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  • #341
  • Sep 7, 2014 3:56am Sep 7, 2014 3:56am
Quoting jmn5611
Hey Prox, what about this one? http://www.forexfactory.com/showthre...66#post1956866
Its a long term strategy, i `m aware of the buy & hold & trailstop methods, but its more like investors thing than forex traders.In forex the market can just whipsaw, instead of going in a clear direction, but its definitely a winner strategy, on long term.

Which wondered me too, because if there is a winner strategy then it should be use right? Well, if the average monthly return is slow and market dependent then maybe not so much because a compounded daily or even weekly position can be better than a long term trade.

Besides you cant compound long term trades as you need a big stoploss so the lot must be small and 1 trade probably fills the entire risk margin.

While with shorter term trades you can compound and diversify better with the same risk, and also have a higher cumulative profit afterwards, as the fractal-like structure of the market allows more pips to be gained this way.

The problem is always the edge, long term markets are smoother, but without edge its not much difference there

Its always the edge! So no matter what strategy you look out, if it lacks an edge its pretty much useless ...
"There's a sucker born every minute" - P.T. Barnum
  • #342
  • Sep 7, 2014 5:06am Sep 7, 2014 5:06am
Quoting Proximus
{quote} Its a long term strategy, i `m aware of the buy & hold & trailstop methods, but its more like investors thing than forex traders.In forex the market can just whipsaw, instead of going in a clear direction, but its definitely a winner strategy, on long term. Which wondered me too, because if there is a winner strategy then it should be use right? Well, if the average monthly return is slow and market dependent then maybe not so much because a compounded daily or even weekly position can be better than a long term trade. Besides you cant compound...
One might measure "edge" as the statistical probability of emergence of "black swan"events (SL) among all the "white swans" (TP) assuming a "p" value < 0.001. Of course it would not be a real "trading" strategy, but more of a "probability game" strategy. But who cares, if it were profitable due to its "statistical" edge.
  • #343
  • Sep 7, 2014 5:12am Sep 7, 2014 5:12am
Quoting jmn5611
LITEchild, what is your view of this post? http://www.forexfactory.com/showthre...79#post3863679
This one as well http://www.forexfactory.com/showthre...35#post7350535
It looks like the millipede but his method is one-sided (no long and short at the same time). I like his method of entering with constant risk while increasing the leverage. But it is not as easy as he describes.
No greed. No fear. Just maths.
  • #344
  • Sep 7, 2014 5:23am Sep 7, 2014 5:23am
Quote
Besides you cant compound long term trades as you need a big stoploss so the lot must be small and 1 trade probably fills the entire risk margin.
This is a misconception you can trade daily or weekly with a 30-40 pips SL. Some do with smaller. And you have days to add to your trade so the leverage can become very big while all the other entries are locked in profit. This is exactly what Graviton does.
No greed. No fear. Just maths.
  • #345
  • Sep 7, 2014 6:54am Sep 7, 2014 6:54am
Quoting Paracelsus
{quote} One might measure "edge" as the statistical probability of emergence of "black swan"events (SL) among all the "white swans" (TP) assuming a "p" value < 0.001. Of course it would not be a real "trading" strategy, but more of a "probability game" strategy. But who cares, if it were profitable due to its "statistical" edge.
The edge is actually the expected value or expected profit on average /trade if >0 then its a profitable system, if its 0 then its breakeven, if under 0 then is BS.

And because of spreads, you always start with a handicap of expected value of X- spread, where the X is your strategy's expected value.

It's all a probability game, but it must be a controlled probability game, because otherwise you are at the mercy of the market.
"There's a sucker born every minute" - P.T. Barnum
  • #346
  • Sep 7, 2014 7:02am Sep 7, 2014 7:02am
Quoting PipMeUp
{quote} This is a misconception you can trade daily or weekly with a 30-40 pips SL. Some do with smaller. And you have days to add to your trade so the leverage can become very big while all the other entries are locked in profit. This is exactly what Graviton does.
That must be a sniper precision method, i must look up his method because it sounds cool.

