Stacking the odds ..yes we do need luck | Forex Factory

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Stacking the odds ..yes we do need luck

  • #1
  • First Post: Dec 21, 2007 5:13pm Dec 21, 2007 5:13pm
There is a word in trading that few people like using but to me its a must especially when you go from paper trading to live trading..That word is LUCK

Imagine you’ve spent 3month paper trading building your account up 5 fold ..and then looms the big day..the live day.

And just your luck .. The market moves in a range of just a few points all day and you lose .. And guess what ...it never happened once in the 3months you paper traded. Well that’s just bad luck and it does happen and it happens alot more than people admit. We need an element of luck when we 1st go live we need nice ranging days with clearly defined signals.

I think its a crying shame if a new trader does all the right things and then decides to go live in a week the market gives his system the worst draw down its ever seen. The big problem here is that I don’t think there is a thing we can do about it. Perhaps you could look forward and see what news announcements are coming out that week and try to steer clear of any weeks that are full of impending results and reports.

If Nato decided to invade Iran this coming week I don’t think Id be too inclined to start my trading career at that time.

Another way of perhaps increasing our odds of having a good start is to look and how many losing trades in a row our system has given over the past 6 months. Lets our system has had at worst 5 losing trades in a row, and it is currently on 1 .... I personally would rather wait until we were on 4 or 5 before I started live because the odds of a 6th and 7th must be more remote than a 2nd or 3rd which is the case if we started now.

Or on the flip side if our system has a record of 7 winning trades in a row over the past 6 months and we are on 6 I personally wouldn’t think the odds are stacked in my favour of getting a 7th.....but if im on 1 or 2 then I think Id be more happy.

This timing need only be done when going from paper to live to try and give you the best possible start.. Would I for example wish to start trading in August when there is a high chance many traders will be taking their holidays which will be probably reflected in the lack of volatility in the market.

lets don’t kid our selves here .... we need volume and we need traders ..without volatility we fail simple as that.

Its all about stacking the odds
  • #2
  • Dec 21, 2007 5:21pm Dec 21, 2007 5:21pm
Quoting Paulus
There is a word in trading that few people like using but to me its a must especially when you go from paper trading to live trading..That word is LUCK

Imagine you’ve spent 3month paper trading building your account up 5 fold ..and then looms the big day..the live day.

And just your luck .. The market moves in a range of just a few points all day and you lose .. And guess what ...it never happened once in the 3months you paper traded. Well that’s just bad luck and it does happen and it happens alot more than people admit. We need an element of luck when we 1st go live we need nice ranging days with clearly defined signals.

I think its a crying shame if a new trader does all the right things and then decides to go live in a week the market gives his system the worst draw down its ever seen. The big problem here is that I don’t think there is a thing we can do about it. Perhaps you could look forward and see what news announcements are coming out that week and try to steer clear of any weeks that are full of impending results and reports.

If Nato decided to invade Iran this coming week I don’t think Id be too inclined to start my trading career at that time.

Another way of perhaps increasing our odds of having a good start is to look and how many losing trades in a row our system has given over the past 6 months. Lets our system has had at worst 5 losing trades in a row, and it is currently on 1 .... I personally would rather wait until we were on 4 or 5 before I started live because the odds of a 6th and 7th must be more remote than a 2nd or 3rd which is the case if we started now.

Or on the flip side if our system has a record of 7 winning trades in a row over the past 6 months and we are on 6 I personally wouldn’t think the odds are stacked in my favour of getting a 7th.....but if im on 1 or 2 then I think Id be more happy.

This timing need only be done when going from paper to live to try and give you the best possible start.. Would I for example wish to start trading in August when there is a high chance many traders will be taking their holidays which will be probably reflected in the lack of volatility in the market.

lets don’t kid our selves here .... we need volume and we need traders ..without volatility we fail simple as that.

Its all about stacking the odds
Interesting. I have 4 systems and EVERY SINGLE ONE did something it NEVER HAD DONE before on paper the week I went live on seperate occassions. I was almost convinced the broker somehow someway figured it out and did it on purpose, but I know better than that. But I said on the 4th one the same I said on the 1st. Just my luck.
  • #3
  • Dec 21, 2007 6:55pm Dec 21, 2007 6:55pm
So in the below situation, don't u suppose it was the market that got LUCKY.

Maybe, just maybe that noobie didn't quite realize that they are going up against some of the best and brightest. 3 months of practice and the market says - welcome....
How many professionals would you trust to do anything for you with only 3 months of practice in their field?

