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Absolute Simplest KISS Method. Also, how do we measure risk reward? 68 replies

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KISS

  • #21
  • Mar 27, 2010 2:15pm Mar 27, 2010 2:15pm
Quoting FXSurfer
"Only in the movies."
No he uses Order Flow
Economists have forecast 9 out of the last 5 recessions
  • #22
  • Edited 4:25pm Mar 27, 2010 2:29pm | Edited 4:25pm
Quoting HouseTrader
hmmmm .... I see hanover viewing this thread right now... great stuff to come...
Not sure that I can live up to such lofty ideals, LOL, but I'll stick my neck out and post anyway.
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Quoting AstonDan
"One of the shrewdest statements that I ever heard on this was that the only way to make a million dollars in trading (as opposed to investing) is to make 10 million dollars and lose 9 million dollars (in concept, at least: some of you may well be making 10 million and losing only 8, or 7, or 6.2...)"
If I recall correctly, Topher's quote comes from this post:

Quoting TheRealThing
I will tell the only way a trader is able to make $1,000,000 from trading. Here's an example of 10 thousand trades. Of these trades, you might lose on 6000 of them for small losses, win on 3800 of them for moderate profits, and win fairly big on 200 of them. You make your million from this series of trades by losing only $9 million on your total of losing trades while making $10 million dollars on your total of profitable trades.
The original poster is of course Joel Rensink, and he is talking about breakout systems like DIBS.
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Quoting markmm
I am suggesting that people keep it simple, stupid.
I'd say it partly depends on what you mean by simple, i.e. visually simple, or simple to code. For example, supply/demand zones are obvious enough to the trained eye, but not necessarily that easily expressed in strict mathematical terms. Whereas indicator-based entry systems not only provide a simple way of entering an emerging move, but are also simple to code; however, from what I've read, very few indicator-based EAs are long term profitable.
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Quoting pipmutt
"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong".
That's easy to say, but you need to prove that on the infrequent occasions that prices do trend, they trend far enough to make up for the many (but smaller) intervening losses. I'm not saying that you're wrong, just that there needs to be a statistical basis to back up statements like these.

We've had a similar discussion before: If trading is nothing more than MM and discipline, then any old MA crossover based EA that also cuts losses quickly and lets profits ride, should be long term profitable. Hence the obvious question: why doesn't everybody use one?

Anyway, see my comment later in this post. **

Quoting pipmutt
Unfortunately most of these people will still fail, regardless of how much they learn or understand about the market and it's participants. It's not the market they initially need to learn and understand, it's trading.
With respect, I must disagree. If trading is not grounded in an understanding of market behavior, then upon what should it be based? Without such an understanding, surely all entries and exits are reduced to mere guesswork?
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Quoting markmm
One quote I heard off a trader on another board is his holy grail is to get 100% of his account into a trade with no risk.
Sorry if I'm starting to sound like a troll, but I have to disagree with this also, at least on one count. Let's say I'm playing roulette and I'm currently $500 up. Since I'm now playing with 'free' money, am I mathematically justified in taking bigger risks? Of course not; the game probabilities haven't changed. So it is with trading. If we can show statistically that, once a suitable trend emerges, price is more likely to continue trending than not, then yes, of course it makes mathematical sense to pyramid at suitable points. But not merely on the premise that my initial entry is profitable to the point that I'm now playing with the market's money.

We need to trade market probabilities, not our account balance. Market behavior and mechanics aren't going to change merely because our current trade happens to be profitable.
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Quoting HouseTrader
... and we start again to think that "let me put another thing on the chart, to filter a bit more.." ... and so on... until you messed the whole thing...
FWIW I agree, adding or optimizing filters (especially indicator based filters on the same TF) to eliminate individual losing trades tends to do little more than redistribute wins and losses.

