Do you still believe in the perfect trading system?

I believe there is a method or style of trading that has a high probability of success. I honestly believe that a trader will come very close to finding the Holy Grail when they are able to find a system trades just as well in the 1 minute window as any higher TF (e.g. 1 hour/weekly). It reminds me of when Einstein was seeking the perfect equation that could be applied to gravitational and inter planetary relationships as well as intermolecular relationships. It was a goal that he was not able to complete in his day.

In fact, i am thinking I am very close to it.

The answer is divergence the highest of probabilty of trades

Yes, and pre-trade study and trade only the 1' TF.
A bunch of 1' TF charts is still a higher TF. Same # of pips to earn, a potential of higher leverage each.

The Holy Grail isn't a simple thing, but a set of rules.

The Holy Grail rules:

#1 DON'T scalp. It will hurt you sooner or later (sooner for beginners, later for pros, but it will definitely hurt).

#2 You must understand that backtesting a system for 1 month isn't enough. Not even a year. Nope, not even 2 years. I'd say 10 years. Not so long ago I manually backtested a really good looking system. I got 600 pips for 2010 Jan-Jun. I got 2000 pips for 2009. I got -1300 pips for 2008. I got -2000 pips for 2007.

#3 You must understand that the market is ALMOST RANDOM. When looking at a chart, it'll frequently look like it can be predicted. "OH, of course! it reversed because the RSI went below 30!", "OHHHH!! RIGHT! It's continuing because my set of MAs tell me it's going to continue!" But, you know, if the market wouldn't have reversed you would have said "Hah! It didn't reversed because my MAs tell me it's going to continue!" and if it wouldn't have continued you would have said "Oh damn! It reversed! I didn't pay attention to my RSI".

You will always find some indicator that will be right. ALWAYS.

#4 You must understand that indicators that "transform" the data will fail sooner or later. By "fail", I mean that they don't really work. It gives you the idea that they work, because... well, check point #2 and #3.

This reminds me of the movie "PI". Someone in there says something like this:

If you think the number 231 is a magic number, it'll be a magic number. You'll start to see it on the number of steps it took you to reach some random place. You'll start to see it on the number of cats you've seen since you were 13 years old, which coincides with the number 231 backwards, except for the number 2, because well, the number 2 is another magical number! Etcetera.

If you think the RSI, or the ADX, or the Rainbow, or the Trix, or the Stochs, or the whatever works, they will work. You'll find sooner or later though, that they don't really worked.

If these indicators have worked for you for more than 10 years, it's because you've been using the indicators mentioned in #5 too.

#5 You must understand that the best indicator is the cash data itself (and the indicators that work using ONLY the cash data). From these indicators, the only working ones are the following:

 

1. Support and Resistance. They work because it's something natural, just like a price falling or rising. Read about how's that support and resistance levels work and think about it until you realize it's really a natural thing.
   
2. Trendlines and Channels. They're natural too. If you understand support and resistance levels, you'll understand why trendlines and channels are natural too.
   
3. Overbought and Oversold concepts. You guessed it, they're natural too. That's why I consider RSI to be one of the few good indicators. I rather predict the oversold and overbought levels using only the chart though. It's easy: looking at 1000 green candles can't be something natural. That's why I say the EUR/USD will fall very soon.
   
4. Volatility concept. Natural. Imagine volatility, read about it, try to understand it.
   
5. Fibonnacci Retracements. It's NOT a natural tool, but everyone uses it. If everyone uses an indicator, it'll work. Then, why is it that FR works, and RSI or ADX don't if they're popular too? It's because they're flexible. Some people use the RSI(14), others use the RSI(21), others the ADX(11), others the ADX(7).
   
6. Candlestick Patterns. Natural.
   
7. Pivot Points. Same as Fibonacci Retracements. They're absolute, there's only one formula, and everyone use them.

#6 You must understand that you MUST have a good Money Management strategy. Remember, the market is almost random, so trading is almost a 50-50 game. Having a good money management like TP 100 and SL 50 can make you win the game easily.

#7 I was forgetting about this one. You must understand that sometimes you simply have to WAIT. By waiting I mean that sometimes you'll need to wait several hours, days or even weeks. If you're scalping, wait for the London-New York overlap. If you're a swing trader, just wait for a trend. If you're a OMG I HOLD MY TRADES FOR MONTHS trader, wait for the news.

