The "You can't be serious" system

Hi capm,

Well, that's two threads that you've started as (in your own words) experiments into the nature of forum participants and what they want/need/expect. Each seems to have fizzled out at the 4 to 6 week stage. I'd suggest you take the findings and deal with the results of your experimentation as you see fit.

You have put forward some useful insights into understanding price action and compared results using this knowledge in combination with a purely mechanical system to show that human intervention (generally speaking) makes for better end results. I think you'll find most people, even many novice traders, would already be aware of this as it's 'common sense'.

If you want to teach a methodology it has to be simple enough for students with a broad range of abilities and easy enough to apply for people with limited time to trade. As I see it, your last thread doesn't fulfill either category especially well.

Personally I'm left with the impression that you've gone into a bit of a sulk because the interest you'd hoped to garner was somewhat lacking and that this was somehow the fault of the limited number of followers of your threads. They had a look, decided it wasn't for them, moved on...

The other thread you mentioned for comparison fulfills the requirements of more members and is delivered well. I note you've only been a member since the beginning of the year. Perhaps you need more time to understand what's required and go from there if you're really interested in educating others in some way. You will need to lose that rather superior attitude you portray though before it would work.

Good luck with whatever you decide to do.

Regards, Paul.

Hi nitethinker (nice nickname! I have been one for some periods of my life) Thank you very much for your post.
Here are my comments:

Q1: Yes, it is valid. So, if we are in “short” mode (red histos), one can use PA to find entry opportunities. In this case, the prudent approach would be the break of the Frankfurt (or Asian) low. That is the trade I would have taken, personally. A more aggressive trader could use the low of the bar just before Frankfurt open, as it could be argued that the bulls failed to re-test the 1.200 BRN (a sign of weakness)

Q2: This is interesting. Various scenarios here. If your trade 1 was a “scalp” with a target at S1, you would now be flat. Or you may have taken partial profit at S1 and have a position still open. This changes your perspective. Let’s assume you are flat. Some traders would have re-entered short on the pin bar that forms the bottom in the middle of your green box (a break of S1) and they would now be worried. You seem to be more conservative (it is perfectly ok!) and wait for confirmation. You have it at the break of the bottom of the green box. I am not sure what you mean by “unofficial” entry, but, as I said above, you are still in short mode and you take the opportunities you like when presented by PA.

Q3: now you are short. Just a side observation: this time of the day is usually rather dull and stale. You have no news coming up and most traders will be waiting for the so called “New York” open at 1pm London time. So perhaps it is wiser to keep your powder dry and look for better opportunities. Anyway, you are short. The safest place for a stop loss is a few points above S1. As you pointed out, the bulls had two tries at S1 and they both failed. The second one is particularly interesting, well done identifying it:
a) It is a clear rejection (and the second one) of S1
b) If you take a short just below the low you have enough space to test the low of the range
This is what I usually call an “advanced entry”. It is advanced because things like these usually confuse new traders and at the beginning they need to focus on basic stuff. But you seem comfortable identifying it, so, all good.

So, what else can you do? If you took profit at the low of the range, you would feel quite a genius, as the market then moved up for a third, pathetic, failed attempt to test S1. But the you would immediately regret, as the market goes back down. No problem. Look at PA. You are still in short mode and you can go short again on the break of the latest low for a nice ride to 1.1900 BRN , which, incidentally, is also S2, increasing the attraction.

I hope it is clear. Please let me know if it is not. Thanks again.

Hi Pah.
Thank you very much for your comments. I think they are insightful and more constructive than others. As an expert in the art of self-criticism, I do share many of the views you have put forward.

If I may, I would like to dwell a bit on some of your points. Let’s start with my superior attitude. You are right. I do sound professorial, pompous and perhaps even arrogant. I have been an independent trader for 20+ years. I guess I have some excuses and justification for a hint of smugness. I have also been a coach and mentor for many years, and my style has never been a problem before. Perhaps doing it in person, rather than in writing, gives a very different experience. Anyway, I am afraid there is little I can do about it, both because it is my nature and because I like it. But you may be right: perhaps it is not the style people here like. Well, then I am destined to” failure” here. So what? I am learning something every day even, or especially, from “failing” experiences. Which leads me to a second point.

