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Strategies that don't predict future price

  • #1
  • First Post: Aug 24, 2011 10:14am Aug 24, 2011 10:14am
Everytime I come on FF to see a new strategy or system, it always begins the thread by predicting some future price or breakout. So, I am here to contend this by asking posters to post any strategy that doesnt predict some future price or breakout...I want posters to really think about this. So I want to dedicate this thread to strategies that DO NOT predict some future price movement. Instead it introduces the notion that price can't be predicted..yet we will build a strategy that doesnt predict future price and builds a profit.

I will post a strategy as soon as I have time.
Don't be fooled by randomness
  • #2
  • Edited 11:05am Aug 24, 2011 10:50am | Edited 11:05am
Quoting frothy
Everytime I come on FF to see a new strategy or system, it always begins the thread by predicting some future price or breakout. So, I am here to contend this by asking posters to post any strategy that doesnt predict some future price or breakout...I want posters to really think about this. So I want to dedicate this thread to strategies that DO NOT predict some future price movement. Instead it introduces the notion that price can't be predicted..yet we will build a strategy that doesnt predict future price and builds a profit.

I will post...
Ok. Some general guidelines to start.

1. When a strategy is posted it CANNOT describe a future price direction, reversal, or any type of prediction. For example, if one was to post a strategy that involved RSI in oversold territory, then that strategy is suggesting a possible reversal.

2. I think it would be beneficial to accept indicators but not for the purpose of predicting price movement, so this may wipe out alot of indicators.

3. I would like to focus on stop losses, possible using indicators to set up stop loss zones. I will accept predicting stop loss projections and using indicators to predict various types of stop loss zones, as this is not predicting price movement.

4. Also, I think it would be fantastic to focus on % and success rate.
Don't be fooled by randomness
  • #3
  • Aug 24, 2011 11:35am Aug 24, 2011 11:35am
Sorry for my ignorance, but I'm a little clueless as to how a strategy can be built without factoring in the prediction of price movement.

I'm interested in seeing the ideas that might flow in though..

Cheers!
  • #4
  • Aug 24, 2011 11:48am Aug 24, 2011 11:48am
To be profitable, over the long term, you must be able to predict price direction. Without it, you are only left with market volitility and money management. It is a well established fact that these 2 elements are not enough to produce profits over the long term. You may be profitable for a while... perhaphs days, weeks, or even months. But in the end you will lose and be wiped out. Besides, it is not that hard to predict prices on the daily and weekly charts. Now, on the 1m chart, that is a different story.

Regards,
  • #5
  • Aug 24, 2011 12:36pm Aug 24, 2011 12:36pm
To add, there are some decisions that just 'make sense', such as following a long-term established trend. And while that's safer than 'guessing', it, and any other approach is nonetheless predicting future price movement.
  • #6
  • Aug 24, 2011 2:08pm Aug 24, 2011 2:08pm
I disagree, I think that a good strategy is built by not predicting a price or direction but yet placing an appropriate stop. So instead of looking at where the market will go, its suggesting where the market isnt going to go, and therefor placing a stop in that area. Once the price has moved away from the stop zone, it can be raised or lower. This is what I am trying to discuss.
Don't be fooled by randomness
  • #7
  • Edited 2:22pm Aug 24, 2011 2:10pm | Edited 2:22pm
Quoting orderphlow
Sorry for my ignorance, but I'm a little clueless as to how a strategy can be built without factoring in the prediction of price movement.

I'm interested in seeing the ideas that might flow in though..

Cheers!
well if you were to focus on your stops and where to place them, without the future prediction of price, then you can adjust your stops to be profitable. If we can start predicting our stop loss and building a strategy around your placement without predicting price. All I am suggesting is that we suggest building strategies around stop loss placement and managing a stop loss. If the stop loss is managed correctly or placed correctly, then profitability will also be managed with out predicting price movement. Ultimately I understand that wish for the currency pair that you trade to go in the opposite direction of your stop...but all traders know this doesnt work ALL the time. SO.. we focus on other strategies that keep our stop losses from being hit...ect ect
Don't be fooled by randomness
  • #8
  • Aug 24, 2011 2:22pm Aug 24, 2011 2:22pm
Quoting frothy
well if you were to focus on your stops and where to place them, without the future prediction of price, then you can adjust your stops to be profitable. Instead your predicting your stop loss and building a strategy around your placement without predicting price.
I'm interested in where you are going with this. So what if I know good areas for stops above and below where the price is? Wouldn't I need to pick a direction to get in a trade? I'm not sure if I understand what you're saying.

