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This so called "self-destruction" of trading systems...

  • #21
  • Mar 15, 2007 10:11pm Mar 15, 2007 10:11pm
Quoting Gwan
REMEMBER LEVERAGE, 400 : 1? so it is 400 times easier to move the market.

we only need few pips, and the chart always move up and down, what we feel like a working system may only a fake alarm.
400:1 doesn't exist with big money. Actually I don't think 200:1 does either. Someone please correct me if I'm wrong.

I think most brokers only allow 400:1 up to $10,000 account equity max. Except NF which I think is 500:1 up to $100,000 equity.
  • #22
  • Mar 15, 2007 10:30pm Mar 15, 2007 10:30pm
Quoting StockKJay
Well, not for certain. If your "trading secret" is the ability to trade the head and shoulders with 80% accuracy lets say... if you release that and tens of thousands use it.. heads and shoulders patterns will not exist the way they do now. Thus you will actually have to learn to trade around a new pattern. Of course this is all speculation.. as no one knows.
Not at all, we have just established that these classic chart patterns have never stopped working, more than half a century after their publication.

If Edwards & MacGee (the creators of technical analysis) were here today they wouldn't be a bit surprised to see that their precious chart patterns are still doing fine after all these years, because they know that people (traders) are (and will always be) motivated by these two simple but powerful emotions: fear and greed.

Anyway, back to the subject, I think that even if someone here at FF posts the holy grail of system, only 10% or less traders would actually trade the system faithfully, without any deviation.

After all, all the tennis players in the world KNOW how legend MacEnroe plays to win, but how many tennis players actually play like him?
  • #23
  • Mar 15, 2007 10:36pm Mar 15, 2007 10:36pm
Quoting SunTrader
How about enforcing that copyright everywhere in the world.
Well what do you care if someone is selling your FX system in Tibet or Kuala Lumpur, if you are making tons of money selling it "just" here in the good old USA, assuming your system is really that good? :
  • #24
  • Mar 15, 2007 10:51pm Mar 15, 2007 10:51pm
Quoting FXTerminator
Well what do you care if someone is selling your FX system in Tibet or Kuala Lumpur, if you are making tons of money selling it "just" here in the good old USA, assuming your system is really that good? :
"It's all about bucks kid, and the rest is just conversation."
  • #25
  • Mar 15, 2007 10:55pm Mar 15, 2007 10:55pm
Quoting FXTerminator
Well what do you care if someone is selling your FX system in Tibet or Kuala Lumpur, if you are making tons of money selling it "just" here in the good old USA, assuming your system is really that good? :
Because there is the little old thing called the internet. And somebody in Tibet or wherever can post all of someone's code on their site for all the world to see, including the good ole USA. Try pulling down that site from here. The lawyers get all the profits then.
  • #26
  • Mar 15, 2007 10:56pm Mar 15, 2007 10:56pm
Quoting Bemac
"It's all about bucks kid, and the rest is just conversation."
Hahahahaha

Touché
  • #27
  • Mar 15, 2007 10:59pm Mar 15, 2007 10:59pm
Quoting FXTerminator
Not at all, we have just established that these classic chart patterns have never stopped working, more than half a century after their publication.

If Edwards & MacGee (the creators of technical analysis) were here today they wouldn't be a bit surprised to see that their precious chart patterns are still doing fine after all these years, because they know that people (traders) are (and will always be) motivated by these two simple but powerful emotions: fear and greed.
Lets say X hedge fund has a 80-90% winning rate on every daily chart head and shoulders pattern on GBP/USD. Now they give their system to CITI Group, Deutsche Bank, JPMorgan and every other major bank and hedge fund out there... the patterns will certainly change. And if they dont actually change radically, they will develop different. This change in development and reaction to the pattern would cause X hedge fund to have to modify their original system to accommodate to the new motions in reaction to the H&S pattern.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #28
  • Mar 15, 2007 11:05pm Mar 15, 2007 11:05pm
Quoting SunTrader
Because there is the little old thing called the internet. And somebody in Tibet or wherever can post all of someone's code on their site for all the world to see, including the good ole USA. Try pulling down that site from here. The lawyers get all the profits then.
True, but if the website is hosted or registered with a US company, then the US copyright laws still apply.

