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Where is the EDGE in trading? The most important thing in trading!

  • #521
  • Aug 13, 2011 4:37pm Aug 13, 2011 4:37pm
Quoting reres
If you take a random entry it can be anywhere on that chart and over large sample of trades the probability of reaching any further point is proportional to the distance to that point. Money managment alone cannot give u profitable system.
You are correct, but he's not talking about money management, he's talking about trade management. Furthermore, its perfectly possible to make money from random entries (lets face it, most TA and PA entries are no better than random anyway if you evaluate them objectively).
  • #522
  • Aug 13, 2011 4:43pm Aug 13, 2011 4:43pm
Quoting mbkennel
You're describing two different things. The second is true (sort of). It is a known fact that in markets volatility is clustered, and the *magnitude* of changes is correlated with the magnitude of changes previously. It does not mean the direction of future changes is so correlated, other than on moderately long term scales related to economic cycles.

"so each time it goes up to a barrier it becomes more likely to keep on going, or each time it goes down to a barrier it becomes more likely to keep going." --- not really, if you have periods...
fair points, but i don't necessarily agree. it's like we are both looking down the same tunnel, but from opposing ends of the tunnel... and the truth is actually looking from the middle of the tunnel seeing both directions.
Congratulations ScalaFX for coming out of the closet!
  • #523
  • Aug 13, 2011 5:24pm Aug 13, 2011 5:24pm
Good Evening everyone,

I hope everyone enjoys short saturday and Sunday as well. Here are the most important elements that I have been learned during my career FX trading. I think the most important keys of success trader would be money management. Second would be my psychology and third one would be trading system. For me I'm totally ignore the noise of the news of others. I only look at the events of the announments (NFP, FED, Retail sales). No CNBC, NO tech ticker....) you name it. They're just totally useless to me.

Be patient. Waiting for your set up and your signal second time, and hit.

Enjoy the profit to your account.

I'm a much swing trader, therefore, I trade about few times a month, that's it.

Knowing when to close your profit taking! how many you say, man if I can stay for another 30 minutes, or 10 minutes, I will pocket at least 50, or even 200 pips?

Or like this, I should close my trade and lose only 10 bucks instead of 500 bucks, right? (minimum your losses).

Do not trade more than 3 pairs? why? because less is more! the less pair you trade, the more disciplines you have and you will much more sucess at it. You will understand the pairs behavior, time frame up and down its turn angle, average pip run daily, monthly, and yearly.

Here are couple resources totally free:

www.babypips.com
and google this Trade your ways to financial free dom by Dr. Van Tharp
it should has a PDF file for free. I suggest that you will amaze with it.

Happy trading guys and have a nice rest!
  • #524
  • Aug 13, 2011 6:02pm Aug 13, 2011 6:02pm
Quoting reres


This is the biggest BS you have posted so far. Making totally radnom trades will have 50/50 success rate but at the end your money will be gone due to broker fees.
What are you, stupid? Or are you just pretending not to understand?

Here are 4 trades :
Trade 1: -100 pips
Trade 2: +400 pips
Trade 3: +250 pips
Trade 4: -100 pips

What is the success rate? 50%
Did we make money? Yes
How much? +450 pips

The random entry signal described here : http://www.forexfactory.com/showthread.php?p=4819619 works for one reason and one reason only: freely traded markets (like the Forex) are NOT random, they TREND, how many times do we have to repeat that before it goes through your thick head?

If you flip a coin and Head comes up, what is the probability of getting ANOTHER Head? 50%

On the other hand, if the market moves 100 pips in one direction, what is the probability of seeing another 100 pip move in the same direction? Now if you answer 50% then your ignorance is beyond belief!! It is NOT 50%, it is MORE than 50%.

Why?

Because markets trend, they have a tendency to keep doing what they were doing before. Take any Forex chart, count the number of time the market keeps going another 100 pips in the same direction and dare to tell us it is not so!

Back to the random entry system. If you observe its trading rules closely you will notice that they have been designed to capture (and stay with) the trend as long as possible, while quickly closing the losing trades.

