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Strategy of losers

  • #81
  • Oct 19, 2009 4:23pm Oct 19, 2009 4:23pm
Quoting Ferrari
Because they assume the market falls into a bell curve probability distribution?

Possibly, in some notable cases definately, but in most cases I think probably not. Long Term Capital Management is an example of what happens to traders that use a bell curve model for their risk management. They made lots of money for years, then lost it all when one of those market moving events that are so extreme they should (according to the bell curve model) only happen every few thousand years actually happened within 5 years (I think it was) of them starting up.

If the bell curve risk management was the problem traders would turn that retail £2,000 account into £5,000, then into £10,000, then turn it into £20,000 and then one day bang, lose it all in one of those 1,000 pip in a day market moves that happens every few years. That doesn't seem to be what happens to a lot of them though, many of them seem start losing within weeks if not days of starting trading.

Still, risk management does seem to be a problem, so I'm going to think carefully about what you said before commenting on the bell curve further...



Just a thought though... I tried to imagine what the market would look like if it had only 100 people trading. If they each had an equal amount of money the side with the most traders would win until almost everyone was on that side when it would then fail due to lack of traders to push it even higher. If however, 2 or 3 of the 100 traders had way way more money than everyone else, those rich few traders could guarentee they ended up with most of the other people's money simply by taking the otherside of the trade that the majority of the small traders were on until the small traders ran out of money and gave up on those positions.

I actually don't think that is what is happening though and think it was the 2nd option I gave and wrote a small article about it on my website. But I'm not 100% sure that's not what's going on
  • #82
  • Oct 19, 2009 4:29pm Oct 19, 2009 4:29pm
Quoting Davidee
Possibly, in some notable cases definately, but in most cases I think probably not. Long Term Capital Management is an example of what happens to traders that use a bell curve model for their risk management. They made lots of money for years, then lost it all when one of those market moving events that are so extreme they should (according to the bell curve model) only happen every few thousand years actually happened within 5 years (I think it was) of them starting up.

If the bell curve risk management was the problem traders would turn that...
Well, someone is making the market. Institutional entites are always willing to buy and sell currency, they don't have to have their profits from others losses, they make it from making the market.
  • #83
  • Oct 19, 2009 4:33pm Oct 19, 2009 4:33pm
Quoting Ferrari
Take a closer look, the long and short columns is the total amount of contracts traded.
Yes, I understand how level 2 can be traded but as always its only part of the puzzle. If you haven't been trading level 2 very long you cannot judge your technique with it from just a few trades.
  • #84
  • Oct 19, 2009 4:35pm Oct 19, 2009 4:35pm
Quoting Porkpie
Yes, I understand how level 2 can be traded but as always its only part of the puzzle. If you haven't been trading level 2 very long you cannot judge your technique with it from just a few trades.
How about 2772 trades?
  • #85
  • Oct 19, 2009 4:37pm Oct 19, 2009 4:37pm
Quoting Ferrari
How about 2772 trades?
Thats better

I hope that wasn't in one day though
  • #86
  • Oct 19, 2009 4:43pm Oct 19, 2009 4:43pm
Quoting Porkpie
Thats better

I hope that wasn't in one day though
2772 total contracts traded, in reality it was 270 or so trades with about 10 contracts per turn.
  • #87
  • Oct 20, 2009 12:21am Oct 20, 2009 12:21am
Quoting Davidee
But I don't see why this means that 80%+ of traders have to lose.
The markets are mostly random. If a trader doesn't enter the market at certain moments then the outcome will be also random. Because there's no edge but pure randomness the trader will have no profit on the long run but will lose always the spread.

There's a mantra, "let the profits run". This works if you trade the daily and make a few trades every year with very large stops based on fundamentals. But if you're trading intraday the randomness will eat away your profits.

Let's say you have a SL = 100 and TP = 200 or more on a certain trade.

You lose today 100.
Tomorrow one trade goes 100 in your direction.

The market gave you back what you have already lost. But you don't take this profit because you hope for +200. The market goes against you and you exit at breakeven.

You had 2 trades. Theoretically you should be at breakeven. But you are at -100 pips hoping for another great trade.

If you don't have good entries this strategy will lose on the long run.
  • #88
  • Oct 20, 2009 1:15am Oct 20, 2009 1:15am
Quoting Sauron
The markets are mostly random.
The markets are never random. We may only perceive it as random, because we do not know the reasoning behind every move and trade.

Quote
But if you're trading intraday the randomness will eat away your profits.

It is what you think, not fact. The reality is different.
  • #89
  • Oct 20, 2009 1:33am Oct 20, 2009 1:33am
Quoting FXEZ
I wish I had written that. Sounds exactly how I've experienced it. One of the keys to finding that edge has been in accurately seeing the market for what it is. When I started out in the trading arena, I learned most of my trading base of knowledge from books that talked about charting and technical analysis. Unfortunately that is only one small piece of the puzzle, and not a particularly important piece IMNSHO. I used to think there are technicals and fundamentals and that was it. Much of the Market Microstructure research and developments came...
Better you know it than to write it AZS. Your order of events is scarily familiar, I'm guessing because technicals and fundamentals are presented on a plate so they're the obvious first base, whereas the rest you have to dig around for. If that changed, someone would have to rewrite babypips and I believe Darkstar and Gaston are busy.
Burn the witches!
  • #90
  • Oct 20, 2009 1:53am Oct 20, 2009 1:53am
Quoting Davidee
But why would that necessarly mean that 80%+ of people simply had to fail?

