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Long term Profits within Negative Expectancy

  • #61
  • Aug 19, 2009 8:23am Aug 19, 2009 8:23am
Quoting FX-Petra
I do not want to make this a math geek discussion.
That's exactly what it is, mathematical theory, it has little or no resemblance to reality.

There are many strategies and systems which have stood the test of time and are just as effective today as they were 10, 20, or even 30 years ago!

Why couldn't this cycle of yours, if it exists, simply be restarted at x number of trades or x amount of time or at x point on the curve, with a new strategy if necessary. Original risk capital will have long been withdrawn anyway so it's not going to be a losing proposition going forward whatever happens. Rinse and repeat.

Mathematicians and academics are the worst when it comes to failed traders, they analyse the hell out of why they failed until they come up with a reason which exonerates them from blame or failure, instead of just accepting that maybe they're not cut out for it. That's my theory!

I'm sure you're very good at what you do, accept that trading is not your forte but it is for some people.
  • #62
  • Edited 9:00am Aug 19, 2009 8:40am | Edited 9:00am
Quoting Rise
A major component of trading success is the mental aspect, well done on putting extreme doubt into peoples minds whilst offering no information of any value whatsoever.
As I said in my opening post, I am not a killjoy. Just take daytrading the forex retail market for what it is. What I am, and proud of it, is a fantasy crusher. For all those traders who start trading with a few thousand bucks and dreams of ferrari's and beach houses dancining in their heads.... well I hope I give them a moment of pause before they throw their money away. If you are wealthy and can afford to lose your account balance, then good luck and enjoy. You may make some profit in the short term. However, if losing your account balance is going to cause you or those you love pain... get out now. If that makes me unpopular, so be it. I am doing this thread to empower traders with knowledge of just what they are up against.
  • #63
  • Aug 19, 2009 8:54am Aug 19, 2009 8:54am
Quoting pipmutt
That's exactly what it is, mathematical theory, it has little or no resemblance to reality.

There are many strategies and systems which have stood the test of time and are just as effective today as they were 10, 20, or even 30 years ago!

Why couldn't this cycle of yours, if it exists, simply be restarted at x number of trades or x amount of time or at x point on the curve, with a new strategy if necessary. Original risk capital will have long been withdrawn anyway so it's not going to be a losing proposition going forward whatever...
Kindly post 1 of these many strategies. I will analyize it and if it yeilds a positve expectancy over a mathematically significant number of trials, I will gladly apologize and retract all that I have put forth in this thread. I have 2 colleagues with Phd's in Mathematices (1 applied math and 1 statistics) who will test the systems if you feel I might be biased.

Casino's are full of blackjack players who have a system that will make them a winner. Martingale, Fibbonnacci, dealer miminc, no bust.... I could go on to list many. They are all losers over the long term. Counting Cards under certain conditions is the ONLY mathematically proven strategy to beat blackjack over the long term. I do not believe such has system has yet been devised for daytrading retail forex.
  • #64
  • Aug 19, 2009 9:12am Aug 19, 2009 9:12am
Quoting FX-Petra
Kindly post 1 of these many strategies. I will analyize it and if it yeilds a positve expectancy over a mathematically significant number of trials, I will gladly apologize and retract all that I have put forth in this thread. I have 2 colleagues with Phd's in Mathematices (1 applied math and 1 statistics) who will test the systems if you feel I might be biased.

Casino's are full of blackjack players who have a system that will make them a winner. Martingale, Fibbonnacci, dealer miminc, no bust.... I could go on to list many. They are all losers...
Petra,

Not knocking your honourable efforts here - but you keep mentioning '...in the long run'.

As I explained in my previous post, there are times and ways when trading models work - and when they fail. It is usually in my 22-year experince greed that turns winners into losers...in the long run. Not realizing (or knowing) when to hold (a system or method) or when to fold.

By the time you have enough data to prove your theory (over a sample of 10K trades - your number), an astude trader could also have produced quite significant positive results that enable him/her to stop.

It is a general mistake for anyone to believe you can take any model (used in the retail or fund world) and milk the markets forever. One does not need to go through large sample series of thousands of trades to come to that conclusion.

regards
daytrading
Enter Signature
  • #65
  • Aug 19, 2009 9:22am Aug 19, 2009 9:22am
I hope people don't take from this that mathematics says that you can't make money trading. Really the argument is not using any complex maths at all.

What the argument is, is the same old "profitable strategies don't exist", which does, surprisingly imply, that trading Forex has a negative expectancy.
  • #66
  • Aug 19, 2009 9:27am Aug 19, 2009 9:27am
Quoting FX-Petra
Kindly post 1 of these many strategies. I will analyize it and if it yeilds a positve expectancy over a mathematically significant number of trials, I will gladly apologize and retract all that I have put forth in this thread. I have 2 colleagues with Phd's in Mathematices (1 applied math and 1 statistics) who will test the systems if you feel I might be biased.
I'm sure you'll understand if I decline your generous offer, there's no mileage in it for me as I don't really need confirming what I already know from practical experience.