I am not sulky at all. I am sorry some people read my remarks as a sign of jealousy or whatever. I was just voicing my observations, my opinions, on my thread. I had no expectation from this experiment. I am still not sure why I am doing it, although the entertainment factor is one element. And if I sometimes comment on the lack of followers it is more for a sort of self-deprecating sarcasm than disappointment. I am definitely not benchmarking myself to the likes of LauraT or whoever are the most popular posters here. I am not interested in being popular. I am more interested in being serious and true to myself. If this is incompatible with forums, so be it. Besides, I have no obligation towards anybody, since all this is free. Nobody here is a customer, they are just window shoppers (you put exactly right: “they had a look, decided it wasn’t for them, moved on…”)
So, I am a fridge seller in Eskimoland. My loss. Although you never know…climate change is coming…!

You are right that I have been a forum member only recently. I have been following some forums for many years, but never found them interesting enough to take the plunge (again, perhaps part of my superiority syndrome.) Ironically, I became a member only to congratulate LauraT for her thread. Things somehow developed from there. It has probably something to do with Covid and isolation and the fact that I had to close my office. I do not regret doing it, as it is an experience and I got to know some very interesting people.

And then there is the content. Where do I start?
First of all, a clarification. Human intervention (the alleged common sense) does not necessarily improve a mechanical system. In fact, in most cases human intervention is a recipe for disaster, as many statistics show. If it was so easy to use “common sense”, why 80% of independent traders lose? In my opinion (I am going to stress this many times now), human intervention can be extremely efficient if one knows what to do. To get there, in my opinion, one needs to seriously learn. And not just this or that technique or strategy : the techniques or strategies that fit his/her own personality and requirements. This takes much longer than anyone likes to think, again, in my opinion.
It is all ok to propose a "simple methodology for people with a broad range of abilities". Incidentally, I could hardly make the simple strategy I proposed here any simpler: it's a two MA slopes! The point is that this should be just the start, an excuse to start a journey, in my opinion. I happen to believe that any pre-packaged strategy, in itself can be deceiving, pulling people into a false idea that "if I do this I will make money". Some people may well achieve this, but for many it is highly unlikely it will ever work. And again, I am talking in general terms here, not with regards to any specific strategy on FF. The methodology is a tiny piece in a much wider approach.
This is not exactly stuff for window shoppers. If my approach is unpalatable it is probably because it deflates the dream. My "students" were almost exclusively people who past the “dreamer” stage and were still serious about learning. But you are right, perhaps not the same audience as the majority on these forums.

Anyway, do not get me wrong. You do make some valid points and I do appreciate you taking the time to put them forward.
For the time being, I am just happy to be the odd one out here.

Thanks capm, these reminders of BRN and time of day as well as using PA to find entries are helpful.
EURUSD in a range. Nothing to do for this pair.

Yes....of course,no reason not to be friends :-),trading knowledge is what you provide and we share all of that together.I will read all of your work submitted during this weekend. Listen,forget who says what's about you,I commented because I've seen the time you spend on explanation and detail in your trading system and its worth following....surely I will learn something new,this is what life's all about....living and learning,sharing and being able to communicate on educated level.

Why does another trading system or educator creating a derailment in your thread? You were going quite well a few paragraphs before lol...I'm sure you can agree on that.The recycle bin theory is what may happen if you keep typing and calling names and spending your time this way.......right now I could be doing analysis instead of typing here about a subject that has irrelevance to the purpose of your thread. Go back in time when you now started this thread and read everything,what has changed and why?

If you really understand,what I am saying as well as Par's reply....he said great things to you,you should read that over and over.

We are here to accept the best in an international trading FF community,during its time many encounters of different lifestyles are experienced with one another.We sort out that which may bring all forms of attitude towards all traders.We can't change anyone's mindset or force to believe what is right or wrong,only thing guaranteed is the free access to information/education. Let's use it wisely and not abuse it.

EURUSD M15 (New York)

Chart #1
Short signal printed 2 candles before NY open.
Both histograms red, so only short.
BRN + Low of range are obstacles, so not comfortable taking entry.
Decided to place entry below the recent low (one candle before London Open).
Stop loss above range high too much. My thinking was, if price push all the way pass the low to trigger my entry, it would have enough momentum such that the retrace would not go all the way back to the top of the range.
Slightly aggressive SL placed above Daily Open.

