The most searched holy grail

Found here: http://www.forexfactory.com/showthread.php?t=476528

Quoting:

All of these folk are successful because:

1. Their strategy incorporates a proven edge, one that is grounded in exploiting recurring inefficiencies in price behavior.
2. They accept losses, and exit them quickly (whereas the amateur looks to somehow filter out losing trades, and/or recover from recent losses).
3. They prioritize risk management, by sizing their positions both small (relative to account size) and consistently, allowing both their method and their account to survive unfavorable market conditions, giving their edge the chance to ultimately prevail.
4. They focus on improving their market analysis and trade execution, not their P&L.
5. They understand and avoid the newbie traps that I listed here (and no doubt many others, also).
6. They know that it requires significant capitalization to be able to size conservatively, and also make a decent income (whereas newbies "need" something like 100% per month from their $1,000 accounts, and end up overtrading, and overleveraging themselves).
7. Their consistent execution involves discipline; and discipline comes from having confidence in a proven strategy, which comes only from experience, and is grounded in knowledge of how and why markets operate.

Yet none of these professionals would ever talk about their approach as being the "holy grail". That is a term used by newbies, and also by vendors who want to lure newbies into buying their worthless products.

Exactly, that's right..wish the other traders especially newbies, would quit posting thread requests for holy grails or at least use creative titles for the elusive holy grail and as regards the title of this thread, the answer would be "quest for eternal life"..

Excellent post. LOL

proven edge => is grounded in exploiting recurring inefficiencies in price behaviour.

"watch your charts, watch your charts, what your charts..." until you see something, which repeats.
If the chart has news effect like the FF's one, that may improve a bit.
Try to keep clean those charts, and no reason to draw so many lines, until the price will hit one of your lines.

So many thousands of hours wasted with chart watching is relative simple the trading, but only when you find YOUR edge.
The really sad news is: it takes years to know your edge and believe it on it.
The more sad news it is: it must be yours. There is no shortcut. It is not working the "lets pick a trade system from FF threads" - if can help you to find your way, but it will not be yours.

After you know your edge and the edge probability it is very easy to calculate the optimal leverage, which should be used for max profit in a given time in average case.
It can be adjusted with the expected consecutive losses and the max drawdown. On that case you will sleep well always.

"Master your system" and trade plan and other big titles. Just simply play those edges.
The price will not stop only because your SL is there or not. Your trade yes, but not the price.
Simply improve the hit strike of your trades, trade like a crocodile: wait wait wait ... hit deadly.
Yeah it is very boring, no adrenaline usually isn't fun at all: check the charts: nothing, next days nothing, and one day maybe maybe we are close to enter in a trade

A few years ago I have traded on 5min chart: daily I had at least 5 trades, sometimes even 20.
Now I watch the weekly, daily for direction and try to enter at 4h, news, I have 1-2 trades / week and I am happy with it
2 winner trade and no loosing / week (or 3 winner and 1 looser) it is multi billionaire way in a few years. Not worth the stress out with the 5 min chart. It is not instant, but this is not a lotto.

"recurring inefficiencies in price behaviour" What is implied under this phrase?

leebsurag, this is a very good question. To answer requires a definition of efficiency. There are many ways to view efficiency that would require many pages of text to describe fully. The concept of inefficiency is closely related to the concept of a trading edge. For better or worse, a moving average is often used as a proxy for efficiency with deviations from the mean as a measure of inefficiency.

As a simpler example, renko bars have an interesting property: the statistical probability of continuation and reversal can be mathematically figured based on efficiency. A typical renko chart has a 2:1 continuation:reversal ratio in terms of range. So the probability of a typical renko chart having another continuation bar is 2/3 while the probability of a reversal bar coming next is 1/3 if the normal assumption holds, or in other words if the market is efficient for that particular timeframe.

If actual renko bars are analyzed and continuation bars are summed and reversal bars are summed, you have the ability to compare expected behavior to actual behavior. In this case if actual continuation bars occur more than 2/3 of the time, you could say that the market is inefficient on this timeframe in the sense that it is more trendy than it should be. If actual continuation bars occur less than 2/3 of the time, you could say that the market is efficient in terms of trendiness, but inefficient in terms of mean reversion, because the market reverts more often than it should.

Once such an inefficiency is found, the question is whether you can create a profitable and tradeable strategy out of the knowledge that a particular form of inefficiency exists, and whether the efficiency is persistent enough to exploit over time while covering trading costs.

HTH,

Great post. Wish I had points 2 and 6 beaten into my skull when I first started.

It is your edge and that edge must based on price movement, not money management or anything else, eg: Martingale system.

One example could be:
When is a gap in price close of Friday and open Monday greather than X pips, than the Monday daily bar will be bull or bear with Y% probability.

Good example for today:


The reason behind of this: when the gap occurred the marked was closed, not enough traders and so on.
Can be a war stated, a natural catastrophe, a stupid speech form a major currency big dog...
Monday has lower volume usually and can be pushed easier.

This is a banal example, which can be true or not, y > 50 % or is less than.

Other can be- for sure this isn't working- the price if hits the psychological level of 0000 than it will retrace. Sometimes yes, sometimes not. I wouldn't bet on this, but this "edges" should be coming from your experience and you should be sure about that probability as you must know the answer of how much would you risk on that.

- based on the probability it is very different the risk which you should use to get the max gain (20% maybe 40%), altought the supported consecutive losses and the max draw down limits you more(down to 2% or 1% or 0.5% or even less). Anyhow, even 99% are short you should go long, once your trade system says that. So it isn't a great idea to get others system, because you don't get with that others experience.