understand the importance of statistical validity, and the nature of statistical fluctuation
☛ Failure to keep a journal
☛ Over-reliance on automated systems (EAs)
☛ Over-reliance on technical analysis (using tools that "don't work")
☛ Exiting too early (should take higher RR trades)
☛ Exiting too late (should take lower RR trades)
☛ Hindsight bias
☛ Confirmation bias
☛ Apophenia
☛ Curve fitting
☛ Strategies that test profitably, but are not grounded in real market inefficiencies
☛ The randomness of price movement
☛ Letting outside noise affect your decision making
☛ Underestimating the effect of broker costs
☛ Underestimation of the amount of expertise that is required
☛ Being cheated by their broker
☛ Liquidity vacuums ( a.k.a. "flash crashes" ) and other "black swan" events.

☀ You may agree or disagree... ; )- but here are the collected reasons why traders fail to be successful in trading... #whytradersfail (https://www.forexfactory.com/showthread.php?p=11614716#post11614716) ─ by Hanover

☛ No proven methodological edge
☛ Lack of knowledge and experience
☛ No trading plan
☛ Failure to accept losses (causes recovery systems, irrecoverable open losses, revenge trading)
☛ Poor or non-existent risk management (i.e. focusing on the return over everything else)
☛ Making decisions based on P/L rather than market probabilities/behavior (focusing on the money, rather than the process)
☛ Undercapitalization (causes greed, over trading, over-leveraging) -- [NOTE: according to many br0kers, this is the most common cause of failure]
☛ Over-reliance on money management (including ideas like same-pair hedges, baskets, grids, averaging down recklessly, martingale variants)
☛ Complacency: a lack of respect for the market
☛ Laziness: trying to find a color-by-number shortcut to riches (i.e. make the most money in the shortest time with the least effort)
☛ Adherence to "$250 to $100,000 in 6 months" type notions
☛ Adherence to trading myths
☛ Lack of discipline
☛ Lack of patience
☛ Lack of resilience (unable to bounce back after losses)
☛ Lack of composure/nerve (afraid to "pull the trigger")
☛ Lack of stamina (quit too quickly)
☛ Lack of dedication (failure to put in the required number of hours of study)
☛ Failure to understand the importance of statistical validity, and the nature of statistical fluctuation
☛ Failure to keep a journal
☛ Over-reliance on automated systems (EAs)
☛ Over-reliance on technical analysis (using tools that "don't work")
☛ Exiting too early (should take higher RR trades)
☛ Exiting too late (should take lower RR trades)
☛ Hindsight bias
☛ Confirmation bias
☛ Apophenia
☛ Curve fitting
☛ Strategies that test profitably, but are not grounded in real market inefficiencies
☛ The randomness of price movement
☛ Letting outside noise affect your decision making
☛ Underestimating the effect of broker costs
☛ Underestimation of the amount of expertise that is required

※ TRADE LESS BETTER ※

Successful trading is counter-intuitive. Trading less better is counter-intuitive. For most of our lives we’ve been taught to work hard & if that’s not working to try harder. This mindset is perilous in trading.

Before we look at how trading less makes you more successful, let’s look at the cost of trading more frequently:

☛ You pay more commission which adds up to a significant percentage of your profits
☛ You take fewer high probability trades which decreases your win percentage
☛ You’re exposed to more risk which leads to larger drawdowns
☛ You end up thinking less rationally and responding more emotionally
☛ You have less of a life. Sitting behind your screens for 10hrs a day isn’t much different from an 8 to 5 job. It’s more stressful.

⁂ THE UGLY TRUTH ⁂

While most traders agree with the list above, they still struggle to let go of over-trading and trading smaller timeframes. Why?
There are a few reasons, but the primary logic is, ‘If I trade less, I won’t make as much money’ or ‘I need to make a lot of money quickly so I need to find as many trading opportunities as possible’. This desire to make money & lots of it (quickly) is so strong that it outweighs all the logical reasons for us to trade less frequently.
However, the ironic thing is that if you really want to make money and make it quickly, you need to trade less in order to trade better.

⁂ How can you trade less better? ⁂

☛ Trade on 4hr and Daily charts. You will find plenty of profitable opportunities on these higher timeframes.
☛ Only trade high probability setups. Wait for the obvious, easy-money, no-brainer setups.
☛ Wait for the market to give you the ‘best’ price. Our fear of missing out often causes us to jump into trades prematurely. Wait for price to reach extreme levels or for the continuation of a trend before entering.
☛ Try limiting the number of trades you take per day or per week. Knowing you’re only allowed 2 trades a day, makes you more selective with the quality of setups that you trade.