Chart #2
Entry triggered

Chart #3
Price reached S1. Manually take profit because ADR is just not far below as well.

Very good Mandariin.
As you pointed out, the long was not triggered, and it was to be filtered as too close to PP anyway.

As we hinted, the “NY open” usually brings some volume and activity. I would like to talk a bit about that short signal just before NY open (1pm London time.)


The problem with that signal is that it was very close to BRN 1.1900. This is where it becomes tricky, especially for new traders. The rules should be that you wait and enter a decent buffer below BRN. But if you do that, you would be entering at a possibly worse place: the double bottom at daily Low support (green area.) And if you wait for a buffer below that you would be entering a long distance from the original signal, your SL would be quite high and the R/R low. What to do?

Option 1 (the default option for new traders); do nothing. Pass the trade. If it takes too much analysis and there is too much to think, it is usually not worth trying.

Option 2: enter anyway below the double bottom, as there is still a bit of space to try a scalp to S1 (which was reached). If your biggest issue is FOMO, you may feel more comfortable (or, better, less uncomfortable!) with this option.

Option 3: the more experienced and the more aggressive trader may consider that new orders may come in at NY open, that BRN did act as support–ish, but it was actually violated twice already, the real support is at the green area and there is a nice good space for the bears to re-test that spot and possibly continue to S1. Enough reasons to try. And it would have been the best trade of the day.

A couple of points here. One is how, even with the same system and same basic rules, 3 traders may have had 3 different outcome. This happens much more frequently than one can imagine. Which one is best? well, today, in this example, it was option 3. Tomorrow it may be different. But while of course it is good to know which one gives the best return, far more important is what is the best for each individual trader. That is why it is imperative (in my opinion!) that each trader takes note in their journal of every possible observation and build a history, creating their own "reference book". I am afraid you will hear me boring you to death with the journal thing.
But it is Friday evening and I let you off the hook. Have a nice week end.

AUDJPY M15 (New York)

Chart #1
Both histograms red, short only.
Price below BRN 83.00.
Slight concern about reaching average daily range.
Entry below signal candle.
Stop loss above grey S/R line (which happens to be yesterday's low and the tail of the pin bar 3 candles before London).


Chart #2
Entry triggered

Chart #3
Trade went beyond S1, +23 pip but I did not close. Greedy and want to see if it will go to S2. Stop moved to breakeven +1.
Price then retraced near to entry and just drift up and down doing nothing.
Manually closed for +5pip worrying it will end up +1 and also today is Friday.

After I closed the trade, price went down to +40 pip.

Hi scsstnt
Thank you for your reply. I am glad we clarified (most of) our misunderstandings and we are still friends.
I am still unsure where you saw me calling people names or being nasty towards anyone or committing any form of abuse. I am also still quite convinced that my post was relevant in what I think and have to say about trading, especially in my own thread, but we have different views on this and let’s leave it at that.
You are right. This is a side issue and we should not hijack analysis and trading time (BTW, I always make sure I don’t.)
As far as Pah’s reply is concerned, I believe I went already a great length taking the time to explain my position and thanking him repeatedly for his comments.
Which leads me to one last thing. I trust you do not mind me speaking my mind. We should be aware that we may have clashing personalities. You seem to have an inclination to offer quite a lot of behavioural advice (I am sure this is done with good intentions) and I have a problem with people telling me what to do and what not to do (a feature that has haunted me all my life.) Let’s keep this in mind in our future exchanges, which I sincerely hope will be numerous and constructive.
Have a great week-end.

Hi Nite.
I was typing my comments while you posted the EU charts! So, you went for option 2. Very good. It is a prudent approach. The only thing I would be uncomfortable with is the stop loss. I understand, it is quite typical to be willing to reduce the SL as the entry is quite far away from the signal. But I find it risky, as that level has been criss-crossed several times during the day and it offers little protection.
Good exit at S1. Usually, as you entered "a bit late" iti si prudent to be happy with first target, but to each his preference.

GBPUSD M15 (New York)

Chart #1
Short signal 1st candle after NY open.
Histograms red, short only.
Candle closed below S1.
BRN above provides some protection.
Price action where there were rejection of resistance.

Chart #2
Entry triggered.

Chart #3
Price approaching average daily range and S2.

Chart #4
Manually take profit at S2.