However, stacking generic filters that (1) are based on robust 'abstracts' (trend, S/R types, OB/OS, chart/candle patterns, currency strength, …) and also (2) provide independent confirmation (i.e. are not merely different perspectives of the same OHLC data) is a key ingredient in my current approach.
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** Don't get me wrong, I strongly believe in taking high RR trades, and letting profit run. The key, then, is finding setups where the probability of prices trending is higher than normal. Sure, it might not be possible to predict future direction with anything like 100% certainty, but there are many ways of using entry to tip expectancy significantly in our favor; the minimum requirement being "50/50 + spread". You've asked not to post setup specifics in this thread; in any case, I've already posted my ideas elsewhere.
  • #23
  • Mar 27, 2010 2:39pm Mar 27, 2010 2:39pm
Quoting hanover
Sorry if I'm starting to sound like a troll, but I have to disagree with this also, at least on one count. Let's say I'm playing roulette and I'm currently $500 up. Since I'm now playing with 'free' money, am I mathematically justified in taking bigger risks? Of course not; the game probabilities haven't changed. So it is with trading. If we can show statistically that, once a suitable trend emerges, price is more likely to continue trending than not, then yes, of course it makes mathematical sense to pyramid at suitable points. But not merely on...
I think what the OP was saying was that, he would add more, when another setup appeared that he would have taken anyway, regardless of his current trade, and if he could get enough in a long enough move he could have built a large position and locking in profit as it moved in his direction.
Economists have forecast 9 out of the last 5 recessions
  • #24
  • Mar 27, 2010 2:43pm Mar 27, 2010 2:43pm
This may have been discussed before... but if most systems are losing systems... why don't we take the opposite side of the trade? Trade against the broker?

Is that not simple enough?
  • #25
  • Mar 27, 2010 2:47pm Mar 27, 2010 2:47pm
Hanover hits a home run as always. Agree with everything you said but was too lazy to write it up lol.
  • #26
  • Mar 27, 2010 3:18pm Mar 27, 2010 3:18pm
Quoting hanover
If trading is nothing more than MM and discipline, then any old MA crossover based EA that also cuts losses quickly and lets profits ride, should be long term profitable. Hence the obvious question: why doesn't everybody use one?
Now you're going to extremes, from convoluted analysis of the market, it's participants, orders, motives etc etc ad infinitum because where do you draw the line (some of which it would be impossible to have accurate or reliable data or information about), to trading with just MM and discipline.

We all need some sort of framework and tools to bias our opinion otherwise it would be impossible for us, psychologically as well as practically, to decide on a preferred (probable, in our own opinion) direction and make a trade, however it's not the first and only consideration. Whatever tools we use for our analysis is to a certain extent immaterial (within reason), because at the end of the day no matter how simple or complex that analysis is it's nothing more than an (educated) guess. So what does that leave us with? Trade and risk management, or in other words the basic essence of 'trading'.

In my opinion the more complex the analysis, the harder it is to have the confidence to put money on the line, or as some people call it 'analysis paralysis' or 'information overload'! I could be equally as profitable with limited market knowledge and using a simple system such as breakouts as someone else who has extensive in-depth knowledge and understanding using more complex analysis.

