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Thinking Outside the Box!?!

  • #41
  • Nov 30, 2010 1:00am Nov 30, 2010 1:00am
please do not discuss zero-sum until you understand it, and have at least 5 vouches. until then, DO NOT SPEAK ABOUT IT PLEASE!!!
Congratulations ScalaFX for coming out of the closet!
  • #42
  • Nov 30, 2010 1:17am Nov 30, 2010 1:17am
Quoting Darkstar
Futures are easy to understand as zero sum because every contract has both a long and short position holder, but that is by no means a requirement for a market to be zero sum. On a price basis ALL financial markets are zero sum, including stocks, houses, bonds, currencies, etc. You can see it when you examine how profits and losses are distributed across time.

The parts that makes the stock and bond markets positive sum are the dividend and interest coupon payments. Both draw money from non-market participants and distribute it to the owners...
DS, clearly my previous post is not relevant to you... but i would like to suggest the thought regarding non-zero sum situation in stocks etc due to dividend wealth created from participants outside the market IS STILL zero-sum.

as i have always said (to myself while slapping my forehead reading others argue the zero sum argument, and to others direct) the whole zero-sum issue is pointless and IS ENTIRELY about perspective which is generally NEVER discussed or agreed upon before the argument starts. the perspective you have put on stocks being non-zero sum due to wealth from dividends created by non-market participants has the perspective that the boundary of the zero / non-zero sum argument stops as soon as you exit the arena of direct market participants.

this, is true. and what you have said is correct taking the perspective given and the boundary imposed.

however, unless i am mistaken (which is likely) money was never created out of thin air and then labeled a dividend and then distributed to stock holders creating a positive sum environment. it was real wealth gained outside of the market arena that was then transferred into the market arena in the form of a dividend. the companies paying dividends didn't just create the money and give it to stock holders. it came from somewhere.

in the perspective of only the market arena, yes, it would appear to be positive sum as wealth enters into the market arena boundary. on a (is the word?) holistic level it's all even and square. the money came from somewhere, it just happened to be outside of the prying eyes of market participants.

it all comes down to perspective and the boundaries we impose on the argument. that's why newbies should never utter the words zero-sum, ever. they never define the boundaries of their perspective. some argue relative to their personal account balance, while the opposite are simultaneously arguing a different argument entirely and have the perspective of market participants as a whole. 2 different fights being fought as though they are the same fight... oh the humanity. they don't even realize they aren't arguing about the same topic.

please someone school me where i am wrong as i am truly not that knowledgeable on the dividend process and may have this ass backwards.
Congratulations ScalaFX for coming out of the closet!
  • #43
  • Nov 30, 2010 7:50am Nov 30, 2010 7:50am
Quoting nubcake
please do not discuss zero-sum until you understand it, and have at least 5 vouches. until then, DO NOT SPEAK ABOUT IT PLEASE!!!

I didn't bring up zero sum.. and I said lets stop talking about it since it is started to be non related to thinking out of the box.. and now 4 post later its getting crazy

if you don't know what zero sum is then
http://en.wikipedia.org/wiki/Zero-sum

Even if forex is or is not zero sum.. there are many zero sum like attributions in it thats the important thing.. ok can we please be done debating

If theres one thing I know about zero sum is that everytime someone brings it up people argue and never agree on the same thing lol

ALTThau..

great point.. madoff is definitely outside the box

I do agree we are all inside the box.. Its definitely hard to find what I was looking for on my initial post.. I guess I was looking for a better way to view the market completely different than the norm, but thats going to be hard to find

:-p
  • #44
  • Nov 30, 2010 8:31am Nov 30, 2010 8:31am
Here might be something along the edge of the box.. Developing a very high probability method that can capture a 'lower' amount of pips on a consistant basis since pip value can be determined upon order size. ie; a 10pip move could be $10 or $1000.

Idk, something I've been wondering since it seems most of us with low initial investment capital are looking to capture large pip moves via greed thus holding on and not taking profit or hoping losers become winners bc low dollar profits on small moves. A con is it won't let winners ride though. Maybe a hybrid form of this?
  • #45
  • Edited 10:13am Nov 30, 2010 8:39am | Edited 10:13am
Quoting EmeraldEyes
Here might be something along the edge of the box.. Developing a very high probability method that can capture a 'lower' amount of pips on a consistant basis since pip value can be determined upon order size. ie; a 10pip move could be $10 or $1000.

