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Trading Myths

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  • A "Universal" Trading System Exists
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  • #1
  • First Post: Nov 13, 2007 10:36am Nov 13, 2007 10:36am
I attended a marketing webinar conducted by two famous trainers. They are both book writers and well-known instructors. One of them is specialized in training Forex and perhaps one of the most famous ones. I'd rather not to call them by name.

Anyway, these two were interviewing each other at the time. Here is what I remember from one of the questions and the answer to it.

Quote
T1: Hey T2 which time frame and which currency pair you trade the most?

T2: Thanks T1 for asking this question. I realized from the beginning that each system I develop can be traded on any time frame and on any currency pair....

To be honest with you I was shocked by this answer. I am a professional trader and I know that changing the time frame and/or the currency pair can significantly affect the outcome of a system. For example the behaviour of a Yen pair such as GBPJPY is not similar to EURGBP. Or it is almost impossible to build a trend following system on a One Minute chart while such systems can be quite successful on larger time frames such as Four Hour or Daily.

The bottom line is that a system can be successful on different time frames and or different currency pairs to some extent (and with some tweaks) but there is no such a "Universal" system that you can trade on every time frame and every currency pair.

That interview and that response convinced me to start this thread. I know that there are different approaches to trade Forex (mechanical vs. discretionary and fundamental vs. technical, etc.) and they all come with pros and cons but the question is that making people believe that there is such a "Universal" system in place is a myth.

I have a lot more to say but I'd like to hear from you first. I'm also quite open if you bring relevant topics to the table.

Thanks,
Al
  • #2
  • Nov 13, 2007 5:41pm Nov 13, 2007 5:41pm
Since I started this thread I have received some PMs from those members who cannot post on this thread. Here is one of them. I don't mention the name of the the member as I'm not quite sure if he/she wants the name to be published.

Quote
Hi Aparsai,

In regards to your 'system for all timeframes' thread (sorry but I cannot post there):

From what I have found the more fancy-schmancy indicators you throw up on the chart, the more likely it is that your system will only work on the given timeframe you are testing it in. If these are professionals, then we can probably assume that they use 'barebones' charts. Personally I don't see why a fairly basic system would not work on most timeframes with little to no tweaking.

Just my amateurish .02c worth...
I need to make a clarification. I don't want to argue with the fact that a trading system can be traded on different time frames and/or currency pairs. There are some trading systems like Grid systems that are absolutely independent of time frame. However, the fact is that there is no "Universal" system that can make money on any time frame any currency pair. I'd be more than happy to see such a thing.

Just for your information I have tested many different systems and have not found such a thing so far. Interestingly I have tested some of the systems suggested by the so-called trader "T2". None of those that I've tested were independent of the currency pair and/or time frame.

I'm still open to your feedback. I hope to - personally - learn from your comments.

Cheers,
Al
  • #3
  • Nov 13, 2007 5:49pm Nov 13, 2007 5:49pm
It is in my opinion that a good system can work across different(all) timeframes and all types of markets(So a method that works in the forex market, should also work in the commodity markets etc). While the results may vary such as trading on a larger timeframe yields different results then trading on a shorter timeframe(or trading the gbp/jpy produces different results then the eur/gbp).

The methodology is sound enough, and because of this produces a positive expectancy overall across the board. This is what I look for and how I go about developing a trading system/plan.

*Always feel the need for an asterix on the public side now for some reason. So here is mine. These are my views and opinions.


Mike
  • #4
  • Nov 13, 2007 5:51pm Nov 13, 2007 5:51pm
I agree with your thoughts here.

I've even heard people go further--their system works in any market (forex, commodity futures, stock indexes, individual stocks) AND in any time frame. Wow.

Now, I have seen a few systems perform relatively well across different markets in longer-time frames (daily and weekly). Even this is rare, though.

But once you move to intraday, the dynamics and "noise levels" for each pair/market change even more signficantly. Something that works on the EURUSD may not work well at all on the USDJPY, crude oil or Dow emini futures.

