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Much of What You Know About 4X is Wrong!

  • #81
  • Oct 22, 2007 1:42pm Oct 22, 2007 1:42pm
"My question here is Does absolute ramdomness ever occur in the physical world?"

Yes. Spontaneous particle-anti-particle creation and annihilation in a vacuum is random. So is the precise location of an electron in an atomic orbit.

At the macroscopic scale though, there isn't much that is truly random. It's just a function of large amounts of variables and interactions.

Then I suppose one could argue at what level of complexity does a system need to be such that it is indistinguishable from randomness?

On the bright side, even a system that appears indistinguishable from randomness must obey the laws of probability. So measure of probability like variance, standard deviation, and the like would still apply.

I'm still of the opinion that the markets still have enough obvious influences that it is not 100% random.

~X~
  • #82
  • Oct 22, 2007 2:11pm Oct 22, 2007 2:11pm
Quoting Xyrus
"My question here is Does absolute ramdomness ever occur in the physical world?"

Yes. Spontaneous particle-anti-particle creation and annihilation in a vacuum is random. So is the precise location of an electron in an atomic orbit.

At the macroscopic scale though, there isn't much that is truly random. It's just a function of large amounts of variables and interactions.

I'm still of the opinion that the markets still have enough obvious influences that it is not 100% random.

~X~
OK. Thanks for telling me what seamed like common sense to me. Now I'm convinced.

Today's market action might seem random to some, but I'm sure that someone gained by it's action, which is in itself not random, but also not orderly to the majority of retail Forex players.

So where do we go from here? The trend/s today did little to generate profit for most. The only retail players who profit were crazy enough to trust a counter trend LT and go with a new trend ST. Very risky move unless you are an avid scalper, which I'm not. At times like these a stable LT system is out of the market until fundamentals line up with technicals.
  • #83
  • Oct 22, 2007 9:11pm Oct 22, 2007 9:11pm
You must trade based on your account and objectives. I agree with your initial post until you look at the EURO from 2001 to current. With a large enough stop or none at all, you made a killing.

I am sure there are/were very large investors much smarter than me who could see the "writing on the wall" in regards to the EURO against the dollar. Plugged in so to speak. On June 24th, 2001 if you decided to buy the EURO and keep buying every couple hundred of pips you are in very good shape.

People talk about randomness or noise in the market but nobody ever defines it. Some say they trade 4 hour and longer to stay away from randomness but who says the 4 hour bars aren't randomness?

The bottom line is you must trade according to your funds. My personal opinion is Forex is a game played by the fundamentals. Some would say the drop today in the EUR/USD is random noise and the EUR will continue up.
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"Its not where your at, but where your coming from"
  • #84
  • Oct 22, 2007 9:32pm Oct 22, 2007 9:32pm
Have you heard about Chaos theory?

Everything is in order my friend, including Forex....
  • #85
  • Oct 22, 2007 9:32pm Oct 22, 2007 9:32pm
Quoting philmcgrew
Xyrus, welcome to the forums. As a nuclear engineer (former) I enjoyed the physics reviews,...
Philmcgrew hello

One question if i may, what are your thoughts about "mind over matter"...(human mind)

Thanks.
  • #86
  • Oct 22, 2007 9:47pm Oct 22, 2007 9:47pm
Quoting athalon7
You must trade based on your account and objectives. I agree with your initial post until you look at the EURO from 2001 to current. With a large enough stop or none at all, you made a killing.

The bottom line is you must trade according to your funds. My personal opinion is Forex is a game played by the fundamentals. Some would say the drop today in the EUR/USD is random noise and the EUR will continue up.
Another good trending pair has been USD/NZD, but I tried to get in 2yrs ago just before a major correction. That's one of the many reasons I'm now Micro sized instead of mini.

