Why Simple is better in trading and Complex is not

Imho, your friend the programmer you were talking to is both right and wrong, and he is more wrong than right. Humans do have the potential to be by far better traders than EAs, but let me add a big caveat emptor here, humans also have the potential to be by far the worse traders. Unfortunately, psychology studies about decision making show us abundant evidence that humans are more often than not 'irrational' decision makers (the classic ‘Judgment under uncertainty’ by Tversky & Kahneman is an excellent read on this), and consequently most humans are very likely to perform poorly at trading. That said, paradoxically, EAs might be the ‘rigid’ decision makers, but this unintelligent rigidity assures a measure of consistency that the vast majority of humans with all their intelligent flexibility simply cannot. Consequently, a well coded EA rigidly performing a strategy with edge will trade better than 99% of humans. And yes, such profitable EAs do exist although very few in number, and despite the bigger market participants best efforts to make them edgeless.

lol - I think that is the same thing he was saying did you read my post ?
I quote my self quoting him
"Most of the programs he writes for the bank traders are of two natures
1. taking money from new or bad traders - he likened it to cutting grass it keeps growing and the bank cut it and take it in"

yes most people lose money and yes they the banks run computer programs that make a hell of a lot of money - as you are saying
but in a computer war I think - a trained human will win unless you have bank quality computers program.

you said "a well coded EA rigidly performing a strategy"
he said "they love these and eat them all day!"




just my thoughts

Ok, TEB fair enough.

I'll say it now, they'll have to eat those EAs faster then, because a few of them have been and continue to be consistently profitable for years now.

I agree with you of coarse

I know some people have EAs that make money - a friend of mine has one that does BBands and S/D
Most of the EAs I know work are very simple.

I think I have no stats
But If 80% of human traders fail - I think even higher like 95% of AEs fail

Yes, the few EAs that do work for long periods of time are usually based on simple concepts. That doesn't necessarily mean they were easy or simple to code though.

Ah, but you miss the point! Any 'loser' can become a winner just by having a good EA doing the trades for him. The same thing cannot be said of those losers who insist in discretionary trading, as most will continue to fail regardless.

Ok that maybe fair- and I do not code!!
so I am talking of simple human training -

discretionary trading - again a good human trader verse a good computer trader - I will put my money on the person

that is me

I don't code either, but I have friends who do, so I have some idea of how complicated, even impossible at times, it is to code seemingly simple concepts.

Caveat emptor, most people do not make good traders. Be careful on which person you put your money on.

lol ... on that we agree - I trade my own money, only!!!

Well, then I hope for your sake that you belong to the minority of competent human traders.

me too lol
I think I do ok .

You know I think any one can be a good trader. I read some were to be a good trader it takes about 10,000 hours of study and screen time
most people I think give up to soon.

The biggest issue I found was getting through all the BS
a lot of bones - very little meat out there

human vs computer....
One thing I wonder is this; if EAs can avoid losing entries under certain conditions, such as S/D, Fibo, Big #s, gaps, news spikes, and weekly/monthly pivots.

From my experience, the key to making profit is to avoid losing entries.
In other words, even if you have a simple good method, you don't make profit very much when you use it blindly.
See my point?
I use my method to get entry signs. My task is to evaluate the signs and make decisions. For example, if I have to go at a big #, I don't enter. Sometimes it needs a far more complicated evaluation.

I wonder if any EAs do this kind of approach.

Just my two cents.

You'd be amazed how many caveats there are. Another here: http://en.wikipedia.org/wiki/Dunning...3Kruger_effect . So, let your account be the one telling you if you are OK.



You've probably learn that from a Malcolm Gladwell book, 'Blink...' iirc. At least, he is the one author that generalized the idea, and while he has made quite a compelling case out of it and I enjoy reading his books, I do not agree. Can you make an omelette without eggs? Think about it.

@TEB63 (and anyone else who likes to re-post this stuff)

People keep regurgitating these, and other 'classic' lines on a regular basis as if it’s some kind of key to the holy grail. If they said they were just guidelines (and if they actually made a bit more sense), I wouldn’t find it so irritating. Here's my take on these RULES!?!

1. NEVER, EVER, EVER ADD TO A LOSING POSITION: EVER!: Adding to a losing position eventually leads to ruin, remembering Enron, Long Term Capital Management, Nick Leeson and myriad others.

