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Long term Profits within Negative Expectancy

  • #121
  • Aug 20, 2009 3:16pm Aug 20, 2009 3:16pm
Quoting daytrading
Pip,

Most of the time liquidity problems can become a real bummer when multiple (and I mean a truck load) of institutions ride the same strategy, i.e. when a great chunk of market participants started to unwind the carry trades a while ago. That has serious consequenses to the whole market.

If it is just one fund trying to get out of a position, it will cost them pips of course - but it won't effect the end result too heavy since these occurrences are factored in as 'costs'.

I am in the business, yes.

regards,
daytrading

Unwinding of the carry trade, I was caught up in that about this time last year, not nice (understatement!).

So you're one of these guys running stops are you, tsk tsk, it must be great fun to have the ability to move the market, I'd probably get fired within a week, lol
  • #122
  • Aug 20, 2009 3:49pm Aug 20, 2009 3:49pm
Quoting pipmutt
Unwinding of the carry trade, I was caught up in that about this time last year, not nice (understatement!).

So you're one of these guys running stops are you, tsk tsk, it must be great fun to have the ability to move the market, I'd probably get fired within a week, lol

I don't care about stops - or hunting them for that matter. If they are in the path, I run thru them. It has nothing to do with the strategies.

Don't forget that stops, where they might be placed, how many clusters, how small or large is all very fluid. It also depends how long a level is defended.

regards
daytrading
Enter Signature
  • #123
  • Aug 20, 2009 4:19pm Aug 20, 2009 4:19pm
Quoting daytrading
I don't care about stops - or hunting them for that matter. If they are in the path, I run thru them. It has nothing to do with the strategies.

Don't forget that stops, where they might be placed, how many clusters, how small or large is all very fluid. It also depends how long a level is defended.

regards
daytrading

Really? So say you wanted to short Cable and price is 1.6970, you wouldn't try to trigger stops above 1.70 and then short it? I thought that was a tactic of the institutionals.
  • #124
  • Aug 20, 2009 4:23pm Aug 20, 2009 4:23pm
Quoting pipmutt
Really? So say you wanted to short Cable and price is 1.6970, you wouldn't try to trigger stops above 1.70 and then short it? I thought that was a tactic of the institutionals.
The signals/entries of the FX specific trading model are not dependent on either round numbers or stops as such.

regards
daytrading
Enter Signature
  • #125
  • Aug 20, 2009 4:36pm Aug 20, 2009 4:36pm
Trading is a Zero sum game. Money changes hands but is neither created nor destroyed. That paper about the stock market creating wealth for everyone in a long position is technically incorrect. On paper everyone gets richer, but if everyone tried to sell at the same time, only the first out get the most.

Saying that retail forex trading is a negative expectancy game for everyone, and that this is a mathematical certainty is flawed logic.

All markets are ruled by fear and greed. Hence, all markets show exaggerated human behaviour. They trend for extended periods of time, fall faster than they rise. Human mass psychology never changes. The one market inefficency that can be consistently exploited, IS the fact that markets are inefficient and the reason why. This is why trading systems that exploit extended moves and extremely favourable risk reward ratios have stood the test of time.

Expectancy has nothing to do with the spread and the fact you are down x pips when you open a trade. It has everything to do with how you approach the market.

Having tiny stops and profit targets is probably one of the reasons you've come to your current conclusion. Such things are the luxury of those with exceptional execution and clearing facilities, not retail traders.

IMO, most traders are drawn to three things consistently.

1) Instant gratification - No-one accepts the risk they are taking, they want the quick win or loss, since they cant handle being in a position for more than a few minutes

2) A constant reliable Income - Everyone wants to finish up for the day, often in defiance of market reality

3) Overtrading - The belief that more trades equals more profits (up to a point it does, but its a fine line)

The result of this is a constant attraction to extremely short term trading systems. These provide solutions to the first two desires, and encourage the third major problem immensely. The problem is that generally they attempt to exploit too fine an edge (if it is even there) with the tools available (namely, the shaky price of your local bucket shop)

That does not mean I'm saying this is not a valid approach to trading, it is given the right setup, but this is beyond most people. And coming back to the methods that have stood the test of time, these approaches are those avoided the most, since people do not have the patience, confidence or money management discipline to make them work, since the mindest required to trade a system in which most trades are losers is counter-intuitive.
  • #126
  • Edited 4:54pm Aug 20, 2009 4:43pm | Edited 4:54pm
This thread reminds me a bit (too much) about the "Bumblebee Paradox"...

Seriously, abusing math this way will only convince you further that the bumblebee can't fly.