That said if you can "only" sell your FX system via Ebay, Amazon, the Wall Street Journal, Barron's, Investor Business Daily, Stocks and Commodities Magazine, Futures Magazine, SFO magazine, just to name a few trade journals and websites, then you are set for life, absolutely no need to worry about someone else selling your system overseas.
  • #29
  • Edited 11:36pm Mar 15, 2007 11:14pm | Edited 11:36pm
Quoting StockKJay
Lets say X hedge fund has a 80-90% winning rate on every daily chart head and shoulders pattern on GBP/USD. Now they give their system to CITI Group, Deutsche Bank, JPMorgan and every other major bank and hedge fund out there... the patterns will certainly change. And if they dont actually change radically, they will develop different. This change in development and reaction to the pattern would cause X hedge fund to have to modify their original system to accommodate to the new motions in reaction to the H&S pattern.
That may be partially true for very short time frames, like the 1 min or 5 min head and shoulders patterns. I truly believe that in the very short term a little and short lived forex "manipulation" is possible here and there.

But if the head and shoulders pattern is completed after let's say 2 years on the GBP/USD, my friend even a entire continent would not have the buying power to act on or modify the final outcome of this pattern, the fundamentals behind this move are simply way too powerful to overcome.
  • #30
  • Mar 15, 2007 11:35pm Mar 15, 2007 11:35pm
Quoting FXTerminator
That may be partially true for very short time frames, like the 1 min or 5 min head and shoulders patterns. I truly believe that in the very short term a little and short lived forex "manipulation" is possible.

But if the head and shoulders pattern is completed after let's say 2 years on the GBP/USD, my friend even a entire continent would not have the buying power to act on or modify the final outcome of this pattern.
Okay, I didn't make myself clear I suppose. My point is this: if the nearly perfect system is given to 5 of the 10 biggest money pushers in the market to trade this head and shoulders pattern on the daily GBP/USD chart, the development of that head and shoulders pattern would develop and behave differently. The reason is because at least 3 of the 5 will attempt to preempt the move. Why? To get better fills. They will attempt to get in at 1.90xx instead of 1.91xx. This will cause the market to behave different than it did in the past. Meanwhile X who originally had the system and shared it, is now modifying his system to make sure he can maintain the 90% winning rate. This is because what he was using is now down to 70% because of the difference in markets behavior.

Just for debates sake you said: "my friend even a entire continent would not have the buying power to act on or modify the final outcome of this pattern".

This seems as though it is an affirmative statement? How could you know this? Why is there not a head and shoulders formation every single time if there is always the presence of fear and greed or whatever it is you said?

Everything we are talking about is assumption.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #31
  • Mar 16, 2007 12:11am Mar 16, 2007 12:11am
Quoting StockKJay
if the nearly perfect system is given to 5 of the 10 biggest money pushers in the market to trade this head and shoulders pattern on the daily GBP/USD chart, the development of that head and shoulders pattern would develop and behave differently.
I hear you, but again this is theorically possible on very short time frames, and only on occasion, not consistently.

And by the way, there is no such thing as a the "biggest money pushers" in the forex market. Those "big invisible hands" may earn a few bucks on some thinly traded stocks on the New York Stock Exchange by manipulating the price, but in the FX market even big central banks have very limited control on the direction of the overall currency market.

If you are not convinced read "The foreign exchange market : theory and econometric evidence / Richard Baillie and Patrick C. McMah" for example, you will see that it is impossible for any country (including the US and Japan) to move the FX market for an extended period of time. They try but the move is always short lived, the fundamentals ALWAYS have the last word.
Quoting StockKJay
Why is there not a head and shoulders formation every single time if there is always the presence of fear and greed or whatever it is you said?
Yes fear and greed, but with some rationality in between let's not forget that! Traders are not always that crazy thanks god, or the market would be really really just noise.

