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Important – Why systems are profitable (or not)

  • #21
  • Feb 26, 2008 12:43pm Feb 26, 2008 12:43pm
Quoting steviet
Sorry Rob for being a little short with you . I've just got in from another hard day's slog at the office lol.

It is this method, however entries are not random - I trade within a range taken from the daily charts and am looking for specific points or areas of entry. However, due to the large stop loss (pip wise, not % wise), entries are far less important than most conventional methods.

Kind Regards
Steve
No problem at all, no offense taken

I remember where I read it now, it was in the "why 95% fail thread" about the grid/no stop/hedge (I think) method.

I suppose with such a high success rate you could possibly risk 5 or 10% on each trade. If 1000 pips = 10%, then 50 p = 0.5% so I could see the method being feasible if you could get 3 or 4 trades per week...
  • #22
  • Feb 26, 2008 4:22pm Feb 26, 2008 4:22pm
Quoting blueruby
I wonder how he did this week. I just put it on a chart (had to go looking for the MACD indicator). We've had bearish divergence on the E/U and G/U, 1H charts since last Thursday, and whoops! Off she goes, into the wild blue.

IMO, which you already know , he's doing a lot more than just MACD divergence. I'll bet with trades that large, he has a couple favorite entries that are phenomenal, to avoid drawdown at $2000 - 3000 per pip!
Blue, I have no idea who he is, or how he trades MACD divergence. I was watching parts of a Camtasia presentation, and the instructor (Vic Noble) said that the trader was his most successful student (nice way to give oneself an indirect compliment!), and was simply using him as an example of how "selective entry" trading could be profitable. I expect he must be trading something like a $5m-$10m account size to justify those position sizes. Anyway, who knows, perhaps it's some kind of managed fund?

Also, I think I can see how the misunderstanding between you and Steve occurred. Don't want to make myself unpopular by sticking my nose in too far, but I think when you said "it has been mathematically and logically proven that this will not work" you were referring to C26000's idea of trying random entries, while Steve thought that you were referring to my original post, where I was discussing his and FXTitan's "unconventional" approach to RR.

David
  • #23
  • Feb 26, 2008 5:20pm Feb 26, 2008 5:20pm
Quoting hanover
2. To profit, we must be net long while price is rising, and/or net short while price is falling, frequently enough to overcome costs (spread + swap). This applies to all methods, "conventional" or otherwise, without exception, at all times. As long as we are achieving this, our account equity (which is the sum of realized P/L from previously closed positions, plus unrealized P/L from currently open positions) will rise; otherwise it will fall.

3. For as long as our account equity continues to rise overall, we may justifiably assume that we have an "edge". To achieve this, we need to somehow time our orders (i.e. adjust our net position) accurately enough around market reversals, on balance, to be net long while price is rising, and net short while it’s falling. This is the bottom line regardless of whether we’re (in conventional terms) entering, exiting, scaling in, scaling out, realizing a profit, realizing a loss.

4. The result of any one trade is insignificant (if we are "hedging", or scaling in/out, with positions offsetting each other, the idea of an "individual" trade is effectively meaningless, anyway). It is the overall effect on account equity, i.e. net P/L, that is the bottom line.
Hi David,

I have been working along these lines as well, i.e. trying to manage a net position as opposed to a series of individual round trip trades. If you're interested in a concrete example, check out today's second post in my journal. I'm placing sell orders on EUR/JPY behind the price as it rises. My goal is to build a short position during the next downleg, thus being net short as price drops. During that downleg though, I'll be placing buy orders behind the move, so that when price turns back up I'll be liquidating the short position and building a long one. And so on...

I'm also doing something similar but different with my long term NZD/USD carry position. Ever hear of something called "Automatic Investment Management" (AIM) created by a guy named Robert Lichello? He wrote a book in the 70's with a VERY cheesy title but he created a position management system that has worked well for some. I'm experimenting with ways of adapting it to FOREX.
  • #24
  • Feb 26, 2008 5:41pm Feb 26, 2008 5:41pm
Quoting capitalist88
Hi David,

I have been working along these lines as well, i.e. trying to manage a net position as opposed to a series of individual round trip trades. If you're interested in a concrete example, check out today's second post in my journal. I'm placing sell orders on EUR/JPY behind the price as it rises. My goal is to build a short position during the next downleg, thus being net short as price drops. During that downleg though, I'll be placing buy orders behind the move, so that when price turns back up I'll be liquidating the short position and building a long one. And so on...