Nice posts, daytrading.
  • #127
  • Aug 20, 2009 4:44pm Aug 20, 2009 4:44pm
Quoting daytrading
The signals/entries of the FX specific trading model are not dependent on either round numbers or stops as such.

regards
daytrading
Maybe not dependent but you wouldn't pass up the opportunity to get a better price would you? Chances are there are stops around 1.70, in fact just looking at a chart around the 5th it looks like it was perfect, 1.7040 and then a 6 cent drop. If it's not you then someone must be doing it, it happens too often to be just coincidence.
  • #128
  • Aug 20, 2009 4:54pm Aug 20, 2009 4:54pm
Quoting pipmutt
Maybe not dependent but you wouldn't pass up the opportunity to get a better price would you? Chances are there are stops around 1.70, in fact just looking at a chart around the 5th it looks like it was perfect, 1.7040 and then a 6 cent drop. If it's not you then someone must be doing it, it happens too often to be just coincidence.

It always depends on your particular vantage point of what you are trying to achieve.

Your way of thinking shows what you have already mentioned, i.e. that you are a discretionary trader - so you have the ability to choose your entries/exits.

I run (amongs other strategies) a 100% mechanical model - so, entries and exits are fully dictated (regardless of the common places where you find clusters of stops).

I cannot and would not temper with the entry, even if its placed at +/- 15, 20 or 30 distance to a round number.

The model is not based on the exploitation of what we have referred to in our discussion here as 'stop hunts'. Its edge is derived from a different inefficiency.

regards
daytrading
Enter Signature
  • #129
  • Aug 20, 2009 4:57pm Aug 20, 2009 4:57pm
Quoting daytrading
I run (amongs other strategies) a 100% mechanical model - so, entries and exits are fully dictated (regardless of the common places where you find clusters of stops).

I cannot and would not temper with the entry, even if its placed at +/- 15, 20 or 30 distance to a round number.

The model is not based on the exploitation of what we have referred to in our discussion here as 'stop hunts'. Its edge is derived from a different inefficiency.

regards
daytrading

Understood, thanks for the clarification.
  • #130
  • Aug 20, 2009 5:14pm Aug 20, 2009 5:14pm
Here is a link to some articles by Toby Crabel (mentioned earlier in the thread)...


http://www.trading-naked.com/library/[Trading]-Stocks-&-Commodities-Toby-Crabel-ORB-articles.pdf


...ok, sorry, link does not seem to work, but that's the url...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #131
  • Aug 20, 2009 7:32pm Aug 20, 2009 7:32pm
Quoting FX-Petra
Yes, there are succesful traders....
Pentra

Now I understand your point and I agree, but who in their right mind would trade that leverage? Tell you the truth I do not need a Phd to figure out that that is suicide.

Any case since I am not a math guru can you please calculate how many years or months I will survive? I use leverage of between 1:1 and 1.5:1 and risk 0.5% - 1% of capital per trade, my winning ratio is 70 - 75%.

Daytrading

I love your work, great posts.

Regards
  • #132
  • Aug 20, 2009 8:45pm Aug 20, 2009 8:45pm
I appreciate all the posts. I respect all of your opinions, while disagreeing with most. I know I am not all knowing or all seeing... and Lord knows I make mistakes. I am willing to accept that. If I can just get 1 question answered, concisecley and unamibguiously, I'll close this thread and admit defeat.
Question:
When you enter a trade, what gives you the confidence that you will overcome the spread and close in profit often enough that you will see your equity grow over the long term?

Is it: a)faith in your system (if so, what gives you that faith)
b)advice from someone else
c)luck has always favored you
d)a feeling that you have
e)all of the above
f)some combination of the above
g)none of the above/other reasons

If you answer is A, which I hope most are, please be precise in your answer. I have been accused of mathmatical witchcraft by some posters, so I am very intrested to learn the error of my ways in appyling mathematics to the forex markets.
  • #133
  • Aug 21, 2009 2:09am Aug 21, 2009 2:09am
A) Faith.
Faith deriving from:
a) having created and tested it myself with all the blood sweat and tears that it involves,
b) having not optimised it to death,
c) seeing noone else publishing anything similar
d) confidence I could actually do it
e) and most importantly, from a system which has market logic, that's based around market structure and human behaviour.

If I found (as an oversimplified example), that an MA cross has been profitable for the past 10 years, I'd still have a problem trading it, because there's no real logic as to why it works. That may be quite limiting - I may even be missing some other great profit opportunities - but to put substantial money behind my own strategy, that's the assurance I need.
  • #134
  • Aug 21, 2009 2:29am Aug 21, 2009 2:29am

a)faith in your system

Confidence in the strategy, and more importantly the ability to trade it.


if so, what gives you that faith

Practical results.