Quoting Paulus
I think its a crying shame if a new trader does all the right things and then decides to go live in a week the market gives his system the worst draw down its ever seen.
My opinion of luck is in my signature....
In trading, there is no bullshit. You either make money or you don't.
  • #4
  • Dec 21, 2007 7:02pm Dec 21, 2007 7:02pm
Quoting Paulus

If Nato decided to invade Iran this coming week I don’t think Id be too inclined to start my trading career at that time.
Man that would be the day I definitely would be trading
Same Whore .... Different Dress
  • #5
  • Dec 21, 2007 7:19pm Dec 21, 2007 7:19pm
most people sees chances as luck...

so...
good luck
  • #6
  • Dec 21, 2007 7:22pm Dec 21, 2007 7:22pm
Quoting Paulus
Another way of perhaps increasing our odds of having a good start is to look and how many losing trades in a row our system has given over the past 6 months. Lets our system has had at worst 5 losing trades in a row, and it is currently on 1 .... I personally would rather wait until we were on 4 or 5 before I started live because the odds of a 6th and 7th must be more remote than a 2nd or 3rd which is the case if we started now.

Or on the flip side if our system has a record of 7 winning trades in a row over the past 6 months and we are on 6 I personally wouldn’t think the odds are stacked in my favour of getting a 7th.....but if im on 1 or 2 then I think Id be more happy.

Its all about stacking the odds

Are you 100% sure you understand what you are saying?
  • #7
  • Dec 21, 2007 7:37pm Dec 21, 2007 7:37pm
Hi,

All I will say is this..... If you toss a coin, it has a 50% chance of landing on tails.

If it does land on tails, then would you have a higher chance of a head on the next toss?

LG
  • #8
  • Dec 22, 2007 2:52am Dec 22, 2007 2:52am
In a way I understand what your all saying

loloAC

the coin toss.. yes I understand and I have read that article,Im just talkning about giving yourself the best chance possible for that good start.Unlike the toin toss statistics dont forget initialy you need a system thats going to produce results by either a good risk return 65% min or a risk reward ratio of at least 2:1..many many day trader I know operate on just a risk reward of 1:1 when using small minute or tick charts its very difficult to get the 'ideal' RR of 3:1 so they tend to rely on a high strike rate of winners over losers.

Long term they win...the coin toss long term you break even ...now if you had a weighted coin that gave heads 65 times out of a 100 then you could make aliving from it.

bobblong

Am I 100% sure of what Im saying...Im not sure what your syaing lols...

Look I have a system and lets say Ive back tested it and it show that in the last 3 years Aug is the worst months every year and I put this down to the holiday syndrome.The systems longest losing run is 8 and most winning signals occur in the window 2.30pm to 4pm uk time.Now if I was starting out I def wouldnt start in Aug if my system had had 2 losers I would be thinking I could possibly get another 6 in a row and I would'nt start at 6pm that night.

Im only talking about for the 1st couple weeks when you go from practise to live you need all the luck you can get.After a couple weeks you should have a couple more K perhaps in your account your comfort level has increased and confidence is up....believe me when I say if you day trading you need a positive start like that

When I 1st started trading 10 yesra ago I traded Option just straight calls and puts on the Ftse index and the 70 or so optionable shares,we basicaly looked for any shares with a 21ma higher than a 13ma and a trend line with 3 points of contact.On the 4th point of contact we would enter our trade.On back testing ( all done by hand) we noticed after the 6 or 7 bounce the trend would consolidate and it wasnt reliable with only 2 points of contact so we came up with the rule 3-5 max for bounces..a 4 was ideal.We were stacking the odds with what we knew .............would you take a signal on its 8th bounce ?? I wouldnt.


MrGreen

I totaly agree re the 3months..Im no city wizz kid,I havnt got a masters in maths and statistical studies..I trained as a electrician and it took me 5 years and prob another 2 or 3 to be confident and experienced in what I was doing ,why should this business be any different 3-5 years to learn what to do and why Id say it prob pretty average.
  • #9
  • Dec 22, 2007 4:09am Dec 22, 2007 4:09am
Quoting Paulus
bobblong

Am I 100% sure of what Im saying...Im not sure what your syaing lols...

Look I have a system and lets say Ive back tested it and it show that in the last 3 years Aug is the worst months every year and I put this down to the holiday syndrome.The systems longest losing run is 8 and most winning signals occur in the window 2.30pm to 4pm uk time.Now if I was starting out I def wouldnt start in Aug if my system had had 2 losers I would be thinking I could possibly get another 6 in a row and I would'nt start at 6pm that night.

