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Long term Profits within Negative Expectancy

  • #221
  • Aug 23, 2009 2:47pm Aug 23, 2009 2:47pm
Quoting FX-Petra
I know there are a lot of traders who think they have a system that is positive expectancy. They are basing that belief on personal experience and past results. They are experiencing short term positive variance while operating underneath a negative equity curve. If they continue to trade, they will be wiped out. For some, they are gone in the first 100 trades. Some make it to 1000. Fewer still survive to 5000. The number still around continues to decline as large trade numbers amass. That is not to say that the person who makes it to 5000 trades...
What exactly are you suggesting happens after 100/1,000/5,000/10,000 trades, their strategy stops working and they suddenly start losing until all their previous gains are lost? Why does trade number 10,000 have any less probability of being profitable than trade number 1 (assuming the trader adapts to any changes - ie in market conditions). If a new trader can start the clock ticking today and reach X number of trades before he gets wiped out why can't a trader who has already made X number of trades simply re-start the cycle, if one exists? Strategies don't have to remain static, in fact the best ones are versatile.

I don't follow your logic at all, it doesn't make any sense, I must be missing something.
  • #222
  • Aug 23, 2009 2:51pm Aug 23, 2009 2:51pm
Quoting pipmutt
What exactly are you suggesting happens after 100/1,000/5,000/10,000 trades, their strategy stops working and they suddenly start losing until all their previous gains are lost?
You have to learn to quit while ahead, Mate. Don't push your luck. Come back to trade another day.
  • #223
  • Aug 23, 2009 2:57pm Aug 23, 2009 2:57pm
Quoting FX-Petra
Edges do exist in this world. I am looking for one in the spot retail forex market, but to this point I have not found it.

I think there is and it's called FPI (Fractional Product Inefficiency ) by Michal Kreslik. Only problem is he claims you have to have interbank access and one million dollars to gain that access. The idea is there is inefficiency in the spot forex that oscillates back and forth in which you can take profits daily or even ride interest without any risk. I talked with him about a year ago and he was trying to raise capital to start a "small" fund.

  • #224
  • Aug 23, 2009 3:03pm Aug 23, 2009 3:03pm
Quoting gbppip
You have to learn to quit while ahead, Mate. Don't push your luck. Come back to trade another day.
No no no, you take the opportunities when they arise.

Just because you've had a dozen winning trades it doesn't mean there's any less chance of the next trade being profitable, the probability is the same as it was for the first trade being profitable, they're individual events.

Crikey, using your logic I better stop crossing the road, I haven't been run over yet, I better quit while I'm ahead!
  • #225
  • Aug 23, 2009 3:04pm Aug 23, 2009 3:04pm
Quoting mrjtdude

I think there is and it's called FPI (Fractional Product Inefficiency ) by Michal Kreslik. Only problem is he claims you have to have interbank access and one million dollars to gain that access. The idea is there is inefficiency in the spot forex that oscillates back and forth in which you can take profits daily or even ride interest without any risk. I talked with him about a year ago and he was trying to raise capital to start a "small" fund.

And they will not let you keep exploiting that, Mate.

The market has built in edges and the rat knows how to exploit them. Traders think they are smarter than the rat. The rat beats them.
  • #226
  • Aug 23, 2009 3:07pm Aug 23, 2009 3:07pm
Quoting pipmutt
No no no, you take the opportunities when they arise.

Just because you've had a dozen winning trades it doesn't mean there's any less chance of the next trade being profitable, the probability is the same as it was for the first trade being profitable.
That's not what I am saying at all, Mate. It doesn't matter how many wins you have. What matters is setting a goal, achieving the goal and stopping. Come back tomorrow and trade again. Don't let the rat beat you.
  • #227
  • Aug 23, 2009 3:17pm Aug 23, 2009 3:17pm
Quoting gbppip
That's not what I am saying at all, Mate. It doesn't matter how many wins you have. What matters is setting a goal, achieving the goal and stopping. Come back tomorrow and trade again. Don't let the rat beat you.
Sorry, setting a daily target is not the way to trade. The market only offers what it offers, it won't care about your goals.