Thanks,

Cory
  • #9
  • Aug 24, 2011 2:24pm Aug 24, 2011 2:24pm
Quoting FX-Petra
Without it, you are only left with market volitility and money management. It is a well established fact that these 2 elements are not enough to produce profits over the long term. You may be profitable for a while... perhaphs days, weeks, or even months. But in the end you will lose and be wiped out.
http://en.wikipedia.org/wiki/Volatility_arbitrage
Quote
In volatility arbitrage, volatility rather than price is used as the unit of relative measure, i.e. traders attempt to buy volatility when it is low and sell volatility when it is high.

Armed with a forecast volatility, and capable of measuring an option's market price in terms of implied volatility, the trader is ready to begin a volatility arbitrage trade. A trader looks for options where the implied volatility is either significantly lower than or higher than the forecast realized volatility, for the...
  • #10
  • Aug 24, 2011 2:25pm Aug 24, 2011 2:25pm
Quoting frothy
its suggesting where the market isnt going to go, and therefor placing a stop in that area
That is still predicting, maybe not about future price directly, but you are still predicting future market behavior. If the market isn't going to go down to hit your stop, then the only other alternatives are that it will move in the opposite direction or consolidate in an area above your stop, then the question becomes, when do you exit?
  • #11
  • Aug 24, 2011 2:27pm Aug 24, 2011 2:27pm
Quoting Cbh123
I'm interested in where you are going with this. So what if I know good areas for stops above and below where the price is? Wouldn't I need to pick a direction to get in a trade? I'm not sure if I understand what you're saying.

Thanks,

Cory

I know its a tough concept because...1. we are trained from the gecko to try and predict price direction because you have to pick one side, either its going up...or its going down...so naturally you want it to go in your direction to be profitable. SO...you train your brain to not think direction, but yet think protection, and building a strategy that revolves around protection....NOT price DIRECTION. I know its a tough concept because we have all started our journey looking for price direction.
Don't be fooled by randomness
  • #12
  • Aug 24, 2011 2:30pm Aug 24, 2011 2:30pm
Quoting frothy
Everytime I come on FF to see a new strategy or system, it always begins the thread by predicting some future price or breakout. So, I am here to contend this by asking posters to post any strategy that doesnt predict some future price or breakout...I want posters to really think about this. So I want to dedicate this thread to strategies that DO NOT predict some future price movement. Instead it introduces the notion that price can't be predicted..yet we will build a strategy that doesnt predict future price and builds a profit. I will post a strategy as soon as I have time.
I think your logic stands in line with a portfolio which is more about managing risk but in terms of FOREX if your (non price predicting) strategy is not diversified and long term then you may as well go and count cards at a Casino, much easier and much more profitable.

Anyway that's just my take on it, you actually can predict price, maybe not in the way we like to believe we can we first start (holy grail type trading), but you can learn to "go with the flow" and take advantage of inevitable market movements, after all that's what trading IS isn't it?

If you spend your time trying to create profits out of randomness, over time the ones in the know will strip you bare because with the spread and commission factor it's not 50/50 and you cannot swim against the tide.