I'm also doing something similar but different with my long term NZD/USD carry position. Ever hear of something called "Automatic Investment Management" (AIM) created by a guy named Robert Lichello? He wrote a book in the 70's with a VERY cheesy title but he created a position management system that has worked well for some. I'm experimenting with ways of adapting it to FOREX.

Wasn't that book "How to make a $1000000 in the Stock Market Automatically" ?

That was a cheesy title LOL... Good book though
  • #25
  • Feb 26, 2008 5:53pm Feb 26, 2008 5:53pm
Quoting smjones
Wasn't that book "How to make a $1000000 in the Stock Market Automatically" ?

That was a cheesy title LOL... Good book though
You added an extra zero there I think but you got it, Scott. That was the book!

The actual method is simple and it's all over the place online. It's a contrarian "average down" type method, so it can really be dangerous in a high leverage environment. But I'm treating my low leverage NZD position as a long term investment and trading around the core holding using Lichello's basic idea.
  • #26
  • Feb 26, 2008 8:43pm Feb 26, 2008 8:43pm
Quoting hanover
I think when you said "it has been mathematically and logically proven that this will not work" you were referring to C26000's idea of trying random entries, while Steve thought that you were referring to my original post, where I was discussing his and FXTitan's "unconventional" approach to RR.

David
Yup, sounds right.
  • #27
  • Feb 26, 2008 8:48pm Feb 26, 2008 8:48pm
Quoting capitalist88
Hi David,

I have been working along these lines as well, i.e. trying to manage a net position as opposed to a series of individual round trip trades. If you're interested in a concrete example, check out today's second post in my journal. I'm placing sell orders on EUR/JPY behind the price as it rises. My goal is to build a short position during the next downleg, thus being net short as price drops. During that downleg though, I'll be placing buy orders behind the move, so that when price turns back up I'll be liquidating the short position and building a long one. And so on...
Sounds a lot like a grid EA I wrote for a fellow. Works great ... until it quits working. When you get one of those rare-but-not-rare-enough big moves on the EUR/JPY, you end up with a very large position going against you.

Best have a plan for that.
  • #28
  • Feb 26, 2008 9:45pm Feb 26, 2008 9:45pm
Quoting blueruby
Sounds a lot like a grid EA I wrote for a fellow. Works great ... until it quits working. When you get one of those rare-but-not-rare-enough big moves on the EUR/JPY, you end up with a very large position going against you.

Best have a plan for that.
I read about grids a couple of years ago on MoneyTech (I think that's where it was), but I seem to recall that they had unlimited risk. What I'm doing has defined risk; every order has a stop. Big moves in one direction are great because I'd be adding to a winning position during the move.

As David said in his first post; net long during up moves and net short during down moves.
  • #29
  • Feb 27, 2008 5:04am Feb 27, 2008 5:04am
Quoting capitalist88
I read about grids a couple of years ago on MoneyTech (I think that's where it was), but I seem to recall that they had unlimited risk. What I'm doing has defined risk; every order has a stop. Big moves in one direction are great because I'd be adding to a winning position during the move.

As David said in his first post; net long during up moves and net short during down moves.
Quote
I'm placing sell orders on EUR/JPY behind the price as it rises.

I guess that's what threw me. I'll stop commenting on things unless I fully understand them.
  • #30
  • Feb 27, 2008 1:23pm Feb 27, 2008 1:23pm
"I'm placing sell orders on EUR/JPY behind the price as it rises."

Quoting blueruby
I guess that's what threw me. I'll stop commenting on things unless I fully understand them.
Whoops, sorry about that; I should have clarified. I think of price like a person walking, so "behind" the price is the area where it just came from. For a rising price leg like we have in EUR/JPY, the area below the price is "behind" it. Since we can be long or short, it just makes it easier to describe a method without specifying the direction.