Having said all this, it's nice to see a method work for more than one pair/market and time frame. To some extent, this is possible. If something works on a 1-Hour EURUSD chart, I'd like to see it profitable on 4-Hour EURUSD chart or 1 Hour USDCHF chart. But to say something works just as well on 1 minute charts as it does on a monthly chart, and equally well on gold, IBM stock and the GBPCFH is very hard to believe.
  • #5
  • Nov 13, 2007 6:01pm Nov 13, 2007 6:01pm
Quoting John Pope
But once you move to intraday, the dynamics and "noise levels" for each pair/market change even more signficantly. Something that works on the EURUSD may not work well at all on the USDJPY, crude oil or Dow emini futures.
I do agree with this, however that doesn't mean a system can't perform over all timeframes, but is it worth it? The main problem I have with moving to such very low timeframes to apply my methods are the amount of trades I would have to take(not necessarily about costs such as commission), but if you miss a few trades here and there it can greatly effect the outcome of your system. If a system produces 3 trades a week on the daily but 15 trades a day on the 15min timeframe, and you miss 5 of these, that is no good for me. But if you know that your system can perform well across the board it helps the confidence level.

At least for me

*Edit, Then of course there are methods that are not timeframe dependent which is not what I was speaking of directly.

Mike
  • #6
  • Nov 13, 2007 6:08pm Nov 13, 2007 6:08pm
Most systems aren't designed to work on all currency pairs / timeframes. However, a system that focuses on a sound exit strategy would work even though it wouldn't be optimized for any particular pair.
  • #7
  • Nov 13, 2007 8:31pm Nov 13, 2007 8:31pm
maybe T2 trade the news? or a fundamental trader?

if the system devised not based on time frame or the currency pair, eg, purely mathematical and MM based, it may be claimed that way

if T2 take the signal that generated by all indicator at every time frame then T2 may claim the system works on all of the time frame.

it may be just a reversed statement
  • #8
  • Nov 13, 2007 9:03pm Nov 13, 2007 9:03pm
It is not the trading system that is successful or works well on any given time frame...

...it is the trader himself..............
  • #9
  • Nov 13, 2007 9:15pm Nov 13, 2007 9:15pm
Quoting Tiki Trader
It is not the trading system that is successful or works well on any given time frame...

...it is the trader himself..............
  • #10
  • Nov 13, 2007 9:24pm Nov 13, 2007 9:24pm
I know of a universal trading system... open a trade at the beginning of the week or month (it's better on the monthly) with no SL and set a TP of 1... it's basically a guaranteed winner I forgot what the % chance of being in profit with every trade was but it was something like 99%

Don't believe this? Well look at your monthly or weekly chart and see... any position will close in profit about 9X% of the time if you target 1 pip with no SL and the lower the spread is for your pair the greater the chance of you profiting
  • #11
  • Nov 13, 2007 9:43pm Nov 13, 2007 9:43pm
Sorry to play the raincloud here guys, but I have never seen a strong, consistent, statistically "proven" (you should be able to tell why quotes are needed) autonomous system that works on any ONE tradable exchange, let alone all of them, while having good r:r features to protect from catastrophe.

In other words, I have never seen anything that usually employs higher TP than SL AND has a 70% or above hit rate AND opens a significant number of monthly transactions. Ever. In my whole experience with all markets thus far - and I have seen quite a few.

And you guys are talking about systems that not only do that, but also work on pairs that behave differently both in volatility and activity patterns? That's brave.

Having said this, I currently am working on an AI system that is supposed to be more "insightful" than those that currently exist in its learning of patterns in historical price action. I believe things like these do work, and should work on any market, because they make only subjective statements based on the market's own history - kind of like what a trader does when looking back at the charts and trying to recognize top and bottom formations. And whenever in doubt, I remind myself of the fact that James Simons made 1.7 Billion dollars last year by using an algorithm.