Let's take an example.

We all know that the euro went from $0.80 to as high as $1.60. We could have made tons of money trading the euro with this random entry system and here is why.

Let's say we flip a coin, Head we buy and Tail we sell.
The euro is at 0.80 and the coin is showing Tail, so we sell the euro. Since we are trading against the trend this random system will quickly close the trade and we lose let's say 150 pips.
We flip the coin again and this time Head comes up. But wait a minute, now we are trading WITH the trend so the system (due to its trade management rule) is going to stay with that trend for a long, long, long time. This time we have a winning trade and we collect let's say 900 pips.

So yes, we will win "only" 50% of the time, but each time we have a Tail we lose a little (because we are trading against the up trend) and each time we have a Head (a buy signal) we win big, because we are trading with the trend, so at the end we will end up making money.
  • #525
  • Aug 13, 2011 6:19pm Aug 13, 2011 6:19pm
Quoting Mr Breakout
...if the market moves 100 pips in one direction, what is the probability of seeing another 100 pip move in the same direction?
This is a very interesting area of enquiry. Do you know of any such studies? If so I would be grateful if you could point me in the direction of the evidence, thank you.
  • #526
  • Edited 7:13pm Aug 13, 2011 6:55pm | Edited 7:13pm
Quoting Vorbis
This is a very interesting area of enquiry. Do you know of any such studies? If so I would be grateful if you could point me in the direction of the evidence, thank you.
I am by no means a math geek .

My understanding (which certainly can be wrong), is that while we know that TRENDS EXIST, there is no mathatical way to prove it. If one could prove they exist, then logically one could prove when they start and when they end.

A simple example from a simple mind:

flip a coin and the odds are 50/50 that the outcome will be heads or tails. Flip a coin 10 times and the last 8 are heads. What is the probability that the next will be heads? 50%. However, because we can observe a trend, we know that "betting" on heads is a better bet than bettting on tails. But the probabilities have not changed.

We know that at some point the outcomes will tend towards the actual probabilites (the Law of Large Numbers). So at some point, we would get more tails than heads to even things out. Yet any one observation independant of an understanding of trend would tell us the probability is always 50/50.

EDIT: I usually don't like gambling references when talking about trading but this one is very interesting. A while back Vegas introduced those displays on the roulette wheels. They found that the money made at those games INCREASED.
Why? Because people would see that the last number was red, for example, and then make bets that the next number would be black. Totally denying the existence of TREND. True, the probabilites never changed, but probabilities don't account for trend.
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #527
  • Aug 13, 2011 7:27pm Aug 13, 2011 7:27pm
Quoting Mr Breakout

if the market moves 100 pips in one direction, what is the probability of seeing another 100 pip move in the same direction? Now if you answer 50% then your ignorance is beyond belief!! It is NOT 50%, it is MORE than 50%.

REALLY? Any proof? If this would be true nobody will lose in forex... I guess I am ignorant or something, because I honestly think you still have 50 % chances of wining minus spread, therefore still a losing trade if you have no edge... It is just another random trade.
  • #528
  • Aug 13, 2011 7:32pm Aug 13, 2011 7:32pm
Quoting Mr Breakout


About your previous post, I do not quite agree, brokers have all the tools that allow them to play tricks against the average trader, from time to time, take a look at this video for example:

http://forexsocialmedia.com/home/soc...r+Manager.html

Yes, I have seen this video. Yes I can not deny that the tools are there. Yes there are probably some brokers who do use these tools from time to time.

Look at it from this perspective. If brokers are constantly manipulating the market order for their benefit... Then I guess we are all stupid for trading Forex at anytime.. This implies we can never win.. never...But that is simply not the case.. ( except for Reres .. just kidding Reres )

Now if one chooses to trade with some "mousehouse broker" then I will concede there may ?? be a chance of this happening. But given the videos ( like this one ).. The amount of info contained in forums, its darn hard to keep a secret. An that's what it would have to be, A secret, for this to really be happening on grand scale.

From my own account I have not had these issues. I can only speak from my own experience. Again, I'm not much on conspiracy theories.