Anyway will be interested to see where this goes.
Time hides Nothing
  • #13
  • Aug 24, 2011 2:33pm Aug 24, 2011 2:33pm
Quoting Aldente
That is still predicting, maybe not about future price directly, but you are still predicting future market behavior. If the market isn't going to go down to hit your stop, then the only other alternatives are that it will move in the opposite direction or consolidate in an area above your stop, then the question becomes, when do you exit?
No your not thinking direction when you trade......you are thinking protection....this could have all sorts of meanings. I am not limiting this to stops...because we there is more to this then just placing stops...but protection is part of the strategy. And no you are not predicting price direction if you stick your stop somewhere, you are managing capital. Because you can't build a strategy where you think your stop is going to not get hit ..because it will. SO why try and build a strategy that predicts future price movement...but instead is a strategy that doesnt get stopped out and has a low stop hit percentage....
Don't be fooled by randomness
  • #14
  • Aug 24, 2011 2:35pm Aug 24, 2011 2:35pm
Quoting frothy
I know its a tough concept because...1. we are trained from the gecko to try and predict price direction because you have to pick one side, either its going up...or its going down...so naturally you want it to go in your direction to be profitable. SO...you train your brain to not think direction, but yet think protection, and building a strategy that revolves around protection....NOT price DIRECTION. I know its a tough concept because we have all started our journey looking for price direction.
So let's say there is a range. I have a stop above and below.. do I push buy or sell? How do I know without making some sort of prediction?

Thanks,

Cory
  • #15
  • Aug 24, 2011 2:40pm Aug 24, 2011 2:40pm
Quoting CindyXXXX
I think your logic stands in line with a portfolio which is more about managing risk but in terms of FOREX if your strategy is not diversified and long term then you may as well go and count cards at a Casino, much easier and much more profitable.

Anyway that's just my take on it, you actually can predict price, maybe not in the way we like to believe we can we first start (holy grail type trading), but you can learn to "go with the flow" and take advantage of inevitable market movements, after all that's what trading IS isn't it?

If you spend...

I am not looking for a casino strategy or a average down rule. I am looking for a strategy built around not predicting price movement but yet incorporates other strategies.
Don't be fooled by randomness
  • #16
  • Aug 24, 2011 2:46pm Aug 24, 2011 2:46pm
A strategy that doesnt predict the future? then what does it predict?. I guess the present or the past.
Orderliness of Randomness
  • #17
  • Aug 24, 2011 2:48pm Aug 24, 2011 2:48pm
Quoting frothy
I am looking for a strategy built around not predicting price movement but yet incorporates other strategies.
So your looking to build an 'all-in-one' hybrid system?

Several systems that work in unison together?

  • #18
  • Aug 24, 2011 2:49pm Aug 24, 2011 2:49pm
Quoting Cbh123
So let's say there is a range. I have a stop above and below.. do I push buy or sell? How do I know without making some sort of prediction?

Thanks,

Cory
I know you have to pick a side when you trade...but I am not asking you to trade by predicting...instead trade by protecting and managing OR if we can develop other strategies. Ranges can break.

Here is example....Of what I am trying to discuss.

Recently I purchased NZD/USD long at .8267 and I just exited at .83. I had no clue where nzd/usd was going when I purchased it...and neither did I care. I just knew that if I place my stop .8262 (the last low candle on the 15min) and that I was risking 5 pips for.....in this case 16. I didnt predict where the nzd/usd was going...i just thought about my stop. Now mind you this isnt really a good strategy as there was nothing to it. But I did have a tight stop because I felt that the candles were tight....based on this strategy I didnt predict any future price
Don't be fooled by randomness
  • #19
  • Aug 24, 2011 2:57pm Aug 24, 2011 2:57pm
Quoting Pipalicious
So your looking to build an 'all-in-one' hybrid system?

Several systems that work in unison together?

I dont care about the complexity of the strategies...lets just work on something....
Don't be fooled by randomness
  • #20
  • Aug 24, 2011 3:07pm Aug 24, 2011 3:07pm
Quoting frothy
I know you have to pick a side when you trade....
This has the potental to be an interesting thread. You have to start somewhere, so lets try to define what options you have to get the ball rolling ?

You could choose a direction at random, but then you have to think about when you make that choice (e.g pick a random direction at a particular time of day, or pick a random direction at a random time of day, or pick a random direction when "some" market behaviour occurs (e.g. a particular price level is reached, or a randomly selected level is reached, or TA or price action signal occurs)

Alternatively you open a buy and a sell simultaneously, and manage both positions. The same issues regarding WHEN still apply.

The problem is that at some point when designing such a strategy you'll realise that rather significant performance improvements can be achieved by applying a trend bias, and of course that is going to require the determination of price direction (and possibly even prediction of future direction)
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