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

  • #141
  • Mar 19, 2007 9:51pm Mar 19, 2007 9:51pm
Quoting FXTerminator
Oh really now?

Well let me refresh your memory, this is basic technical analysis 101 stuff:

Trendlines work and exist BECAUSE, and only because the market is inefficient.

MACD and moving averages work BECAUSE, and only because the market is inefficient, otherwise we wouldn't be able to extract one penny from the market, those trendlines and indicators would simply point to random entry points.



These comments are way off-topic, re-read my simple question to Mr. Merlin.



 News Trading is NOT a system!

 PS: Readers sorry, I don't know why my letters are coming out red.


Well that answers all my questions. Thank you. I see no further reason to give you the opportunity to add to your post count. {which I'm sure you will anyway}
  • #142
  • Mar 19, 2007 10:04pm Mar 19, 2007 10:04pm
Quoting Bemac

Well that answers all my questions. Thank you. I see no further reason to give you the opportunity to add to your post count. {which I'm sure you will anyway}
Sure, this is always the last resort for people running out of solid arguments.
But thanks for contributing anyway.
  • #143
  • Mar 19, 2007 10:30pm Mar 19, 2007 10:30pm
I don't feel the love in this thread.
  • #144
  • Mar 19, 2007 11:43pm Mar 19, 2007 11:43pm
Quoting aicccia
I don't feel the love in this thread.
  • #145
  • Mar 19, 2007 11:45pm Mar 19, 2007 11:45pm
Quoting FXTerminator
Sure, this is always the last resort for people running out of solid arguments.
But thanks for contributing anyway.
Running out? I was actually looking forward to one from you, but alas... you have none. seeya.
  • #146
  • Edited 12:57am Mar 20, 2007 12:23am | Edited 12:57am
Quoting Bemac
Running out? I was actually looking forward to one from you, but alas... you have none. seeya.
Well if you would like to talk seriously about the inefficient market theory in a new thread (without any rotten tomatoes throwing) you know where to find me :

PS: by the way, what is this story about adding to my "post count", do I win a color TV or something if I post a certain number of times??
  • #147
  • Mar 20, 2007 1:17am Mar 20, 2007 1:17am
FXT - reading your posts makes me uneasy - you obviously dont make any money trading fx and take your anger out on the forum. Every winning system begins with attitude(and this is discretionary so I will share it). If you are miserable in response to constantly losing, why not be pleasant and humble so that you may allow yourself to feel what it feels like to win. Then you will be psychologically ready to accept success in this market. If you keep your schitzo attitude, you're only going to hurt any chances you may have of making it in this business.

......and please think twice before responding to this harshly as you have done so many times, I really dont care what little private jokes you have with yourself, it means nothing to me that you may insult me, it is only for your benefit to change your attitude and only adds to your demise if you do not.

Regards
Man who scratches ass should not bite fingernails
  • #148
  • Edited 4:42am Mar 20, 2007 4:01am | Edited 4:42am
Quoting FXTerminator
Oh really now?

Well let me refresh your memory, this is basic technical analysis 101 stuff:

Trendlines work and exist BECAUSE, and only because the market is inefficient.

MACD and moving averages work BECAUSE, and only because the market is inefficient, otherwise we wouldn't be able to extract one penny from the market, those trendlines and indicators would simply point to random entry points.



These comments are way off-topic, re-read my simple question to Mr. Merlin.



News Trading is NOT a system!