#8 OBEY THE RULES. The one who can't hold his noobish instincts of trading whatever he sees, will lose.

#9 I'm adding new rules as I write. This one's important. You must understand that you must ACTUALLY THINK. We're all trying to find THE system, not because we want to make loads of money. Do you even know how much money would you make with a perfect system? Like, the actual number or percentage? No, it's not the number that motivates us to find a good system, but the idea of not thinking. We would love a system to tell us what to do and what not to do.

This is the ultimate system... you only need to master it for it to become a Holy Grail. This will never happen though, but you'll end up with an excellent system.

So, now, I'll give you my algorithm (I'm a software engineer, that's why I can't give you only the idea, I need to give you instructions ) for my Holy Grail.

Holy Grail instructions:

 

1. Find the best market. The best market is the most volatile one. You can skip this step if you're planning on trading only on the London-New York sessions overlap.
   
2. See if it's on a trend. If it's not, go back to step one, but eliminate the market you just checked. If you're out of markets, WAIT (see the rules #7 and #8).
   
3. When you've found out your golden market, start identifying support and resistances, trendlines/channels, fibonacci retracements, EVERYTHING.
   
4. After all your art over your chart, start analyzing (yes, you must actually think, see rule #9). Ask yourself questions like: is a support or resistance close? Does the market look oversold/overbought? Am I too far away from my trendline? Did a candlestick pattern just appeared a few candles ago? Is it approaching a pivot point?
   
5. After all your brainstroming, make a decision. Don't worry, you'll never be too wrong. All of your analysis was only to increase the probability of winning from 50% to 60% or 70%.
   
6. Okay, your decision is made. Now, for the SL and TP, try analyzing your charts again (I know, I know, thinking sucks right? why don't I simply tell you "TP 20 and SL 10", like all the other systems? if you're serious about that, read rule #9 like 10 times again). You must ask yourself the following question: how much would the market move upwards and how much would the market move downwards?
   
7. When you get your SL and TP, just make sure to round down/up those numbers so it makes a 2:1 ratio or something like that. Good ratios are 2:1, 3:1, 4:1, 5:1, etc. Bad ratios are 1:2, 1:3... well, you get the idea. Check the money management rule again if you don't get what I say (rule #6). A very good alternative is to use trailing stops.
   
8. When you have everything ready, place the trade. If you love to think and work, you can find a low risk point using a lower time frame. Just use this algorithm but focus on finding a low/high point in lower time frames and enter on that point.
   
9. Now, you must work out yourself, go feed the birds, go play with your children or something else, but RUN AWAY from your charts. I mean it, RUN AWAY! You don't want your noobish instincts to arise and make you close the trade too soon or too late.
   
10. When you decide it's a prudent time to check how's your trade going, you should stick a post-it on your front head that says "noobs lose, and I don't wanna be a noob".

How later for pros?... 5 - 10 years mark?

Of course there is... that's why there are successful traders.

I also agree to this point.

I like to sum it up simply: If you know what you are doing, you will be a success.
Of course, you need to validate if you truly know what you are doing. Just look at your account and your account will tell you the truth of what you know. It will validate you at some point, sooner or later.

I think its the wrong way to approach this.

Its better to look for a trading plan.

Trading system is a part of a trading plan. If you search a trading system you wont be successful.

Many great trader have trading plan. If you look at their system you will notice that their trading system is just simple and ordinary.

Imagine those big trading firm with billions of dollars and they can afford to hire genius to design the best trading system.

If you read interviews in investment magazine, the trader working for these firms didnt emphasize about their trading system but trading as a whole. If you look really close they are talking about trading plan.

Exactly 6.4 years!

Just kidding. I don't mean that by scalping you'll lose your entire fortune. You can actually make money this way.

Beginners will lose money like... the first day, lol. Pros will continuously make money.

I just mean that... scalping is not THAT secure. I just like to put it this way: I've never known a famous trader that scalps, most big traders will trade almost in a daily basis, most big traders trade with really low risks... I watched a video from Jack Schwager, where he and all his audience gets impressed from a trader that was making 25% of profit each month... what the hell? He makes only 25% and everyone got impressed? I've seen scalping systems in here that make like 100 pips a day, with a win ratio of 14 wins 1 loss.