If you achieve your goal and stop then you're denying yourself further opportunities to profit. If you miss your goal what do you do, carry it forward to the next day and add to the unnecessary pressure? If no suitable opportunities present themselves what do you do, take any trade because you have a goal to meet?

Don't let the rat beat me? Who is the rat, the market? Are you kidding, the market is my best friend, without it I don't have an opportunity to trade.
  • #228
  • Aug 23, 2009 3:32pm Aug 23, 2009 3:32pm
Quoting Chicky
....each spin is an exlusive independent event....

...if they select the "leader" after every spin...
Isn't that a contradiction?

Sure if you stay with the same color it will more than likely eventually show up, maybe martingale until or does, or until you go broke, or until you reach the table limit....whichever comes first

I'll admit I'm not a gambler so I don't know the way these things work, I'm just using logic.
  • #229
  • Edited Aug 24, 2009 11:45am Aug 23, 2009 3:43pm | Edited Aug 24, 2009 11:45am
Quoting pipmutt
What exactly are you suggesting happens after 100/1,000/5,000/10,000 trades, their strategy stops working and they suddenly start losing until all their previous gains are lost? Why does trade number 10,000 have any less probability of being profitable than trade number 1 (assuming the trader adapts to any changes - ie in market conditions). If a new trader can start the clock ticking today and reach X number of trades before he gets wiped out why can't a trader who has already made X number of trades simply re-start the cycle, if one exists? Strategies...
To truly understand negative expectancy takes some time and effort. I'm not sure I can explain it. I can explain it in blackjack terms, but I don't want this thread to turn into a gambling discussion:

Negative expectancy is just that---- EXPECTANCY. When it will show up for a certainty is totally unknown. No one can say. You may flip a head 20 times in a row feel sure that flip 21 will be tails. Don't bet your bankroll on it. We expect the tails to start evening out, and they may on flip 21. But it may not be until flip 25, or 30, or 50. You have no way of knowing. Negative expectancy is the same thing. You start each trade in the hole. Usually, market volitility will allow you to recover those spread pips and close your trade in profit, be that 1 pip or 100. That is market volitility working for you in a positive way. But you had no hard knowledge that the trade would move in your direction. In fact, you could have gone long E/U above 1.60 and the instant you pushed that button the currency could have began its march below to 1.30. Unless you have special knowledge, or a system that provides you with a mathematical advantage, you are at the mercy of market volitility. Maybe you have superior money management skills. You will experience profits in the short term (probably). But you have not solved the problem of starting every race you run by being behind x number of pips. Until you can explain to yourself what knowledge you have or what strategy you are employing to overcome that disadvantage, I submit you are surviving on money management and market volitility/randomness. This method is NOT ENOUGH to overcome negative expectancy in the long term (please see any credible book ever witten on beating casions). Negative expectancy will eventually show up, practiacal market randomness will move against you, and your money management alone will be crushed. I know I sound fatalistic, and to some extent my message is. I am a positive person by nature. If you enjoy trading forex, go for it! You seem like a good trader and you probably will experience some profits. Maybe you will be in that 5% number after 10,000 trades. I hope you are. Just remember that if you cannot articulate your edge (to yourself, at least) then you do not have one, and are trading with negative expectancy. I wish you long life underneath the curve!!
  • #230
  • Aug 23, 2009 4:04pm Aug 23, 2009 4:04pm
Quoting FX-Petra
I wish you long life underneath the curve!!
Thanks, the curve has been a fairly comfortable place to be so far.

I see what you're saying, I think, but your mathematical theory seems to hinge on the market being totally unpredicatable, like a coin flip. If the market isn't random (which it isn't, for the reasons stated previously) then your theory collapses.