All the mathematical argument in the world can never win while there are traders consistently making money in the market, fact always wins over theory.
  • #135
  • Aug 21, 2009 3:01am Aug 21, 2009 3:01am
Quoting FX-Petra
Is it: a)faith in your system (if so, what gives you that faith)
Testing over long periods of data with multipler markets + the fact that most of my systems (I trade 25 systems simultaneously, at the moment with 6 pairs) are quite simple [and therefore not likely curvefitted].

Somehow I think that's not what convinces you so let me ask you, what would convince you that a method works?
  • #136
  • Edited 3:38am Aug 21, 2009 3:21am | Edited 3:38am
Quoting FX-Petra
I appreciate all the posts. I respect all of your opinions, while disagreeing with most. I know I am not all knowing or all seeing... and Lord knows I make mistakes. I am willing to accept that. If I can just get 1 question answered, concisecley and unamibguiously, I'll close this thread and admit defeat.
Question:
When you enter a trade, what gives you the confidence that you will overcome the spread and close in profit often enough that you will see your equity grow over the long term?

[b][i]Is it: a)faith in your system...

Petra,

The reason is very simple: because the market is NOT random.

regards
daytrading
Enter Signature
  • #137
  • Aug 21, 2009 8:22am Aug 21, 2009 8:22am
Quoting mikkom
Testing over long periods of data with multipler markets + the fact that most of my systems (I trade 25 systems simultaneously, at the moment with 6 pairs) are quite simple [and therefore not likely curvefitted].

Somehow I think that's not what convinces you so let me ask you, what would convince you that a method works?
It is not difficult to build a system that produces profits in the short term....say the first 1000 trades. I have done it multiple times. Many such systems are available at the Factory for free. All of these systems, that I have seen, are based on 1)fantastic money management or 2) market volitility or 3)both 1 & 2. The problem is, it is a well known fact that that money management and volitility are not enough to overcome negative expectancy in the long run. Books have been written on this subject-- it is well established statistical dogma. There must be something more. You must be able to accurately predict market direction correctly in a staistically significant way. Without that bedrock any system that is in short run profits is operating on money mangement and market volitily, and is doomed to failure. I would not say that such systems are merely "lucky", rather I would term it "educated good fortune". Some can run such a streak past 1000 trades to 2000 or 3000 or more. Unfortunatley, at 10,000 trades (4 years if you make 10 trades per day) only about 5% are still in profit.
  • #138
  • Aug 21, 2009 8:59am Aug 21, 2009 8:59am
What do you make of this FX-Petra?

http://www.trading-naked.com/library...20Analysis.pdf

Within the discussion there is also mention of another paper geared toward the FX market (Chang and Osler 1994) which you may wish to investigate if you're of a mind to.

So based on this evidence alone, this suggests to me that 1. markets are not random. 2. Patterns repeatedly occur which provide information and insight into market sentiment 3. These patterns can be exploited for profits in the long term.

So even if you choose not to trade the traditional patterns in the same way as in the study, this evidence completely debunks random walk theory, and your suggestion that the market cannot be 'read'. Technical analysis can be used by mechanical and discretionary traders alike to glean information about the market and utilise this information for long term profits.

One more thing that puzzles me - you say that equities are a different kettle of fish, and implied that long term profitability was possible in those markets. Why do you not just trade those markets then? There is considerably more research in those fields and I can think of several statistically valid edges which could be used for long term profits off the top of my head. Why continue to stick around if you have made your mind up? Is it, like pipmutt suggested, because you have come to these conclusions to vindicate yourself from the failure to achieve what you had hoped when you began, or perhaps you want to be proven wrong and convinced that 'the holy grail' does still exist?
  • #139
  • Aug 21, 2009 9:25am Aug 21, 2009 9:25am
Quoting FX-Petra
It is not difficult to build a system that produces profits in the short term....say the first 1000 trades....
You're missing the point. You do not need to accurately predict market direction, or even have a large number of winning trades to make money consistently over the long haul. You just need to take advantage of the markets uncanny ability to run in one direction for extended periods of time.

The bedrock you are looking for is the fact that markets trend, and trend very well when they get going.

The original turtles traded a system that required 1 or 2 trades per year to make a 100% profit. The rest of the year was spent managing risk and following the entries and addon procedure correctly. To me, this is the extreme end of the scale, there's a happy medium to be found between that and intraday trading.
  • #140
  • Aug 21, 2009 10:51am Aug 21, 2009 10:51am
Quoting daytrading
Petra,

The reason is very simple: because the market is NOT random.

regards
daytrading
You seem very intelligent. If you indeed have proof that the market is not random, then step forward and claim your prize. The riches of this world are there for your taking. Rock star fame awaits you as you have cracked the code that 1000's of mathmeticians and scientist have struggled over for years. If you cannot write a proof explaining your postulate, then you are just stating what you believe to be true which, while entertaining and enjoyable, has no basis in fact from a sientific viewpoint.

Kindest Regards
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