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What actually works.

  • #61
  • Oct 21, 2006 6:42pm Oct 21, 2006 6:42pm
Quoting Pacific Dragon
...2. When tested over a long time frame (I'm talking about 2 decades and LONGER here), the net gain was only in the region of 1-5%, lower Rate of return than buying and holding blue chips stocks...
Why would you test a system over decades of data? Do you really think the market in 1982 is the same it is today? Every system that is even remotely profitable in the long term needs to be "optimized" at least once a year, usually a lot more, especially if it's an intraday system.

Quoting Pacific Dragon
...Most Mechanical Systems it appears I believe only either work in Trending -OR- ranging markets, but not both. It the market is not fitting the system, drawdowns will result...
Yes, you are correct. There is no system that will perform "well" in all market conditions. If a system can breakeven in one type, and excel in another type of market, you have found something worth trading. Furthermore, drawdowns should be your friend. When you get into a drawdown, you should say to yourself "hell ya, it's time to make some money now!", not "this system has drawdown, I quit".
  • #62
  • Oct 21, 2006 6:45pm Oct 21, 2006 6:45pm
Quoting twinchell
When you get into a drawdown, you should say to yourself "hell ya, it's time to make some money now!", not "this system has drawdown, I quit".
I think twinchell would agree with me though that this doesn't mean you should put more money on it. This is getting into very poor money management and the gambler's fallacy. Just because you are on a losing streak doesn't mean you are "due" for a win. Just have faith in the long term results of your system, and don't let short term losing streaks get you down.

andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #63
  • Oct 21, 2006 7:11pm Oct 21, 2006 7:11pm
Quoting Craig
The most important aspect of trading is risk management, the trading system is only a minor part of the equation. All systems win & lose, it's impossible to predict the market, all you can do is make sure your trades are well managed. Risk mangement is independant of the system de jour (of which there are many), risk mangement works in both trending and ranging markets. This is all it boils down to really, you can trade randomly and still make money if this is what you want...
...and have the stomach to stay in when the going gets rough. Sensible entry and exit. You can fight the battle with guerilla tactics or with mechanized assault. What works for others may not work for you. Go back to the fundamentals. Buy and sell when you made your profit. When the tide is against you be sure you have CORRECTIVE measures available i.e. enough money to cover if you are staying in. Know what a stop loss would mean to you if you are using it. Know how long you can stay if you are not using it.

Good luck and carry on.
  • #64
  • Oct 21, 2006 8:10pm Oct 21, 2006 8:10pm
Quoting twinchell
Why would you test a system over decades of data? Do you really think the market in 1982 is the same it is today? Every system that is even remotely profitable in the long term needs to be "optimized" at least once a year, usually a lot more, especially if it's an intraday system.
Rightly or wrongly in this case, I was expecting to generate a system that was able to 'survive' in majority (if not all) market conditions, and I felt that back testing the system over a long time frame gave it exposure to a greater range of market conditions and behaviours. From reading your reply, it seems you are suggesting that traders should be tweaking / change their systems from time to time as no one fixed system will last for ever?

Admittedly I'm getting mixed signals on this one and will admit that I am confused on this. But many people including experienced individual traders and gurus have strongly recommened formulating a system, sticking to it for the long hual and under no circumstance given into the urge to tweak / change your system.

Quoting twinchell
If a system can breakeven in one type, and excel in another type of market, you have found something worth trading.
Well... Admittedly, I've never seen or was able to formulate a system that could both excel in one type and actually breakeven in the other. By far and the large majority of systems I've come across have either exceled in one and then decimate trading capital in the other... and to drill down to core of my current dilema, is basically the systems have generated huge amounts of volitility / fluctuations in trading equity with at the most, lack lustre or mediocre gains that couldn't even beat buying and holding blue chip stocks.
  • #65
  • Oct 21, 2006 9:45pm Oct 21, 2006 9:45pm
I believe if you can build a system to just have a positive expectancy over several years of data, tweaking it slightly every six months or so can make it very profitable to trade. For example, if your system is dependent or feeds off volatility, chances are it isn't thriving as it once was at the moment. With decreased volatility, I would suggest tweaking the parameters to trade based off the lower volatility that we have been experiencing lately. This doesn't mean that the system should fall apart should we regain volatility.


As per decimating capital in varying market conditions, there have been a few posts in the last couple days regarding protecting your balance that are good to read. I firmly believe that protecting your account is far more important that achieving high returns. Drawdown, to me, is more important than return, and should be for any serious trader.
  • #66
  • Oct 22, 2006 11:38pm Oct 22, 2006 11:38pm
I'm going to clarify Craig's post a bit to reflect my own experience:

Quote
The most important aspect of trading is risk management, the trading system is only a minor part of the equation.

Once you have a profitable system, the most important aspect of trading is risk management. If your system has a negative expectancy, no amount of risk management tinkering will turn it profitable. However, a profitable system can still blow up an account when combined with too much risk.

Quote
All systems win & lose, it's impossible to predict the market, all you can do is make sure your trades are well managed.

Yes all systems have wins and losses of varying size, and knowing with absolute certainty what will happen next is not possible. However probabilities do exist, and under certain conditions it is possible to say for instance, that 65% of trades taken long at this point will turn into a profit if managed in such and such a way. Once the trade is underway, all your focus and effort should be on managing the trade according to your predefined rules, which should have an advantage if you are trading a system with a positive expectancy.