It is possible to trade with little regard for the trend by using strategically placed hedges and with the advent of micro lots us little guys have much more flexibility than we did with mini lots. I know from reading other threads that many traders resist the idea of hedging one currency, but quite frankly, you get what you pay for and in this case the extra spread cost buys security in uncertain times. With a bit of counter intuitive thinking at times the use of a hedge becomes quite advantageous.

This is the main reason I started this thread. To start the dialog and lay the ground work for a different approach. An approach I've seen bits and peices of elsewhere performed by much more capable traders. It's unconventional and judging by the strong reaction to the topic of trends and wether or not they exist, I'd say I'm going to have my hands full. First things first though.

I would like to see more dialog along the lines of other bits of conventional trading wisdom. How about, "Don't Marry your positions"? Conventional wisdom says cut your losers quickly and hold onto your winners. I see just the opposite is true when hedging and durring ranging markets.

I need to cut this short tonight, but in the mean time I ask everyone to think about this marriage thing. If you aren't open to the posibilities of occasional hedged positions, you won't appreciate where this thread is going. That's cool. I need to do it this way because of financial constraints.

Till tomorrow
  • #87
  • Oct 22, 2007 9:51pm Oct 22, 2007 9:51pm
The Trend Is NOT your friend.

Pamela Anderson is.....
  • #88
  • Oct 22, 2007 9:55pm Oct 22, 2007 9:55pm
Quoting cirebonese
Have you heard about Chaos theory?

Everything is in order my friend, including Forex....
If chaos truly dominated the forex market randomness would be the norm. I believe that the Forex is anything but random. It only exists because it's creator/s benefits from it. Order is need for benefit to be derived and order must appear to be as random as possible in order for the few to benefit from the many, just like any business. We as traders need to find the best sales in order to re sell our purchases at a profit, just like the big dogs.
  • #89
  • Oct 22, 2007 9:56pm Oct 22, 2007 9:56pm
Quoting forexlion
The Trend Is NOT your friend.

Pamela Anderson is.....
Now I can sleep on that! I wish.
Good night!
  • #90
  • Oct 22, 2007 10:25pm Oct 22, 2007 10:25pm
Quote
If chaos truly dominated the forex market randomness would be the norm. I believe that the Forex is anything but random. It only exists because it's creator/s benefits from it. Order is need for benefit to be derived and order must appear to be as random as possible in order for the few to benefit from the many, just like any business. We as traders need to find the best sales in order to re sell our purchases at a profit, just like the big dogs.
I agree. There is a much bigger picure involved including political and business interests that have nothing to do with currency trading directly. In other words, the EURO is strong for many, many factors most of which I have never even heard of or contemplated. Any movement outside of those factors is random in my opinion.

Thats why reactionary trading is far better than prediction. The only problem with reactionary (hedge trading basically) is time is needed before profitability. It can get downright boring waiting for price to finally move in your favor but if done correctly it can be profitable for sure.
"Its not where your at, but where your coming from"
  • #91
  • Oct 22, 2007 11:02pm Oct 22, 2007 11:02pm
The Taoism view is:
At first, there is no trend.
Then people defines a trend. Gives a name to certain market behaviour as a "trend". And so there's trading with the trend and trading against the trend.
That means we r not respecting the nature. We do what we define, what we believe but not what the nature actually is.
Suggestion:
Dun try to define a trend from ur perspective. Forget about urself and ur existence. The focus is the market, and the market is a nature being. Show some respect to her. Let her take u to where it wants to go.

Having said that, it's very very hard to do, very difficult to achieve because of egoism. So the first step is still, go with the "trend", that involves a lot of observation to find out where the market wants to go. But never ever go against where the market wants to go 'coz if you are going against nature on purpose, you'll pay for that, in the end, lose everything.