Understandably you're skeptical which is fine, I probably would be too in similar circumstances.

Quoting FX-Petra
Counting Cards under certain conditions is the ONLY mathematically proven strategy to beat blackjack over the long term. I do not believe such has system has yet been devised for daytrading retail forex.
I wonder if you would have said the same thing about blackjack before card counting was publicized. Have you considered that those people who have spent time, money, and a lot of hard work may be reluctant to divulge their edge? Maybe they exist, just you don't know about them, is that a possibility?

I see you have other people asking questions so I won't comandeer your time, but thanks for an interesting thread and the lively debate!

I won't say 'good trading'!
  • #67
  • Aug 19, 2009 9:30am Aug 19, 2009 9:30am
Quoting daytrading
Petra,

Not knocking your honourable efforts here - but you keep mentioning '...in the long run'.

As I explained in my previous post, there are times and ways when trading models work - and when they fail. It is usually in my 22-year experince greed that turns winners into losers...in the long run. Not realizing (or knowing) when to hold (a system or method) or when to fold.

By the time you have enough data to prove your theory (over a sample of 10K trades - your number), an astude trader could also have produced quite significant positive...
Wow....now that is a good post!!! How right you are!! Yes, it is possible for a trader to make short term profits and then quit... or take the money and run. It has been done, and will be done again. That is exactly what I am focusing on in my research---- How to make a wad of cash while exposing myself to the fewest number of trades (risk) possible. This can be done.... with the knowledge that every new trade brings you closer to the grim reality of the bell curve and negative equity.
I am convinced, however, that you cannot go on trading day after day for 10 or 20 years. In that scenario you will be wiped out.
  • #68
  • Aug 19, 2009 9:39am Aug 19, 2009 9:39am
FX-Petra
it seems you haven`t read the market wizards series..there you can find a lot of traders who didn`t get wiped but managed to show up on forbes list
and yes, they`ve been trading for decades, not one lucky strike and then retiring with the money
The worst thing I can be is the same as everybody else. I hate that.
  • #69
  • Aug 19, 2009 9:50am Aug 19, 2009 9:50am
Pipmutt,

I thank you for your thoughts. I truly wish the best for you, and hope forex yeilds you what you are looking for. I will give you one final thought to chew on:

All of my hope, experience, personal knowledge, and hard work does not add up to dog crap. Mathmatical certainy is as true in the forex market as it is in all nature and the universe. Trading forex without a definable, measurable edge to overcome built in negative expectancy is going to be a long term loser. What is your edge? Can you write it out clearly so that others can understand it? Does it stand up to mathmatical rigor? I do not mean that you should share your method with me or anyone else, but that your system must meet these requirements for it to be reliable for you. I really do not need to see your system. I have tested many, many systems... fibs, EW's, indicators, pivots, round numbers, fractals, fib fans, fib arc's, etc. None have shown positive expectancy so far. Unless your system can withstand mathmatical rigor, you are trading a system that you HOPE yeilds you long term profits. And in the short term, it may. I wish you all the best!
  • #70
  • Aug 19, 2009 9:59am Aug 19, 2009 9:59am
Quoting GubyIQ
FX-Petra
it seems you haven`t read the market wizards series..there you can find a lot of traders who didn`t get wiped but managed to show up on forbes list
and yes, they`ve been trading for decades, not one lucky strike and then retiring with the money
Yes, there are succesful traders. Trading stocks or other financial instruments is a diffrent game than retail forex. Small retail forex traders are leveraged 100 times or more... sometimes 400. It is a totally diffrent game with that kind of leverage. High leverage makes traders put stops in to protect their account... and usually stops are put pretty close to the intial entry... 200 pips are less. That makes stop hunting a fun and fairly easy activity for those with the money to push the market. I am not going to get into stop hunting and why that destroys most small retail traders with the volitility it creates. That is a topic for another thread.
  • #71
  • Edited 10:13am Aug 19, 2009 10:01am | Edited 10:13am
Quoting FX-Petra
Wow....now that is a good post!!! How right you are!! Yes, it is possible for a trader to make short term profits and then quit... or take the money and run. It has been done, and will be done again. That is exactly what I am focusing on in my research---- How to make a wad of cash while exposing myself to the fewest number of trades (risk) possible. This can be done.... with the knowledge that every new trade brings you closer to the grim reality of the bell curve and negative equity.
I am convinced, however, that you cannot go on trading day after...
Petra,

I have to disagree with your conviction - firstly, I know many traders who initially worked at the LIFFE in London (the British equivalent to the CME in the US), scalping for amounts of £10 per tick up to £10000 per tick and the same traders are now trading at the electronic exchanges (like Eurex) since the open outcry market died over here. Most of them have an expensive lifestyle and in spite of having losing days and streaks, their bank balance grows every year, in fact every month. I met some of these guys and girls in 1989 - and they are still around.

Secondly, besides scalping (which is not every trader's cup of tea), trend-following is another systematic way of trading which has proven to be working over very long periods of time (see another excerpt from a hedge fund study).