Why would that mean that somebody could likely be wrong 10 times in a row when tossing a coin would get ten losses in a row 1 in 1024 times?
It's the best news anyone can hear. If it's possible to be wrong far more than chance dictates, it's possible to do the reverse. The most dispiriting result is to get roughly half and half.

Your idea about traders just squeezing out the others... I believe everyone can play their space, if they've got smaller traders beneath them. Market makers can squeeze out small intraday players. Big gun fundie traders can squeeze out market makers. I know that sounds strange, because obviously an MM doesn't have to buy/sell, but if MMs spend the day dumping on the little guys, if they're holding a position when big fundies are moving en masse, they're in trouble unless they rush to cover. Ultimately, noone's bigger than the market, so if you do manipulate, it'll eventually return to a semblance of real value.
  • #91
  • Oct 20, 2009 2:11am Oct 20, 2009 2:11am
Quoting triphop
obviously an MM doesn't have to buy/sell
market makers by definition have to buy and sell. they make the market and post a bid and an ask. they only times where you do not see this occuring is before major economic announcments, where price can fluctuate wildly along with spreads due to the lack of liquidity (market maker activity)
  • #92
  • Oct 20, 2009 2:52am Oct 20, 2009 2:52am
Quoting Mr J
The markets are never random. We may only perceive it as random, because we do not know the reasoning behind every move and trade.
You don't know the reasoning behind every move. I agree. This makes the markets for you random. 99% of the time they move random for our perception. An event over which you have no control whatsoever is random. Call it how you wish, if you don't know the "why" and "when" of that event it is completely random. The rationale behind doesn't matter.

Quoting Mr J
It is what you think, not fact. The reality is different.
I said it in a context. Don't quote me if you don't understand what I'm saying. Read again 10 times my example. I trade intraday too.
  • #93
  • Oct 20, 2009 3:00am Oct 20, 2009 3:00am
Quoting Sauron
An event over which you have no control whatsoever is random. Call it how you wish, if you don't know the "why" and "when" of that event it is completely random. The rationale behind doesn't matter.
Fine, now it is semantics.

Quote
I said it in a context. Don't quote me if you don't understand what I'm saying. Read again 10 times my example. I trade intraday too.
I don't need to. You stated as a fact that the markets were mostly random. There was no talk of it being our perception. Now you ask me to reread:

Quote
There's a mantra, "let the profits run".....But if you're trading intraday the randomness will eat away your profits.
Do you want to explain this? I don't see how I'm taking any of this out of context, unless I'm missing any earlier posts by you.

Perhaps the issue is your use of the word "randomness". Subsitute it with "unknown" and I don't think I have an issue with it.
  • #94
  • Oct 20, 2009 3:16am Oct 20, 2009 3:16am
And I gave an example below, explaining why I think that letting your profits run too long on intraday trading will deplete your account. Read that example.

I can demonstrate, for every strategy in forex, that letting your profits run will not bring you more profit, in other words that the exits can't offer an edge. I challenge anybody to prove me wrong, with real data.

PS. I find "randomness" to be a good word. The markets are not random but behave randomly for our senses. "Unknown" may be better but doesn't have the same meaning for me.
  • #95
  • Oct 20, 2009 3:32am Oct 20, 2009 3:32am
Quoting Mr J
You stated as a fact that the markets were mostly random.
The markets are absolutely random. Everybody except the losers and the newbies knows that. It is a pure fact like the fact that the earth is not flat. Why discuss facts?? A waste of time.
  • #96
  • Oct 20, 2009 3:37am Oct 20, 2009 3:37am
They are not 100% random, unless you have a way to prove it.
  • #97
  • Oct 20, 2009 3:50am Oct 20, 2009 3:50am
Quoting Sauron
And I gave an example below, explaining why I think that letting your profits run too long on intraday trading will deplete your account. Read that example.

I can demonstrate, for every strategy in forex, that letting your profits run will not bring you more profit, in other words that the exits can't offer an edge. I challenge anybody to prove me wrong, with real data.

PS. I find "randomness" to be a good word. The markets are not random but behave randomly for our senses. "Unknown" may be better but doesn't have the same meaning for me....
Of course letting profits run too long is harmful, that's why it is too long rather than just long! I will agree with you that we shouldn't let profits run just for the sake of seeing what happens next, but if we think it is profitable to hold the position, that's what we should do.

Randomness is probably better to you. I'm guessing that you might use it to remind yourself that there's much you don't know, and to stay out of it? I think more of "unknown" because I like to remember that there is a reason behind everything, even if I don't know it.

Quoting Alderlug
The markets are absolutely random.
If the markets are absolutely random, then why do you trade (if you trade)?
  • #98
  • Oct 20, 2009 4:04am Oct 20, 2009 4:04am
Quoting Sauron
The markets are not random but behave randomly
Quoting Alderlug
The markets are absolutely random.
Quoting Sauron
They are not 100% random
Whatever they are, I wish that they would get the hell moving so that I could trade. LOL!
  • #99
  • Oct 20, 2009 4:08am Oct 20, 2009 4:08am
Randomness is measurable, it can be analysed using a function, to calculate how much I can take from the market if I time my entry.

If I call it "unknown" it doesn't help me much.
  • #100
  • Oct 20, 2009 4:15am Oct 20, 2009 4:15am
Oh oh. Not this again. Alderlug, you need to spend a little more time reading, very carefully. Evidence abounds, but noones going to give you a signpost.

PS Ferrari - have to buy and sell was the bit I'm stressing. What I mean is that the pressure big fundie traders can exert on MMs stems from the fact that MMs are sometimes taking the other side of customers trades and this in turn affects liquidity. Complete drying up is an extreme case, there are steps in between.
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