⁂ Benefits of trading less better ⁂

☛ By applying the points above, you will find a significant change in your trading results:
☛ Your cost per trade will be less & commissions lower, making you more profitable per trade
☛ By taking higher probability trades, your win percentage will increase
☛ You will have more time in between trades, allowing you to trade rationally & thoughtfully, avoiding impulsive and revengeful trades
☛ You will be less stressed
☛ Your systems, psychology and money management. You’ll also get more time away from the charts, which makes for a healthier person and trader.


✍ BY FXCOACH

For years, We've heard that 90% of traders lose money trading, and they lose it to the 10% who are making money. More recently, it seems that the numbers I hear are 95-5, so even worse.

Some research found out that retail fx traders received better executions than institutional or exchange traders. In my experience working for two fx brokers, they are exactly right. Retail traders get ridiculously great pricing and fills.

How is it that retail traders are getting better pricing, but they still lose on a higher percentage of trades than institutional and professional traders? I think there are five reasons why retail traders aren’t as successful as professional traders.


1. Execution of Trading Strategy

Through many years of working on a trading desk and talking to customers and banks, I didn’t see much of a difference in the actual trading strategies between our trading desk, the trading desk at a bank, our institutional/professional traders, or our retail trader. Everyone has the same access to charting, technical analysis, and pricing analysis.

Professional traders do not simply limit themselves to technical analysis. They know their own trading very well: their tendencies, how much they are comfortable risking, how to minimize their bad trades while maximizing their good trades. It’s more than even that. Good professional traders have scenario analysis that gives them further analysis on their own trading: expectancy, confidence, equity moving average, etc.

Professional traders also tend to look at a potential trade through the lens of many different trading strategies and many types of technical analysis. They also have a pulse on the fundamentals behind the products they are trading. They eat, sleep and breathe the markets.


2. Big Picture Oriented

A professional trader and a retail trader might be trading the same strategy and looking at the same chart to make a trade, but the professional trader is looking at many other things to determine the viability of a trade before entering the trade. There is no fear of missing a trade. The professional trader lets the trade come to them…they are not chasing trades.

So what are professional traders looking at that retail traders often ignore? Professional traders are looking at long and short term charts and analysis…and they ask themselves what could happen…how could this trade go wrong…how much could I lose on this trade?

A professional trader looks beyond this trade and is more concerned with the overall market. What could hinder me from hitting my limit? What could cause the market to move against me? When might I need to cut my losses? They aren’t waiting until they are in a position to think through these things…they are asking these questions before making the trade.


3. More Discipline

Enough cannot be said about discipline in trading (or any endeavor). The best traders, professional or retail, are all very disciplined. Looking at the last two things that make people better traders, the best traders do their research before entering the trade.
The best traders know why they are in a trade. They know when they are going to get out of a trade. They work orders. Why? Because they have seen what can happen when you don’t work orders. They work stops and let those stops fill if they are due to be filled.

A less disciplined trader will pull their stop because they just know that the currency, stock, commodity is going to go their direction. They just don’t want to miss out, or maybe, they just can’t stomach losing on another trade.


4. Oversight

Most professional traders answer to someone. There is a boss, an investor, another trader. There is almost always someone that a professional trader has to answer to and make a case for each and every trade. Sometimes, they don’t have to make a case of the trade beforehand, but they will need to answer questions if the trade goes bad.

Those questions are almost always around the other points of this article. “Didn’t you see that the daily chart was showing this and was clearly a strong trend in the opposite direction?” “Where was your stop order to protect from this happening?” “You risked 100 ticks to gain 10?” “Why did you take the trade?” “Why did you move your stop?”

Trust me. These are just a tip of the iceberg in terms of questions asked when a trade goes sour. It is a very uncomfortable time, and the trader needs answers to why they did everything.

My point is this: How many retail traders have to make a case to someone before making a trade? Sometimes, it is good to get someone else’s opinions on a product before trading it. After working on the desk for 9 years, I found that my fellow traders hardly ever agreed with my analysis. At the very least, they had very good insight that I was missing.


5. Patient and Calculated

Professional traders are very competitive and very confident. The best traders wait until the odds are stacked in their favor before trading. I love the Jim Rogers quote: “I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”

Like I said earlier, the best traders let the trades come to them and don’t go chasing after trades. They are patient. They are calculating. They take risks and lose money, but the money they lose is calculated beforehand. The risk of them losing is small, as is the amount of money being risked.

The point of all of this is that you don’t need tighter spreads to be more profitable. You probably don’t even need better charts or a new trading strategy.