My 2 pips.
make some money, have some fun, leave some footprints
  • #92
  • Oct 23, 2007 7:03am Oct 23, 2007 7:03am
Quoting athalon7
Thats why reactionary trading is far better than prediction. The only problem with reactionary (hedge trading basically) is time is needed before profitability. It can get downright boring waiting for price to finally move in your favor but if done correctly it can be profitable for sure.
I think this is why hedging appeals to me so much. Nothing is 100% but my experience thus far is one of steady profit, sometimes big usually small, but profit non the less. Also I'm able to carry on a busy life outside of trading with hedging and I feel it is a good way for new traders to get their feet wet especially if the markets are in a range.

One more note about my hedging experience. So far I've entered the market at the start of each week with no concideration for trend or best time to place my orders, and yet I'm still able to have been in profit each week. I'm beginning to see better times and places where the orders could be placed and looking forward to better results in the future. For example, last night I was down over 100 pips when I went to bed. By taking small profits with pending orders I woke today to see a net gain of 10 pips so far. And let me repeat, I really skrewed up the order placement Sunday night by hedging at the top of the range.

I'm not trying to tell people to throw away their trend based systems if their making profit, but for those of you who are having trouble with trends like I have, you might want to check out various range strategies.
  • #93
  • Oct 23, 2007 10:14am Oct 23, 2007 10:14am
The 1st post in this thread has been updated to better describe the threads purpose.
  • #94
  • Oct 23, 2007 11:17am Oct 23, 2007 11:17am
how long you have applied this methode in your trade?
  • #95
  • Oct 23, 2007 11:38am Oct 23, 2007 11:38am
Quoting plumiash
how long you have applied this methode in your trade?
It has been a gradual transition over the past 3-4 months. Before that I relied on indicator based systems, then I switched to trend based with areas of support and resistance. Now for the last 3 weeks I've found ways to Hedge most of the time.

The thought of a hedged based system for new traders first occured to me durring last summer while I was writting a short story for the Members Area here at FF. It's called 'The Chronicles of Max Trader, 4x Detective'. In the story Max visits a beach called Newberry Beach and that's why I call my system The NewBerry Hedged Breakout system. I started the story just to entertain people while the markets were slow and now I'm seeing benefits from what started as a crazy obsession. I guess that this illustrates how things tend to take care of themselves when you try to have fun with something you love.
  • #96
  • Edited 3:58pm Oct 23, 2007 3:38pm | Edited 3:58pm
Quoting Micro-MiniMe
If chaos truly dominated the forex market randomness would be the norm. I believe that the Forex is anything but random. It only exists because it's creator/s benefits from it. Order is need for benefit to be derived and order must appear to be as random as possible in order for the few to benefit from the many, just like any business. We as traders need to find the best sales in order to re sell our purchases at a profit, just like the big dogs.
IMHO the underlying reasons behind price movements ("fundamentals") are definitely not random, as every participant in the market supposedly acts with singular intention. These folk may include commercials hedging to insure their primary enterprise, large banks and institutions, retail speculators, and so forth. Price reflects the current "collective sentiment" of all these participants. However, the way in which price moves depends on exactly when these folk enter and exit, and whether they decide to buy, sell, cover, etc. If we had an omniscient view into the thought processes of all of these participants, then we could likely forecast price movement with almost complete accuracy.

I believe that "randomness" is caused largely by the haphazard intervention of the participants. While each trader has his own motive, the observer has no way of knowing who is about to participate at any given point, and why. For example, if an institution suddenly decides to postpone placing a large sell order until tomorrow, then their change of decision might help to prolong a current upward move for another 24 hours, allowing some traders - oblivious to the reason - to benefit "fortuitously" from the extension of this move.

Another point is that sentiment is dynamic. Each individual's decision (buy, sell, cover, defer action) potentially has an impact on other's decisions, in a chain reaction. If a trader decides to sell, it might influence a dozen others to do likewise, and so on, resulting in an avalanche that begins a reversal.