(Why not? Just because the market slid back away from my initial trade A, if it begins to move back up, and indicators are still positive, then go right ahead. Just ensure you know that your trade size is reasonable. Who says putting trade B on, in the same direction, is ‘adding to the losing position’? If you didn’t have trade A on, would you take trade B? Yes? Then go right ahead.)

2. TRADE LIKE A MERCENARY SOLDIER: As traders/investors we are to fight on the winning side of the trade, not on the side of the trade we may believe to be economically correct. We are pragmatists first, foremost and always.

(What? Everyone in war thinks they’re on the ‘winning’ side. This isn’t a war. If I put a trade on, no one dies or gets shot. When I take it off, ditto. This is just nonsense.)

3. MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two forms... mental and real... and defending losing positions diminish one’s finite and measurable real capital and one’s infinite and immeasurable mental capital accordingly and always.

(This is correct, but awkwardly phrased.)

4. WE ARE NOT IN THE BUSINESS OF BUYING LOW & SELLING HIGH: We are in the business of buying high & selling higher, or of selling low & buying lower. Strength begets strength; weakness more weakness.

(Again, correct. However, second line in sub-text is poor. Strength can beget strength …or weakness, and vice versa…we just don’t know, so be prepared.)

5. IN BULL MARKETS ONE MUST TRY ALWAYS TO BE LONG OR NEUTRAL: The corollary, obviously, is that in bear markets one must try always to be short or neutral. There are exceptions, but they are very, very rare.

(WRONG! Have they never heard of retracements and reversals? Different trends in different TF's? You can sail down a move in the 1H to 4H TF, all the while waiting till it stalls and rides up along with the daily or longer-term trend. Just be careful, watch risk level and never forget the larger trend.)

6. "MARKETS CAN REMAIN ILLOGICAL FAR LONGER THAN YOU OR I CAN REMAIN SOLVENT:" So said Lord Keynes many years ago and he was... and is... right, for illogic does often reign, despite what the academics would have us believe.

(What ego thought they ‘knew’ what was going on in the market and thus, what was going on was ‘logical’ in the first place? The market isn’t logical – it just ‘is’ and does what it does.)

7. BUY THAT WHICH SHOWS THE GREATEST STRENGTH; SELL THAT WHICH SHOWS THE GREATEST WEAKNESS: Metaphorically, the wettest paper sacks break most easily and the strongest winds carry ships the farthest, fastest.

(Good idea, but sometimes worrying about this is getting a bit too picky. If you’re happy sticking with a certain pair or pairs, and making money, then that’s absolutely fine.)

8. THINK LIKE A FUNDAMENTALIST; TRADE LIKE A TECHNICIAN: Be bullish... or bearish... only when the technicals and the fundamentals, as you understand them, run in tandem.

(Wrong. I’m technical, so I think technical and trade technical. Makes a lot more sense to me.)

9. TRADING RUNS IN CYCLES; SOME GOOD, MOST BAD: In the “Good Times” even one’s errors are profitable; in the inevitable “Bad Times” even the most well researched trade shall goes awry. This is the nature of trading; accept it and move on.

(There are no ‘good and bad’ trading cycles. This is a lot of pseudo-psychological BS. No indicator/trader can predict the market, so sometimes it moves with you and sometimes against. Fact. Remember, the market just does what it does.)

10. KEEP YOUR SYSTEMS SIMPLE: Complication breeds confusion; simplicity breeds elegance & profitability.

(Unless you prefer a more complex system/chart and are making money…then carry on doing what you’re doing.)

11. UNDERSTANDING MASS PSYCHOLOGY IS ALMOST ALWAYS MORE IMPORTANT THAN UNDERSTANDING ECONOMICS: Or more simply put, "When they’re cryin’ you should be buyin’ and when they’re yellin’ you should be sellin’!"

( Well, being technical, the mass psychology is linked to fundamentals and thus is already in the price action. Doesn’t seem like something many of us really need to think about.)

12. REMEMBER, THERE IS NEVER JUST ONE COCKROACH: The lesson of bad news is that more shall follow... usually hard upon and always with worsening impact.

(Well, not necessarily. Sometimes there is bad news…followed by good news. This seems like prediction…or waiting for ‘the other shoe to drop’, ‘bad things come in threes’, etc.)

13. BE PATIENT WITH WINNING TRADES; BE ENORMOUSLY IMPATIENT WITH LOSERS: Need we really say more?

(So, what does this mean? Put a really close stop loss? If a trade isn’t in profit in x seconds, close it? Me - I’d rather be patient with trading, let the market do what it does and be prepared to react.)