Most likely, all you might need is more insight and better discipline in applying that insight. Just like most things in life, more knowledge is a great thing, but discipline can really reap positive rewards.

source: steve nauta of daticks

☀ Key Takeaways from The Hour Between Dog and Wolf

Robert Shiller called it “irrational exuberance”. John Maynard Keynes called it “animal spirits”. John Coates, the author of The Hour Between Dog and Wolf, explains how testosterone and cortisol are the yin and yang of market sentiment. The book explains the link between hormones and markets and shows how an investor’s physiology changes throughout a market cycle. I finished the book having a better understanding of how our bodies respond to taking risk, and how to avoid the hormonal pitfalls that detract from performance.


⁂ Here‘s what I learned:

☛ The link between our body and brain isn’t a one-way street. There’s a significant amount of body-brain feedback and our physical hormonal response influences our mental decision making. Steroid hormones ensure our body and brain work together. Testosterone rebuilds energy stores and cortisol breaks down energy stores for immediate use. Testosterone and cortisol levels can wildly vary and shape investor behavior.
Source: Page 187 of The Hour Between Dog and Wolf

☛ Daniel Kahneman (of Thinking Fast and Slow fame) (https://youtu.be/cuj2Kq8rvGw) changed his stance on intuition. Kahneman initially thought intuition wasn’t that useful because he originally studied it in fields like political forecasting and stock picking. Kahneman partnered with Gary Klein (who mainly studied firefighters and paramedics) and they concluded that intuition can be relied upon, but only if two criteria are met:

☝ Someone has to work in an environment that’s regular enough to produce repeating patterns, and

✌ They need to encounter patterns frequently enough to learn from feedback on their performance.

☛ Information is pleasurable. The novelty of new information is interpreted similarly to pleasurable activities like eating and drinking. These activities cause a release of dopamine which then motivates us to seek it out again. Give an animal the choice between eating or self-stimulating with dopamine and it will self-stimulate until it starves.
We’re hardwired to crave risk-taking. Dopamine surges after a unique action lead to an unexpected reward. The amount of dopamine released is related to how unexpected a reward is. Dopamine is addicting. Profits gained after taking excessive risk leads to more dopamine when variance grants you the inevitable lucky coin toss.
Source: Page 149 of The Hour Between Dog and Wolf

☛ Testosterone is the molecule of irrational exuberance. The “winner effect” shows that animals who won a fight were more likely to win their next fight or competition. Winners had higher baseline testosterone levels and losers saw testosterone drop to 1/10th of pre-fight levels. The body chemistry of winning animals (and likely recently successful investors) is different than the body chemistry of the less successful. Eventually, this testosterone build-up raises the probability of excessive risk-taking.

☛ Cortisol is the molecule of irrational pessimism. Chronic stress breaks down our bodies and detracts from mental performance. Three things trigger the stress response: novelty, uncertainty, and a sense of uncontrollability. Our stress response switches the body and brain from prioritizing everyday functions to an emergency state. In the stress response, cortisol production is triggered and the body demands glucose. The stress response is designed to fuel a muscular, not mental, effort. A prolonged stress response suppresses the immune system, reduces REM sleep, and raises your heart rate and blood pressure.

☛ The most experienced and profitable traders have different body chemistry than inexperienced traders. The author found that the most profitable traders had high and volatile steroid hormone levels. They had quick hormonal responses when challenged, but their stress response was less volatile. Inexperienced traders had chronically high cortisol levels, leaving them in a state of perpetual anxiety.
Source: Page 227 of The Hour Between Dog and Wolf


⁂ My two actionable insights from the book were:

☝ An information diet is good for your mental health. Investors have access to unlimited data, market commentary, and investment options. More information isn’t better (see: The Paradox of Choice by Dan Ariely). The Center for Humane Technology has a great video on how tech companies are engineered to steal your time and attention.

✌ Exercise, deep breathing, and cold water immersion physiologically toughen us and reduce chronic stress levels. Exercise expands the productive capacity of our amine-producing cells (therefore relying less on the stress response), and helps defend us against anxiety and stress. This is similar to the concept of hormesis that Nassim Taleb talks about in Antifragile. Basically, a little bit of a bad thing can be a good thing.

Taking risk in financial markets doesn’t just require an understanding of the cold data. Knowing why your body behaves the way it does, and how to balance it, is important to becoming a better investor.

─ by Adam Collins ─

※ Trend Following Strategies ※

☛ Momentum and trend strategies don't offer a free lunch of higher returns and lower risk.

