How to know if a system will work for that week? | Forex Factory

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How to know if a system will work for that week?

  • #1
  • First Post: Mar 4, 2007 7:12am Mar 4, 2007 7:12am
I am very new to trading, and this is question I find important. Many people think that they can find one great system that will always work every week, but the nature of any currency pair can be different any week. Trending systems may cause you to lose a lot of money when a pair is ranging, and this can really result in a terrible weak when every breakout is a false breakout.

My impression of a good trader is one who can change his method depending on the nature of the game. He is a person with knowledge of the market and how it could act, and he has a plan for all these situations - knowing what to do in certain situations and what not to do in order to be profitable. Like others he cannot predict the future, but he uses the indicators that give him an edge.

So what indicators can one use to set their initial perceptions of the week ahead of them? Would you use price action on the weekly chart? Any advice about knowing various systems for various pairs so one is adapting to the market or staying with the trending pairs?

Thanks
  • #2
  • Mar 4, 2007 7:23am Mar 4, 2007 7:23am
  •  Trader#0000
  • | Status: Unregistered Trader
News are important. For example if you have NFP in that week you could expect the USD pairs to be volatile. Not always so but it makes sense. Also look at GBP/JPY during the BOJ interest rate announcement week.
  • #3
  • Mar 4, 2007 7:29am Mar 4, 2007 7:29am
Why a week ?, why not a day ? or 4 hours, 1 hour, or just 5 min ?

Have you ever been in front of the live chart and say: Where is the price going to be in 5 min ? 30 pips up or 30 pips down ?, Well, no one knows 100% for sure, trading is about finding an edge and stick to it and do it over and over again, as long as that edge works fine 80% then you'll be fine.
  • #4
  • Mar 4, 2007 7:40am Mar 4, 2007 7:40am
Quoting ForexDude2
News are important. For example if you have NFP in that week you could expect the USD pairs to be volatile. Not always so but it makes sense. Also look at GBP/JPY during the BOJ interest rate announcement week.
interesting ill keep this mind

Quoting ayato
Why a week ?, why not a day ? or 4 hours, 1 hour, or just 5 min ?

Have you ever been in front of the live chart and say: Where is the price going to be in 5 min ? 30 pips up or 30 pips down ?, Well, no one knows 100% for sure, trading is about finding an edge and stick to it and do it over and over again, as long as that edge works fine 80% then you'll be fine.
I think if you regularly trade the 4 hour charts, that becomes the lens through which you see the market. If for days and weeks in a row you are successful, you will think your system is great and feel you have mastered the market.

But then maybe some time goes by, a few months, and the currency pair you like to trade is behaving very differently and you are no longer profitable but don't understand why. Maybe in the long run you are still profitable because the pair behaves your way more often than not, or maybe you are losing because it behaves your way less often.

I think stepping out of our frame of reference, zooming out a bit, may help? Some of us have one wrong trade and we think we are failures, or have one good week and we think we are successful. Some have a good month, or a good 3 months, or a good year, but does that mean we are successful traders or do we just have a successful system for that specific market condition?

Is there a period of success where we can be sure our system is working and will usually work or work for some more time to come? This is an important question for those who want to backtest a system. Is backtesting for one month enough? 3 months? A year? When can you be sure enough?
  • #5
  • Mar 4, 2007 8:09am Mar 4, 2007 8:09am
I guess another way to phrase my question is this.

Trading success/failure depends on three things:
Risk management - Trader (Psychology) - Method (System)

The first two are constants, they are always for you or they are always against you. Good risk management and good psychology will never hurt you. But your method can sometimes be for you and it can sometimes be against you depending on the market condition. The method is not a constant, at least that is the way I understand it. Those searching for the 'Holy Grail' are searching for a constant method, which to me is indicative of laziness. Not wanting to learn various methods and have a deeper understanding of the market seeks one to just want some non-existent perfect thing to make them easy money.

A filter in a system is a good way to know whether or not to use that system, which is why most good systems have filters. But of course there could be long periods where the system gives no signals, and so then one would not trade. One is then better off knowing another system or adapting or knowing another currency pair and having a system for that so that they can trade. This is just the way I see it, though I am still a newbie.

Now the trick seems to be knowing when to apply what.

But I guess I am saying this out of fear that I will test a system for a few months and it will work brilliantly, and then when I begin real trading this system will fail because the market changed and not my psychology. But the fact that I am having these fears is indicative that my psychology is still weak, fears are allayed by knowledge and I must have more knowledge to increase my confidence, which is why I created this thread .
  • #6
  • Edited 8:26am Mar 4, 2007 8:14am | Edited 8:26am
There really is no way of knowing. I have yet to find a good ranging market system that is also a good trend grabbing system. In fact, I cant find a good ranging market system. Heck, if the eur/usd doesn't move about at least 50 pips I am at best going to BE. However, I have a good trending system. It will catch at least 2/3 of every major move. The whole point is to negate weakness and exploit strength.

I know some here are good with ranging markets, probably those that follow orders and use S/R lines etc. Though, if I can't write rules on how to use these... I won't be able to trade. I am sure perceptions will grow with time.

Quoting zamakhtar
The method is not a constant, at least that is the way I understand it. Those searching for the 'Holy Grail' are searching for a constant method, which to me is indicative of laziness.
You are right about this. I searched and still browse for a system that would make me money when there is ranging market... to be honest I just cant find one. It could be on a 5 minute chart perhaps... then I am scalping and it is going clear against the system I use to catch trends. I need sleep too. I can't make sure to catch a big trend by getting long/short constantly according to a 5min chart.