PS: Readers sorry, I don't know why my letters are coming out red.
Don't want to add heat in this argument but I have to say that I agree with what Merlin said. If you have a system that exploits an inefficiency in the market, you can make money. Please note that I am not arguing making a system widely known will make it not working, I am saying that if a system is trying to make money exploiting market inefficiency only, then making it widely known will make it much less efficient and even to the extent that it won't work anymore. The most obvious example is that you have 3 pair of currencies like GBP/JPY, GBP/USD, and USD/JPY and if inefficiency occurs between these 3 pairs, you can exploit it and arbitrage and during its process you close the inefficiency (so closing the gap) and once the process is done the arbitrage opportunity is gone. Now suppose an inefficiency occurs between these 3 pairs and I discover that there is a chance for arbitrage between them. Now I sit on the sideline, waiting for the inefficiency to be increased (the gap between the 3 pairs wide enough and thus more room for profit). I feel comfortable to wait because I know the market is very inefficient and not many other people will discover this opportunity of arbitrage. Once the gap is large enough, I pull the trigger (do buy and sell action of each pair), reap my profit and during this process the gap narrows and the inefficiency is gone. In fact it happens more often before this computer and information age, but it seldoms happen now, because with the advancement of computer and more information available to everyone, this method (system) is such widely known that even the smallest chance of arbitrage between any 3 correlated pairs can be detected and once a narrow gap opens, it will be closed immediately. This example illustrates that if many people have systems or discover this method that can detect chances of arbitrage, it won't work (or only work to a much lesser extent, perhaps not even enough to cover the transaction cost to carry out such an arbitrage). If market is so inefficient (and thus implying many dumb persons out there) that opportunites for arbitrage is everywhere, I will be rich just by doing arbitrage. But unfortunately I can't because everyone knows this method now and institutions even have computer system that have built-in method to detect arbitrage chances, making it impossible to arbitrage (and if there is any, the gap is so small that it may not even cover the transaction cost). This last point also coincides with what Merlin mentioned - if profit can be reaped by exploiting the inefficiency of an market, "the inefficiency is only worth a certain amount of money". This is because suppose if arbitrage can still be done in most pairs, the profit amount is measured by the inefficiency (the gap between them). Once you start the process of arbitrage, the act itself will narrow the gap, so profit is limited to the extent of this gap only.

FXTerminator mentioned that trendlines, MACD or moving average violation are actually exploiting market inefficiencies to make money and I really don't understand how and if you would enlighten me how it is exploiting market efficiency with some concrete examples (like the way I did above), I would really appreciate so that I can learn something here.
  • #149
  • Mar 20, 2007 4:19am Mar 20, 2007 4:19am
Quoting FXTerminator
Well let me refresh your memory, this is basic technical analysis 101 stuff:

Trendlines work and exist BECAUSE, and only because the market is inefficient.

MACD and moving averages work BECAUSE, and only because the market is inefficient, otherwise we wouldn't be able to extract one penny from the market, those trendlines and indicators would simply point to random entry points.
FXTerminator, do you notice that all the experienced traders here can plainly see that you are not a trader? its called "real recognizes real". its so obvious that i would cut off my pinky toe if you can show me a brokerage statement that is more than a year old! LOL

seriously dude, your opinions are way too strong for your experience level. at this stage in your trading game, you should be listening, not preaching.
Relax and be happy.
  • #150
  • Mar 20, 2007 9:49am Mar 20, 2007 9:49am
Quoting witchazel
its like daddy buying you a new car for high school, it just gets crashed. buy your own car and you might even keep it clean.
LOL, love that quote.
  • #151
  • Mar 20, 2007 11:02am Mar 20, 2007 11:02am
While I don't agree that using MACD or any other basic study is taking advantage of a market inefficiency (far from it) I do agree with many other points FXT has made.

And far as the harsh tone, it seems it has been going both ways.
  • #152
  • Edited 4:40pm Mar 20, 2007 3:55pm | Edited 4:40pm
Quoting forex778
FXTerminator mentioned that trendlines, MACD or moving average violation are actually exploiting market inefficiencies to make money and I really don't understand how and if you would enlighten me how it is exploiting market efficiency with some concrete examples (like the way I did above), I would really appreciate so that I can learn something here.
Forex778, you are talking about market inefficiency in its most basic sense and you gave the forex triangular arbitrage example to illustrate your point. I have already talked briefly about FX triangular arbitrage in another thread here at FF.