When a triangle or a box pattern or a head and shoulder break out for example, THEN fear and greed take over and the outcome of the pattern is now (almost) predictable. Fear and greed are always there, but they only manifest themselves at the extremes.
  • #32
  • Edited 1:08am Mar 16, 2007 12:38am | Edited 1:08am
Quoting FXTerminator
I hear you, but again this is theorically possible on very short time frames, and only on occasion, not consistently.

And by the way, there is no such thing as a the "biggest money pushers" in the forex market. Those "big invisible hands" may earn a few bucks on some thinly traded stocks on the New York Stock Exchange by manipulating the price, but in the FX market even big central banks have very limited control on the direction of the overall currency market.

If you are not convinced read "The foreign exchange market : theory and econometric evidence / Richard Baillie and Patrick C. McMah" for example, you will see that it is impossible for any country (including the US and Japan) to move the FX market for an extended period of time. They try but the move is always short lived, the fundamentals ALWAYS have the last word.


Yes fear and greed, but with some rationality in between let's not forget that! Traders are not always that crazy thanks god, or the market would be really really just noise.

When a triangle or a box pattern or a head and shoulder break out for example, THEN fear and greed take over and the outcome of the pattern is now (almost) predictable. Fear and greed are always there, but they only manifest themselves at the extremes.
I don't read books. I didn't say the US or Japan, I am referring to the largest banks and hedge funds. The ones that place and play with hundreds of billions of dollars every day. These firms don't have a say over what happens with the market? If CITI and Deutsche Bank both decided right now... at this very moment that they wanted to push the gbp/usd down 75 pips they couldnt do it?

By this example, I think systems can get messed up if too many large groups use them. I am not talking about 5 minute time frames, I think 4hr even daily charts could be affected.

Take the Fozzy for example. I never traded it... but I suppose it is decent as there are several on the site that use it regularly. If CITI, JP Morgan and DB all traded just Fozzy... it would not work anymore. The reason would be that it would have to be edited to get fills now. Rules state that the daily candle has to close before entering. Well, this wouldnt work anymore as there would be an early rush to get in before the candle closes. Thus the price would be pushed greatly out of reach for all those following the original rules.

I dont think market manipulation and volume influences are reserved for the OTCs, BBs and small caps. I do believe that 1/4 of the total market volume that goes through the GBP/USD was waiting for the Fozzy signal based on its strict rules... there would be total caos.

I am just posting in regards to whether sharing a system can actually hurt it. I honestly agree with you. What works for one person wont for another. I could make 300 chart pips every week and someone would swear that what I am doing doesnt work and wont work in the future because it did or didnt work in the past. In actuality... everything works and nothing works. "IT" works. "IT" being the market.

I suppose you trade strictly price action then?
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #33
  • Mar 16, 2007 12:56am Mar 16, 2007 12:56am
Quoting StockKJay
I don't read books. I didn't say the US or Japan, I am referring to the largest banks and hedge funds. The ones that place and play with hundreds of billions of dollars every day. These firms don't have a say over what happens with the market? If CITI and Deutsche Bank both decided right now... at this very moment that they wanted to push the gbp/usd down 75 pips they couldnt do it?
no they couldn't at all. maybe 10 or 15 at most. And btw, no one plays with hundreds of billions of dollars a day. I'd say the most any one group trades with in one day is probably around 5 maybe 10 billion, at the very tops. Just because they have billions of capital doesn't mean they trade 100% of their capital all the time. They use money management just like us.
  • #34
  • Edited 1:54am Mar 16, 2007 1:20am | Edited 1:54am
Quoting aicccia
no they couldn't at all. maybe 10 or 15 at most. And btw, no one plays with hundreds of billions of dollars a day. I'd say the most any one group trades with in one day is probably around 5 maybe 10 billion, at the very tops. Just because they have billions of capital doesn't mean they trade 100% of their capital all the time. They use money management just like us.
Not play, but exchange. DB exchanges hundreds of billions every day. Unless I am wrong?