There are people here that know a lot more than myself. The very good traders here make money during ranging markets, make tons of money during trends. Me, I just want to BE during ranging and make during trends. That is good enough for me.... for now.

Good luck in your searching.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #7
  • Mar 4, 2007 8:23am Mar 4, 2007 8:23am
Quoting zamakhtar
Is there a period of success where we can be sure our system is working and will usually work or work for some more time to come?
How many different market conditions have you tested the system over? The market was trendy in Q4 of last year but has been pretty rangy from about the first of the year through thebeginning of last week. Last week was pretty volatile. Run your backtests on each of the conditions individually and see what the results were.

My general experience is that markets are rangy 80% of the time, trendy 15%, and volatile 5%. If over all three periods your making money or breaking even, you can be pretty confident that what your doing is good. If your only making money in volatile times and losing your shirt in the rangy periods, your probably going to lose money in the long run.
  • #8
  • Mar 4, 2007 8:46am Mar 4, 2007 8:46am
Thanks StockJJay for the comments. Here are my newbie thoughts : The problem with the trending systems are the false signals, and as you said, filters can sometimes cause you to take your position after the movement has occurred, though last week was a great week with so much movement for the yen crosses that any such system would have worked. Would the gain made from such a week be enough to offset the loss of false signals and late signals? That is the more important question I guess rather than whether it is right or wrong more often.

Quoting Darkstar
How many different market conditions have you tested the system over? The market was trendy in Q4 of last year but has been pretty rangy from about the first of the year through thebeginning of last week. Last week was pretty volatile. Run your backtests on each of the conditions individually and see what the results were.

My general experience is that markets are rangy 80% of the time, trendy 15%, and volatile 5%. If over all three periods your making money or breaking even, you can be pretty confident that what your doing is good. If your only making money in volatile times and losing your shirt in the rangy periods, your probably going to lose money in the long run.
Thanks for the comments.

Does this have to do with the system or with the trader? I guess you can't completely separate the two, but a trader can certainly be successful in all three market conditions but I don't believe a specific system can be.

Some people have a limited amount of losses they will take per week for a specific system in order to cut losses because that system doesn't seem to be working that week. I guess one idea I had was to see what happens on Monday and Tuesday before entering a trade in order to see how that week is behaving. But I am a newbie and I don't trust my ideas, because my belief that Monday and Tuesday can indicate how the rest of the week behaves is based on weak observations made only these last few months.

Price action trading seems to work over long periods of time, but that also seems to take a lot of knowledge and discretion to implement well, which is something that would require a lot of confidence which takes time to build. I guess I should continue learning and trading low risk and demo in order to increase my confidence and knowledge .
  • #9
  • Edited 9:27am Mar 4, 2007 9:15am | Edited 9:27am
  •  Trader#0000
  • | Status: Unregistered Trader
Reading posts will not get you the Holy Grail but will certainly educate you and give clues about areas you need to work on to engineer your own systems...

You probably need more than one system to cover all market conditions, or most of them. I like to use long-term, swing and intra-day. I need to work more on the last two, a lot more. Long-term is more easy for me and I'm pretty satisfied with that timeframe...
  • #10
  • Mar 4, 2007 7:28pm Mar 4, 2007 7:28pm
Quoting Darkstar
How many different market conditions have you tested the system over? The market was trendy in Q4 of last year but has been pretty rangy from about the first of the year through thebeginning of last week. Last week was pretty volatile. Run your backtests on each of the conditions individually and see what the results were.

My general experience is that markets are rangy 80% of the time, trendy 15%, and volatile 5%. If over all three periods your making money or breaking even, you can be pretty confident that what your doing is good. If your only making money in volatile times and losing your shirt in the rangy periods, your probably going to lose money in the long run.

Darkstar,I was wanting to test your theory on my newly discovered system and here were the results.
Q4 of last year-Total trades-50
Winning trades-25
Total pips-577
Rangy- Total trades-25
Winning trades-14
Total pips-602
Volatile- Total trades-5
Winning trades-2
Total pips-26

Im not doing this for brags or anything like that,i havent even tested it live but i am excited that after 2 1/2 years of struggling to find a system that i believe in,I have finally found mine.I have manually backtested the past 423 trading days on GBP/USD only, with 42% winners everything is based on 2 to 1. So what the future holds for this system I have no idea only time will tell but what i do know is that my journey is just begining!!!
  • #11
  • Mar 6, 2007 3:55am Mar 6, 2007 3:55am
Can any mod move this to the Beginner Q&A section? Thanks
  • #12
  • Last Post: Mar 8, 2007 3:17am Mar 8, 2007 3:17am
Quoting zamakhtar

Price action trading seems to work over long periods of time, but that also seems to take a lot of knowledge and discretion to implement well, which is something that would require a lot of confidence which takes time to build. I guess I should continue learning and trading low risk and demo in order to increase my confidence and knowledge .
well...you got it...there are no shortcuts..

if you want to adopt your style/method/approach acc to market conditions, you have to a) know/define the interface between different market episodes as ...trending...non-trending...consolidation...ranging...reversal...and b) apply them in real time...

you have to choose between an anticipative style or an conformation style..and so on

that said, in my eyes, for making money trading, the more important thing is variation of position size
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