For those of you who are not very familiar with the concept, It's the idea of exploiting those extremely brief moments when the prices of 3 currencies pair (example dollar-yen, yen-pound and pound-dollar) get out of whack and are not equal anymore, parity-wise.

What you saying is of course totally true, but unfortunately that's not really what this thread is about.

True, the FX market is constantly "correcting" itself to eliminate those type of technical inefficencies. These inefficencies exist because the dissemination of information from one financial center (let's say Tokyo) to other financial hubs like London and New-York is not always instant. When something bad happens to the Yen in Tokyo, New-York and London are not always instantly informed and/or don't adjust their prices immediately. It may take up to 10 seconds or more and traders on the lookout can make a bundle in the meantime.

Those are minor ineffiencies and they happen almost all the time, in the stock, futures and forex market. These inefficiencies disappear quickly everytime BUT WE MUST NOT CONCLUDE THAT FOREX SYSTEMS MUST AND SHOULD BEHAVE THE SAME WAY!

Why?

Because FX trading systems exploit the ENTIRE inefficiency of the currency market!

To grasp this idea we must first undertand what a real market inefficiency is.
Let's suppose the forex market is totally EFFICIENT. What would happen then? Simple, the price of EUR/USD would jump suddenly jump (up and down)500 pips for example and stay there for hours or days until a new event changes this equilibrium. Then the euro would immediately jump another 300 pips and stay that way for a long period of time until a new event comes along and changes that new state of equilibrium again and so forth.
In this case we have zero chance of making money, every move is already "over" before we even have time to push that buy/sell button. Even worse, these up and down moves would seem totally random to us and no system would ever be able to extract money from such totally efficient market.

But fortunately for the traders, the FX market is not efficient in the long term. Prices take a loooooong time to adjust from one point to the next. They don't jump 500 pips at a time but by 1 or 2 or pips at a time, except of course during the news.

And that's what I was talking about before : trendlines work because (and ONLY BECAUSE) the market is inefficient. Why? Because is takes a long time for the FX market to "digest" any new information and move from one state of equilibrium (supply and demand, remember?) to the next state of equilibrium.

That's why they say the "trend is your friend". Sure but what is causing the trend in the first place?

You guessed right, market inefficiency again, this tendency for the forex market (or any other freely traded market) to move slowly from one point of equilibrium to the next, as more and more traders are slowly digesting and reacting to new information.

So these trendlines on your charts and these MACD indicators, they work for this reason only, the market is inefficient. Otherwise they would simply signal pure random entry points.

Still not convinced?

Try this: Construct a chart by simply flipping a coin, head go up 1 pip and tail go down 1 pip. Do this enough time to construct a 5 year chart. Then place all the MACD and all the trendlines you want on your charts and see if you can make ANY money.

You cannot for the simple reason that there is NO inefficiency to exploit in the first place.

See you later.

PS: In response to the personal attacks elsewhere in this thread sorry guys but I don't have time for this. If some members here at FF like to use personal attacks/insults to disguise their inability to defend their point of view in an intelligent, articulate and civilized manner that's not my problem. All other pertinent on-topic comments/questions are of course always welcome.
  • #153
  • Mar 20, 2007 4:20pm Mar 20, 2007 4:20pm
Quoting FXTerminator
Try this: Construct a chart by simply flipping a coin, head go up 1 pip and tail go down 1 pip. Do this enough time to construct a 5 year chart. Then place all the MACD and all the trendlines you want on your charts and see if you can make ANY money.

You cannot for the simple reason that there is NO inefficiency to exploit in the first place.
You can do the above by reading the following thread...

http://www.forexfactory.com/showthre...+mcgrew+random
  • #154
  • Mar 20, 2007 4:25pm Mar 20, 2007 4:25pm
Interesting fundamental theoretics on FX by the Terminator.
  • #155
  • Mar 20, 2007 4:31pm Mar 20, 2007 4:31pm
Quoting hidethereal
You can do the above by reading the following thread...

http://www.forexfactory.com/showthre...+mcgrew+random
Yes thanks Hidethereal, that's the old "you can find patterns and trendlines on purely random generated charts too" concept revisited.