8 See Morris, S. 1994 for an interesting discussion on the effect of asymmetric information on trading decisions.
9 From January 1980 to December 2008, the Barclays CTA Index achieved a 2805% return, or 12.2% compounded average annual return.

10

Fung, W and Hsieh DA 2001
Trend-following is one of the most mature and well-established systematic trading styles, with a 28-year track record of profitability.9 The basic strategy results in a payout profile that is similar to being long options;10 that is, the strategy experiences large profits when a trend emerges, but relatively small losses when trends fail to materialize or reverse.
The similarity in payout structures results from how trend-followers typically set their trade entry and exit points. Trend-followers generally place stop orders to limit losses when trends reverse. However, most trend-followers will either not utilize take-profit orders or will have take-profit orders much further away from the entry price than the stop-loss orders. This asymmetry helps trend-following strategies capture the upside when price moves inline with the trend, while capping downside losses when the identified trend reverses or proves to have been false. Exhibit III provides an illustration of a trailing stop being hit after a major up move in the US 10-year note for a long-term trend-following system with a single entry and exit.
- 7


regards
daytrading

P.S. I don't know why the references for the text turn up at the top of the paragraph rather than on the bottom when I do the pasting - my apologies.

Enter Signature
  • #72
  • Aug 19, 2009 10:14am Aug 19, 2009 10:14am
daytrading,

See my post to Pipmutt. I do not think you can trade CME at 400:1. I don't tade CME, and I know margin requirements vary depending on what you trade... but I think most currencies trade on 25% margin.

Again, I am talking about retail forex here.
  • #73
  • Aug 19, 2009 10:24am Aug 19, 2009 10:24am
Quoting FX-Petra
daytrading,

See my post to Pipmutt. I do not think you can trade CME at 400:1. I don't tade CME, and I know margin requirements vary depending on what you trade... but I think most currencies trade on 25% margin.

Again, I am talking about retail forex here.
Petra,

Then I would conclude that the problem lies within the aspect of (in)adequate capitalization rather than the theory of trading for profits in the FX market being statistically impossible in the long run.

Why should a retail trader not be in a position (with adeqate capital) to exploit repeating occurrences which happen(ed) since Bretton Woods on a daily basis?

regards
daytrading
Enter Signature
  • #74
  • Aug 19, 2009 10:32am Aug 19, 2009 10:32am
Quoting daytrading
(see another excerpt from a hedge fund study).
Is the study you are refering "Systematic Global Macro: Performance, Risk, and Correlation Characteristics" (park et al)?
  • #75
  • Aug 19, 2009 10:36am Aug 19, 2009 10:36am
Quoting mikkom
Is the study you are refering "Systematic Global Macro: Performance, Risk, and Correlation Characteristics" (park et al)?
yes, mikkom
Enter Signature
  • #76
  • Aug 19, 2009 10:40am Aug 19, 2009 10:40am
Quoting daytrading
yes, mikkom
Thanks a lot for the pointer, seems like a paper worth reading.
  • #77
  • Aug 19, 2009 10:45am Aug 19, 2009 10:45am
Quoting mikkom
Thanks a lot for the pointer, seems like a paper worth reading.
Mikkom,

The paper becomes rather technical/mathematical (autocorrelation, kurtosis etc.) after parts I and II - but still informative.

A friend of mine works at GCM who compiled the study.

regards
daytrading
Enter Signature
  • #78
  • Aug 19, 2009 10:55am Aug 19, 2009 10:55am
Quoting daytrading
Mikkom,

The paper becomes rather technical/mathematical (autocorrelation, kurtosis etc.) after parts I and II - but still informative.
Even better then
  • #79
  • Aug 19, 2009 11:01am Aug 19, 2009 11:01am
Quoting FX-Petra
Yes, there are succesful traders. Trading stocks or other financial instruments is a diffrent game than retail forex. Small retail forex traders are leveraged 100 times or more... sometimes 400. It is a totally diffrent game with that kind of leverage. High leverage makes traders put stops in to protect their account... and usually stops are put pretty close to the intial entry... 200 pips are less. That makes stop hunting a fun and fairly easy activity for those with the money to push the market. I am not going to get into stop hunting and why...
I had to come back on this....

Flexibility of trade size with no minimum means retail forex traders are able to apply the same conservative money and risk management as any other market or well capitalized trader, even with just a few hundred dollars in their account. Leverage offered only affects margin requirements, astute traders never use excessive leverage because they're well aware of the dangers. Most novice traders tend to have a 1% risk limit per trade.

Going by your comments above I'd have to question what information you're using to reach your conclusions about forex trading, if the information you're working with is inacurate and/or incomplete then in all probability your research results are flawed.
  • #80
  • Aug 19, 2009 11:13am Aug 19, 2009 11:13am
Anyone out there trying to figure out what are realistic approaches to trading would do well reading through this thread with a magnifying glass.

Daytrading, great contributions.
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