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Traders and Their Systems

  • #21
  • Feb 12, 2007 10:47am Feb 12, 2007 10:47am
for your system to work for 10 years first an easy check for you to do is see if it works on every time frame
a 1 min chart folllows exactly the same twist and turns and waves as a daily chart ,periods of trends consolidation and rangy stuff, just that the 1 minute does this all in one day and the daily can do it over a period of a month.
if a system only works on a 30 min chart for instance then theres something wrong with it.

my method of trading is looking for a 4 hour top or bottom and confirming its is the top or bottom by a 30 min higher low/ lower high i use stochs to identify the 4 hour tops and bottoms in the first place.
Now i could quite easily do this with a 5 min chart and look for the trigger on a 1 min or a weekly chart with trigger on daily they alll work alll time frames. so with this knowledge i know that i can trade this system profitably for many years to come.
  • #22
  • Feb 12, 2007 12:07pm Feb 12, 2007 12:07pm
Quoting Ricardo Mendez
Thanks guys... You all have been a really great help...

I have got all of my tools I have read all the books I have practised for the last 6 months and Now I guess it is time to get serious....

My problem I'm sure evryone has shared at one point is that I am scared of being wrong.... I just read Trading in the Zone and he mentions that this is a common problem but one that can absolutely kill a trader...

I know... I have seen with my own eyes and in real time that my system is succesful and although it has losing days on the whole is a profitable system...

I am just struggling with my inner demons... I guess I am trying to make excuses as to why I shouldnt trade my system... or I guess it would be any system....

Although this is what I want more than anything.... I am a little cautious because these are my dreams and essentially failing at this means that I have failed and following a dream....
I don't need to tell you (tho' I will) that you absolutely have to rid yourself of the fear of losing. Losses are part of this game, and you must come to terms with this. So, let's get you rolling.

I don't want to know how big, or small, your trading fund is but try this. Divide your fund into 4 and invest the 1st quarter into a mini-micro account, using 0.01 lot size. Trade for a couple of months, sticking strictly to your entry/exit rules, and to your Money Management rules.

It isn't much, but at least it's real money. If you're successful after this period increase your lot size (don't touch the other 3 parts of your fund) and trade again with the larger lots. If you're not successful, think about what may have gone wrong during this first period, making sure that it wasn't you that caused the method to fail, and stick the 2nd chunk of cash into your fund and start again.

After this time you should have an idea of where your future lies in Forex, and what areas of your trading plan need to be reviewed.
  • #23
  • Feb 12, 2007 4:46pm Feb 12, 2007 4:46pm
Ricardo, your question here has elicited some great responses; there are some excellent posts here. I will add my 2 pips worth, although bear in mind that I am still very much in the learning process myself.

Systems that rely on indicators to be optimized (“curve fitted”) are more likely to have down periods when they fall out of sync with the rhythms in the market. Whereas systems based on sound general principles tend to be more robust. IMHO Bemac (post #18) is spot on in this regard: entering following a pullback in a trending market, and strong breakouts from congested horizontal markets, are arguably the two highest probability setups (I haven’t developed a scalping method yet). When price encounters support or resistance, it has a crucial decision to make, and the subsequent move is likely to be a decent one, which enhances your probability of overcoming costs.

Nice point also by Hilmy83 (post #15) about gaining familiarity with the general characteristics of trending and ranging markets.

If your method is more “discretionary” than “mechanical”, then the flexibility will allow you to adapt it to differing market cycles and behavior. However, it’s also important to retain a measure of consistency in your approach. The second paragraph in Carlos’ post (#19) explains this brilliantly, that it’s necessary to assume that all high probability setups are equal, and trade them all, as any that are shied away from could turn out to be the really profitable ones. Discretionary systems are heavily dependent on knowledge and experience. As the saying goes, good decisions are the product of experience; experience is gained through learning; and we learn most from our bad decisions!

How you manage your exits is largely about personality. If you feel more comfortable with a high win rate, then move your stoploss to breakeven more quickly, and thereafter either trail a tight stop, and/or scale out progressively using profit targets. This approach generates a more consistent cash flow, but reduces opportunity to catch the biggest “windfall” moves. I have learned that one can’t have it both ways, hence one must develop a workable compromise between win rate, and reward/risk profile, accordingly. However, in a strongly trending market, it is generally preferable to loosen stops, to let profit run as far as possible.