If I were to have any of these issues, I have no problem moving my account. I trade both Forex and E mini's.

TSD
  • #529
  • Aug 13, 2011 7:33pm Aug 13, 2011 7:33pm
Quoting HiddenGap

flip a coin and the odds are 50/50 that the outcome will be heads or tails. Flip a coin 10 times and the last 8 are heads. What is the probability that the next will be heads? 50%. However, because we can observe a trend, we know that "betting" on heads is a better bet than bettting on tails. But the probabilities have not changed.

I don't think this is true either. We see it as a trend, in reality it is just random. Coin flips are random. If you play roulette and you have 90 times red, what is a better bet, red or black? It could be another 10 blacks or 10 reds.. It is random, therefore no edge. And in the end we would still lose money. Think about it.
  • #530
  • Aug 13, 2011 7:43pm Aug 13, 2011 7:43pm
Quoting Mr Breakout


About your previous post, I do not quite agree, brokers have all the tools that allow them to play tricks against the average trader, from time to time, take a look at this video for example:

http://forexsocialmedia.com/home/soc...r+Manager.html
Used to go to casino a lot back then. Once I took my uncle with me, he is an older dude. He was convinced casino is taking money by cheating. Tried very hard to prove him that it is not necessary for the casino to cheat in order for you to lose money... The odds are just skewed in their favor on any game you play.

In fact it is in their advantage not to cheat, they would lose customers.. and customers brings profit, therefore by cheating they would lose money on the long run...

Same with forex, odds are against youanyway, why would they cheat, specially on smaller accounts (less than 50k) You are going to lose that money most likely anyway..
  • #531
  • Aug 13, 2011 7:55pm Aug 13, 2011 7:55pm
Quoting HiddenGap
I am by no means a math geek .

My understanding (which certainly can be wrong), is that while we know that TRENDS EXIST, there is no mathatical way to prove it. If one could prove they exist, then logically one could prove when they start and when they end.

A simple example from a simple mind:

flip a coin and the odds are 50/50 that the outcome will be heads or tails. Flip a coin 10 times and the last 8 are heads. What is the probability that the next will be heads? 50%. However, because we can observe a trend, we know that "betting" on...

Again, people are equating the odds of any particular outcome with profitability. They are not the same. Yes, the outcome of a coin flip is 50/50. But it's the payout on the bet that determines profitability in a series of coin flips. A payout of 1:1 means you have a 50% chance of being profitable of a series. A payout of 2:1 means you have 70% chance of being profitable.

Here is the mathematical proof of this.

http://www.forexfactory.com/showthre...20#post4867020
  • #532
  • Edited 8:38pm Aug 13, 2011 7:56pm | Edited 8:38pm
Quoting Mr Breakout
On the other hand, if the market moves 100 pips in one direction, what is the probability of seeing another 100 pip move in the same direction? Now if you answer 50% then your ignorance is beyond belief!! It is NOT 50%, it is MORE than 50%.
According to my data, it is less than 50%.

Edit: No, sorry. I shouldn't write code at 2am. I found my error, it is 50%.
  • #533
  • Edited 8:36pm Aug 13, 2011 7:57pm | Edited 8:36pm
Quoting HiddenGap
I am by no means a math geek .

My understanding (which certainly can be wrong), is that while we know that TRENDS EXIST, there is no mathatical way to prove it.
On the contrary, it is a child's play to mathematically prove the existence of the trend.

Take any forex chart and if the market makes a 100 pip move up write the letter X on a piece of paper. If the 100 pip move is down write the letter O. Repeat that until you have 1,000 letters.

Every time you see an X count the number of times another X appears, call the total T1.
Every time you see an O count the number of times another O appears, call the total T2.

You will notice that T1 or T2 exceed 50%, thus proving that the market is not random. Of course some currency pairs (like GBP/USD) trend less than others.



