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Think Outside the Box

  • #1
  • First Post: Jan 24, 2007 7:05pm Jan 24, 2007 7:05pm
Trading Wizard, Linda Bradford Raschke, said it best. “I've known hundreds of professional traders throughout my career. I don't want to disappoint you, but I know of only two who were able to make a steady living for themselves with a mechanical system.”
Traders Laboratory

Discuss...
  • #2
  • Jan 24, 2007 8:35pm Jan 24, 2007 8:35pm
I have been asking myself that question a lot lately. If I traded more mechanically would I be better off ?

This may sound kind of strange but when I see a signal to take a trade I take a step back and ask myself "why would I not trade this" ?

Is price too high, too low, near resistance. Has the signal been generated after a sudden big move (like most AUD crosses at the moment).

So far this approach has paid off. Out of my last 35 trades only 3 were losers.
  • #3
  • Jan 24, 2007 9:16pm Jan 24, 2007 9:16pm
Quoting hilmy83
Trading Wizard, Linda Bradford Raschke, said it best. “I've known hundreds of professional traders throughout my career. I don't want to disappoint you, but I know of only two who were able to make a steady living for themselves with a mechanical system.”
Traders Laboratory

Discuss...
I only know about 15 traders and all of them make a steady living from a mechanical system.
  • #4
  • Jan 24, 2007 9:16pm Jan 24, 2007 9:16pm
well I've got a mechanical entry rule, which if I'd stuck with and not tried to pick a bottom I'd be 11pips better off, as I just got stopped.


So my thinking at the moment is, as EA's generally don't work, what if I had a EA and I said Go Long on my rule being made, then I could walk away and wait for a audible alert.

Also if this Entry rule then reversed ( while Still not in profit ) it would Exit giving me a smaller loss than a Stop typically would do.

Rule just got Hit, Long GBP 64, my previous buy was 69 11pip stop as just playing.

Rule is simple, 1Min chart MACD 4 & 10 HLCC/4 goes positive consider Long, Negative Short, mainly why go Long or Short or hold long or short if I'm against trend here.

( Obviously Chop ruins this from being a Automatic System, and is only a small part of my system )

( Yes thinking out loud here, trying to get my head straight before I blow my very small account LOL $80 before I'm Margin called, hence 11pips )
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #5
  • Jan 24, 2007 10:00pm Jan 24, 2007 10:00pm
mechanical systems are great in that it leaves out emotions when you trade. It's straight forward and its 'set it and forget it' concept is very appealing to new traders.

But mechanical systems leave out human observation. Because the financial markets is a psychological battles between the buyers and sellers, some things are lost in the interpretation when using mathematical calculations. I guess I can't really say much since I don't have years of trading experience to back me up. But it's an interesting point to keep in mind
  • #6
  • Jan 24, 2007 10:10pm Jan 24, 2007 10:10pm
Quoting hidethereal
I only know about 15 traders and all of them make a steady living from a mechanical system.
I built & ran a "Discretionarly Observed" mechanical system for years and made good money.{for myself and others. the first buck I traded that wasn't my own was in 1998} Over those same years I addendummed said system with code {for multiple platforms as I moved from Brkr to Brkr} to accomodate the system with the logic behind the discretionary descision to "Take" or "Discard" the Trade. {you may want to read that again. It Says "...Over YEARS...."
Observing now, runnining as a bot, it is not As succesfull {still profitable but not as much} and I am left to wonder if it is my coding proess or if I have Years yet left before I finish coding all discressions {After all, I am a member of the mass analysis that feels} "Nah, I can get a better Entry/Exit."}

Oh, btw, I retired [and so did a few of my clients] from the proceeds of Trading but to be honest and fair, I have only Traded Forex for the last 5 years or so. Before that, it was Commodities including Globex Futures and before that, it was stocks.
  • #7
  • Jan 24, 2007 10:17pm Jan 24, 2007 10:17pm
Quoting hilmy83
Trading Wizard, Linda Bradford Raschke, said it best. “I've known hundreds of professional traders throughout my career. I don't want to disappoint you, but I know of only two who were able to make a steady living for themselves with a mechanical system.”
Traders Laboratory

Discuss...