I guess we've neatly come full circle and are back to the 'random' debate again. Was that where we started, I can't remember!

Perhaps you're right and I've got a bell curve heading in my direction, hopefully I'll get a warning before it lands on me!
  • #231
  • Edited 4:45pm Aug 23, 2009 4:19pm | Edited 4:45pm
Quoting FX-Petra
To truly
.....................................

its march below to 1.30. Unless you have special knowledge, or a system that provides you with a mathematical advantage, you are at the mercy of market volitility. Maybe you have superior money management skills. ,...
.............
................on money management and market volitility/randomness
Hi FX-Petra,

Correct me if I'm wrong...my conclusion-- reading your comments -- is that your stance regarding trading the markets for profits is mainly based on the pillars that the markets are random and that anyone able to extract profits is either doing it by chance or relying on his/her skills.
If so, how can you, as a mathematician, prove that markets are random in specific and certain terms?
And to your second point:
If a trader does not primarily rely on his/her skills, what then do you suggest he/she should rely on to make a profit in order for the results to not appear to be "random" from your perspective?

regards,
GM
Hear the music before the song is over ...
  • #232
  • Aug 23, 2009 4:31pm Aug 23, 2009 4:31pm
Quoting pipmutt
Sorry, setting a daily target is not the way to trade. The market only offers what it offers, it won't care about your goals.

If you achieve your goal and stop then you're denying yourself further opportunities to profit. If you miss your goal what do you do, carry it forward to the next day and add to the unnecessary pressure? If no suitable opportunities present themselves what do you do, take any trade because you have a goal to meet?

Don't let the rat beat me? Who is the rat, the market? Are you kidding, the market is my best...
very good post, hits the nail right on its head.
The worst thing I can be is the same as everybody else. I hate that.
  • #233
  • Aug 23, 2009 4:53pm Aug 23, 2009 4:53pm
Quoting pipmutt
Isn't that a contradiction?

Sure if you stay with the same color it will more than likely eventually show up, maybe martingale until or does, or until you go broke, or until you reach the table limit....whichever comes first

I'll admit I'm not a gambler so I don't know the way these things work, I'm just using logic.
No Pipmutt, this is not a contradiction, a limitation of the method which I try to overcome by using blocks.

If I get 12 blacks and 11 reds, black is the leader
If I get 12 blacks and 12 reds, black is still the leader (for my purpose)
If I get 12 blacks and 13 reds, red is the leader

Like you saimd I should not keep on changing the leader from black to red and red to black frequently, therefore I only focus on who is the leader in the blocks of 18 and its multiples.

ps. I just saw your other post on people setting targets and like your views on that.
The Thief of Wall Street
  • #234
  • Aug 23, 2009 5:21pm Aug 23, 2009 5:21pm
Quoting GubyIQ
very good post, hits the nail right on its head.
Thanks!
  • #235
  • Edited 6:27pm Aug 23, 2009 5:23pm | Edited 6:27pm
Quoting Chicky
No Pipmutt, this is not a contradiction, a limitation of the method which I try to overcome by using blocks.

If I get 12 blacks and 11 reds, black is the leader
If I get 12 blacks and 12 reds, black is still the leader (for my purpose)
If I get 12 blacks and 13 reds, red is the leader

Like you saimd I should not keep on changing the leader from black to red and red to black frequently, therefore I only focus on who is the leader in the blocks of 18 and its multiples....
Ok, now this is interesting. So why did you decide to go that route instead of saying you've had more blacks so it's about time for another red.

I might be misreading this, I see so out of 18 spins you take the leader? Do you wait for all 18 before you make a bet? And what happens if you lose the bet, do you keep going according to the plan ie every 18, and would you double up (martingale)?


