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Change a losing system into a Winning system

  • #61
  • Oct 16, 2009 8:44am Oct 16, 2009 8:44am
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I think bad management of exits (sl, tp, whatever exit method) can make a system bad as well.

Of course. I consider that part of money management tho, as it alters risk during the trade. Semantics.

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If we can find a system like this, where the exit causes you to lose more than 2*spread per trade over a long period; that would make a winning system when reversed.

I can think of situations where that would not be the case. Remember price does not move in a straight line. But there might be systems that could be made to win that way, I'm not exactly the magic god of trading systems or anything.

Still, test reversibility with a mildly losing EA. It won't be profitable, but you can go thru the trade history and see why things aren't always reversable. I'm not necessarily talking about profits, I'm talking about the market itself. You'll need M1 data to do it tho.

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This would mean a reversal would have a trailing take profit; which after being set to breakeven, would lock in a bigger loss as the trade moves against you! Sounds crappy right? Not so fast; if the trade is 20 pips against you and normally you would exit, but this strategy has your trailing tp at -5, then most of the time it will hit your tp and save you 15 pips loss! This is because you know from losing with the same strategy that your trailing stop got hit too often, causing you to miss out on pips.

Uhm. If you move to breakeven then a -5 wouldn't be possible. The thing about a trailing stop is that you only do it when the trade is profitable, which means in this case you only do it when the trade is at a loss. Frankly I think that locks in losses and would make even the best systems a loser, but who knows. But anyway, a winning trade with a trailing stop basically relies on the trailing stop to make money. If you really wanted a big loser, you'd ditch the trail all together. A system that never takes profit will always lose, lol. It'll lose BIG. The inverse of that, of course, is a system that constantly takes profit.

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If your old system in most cases ended up exiting with -10 or so pips; you know most times you will exit (based on the same criteria; crossover or what have you), with +6 pips.

You have a system that says go long with an SL of 10 and a TP of 20. And price goes up 10 pips, then down 20. In that case you'd lose 10 pips, right? Now if you reverse all of that and go short with a TP of 10 and an SL of 20, you gain 10-spread, right? But you double your SL, which means losing trades are now bigger than they used to be.

If you had a system that was a massive loser, it would be because it had found an edge somewhere and was trading against it. In a system like that, there's no reason to waste money with a complete reversal. Just reverse the basic signal an apply the same MM (tp 20, sl 10, whatever). An edge is an edge.

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No strategy can automatically take out the element of human emotion, it is something that each trader needs to find for themselves.

Can you fix your quotes? I didn't actually say any of that. And yes, I agree with you. With a blackbox system there's still an emotional question of when to trust the computer. After 10 losers, the temptation is to pull the plug.
  • #62
  • Oct 16, 2009 10:11am Oct 16, 2009 10:11am
Quoting Rabid
Of course. I consider that part of money management tho, as it alters risk during the trade. Semantics.



I can think of situations where that would not be the case. Remember price does not move in a straight line. But there might be systems that could be made to win that way, I'm not exactly the magic god of trading systems or anything.

Still, test reversibility with a mildly losing EA. It won't be profitable, but you can go thru the trade history and see why things aren't always reversable. I'm not necessarily talking about profits, I'm...
Im not sure why your name came in the quotation, possibly because it was at the start of the previous post so my apologies for you being part of the reply, it was not intended.

My answer was in reply to finding a strategy that takes out the emotional aspects of trading which to my knowledge there isnt one. Human pyschology is different from person to person hence my answer that it is up to an individual to find there niche with trading.

Again my apologies
  • #63
  • Oct 16, 2009 11:14am Oct 16, 2009 11:14am
Quoting Rabid
Uhm. If you move to breakeven then a -5 wouldn't be possible. The thing about a trailing stop is that you only do it when the trade is profitable,...
Well what I am saying is if the losing system had a trailing stop, this system would have a trailing take profit where you lock in losses. Instead of waiting for a stop loss to be hit (-20 for example), the trailing take profit would get you out with -5.

I'm sorry; it is hard to explain what I mean, but I am saying if having a trailing stop at whatever level limits your gains on winning trades, doing the opposite on a reversed position would actually limit your losses on losers. It is totally counter-intuitive, but maybe that is why it would work.

For example, if you have a position at -10, instead of just hoping it will return to positive and take profit, you decide "okay it's a loser" and overcome the greed/stubborn hope aspects of trading by following your system and trailing the take profit (downward, not upward), and setting your tp to -5. If it keeps moving against you, you continue to trail based on whatever your system is. But you know it usually retraces, so you'll end up getting out with -5 or -10 instead of 20 or 50. (or whatever your take profit was on the original system.)