Bottom line I'm personally in favour of KISS, especially when there doesn't appear to be any practical advantage to complicating the process, if anything complex analysis can be a disadvantage for the reasons mentioned.
  • #27
  • Mar 27, 2010 3:29pm Mar 27, 2010 3:29pm
I was just watching Wall Street Warriors, and there is a segment with a specialist on the NYSE floor. He is saying that his stock was selling of 30% on the day and he wasn't sure why.... this guy sees all orders.
Economists have forecast 9 out of the last 5 recessions
  • #28
  • Mar 27, 2010 3:48pm Mar 27, 2010 3:48pm
Quoting hanover
Let's say I'm playing roulette and I'm currently $500 up. Since I'm now playing with 'free' money, am I mathematically justified in taking bigger risks? Of course not; the game probabilities haven't changed. So it is with trading.
You're right, but how about disregarding mathematical probabilities and instead look at MM. You're up $500, why not compound?
  • #29
  • Mar 27, 2010 3:51pm Mar 27, 2010 3:51pm
Quoting markmm
I was just watching Wall Street Warriors, and there is a segment with a specialist on the NYSE floor. He is saying that his stock was selling of 30% on the day and he wasn't sure why.... this guy sees all orders.
I loved that series, some great examples of what we're discussing in this thread!
  • #30
  • Mar 27, 2010 4:10pm Mar 27, 2010 4:10pm
Quoting markmm
I was just watching Wall Street Warriors, and there is a segment with a specialist on the NYSE floor. He is saying that his stock was selling of 30% on the day and he wasn't sure why.... this guy sees all orders.
Darkstar or no one has said that order flow can explain every event that occurs. This generalization seems to be spreading..
  • #31
  • Mar 27, 2010 4:24pm Mar 27, 2010 4:24pm
Quoting pipmutt
Now you're going to extremes, from convoluted analysis of the market, it's participants, orders, motives etc etc ad infinitum........
The vast majority of what Scotty, Darkstar et al are saying about orderflow goes right over my head. I work from TA (price charts) only.

Quoting pipmutt
Whatever tools we use for our analysis is to a certain extent immaterial (within reason), because at the end of the day no matter how simple or complex that analysis is it's nothing more than an (educated) guess.
I see my entry setups as contributing significantly to my edge, as opposed to being guesswork, and hence I'd be willing to sacrifice simplicity for increased potential profit, if need be. But if I saw no statistical value in them, then everything else would be equal, so I'd be happy to prioritize simplicity.

Quoting pipmutt
You're right, but how about disregarding mathematical probabilities and instead look at MM. You're up $500, why not compound?
Given that there's no edge to be had, it would become a decision based on my financial situation, and appetite for risk: how important holding safely onto the $500 is, as opposed to seeking greater profit. But I know which choice my wife would like me to make, LOL.
  • #32
  • Mar 27, 2010 4:46pm Mar 27, 2010 4:46pm
Quoting hanover
But I know which choice my wife would like me to make, LOL.
  • #33
  • Mar 27, 2010 5:56pm Mar 27, 2010 5:56pm
Interesting thread. Surely will keep an eye on this. Correct me if I'm wrong, K.I.S.S. as in this thread's context means 'Keep It Simple System' right? I'm currently actively looking for such a trading system. I wonder if anyone has come across John Templeton's 'Trading in the Buff'? What do you guys think about it? Is there any good recommendation of a K.I.S.S.? Thanks.
  • #34
  • Mar 27, 2010 6:02pm Mar 27, 2010 6:02pm
Quoting fxeturn
Interesting thread. Surely will keep an eye on this. Correct me if I'm wrong, K.I.S.S. as in this thread's context means 'Keep It Simple System' right? I'm currently actively looking for such a trading system. I wonder if anyone has come across John Templeton's 'Trading in the Buff'? What do you guys think about it? Is there any good recommendation of a K.I.S.S.? Thanks.
KISS stands for KEEP IT SIMPLE STUPID.
  • #35
  • Mar 27, 2010 6:25pm Mar 27, 2010 6:25pm
Quoting markmm
I was just watching Wall Street Warriors, and there is a segment with a specialist on the NYSE floor. He is saying that his stock was selling of 30% on the day and he wasn't sure why.... this guy sees all orders.
That used to be true. Today, NYSE is mostly a "TV prop set". All the real trading occurs electronically at other venues.

Quote from http://www.nytimes.com/2009/10/15/bu...5exchange.html: Today, 36 percent of daily trades in stocks that are listed on the New York Stock Exchange are actually executed on the exchange, down from about 75 percent nearly four years ago. The rest of are conducted elsewhere, on new electronic exchanges or through dark pools.