Quote
Risk mangement is independant of the system de jour (of which there are many), risk mangement works in both trending and ranging markets.

My own view is that your risk management plan should have a lot to do with how the market typically acts after your trade entry is signalled - for instance MAE, MFE.

Quote
This is all it boils down to really, you can trade randomly and still make money if this is what you want...

This sounds nice but I have yet to see any system or any one who trades randomly that consistently makes money. There must be an advantage in the system design or series of trades to consistently overcome transaction costs (spread) and still bank a profit, and that doesn't happen by trading randomly.
  • #67
  • Oct 23, 2006 1:28am Oct 23, 2006 1:28am
It's called the coin game, basically you use a coin to decide if you go long or short then manage the trades (cut losers, let winners run), you will make money over time. Also you can run simulations on MT4, basically you randomly decide a time and place limit orders above and below the price, you can then optimize the MM parameters to make the system profitable.

By no means does this produce the most profitable system ever, but it makes the point that MM does have a major impact on system profit.

There are other things which can swing the odds in your favour (support, resistance, trend), but these things tend to be hard to automate as well as a human can pick it, I focus on automated systems mostly, just to clarify my comments.
The breaking of a wave cannot explain the whole sea.
  • #68
  • Oct 23, 2006 2:35am Oct 23, 2006 2:35am
My friend...if it helps

I use a combo strategy of fibo(carolyn boroden/Mark Braun)

and a method I developed called 'the double rajj'(my fav)

after trying tons of strategies I decided on this combo method which consistantly gives me 20+pips...

after I throughly test the R/R I will post it....
  • #69
  • Oct 23, 2006 2:52am Oct 23, 2006 2:52am
Many thanks for the offer Mr Kid!


If it works I am interested i'm still searching for what actually works!! (
  • #70
  • Oct 23, 2006 4:16am Oct 23, 2006 4:16am
Hey schoe,

go and check out this poll and read the steps/stages on the path to trading nirvana. see if any of it rings a bell http://www.forexfactory.com/forexfor...ead.php?t=3156
I read it every couple of months just to see if anything in my actions jumps out at me.

Enjoy
Ademac
  • #71
  • Oct 23, 2006 4:26am Oct 23, 2006 4:26am
Quoting Craig
It's called the coin game, basically you use a coin to decide if you go long or short then manage the trades (cut losers, let winners run), you will make money over time. Also you can run simulations on MT4, basically you randomly decide a time and place limit orders above and below the price, you can then optimize the MM parameters to make the system profitable.

By no means does this produce the most profitable system ever, but it makes the point that MM does have a major impact on system profit.

There are other things which can swing the odds in your favour (support, resistance, trend), but these things tend to be hard to automate as well as a human can pick it, I focus on automated systems mostly, just to clarify my comments.
Craig, money management has a very specific definition and means something other than what you're describing. Here is the definition from Wikipedia:

Quote
Money management deals with the question of how much risk a decision maker should take in situations where uncertainty is present. More precisely what percentage or what part of the decision maker's wealth should be put into risk in order to maximize the decision maker's utility function.

Money management gives practical advice among others for gambling and for stock trading as well.

Money management can mean gaining greater control over outgoings and incomings, both in personal and business perspective. Greater money management can be achieved by establishing budgets and analysing costs and income etc.

Boiled down to its essentials, money management deals with what percentage of the account to risk on a given trade. Money management won't turn a losing system profitable but if you risk too much per trade, you can blow your account with a profitable system by taking on too much risk for the account size.

What you're talking about when you include stop loss and profit target is trade management or exit rules. If your exit rules have an advantage, they can turn a system with no entry edge into a winner. I have no problem with that statement. This is a subtle but important distinction to understand.
  • #72
  • Oct 23, 2006 12:50pm Oct 23, 2006 12:50pm
I understand what you are saying but beyond dicing semantics, the two are intimately linked. One cannot consider position size without stop loss size, otherwise you cannot calculate your maxium loss. I know there are other ways to manage risk, but they all involve a linkage between position size and trading method. I don't know if there is a name for the overall concept.
The breaking of a wave cannot explain the whole sea.
  • #73
  • Last Post: Oct 23, 2006 7:34pm Oct 23, 2006 7:34pm
Quoting Pacific Dragon
Rightly or wrongly in this case, I was expecting to generate a system that was able to 'survive' in majority (if not all) market conditions, and I felt that back testing the system over a long time frame gave it exposure to a greater range of market conditions and behaviours. From reading your reply, it seems you are suggesting that traders should be tweaking / change their systems from time to time as no one fixed system will last for ever?

Admittedly I'm getting mixed signals on this one and will admit that I am confused on this. But many people including experienced individual traders and gurus have strongly recommened formulating a system, sticking to it for the long hual and under no circumstance given into the urge to tweak / change your system.



Well... Admittedly, I've never seen or was able to formulate a system that could both excel in one type and actually breakeven in the other. By far and the large majority of systems I've come across have either exceled in one and then decimate trading capital in the other... and to drill down to core of my current dilema, is basically the systems have generated huge amounts of volitility / fluctuations in trading equity with at the most, lack lustre or mediocre gains that couldn't even beat buying and holding blue chip stocks.
Only a system that follows the price, will last for "ever"
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