On the topic of compromise, one of my biggest self-sabotaging character traits is perfectionism. The third paragraph of Van Tharp’s essay here http://www.forexfactory.com/showthread.php?t=7468
is a very accurate summary of what I’ve been (wrongly) trying to do.

Regarding coming to terms with the inevitable losses, I’m trying to moderate my expectations of success, and take a more low-key, philosophical approach. It’s important to see each trade as only as a small part of the overall picture, and remain as emotionally detached as possible, even if this means reducing position sizes below the “2% rule”. I think it’s important to enjoy the exhilaration of trading, and focus on establishing consistency of method. If the entries and exits are basically sound, then profits will ensue as a matter of course.

(Apparently) like PeterFM, a friend of mine runs a retail business. He has profitable weeks, and bad weeks. In the same way that a trader can’t control price movements, he can’t control the number of customers that enter his shop, or their purchasing decisions. But he must continue to spend money on buying stock that he believes will sell: that is the risk of running a business. So I try to liken trading losses to buying stock, a necessary cost of the winning trades, which are the “retail sales”. Not a perfect analogy by any means, but I find that it helps me.

Have you seen the excellent essay by Jimmy Young?
http://www.forexfactory.com/showthread.php?t=5938
One of my most illuminating recent reads. His point #15 hit me like a bullet, as I’ve previously viewed high-impact news announcements as an intimidating “enemy”.

One more thought. Traders talk about greed and fear. To a significant extent, greed amounts to fear of missing out on profit. So everything ultimately resolves itself to fear. Thanks to my friend Spider at IC for pointing this out.

As the other posters have said, concepts like support, resistance, trends and breakouts must necessarily continue to occur, for as long as prices continue to move. Hence the most robust systems should be built around these concepts; I’m hoping that as I gain more knowledge and experience, the “finesse elements” like timing and exit management should fall into place.

Good luck
David
  • #24
  • Feb 12, 2007 5:21pm Feb 12, 2007 5:21pm
Quoting hanover
How you manage your exits is largely about personality. If you feel more comfortable with a high win rate, then move your stoploss to breakeven more quickly, and thereafter either trail a tight stop, and/or scale out progressively using profit targets. This approach generates a more consistent cash flow, but reduces opportunity to catch the biggest “windfall” moves. I have learned that one can’t have it both ways, hence one must develop a workable compromise between win rate, and reward/risk profile, accordingly. However, in a strongly trending market, it is generally preferable to loosen stops, to let profit run as far as possible.
This was a good post, hanover. Thank you. This paragraph was of interest as I raised the question of scaling out, and whether it was the right thing to do, and got some very interesting replies to my thread here. I don't scale out now, but I have reduced my trade size, and increased my initial stop-loss to give trades 'room to breathe' and I find it better for me.
Quote
On the topic of compromise, one of my biggest self-sabotaging character traits is perfectionism. The third paragraph of Van Tharp’s essay here http://www.forexfactory.com/showthread.php?t=7468
is a very accurate summary of what I’ve been (wrongly) trying to do.
As I was born under the Star Sign of Virgo, perfectionism is a fault I've learned to deal with. I always expected my trades to be right. Douglas's 'Trading in the Zone' cured me of that one.
Quote
Regarding coming to terms with the inevitable losses, I’m trying to moderate my expectations of success, and take a more low-key, philosophical approach. It’s important to see each trade as only as a small part of the overall picture, and remain as emotionally detached as possible, even if this means reducing position sizes below the “2% rule”. I think it’s important to enjoy the exhilaration of trading, and focus on establishing consistency of method. If the entries and exits are basically sound, then profits will ensue as a matter of course.
Diallist helped me to come to terms with that concept some time ago, each trade has no significance in itself, only a sequence of trades.
  • #25
  • Feb 12, 2007 6:08pm Feb 12, 2007 6:08pm
Quoting Ricardo Mendez
My problem I'm sure evryone has shared at one point is that I am scared of being wrong....
Many good points have already been made regarding your original question so I'll skip it.

The above comment is truly something you’re going to have to get past. Even the best systems have losses and drawdown, sometimes extended periods thereof. One of the things you can do is a rigorous back test/forward test on the system so that you can prove to yourself that even with the losses you will make money over time. If you’re still afraid of the losses, it probably is because you have less then complete faith in the method. Come up with a concise plan to resolve the faith problem and the psychological aspect will just melt away.

If you have already done this and fervently believe your system is good, you may need to take a different course. By their nature trend following systems (and other high R ratio systems) are going to suffer many more losses then wins. You may not have the personality that is comfortable trading this way. Instead of killing yourself to become something you’re not, it may be helpful to look for a different type of system.