It's like saying that if a highly skilled magician (let's say David Copperfield) can simulate a heart transplant operation in a live TV show, then heart transplant operations do not exist.
  • #156
  • Mar 20, 2007 4:39pm Mar 20, 2007 4:39pm
Quoting AmatPro
Interesting fundamental theoretics on FX by the Terminator.
Thanks Amatpro, please feel free to add your own personal comments anytime.
  • #157
  • Mar 20, 2007 7:23pm Mar 20, 2007 7:23pm
Quoting FXTerminator
Forex778, you are talking about market inefficiency in its most basic sense and you gave the forex triangular arbitrage example to illustrate your point. I have already talked briefly about FX triangular arbitrage in another thread here at FF.

For those of you who are not very familiar with the concept, It's the idea of exploiting those extremely brief moments when the prices of 3 currencies pair (example dollar-yen, yen-pound and pound-dollar) get out of whack and are not equal anymore, parity-wise.

What you saying is of course totally true, but unfortunately that's not really what this thread is about.

True, the FX market is constantly "correcting" itself to eliminate those type of technical inefficencies. These inefficencies exist because the dissemination of information from one financial center (let's say Tokyo) to other financial hubs like London and New-York is not always instant. When something bad happens to the Yen in Tokyo, New-York and London are not always instantly informed and/or don't adjust their prices immediately. It may take up to 10 seconds or more and traders on the lookout can make a bundle in the meantime.

Those are minor ineffiencies and they happen almost all the time, in the stock, futures and forex market. These inefficiencies disappear quickly everytime BUT WE MUST NOT CONCLUDE THAT FOREX SYSTEMS MUST AND SHOULD BEHAVE THE SAME WAY!

Why?

Because FX trading systems exploit the ENTIRE inefficiency of the currency market!

To grasp this idea we must first undertand what a real market inefficiency is.
Let's suppose the forex market is totally EFFICIENT. What would happen then? Simple, the price of EUR/USD would jump suddenly jump (up and down)500 pips for example and stay there for hours or days until a new event changes this equilibrium. Then the euro would immediately jump another 300 pips and stay that way for a long period of time until a new event comes along and changes that new state of equilibrium again and so forth.
In this case we have zero chance of making money, every move is already "over" before we even have time to push that buy/sell button. Even worse, these up and down moves would seem totally random to us and no system would ever be able to extract money from such totally efficient market.

But fortunately for the traders, the FX market is not efficient in the long term. Prices take a loooooong time to adjust from one point to the next. They don't jump 500 pips at a time but by 1 or 2 or pips at a time, except of course during the news.

And that's what I was talking about before : trendlines work because (and ONLY BECAUSE) the market is inefficient. Why? Because is takes a long time for the FX market to "digest" any new information and move from one state of equilibrium (supply and demand, remember?) to the next state of equilibrium.

That's why they say the "trend is your friend". Sure but what is causing the trend in the first place?

You guessed right, market inefficiency again, this tendency for the forex market (or any other freely traded market) to move slowly from one point of equilibrium to the next, as more and more traders are slowly digesting and reacting to new information.

So these trendlines on your charts and these MACD indicators, they work for this reason only, the market is inefficient. Otherwise they would simply signal pure random entry points.

Still not convinced?

Try this: Construct a chart by simply flipping a coin, head go up 1 pip and tail go down 1 pip. Do this enough time to construct a 5 year chart. Then place all the MACD and all the trendlines you want on your charts and see if you can make ANY money.

You cannot for the simple reason that there is NO inefficiency to exploit in the first place.

See you later.