☛ Their historical volatility reduction benefits are associated with frequent whipsaws when trends slightly turn negative and then resume higher (or vice-versa)

☛ False positive signals are a feature, not a bug, of trend strategies.

A false-positive signal should be an investor's baseline expectation when they're using trend or momentum strategies. The asymmetry between gains lost and losses avoided is partly why momentum has been coined the "single biggest embarrassment" to the efficient market theory.

FYI: There's an ample amount of evidence on the persistence of momentum over many decades and across many asset classes.

Momentum and trend strategies are not a cure-all that allows you to participate in 100% of gains without any downside. They have historically allowed you to capture a majority of the upside but at the cost of occasional false-positives. I personally consider this a price worth paying to have a high probability of avoiding large future losses.

source: adam.collins

※ Macroeconomic Indicators ─ The Macro Model

⁂ The macro model monitors three economic indicators
☛ Retail Sales,
☛ Industrial Production, and
☛ The Unemployment Rate.

⁂ These indicators cover three broad aspects of the economy
☛ Consumer Spending,
☛ Business Activity, and
☛The Labor Market.

✔ Retail sales ☛ measure the dollar value of merchandise sold by retailers. Increasing retail sales indicates strong consumer spending and a strengthening economy.

Attached Image (click to enlarge)

source: FRED (https://fred.stlouisfed.org/graph/?g=n9mq)

Historically, recessions have typically occurred when retail sales have fallen over the past year. This is shown when the blue line falls below 0%. Recessions are highlighted in grey.

✔ Industrial production ☛ measures the raw volume of goods produced by manufacturing companies. Increasing industrial production is associated with strong business activity for industrial companies. Historically, recessions have typically occurred when industrial production has fallen over the past year. This is shown when the yellow line falls below 0%.

Attached Image (click to enlarge)

source: FRED (https://fred.stlouisfed.org/graph/?g=n9mt)

✔ The unemployment rate ☛ measures the percentage of the labor force that is unemployed. A decreasing unemployment rate indicates a stronger job market. Historically, recessions have typically occurred when the unemployment rate has significantly risen.

Attached Image (click to enlarge)

source: FRED (https://fred.stlouisfed.org/graph/?g=n9mx)

The macro model specifies a filter level for each indicator that’s historically been associated with a higher probability of recession. For both retail sales and industrial production, that level is when an indicator’s annual change is less than 0%. For example, if the annual change in retail sales is -2%, then retail sales have fallen over the past year. That would mean that consumers are spending less money and that part of the economy is weaker.

Since the unemployment rate is a percentage rather than an annual change, its filter level is reached if the unemployment rate is higher than its 12-month average. For example, suppose the average unemployment rate over the past 12 months was 5.0%. If the current unemployment rate is 7.0%, the unemployment rate is rising. This means that more people are out of work and the labor market is deteriorating.

☝ The goal of the macro model is to avoid drawdowns by reducing stock exposure during recessions.

✌ If two of the three economic indicators are below their filter levels, there’s a higher probability of recession, and the macro model rotates from stocks to bonds.

Basically, whenever retail sales fell and the indicator was below its filter level (e.g. 0%), the consumers are starting to spend less money. More importantly, if three indicators are below their filter levels. The macro model more likely rotating from stocks to bonds.

✍ If there is a low probability of recession (one or zero indicators below their filter levels), the macro model is equally invested in both funds. If there is a higher probability of recession (two or more indicators below their filter levels), the macro model is invested in bonds.


☑ Rebalancing ☛ is a necessary component for any strategy: active, passive, or strategic. Time-varying signals and deviations. If market timing is a sin, many investors may be surprised to find they are (unintentional) sinners. With so many unaware, it should come as no surprise that this sin arises in the most innocuous of places: portfolio rebalancing.

The final step in the macro model is to rebalance the model to reflect recent data. Monthly models observe fewer data points and underestimate volatility. Hence, the solution is to rebalance the macro model once per week but freeze the model’s stance for thirty days after a new position is initiated.

✔ There’s one other aspect of the macro model. Economic data isn’t known in real time. For example, you can’t use February retail sales data in February since the data wasn’t released yet. Therefore, each economic indicator must be lagged so that a model is only using data that was available in the past. The macro model builds in this lag for each indicator.

The macro model is now complete. It monitors economic data that has historically indicated a higher probability of recession, adjusts stock exposure based on this probability, and then rebalances once per week.

⚠ This macro model is a small part of the portfolio management component. It’s important for investors to not solely rely on one type of strategy, but rather be diversified across multiple approaches.


note: all examples are based on US-centric graphs/data from FRED
source: adam.collins