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  • #161
  • Aug 13, 2009 5:48am Aug 13, 2009 5:48am
Quoting hanover
Fair enough. I've stated my opinion - that if the market was random, nobody could possibly profit - and I don't want to argue semantics.

Let's just agree to disagree, and leave it at that.
Agreed.....or rather disagreed

FWIW I actually agree with you, I don't think the markets are random either, I was just playing devils advocate for the sake of debate.
  • #162
  • Aug 13, 2009 5:51am Aug 13, 2009 5:51am
Quoting mongreldog66
Pipmutt, You weren't the smartest mutt in the litter were you?
Mentors show their students how to trade with real live examples. It is the best teaching method because the student is actively involved in the trade. Someone said that it is EARNING WHILE WE ARE LEARNING.

You are inferring that Jacko's Trend trading as some half baked system. You can say whatever you like because you have a bee up your arse about Jacko's success and reputation here. But he has been consistently profitable for over 3 years as seen on these forums.
http://www.forexfactory.com/showpost...4&postcount=85
And...
Another typical Jacko Turtle, adding absolutely nothing to the forum but to harp on about how great Jacko is.
  • #163
  • Aug 13, 2009 6:09am Aug 13, 2009 6:09am
Quoting hanover
if the market was random, nobody could possibly profit.
Exactly. The market efficiency theory collapses if just one strategy can glean consistent profits from the market. But you'll never be able to provide enough proof to Fama's disciples that the data-set is large enough and they'll claim you're just a statistical outlier, a la Taleb.
  • #164
  • Aug 13, 2009 6:23am Aug 13, 2009 6:23am
Quoting birdt
Exactly. The market efficiency theory collapses if just one strategy can glean consistent profits from the market.
But what makes the strategy profitable, it's predictive qualities?
  • #165
  • Aug 13, 2009 7:12am Aug 13, 2009 7:12am
Quoting pipmutt
But what makes the strategy profitable, it's predictive qualities?
Depends on your definition. Some measurements might be CAGR, MAR or even sharpe.
  • #166
  • Aug 13, 2009 7:21am Aug 13, 2009 7:21am
Quoting pipmutt
But what makes the strategy profitable, it's predictive qualities?
Perhaps you could call it that, but directional bias is only one element of it. I'd call it a tendency myself. Just identifying a tendency isn't enough, it still has be executed with appropriate money and trade management or the trader will bleed or blow-up their account somewhere down the line. The term predictive puts a great deal of emphasis on whether the prediction is right or wrong. As you well know, trading isn't about being right or wrong; it's about being in the green or the red. A weatherman wouldn't last long in his game if he had a success% on his predictions of less than 50% (probably much more), but you could cut it as a trader with a hit rate of 50%, and yet could still fail with a hit rate of 90%.
The point is that in a perfectly random market, there would be no true tendencies, and therefore no profitable strategies or traders in the long-run.
  • #167
  • Aug 13, 2009 9:49am Aug 13, 2009 9:49am
Quoting mikkom
Depends on your definition. Some measurements might be CAGR, MAR or even sharpe.
I was thinking more in practical terms of what primarily makes a strategy profitable ie the analysis, money management, trade management etc
  • #168
  • Aug 13, 2009 9:53am Aug 13, 2009 9:53am
Quoting birdt
The point is that in a perfectly random market, there would be no true tendencies, and therefore no profitable strategies or traders in the long-run.
Do you know if anyone has done any research on this (ideally in the forex market), I'd be interested in the results. I did a quick google but there were way too many unrelated hits (and how 'random market' brings up porn site hits I'll never know!!)
  • #169
  • Aug 13, 2009 10:23am Aug 13, 2009 10:23am
Quoting pipmutt
Do you know if anyone has done any research on this (ideally in the forex market), I'd be interested in the results. I did a quick google but there were way too many unrelated hits (and how 'random market' brings up porn site hits I'll never know!!)
It is a tautology, the existence of one profitable strategy would mean that the market is not perfectly random or perfectly efficient, so I suppose the research that is most relevant would be your own delvings into trading the foreign exchange market. If you believe it is possible to profit in the long term with a strategy then you also believe that the market is not perfectly random or efficient as in the random walk theory and the efficient market hypothesis respectively.