Idk, something I've been wondering since it seems most of us with low initial investment capital are looking to capture large pip moves via greed thus holding on and not taking profit or hoping losers become winners bc low dollar profits on small moves. A con is it won't let winners ride though....
I brought up a similar post in the beginning that was claimed not to be outside the box.. but I agree with you and feel its outside thinking or very edgish..

because the majority in my opinion do for some reason not comprehend that pip value is more important than pips.. you read a post where someone is talking about making 10 pips and people are like.. well I'd rather get 100 pips.. or a 1000 pips a day lol

Basically from what I understand scalping is looking for consistent small wins and it seems to be the underdog as far as people who make a living scalping..

but I definitely am starting to favor 80-90% probability even if my risk to reward is not the best.. and a risk to reward of 1:1 is great with 80-90%

  • #46
  • Nov 30, 2010 9:38am Nov 30, 2010 9:38am
newyear my previous post was not directed at you, however, this one most-certainly is.

your thinking and emeraldeyes' is absolutely directly in the middle of the box. you can't get more inside the box unless there was another box around the box you are currently inside

1. you more or less re-iterated my views on zero-sum.

2.
Quote
because the majority in my opinion do for some reason not comprehend that pip value is more important than pips.. you read a post where someone is talking about making 10 pips and people are like.. well I'd rather get 100 pips.. or a 1000 pips a day lol

i'm not trying to be rude, but you come across as so very green to trading. if, and only if, you can always absolutely without a doubt grab yourself x number of pips then you are rich... if not today then tomorrow! you can leverage any pip value any way you like.

the one and only reason why pips matters above all is that it is a 1 : 1 direct measure of trading performance. if you measure the peaks to valleys and get a result of 1000 pips total movement (whether this is in 1 straight trend line, trend and sideways, or all sideways) then consider that someone who traded that session of the market and gained 1000 pips caught EVERY SINGLE PIECE of available market movement, and is therefore Nostradamus of trading! consider another trader who gained 10 pips over that very same market session... probably just a fluke that they gained anything at all, right?

so which would you back to be a successful trader? which would you put money on? which would you leverage? is it likely that someone that can capture major market movement is suddenly going to start losing pips, or is it more-likely that someone who gained little of available market movement is going to start losing pips?

Quote
but I definitely am starting to favor 80-90% probability even if my risk to reward is not the best.. and a risk to reward of 1:1 is great with 80-90%

a 1 : 1 rr with 80 to 90 percent hit? most dream of ever coming close. if you find this then unless you are completely reckless then you are set for life.

r:r and win% are interlinked. if you have it skewed in your favor then you are successful. at that rate you won't settle for being a 10 pip out of 1000 movement taker.
Congratulations ScalaFX for coming out of the closet!
  • #47
  • Nov 30, 2010 10:00am Nov 30, 2010 10:00am
Quoting nubcake
newyear my previous post was not directed at you, however, this one most-certainly is.

your thinking and emeraldeyes' is absolutely directly in the middle of the box....
What does it mean to be green to trading?

I don't think you understood my approach.. I am saying.. if I knew of a setup that had a 80-90% chance of moving 10 pips in my favor with 1:1 then I would rather trade that setup over a setup with 50-50% chance of moving in my favor for 1000 pips with 1:1

and my pip examples are clearly for example.. in a real situation it would be a measure of something such as the average range to project take profit and stop loss.

it sounds like your arguing back to what I said about studies of the coin toss strategy where a trader toss a coin.. took that direction with 1:2 risk management and ended up slightly in profit in the long run

and I never said I was outside the box.. actually I stated pretty clearly in several posts I am pretty much on the edge of the box and having a hard time getting outside

and your not being rude.. you are very aggressive, a few posts I felt you were on the edge of rude.. but overall I think your just being honest which is great

  • #48
  • Nov 30, 2010 10:22am Nov 30, 2010 10:22am
Quoting newyear498
What does it mean to be green to trading?