Im only talking about for the 1st couple weeks when you go from practise to live you need all the luck you can get.After a couple weeks you should have a couple more K perhaps in your account your comfort level has increased and confidence is up....believe me when I say if you day trading you need a positive start like that

When I 1st started trading 10 yesra ago I traded Option just straight calls and puts on the Ftse index and the 70 or so optionable shares,we basicaly looked for any shares with a 21ma higher than a 13ma and a trend line with 3 points of contact.On the 4th point of contact we would enter our trade.On back testing ( all done by hand) we noticed after the 6 or 7 bounce the trend would consolidate and it wasnt reliable with only 2 points of contact so we came up with the rule 3-5 max for bounces..a 4 was ideal.We were stacking the odds with what we knew .............would you take a signal on its 8th bounce ?? I wouldnt.
I'm assuming you are trading a 100% mechanical system if you are so confident in a backtest. Isn't 3years a very very puney amount of time relative to the the inception time of the market you're trading? Isn't it safe to say 3 years provides little statistical insight towards the viability of the rigid rules you are attempting to implement, particularly regarding the August thing? Do you trust the quality of the data?

Well it's good to hear you are using your head, that is fantastic.
Not to sound arrogant (admittedly I am less than 1 year in the business) but it may come off that way, the market isn't a card game, and next august could be a phenomenal month for your system, it could be the best month the system will ever have in the next 15 years simply because the market is vibrant and constantly changing, but ofcourse you know that. To finish off I am a non believer in mechanical systems nor in anything you can backtest due to the fact we are talking about the past which has little predictive value in most aspects, imho and the very recent past at that rather than a broader variety of market conditions over a large number of years (20, for example) If I were to god forbid design a mechanical system I would either not backtest it at all or get 30-50 years worth of data (which would probably be the most corrupted inaccurate data ever) if I can, but I'm anal.
As long as it's making you money that's good, we're a big happy family

Oh another question is how many times did this 8 losing streak happen during the last 3 years and when and also what followed that streak?

Thanks,
Bob
Human touch for the win.

  • #10
  • Dec 22, 2007 7:14am Dec 22, 2007 7:14am
Paper trading for 3 months is nice, but is meaningless.

Most people here have the dream of trading for a living. How do you expect to trade for the next 30 years or more based on 3 months of testing?

That is like going to the casino and trying to get rich just because you won once.

You should paper trade for some time, but as you paper trade you should backtest your strategy for several years. Every time I study a new system I backtest for at least 3 years (I use 4 hour charts), and still I don't feel confident enough. In the last 3 years there has nothing like September 11th, no crash like 1987, if that kind of stuff ever happens (especially if it is a weekend I have positions open from friday) I have no idea what will happen, odds of me blowing up are possible (although I do have money management these kind of events can be massive).

So what I'm trying to say is... what made you think that 3 months of data would be enough to see how a system would perform once you went live?
  • #11
  • Dec 22, 2007 8:11am Dec 22, 2007 8:11am
branco..

3-5 yrs is more realistic with my futures trading on Er2 at $100 per point ( moves in $10 ticks) I wouldnt of been in a postion to trade it after 3months..what I did personaly was trade the Dow Future at $5 a point througha futures brokers ( interactive brokers) losing wasnt such an issue and gave me 'live' practise time..............your fills will def be different live to paper.I use Auto trader to execute my trades on practise you will get your fill 1 tick away from last price ..same situation but live could be 2-3 in certain circumstances.

If at all possible practise your trading with a live account if using SB then go in at the lowest £ per point.

I mentioned my Futures day trading blog Im not going to post the url here as it seems pushy but one of the posts is called 'The ameba effect' ..ie your system has to adapt as the market over time adapts ..it pushes us in a different direction dont try and fight it adapt your system slightly.

These are only my points of view dont forget I trade along side guys who trade off of thier experience with no rules at all and do very very well...for my personality and to keep family life sane and at an even balance I trade from a mechanical viwe point.

I havea baby listener by my PC the other in down staires..I get an early warning of a set up I hear it and come up to the office.. it means my wife is more tolerant and its my way of coping with things

Tra la la laa...

again truth be told I have never back tested a system..I have watched and paper traded for a period then jumped straight in live with very small contracts ie YM 1 contract.I agree about data unless you have a reuters feed and history files it could be corrupt and your coding on your back test would have to be spoint on.

By stacking the odds perhaps I should of said do as much as you feel necassary to get the odds of those 1st few weeks live to end up as positive.

I have been trading forex for 3 weeks spent 3months looking at various systems and have taken small parts from all again to suite my own personality sanity levels...lets not kid ourselves none of us come up with original ideas its all been tried before we just adapt or come up with a different combination of the ingerdients.

Im now live on forex as seen by my position posts but its at low stakes with a spread betting firm..Id be crazy to go in a £50 pp on the little experience ive had on EOD systems..im normaly looking at the nect 2min bar not looking at the next 2 weeks lol.

And to show my inexperience look what I done yest..opened 2 positions Friday night at 9pm when the mkt is closed all week end..and its Christmas week so low vol levels.If I have blundered I find out Monday with real money ..but money I know I can lose.If they hit thier tgt it gives me confidence to open postions on a FRiday evening..the comfort level will increase......it works for me may not for other

the losing run of 8 was an example .. my longest losing run in futures trading is 10 but for ticks 2 wins put the account back level.

cheers

Pauls
  • #12
  • Dec 22, 2007 11:18am Dec 22, 2007 11:18am
I believe 100% in luck.