Another great article reported that floor traders at NYSE basically sit all day, watch TV, drink coffee, ... Nothing happens there anymore.

HFT algos are the real specialists. There are some papers clarifying how they work, how the ping the market looking for hidden orders, how they search the price action for patterns indicating some big order is being worked into the market, how they game other more primitive robots. All of this is microstructure.

And microstructure works, but only the big boys can play this game. There are some setups that retail can play, like round number stop hunts. But I will ignore any rumor about "large barrier at X".
  • #36
  • Mar 27, 2010 10:58pm Mar 27, 2010 10:58pm
Quoting guess121
This may have been discussed before... but if most systems are losing systems... why don't we take the opposite side of the trade? Trade against the broker?

Is that not simple enough?
I hope you go do that... and goddamn learn a thing or two!

AFTER 705 POSTS HAVE YOU NOT UNDERSTOOD THE CONCEPT OF THE SPREAD!!!!!!

!!!!!!!!!!!!11

!2!2OI23ULKSADFHUGALGUAHGLUA
Congratulations ScalaFX for coming out of the closet!
  • #37
  • Mar 27, 2010 11:25pm Mar 27, 2010 11:25pm
There are no natural born traders out there. You have to have a level of patience that is off the charts for one thing. Also, one of the most difficult things in trading is knowing when and how to take a loss. A good loss is one where you followed your plan, but something out of the ordinary happened that threw you off. A bad loss is when you take a trade outside of your trading plan. Also, if you don't have an edge in the market, no amount of psycho-babble is gonna keep you in the game very long. You have to have a winning strategy that wins over time. You are absolutely foolish, if you think every trade you take is somehow supposed to be a profitable trade. Until you know how to take a loss that won't destroy you and until you develop a winning strategy...you are not a "trader".....you are nothing more than a participant in the markets.
  • #38
  • Mar 27, 2010 11:38pm Mar 27, 2010 11:38pm
some thoughts for hanover...

Quoting hanover
That's easy to say, but you need to prove that on the infrequent occasions that prices do trend, they trend far enough to make up for the many (but smaller) intervening losses. I'm not saying that you're wrong, just that there needs to be a statistical basis to back up statements like these.

We've had a similar discussion before: If trading is nothing more than MM and discipline, then any old MA crossover based EA that also cuts losses quickly and lets profits ride, should be long term profitable. Hence the obvious question: why doesn't everybody...
I think the answer to both paragraphs is pyramiding. A 'trend' (whatever that might be) will last as long as it does, but is it not better to reach the end of the ride with 5 positions all working together than just 1?

Paragraph 2 : without having looked-into other peoples EA's i am taking a stab that they have a hard time deciding a profitable way to pyramid while also managing risk successfully. this is where discretion comes into play.

minimizing risk and maximizing gains is what we all want, and to me that means managing the risk attached to positions whilst trying to pyramid the hell out of a position.

Quote
Sorry if I'm starting to sound like a troll, but I have to disagree with this also, at least on one count. Let's say I'm playing roulette and I'm currently $500 up. Since I'm now playing with 'free' money, am I mathematically justified in taking bigger risks? Of course not; the game probabilities haven't changed. So it is with trading. If we can show statistically that, once a suitable trend emerges, price is more likely to continue trending than not, then yes, of course it makes mathematical sense to pyramid at suitable points. But not merely on...
i am fully aware that you are a mathemagician of penn and teller degree and as such i think you may be harshly biased towards purely a numbers theme. all this talk of probabilities, roulette, house money... it all screams of markets being random. they may be random, or they may not be. If they are random then the people who are profiting happen to be lucky and nothing more and so they should just keep doing what they are doing, and those who are not profiting are unlucky and should stop until such time as they seem lucky again. why bother otherwise?