I don't think you understood my approach.. I am saying.. if I knew of a setup that had a 80-90% chance of moving 10 pips in my favor with 1:1 then I would rather trade that setup over a setup with 50-50% chance of moving in my favor for 1000 pips with 1:1

and my pip examples are clearly for example.. in a real situation it would be a measure of something such as the average range to project take profit and stop loss.

it sounds like your arguing back to what I said about studies of the coin toss strategy...
well above-all my eyes are due for testing so maybe i'm just reading things wrong.

to be green at something is to be new at it.

again, 80 to 90 percent at 1 : 1 would have to please absolutely everyone. only a fool would take a 1 to 1 using 1000 pips as the range to either outcome. what i was trying to illustrate is in reference to where you said about people not understanding that pips don't matter. pips absolutely matter.

let's take your 80 to 90 percent at 1 : 1 over 10 pips distance to either target. yes, 10 pips is only 10 pips, but when applied to 80 to 90 percent and washed, rinsed, and repeated a few times you will be so far ahead of 10 pips is mind-blowing.

i guess another way to put it is that you were comparing apples to oranges, and i didn't realise it and perhaps you didn't either. you state 10 pips can be better than 1000 pips. in terms of overall pips gained and then applying whatever amount of leverage to that then this is destined to implode and drain an account, whereas an overall gain of 1000 pips is a much healthier report on a traders ability, which when leveraged in any shape or form is bound to beat gates and trump someday soon in terms of net wealth. what you have now clarified is that you meant that an individual setup with a high chance of succeeding only needs to be targeting a small number of pips and targeting some large number is simply unnecessary, and this is true and you are correct.

they way i read it is different to how i now understand what you meant to say. it's dangerous to let some things just slide and when i read what you wrote it was just plain incorrect and dangerously misleading. your clarification, however, is on the money and what we ALL want (well, at least i want it).

it's along the same line of debate about timeframes. i will not have much faith in a trader trading dailies or hourlies, and will have much much more confidence in someone trading the 1min or 5min. it takes far too long to come to any conclusion about a longterm trader than it does someone who has already done 10 trades since i started typing this post. i will not have much faith in a trader who ends a day up 10 pips if there is another trader who in the same timeframe walked away with 50. but then on the flipside it also depends on amount of trades. r/r and win % are interlinked, as is the measure of performance with pips gained over trade frequency.

summation : a golfer who has never lost a round of golf is not the best golfer in the universe if they have only every hit the ball once and fluked a hole-in-one.

it seems every time you think you are getting outside the box you find yourself inside another. boxes suck.

p.s. unless i'm talking about someone's mum for example then chances are i'm not intending to be rude, just blunt.
Congratulations ScalaFX for coming out of the closet!
  • #49
  • Nov 30, 2010 10:35am Nov 30, 2010 10:35am
Well its good to know there is much needed room for improvement and the best is yet to come. I think its called being 'green' right?

It seems as though an idividual's perception of market movement (volitility?) varies greatly from one another. When demo trading with focus on r:r and win%, I've slowly been moving away from the intraday TFs to show higher probability setups but yield fewer opportunities. My last post was a bit too simplistic. I kinda ment that with a well funded account I can meet my weekly goal with a less than average trade outcome. Of course never limit winners to #pips. Other way around.

Please correct me if I'm making a mistake in that methodology.
  • #50
  • Nov 30, 2010 10:39am Nov 30, 2010 10:39am
Ahh I see what you were saying.. and yeah I had a feeling there was some mis communication..

anyways I posted a small box of what I refer to.. its on post 1 now.. its not perfect but just kinda what I mean by box..

pretty much my initial thinking is how I hear many times that the majority of individual traders are losing their money or breaking even or little gains..

so I figure.. lets look at the box to see what the majority of traders are doing then.. because if the majority are losing money they must be doing something similar

the box shows what the majority of traders I think.. would all agree are the best methods to trade.. so while nothing in the box is wrong.. what in the box could be the problem why many fail to make a living trading.. and if we can get out the box we might be onto something that makes money off the majority who lose


thats my theory.. its not the best theory but its got some weight I think. Actually finding the out of the box idea that works is a whole new story and we would be very lucky to get it in this thread I imagine.. but would love to hear your ideas please share if any
  • #51
  • Edited 11:39am Nov 30, 2010 11:00am | Edited 11:39am
Quoting nubcake
it all comes down to perspective and the boundaries we impose on the argument. that's why newbies should never utter the words zero-sum, ever. they never define the boundaries of their perspective. some argue relative to their personal account balance, while the opposite are simultaneously arguing a different argument entirely and have the perspective of market participants as a whole. 2 different fights being fought as though they are the same fight... oh the humanity. they don't even realize they aren't arguing about the same topic.
Quoting nubcake
...
No, I think you nailed it brother. I agree on all counts.