Quoting HiddenGap
If one could prove they exist, then logically one could prove when they start and when they end.
No, we simply follow the trend, we are not trying to predict anything. Each time we see an X we bet on X, and each time we see an O, we bet on O, knowing when the trend starts/reverses is not the issue here.
  • #534
  • Aug 13, 2011 8:06pm Aug 13, 2011 8:06pm
Quoting JR97
Again, people are equating the odds of any particular outcome with profitability. They are not the same. Yes, the outcome of a coin flip is 50/50. But it's the payout on the bet that determines profitability in a series of coin flips. A payout of 1:1 means you have a 50% chance of being profitable of a series. A payout of 2:1 means you have 70% chance of being profitable.

Here is the mathematical proof of this.

http://www.forexfactory.com/showthre...20#post4867020
I am pretty sure we are talking about the same thing but the way you express it is not correct. A payout of 2:1 means you are risking 100 pips (for example) to make 200 pips. And yet you could still win only 25% of the time, if your system is a losing system.
  • #535
  • Edited 8:28pm Aug 13, 2011 8:11pm | Edited 8:28pm
Quoting iulli

In fact it is in their advantage not to cheat, they would lose customers..
It is much more profitable for them to cheat than to simply collect your spread. Beside, they have an ever growing number of NEW customers coming in every day, so that's not a problem for them.

Please note that I am not saying that every forex broker is a crook.
  • #536
  • Aug 13, 2011 8:46pm Aug 13, 2011 8:46pm
Quoting LasVahGoose
People would be wise to read your thread on edges. It's a classic.
What's up, Goose?! Good to see some of your posts again. I keep dropping back in on this thread, wondering if I should dip my toe in and try to offer something of use. I see that you are giving it a try. I admire you for that! I seldom try anymore... not wanting to get into web agruments anymore. Maybe I should dust myself off and get back in there and try and offer some help. A lot of old guys helped me.

Good trades to you!!

Regards,
  • #537
  • Aug 13, 2011 8:51pm Aug 13, 2011 8:51pm
Quoting hanover
Back in the good old days (pre 1980s) personal computers didn't exist. Traders drew all of their stock price charts by hand using pencil, eraser, and graph paper. They drew lines on these charts: support and resistance, trendlines, channels, wedges, pennants and so on. Some applied Elliott wave, Gann techniques and Gartley patterns to their analysis (all of which were invented in the 1930s/40s).

The dedicated few attempted to summarize/smooth their charts by redrawing them as point & figure charts, but this would take many hours of hard work....
Hanover,

Ditto for everything I said above to Goose. Your willingness to keep offering help after all this time is admirable. Hope all is well with you!!

Regards,
  • #538
  • Aug 13, 2011 9:22pm Aug 13, 2011 9:22pm
So far this thread looks to me like

"OMG where the F**K is the edge.. I look everywhere and I cannot see..."

wake up and smell the coffee you are the edge.


thats right you been looking everywhere and the answer was you.. your the edge that feeds the elite players.

and when you yourself give up trading don't worry... there will always be a continuing stream of sheep to maintain this edge
  • #539
  • Aug 13, 2011 9:27pm Aug 13, 2011 9:27pm
Quoting HiddenGap
I am by no means a math geek .

My understanding (which certainly can be wrong), is that while we know that TRENDS EXIST, there is no mathatical way to prove it. If one could prove they exist, then logically one could prove when they start and when they end.

A simple example from a simple mind:

flip a coin and the odds are 50/50 that the outcome will be heads or tails. Flip a coin 10 times and the last 8 are heads. What is the probability that the next will be heads? 50%. However, because we can observe a trend, we know that "betting"...
probability is 50-50. Expectancy is mathematical and can be calculated. This is a different number. That's what trading is in a way. There may be 10 red in a row on a roulette wheel, but the expectancy of that happening is a lot less.
  • #540
  • Edited 9:43pm Aug 13, 2011 9:33pm | Edited 9:43pm
Quoting iulli
I think you still have 50 % chances of wining minus spread, therefore still a losing trade if you have no edge... It is just another random trade.
Your edge comes the trend itself. And if there is a trend then the market is not random.

If the up and down movements of the market were purely random you wouldn't be able to extract one penny from the market, in the long run.
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