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  • #101
  • Jan 4, 2012 5:32am Jan 4, 2012 5:32am
Quoting Adal
Price heteroskedasticity is not new, it was discovered in the 80s, if not even earlier. I think you've been reading the wrong studies. Instead of reading papers coming from the economists side, which assume EMH, rational investors and the like, try reading from the quant side, which actually measure the real market and study behavioral patterns.

Today almost all volatility models assume it, with the GARCH model (and it's offspring) being the most famous.

This stuff is very important in the options world, but you can also use it for trading...

oh ok now I see what you are saying, well in effect volatility cannot be predicted as is a derivative of price variations and unless you can mathematically predict price then they are pretty much correlated, I was aware of this already, but i just didn't tie the idea together.

future volatility is dependent on current volatility for its predictive model, but at the end of the day it ends up being homoskedastic anyway, as it is assumed that a continuation of current variance will continue.

however the idea of heteroskedasticity will have to be taken into account when running risk assessments. which then leads to a more lax view on projected volatility same as price movement, uncertainty forces us to be less precise and more general.

as complicated as the models get it is no better than plain vanilla calculations.

so in fact as you mentioned ATR, Standard Deviations will do to evaluate volatility,
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  • #102
  • Jan 4, 2012 5:36am Jan 4, 2012 5:36am
nubcake the problem is that both takes are correct in a weird conundrum.

Yes, price has a tendency .........and no it will not ever follow it perfectly, along with those very unpredictable transactions that send the market into a panic (which are perfectly logical expo facto)
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  • #103
  • Jan 4, 2012 5:45am Jan 4, 2012 5:45am
THE ONE SHIFT IN PHILOSOPHY That will change your success and the reason why i made this thread is the more time we spend ATTEMPTING TO PREDICT the market the more we are going in the wrong direction.

observations, and analysis,which should lead in turn to a plan that encompasses

1) extrapolation of most probable scenario
2) baseline for volatility,velocity, direction
3) strategic Risk management.

what most fail to understand when trying to have any positive expectancy is that Risk Reward IS ALWAYS
1:1 either price goes in the intended direction or against you.

50% of any strategy HAS to have an equally methodical and well thought out Money management.
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  • #104
  • Jan 4, 2012 7:58am Jan 4, 2012 7:58am
Hi redlion,

Nice thread you have here.

Quoting the redlion
what most fail to understand when trying to have any positive expectancy is that Risk Reward IS ALWAYS
1:1 either price goes in the intended direction or against you.
Yeah, true in its most simplistic form. But the difference, imo, is made by how much it goes against you versus how much it goes in your favor, no?
Trading = a mirror to your human flaws. Fix them or be fixed.
  • #105
  • Jan 4, 2012 8:14am Jan 4, 2012 8:14am
Quoting soso
Hi redlion,

Nice thread you have here.



Yeah, true in its most simplistic form. But the difference, imo, is made by how much it goes against you versus how much it goes in your favor, no?

well...that was exactly my point.

just because you perceive that by entering this market you are risking X to gain Y does not make it so.

you never know the reward side of it. if you did, then your risk would be ipso facto 0%

the ONLY THING you can know for SURE is your risk.
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  • #106
  • Jan 4, 2012 9:53am Jan 4, 2012 9:53am
Quoting the redlion
well...that was exactly my point.

just because you perceive that by entering this market you are risking X to gain Y does not make it so.

you never know the reward side of it. if you did, then your risk would be ipso facto 0%

the ONLY THING you can know for SURE is your risk.
Well yes, I'm not sure why you think it isn't obvious. Dunno it seems to me it's only different wording. Have a nice eve.
Trading = a mirror to your human flaws. Fix them or be fixed.
  • #107
  • Jan 5, 2012 5:33am Jan 5, 2012 5:33am
well that shows me your level of experience, as for other traders including myself this is a conundrum that has proven hard to figure out

Attached Image (click to enlarge)
Click to Enlarge Name: riskreward.png Size: 20 KB
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  • #108
  • Jan 5, 2012 5:43am Jan 5, 2012 5:43am
Quoting the redlion
well that shows me your level of experience, as for other traders including myself this is a conundrum that has proven hard to figure out

Attachment
huh? what is this?

are you just talking about the inverse relationship between risk / reward and win rate on random trades?
Congratulations ScalaFX for coming out of the closet!
  • #109
  • Jan 5, 2012 5:51am Jan 5, 2012 5:51am
Quoting nubcake
huh? what is this?

are you just talking about the inverse relationship between risk / reward and win rate on random trades?
risk reward= ALWAYS 1:1, either you are "in the money" or "out of the money"