Good luck.
Virtue finds and chooses the mean. Aristotle, Ethica Nichomachea
  • #12
  • Nov 13, 2007 10:49pm Nov 13, 2007 10:49pm
Quoting MoForce
with no SL
if you have no stoploss, you have no way to control your risk, thus you have no way to judge the optimal position size to use. i dont even see how its possible to trade with no SL, its the crux of money management. and trading with no MM is called gambling!
Relax and be happy.
  • #13
  • Nov 13, 2007 11:35pm Nov 13, 2007 11:35pm
Quoting Tiki Trader
It is not the trading system that is successful or works well on any given time frame...

...it is the trader himself..............
This is to some extent true if you are trading manually, but with automated systems the role of trader is less.

Actually your statement is more geared toward the discretionary trading versus mechanical trading. Let's assume for one moment that there is a profitable system in this world. Could it be used on any timeframe and any currency pair?
  • #14
  • Nov 13, 2007 11:37pm Nov 13, 2007 11:37pm
Quoting MoForce
I know of a universal trading system... open a trade at the beginning of the week or month (it's better on the monthly) with no SL and set a TP of 1... it's basically a guaranteed winner I forgot what the % chance of being in profit with every trade was but it was something like 99%

Don't believe this? Well look at your monthly or weekly chart and see... any position will close in profit about 9X% of the time if you target 1 pip with no SL and the lower the spread is for your pair the greater the chance of you profiting
I think you are not serious. Trading with such an approach is dangerous. It could be a good approach only if your leverage is very low (say less than 10). Otherwise how can you tolerate the drawdown on your equity and/or even the margin call.
  • #15
  • Nov 14, 2007 4:15am Nov 14, 2007 4:15am
Quoting aparsai
I attended a marketing webinar conducted by two famous trainers. They are both book writers and well-known instructors. One of them is specialized in training Forex and perhaps one of the most famous ones. I'd rather not to call them by name.

Anyway, these two were interviewing each other at the time. Here is what I remember from one of the questions and the answer to it.



To be honest with you I was shocked by this answer. I am a professional trader and I know that changing the time frame and/or the currency pair can significantly affect the outcome of a system. For example the behaviour of a Yen pair such as GBPJPY is not similar to EURGBP. Or it is almost impossible to build a trend following system on a One Minute chart while such systems can be quite successful on larger time frames such as Four Hour or Daily.

The bottom line is that a system can be successful on different time frames and or different currency pairs to some extent (and with some tweaks) but there is no such a "Universal" system that you can trade on every time frame and every currency pair.

That interview and that response convinced me to start this thread. I know that there are different approaches to trade Forex (mechanical vs. discretionary and fundamental vs. technical, etc.) and they all come with pros and cons but the question is that making people believe that there is such a "Universal" system in place is a myth.

I have a lot more to say but I'd like to hear from you first. I'm also quite open if you bring relevant topics to the table.

Thanks,
Al
Hi A,

My question would be:

Why indeed look for a univesal system? I am not convinced that anybody would want to trade all time frames from 1minute to 1 month;

As for instruments, if you want diversification you have to look for something that could work across the board from treasuries to commodities, equities and currencies - like trend-following.

If you want to diversify, you are more or less forced to look at longer time frames only because its impossible to track 5 screens with 20 different charts and place trades in all of them on a 1minute basis. In fact you would be in trouble even with 1hour charts.

Trends exist by definition in all instruments with the only difference in frequency and extend. That is quite universal. Trends also exist on every time frame and again, the only difference between the instruments is the frequency and the extend.

As someone mentioned in the thread, it is your ability and your choice as a trader to find the most suitable combination of time frame and product(s), rather than trying to find something that could work for everything but you physically cannot do.