The point is... if big successful traders trade with a REALLY low risk... and all the books say the market is like hell, where you'll lose your entire fortune if you don't know exactly what you're doing... I just don't wanna try scalping. I know it will hurt someday.

This is like smoking, it won't kill you the first day, maybe not even in years, but it has a BIG probability of causing you something bad. Maybe it won't be death, maybe it will just be cancer and you'll end up dying from a car accident. Maybe you'll never get hurt. But the probability is that something will happen to most people.

I think scalping is just like trading the market. 95% of the people will lose money. Still, there are some people that make money this way.

A great percentage of people will lose money with scalping. Still, there are some people that make money this way.

Don't be so certain.


Time alone is not a sample. A month could be quite significant for a scalper, and 10 years may be nothing for an extremely longterm trader.


There is no randomness in the market.


Being able to view the transactions is more useful, but your suggestions also work if providing we have an ounce of skill.


The market is not almost random, and is not almost 50-50.


It's the ultimate system for you, that you have so far discovered.

Yes, but you got the idea, right. What I mean is that I've sometimes seen people telling they've found a good system just because they backtested some trades.

Sorry, I'll be far more specific next time.



Okay, I'll be more specific, just like above.

I strongly believe that almost nothing in this universe is random, and I say almost because there could be something that it's really random and I've just not known about it yet. If you know the exact variables and their values, you can always calculate what's going to happen.

The same applies to the market. You could actually predict every movement the market does, but it just has TOO many variables that you simply can't put them all together into a formula.

This is where its randomness come from.

As I said, I'll be far more specific. I said that it's ALMOST random. I don't know how to quantify randomness, but I thought it would be clear enough.

The almost randomness I'm speaking about is that we could experiment a rally of 2000 pips any moment. It could happen. The market could stay still for 13 minutes just right now. Who knows?

If the market wasn't that random, more than 5% of the traders would make money with the market. And I say that that 5% of the traders that actually make money, are the ones who actually understand that non-random part of the market.



Sorry, I didn't get you on this part.


I explained the thing about the randomness above.

Now, about the 50-50. Then what's the ratio? You could say "It depends on a lot of variables to determine the ratio", and then I'd say "then, the most prudent thing to do is to just take the only well known variable we have: the market only rises or only falls", then the ratio would be 50-50.

You could also say "it depends on how's the market acting, if it's going down, the most secure thing to do is to sell". But how the hell are you going to know what the market is going to do exactly after you place your trade? Maybe you see that the market is going down, so you place a sell order. You put a 50 TP and a 50 SL. The market could move up 60 points and then fall for 300 points. You were right, but you couldn't predict that the market was going to get up 60 points first.

The RANDOM part in ALMOST RANDOM means that it could happen whatever in the market at any moment. The ALMOST part means that we can be pretty sure that the market isn't going to rally for one million pips for the next 2 seconds.


Oh my God, are you mad or something? This is only like, when someone says "man, this is the BEST metal band EVER" and you say "ya, it's the best for YOU." That just doesn't sound polite.

I thought it would be clear that... well, obviously it isn't the ultimate system. If it was, everyone would be thanking me and I would get the economy nobel prize.

Also, that "that you have so far discovered" part really made me feel bad. It looks like if you were telling me "ya, you've been trading for 5 minutes, and that's the best you have got so far, good try though." Maybe you'll say something like "I didn't mean that, don't take it personal," but I just don't expect someone with the word "humble" in his signature to say something like that.

I also expect you to realize that it's obvious that everything being posted on this thread will be relative to each person, and not absolute. Every person has it's own trading style, some people like to scalp, some other people like to use mysticism to trade, I don't know. And all these systems will be felt like the ultimate system for them. We're just going to get excited about what we have learned and worked, and try to convince other people because we want to HELP OTHER PEOPLE.

I just thought about a little experiment to explain my concept of market randomness. I'll post a thread about this after this post.

Imagine the following:

If I toss a coin and it's heads, I buy. If it's tails, I sell. I make 1 trade each day following this rule, with 10 TP and 10 SL. I never watch a chart.

How many pips would I make at the end of the year? Who knows right? But let's think that I lost X amount of pips.

