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  • #10,041
  • Jan 7, 2011 6:22am Jan 7, 2011 6:22am
Quoting Custos
well, a general suggestion. If somebody tries to backtest manually. It is better to use a forward test. Like in forextester2, where you can reply the real market. Then you have unbiased real statistics.
Custos, what is it and how is it possible to forward test real market?
  • #10,042
  • Jan 7, 2011 6:25am Jan 7, 2011 6:25am
Quoting shiko
Custos, what is it and how is it possible to forward test real market?
it is a program, looks much like metatrader. You have 1 minute data on most pairs from 2001 and can specify when the program should start. From there you can then determine your setups and click on play so that the market moves forward. You can speed up the market. This helps especially if you wanna trade longer time-frames, but don't wanna wait a day for the next candle to appear. And you can then enter orders and see your equity grow. Furthermore, you can then export your trade statistics and make some analyses with it yourself.
Just search it on google: forextester 2. I think I am not allowed to post links here.
  • #10,043
  • Jan 7, 2011 6:26am Jan 7, 2011 6:26am
Quoting shiko
I actually started from 1min charts. It was very stressful for me and I was slowly going up time frame ladder. I can say I can do pretty well on lower time frame as long as I am patient and control losses, but I do not want to be glued to screen all the time, plus big guys are obviously reside on higher time frames, so, i am trying to develop myself as a higher time frame trader. actually watching price action on lower time frames help me now a lot because I have a feeling for where price is going and I add set ups posted here.
The edge is very...
ye i see where your coming from.

I can trade the higher timeframes. In the end price is price. Time is relative but price is the same on a different scale. Fractals if you will.

Trading higher timeframes helped me personally with patience to stay in the move.

But personally i just like the lower timeframes and I have the discipline to pick the best setups no matter what.

Many people think that because you trade 1m/5m or watever that one is trigger happy and here lies the difference between consistency and total failure IMHO.

I can sit for 4 hours and not trade simply because price isnt acting like i want it too. I prey on the lil lambs lol!

Either way one must do what makes them comfortable.

Possibly in the future i will go back to 4h but for now i trade 5m's mostly. NOT scalping. But i do keep my eyes on key levels on the 4h/d as well.

There is no right or wrong way to trading.

There is only beliefs about trading. Be them real or not.
  • #10,044
  • Jan 7, 2011 8:38am Jan 7, 2011 8:38am
Quoting Pipalicious
Here lies the key to consistency.

Statistics coupled with a thorough plan of action.

For entries, management, and exits.

An exercise i do regularly is to write down as my trade develops both how i feel and what my plan says to do.

IF...A happens THEN i will do x

IF...B happens THEN i will do z

No remorse, no emotion, no indecision. Rule based trading, be it with SOME discretion or mechanical.

I consider myself to be very rule based around my entries and exits. I can define EXACTLY what i did and if i did it wrong.

As long as one can define...
yeah, actually what we call discretion are just mechanical trading rules which we were not able to define yet. Once we can define them, it become mechanical trading, instead of discretionary.
  • #10,045
  • Jan 7, 2011 9:45am Jan 7, 2011 9:45am
Quoting mayorowo
Happy New yearrrrrrrrrrrrr!!!!!!!!!!!!!!....

Guys,
This is a setup that might work out.... head and shoulder setup with a pin bar formation.
Whats up opinioun guys?......

Thanks

shorted EUR/AUD at 1.3140. up by 133 pips. I trade with the trend.

Quoting shiko
at the moment I am looking to short Eur/Aud. looks perfect kind for break out along the trend set up. especially on daily.

Attachment
Did you take it?

Quoting Custos
All I see is a massive downtrend sind early 2009. Nobody could make me trade against that trend.
I couldnt agree more.;
  • #10,046
  • Edited 10:00am Jan 7, 2011 9:54am | Edited 10:00am
Quoting Custos
yeah, actually what we call discretion are just mechanical trading rules which we were not able to define yet. Once we can define them, it become mechanical trading, instead of discretionary.
Yep as time goes by the more I realize this.

I remember last year on webinar with Sam Seiden. I was still too "green" to get it, now i do.

I asked Sam:

"How do you determine when you have a complete trading method"?

His answer:

When you have no more questions.