When you say that the nature of the market movement makes switching it not work, that ONLY applies when you do what you suggested, and just reverse the signal. If you reverse everything, including sl and tp, you are letting your previous losing statistics work for you, because you could set it up so you get in and out at the exact same time. So.. the way the market moves is already part of your statistics.

That is why I'm saying just reversing the signal doesn't make sense; everything has to be exactly opposite for the equation of new positive pips=oldnegativepips-(spread*2).
  • #64
  • Oct 16, 2009 12:03pm Oct 16, 2009 12:03pm
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My answer was in reply to finding a strategy that takes out the emotional aspects of trading which to my knowledge there isnt one. Human pyschology is different from person to person hence my answer that it is up to an individual to find there niche with trading.
Nod. I don't think there is one either. You'll always struggle against uncertainty. It's just that you get better at dealing with it. As trades go well, your confidence increases. This, in turn, poses more challenges.

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Well what I am saying is if the losing system had a trailing stop, this system would have a trailing take profit where you lock in losses. Instead of waiting for a stop loss to be hit (-20 for example), the trailing take profit would get you out with -5.
Right, I understand what you're saying. There's no breakeven to be had anywhere tho. When the trade goes negative by a certain amount you put a limit order in to close the trade at a loss. As price goes down you trail that limit order to get out on a retrace.

Of course that's a recipe for disaster if you never set a catastrophic SL. Without that you can't manage risk w/ stops and would need to trade without leverage. Just because you trail behind to get out on a retrace doesn't mean price won't shoot against you 100 pips first. A lot of people have gone broke waiting for an exit retrace. All you're talking about is mitigating your loss, so why wait for a retrace when you could just set a stop loss and be done with it? The exit price ends up the same in both cases.

All I can say is try it and see. It might work for you, it might not, who knows. There's only 1 way to know for sure, build the system. If, however, you're going to base the entire system on an edged loser (the unholy grail) then you're probably never going to find it... I don't think either grails exist. That's ok, you don't need to predict tomorrow in order to profit today.

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When you say that the nature of the market movement makes switching it not work, that ONLY applies when you do what you suggested, and just reverse the signal. If you reverse everything, including sl and tp, you are letting your previous losing statistics work for you, because you could set it up so you get in and out at the exact same time. So.. the way the market moves is already part of your statistics.

No, you aren't. Reversing a system doesn't give it an edge. If your system has none, then reversing everything means you reverse the win:loss ratio, but also invert the average RR too. It's a wash. Try it and see, that's all I can say. If you have an edged system (as a winner or loser) then most of this doesn't matter at all. All you need then is a way to mitigate your risk (cut your losses) while amplifying your rewards (let your profits run). In that respect, trading is very straight-forward.

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That is why I'm saying just reversing the signal doesn't make sense; everything has to be exactly opposite for the equation of new positive pips=oldnegativepips-(spread*2).
I understand what you're saying. But what I'm saying is that reversing the signal in an edged loser (which I've never found, but maybe there's one out there) would make it a winner without the need to make it all so complex. Trading isn't that hard.

What I do know is if you have no profitable exit criteria you'll never make a dime. A system that never takes a profit will never turn a profit. Ever. So how do you plan to get out with a profit? The 10 pip TP?

A 10 pip TP (6 pip profit) with a 100 pip catastrophic SL (104 pip loss) would need a win/lose ratio of 17:1 just to break even. That's a 95% success rate. I have never seen one of those. Lets say your average loss (which can change over time) is 30 pips tho. That's still 6 pips profit, 34 pips loss, 5.67:1 or 82.36% success rate. Good luck finding that. =)
  • #65
  • Oct 16, 2009 12:24pm Oct 16, 2009 12:24pm
Quoting Rabid

A 10 pip TP (6 pip profit) with a 100 pip catastrophic SL (104 pip loss) would need a win/lose ratio of 17:1 just to break even. That's a 95% success rate. I have never seen one of those. Lets say your average loss (which can change over time) is 30 pips tho. That's still 6 pips profit, 34 pips loss, 5.67:1 or 82.36% success rate. Good luck finding that. =)

I'm definitely not saying don't trade with a stoploss. Your stop loss would be whatever your take profit was, so in my case 50+4= 54. My tp would be 20-4 = 16. This would require a 77% hit rate.

If your system had other exit criteria (MA crossover, etc.) then you would also typically exit with a profit in those cases. (because usually that means a loss with the old system)

Sometimes you will have a trade that runs against you, but it is really rare that someone with a 100 tp and 10 pip sl who trails the entry hits their tp, so it would be equally rare for you to hit that stop loss (without the trailing tp getting you out with a minor loss).