I will be the first to admit... I am not very educated with the banks. In a market that trades 2.5 - 3.0 trillion dollars a day, Deutsche Bank making up about 15-20% of that... there is about 400-500 billion. Take the 5th most traded exchange Pound for US$. If they used their one system to trade that pair it would get going a little bit wouldnt it? If they reserved 20 billion to trade the Fozzy at the precise close of the candle, Citi, JP Morgan did the same... it would make the system useless no?

I am speaking as to the most extreme situation here. Reality is that this would never happen. I am just saying that there has to be a way the market would change if everyone started trading the same 90% system.

EDIT: According to tradertech.com, interbank transactions typically are 5million and 10million $ lots. According to Citi's website, they make over 500,000 trades every single day in the currency market. This = minimum $250,000,000,000.00.

Again, I am being extreme. What was suggested in the thread is that if someone were to share their great system it would not hurt anything. I am just trying to show that it would (unsuccessfully). I will use an MA crossover system as an example. If 5x12 with RSI over 50 (Bago method) on a 1hr chart take the trade. If everyone traded this it would not work. Obviously Bago isnt 80%, perhaps not even 70% or 60% for that matter. I dont know. But if a system were shown to be 90% and was shared with global powers... I cant help but think they would mess it up rather than help it. 25 minutes before the 1hr candle closses, Citi would think it is a good thing to put their GBP/USD quota for the day in right now, followed by DB, JPM etc.

I am going to sleep. It is not realistic anyway. People such as ourselves sharing trading systems will never hurt our performances. That being said, I use 30min and 4hr charts and only trade USD/JPY and EUR/JPY. I use trendlines and MAs on the 4hr chart to determine direction, momentum. I then will use 30min to exit and enter when the 4hr is apparently reaching the point of possible reversal. I continue to use the 30min to scale in so long as the 4hr is consistant.The most Ibacktesting I have done is manually backtesting to 2004. My results cant be auto backtested as I dont ever use a SL or TP.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #35
  • Mar 16, 2007 2:43am Mar 16, 2007 2:43am
Quote
I don't read books. I didn't say the US or Japan, I am referring to the largest banks and hedge funds. The ones that place and play with hundreds of billions of dollars every day. These firms don't have a say over what happens with the market? If CITI and Deutsche Bank both decided right now... at this very moment that they wanted to push the gbp/usd down 75 pips they couldnt do it?
They probably can. But why should they ?
There's no guarantee the market will follow their lead. Short the cable to cause it to drop 100 pips and if the market follows, they will profit. But who's going to guarantee the market will follow ? If the market doesn't, they will lose billions and the whole world will know. Technically they can, logically they won't. Too much risk.

Quote
Again, I am being extreme. What was suggested in the thread is that if someone were to share their great system it would not hurt anything. I am just trying to show that it would (unsuccessfully). I will use an MA crossover system as an example. If 5x12 with RSI over 50 (Bago method) on a 1hr chart take the trade. If everyone traded this it would not work. Obviously Bago isnt 80%, perhaps not even 70% or 60% for that matter. I dont know. But if a system were shown to be 90% and was shared with global powers... I cant help but think they would mess it up rather than help it. 25 minutes before the 1hr candle closses, Citi would think it is a good thing to put their GBP/USD quota for the day in right now, followed by DB, JPM etc.
When too many people use it, it may stop becoming effective for a while. People will stop using it to find another system. When few people are using it, it will start working again. That's the cycle. If you are patient enough to wait, it will start working again once the losers left the system.
  • #36
  • Edited 3:27am Mar 16, 2007 3:11am | Edited 3:27am
Based on my own experience I can say that trading bigger contracts doesn't work exactly the way you assume it in your posts. A few times with orders of just 200-300 mio in size I had been able to stop the market for a few hours by completely absorbing the opposite liquidity at a particular level on EUR/USD. I was surprised myself with the effect but the dealer confirmed that my trade was the reason for the market to stall.
1.6 bio "sell" order on USD/JPY, that I placed once during Asian session, had triggered some additional stops below the traded zone and eventually led to a fast drop of about one big figure. It took another 3-4 hours for the market to recover to the intial level that day.
A lot depends on how the order has been placed, at what level and at what time. Sometimes even a relatively small order can trigger a bigger move just because it pushes the market through some significant stops level.
  • #37
  • Mar 16, 2007 3:26am Mar 16, 2007 3:26am
The forex market is SO big and the trader SO many,that a really GOOD system will be GOOD always!I personally use the KISS principle in my trading setups....
  • #38
  • Mar 16, 2007 4:16am Mar 16, 2007 4:16am
I have no idea, what would happen if several big players would all trade the same system all of the time. Maybe, indeed, the system will stop working. However, if the microcosmos of FF and other fx forums reflects the psychology of traders in general, there is no slightest chance that any significant group of traders will follow exactly the same system.