Personally I dislike "failing forward" so to speak, so I completely avoid trend based systems. It is entirely feasible to build systems with low R ratios, but very high win rates and still make great returns. Just consider all the false breakouts your system generates; what if you could make 15 pips on every one of them and only lose 15 when your system actually worked? Even if it isn't quite as many net pips, if your psychology is improved by trading that way, it would be well worth the cost.

You’re still going to take losses. That is a requirement for being a successful trader so you’re going to need to accept them one way or another. I'm merely trying to point out that if you really hate losing, accept that as part of your personality and use it to your advantage.
  • #26
  • Feb 12, 2007 7:50pm Feb 12, 2007 7:50pm
Ricardo, if you have a system based on support/resistance and price action, this is something to think about the longevity of your system.

600 years ago, a rice Trader named Homma invented the candlesticks. He was super-successful that he gained Samurai status. People called him God of the Market. Many of the candlesticks patterns have it's equivalent to modern price pattern studied in 1900's (head and shoulder, triple top etc). Homma and his men were probably the only people at that time who use price analysis in rice trading. Those price action worked even though majority of the market do not know such price analysis exists.

Nowadays, those price patterns are still usable and they are visible everyday. These patterns survived after 600 years and probably will survive forever.

Hope this helps.
  • #27
  • Feb 12, 2007 9:09pm Feb 12, 2007 9:09pm
Couldn't have thought of a better one than this. You're so right. Beautiful.

Quoting Darkstar
Many good points have already been made regarding your original question so I'll skip it.

The above comment is truly something you’re going to have to get past. Even the best systems have losses and drawdown, sometimes extended periods thereof. One of the things you can do is a rigorous back test/forward test on the system so that you can prove to yourself that even with the losses you will make money over time. If you’re still afraid of the losses, it probably is because you have less then complete faith in the method. Come up with a concise plan to resolve the faith problem and the psychological aspect will just melt away.

If you have already done this and fervently believe your system is good, you may need to take a different course. By their nature trend following systems (and other high R ratio systems) are going to suffer many more losses then wins. You may not have the personality that is comfortable trading this way. Instead of killing yourself to become something you’re not, it may be helpful to look for a different type of system.

Personally I dislike "failing forward" so to speak, so I completely avoid trend based systems. It is entirely feasible to build systems with low R ratios, but very high win rates and still make great returns. Just consider all the false breakouts your system generates; what if you could make 15 pips on every one of them and only lose 15 when your system actually worked? Even if it isn't quite as many net pips, if your psychology is improved by trading that way, it would be well worth the cost.

You’re still going to take losses. That is a requirement for being a successful trader so you’re going to need to accept them one way or another. I'm merely trying to point out that if you really hate losing, accept that as part of your personality and use it to your advantage.
  • #28
  • Edited 9:43pm Feb 12, 2007 9:26pm | Edited 9:43pm
I'm not worried about it, and if there comes a day when my strategy doesn't work anymore i'll find something else. I'm also working on developing a second strat to diversify a bit.
How you act is more important than how you feel.
  • #29
  • Jun 16, 2017 2:56pm Jun 16, 2017 2:56pm
Quoting mr.marketz
You basically want to know if you will continually make money, and if your system will sustain market variations. If you have to ask this question, you probably haven't found your system... or your system hasn't found you. If I may: I'm impatient and have a nasty habit of pushing the buy and sell button often. I cannot accept when I'm wrong on a trend direction or haven my stops taken out. I love guessing tops and bottoms... rarely with any accuracy (trends can be so relentless.) So there is my dirty laundry list. Every trading book or course I...
I can relate
  • #30
  • Last Post: Jun 16, 2017 8:32pm Jun 16, 2017 8:32pm
Quoting Ricardo Mendez
I was hoping for someones opinion or input on this subject... Basically I have found a strategy which seems to be working quite well for me but i am a bit nervous about putting to much hope into it as I have read on many threads that a Trader always needs to adapt and change their system. My issue is what if it takes you so long to find a system that works and just when you get to grips with it the market changes and you have to find a new system... In essence you can never be truly profitable or consistent cos you always are changing your system......
Auctioing of price has NEVER changed. It has been around since the dawn of time. It has to. So if youve found a system consistently profiting then it must be set on these tules and id say go for it.

But by consistently you must have 95% probability of not losing full risk. Otherwise its a gamble.
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