"Booo!!! See? You lost money!!! It's not 50-50"... but... what would have happened, if another person did the exact same trade, but in opposition to mine. If I bought, he sold; if I sold, he bought. He would have won right?

Who will win in the long run? WHO KNOWS? This smells like random to me.

Now... here's the interesting part about this "randomness"... the "almost" part in ALMOST RANDOMNESS... If it was the EUR/USD, I'd say the one who took the most buy trades would have a better probability of winning. If it was the USD/JPY, I'd say the one who took the most sell trades would have a better probability of winning. Why? Because the EUR/USD is known for it's uptrend strenght, but you only know that because of a fundamentalist fact. In the case of the USD/JPY, this is because the yen is always getting lower and lower cause Japan wants a cheap currency... hmm... actually, invert the thing with the USD/JPY, for a moment I thought it was JPY/USD instead of USD/JPY.

That's my concept of market randomness. There's a random part, and a predictable part.

Do I believe in the perfect system? One with a 100% win rate, or that otherwise generates a consistent, guaranteed-for-a-lifetime profit, with absolutely zero risk? Of course not.

Is it possible to trade profitably? If there's at least one trader who's achieving it, then of course it's possible.

In the trading scenario even the other person would lose money, both of two would lose.

There can be a near 0 sum (slightly negative for costs like spread and swap) only if the traders in the example always use the same lotsize and have a balance big enough to afford the up and down of trading.

But in reality, the more your accuont grow, the more the lotsize you use accordingly.

So, after some wins and balance growth a trader would higher the lotsize, or even more important after x losses the lotsize would be decreased.

Now, trader a did lost 30pips till now, and trader b did make 30pips.

The thing is, that if you loose 10% of the acct you'll trade littler lotsizes (or it will be even worst), and to recover the 10% you should made much more pips than you losed to lose the 10%.

Trader b is much better, and he now trade bigger lotsizes.

Then trader a start making 30pips, and trader b loose 30pips.

At this point trader b will lose all the previous profit and bring the account on a loss (less balance before the start), and trader a would have make profit from that 30pips but not enough to let the account come back on green.

Result: both in red

At the end, all two will finish the money, trading a 50:50 probability market.

Even with 50:50 nobody profit.

I believe that anyone can learn and trade forex successfully since this is just like any business , I also believe that anyone can create a very high accuracy & profitable system , but "Perfect Trading System" is just words that novice traders like , remember that 'Nothing is perfect' , Forex is art about how to losing , not about winning as much as possible . If you don't want to give away your money on any trade , so don't think that market will give you any good opportunity

Regards

I don't think that there is a perfect system. You can find a bad system, a good system or even an excellent system, but there will never be a PERFECT one. The reason is that markets are changing all the time, and a system that worked 5 years ago, doesn't necessary works today. I think that trying to find a perfect system is a complete waste of time. For me, any system that makes my bank account grow constantly is perfect. Keep that in mind.

I have to admit I started trading with the idea of getting rich quick and I looked for the grail, the perfect combination. It never happened, but this desire to find it kept pushing me further each time. Falling so many times that I started to see things that worked and didn't.
You must have the desire in wanting to learn, just like the first time you ride a bike you can't tell me you didn't fall more than once... but you got better, right? You wanted to prove everyone including yourself that you could also perform at their level or better, not to mention how much fun it would be thereafter.

We have been brought up in society that if something works, it must work all the time and we automatically relate it to success. This is were trading is different as most already know nothing is 100% in trading.
My definition of a perfect system is self-study. Knowing your limits and why you are into this career. Profitability has nothing to do with a 100% win but with what you want out of the market and how you visualize yourself.

There is plenty of talk about technicals and fundamentals, but have you noticed how little hype about self-analysis there is?

S.

How little? There is so much talk about self-analysis and developing psychology here on ff, that it makes me puke.

did you make an analysis on why you feel this way? remember the holy grail is YOU. blah blah blah. herp derp derp. psychology... koolaid... weeeeeee.

it's pretty obvious that the ones that spew the self-help mantra's without backing it up with something of substance simply have nothing to add. mouth-breathing at it's finest.

self-help is fine. self-delusion and reinforcing ignorance is not.

I don't believe in Holy Grail. I believe in profitable trading systems.