The reason I wanted to weigh in on the subject wasn't to start a debate about the zero sum aspect of markets. Clearly, they are zero sum, but that isn't the point. My point was to get people thinking about the implications for the zero sum nature in their trading decisions.

I've been writing extensively on the subject of outside the box thinking lately and one of the key premises of my writing is that the zero sum nature of markets clearly has an impact on price and as such, can be traded.

See the conventional wisdom is that markets are an efficient mechanism upon which price is discovered. The EMH clearly defines all market participants as acting in the capacity of value arbitragers, eating up any mispricing relative to the true fundamental value of a security. Under these premises, achieving long term profits is a function of either determining the most accurate fundamental value, or playing the probability distribution of various relative price values based on historic activity (the fundy and quant strategies for profitability).

The problem with the EMH, as I have argued for some time, is that it has no basis in reality. One need look no further then the systems sub-forum of this very website to see that a more then insignificant percentage of the market makes trading decisions on factors unrelated to fundamental value.

Now that may be enough to convince many of you, but it is by no means the only evidence supporting the proposition. If you dig deeper into the Microstructure price discovery process (a discussion of which is outside the scope of this post) you can see that the current level of price is a function of net positioning relative to the intrinsic value of a security (in the case of stocks the intrinsic value = 0. In forex the intrinsic value = 1 or parity.).

In other words, the current value of a security is directly equivalent to the net value of all invested capital in said security (in the stock market this is known as the market cap. In currencies, its a great deal harder to understand, but the premise is identical.).

This is truly what it means for a market to be zero sum.

How do we capitalize on that information? By realizing that price change is a function of marginal participants entering and leaving the market. For price to rise, more participants must enter the market, for it to fall, they must leave. All you need to do to earn a profit is answer the question: What will entice other participants to enter or leave the market?

Now I don't mean to imply that answering that question is easy. It's not. Just explaining HOW to do it has taken me something on the order of 40 pages, but it's a game that the average retail trader can win. They can win because it strips away the advantages large participants have in an EMH centric view of profitability. They no longer need to have the best data, or crazy high math skills to compete. They simply need to understand other traders and what drives their beliefs about the future of market prices.

And this is what I view as "outside the box thinking". The game continues to play on as most people understand it, but the metagame thinker sees things in a unique way. That unique view or understanding of the game allows him to anticipate the other players moves and checkmate them in the endgame for a profit.

Is it the only way? Not at all. I personally have several other metagame views of the market that have lead me to profitable trading methods and I'm sure there are many others out there to be found. The trick is in changing the mindset you use to view the market. To step away from the commonly held beliefs and dig into what truly shapes price activity on a day to day basis.

Luck be with you.
  • #52
  • Nov 30, 2010 1:21pm Nov 30, 2010 1:21pm
Great post DS. I am looking forward to much more about this in your work.

OP, I just got done reading "Fooled by Randomness" by Nassim Taleb. There's a pdf online of the 1st edition. Idk if its backed on here but it really gives a different view towards one of the edges.
  • #53
  • Nov 30, 2010 1:48pm Nov 30, 2010 1:48pm
Darkstar,

Your posts make it clear to me that you are one of the few here who have an advanced understanding of this game. - I see a high probability that you are consistently profitable.

You said something I find extremely accurate:

"The trick is in changing the mindset you use to view the market. To step away from the commonly held beliefs and dig into what truly shapes price activity on a day to day basis."

Speaking from pure experience, anything that becomes "common belief" in this business will most likely be unreliable. <- All I can say is that using this information (and what it implies) properly is a major key to beating the markets. By "using" I don't just mean go make a strategy/system out of it, but change your entire mindset, your thinking and market interpretation process. But like Darkstar said, it isn't as easy as it may sound. Some prerequisites include:

1) A fair amount of knowledge of how the market works and what happens behind the scenes that results into those nice and strong price movements/imbalances in supply & demand that we see, usually after the fact.
2) The ability to isolate the most probable and significant of such underlying activities (and their subsequent price movements), based on such knowledge and mindset.
3) The ability to anticipate (experience and intuition does play a role here) and capitalize on such events.

And yes, this is still one way to look at it, albeit a good one.