"Jack of all trades - master of none" springs to mind.

regards
daytrading
Enter Signature
  • #16
  • Nov 14, 2007 5:01am Nov 14, 2007 5:01am
Quote
Having said all this, it's nice to see a method work for more than one pair/market and time frame. To some extent, this is possible. If something works on a 1-Hour EURUSD chart, I'd like to see it profitable on 4-Hour EURUSD chart or 1 Hour USDCHF chart. But to say something works just as well on 1 minute charts as it does on a monthly chart, and equally well on gold, IBM stock and the GBPCFH is very hard to believe.


To this and in reply to pretty much all...

I think you can draw price formations such as triangles, wedges, boxes, trendlines and so forth and trade them from the M1 to MN and make it work - the question is, can the TRADER make it work. Benssol was so kind as to pass me on dozens of chart examples from a guy trading stocks and indices llike that on M1-M15 and he's got both a logic and a consistent approach to it from what I've seen on the charts and comments.

But it' so "out there" - he includes WW, EW and whatnot - that imho it's more likely that it's just his years of doing it that allow him to do it.

So yes, adopting this perspective there's a universal system, if you view a trader as a system(this IS a viable perspective, as imho you must actually do this if you've got several under management - each employed trader over time becomes a "system" with expectancy and risk modalities and so forth..) as I expect he will be able to do it on any market that has bars and ticks

Just don't think the prerequisites are 3 step one liner rules you can jot down, learn and apply in 5 minutes
Trust price. Know yourself.
  • #17
  • Nov 14, 2007 6:23am Nov 14, 2007 6:23am
Quoting aparsai
I think you are not serious. Trading with such an approach is dangerous. It could be a good approach only if your leverage is very low (say less than 10). Otherwise how can you tolerate the drawdown on your equity and/or even the margin call.
No I'm not serious it's not something I would ever consider doing, but it definitely works if you use very low leverage like you said. Theoretically it works though, but the Cost outweighs the benefit
  • #18
  • Nov 14, 2007 8:46am Nov 14, 2007 8:46am
Quoting MoForce
Theoretically ..................
There's a lot of posts on FF mentioning this. Better to keep it practical.
  • #19
  • Nov 14, 2007 9:47am Nov 14, 2007 9:47am
my two penneth says 'almost'

my own methods work on any tradable instrument, be it oil and gold, dow 30 or forex.

timeframes however are a different ballgame as cost of doing business comes more important.

Trend trading the daily chart for example may result in one trade a week or even month costing 3 pips to make say 600 - trading the same system on the 5 minute chart could produce about 3-5 trades a day at a cost of say 75 pips for the week or 300 for the month and then some.

remove the transaction costs and yes, there are methods that work on any timeframe as well as any instrument.

because of transaction costs it makes it uneconomical to trade the lower timeframes. add to this that you have to clear the 300 pips before you are break even for the month and it means your skillset has to be much higher.

Im just a thickie slowcoach so I have to go the longer timeframe route
https://linktr.ee/Soultrader
  • #20
  • Nov 14, 2007 10:32am Nov 14, 2007 10:32am
this is a great topic to debate

here is my take...

quant systems... there is NO universal system. however, the more universal the system, the better. its always a good sign to see a system work on the EUR/USD and the USD/JPY, as the pairs have very different characteristics so the system must be robust to be profitable in both. it would be even better to see the system work on a completely different market like crude oil. with this said, most of my quant systems are taking advantage of market inefficiencies that only exist in a very specific place. therefore, i trade very few universal-type systems. in quant trading i feel its more profitable to have a tight focus.

discretionary trading... YES, there are universal strategies that work. as i have pointed out many times, i usually trade the "human element" of the market (ie reading the order flow and guessing what the major players are thinking/doing). i use the same exact philosophy in the stock market, currencies, oil, bonds, you name it. and it works everywhere, in every timeframe from 5mins to 5years, because the human element remains the same everywhere. so while i dont believe in universal systems, i certainly believe there are universal strategies and approaches that are profitable in every market in every timeframe.
Relax and be happy.
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