I'm fascinated with this psychology (I'm part of it myself, of course). Dozens of profitable systems were published at FF. Even the most severely sub-optimized systems, like the Pouria method that has attracted lot of attention recently. Where are all the Pouria traders? They moved on to some new fades. If they would have taken some time to optimize Pouria, they could make some nice profits. I optimized it, I saw it could work. Why, right after that, did I start working on another system? Well, trading doesn't leave me much time to go to my shrink. If I'd see him, I'd certainly like to discuss this question with him.

Publish any system you want. Several thousand people will read your post. Several hundred will try it. Several dozen will suggest adding to it any possible indicator. Zero will stick to this system after some period of time. This probably happens with 95% of published systems. The remaining 5% remain alive mostly because of leadership skills of their authors, not because they are any better or worse than other systems.

This behavior reminds me of restaurant-going behavior in my hometown of Tel-Aviv. A new restaurant/bar/cafe is opened. Everyone is talking about it. Queues at the entrance. Newspaper critics hail it. Half a year passes. Nobody remembers the place. Everyone is in the queue to the next culinary Holy Grail. This is bad for restaurant keepers. This is great for food-lovers: you can always find a great place to eat without ordering a table a week ahead.
sans peur et sans reproche
  • #39
  • Edited 5:29am Mar 16, 2007 4:49am | Edited 5:29am
Quoting ilanr

Publish any system you want. Several thousand people will read your post. Several hundred will try it. Several dozen will suggest adding to it any possible indicator. Zero will stick to this system after some period of time. This probably happens with 95% of published systems.
Absolutely true. I got my method fully developed by 1996. In 1998 began offering it to my students. Eventually published it widely in 2006. Still have no problem using it on daily basis and am absolutely sure that the statistics among those familiar with it is pretty much the same as you have just mentioned. However, the info, that someone have to pay for, more often than not gets useful for a buyer. The same info obtained for free is usually wasted.
  • #40
  • Mar 16, 2007 6:49am Mar 16, 2007 6:49am
Quoting Igrok
Absolutely true. I got my method fully developed by 1996. In 1998 began offering it to my students. Eventually published it widely in 2006. Still have no problem using it on daily basis and am absolutely sure that the statistics among those familiar with it is pretty much the same as you have just mentioned.
I love your example! Anybody can buy your book (presently $37.80 at Amazon and start making money. Why people don't do that? God knows. For that matter, you surely had read Edwards & Magee before you formulated your method. Why didn't you just rely on their generalizations? Why don't I rely on you or them, but have to invent my own wheel? There is some built-in imperfection in human nature, some impatience, that makes us always want to fix things that often don't need fixing. This characteristic eventually is responsible for scientific/technological advancement - and this very characteristic makes it risk-safe to publish a profitable system. [actually, there are lots of people who don't have this characteristic, but I guess they are under-represented at traders' forums, they tend to work 825 for all their lives]
sans peur et sans reproche
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