14. DO MORE OF THAT WHICH IS WORKING AND LESS OF THAT WHICH IS NOT: This works well in life as well as trading. If there is a “secret” to trading... and to life... this is it.

(No. Ignore what works – as it just works and sometimes more of what ‘works’ might stop it working and thus isn’t necessarily better. Examine what doesn’t work and see if you can make it work – or get rid of it.)

15. CLEAN UP AFTER YOURSELF: Need we really say more? Errors only get worse.

(Errors get worse? If you meant losses, rather than errors, then say losses – let’s stop being so vague. Better yet, try to be proactive, or at least be reactive to losing positions. )

16. SOMEONE’S ALWAYS GOT A BIGGER JUNK YARD DOG: No matter how much “work” we do on a trade, someone knows more and is more prepared than are we... and has more capital!

( What does it matter how much capital someone else has? The market will move because it’s being moved by buying and selling from various sources. Stop making it ‘personal’ or acting like someone is out to get us, or there’s someone we have to be beat/or be beaten by. Ridiculous, psychological nonsense again.)

17. PAY ATTENTION: The market sends signals more often than not missed and/or disregarded... so pay attention!

(Ok, this applies to so many situations, so, yes it’s generally true. But then again, there ARE SO many signals, it’s hard to know which ones you really should take note of...except for those VERY clever analysts who show us our blindness and stupidity...in hindsight. Doh! So, instead, just focus on the types of signals that work for you. KISS)

18. WHEN THE FACTS CHANGE, CHANGE! Lord Keynes... again... once said that “When the facts change, I change; what do you do, Sir?” When the technicals or the fundamentals of a position change, change your position, or at least reduced your exposure and perhaps exit entirely.

(No, don’t necessarily change things, such as SL, TP, exit strategy, etc. But, yes, as with #17, pay attention and then just re-assess the situation. Decide whether anything has changed ‘significantly’ enough for you to alter your original plan. Sometimes it’s best to let the plan remain and see how the story unfolds. Then apply #14.)

its always good to hear what other thinks

I wish you success and a nice weekend

Teb63,

I agree with you on the fact to keep it simple ,but then again we're only talking about a possible set up based on other criteria.

After 3 1/2 years and testing most so called systems i have to agree,I'm not there yet but you know what was an eyeopener....the quote at the bottom of every post from you.

And i know you once opened a thread where you ask this and you even didn't get a reply.

Gonna study some more and thx for your guidance altough it seem a puzzle,lol

Have a great weekend,

Deepfx

The concept of keeping it simple is true but also mis-leading, people translate it as meaning that to trade well you can only consider a few factors before trading decisions are made. The reality is that simple trading strategies are in fact no more or less successful than complicated strategies, what does matter is how the trader approaches the market....

Regardless of the complexity of a traders strategy he will only be highly successful if he chooses a structured or unstructured approach. Most traders, it appears begin with a structured approach but then add unstructured elements to the trading until they are neither using one or the other approach and in fact are somewhere in the middle....

In simple terms, trader A decides he will enter at crossover of ma's and exit at SR with a stop below the swing point..... highly structured and quite possible to make consistent gains..... Then the trader leaves valid trades because of "time of day", "big news release", "too near a big number".....etc etc, or will take profit early for similar unstructured reasons.... The strategy is still simple but the approach becomes muddled.

Trading is all about working at the extremes, it's the hardest place for us as humans to operate and it is why the vast majority become the average trader, unfortunately most of the information to help us learn as traders is either poorly explained or simply wrong... don't even get me started on support and resistance, how many books have been sold containing complete nonsense on that subject!!! !

So pick a simple or complex strategy but approach it in a simple manner, either one way or the other, and then simply follow your plan, simples

hi Minute man

I of coarse disagree - the more tools the less money
the longer the trader is trading the simpler he gets

everyone goes through the magic bullet - Holly Gail
in time people realize trading is about (1)money management and (2) stops and (3) RRR
and the system means less and less

I say a trader will make more money with one tool them 5 every time

just my thoughts

that's interesting, is that based on actual quantative data or is it just gut feeling?

1. "(1)money management and (2) stops and (3) RRR and the system means less and less "
its just facts
"
2. "make more money with one tool them 5 every"
What I have seen in the last ten years -I have never really seen a study on that
I do not knew a pro that had 5 tools - I know lots have 0 or 1 or 2 tools.

I am a lot more crazy busy this week and will have a lot less time
- But I will just use one tool this week
- lets say .... a 50 sma and let's see how it goes.