Here's a pretty good round up, and does briefly mention the foreign exchange, but most research appears to focus on stocks. It doesn't go too deep into the research but should at least give you some phrases and terms to search further (if you don't get sidetracked by any other results that might come up).

http://www.efmoody.com/investments/efficientmarket.html
  • #170
  • Aug 13, 2009 1:39pm Aug 13, 2009 1:39pm
Quoting pipmutt
I was thinking more in practical terms of what primarily makes a strategy profitable ie the analysis, money management, trade management etc
It makes more money then it loses? You have a strategy that puts the odds in your favor?
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #171
  • Aug 13, 2009 1:50pm Aug 13, 2009 1:50pm
Quoting pipmutt
I was thinking more in practical terms of what primarily makes a strategy profitable ie the analysis, money management, trade management etc
Well I would forgot positions sizing (aka "money management"), fixed risk is very good if not the best way so everything that is left is entry and exit.

So I would say that those entries and exits that give you best CAGR and MAR and possible sortino (with fixed risk%) are what you are trying to find.
  • #172
  • Aug 13, 2009 2:24pm Aug 13, 2009 2:24pm
Quoting birdt
It is a tautology, the existence of one profitable strategy would mean that the market is not perfectly random or perfectly efficient, so I suppose the research that is most relevant would be your own delvings into trading the foreign exchange market....
Thanks for the link, interesting stuff.

I think I slightly lost track of the point I was making, it wasn't whether the markets are random or not, it was how much difference does it really make to us as traders as far as the way we manage our trades and risk goes.

Let's say the markets aren't random. Our plan is to find what we believe is a probable trade, enter using sensible money management to control risk, and place a stop loss and a take profit order. The trade will either win or lose and there is no way of knowing in advance which it will be.

Now let's say the markets are random, we would do exactly the same thing. Manage risk and set a stop and take profit. Just like our probable trade we don't know what the outcome will be.

As you know, for both scenarios we can only be profitable if we cut losing trades short and we maximize gain by allowing winners to run, or we have more winners than losers. One needs to cover the cost of the other, plus show a profit. We can do that with either scenario.

Bear in mind the percentage of times our probable trades (don't) actually do what we thought was probable, plus take into account market manipulation, candle painting, stop running, news spikes, and unexpected events, is there really so much benefit if the markets aren't random, they might just as well be random a lot of the time because they can be totally unpredictable and irrational.

I believe profitable strategies are profitable mainly because of the way we manage a trade and risk, not because of our skills at predicting probable price direction, and I think that is why an alleged >90% lose money, they're too busy looking for price predictors and missing the essence of trading itself.
  • #173
  • Aug 13, 2009 2:29pm Aug 13, 2009 2:29pm
Quoting mikkom
Well I would forgot positions sizing (aka "money management"), fixed risk is very good if not the best way so everything that is left is entry and exit.

So I would say that those entries and exits that give you best CAGR and MAR and possible sortino (with fixed risk%) are what you are trying to find.
I disasgree, I think position sizing and trade/risk management is even more important than entry.

As it's impossible to say which way a trade will pan out trading becomes a game of strategy, in my experience there's more to it than limiting creativity by using simple entry/stop/limit/exit with fixed risk.
  • #174
  • Aug 13, 2009 2:32pm Aug 13, 2009 2:32pm
Quoting LasVahGoose
It makes more money then it loses? You have a strategy that puts the odds in your favor?
Yes, but by doing what primarily? Predicting probable price direction, managing risk, managing the trade, which one would you say is the most important?
  • #175
  • Aug 13, 2009 2:55pm Aug 13, 2009 2:55pm
Quoting pipmutt
I disasgree, I think position sizing and trade/risk management is even more important than entry.
I didn't say it's not important, I said it's obvious (= fractional risk).

I do use some variations myself and have tested many variations and sizing method. There simply isn't anything better.
  • #176
  • Aug 13, 2009 3:36pm Aug 13, 2009 3:36pm
Quoting pipmutt
Yes, but by doing what primarily? Predicting probable price direction, managing risk, managing the trade, which one would you say is the most important?
I'm not sure what you are asking.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #177
  • Aug 13, 2009 3:45pm Aug 13, 2009 3:45pm
Quoting pipmutt
Yes, but by doing what primarily? Predicting probable price direction, managing risk, managing the trade, which one would you say is the most important?
OK, I was going to leave this thread, LOL, but here's another angle (although it's one I've posted many times before).

There are four aspects to trading (somebody please correct me if I've forgotten any):
1. Entry (i.e. includes selecting the 'setups' you want to trade)
2. Exit, aka Trade Management
3. Position size, aka Money Management
4. Mindset: discipline, patience, self-mastery, etc

OK, now let's consider how a very simple EA might cover these points:
2. Exit – if taking high R:R trades (i.e. cutting losses, and letting profit run) provides a winning edge, then no problem – this is easily programmable
3. Position size – again, no problem, every EA can trade according to strict MM rules, e.g. risk only 2% per trade
4. Mindset – every EA trades with perfect discipline

I know that writing an EA that addresses all of points 2, 3 and 4 is no more than 3-4 hours programming work, because I've done it myself. An EA will perform at least as well as a human, when it comes to managing risk. In fact, if ill-discipline really is the biggest reason for the high trader drop-out rate, then an EA must be the perfect solution!