After trade closed, price went further down to BRN 1.3800.

I wonder if ADR is useful or a redundant statistics. capm do you even factor in ADR in your trading?

nitethinker, your second set of charts, AUDJPY. Again, good stuff. This time I would have probably used the same stop loss you used.

A few points to note.
A strong momentum pushed the market down to S1 and carried it a bit beyond. Interesting how it was rejected with the same strength. One thing to notice is that the retracement went up to re-test the Breakout point. This happens very often and it could be used to our advantage in advanced trades (which I will not comment now.)

Here is yet another case of "trader unhappiness syndrome". We have to learn to live with constant disappointment: we got in too late, got out too early, got out at the right place, but then the market continued on the same direction, let profit run and gave them all back. etc. etc. In this case You "should" have taken profit at S1. You did not, the market went back up. You could have bailed out at BE. You did not, you settled for +5. OK, not S1 but better than 0. Only to regret when market went down again. All these occurrences could have been very different and will be very different next time. If you have a plan, trade your plan consistently, but also take note of what may have happened with alternative plans, after enough time you may have a picture of what, on average, works best.

Better to stop here. Good week-end

Hi Capm, as these are the first few posts, they had to go through the moderators and probably appeared in this thread after you posted. You are probably right, FOMO was probably the reason why I took option 2.

I am so glad to have your comments on the EURUSD charts, all these important details are what I want to learn and become aware of.
For now, mainly I'm trying to figure out suitable SL placement. Looking forward to learning more from your thread.

Have a good weekend capm and everyone.

OK, last one, really.
First, another example of "trader unhappiness syndrome". You are disappointed even if you got out at a profit.

ADR. Personally, I do have a look at ADR for some systems but it is a minor part of my decision process. Much more important for me is the BRN 1.3800.

It is very important to understand that our brain works in a relatively faulty way. You are now thinking that ADR is useless because your brain has this very clear recent disappointing example. If you are using ADR it is probably because in other days you found it useful.
The worse way to use ADR (or indeed anything else!) is because someone told you so. The best way to have an objective view is to observe (much better: to take note) what happens when price approaches ADR. I know, it is hard work and terribly boring, but it pays off eventually. You will be surprised at how many interesting things you find out with a proper journal and stats.

I never used the word NASTY or ABUSE neither did the thought arise in my head. Imagine if everyone was able to express all these feelings on his/her thread fluently each time a trading system is uploaded,what would this world be? Can you imagine .You're not willing to accept correction as a human being or other traders,name calling and comparison from one system to another should be BANNED by FF and be strict rules.I understand your point made by typing so much information.

I had some time this week end (rain, cancelled bbq, in between books to read…), so I will be quite prolific with my content.

But first, some considerations. I am finding a bit tricky to manage this thread. Nothing to do with past and recent comments, which I welcomed and appreciated. It is rather the realisation of the difficulties of the task. It is obviously my fault. I set out to show the differences and interrelations between a simple mechanical system (SMS) and what could be achieved by using some basic PA (I think we should call this, rather uninspiredly, SMS+PA.) This may lead to the thought that I should be talking about 2 systems, or rather one system with disarmingly simple rules and another one with some variations, that overlaps and “corrects” the former. This is “course” and “coaching” material. It does not work well for forums.

I can’t just write something without explaining, and proper explanation takes time and space. I have even considered splitting this thread in two: the SMS and the SMS+PA. But this would give the wrong impression that I am trying to propose 2 different systems in their own right, which is not at all the case. The YCBS is the 2 systems intertwined.
Obviously PA is usually much more interesting and entertaining. I expect this thread will be no exception (I have already seen signs of it.) It is understandable: using PA is more fun and gives us some feeling of responsibility for our trades (especially on the merit side for the profitable ones – one can always blame the “bad” system for the unprofitable ones!)

Still, rules are important and the PA we are using is not just any discretionary whim, but a disciplined approach to be applied with method. So, it is important to work on both sides. The SMS is the compass, and a rather simplified one: blue=up, red=down. It provides a “philosophical” bias: trend following/ momentum/break-out, as opposed to a swing trading, mean reversion, contrarian one.
The SMS+PA is a more detailed map (apologies for borrowing the analogy, but I have been using this metaphor for about 10 years): it shows features of the terrain we wish to navigate on.