PS: In response to the personal attacks elsewhere in this thread sorry guys but I don't have time for this. If some members here at FF like to use personal attacks/insults to disguise their inability to defend their point of view in an intelligent, articulate and civilized manner that's not my problem. All other pertinent on-topic comments/questions are of course always welcome.
Maybee we are just being too picky with semantics, however since you are the one that brought it up, you should be more careful with your words. While what you say has some underlying merit, it still doesn't explain how trading trendline bounces or breaks exhibits the characteristics of taking advantage of a market inefficiency.

There are many different definitions of inefficiencies, yet when one refers to takind advantage of a market inefficiency, it generally refers to taking advantage of a situation where there is waste and eliminating that waste(in our case, putting it in your pocket). Waste in terms of trading is usually due to the fact that information can only flow so fast and those that have better access to it can take advantage of it(arbitrage as an example). Another exaple would be when brokers guaranteed stops and limits during high volatility where traders were guaranteed fills at price levels that didn't even exist in the real marketplace. It was the waste given up by the brokers that was taken advantage of to put money in traders pockets.

What you refer to is not really a market inefficiency but rather describes relative market efficiencies. Traders buy at trendlines or areas of support because there is a perception of value at that level and they are able to do so because of the efficiency of execution and the enormous size of the liquidity pool, otherwise everytime you would hit a market order on GBPUSD, you may be filled 200 pips away. Try trading a cross that is not a major and you will see what I am talking about. Then again that is why there are less and less inefficiencies to take advantage of on the majors, because the liquidity pool is so great and we have better and quicker access to reliable(so to speak) information.

Just because a market is efficient, doesn't mean it has to stand still. Peoples perceptions of value change based on many reasons from economic releases to the current health conditions of their pets, and the market prices reflect the current state of those perceptions perfectly - that is why you have technical analysis - when using TA you are not trying to read some mystical hypothetical beast called the market, rather you are making educated guesses on how people perceive value in the market. This doesn't explain anything about market inefficiencies, but attemps to dive into human psychology and rationalization. Patterns work because there is a perception of value. Taking advantage of this perception and the liklihood of orders being set at certain levels is not the same as taking advantage of market inefficiencies.
Man who scratches ass should not bite fingernails
  • #158
  • Mar 20, 2007 8:20pm Mar 20, 2007 8:20pm
Wow that's a great length of reasons how market works. Thanks to God, I have my moving averages that summarize most of the reasons. :
  • #159
  • Mar 20, 2007 8:25pm Mar 20, 2007 8:25pm
Quoting Leugimp
Patterns work because there is a perception of value.
True, but it still does not explain two things:

1/ Where is this perception of value coming from exactly?

2/ More importantly, why are those patterns still working in the first place?

See the problem here?

And if you meditate long enough on this, you will always come to the same conclusion : inefficiency of the market, plain and simple.

No inefficiency no money, no market, no patterns, no nothing.

And we are again back to square one.
  • #160
  • Aug 24, 2009 6:56pm Aug 24, 2009 6:56pm
Quoting FXTerminator
Most traders are convinced that if they publish or post the exact trading rules of their excellent forex trading system, the system will somehow lose all its effectiveness and stop working.

This is of course a myth, the forex market is so vast and so liquid it does not give a hoot how we are trading or what we are "up to". We are just small, small sardines swimming in the Pacific.

For instance, classic technical analysis patterns like head and shoulders, trendlines, support/resistance, triangles, double top, double bottom, etc... have been...
I'm wondering if anyone has thought about this. Say for example H&S pattern. Do we KNOW for a fact that if none of us acted on a H&S pattern that it would actually continue doing what it has traditionally done? Maybe the actions of the smaller traders (not market makers) is what finalizes the movement of money to make the pattern complete.

The thing is, we will never know, because there is no way we can uniform every trader in the world to NOT take a money making opportunity.

For example, it's always off the 2nd shoulder of the H&S that the price finally lets go and either plummets or skyrockets. With that said, when do most people enter the trade? Off the 2nd shoulder where the major price movement is located. Do you see any coincidence with that? (works for all patters including support and resistance)
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