Edit: (thinking about it it's your edge so you might not want to say which is fair enough)
  • #236
  • Aug 23, 2009 7:23pm Aug 23, 2009 7:23pm
Quoting GlobalMacro
Hi FX-Petra,

Correct me if I'm wrong...my conclusion-- reading your comments -- is that your stance regarding trading the markets for profits is mainly based on the pillars that the markets are random and that anyone able to extract profits is either doing it by chance or relying on his/her skills.
If so, how can you, as a mathematician, prove that markets are random in specific and certain terms?
And to your second point:
If a trader does not primarily rely on his/her skills, what then do you suggest he/she should rely on to make a profit...
I have previously stated my postion on market randomness. It is certianly not random to some players...and most certainly is to others. To everyone invloved in this discussion, it is random. It is random with negative expectancy, which is about the worst game you can play. I know many posters do not believe the market is random. For their evidence they present their past results. Even the US Govornment (a sorry bunch of sots if ever there were) makes financial instutions warn that "Prior results are not predictive of future performance". It does not even make intuative sense. If anyone can predict price action on any kind of consistent basis they are already rich beyond imagination. Play this fib bounce, or box breakout, or Elliot Wave, or NFP annoument.... do you really think you have a proprietary system? Do you really think it has not been tried before, to the point of absurd exhaustion? Yet bucketshops are opening fast and furious, and making money hand over fist. The vast majority of bucketshops float your trade in house, so if they even had an inkling that you were on to something you would be shut down so fast your head would spin. Got any calls lately from your friendly broker saying that they will have to close your account? No? If you have been profitable over any length of time they have analized your trading from A to Z and determined it is just a matter of time untill it all comes back. They know you are trading with negative expectancy-- and that little infallible mathematical principle keeps these guys in business... and living a great life in Manhattan. But I trade with an ECN, you say. Even better. If you show results over a 6months to a year and their algorithms analyize your trades and it shows positive expectancy you will be contacted to trade OPM. BAM--- you are trading anywhere from 1 to 5 million in a flash. Got any offers to trade OPM? If not there is a reason. The big money guys (who are always on the lookout for talent) don't believe your system or style will hold up.

To directly answer your question, "How do I profit if the markets are random?" You must be able to build a system that can bracket the market's volitility/randomeness and overcome the spread + 1 pip (at a minimum). Do that, and you are rich. Not that easy though...maybe impossible. I am still trying.

Sorry if I went off on a rant...it was not personal.
Kindest Regards
  • #237
  • Aug 23, 2009 7:46pm Aug 23, 2009 7:46pm
Quoting pipmutt
Don't let the rat beat me? Who is the rat, the market? Are you kidding, the market is my best friend, without it I don't have an opportunity to trade.
HI pipmutt:

"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat."

P64 HOW WE DECIDE
If you only trade long, then you can't always be wrong.
  • #238
  • Aug 23, 2009 7:47pm Aug 23, 2009 7:47pm
Quoting GubyIQ
very good post, hits the nail right on its head.
HI GubyIQ:

You need to have goals. Otherwise, you do not know when to stop and rest. There will always be another train.
If you only trade long, then you can't always be wrong.
  • #239
  • Aug 23, 2009 7:50pm Aug 23, 2009 7:50pm
Quoting pipmutt
If you achieve your goal and stop then you're denying yourself further opportunities to profit.
HI pipmutt:

And you are also denying the market the chance to take back what you took. No one knows if their next trade will be a winner or a loser.
If you only trade long, then you can't always be wrong.
  • #240
  • Aug 23, 2009 8:21pm Aug 23, 2009 8:21pm
For those discussing roulette as a "random" game, here's an interesting tidbit:

http://en.wikipedia.org/wiki/The_Eudaemonic_Pie

I actually ran across this book at a university book sale in Boston during the eighties, and I still have it.

The upshot is that if you can gain enough information about the causal factors that affect an outcome, and have an accurate model of how the cause and effect relationships work, then you can predict the outcome with an excellent edge. Theirs was 44% over the casino's.

How to apply this to FOREX is another matter of course. I suppose creating an accurate model of how economic factors will affect each other and the currency markets would be the obvious analogy to draw.
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