RISK=potential loss
potential loss= Leverage size

if a tight stop is placed= more susceptible to volatility

a more lax stop= more risk
susceptible stop= same as a lax stop [as far as risk to account relationship]

stop at B/E makes no sense when b/e is within volatility as you trade will be exited b/e = time loss

so nubcake i was stating the conundrum when attempting to gyrate odds in our favor.

because a strategic money management must take into account

win:loss ratio to determine % risk exposure
volatility and leverage size viz a viz desired % exposure
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  • #110
  • Jan 5, 2012 6:12am Jan 5, 2012 6:12am
Quoting the redlion
risk reward= ALWAYS 1:1, either you are "in the money" or "out of the money"


RISK=potential loss
potential loss= Leverage size

if a tight stop is placed= more susceptible to volatility

a more lax stop= more risk
susceptible stop= same as a lax stop [as far as risk to account relationship]

stop at B/E makes no sense when b/e is within volatility as you trade will be exited b/e = time loss

so nubcake i was stating the conundrum when attempting to gyrate odds in our favor.

because a strategic money management must take into account

win:loss...
i'm too sleepy to gel any thoughts i might have into something as coherent as i would like it to be... but what you are saying is broken. i can't put my finger on it now, but you are anchoring your ideas to something incorrectly. what i'm reading sounds like what you are saying is that it's all pointless since you are screwed whichever way you try to tweak things, which is true for random trading. that's the inverse relationship between r/r and w/r coupled with spread costs = negative drift on an account when not haphazardly opening too many trades equating to more spread costs than there should be.

if you absolutely know where the market will go then you will never be caught within volatility and will always hit perfect home runs.

if you somewhat anticipate where the market will go then you will more often than not hit a trade to where you need it to go.

if you have no idea where the market will go but know how to keep yourself from swinging when no ball has been pitched will keep you somewhere around breakeven, or slightly worse due to spread.

if you have no idea about anything you will swing over and over at nothing and churn your account into dust in no time.

everyone wants to be the first example, but we have to settle for the second example. we all start at the last example and work our way towards the first, but if you aren't the first or second example then yes what you are saying applies in a very big way.

edit : i should add, that if you aren't in the first or second example then all you are left with is playing your odds against risk of ruin and increasing your size on bad trades. this is the total opposite of what we want which is to increase on our winnings.... i.e. compounding. your ex-buddy and his thread are perfect examples of this chancing against risk of ruin.
Congratulations ScalaFX for coming out of the closet!
  • #111
  • Jan 5, 2012 6:29am Jan 5, 2012 6:29am
i am not saying is pointless..... i am stating the conundrum that needs be solved in order to be your second example.

R:R is a myth in my opinion because it's tied to your analysis, simple fact is that the price will go against you or in your favor.

the Reward side is perceived and never known if it was known the Risk side would be zero.

Soso was saying it's common sense but it escapes many traders.

edit(i meant your second example)
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  • #112
  • Jan 5, 2012 6:40am Jan 5, 2012 6:40am
Quoting the redlion
i am not saying is pointless..... i am stating the conundrum that needs be solved in order to be your first example.

R:R is a myth in my opinion because it's tied to your analysis, simple fact is that the price will go against you or in your favor.

the Reward side is perceived and never known if it was known the Risk side would be zero.

Soso was saying it's common sense but it escapes many traders.
yes, but many don't know their ass from their mouth. just because they don't understand the concept of random trade results and the pointless skewing one way or another does not mean that non-random trading has no edge that produces profits.

like i said, if you are just going to play the math game then the only way i see out of the negative creep of shitty random trades stuck in the balanced (but negative) r/r w/r pairing is to step back and begin to look at overall risk of ruin. this is garden path fti lead you and your so-called 'friends' down. whatever edges he had from working in the inside has not translated to the thread, and the big 'revelation' newbies get puts them in the margin call bin eventually.
Congratulations ScalaFX for coming out of the closet!
  • #113
  • Jan 5, 2012 1:54pm Jan 5, 2012 1:54pm
Quoting the redlion
R:R is a myth in my opinion because it's tied to your analysis, simple fact is that the price will go against you or in your favor.

the Reward side is perceived and never known if it was known the Risk side would be zero.

Soso was saying it's common sense but it escapes many traders.

edit(i meant your second example)
You are right and wrong.
If you approach trading from one trade to the next, then yes, your reward will never be known. But if you approach it like an insurance company: you don't know who will die with 60 years. But you do know that out of 100.000 people maybe 100 will die at the age of 60. Same goes with trading. You don't know which trade will have which kind of reward, but you do know what will be the average reward over 100.000 trades.
That's the beauty of large numbers, they can give you an expectation you can work with. And R:R is of course no myth in that case. The edge in a system is always a function of the average R:R and average win:loss.