Part of a post that includes a further example from Mark Douglas' Trading in the Zone:
Quoting hanover
What Mark says makes much more sense to me now than when I first read his book. It has reawakened my understanding as to why price movement in such a random process. We know that fear and greed are among the most irresistible of human emotions, hence prices must always move between "overbought" and "oversold" extremes. However, we can not predict who the participants will be at any given point, what their goals and aspirations are, and what their emotions will drive them to do.

As an illustrative example, Mark tells a story of a capable analyst who was hired by a firm. The analyst explained to his new boss how he could predict turning points by using support and resistance levels. When soybeans price reached a major support level, his boss said to him "OK, what you're saying is that price can go no lower, right?" The analyst said "Absolutely. This is the low of the day". His boss immediately picked up the phone and said "Sell two million beans at market", and within 30 seconds, the soybean price had dropped another 10c. The boss said "Now where did you say price was going to stop? If I can cause that, anybody can".
As author John Piper says in The Way to Trade, the only certainty we can state about markets is that "they move from extreme to extreme across all time frames". This is reflected in the psychology of trading: when enough folk believe that an item is priced low enough they will buy it, a collective action that will drive price upward until crowd opinion deems that it is too expensive, which will trigger a selling phase. This is of course an over-simplified view, but I believe that it's a significant underlying reason behind whatever "trends" exist.

However, to the technical trader, price is actually nothing more than a series of numbers, and forex trading is a "game" where, if discernable non-random patterns in these numbers recur consistently enough, then he has phenomena that can be potentially exploited for profit. As I said in an earlier post, if the buying and selling "trends" begin unexpectedly, and are equally as likely to end at any one point as any other, then the pattern lacks an exploitable regularity.

That is what I mean by "randomness".

If it is possible to profit, on balance, indefinitely from trading (as some apparently do), then exploitable patterns must exist somewhere amongst the chaos. That is proof enough for me that "trends" of some kind do actually exist. I only wish I knew what they were.

David
  • #97
  • Oct 23, 2007 4:26pm Oct 23, 2007 4:26pm
Quoting hanover
If it is possible to profit, on balance, indefinitely from trading (as some apparently do), then exploitable patterns must exist somewhere amongst the chaos. That is proof enough for me that "trends" of some kind do actually exist. I only wish I knew what they were.

David
One of the patterns that exist with unusual certainty is the tendancy for price to return towards pivot points more times than not. That is one reason I favor a strategy that utilizes, at least in part, range based trades and hedges (of the one currency pair type). I agree, trends do exist as sure as fads do with things like clothing. I remember years ago I saw some of the cool kids wearing plaid pants. I had to have some, but soon after I got mine the fad became something else and before long I looked like johnny come lately. The fad was started by one kid who's parents owned the biggest clothing store in town and as it turned out I played right into their hand.
  • #98
  • Oct 29, 2007 8:40pm Oct 29, 2007 8:40pm
Quoting forexlion
The Trend Is NOT your friend.

Pamela Anderson is.....
I prefer Scarlett Johansson to be my friend.....
  • #99
  • Nov 2, 2007 6:59pm Nov 2, 2007 6:59pm
Quoting Micro-MiniMe
................ and nurture a long lasting relationship.
Or in other words - look for the trend.

  • #100
  • Nov 2, 2007 10:28pm Nov 2, 2007 10:28pm
Quoting SunTrader
Or in other words - look for the trend.

OK SunShine
As illustrated by my account statement, since Oct 2 GBP/USD has moved down almost 200 pips and up just over 400 pips, yet somehow I was able to gain aprox 400 pips most of which I gained before the major up trend resumed. I would have made more recently during the easy trading (or trend as some call it), but personal responsibilities prevented me from trading safely.

Note how many times I made money from selling this pair against the major trend in early October.

Do I care about the trend? No. Do I need trends? No. Do I need other traders acceptance? No.

I know this appears arrogant of me. After all, I only trade part time and I trade in micro lots. What the hell could I possibly know, right?

Like I said before, the market is the only friend I need.
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