Simple and silly really, but I just didnt get it back then lol. Now i do

OOPs!

Thats what i was going to say lol. I think in a way discretion is a way of saying "my rules are so ingrained into my subconscious" that by simple <gut feeling> i know when something is right or wrong".

When in reality, 100% discretional trading, IMHO, is a quick ride to the poor house. Too much uncertainty, too many variables. Not trackable and highly dangerous. Of course this is just my opinion. But the more I think of it, the more it makes sense to me.
  • #10,047
  • Jan 7, 2011 10:00am Jan 7, 2011 10:00am
Quoting shiko
http://img801.imageshack.us/img801/4921/january.png

Uploaded with ImageShack.us


should have been up on live this week as well, but closed short Aud/Usd at -20 pips after it almost hit my stop. I got a feeling that it was going to hit my stop so decided to cut loss. It actually moved into slight profit on demo as I did not close it on demo. flat week on live. had eur/aud smaller per pip position cause stop was bigger. I risk 1% on live for...

I was hoping to go long AUD/USD at 0.9900(danUk 2009 style), unfortunately, it just bounces off 0.9906 and up 0.9991. That trade is neutralized.
  • #10,048
  • Jan 7, 2011 10:03am Jan 7, 2011 10:03am
Quoting shiko
also possible NM set up on 1H Gbp/Jpy

Attachment
I am planning on shorting gbp/jpy at 129.84 using as SL /trailing stop the ADR of 109. (i want to universalize and apply the danuk 2009 style).
  • #10,049
  • Jan 7, 2011 10:04am Jan 7, 2011 10:04am
Quoting shiko
yes, one of the first books. It is on my PC actually along with Reminiscences of stock operator, Caleb's and few others/.
Reminiscence is an excellent book. Market wizards too.
  • #10,050
  • Jan 7, 2011 10:31am Jan 7, 2011 10:31am
Quoting shiko
Custos, regarding back testing. I started since January 2009, but that period looks absolutelly unreal. that situation is unlike any other. I see 4H candles on E/U bigger than the whole day now. may be bactesting should concentrate on more regular years price action? not 2008-2009 but later or earlier
I think backtesting should encompass the bad and good, the ugly and the beautiful. Why? because that is trading: you do not know what you will encounter next. All those people that based their trading models on years unlike 2008 or 2009, may be wiped out when the fall of 2008 came along.

There was the story of this british trader, him and his team developed a system that they bactested to the heavens, and started live trading...they converted 10,000 pounds sterling to 100,000 pound sterlings in 10 months just like expected from their back tests. Then, in the fall of 2007, an anormaly happened in GBP/USD (i think in december), and the account was wiped down to 32,000. They had to pull the plug, otherwise, the whole money would have been gone. completely.

He called his sytem: the holy grail method. It seems like the holy grail...until that december. When in three weeks of december, using weekly time frame, gbp/usd exhibited 3 candle patterns (each week = candle pattern, i have forgotten which candle pattern it was). Anyways, these candle patterns, if exhibited back to back as week1, week2, week3, destroys their system. This was something they couldnt have foreseen. Because all the way back to the 80s(when they backtested their data, these candle patterns has never shown themselves in this sequence on gbp/usd weekly time frame before. .

The thing is this: if he had started 3 years earlier he would have made 10 million pounds. It was just pure bad luck that the team started in 2006.

They kept an online journal about their progress. I found it to be a fascinating read.

Lesson:
#1.Backtest the good and the bad. but realize that backtesting looks backwards.
#2. Robot trading will eventually fail you.
#3. It is good to be good, but it is better to be lucky.

YOU CAN READ ALL ABOUT IT HERE:

http://grailtrading.blogspot.com/200...ent-wrong.html

Sad story.
  • #10,051
  • Jan 7, 2011 10:39am Jan 7, 2011 10:39am
guys, you heard that geithner said that the US is at the brink of bankruptcy?


If that is true then the whole world will be in deep shit soon.
  • #10,052
  • Jan 7, 2011 10:51am Jan 7, 2011 10:51am
Quoting Custos
guys, you heard that geithner said that the US is at the brink of bankruptcy?