Most, if not all, will tell you to "follow" in order to become profitable. I'll tell you don't follow: Don't be an "after the fact" trader like most are. Do whatever you can to build that advanced mindset allowing you to get on the train before it starts moving or seconds after, instead of chasing it once it's running at full speed.
  • #54
  • Nov 30, 2010 1:55pm Nov 30, 2010 1:55pm
Quoting Darkstar


Is it the only way? Not at all. I personally have several other metagame views of the market that have lead me to profitable trading methods and I'm sure there are many others out there to be found. The trick is in changing the mindset you use to view the market. To step away from the commonly held beliefs and dig into what truly shapes price activity on a day to day basis.

Luck be with you.
That's what I call social analysis, analysis of what other people do in the market. I barely look at the news and have no indicators on my chart... since the money in the market is in majority of speculative nature, it makes sense to look at other player's actions.
“Nothing great in the world has ever been accomplished without passion.”
  • #55
  • Nov 30, 2010 2:22pm Nov 30, 2010 2:22pm
Quoting Darkstar


No, I think you nailed it brother. I agree on all counts.

The reason I wanted to weigh in on the subject wasn't to start a debate about the zero sum aspect of markets. Clearly, they are zero sum, but that isn't the point. My point was to get people thinking about the implications for the zero sum nature in their trading decisions.

[color=black][font=Verdana]I've been writing extensively on the subject of outside...
Great... I will have to do more research on "Metagaming" totally new word for me thanks to you..

arent you writing a book currently? Sound like you have some great insight into things..

anyways you totally summed up what out of the box thinking should be

Thanks!
  • #56
  • Nov 30, 2010 4:28pm Nov 30, 2010 4:28pm
Quoting newyear498
Great... I will have to do more research on "Metagaming" totally new word for me thanks to you..

arent you writing a book currently? Sound like you have some great insight into things..
Yeah, the book I'm writing is basically an expanded treatise on the subject of metagaming and out of the box thinking in trading... which is why I have so much to say on the subject.

Whether it winds up being insightful or not remains to be seen, but I do hold out hope that I'm on the right track.
  • #57
  • Nov 30, 2010 4:30pm Nov 30, 2010 4:30pm
Quoting Darkstar
Yeah, the book I'm writing is basically an expanded treatise on the subject of metagaming and out of the box thinking in trading... which is why I have so much to say on the subject.

Whether it winds up being insightful or not remains to be seen, but I do hold out hope that I'm on the right track.
How soon is almost
  • #58
  • Nov 30, 2010 4:48pm Nov 30, 2010 4:48pm
Quoting Nverstop
How soon is almost
Alright, I don't want this to turn into a discussion about the book. The thread subject it out of the box trading ideas and I think we should stick to that. Feel free to PM me if you want to discuss something else.
  • #59
  • Nov 30, 2010 7:42pm Nov 30, 2010 7:42pm
I am copying my post pretty much from another thread.. its some good out of the box stuff... well I actually think its finally out of the box.. I guess some might argue slightly on the edge but whatever just let me know what you think about the concept ok.. lol


"You mentioned that price has 95% chance it will close above or below its opening price..

Another observation I have made personally is the 80% of the time price penetrates the high or low of its previous candle it will not penetrate the other way.. for example if price breaks the high of a previous candle theres an 80% chance it wont break the previous candles low and reverse..

look at any chart.. so maybe it would be common since when a candle breaks a high or low.. put an order on around the open of the candle and if you catch that pull back you got a 80-90% chance for a small profit?

Hmmmmmmmmm"
  • #60
  • Nov 30, 2010 7:52pm Nov 30, 2010 7:52pm
Quoting privatefr
In Wall Street Warriors series, session I, episode 2 or 3, a very serious guy talks about a trading system based in the patterns of African elephants migration corridors. Anyone knows something more about this?...
His name is Benoit Mandelbrot. He is the father of Fractal Geometry. I must say that his discovery did help me to jump outside the box.

Quoting newyear498
I am 99% sure the reference you made to sea shells has to do with fractles.. and yes fractles are being applied to the market and in fact work pretty damn well if you look into Bill Williams books about using fractles.. and that guys a millionaire investor
IMHO the fractal concept in BW books is not a real fractal and completely misleading. To me he just packaged his book with Chaos Theory and Fractal Geometry. In fact I dont think any parts of his trading system are based on the new science.
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