Because of all this and thanks to my unquestionable talent to go against the tide and in the absence of a better solution, I will keep talking about the two sides of the system in a single thread. It is much easier (and shorter) to talk about the SMS. The other one requires much more comment and explaining, as you have seen, and it is perhaps better to deal with it in questions and observations coming from the readers and with occasional examples.

Today, we will have a closer look at the compass: SMS and extract some general observations which will be useful in every system.

Let’s start from the end: results. I have kept note of the trades that the SMS would have taken over the past week, trading 24 hours a day (hey it should be your computer doing all the work, so relax!) from 8am London time on Monday to 10pm London time on Friday, where all positions are closed.
I used 1H charts of a number of instruments: 3 uncorrelated FX pairs (GBPUSD, EURAUD, USDCAD), 2 relatively highly correlated indices (Dax and Dow) and 1 “commodity” (Gold)

BORING BUT IMPORTANT WARNINGS:
1) For simplicity, I am using a unit of trading of 1 for all instruments. This is obviously crazy: 1 lot of GU is totally different in weight and risk from 1 lot of Dow. But doing it properly would require a long and unnecessary explanation. Simply, please, do not compare one instrument against the other. Take each one in itself.
2) For simplicity again, I am using an “always in” strategy: if you are long, you get out by reversing into a short. And viceversa. This implies a calculation of risk (and unit of trading) that is beyond the scope of this thread. However, it has the advantage of using one simple rule for entry and stop.
3) This exercise is for illustration only. Do not try it at home and above all do not even think of committing any real money! (I know it sounds like a stupid warning, but you never know these days!!)

First, here is a table of results, in points, for each signal the system would have given in the past week:



Not bad, considering all you have to do would be switching on the PC on Monday morning and come back on Friday night! But, please do not make anything of these results. It is just one week (which means nothing in statistical terms) and it has been a volatile week, and, crucially, a trendy one, especially in the second part. This is a trend following/momentum system, so, it is supposed to do well in these circumstances. I guess any moving average cross over may have performed well too.

Now, for those who are interested, I will post charts of each instruments.

Let’s start with cable:


I would like to point out a couple of things here.

First a reminder: some times you may see what looks like a signal from the histograms but no trade. That is because in order to activate the trade, the signal has to be confirmed by the market going in that direction for an “x” number points. In other words, there must be a break-out of the High (Low) of the bar where the signal is Long (Short).

Secondly, what comes right up to the viewer is that the first part of the week was range bound, and in these conditions such system does not work well. We were lucky to come out unscathed in this example, but we did less well in other examples. Then something happened and a trend emerged. Unsurprisingly, such a system performed rather well.

Thirdly, we were rather “unlucky”: the system got us long a few hours before a big event (FOMC meeting on Wednesday- point number £ in the chart.) A few words about it. These events are a gamble. They could go up or down big way. The system is blissfully oblivious of these events, and it keeps making its stupid calculations. Why am I saying we were unlucky? Because, as far as the system is concerned, it is random. Let’s look at another example.


If you were trading just cable, you would be disappointed with the system and doubt its validity. But if you were trading EURUSD you would have been very lucky: you would have entered a short (just!) a few hours before the event. You would now be ecstatic and claim that the magic system has rightly predicted the FOMC outcome! (BTW, that’s the chart a system seller would have used, of course!)

One last observation from this, more relevant to those interested in mechanical strategies. When we use mechanical systems we usually play with a small (in our case extremely small) number of variables. It is a one size fits all. It is a numbers game. If we accept this, and we have statistical evidence that the system has a positive expectancy, we also have to accept that diversification will increase our chances of success and smooth the average of our returns. As we see here, even two rather correlated instruments like EU and GU had a smoothing effect if used in conjunction*: EU lost 75 points during the sideways period, GU was a break-even. But EU was on the “right side” of the market on the event, whilst GU was on the wrong one, losing a sizeable 107 points and joining the trend much later.

* Please keep in mind warning 1) in my previous post.

USDCAD


Another example of “unlucky” entry. This would probably hurt more: short just 2 hours before and triggered by a tiny a bunch of points. Notice again the poor performance in sideways markets.

EA


The thing to note here is how different the chart looks compared to the previous 2 (3) FX pairs. This confirms the lower correlation and helps smoothing the overall returns.