If that is true then the whole world will be in deep shit soon.
well, at least the dollar is good for something:
http://www.historicvienna.com/images...ning-money.jpg
  • #10,053
  • Jan 7, 2011 10:54am Jan 7, 2011 10:54am
Quoting dddd
I think backtesting should encompass the bad and good, the ugly and the beautiful. Why? because that is trading: you do not know what you will encounter next. All those people that based their trading models on years unlike 2008 or 2009, may be wiped out when the fall of 2008 came along.

There was the story of this british trader, him and his team developed a system that they bactested to the heavens, and started live trading...they converted 10,000 pounds sterling to 100,000 pound sterlings in 10 months just like expected from their back tests....
Interesting, I read their last post on the site. What strikes me totally is that they only tested it on one instrument.
I mean, one instrument is far from enough. Okay they had several years of data, but if one wants to create a really robust strategy, you need several instruments. I typically use up to 50 instruments from all kinds of markets and test it at least on 10 years of data. If 90% of them perform, I use the system, otherwise it gets dropped.
I think that would have saved them, if they just included more instruments. Cause then you can be almost sure that you got any market situation covered.
  • #10,054
  • Jan 7, 2011 10:57am Jan 7, 2011 10:57am
Quoting Custos
Interesting, I read their last post on the site. What strikes me totally is that they only tested it on one instrument.
I mean, one instrument is far from enough. Okay they had several years of data, but if one wants to create a really robust strategy, you need several instruments. I typically use up to 50 instruments from all kinds of markets and test it at least on 10 years of data. If 90% of them perform, I use the system, otherwise it gets dropped.
I think that would have saved them, if they just included more instruments. Cause then you...
You are absolutely right. Make that lesson #4.

Here is a question: I have this sneaky suspicion that no system can have positive expectancy when tried in all markets. I think some method are better with certain market than others. That the more markets and years you tried your system on, the more likely the aggregate expectancy will approach zero. I think RANDOM WALK hypothesis have something to say about this too.
http://en.wikipedia.org/wiki/Random_walk_hypothesis

No. I dont think the market is efficient. Gosh no! But i think the more data you have, the more the anomalies smoothes out, as such, the distribution becauses more even, making outcome to be NIL.

We are in a tough business.
  • #10,055
  • Jan 7, 2011 11:10am Jan 7, 2011 11:10am
Quoting dddd
You are absolutely right. Make that lesson #4.

Here is a question: I have this sneaky suspicion that no system can have positive expectancy when tried in all markets. I think some method are better with certain market than others. That the more markets and years you tried your system on, the more likely the aggregate expectancy will approach zero. I think RANDOM WALK hypothesis have something to say about this too.
http://en.wikipedia.org/wiki/Random_walk_hypothesis

t
Interesting hypothesis. I think anyways 99.9% of systems are doomed to failure. But is there no system that has positive expectancy no matter which instrument and experiencing various market conditions?
I think there is, but the expectancy is definitely lower than most of us wish for.
What I feel all this shows, is that a normal trader trying to develop "discretionary" skills, has absolutely no chance of beating the odds, if he doesn't backtest the strat on years of data and multiple instruments from multiple markets.
Let's say I believe in behavioral finance. I don't think investors make rational decisions usually. Due to that there are inefficiencies in the market.

Also, what would happen if one diversifies not only instruments but also the strategies. Would the portfolio expectancy be higher than 0? Or would it still become negative?
  • #10,056
  • Jan 7, 2011 11:23am Jan 7, 2011 11:23am
Quoting Custos
Interesting hypothesis. I think anyways 99.9% of systems are doomed to failure. But is there no system that has positive expectancy no matter which instrument and experiencing various market conditions?
Yes and no. i think with enough time, everything goes to zero. The caveat is this: We only lives 80 or so years. Even though the system may goes to zero with enough time, it could be that within the short life span that we have to trade, the system will work. So, who cares then? You've made your money, you are out; you've enjoyed life and you are gone from this earth.

Quoting Custos
I think there is, but the expectancy is definitely lower than most of us wish for.
Hard to argue with expectancy.

Quoting Custos
What I feel all this shows, is that a normal trader trying to develop "discretionary" skills, has absolutely no chance of beating the odds, if he doesn't backtest the strat on years of data and multiple instruments from multiple markets.
Totally agree.

