Do you still believe in the perfect trading system? | Page 8 | Forex Factory

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Do you still believe in the perfect trading system?

  • #141
  • Jul 2, 2009 3:46am Jul 2, 2009 3:46am
Quoting usdivers
The EA I am using has automatic money management, this account started with $5000 USD, so the EA will trade 5 mini contracts, when it gets close to $6000 USD it will change to 6 mini and so on...
Looks like MT4 Live is on the fritz again, as it is not posting like it should, but here is my link so you can see the lots.

http://livetraderdemo.mt4live.com
  • #142
  • Jul 2, 2009 3:55am Jul 2, 2009 3:55am
Quoting usdivers
Looks like MT4 Live is on the fritz again, as it is not posting like it should, but here is my link so you can see the lots.

http://livetraderdemo.mt4live.com
Thanks divers,

I don't doubt what you say....I expected what you have told me in terms of some automation....that usually creates such equity curves.

regards
daytrading
Enter Signature
  • #143
  • Jul 2, 2009 4:12am Jul 2, 2009 4:12am
I'm not sure here...

If we are talking about an holy grail system, no way I'll ever believe in that, as to me "holy grail" means no losses involved fool's proof method. Otherwise what's "holy" about it??

A profitable trading style, it's just "profitable".
  • #144
  • Jul 2, 2009 4:18am Jul 2, 2009 4:18am
Quoting usdivers
My Holy Grail....lol...at the moment anyway
Looks like small winners but a big SL. Or martingaling...
  • #145
  • Jul 2, 2009 6:44am Jul 2, 2009 6:44am
Quoting Lionstrike
Yes, there is a Holy Grail, but it has nothing to do with rules or mechanical setups. When I first started trading I went down that path - rules, optimizations, systems, etc.

Then eventually I came to the realization that it was all about understanding what was happening in the moment - at the right edge of the chart, and simply going with that. It amazes me now how in the beginning I was doing everything EXCEPT trading - focusing on rules, indicators, basically I was just ignoring what the price was doing in the moment, which was the exact wrong...
You poor soul. I hope you're not wasting your savings.

"All I wanna do is (BANG BANG BANG BANG!)
And (KKKAAAA CHING!)
And take your money"
Measure twice, cut once
  • #146
  • Jul 2, 2009 6:52am Jul 2, 2009 6:52am
Quoting Lionstrike
In each of those 5, I either lose 13% of my current account equity or make roughly 72% (5.5 R/R). That's per session. If I lose all 5 sessions my total account is cut in half. If I win one of the five it's about break-even, 2 (which is my goal) is roughly a 100% return, and if I happen to get all 5 sessions nailed that's about a 1500% return.
Everything else being equal, 5.5:1 RR equates to ~ 15% win rate.

On that basis, the probability of 5 consecutive wins (a "good week") is ~ 0.008%
And the probability of 5 consecutive losses (a "bad week") is ~ 44%.

Three good consecutive weeks = 337,400% return.
Three bad consecutive weeks = 87.5% drawdown (requires 800% return from that point to return to breakeven).
  • #147
  • Jul 2, 2009 7:10am Jul 2, 2009 7:10am
my version of the holy grail? SUPPLY AND DEMAND
  • #148
  • Jul 2, 2009 7:59am Jul 2, 2009 7:59am
For me, the "Holy Grail" is a state of pure emotional self-control. To me, trading is 10% strategy, 10% money management and 80% emotional self-control. The notion that a "Holy Grail" exist in strategy is undermined by the fact that even if you taught a winning strategy to a new trader, he would still probably lose his investment due to lack of emotional self-control. In fact, there are winning strategies right here on FF, and you see what good that has done most traders here
Binary Options Trader
  • #149
  • Jul 2, 2009 9:56am Jul 2, 2009 9:56am
Quoting hanover
Everything else being equal, 5.5:1 RR equates to ~ 15% win rate.

On that basis, the probability of 5 consecutive wins (a "good week") is ~ 0.008%
And the probability of 5 consecutive losses (a "bad week") is ~ 44%.

Three good consecutive weeks = 337,400% return.
Three bad consecutive weeks = 87.5% drawdown (requires 800% return from that point to return to breakeven).

This is not per trade, it's per "session". I have multiple trades in every session, and I spread my leverage out to give the equity curve room to roam. It's not that easy to calculate the actual win rate.