So the orders that I'm placing "behind" the price are at lower prices, and they're not filled yet. Using terminology from the securities markets, these are "sell stop orders." They'll only get hit if the price turns around and starts to head south.
  • #31
  • Feb 29, 2008 5:41am Feb 29, 2008 5:41am
I used to trade using stops as I was taught and kept losing money. My stops were being taken as if by magic on a single bar then the price would reverse direction. There is no doubt that the brokers are running stops. After realizing this, I stopped using stops and also went opposite to what the gurus teach by adding more positions when the trade is going against me and guess what?The prices always come back and give me a profit. I now have 100% winners.
  • #32
  • Feb 29, 2008 5:58am Feb 29, 2008 5:58am
Quoting capitalist88
I'm placing sell orders on EUR/JPY behind the price as it rises. My goal is to build a short position during the next downleg, thus being net short as price drops. During that downleg though, I'll be placing buy orders behind the move, so that when price turns back up I'll be liquidating the short position and building a long one. And so on...
Where do you put the stops on your positions ?
On the path to Enrichment.
  • #33
  • Feb 29, 2008 6:04am Feb 29, 2008 6:04am
Quoting gibbs
I used to trade using stops as I was taught and kept losing money. My stops were being taken as if by magic on a single bar then the price would reverse direction. There is no doubt that the brokers are running stops. After realizing this, I stopped using stops and also went opposite to what the gurus teach by adding more positions when the trade is going against me and guess what?The prices always come back and give me a profit. I now have 100% winners.
Most people reading this are probably too young to remember the old "Lost In Space" series of the 60's, but one quote is applicable here. At least once per show, there was an opportunity for the robot to wildly flail its "arms" and loudly proclaim:

"DANGER! DANGER! DANGER WILL ROBINSON!!!!!!"
  • #34
  • Feb 29, 2008 6:09am Feb 29, 2008 6:09am
Quoting blueruby
Most people reading this are probably too young to remember the old "Lost In Space" series of the 60's, but one quote is applicable here. At least once per show, there was an opportunity for the robot to wildly flail its "arms" and loudly proclaim:

"DANGER! DANGER! DANGER WILL ROBINSON!!!!!!"
Yeah, I watched it back in the 90s But the meaning hasn't changed
On the path to Enrichment.
  • #35
  • Feb 29, 2008 6:40am Feb 29, 2008 6:40am
Quoting gibbs
I used to trade using stops as I was taught and kept losing money. My stops were being taken as if by magic on a single bar then the price would reverse direction. There is no doubt that the brokers are running stops. After realizing this, I stopped using stops and also went opposite to what the gurus teach by adding more positions when the trade is going against me and guess what?The prices always come back and give me a profit. I now have 100% winners.
Joking aside, if your setups and entries are decent, and your stops are being hit, then you're putting your stops too close. The solution is to place it farther away. Doing away with stops entirely is, in most cases, the wrong solution. Big traders do take out stops, it's a given, and the more of us small time retail traders there are, the easier and more profitable it is for them, so it isn't going to get any better.
  • #36
  • Feb 29, 2008 10:48am Feb 29, 2008 10:48am
As SL increases and TP decreases, doesn't there come a point at which entry is virtually, if not theoretically, unimportant? How much can a data point(or set)on a chart really be telling us about likely price movement, up or down or range, if, when used to signal a trade, it requires a SL of 1000 pips? I don't mean to criticize. I am just trying to add to the discussion. After months here and at other forums I am starting to believe that what we are trying to achieve, long term profitability with entries and exits based on price movement, is an impossible dream, and that those methods which are currently profitable have merely enjoyed the good fortune of not having yet been visited by the series of losses which will lay them to waste. Yes, net long when prices are rising and net short when prices are falling...but how? A long position is opened. Price begins to fall...should position be closed at once? At SL 50? 100? 1000? At some percentage of ATR perhaps? Daily ATR ? Weekly? Hourly? At what percent then? Or, if not that way, perhaps at some, "logical," point on the chart where price had stalled and consolidated recently, a swing low? Oh, but didn't we base our entry on such a ,"logical,"point? A resumption of up-trend after a retracement??? A trendline break? And profits...to take or not to take? That is the queston. Oh, yes, don't forget the impending news releases??? We must be insane.
Vincit qui se vincit.
  • #37
  • Feb 29, 2008 11:32am Feb 29, 2008 11:32am
Hi Pippopotamus

Yes, using the method I do (50 pip tp &1000 sl), entry is the least important part of my strategy. Of course it's nice to get an exact entry - one this morning was a 50 pip 2minute trade but I can't pretend it happens that often.