Quoting Custos

Let's say I believe in behavioral finance. I don't think investors make rational decisions usually. Due to that there are inefficiencies in the market.
I concur

Quoting Custos

Also, what would happen if one diversifies not only instruments but also the strategies. Would the portfolio expectancy be higher than 0? Or would it still become negative?
Damn good question. I think diversification raises the expectancy. I think is like a supply and demand curve. Heading in opposite direction and intersecting. Where the point of intersection is the optimal point.

Since we are only going to be alive for roughly 100 years or so. It doesnt matter if in the grand scale of things, everything approaches zero. Hell, the universe will die out one day. But till then, let's party!!

----------------

I dont disagree at all that years and years of data is needed. Otherwise the system wont be robust. But i also thinks that too much years of data will render the outcome to nil. It will make the market look efficient(which it isnt). It is like looking at something from a big distance, everything smoothes out.

There is a middle ground. Market changes and market remain the same.

Let say you can flip a coin for infinity. I am sure that within that infinite amount of time, there will be a period of 80 years or 100 years or 20,000 years where you are always getting heads after heads as you are flipping the coin every hour. With a large and larger amount of time anything will eventuall happen. Even though, statistically, at the core, the chances are still 50/50. I think any system have market periods when it loses. And it has market periods when it wins. With a large amount of time, depending on how large, those winning and losing periods will occurr with enough frequency to make that method or methods a zero expectancy method. But, who cares that within that time, i have my HECTOR METHOD THAT IS MAKING ME SOLID MONEY NOW? I dont. i am happy.

And absolutely, they should have tried multiple pairs for the sake of diversification. Even, if it is just the USDs pairs. you know, AUD/USD, USD/CAD, EUR/USD, NZD/USD, GBP/USD,. USD/JPY, USD/CHF, that diversification would have buffered the system against killer GBP/USD.
  • #10,057
  • Jan 7, 2011 12:15pm Jan 7, 2011 12:15pm
Quoting Custos
yeah, actually what we call discretion are just mechanical trading rules which we were not able to define yet. Once we can define them, it become mechanical trading, instead of discretionary.

I have spent about 6000 or even more hours watching markets, trading , thinking and analyzing.
I can say that brain after watching it for so long obviously starts picking things. Most of this time I was watching lower time frames. I think brain acts like computer after so much hours load and recognize patterns which worked before. Not only this. When you back test you cannot see the speed of the move overall mood. It is like analyzing dead animal.
So, it might be called mechanical trading too as brain probably calculating probabilities without us thinking.
  • #10,058
  • Jan 7, 2011 12:25pm Jan 7, 2011 12:25pm
Quoting dddd
I think backtesting should encompass the bad and good, the ugly and the beautiful. Why? because that is trading: you do not know what you will encounter next. All those people that based their trading models on years unlike 2008 or 2009, may be wiped out when the fall of 2008 came along.

There was the story of this british trader, him and his team developed a system that they bactested to the heavens, and started live trading...they converted 10,000 pounds sterling to 100,000 pound sterlings in 10 months just like expected from their back tests....

I only can add, that no strategy will perform in years like 2008-2009 based on back testing. There must be wisdom. when to stay flat and when to trade. 2008/2009 was momentum trader's heaven.
BTW, I personally watched the very moment when the market started tanking from the very 2008 tip. It was scary moves. 40-50 pips in seconds and down down . I started trading then in the end of September 2008.
Trader must be able to change quickly in such circumstances. No back testing will help. I believe that such years should be ignored during back testing but the note should be once something abnormal starts happening stop trading and analyze the situation.
  • #10,059
  • Jan 7, 2011 12:30pm Jan 7, 2011 12:30pm
BTW, I noticed market peculiarity at certain times certain pairs and I backtested and traded it. The key is to have RR 2:1 to 3:1. I even traded but there was a trap. stop was only 10 pips. and sometimes system generated too many false signals. I lost 10% one day with risk of 0.35 per trade. I started breaking rules of taking profits wanting to get r:r 5:1 and not taking 3:1. it caused similar DD to my November one when I also refused to take profits. up to the point this strategy worked really well bringing account up steadily.
I am going to back test it again but with slightly different rules including pbc and bigger stops. That was break out strategy and I always entered right on break out.
  • #10,060
  • Jan 7, 2011 1:14pm Jan 7, 2011 1:14pm
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