Within each session what I do specifically is this: when I first start the session I use 25% of my total buying power. I use a handful of trades to either reach a point where my account equity drops 13% or rises 13%. That's 50 pips either way, at 25% of total buying power. That's 1:1 on money management. So it becomes about technique. Then, at a 13% gain, I use 50% of my leverage, and again it becomes about being 50 pips one way or another. When that's successful I use 100% of my leverage, and again it's 50 pips either way from that point. So, simply being consistent on 1:1 allows my to achieve a 5.5x R/R ratio within the context of money management, provided I'm successful in three consecutive sessions, with a "1:1" in each, in terms of 50 pips per each third of the session.

hanover, your probability is off. And also, when I was doing INDIVIDUAL trades up until recently I was using 8% risk per trade with a 3.4 R/R. That was on bracket orders and I was doing exactly 13 per week, no more no less. And being only 50% on those allowed my to achieve 100% per week.

aediaz1, I am not a newbie to this. I'm probably not as good as you, but I understand money management. If you study the works of, say, Ralph Vince, or the Kelly formula and do some figuring you can see that trading anything less than the Kelly is not optimal in money management.
  • #150
  • Jul 2, 2009 4:18pm Jul 2, 2009 4:18pm
Quoting Lionstrike
hanover, your probability is off.
The probabilities I quoted are founded in simple, bulletproof math.

However, based on the info in your original post, I wrongly assumed one trade per session, and simple TP vs SL type exits. And, like I said "everything else being equal", i.e. it can't possibly factor in whatever edge is being provided your analysis/intuition.

MM in itself will not give you an edge; the latter can only come from your analysis, and your skill in managing your exits. Using Kelly will optimize your returns relative to risk, but it doesn't address the 'special' consideration that a trader should give to drawdown and possible wipeout.

Anyway, good luck, I seriously wish you all the best.
  • #151
  • Jul 2, 2009 4:19pm Jul 2, 2009 4:19pm
Quoting hanover
Everything else being equal, 5.5:1 RR equates to ~ 15% win rate

How in the world do you obtain a win / loss % from a risk reward ratio? There's no correlation between these two figures. Please explain.

Smoke
  • #152
  • Jul 2, 2009 4:27pm Jul 2, 2009 4:27pm
Quoting hanover
The probabilities I quoted are founded in simple, bulletproof math.

However, based on the info in your original post, I wrongly assumed one trade per session, and simple TP vs SL type exits. And, like I said "everything else being equal", i.e. it can't possibly factor in whatever edge is being provided your analysis/intuition.

MM in itself will not give you an edge; the latter can only come from your analysis, and your skill in managing your exits. Using Kelly will optimize your returns relative to risk, but it doesn't address the 'special'...
No, that's right...I didn't understand what you meant by "all things being equal", but there were some assumptions there that weren't right. And in my view "special consideration" is simply just practicing and becoming consistent. There is no other mathematical special consideration, it's a phantasm to trade less than optimally with respect to returns relative to risk. The money management rules are pure math, and in my view should be a foundation any trading approach should be built upon.

The alternative is just to use a smaller account, as well as to take profits out of the account when certain goals are met, not to warp the optimal money management rules to suit some idea. That's the good thing about forex, it allows for flexible leverage.

We agree that the strategy, or technique, is the key. If we assume it's consistent, then optimal MM should be used. It's about improving strategy to fit optimal MM, not reducing optimal MM to fit inconsistent strategy. At least that's the way I see it. Anyway, good trading.
  • #153
  • Jul 2, 2009 4:30pm Jul 2, 2009 4:30pm
Quoting Yoda_Glenn
To me, trading is 10% strategy, 10% money management and 80% emotional self-control.
IMO it is 100% strategy, 100% MM, and 100% emotional self-control. Because if any one of these factors is missing you will lose.

If emotions were the major problem, then more EAs would be long-term profitable. EAs can adhere to strict MM rules, and trade with with perfect discipline. Therefore any failure must be strategy related.
  • #154
  • Jul 2, 2009 5:11pm Jul 2, 2009 5:11pm
Quoting SmokyByers
How in the world do you obtain a win / loss % from a risk reward ratio? There's no correlation between these two figures. Please explain.

Smoke
"Everything else being equal" makes the (albeit slightly wrong) assumption that price has exactly a 50/50 probability of rising or falling 1 pip, at any point.

If you run a kind of MonteCarlo simulation over a very large number of trials, using this 50/50 value, then you can show that the probability of price reaching an NX pip target in one direction before it reaches an X pip target in the other, converges on 1/N. Hence if you were to make an N:1 RR trade, then you would lose N times for each win.

So for an N:1 RR trade, win rate = 1 / (N+1)

In the above example, the win rate = 1 / (5.5+1) = ~ 0.15 (actually lower, if we account for transaction costs).

Of course all of this assumes a simple "set-and-forget TP versus SL" exit paradigm. Using trade management that adjusts either TP or SL after entry will invalidate this.
  • #155
  • Jul 2, 2009 5:18pm Jul 2, 2009 5:18pm
OK, I see it now, thanks for the clarification. A somewhat backwards way of arriving at it, but I'll buy it. I say backwards because a studious trader knows his/her approximate win% and then (or should) determine risk/reward based on that.