I think we'll have to agree to disagree on just reversing the entry. I think for a system to truly have a negative edge it would have to have poor trade management as well as poor initial signals. I know a lot of people have failed when just reversing the entry, and your earlier argument about the nature of market moves applies when just reversing the entry and trying to keep the R:R the same.

I agree it will be hard to find an edged losing system. I don't know if one exists. What I am wondering, is are there any systems that consistently lose during slow times of the day (to the tune of more than 2 pips per loss)? Because this would work if we could find a system like that and trade it during slow times (after London close).
  • #66
  • Oct 16, 2009 4:12pm Oct 16, 2009 4:12pm
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Sometimes you will have a trade that runs against you, but it is really rare that someone with a 100 tp and 10 pip sl who trails the entry hits their tp, so it would be equally rare for you to hit that stop loss (without the trailing tp getting you out with a minor loss).

Yea, but with a 100tp an 10sl the max loss is 10, with a 100 pip SL and a 10 pip TP, the max loss is 100 pips. Without an edge you'll have 10 losses for every win on the first, and 1 loss for every 10 wins on the latter. Neither makes money.

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I think we'll have to agree to disagree on just reversing the entry. I think for a system to truly have a negative edge it would have to have poor trade management as well as poor initial signals. I know a lot of people have failed when just reversing the entry, and your earlier argument about the nature of market moves applies when just reversing the entry and trying to keep the R:R the same.

I don't think trade or money management effects edge at all. It effects net profit, but does nothing to the edge. MM neither produces or destroys an edge. They reversed the entry and lost because they had no edge in the system to begin with, it's a neutral system with a random chance of success.

As such, price tends to whatever is closest, but the losses always end up more than the gains (due to transaction costs). You'll have gains and losses that regress to a mean determined by a loss of the spread over time. In that case the system will always lose, reversed or not.

The nature of market moves applies to both reversing the entry and reversing the MM. Try it and see. I've been down this road before.

What I'm saying is this: It doesn't matter if you reverse all of the elements of the system or only a portion of them. A random system is a random system. On the other hand a non-random system, winner or loser doesn't matter, is a non-random system and you don't need to reverse anything except to trade with the edge.

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What I am wondering, is are there any systems that consistently lose during slow times of the day (to the tune of more than 2 pips per loss)? Because this would work if we could find a system like that and trade it during slow times (after London close).

Yes, I've already told you what it was too. Any system that never takes a profit will have a 100% loss rate. The inverse of that is to constantly take a profit, but it won't yield a 100% success rate. For instance you could take any trade, put a stoploss of 5 with no take profit. Leave the trades running forever and ever, or until they stop out. That system will have a 100% loss rate eventually.

You're caught up on the whole initiative/responsive trade dichotomy. Look past it. Why?

Let's invert this. A system with a TP of 5 and no stop loss. Leave the trades running forever and ever, or until they TP out. That system will go fine until a black swan event (or series of smaller events) forces a margin call.

It is easier to lose than it is to win. That's why you can never completely reverse the outcome of a system. The trick here isn't making a system that's random or non-random, winner or loser, it's recognizing when the market is non-random and trading that.
  • #67
  • Mar 16, 2010 12:18am Mar 16, 2010 12:18am
Take the GBP, JPY, EUR, CHF, CAD, AUD, NZD for example, place the loosing EA or sistem on them all, figure the required money management then Reverse?

The work has to be done, why don't I give it a try? yeah it may just help me.

It's there just won't fall any closer to had.

Bless!
  • #68
  • Jul 21, 2012 11:09am Jul 21, 2012 11:09am
A losing system, in which some trades are winners but most are losers is really a random system and reversing it will only yield a system where most are winners and some losers. That ,in itself might be good if you can manage your money with skill and avoid having the value of the losers exceed that of the winners. Alternately a system in which every single trade is a loser without exception ,deception or equivoction can and should be reversed and yield only winners. My belief however is that most traders , who believe they are following a system really bend the rules of their own system and trade more or less intuituvely whether or not the parameters of their system fit or do not. Such systems again are random and reversing a random system will yield nothing but a new random system with the same random results.
  • #69
  • Last Post: Jul 21, 2012 12:03pm Jul 21, 2012 12:03pm
Quoting sindutzz
If we have a losing system why dont we just do a reverse trade ?
Or if we have a losing EA, why don't we just edit the EA so when the EA give a BUY signal then change it into SELL signal. And do same for SELL signal.

Has anyone ever consider this?

Sorry for this stupid question
Sorry it does not work this way. In order to understand how to win, you need to understand market and order flow. You need to understand money management.
Know when to hold em, Know when to fold em!
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