hilmy,
By mechanical do you mean a manual system that strictly follows specific rules or a computerized auto system that trades for you?
Successful manual or discretionary traders certainly don't fly by the seat of their pants. I would think a common thread with them is that they systematically follow a set of rules, but adjust where they need too.
  • #8
  • Jan 24, 2007 10:30pm Jan 24, 2007 10:30pm
linda was a floor trader, she doesnt even know any mechanical traders!

but this brings me back to the argument i am always making, mechanical trading IS discretionary trading. there is an equal number of decisions that have to be made in both enviornments.
Relax and be happy.
  • #9
  • Jan 24, 2007 11:10pm Jan 24, 2007 11:10pm
Quoting merlin
linda was a floor trader, she doesnt even know any mechanical traders!

but this brings me back to the argument i am always making, mechanical trading IS discretionary trading. there is an equal number of decisions that have to be made in both enviornments.
how do mechanical systems allow for discreationary decisions?
I thought a mechanical system is a system that has clear rules of set-up, entry, s/l, and exits. If a mechanical system presents a trade, it's a yes or no on the trader to take it or not. Otherwise, it's not mechanical. Or maybe I am confused to what mechanical systems are..

From my understanding, mechanical systems are a yes or no concept. There's no maybe. If you have a 'maybe' in your mechanical system, then you're actually combining both discretion and mechanical system together.

I'm not sure what linda meant by mechanical sytems though..i think she's trying to scare people and hopefully have them come and buy her stuff
  • #10
  • Jan 24, 2007 11:18pm Jan 24, 2007 11:18pm
Quoting merlin
linda was a floor trader, she doesnt even know any mechanical traders!

but this brings me back to the argument i am always making, mechanical trading IS discretionary trading. there is an equal number of decisions that have to be made in both enviornments.
Exactly! In my opinion there needs to be some form of discretion in any mechanical trading system.
  • #11
  • Jan 24, 2007 11:28pm Jan 24, 2007 11:28pm
Quoting hilmy83
how do mechanical systems allow for discreationary decisions?
I thought a mechanical system is a system that has clear rules of set-up, entry, s/l, and exits. If a mechanical system presents a trade, it's a yes or no on the trader to take it or not. Otherwise, it's not mechanical. Or maybe I am confused to what mechanical systems are..

From my understanding, mechanical systems are a yes or no concept. There's no maybe. If you have a 'maybe' in your mechanical system, then you're actually combining both discretion and mechanical system together.

I'm not sure what linda meant by mechanical sytems though..i think she's trying to scare people and hopefully have them come and buy her stuff
I thought a mechanical system is a system that has clear... Bemac edit{Discretionary by code} End Bemac edit...rules of set-up, entry, s/l, and exits.
  • #12
  • Jan 25, 2007 12:43am Jan 25, 2007 12:43am
Pure mechanical trading is not going to work all the time in my opinion...I believe that you can only set up the complete trading rules only inside the mind of a human trader...Additionally, there are many aspects which you actually can't account for while designing a mechanical trading system...For example, how can you factor positive & negative reaction to news ? when certain news are out that are positive for the USD & the USD reacts negatively while at the top, how can this be factored into the mechanical trading systems' mind...I mean we all know that such a development would mean a trend reversal & that the trend is getting ahead of itself..Yet, the mechanical trading system won't get this signal because you can't mathematize it...Of course if the mechanical system is trend following by nature, it will get the trend reversal signal, far after the fact that a human mind got it..So a smart human trader would have exited the market & even reversed his/her position, while the mechanical system is still waiting for the signal to get out...

Another thing that can't be factored into the mechanical trading system is the correlation between the different economic blocks...It would be very tough to design such a system that accounts for major shifts & developments which are interrelated, such as the relation between a certain currency and its' stock market performance, gold performance, oil performance, grains, put call ratio, various sentiment indicators & so on...

In my opinion, it is better to have a mechanical system where the human brain still functions as well & takes decisions, sometimes the decisions of the human brain will be right & grab a huge profit or avoid a severe loss that the mechanical system won't ever do...Take 1987 crash, no mechanical system would have been able to get you flat ahead of the crash, yet many traders using their brains were not even flat, they were short 2 days before the crash...