That leaves only point 1, entries. Of course 'simple' entry methods can likewise be easily programmed, but the major advantage that humans have over EAs is that we can perform more intelligent analysis weighing up a much wider and more complex range of variables, and also apply judgement and 'market knowledge' in a more adaptable manner....... and therefore select potentially better entries.

Fact: (experienced) human traders tend to out-perform vended EAs. Moreover, very few of these EAs are long-term profitable. If there was an easily programmable EA that was on-balance profitable, across all types of market conditions, then doubtless everybody would use one. Why? Well, who doesn't want to have their computer generating an exponentially growing income, while they get on with the rest of their lives? (all of which would have an interesting effect on a 'willing-buyer-willing-seller' market, LOL).

When newbies ask for an instant solution, a frequent reply is along the lines of: "if it takes several years to become a knowledgeable expert in any profession (doctor, lawyer, etc), then why should you expect trading to be any different?" Assuming that's true, why would it take several years to learn how to make high R:R trades, the 2% sizing rule, and the fact that you need to be disciplined?

All of this leads me to the conclusion that analysis/entry must be the most important part of the equation. I'd love to be proved wrong, because if a simple EA was the way to riches, I could effortlessly become a forex millionaire myself. I smile to myself whenever I read posts recommending a 'keep-it-simple' (KISS) trading method, because my first thought is: "if it's really that simple, then it's got to be easily programmable."
  • #178
  • Aug 13, 2009 4:02pm Aug 13, 2009 4:02pm
Quoting hanover
OK, now let's consider how a very simple EA might cover these points:
2. Exit – if taking high R:R trades (i.e. cutting losses, and letting profit run) provides a winning edge, then no problem – this is easily programmable
3. Position size – again, no problem, every EA can trade according to strict MM rules, e.g. risk only 2% per trade
4. Mindset – every EA trades with perfect discipline

I know that writing an EA that addresses all of points 2, 3 and 4 is no more than 3-4 hours programming work, because I've done it myself.
Only thing I want to comment (and maybe disagree) to Hanovers post is that exit is almost as important as entry. No more about that

By the way if you know what you are doing, no ea is more than 3-4 hours of programming (even with good entries), the hard part is to study what you should program to your EA (entries and exits).
  • #179
  • Aug 13, 2009 7:03pm Aug 13, 2009 7:03pm
Quoting hanover
There are four aspects to trading (somebody please correct me if I've forgotten any)
Come on David, you're a smart guy, that's like saying there are only 7 colors because there are only 7 colors in the spectrum.

You've neatly listed basic aspects of trading and by process of elimination using an EA as reference have concluded that as everything else can be automated then the last remaining aspect must be the secret ingredient.....entry. Not exactly a scientific conclusion for someone who is usually so fastidious

I'm sure you already know there are literally hundreds of black boxes operating profitably in various markets, in the past exchanges have demanded they're turned off in fast markets because of the problems they cause so they obviously exist. If you're serious when you say you would love to be proved wrong about automating a KISS strategy then let's sign an NDA and do it, I'm serious!

I still maintain entry is the least important aspect, poor entry can be compensated for whereas the other aspects you mentioned can't be in my opinion.

Edit:
'2. Exit, aka Trade Management' I would have as two separate items, exit being the end of the trade and trade management being what happens during a trade, IMO
  • #180
  • Aug 13, 2009 7:10pm Aug 13, 2009 7:10pm
Quoting mikkom
Only thing I want to comment (and maybe disagree) to Hanovers post is that exit is almost as important as entry. No more about that

By the way if you know what you are doing, no ea is more than 3-4 hours of programming (even with good entries), the hard part is to study what you should program to your EA (entries and exits).
If exits have a TA-based, FA-based or statistically valid basis, then there's every reason why they're important. If (at least mathematically) there are situations where a move has > 50% probability of ending, then obviously one should exit. In this context, exits could be viewed as a kind of 'mirrored inverse' of entries. I've also learned that (although this perhaps applies more to a discretionary trader) trailing a stoploss is something of an acquired skill.

But the point I was trying to make is that there are many folk who seem to believe that simply taking trades with TP multiples > SL will, in itself, provide a winning edge. I've yet to see proof of that (and if it did, forex would be easy, for the reasons given in my previous post). My findings have been that taking higher R:R multiple trades tends to reduce win rate in like proportion. There's some good material on that topic by Rabid (posts #16 and #19) in this thread.
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