Laboring
Under
Correct
Knowledge
  • #13
  • Dec 22, 2007 11:43am Dec 22, 2007 11:43am
You know what? Luck is random, which means it definitely will happen and how do you handle it then? You use money management and spread your risk per trade over a sum of trades. That way, luck will be phased out.
  • #14
  • Dec 22, 2007 11:58am Dec 22, 2007 11:58am
Quoting Paulus
Lets our system has had at worst 5 losing trades in a row, and it is currently on 1 .... I personally would rather wait until we were on 4 or 5 before I started live because the odds of a 6th and 7th must be more remote than a 2nd or 3rd which is the case if we started now.
this is a common misconception born from the lack of understanding for statistics and probabilities. dice have no memory, and most of the time, trading systems dont either.
Relax and be happy.
  • #15
  • Dec 22, 2007 12:00pm Dec 22, 2007 12:00pm
What kind of difference does it make whether the first few trades after going live are winners or looser? You are not in this for the first few trades are you? If your system has an edge it does not matter if when you go live the first few trades are losers because you know that over the long run the winners will compensate for the losers and you will end up net positive. The distribution of the winners/losers is random in a mechanical system. One may attempt to find statistical evidence on how the winners/losers are distributed and try to use that but i believe that is a recipe for disaster. In trading we are dealing with a multitude of random variables. The best way to cope with that is by being consistent in applying our method. That means if you have a signal you pull the trigger regardless of what time/date it is or what happened in the previous trades. Every trade is independent and its outcome in no way can be influenced by previous trades.
Stubbornly persistent
  • #16
  • Dec 22, 2007 12:45pm Dec 22, 2007 12:45pm
merlin..... Good answer perhaps we do look to long and hard at such things ...hmmmmmmmm

Sergui

Dont forget Im only talking about the 1st couple weeks after going live I know you know your system is going to perform..but its still not nice to be on the receiving end of quite a major net loss on your account in the 1st couple days.

Ive been trading futures live for around 4years now any thing from tick charts (used to use 89).. why ? its a fib number at the time I used other inds all setup with fib numbers..I thought it would balance things be more harmonious lols

Why tick...biggest advantage esp when day trading is to avoid chop..

if you get 200 ticks over 10 mins and you trade 1min bars you will get 10 x 1min small bodied bars which could trigger your signals....not good

With for example the 89 tick I would of had 2 bars and the 3rd building ..I def used to get less whip saw signals using tick charts than min charts that meant more money in the account.

Anyway .....now when i get losers it doesnt mentaly register because historicaly ive been through the long losing runs and Im still here, as a novice you may have it proven on paper but its not the same as mentaly riding your way through it live.

Ive always thought what would be good is to paper trade with your 'live' execution software but some how programme into the system the fact that it will at a point you do not know go live... half the battle I think is knowing your live.

Look I play golf yep yawn... I go to the driving range and hit that little ball 280yds no problem nice and straight 200 balls no hitch.

I go to play gold turn up 10 people on the T all watching the guys T off.I walk up place the ball do the old routine but because Im under pressure its soooo much differnt ...result i slice the swine and look a fool....

ho hum
  • #17
  • Dec 22, 2007 4:15pm Dec 22, 2007 4:15pm
True, but the law of averages can be applied to a set of previous "shoots."

Quoting merlin
....dice have no memory....
  • #18
  • Dec 22, 2007 4:33pm Dec 22, 2007 4:33pm
The broker you choose will have a huge impact on your 'lucky system'.

Slippages - bad luck
Wide spreads - bad luck
Slow execution - bad luck
Re-quotes - bad luck
Stop hunting - bad luck
Late/missing deposits/withdrawals - bad luck
Bad customer service - bad luck
Canceled trades - bad luck
Platform issues - bad luck
Non payment of profit - bad luck
Broker bankruptcy - bad luck

You will get better conditions at a casino!

Coder
  • #19
  • Dec 26, 2007 5:29pm Dec 26, 2007 5:29pm
Quoting merlin
this is a common misconception born from the lack of understanding for statistics and probabilities. dice have no memory, and most of the time, trading systems dont either.

yeah. Because if your system has many losses in a row there is a risk that it is not working anymore.

and there is "professional trader" (using it like the last name) around here saying that it is the correct.
  • #20
  • Dec 27, 2007 2:27am Dec 27, 2007 2:27am
Quoting tdion
True, but the law of averages can be applied to a set of previous "shoots."
Correct but if you throw a coin 100 times, even if the odds of it happening are very low, you can still get 100 tail or 100 face in a row...

And with a trading account, 100 loss in a row will probably blow an account...
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