Like any system or method, it's the trader that makes it work for them rather than the other way around.

Kind Regards
Steve
Quoting Pippopotamus
As SL increases and TP decreases, doesn't there come a point at which entry is virtually, if not theoretically, unimportant? How much can a data point(or set)on a chart really be telling us about likely price movement, up or down or range, if, when used to signal a trade, it requires a SL of 1000 pips? I don't mean to criticize. I am just trying to add to the discussion. After months here and at other forums I am starting to believe that what we are trying to achieve, long term profitability with entries and exits based on price movement, is an impossible dream, and that those methods which are currently profitable have merely enjoyed the good fortune of not having yet been visited by the series of losses which will lay them to waste. Yes, net long when prices are rising and net short when prices are falling...but how? A long position is opened. Price begins to fall...should position be closed at once? At SL 50? 100? 1000? At some percentage of ATR perhaps? Daily ATR ? Weekly? Hourly? At what percent then? Or, if not that way, perhaps at some, "logical," point on the chart where price had stalled and consolidated recently, a swing low? Oh, but didn't we base our entry on such a ,"logical,"point? A resumption of up-trend after a retracement??? A trendline break? And profits...to take or not to take? That is the queston. Oh, yes, don't forget the impending news releases??? We must be insane.
  • #38
  • Feb 29, 2008 11:49am Feb 29, 2008 11:49am
Hi Steviet, If I used SL 10000 and TP 5 could I enter randomly with little adverse consequence to profit metrics?
Vincit qui se vincit.
  • #39
  • Feb 29, 2008 9:34pm Feb 29, 2008 9:34pm
Quoting Jurrasic
Where do you put the stops on your positions ?
First, keep in mind that I'm experimenting with this technique now so don't take anything I say as being necessarily right. To answer your question, when I first place the orders, I put the stops all at one spot behind the most recent major reversal point. However, when the orders are filled, and I begin placing new orders in the other direction, i cancel the stops. The reason is that the new orders will now serve as my "stops."

This is one of the ideas that David mentioned in his first post. Instead of having a series of round trip trades, I'm managing a position which changes size and gradually moves from one direction to the other, but it's rarely if ever flat.

Here's an example that I'll be posting in my journal a little later. I had been putting short orders below the price on EUR/JPY as it went up. My stops were at 160.00 on those, but if price had continued to rise above 160 I would have had to start using 162.50 for additional orders. Well anyway, the up leg just ended and it's moving down now, so all of those short orders I placed have now filled. I'm in profit by about 130 pips.

So now, since price is dropping, I'm getting ready for the next upleg. I'm placing buy orders above the price as it drops. When price begins to move up, those orders will be triggered, moving me from a short to a long position eventually. So I don't need the stop at 160 for my short position anymore; the new buy orders will serve as my "stop."

The stop for the buy orders is down at 153. I use huge stops because my stops aren't really important to the strategy. I don't use stops as an exit strategy. They're really just there in case of some kind of emergency like a power failure or in case a world shaking event happens.
  • #40
  • Feb 29, 2008 9:38pm Feb 29, 2008 9:38pm
Quoting blueruby
Most people reading this are probably too young to remember the old "Lost In Space" series of the 60's, but one quote is applicable here. At least once per show, there was an opportunity for the robot to wildly flail its "arms" and loudly proclaim:

"DANGER! DANGER! DANGER WILL ROBINSON!!!!!!"



And Dr. Smith(?) would say something like "Quiet you lumbering pile of bolts! I know what I'm doing..."
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