So, in conclusion, each single trade is based on luck, but take a couple of thousand trades, then you are talking stats.
  • #114
  • Jan 5, 2012 5:31pm Jan 5, 2012 5:31pm
Quoting the redlion
now i will post one of my charts, and i will explain to you exactly WHY everything is there and how it is important to me. and how to calculate by hand. with logic i can tell EXACTLY WHY, my chart looks the way it looks.
Hi RL,

Good statistics, methods like this works very well with software. You might want to google Joe Kurtsinger, he uses mathmatical methods and sells very expensive.
  • #115
  • Jan 5, 2012 6:39pm Jan 5, 2012 6:39pm
Quoting nubcake

would you agree that this is usually because someone is trying to 'prove' something, instead of disprove something (which is what i took this case to be)?
That is a small part of it.
The other part is that people also don't realize that statistical data analysis is a Profession on its own. It's like doing surgery and you're not even a doctor the outcome would be somewhat limited... or a major disaster.

Quoting nubcake
so you suggest that something like low volatility days are skewing the data where price obviously has a tendency to not go anywhere by it's very nature, and eliminating the shit days might paint a different picture? actual question since it was scotty who did the original analysis and has the data.
No, it doesn't skew that data (the data is objective), it skews an individual's perception. And Yes if you do eliminate the shit days, things will change... I think it flew over many people here without paying attention to it (maybe due to its simplicity) and I'll say it again; Know when NOT to trade.

another CrucialPoint mundane statements, let me elaborate from a Professional perspective (pay attention carefully)...
Imagine you are the undefeated UFC pound-for-pound world champion. You've trained all your life to be a highly devastating machine. 10 guys are trying to pick a fight by disrespecting your mum/wife/gf, your race, etc... everything to trigger your response as a human being... You walked away from this situation without even fighting.
It doesn't matter how good you are. It doesn't matter how good your system/method/strategies are. You need to know when not to get involved in any situation in life. I have a highly excellent system, but my philosophy of "knowing when not to trade" are tested again... and again... and again... whenever I trade.

"When you change the way you look at things,
the things you look at change."
~ Wayne Dyer

  • #116
  • Jan 5, 2012 7:05pm Jan 5, 2012 7:05pm
Quoting CrucialPoint
That is a small part of it.
The other part is that people also don't realize that statistical data analysis is a Profession on its own. It's like doing surgery and you're not even a doctor the outcome would be somewhat limited... or a major disaster.
true that, and why i generally don't even bother trying.

Quote
No, it doesn't skew that data (the data is objective), it skews an individual's perception. And Yes if you do eliminate the shit days, things will change... I think it flew...
removing the shit days is only one part of the problem. finding the pips within the potentially non-shit days is a new challenge all on its own.

if you go looking for areas where price has an adverse excursion of less than 10 pips and then rewards greater than 10 pips, in my nub investigations, actually reveals very few instances compared to the amount of 'noise' around these events. perhaps i was looking in all of the wrong places. it certainly reinforces the whole "ranges more than trends" dogma i hear occasionally, and then leaves one caught between taking a profit expecting price to reverse on you often and quickly versus wanting to let trades ride and then having to deal with trying to trail a stop and giving it enough room so that it can capture a move while not being stopped out often for little or no profits leaving you with nothing but general losses

edit : that said, this i imagine (and off i go to have a look) surely matches fairly well with the low amount of news that actual makes a ripple in the markets worth noticing.
Congratulations ScalaFX for coming out of the closet!
  • #117
  • Jan 5, 2012 8:48pm Jan 5, 2012 8:48pm
i just realized i sound like more of a dumb asshole than usual in my last post. trying to find the shit that moves the market is obviously not something new... i just so happen to have a big chunk of new data that i haven't gotten around to looking over yet, hence my whimsical comment. i'm still a dumb asshole regardless, though.
Congratulations ScalaFX for coming out of the closet!
  • #118
  • Jan 5, 2012 8:51pm Jan 5, 2012 8:51pm
nah i wouldn't say dumb asshole, you sound more...........understandably frustrated.
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  • #119
  • Jan 5, 2012 8:55pm Jan 5, 2012 8:55pm
Quoting the redlion
nah i wouldn't say dumb asshole, you sound more...........understandably frustrated.
ah, you must be reading some of my posts from a year or 2 ago. good times. good times.
Congratulations ScalaFX for coming out of the closet!
  • #120
  • Jan 5, 2012 9:03pm Jan 5, 2012 9:03pm
i don't go digging around, your last post sounded sort of frustrated.

between "noise" and real movement. hey i get smacked around too in the market.

move stop to b/e and get b/e
don't move stop and get a loss

let it run and its a range
treat it like a range and get a trend

fade the fake out and get a break out
trade the break out and get a fake out.

i'll post some horrible trades i took this morning while arguing about immigration and politics in the stop loss thread.

which were completely stupid due to i did not follow my analysis and common sense and ended up giving back 1.5% i had gain in previous trades.
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