i don't think anyone can deny that the markets seem to have tendencies and patterns, however, these are not absolutes and i feel it's dangerous to consider the market as run by some random number generator. people push the buttons that move price, and that's that. their reasons for doing so may all be different but some people surely push the buttons harder. this is a massive generalization of what all the current talk of orderflow etc is, at least how i am reading it. this is all pretty obvious stuff that should be one of the first things understood when first learning about what a market is, but i think the problem for almost everyone is that they can't see the reasoning behind price movements and who would be pushing those buttons, how many people there are doing it, and what their thoughts currently are, etc etc... and the charts all look like a bundle of crap and noise with no reasoning behind anything and so we just begin to look at it with a view of randomness being the theme when this isn't necessarily the case. this seems to be where you are at with things which is fair enough. maybe the markets are random, after all, different motivations can conflict or correlate therefore how can you know when it will be one or the other?

at least in poker you can see your opponents face as well as see what hand you have. in trading unless you know where to look (again, i see this is where the order flow talk is based and directed) you do not even know what the other players look like or how many there are, let alone try to read their body language... plus, in poker you can also see your hand and KNOW where you stack-up in terms of how likely you are to kick butt with your hand, but in trading it is a continually unfolding story where you do not really know how your trade will play-out until you pull the plug and call it quits. trading to me is a bit like playing poker in a cell against any number of unknown opponents, and you don't even get to see what cards YOU are even holding. it's still not a correct analogy but it's about as close as I can come to relating trading to anything else.

i'm not drinking any kool-aid so don't worry, i'm just open to whatever might bring order to the movements of what appears to be chaotic charts. that's what we all want.

anyways, this isn't an attack or anything... just wanted to bounce some thoughts off of you and see what sticks and what comes back.

END OF RAMBLE RAMBLE RAMBLE!
Congratulations ScalaFX for coming out of the closet!
  • #39
  • Edited 12:31am Mar 28, 2010 12:13am | Edited 12:31am
I think the biggest mistake people make when discussing K.I.S.S. is that it takes someone with a great degree of skill and knowledge to break something down to simplicity.

It's always the master craftsman that comes up with the simple design, because that craftsman has a full grasp of his trade. In trading for one to come up with a very simple method to trade almost always comes from a trader with tons of experience and knowledge of how markets work.

By understanding microstructure, order flow, market dynamics, etc, etc, etc, I believe is necessary (for certain personality types) to have a full grasp of trading. From that point one can start to build and create simple trading techniques that are custom fit for that individuals use. Learning all this stuff isn't about making trading complicated, it's about learning the craft to such a high skill level that it can be made simple.

The expert car mechanic that understands how everything works is the one that can quickly diagnose the problem and fix it correctly. It's his complete understand of his craft that allows him to do that.

Another example could be bread making. There are a handful of ingredients and it's all very simple to mix, but it takes an true Artisian to create great bread that is unique. It's because they understand the details how the ingredients interact with each other and how the entire process works.

How about a surgeon? I'm sure any jackass can split someone open and cut out a tumor, but a a surgeon will have to have full understanding of how the body works in order to do it right without killing the patient.

Pro's always make things look easy because they have deep fundamental understanding of what they are doing. What it all comes down to is basically this, someone can hand you a method to trade or you can have a full understand of your craft that will allow you to make your own methods. When everything is said and done, the method will most likely be something really simple.

EDIT: I agree that one may not need to know the microstructure, order flow, etc, but at the same time one should not fault a person for wanting to learn it. Even if doesn't help a person to 'trade' it maybe important for how a person perceives the market. Every trader at some point has to build how they view the market. Ultimately there is only one way to trade and that is profitably, IMO.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #40
  • Mar 28, 2010 12:57am Mar 28, 2010 12:57am
Quoting nubcake
.... but i think the problem for almost everyone is that they can't see the reasoning behind price movements and who would be pushing those buttons, how many people there are doing it, and what their thoughts currently are, etc etc...
Are you saying that's a problem which can be resolved with a deeper understanding of the market and it's participants/players, or are you saying to try would be a futile exercise as it's impossible to ever know?
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