Thanks again for the thorough 'splantion

Smoke
  • #156
  • Jul 2, 2009 6:25pm Jul 2, 2009 6:25pm
Quoting Lionstrike
No, that's right...
I like your no-nonsense mathematical approach! And I definitely agree that strategy/technique is the key, and that finding optimal MM, with its ability to magnify or diminish the effect of an edge, is the biggest determinant of eventual bottom line.

The "special consideration" I referred to is account preservation. With every position sizing algorithm, there is the possibility of "ruin" (i.e. where my account balance reaches the point where it lacks the capital needed to trade the smallest lot size allowed by my broker). The higher the sizing, the greater the probability of ruin. One person might be able to sleep comfortably with a 10% probability; a less hardy soul with 2%; that's a personal rather than mathematical consideration. Of course one can always pull the plug well before this point, but it kind of defeats the purpose of being a trader.

If I was to fund my account with a trivial amount that I'm willing to lose, so that ruin was a non-issue for me, then I would have no problem with using Kelly. If my strategy proves to be successful, and the account reaches a certain level (say $100K, yippee!), then whether or not I choose to continue using Kelly - knowing that the risk of ruin henceforth is still what it was to begin with - or ease off the sizing somewhat to preserve my gain, is again a personal decision. I guess it's a bit like insurance in reverse: why insure one's home when mathematical expectancy favors the insurance company? For most folk, whether rightly or wrongly, their personal risk tolerance and financial situation override the mathematical considerations.

Sure, I can withdraw funds from my account. But isn't that just another way of effectively lowering percent risk? For example, if I withdraw $10k from my $100k account, then risking 10% of $90k would be taking the same risk, dollar-wise, as risking 9% of $100k.

Anyway, good discussion! I'd be interested to know whether any folk who actually trade for a living use Kelly (or something approaching it). I suspect that, in the vast majority of cases, they (whether rightly or wrongly) prioritize account preservation well above optimizing their return. There has to be a reason why the textbooks recommend 1%-2% position sizing, when it appears to disregard the obvious math. I suspect it has something to do with the notion that, no matter how profitable one's strategy is, long sequences of losses will occasionally occur, and the real possibility that their psychological effect will cause the trader to doubt his strategy, making it increasingly difficult to maintain discipline; large drawdowns can cause panic and "revenge trading". And also possibly the implications of the table in this link. All of which eventually brings us back to that "special consideration"

Many thanks for your thought-provoking contribution.
  • #157
  • Jul 2, 2009 6:40pm Jul 2, 2009 6:40pm
Quoting hanover
I like your no-nonsense mathematical approach! And I definitely agree that strategy/technique is the key, and that finding optimal MM, with its ability to magnify or diminish the effect of an edge, is the biggest determinant of eventual bottom line.

The "special consideration" I referred to is account preservation. With every position sizing algorithm, there is the possibility of "ruin" (i.e. where my account balance reaches the point where it lacks the capital needed to trade the smallest lot size allowed by my broker). The higher the sizing,...
Withdrawing funds is a way, sure of lowering % risk, but personally I think it helps me psychologically to maintain my risk parameters, my percentage risk consistent whether I am trading 1,000, 10,000 or 1 million. It's just a habit so that I don't get intimidated by larger numbers and start playing safe for "no reason". So what I do personally, if and when I achieve 1500% is take 500% off. So a 10,000 account into 150,000k, I remove 50k, and trade the 100k in the exact same way I did the 10k. Just maintaining that psychological consistency helps me view money simply as a way of keeping score. That's just something that I found helpful psychologically because when I first started and began progressing I was intimidated by large numbers and irrational fears crept in. Now, I don't care what the account size is, I trade in the same way. I simply want to focus on trading and not allow size of account to impact my discretionary decisions, that's key for me personally, and I've been doing that and taking that approach has helped me quite a bit.
  • #158
  • Jul 2, 2009 6:51pm Jul 2, 2009 6:51pm
The one and only true "Grail'.
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  • #159
  • Jul 2, 2009 9:58pm Jul 2, 2009 9:58pm
the wholly grail is selling your system to someone else! or Training programs!.
I don't think there is a grail unless you have some type of majical turn indicator or some type of majical brain that says "yes the market will keep going". I havent seen it. Picking tops and bottoms...good luck!.
  • #160
  • Jul 3, 2009 5:23am Jul 3, 2009 5:23am
what about trying to guess what ccycle the market makers are in i think that is about as close as one can get to knowing what way the market is heading accumulation /distribution
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