Thanks,

Nader
  • #13
  • Jan 25, 2007 12:50am Jan 25, 2007 12:50am
Quoting narafa
...
Take 1987 crash, no mechanical system would have been able to get you flat ahead of the crash, yet many traders using their brains were not even flat, they were short 2 days before the crash...
Thanks,
Nader
If you 'remember' this, I will have to add you to my growing list of {old-delete} Mature Traders.
  • #14
  • Jan 25, 2007 11:11am Jan 25, 2007 11:11am
More I think about it, the more a merging of mechanical Automated and human brain makes sense.

Using my simple MACD 4,10 rule for entry and exits but only when I say to do so, so just automating the in and out, to many times have I bought or sold to soon thats cost me too much.


I will pretty much always think I'm smarter than the rule so need something to stop me doing so.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #15
  • Jan 25, 2007 3:07pm Jan 25, 2007 3:07pm
Quoting Bemac
If you 'remember' this, I will have to add you to my growing list of {old-delete} Mature Traders.
You can go ahead, I won't be angry at you although I believe that I am not a 100% mature trader...


Thanks,

Nader
  • #16
  • Jan 25, 2007 4:57pm Jan 25, 2007 4:57pm
Well having tried a lot of mechanical systems over the years, I can say that none works that well. They generate signals, but only the human brain can interpret the story of the chart. Indicators used in a purely mechanical way cannot do that. My own system says trade if the price closes beyond the momentum band of the three bollinger display, but this isn't always the wisest thing to do (particularly if it's against the long term trend). I have a chart with the system on it, but I also have another chart without the system on it. There I just have price, some guppy like moving averages, and the Absolute Fibonacci lines. It takes just a minute to look at the tri bol chart to see, if there's a crossover, but I spend a lot longer now just drinking in the chart without bollingers to see if what the bollingers say makes sense in terms of the story that the mostly empty chart has to tell. If it says trade, then I will believe what the indicator says. In other words the trade should be just as clear on a chart without the system as it is on one with it.
  • #17
  • Jan 25, 2007 7:23pm Jan 25, 2007 7:23pm
LBR left the pits a dozen or more years ago and has come in contact with far more traders then I will ever know. So if she said she doesn't know of any profitable mechanical traders, its good enough for me.

The Turtle Traders are famous for the fact that they were one of the few that actually did it. Beyond them though it is a very short list.
  • #18
  • Jan 26, 2007 9:13am Jan 26, 2007 9:13am
Well my Manual Mechanical entry system to prevent stupid trades is working, better than my trading without it, being tweaked well slowed off a fraction, MACD 6 , 12, or EMA 6 and EMA 12 crosses, got a EA giving me a audible warning with a +/- 0.3 dead zone to stop it being to noisy.


Still need to up my game, on when to take a trade or not, which needs a greater overview of the trend, but hey can't win 100% maybe this will do ??



Need a MT4 broker, then I can instruct it to go Long on a Cross over and something like if profit is <10 close trade on a cross down, take my hesitation / brain out of the equation and automatically keeping my losses small and helping my profits to run.


More of a Captains Role, leaving the micro management to the crew ( well EA ) focus on the bigger picture.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #19
  • Jan 26, 2007 9:19am Jan 26, 2007 9:19am
I spent 18months with a small yahoo group of my own and with the larger group, trying to find a EA that works if there was one, I'm pretty sure I'd of found it, I'm sure the brokerages have them, but they are likely uber complicated and way way way beyond the time and ability of MT4 and the like.

Computers are good at acting based on rules, very limited rules, brains are better at seeing the over all picture, which is why I'm working on above a fusion of both.

Don't waste your time on the dream, which is free money from running a EA, I really do not think it exists sadly
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #20
  • Jan 26, 2007 9:25am Jan 26, 2007 9:25am
I tend to use a mechanical Indicator system which I then base my discretional trade ideas on. For example, My indicators are telling me it is a great time to go long in EUR/USD. I note it is friday and the news today has been blah, we are nearing a natural resistance point from previous price action, and a miriad of other little nuances in the market. I therefore conclude to stay out of hte market.
My mechanical trading indicators return positive trades 75% of the time. By adding my brains input (a decent computer in need of an upgrade ... lol) I can get positive trades to 85% consistently. (Brag alert ... 1 month I had 100% positive trades). I do trade less but feel more confident about my trades and enjoy the challenge.

EllisEdi Moving on to my next trade ...
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