Otherwise if you estimate the volatility, you can find out that even in short term it needs >100 pips. I`ve tested countless simulations between TP and SL and never ever i had a succesful outcome where the SL was smaller than 100 pips, and TP aswell.Also the RR ratio is also true, so i would see this as a Reward> = Risk , where we need to trail the stops, but it always comes down to the size of the SL, and that needs to consider the volatility.
"There's a sucker born every minute" - P.T. Barnum
  • #347
  • Edited 1:04pm Sep 7, 2014 7:46am | Edited 1:04pm
Quoting Proximus
{quote} The edge is actually the expected value or expected profit on average /trade if >0 then its a profitable system, if its 0 then its breakeven, if under 0 then is BS. And because of spreads, you always start with a handicap of expected value of X- spread, where the X is your strategy's expected value. It's all a probability game, but it must be a controlled probability game, because otherwise you are at the mercy of the market.
I agree.

So basically it would be a viable approach finding "controlled" & losing "black swan" events FIRST (although in reality these would be "gray swan" events, being "expected") which happen infrequently enough to accumulate more profits from the "white swan" events.
  • #348
  • Sep 7, 2014 12:19pm Sep 7, 2014 12:19pm
Quoting PipMeUp
{quote} This one as well http://www.forexfactory.com/showthre...35#post7350535 It looks like the millipede but his method is one-sided (no long and short at the same time). I like his method of entering with constant risk while increasing the leverage. But it is not as easy as he describes.
Interesting perspective that I agree with, and no, it's not as easy as it looks.
If you are good at something, never do it for free--Joker
  • #349
  • Sep 7, 2014 1:06pm Sep 7, 2014 1:06pm
Quoting jmn5611
{quote} Interesting perspective that I agree with, and no, it's not as easy as it looks.
Working on it... http://www.forexfactory.com/showthre...71#post7721871
  • #350
  • Sep 7, 2014 3:56pm Sep 7, 2014 3:56pm
Quoting Paracelsus
{quote} Working on it... http://www.forexfactory.com/showthre...71#post7721871
Quoting Paracelsus
{quote} I agree. So basically it would be a viable approach finding "controlled" & losing "black swan" events FIRST (although in reality these would be "gray swan" events, being "expected") which happen infrequently enough to accumulate more profits from the "white swan" events.
That strategy doesnt have an edge, its just playing with RR ratio, and then hope for the best.But the individual outcomes of the trades are the same random as with any other method.That strategy is a gambling one.
"There's a sucker born every minute" - P.T. Barnum
  • #351
  • Sep 7, 2014 4:04pm Sep 7, 2014 4:04pm
Quoting jmn5611
LITEchild, what is your view of this post? http://www.forexfactory.com/showthre...79#post3863679
I think he's full of shit. But thats just me.
  • #352
  • Sep 7, 2014 4:06pm Sep 7, 2014 4:06pm
Quoting PipMeUp
{quote} This is a misconception you can trade daily or weekly with a 30-40 pips SL. Some do with smaller. And you have days to add to your trade so the leverage can become very big while all the other entries are locked in profit. This is exactly what Graviton does.
Just checked out his posts. This guys good!
  • #353
  • Sep 7, 2014 5:06pm Sep 7, 2014 5:06pm
Quoting Proximus
{quote} {quote} That strategy doesnt have an edge, its just playing with RR ratio, and then hope for the best.But the individual outcomes of the trades are the same random as with any other method.That strategy is a gambling one.
Well, I disagree on that (about not having an "edge"). Without a thorough analysis I wonder how could you make such a fast judment, especially knowing your inclination for statistical validations.

The mentioned strategy's edge might be (if proven) that shortly after London Open and New York Open the price moves at least 20 pips "relatively smoothly" more often than creating a certain sideway wave form, resulting in a larger, but calculated SL. If this ratio is 20:1 or better (statistically and with a "p" value <0.001), then this strategy does have an edge. We shall see.
  • #354
  • Edited 8:09pm Sep 7, 2014 7:42pm | Edited 8:09pm
Quoting Paracelsus
{quote} Well, I disagree on that (about not having an "edge"). Without a thorough analysis I wonder how could you make such a fast judment, especially knowing your inclination for statistical validations. The mentioned strategy's edge might be (if proven) that shortly after London Open and New York Open the price moves at least 20 pips "relatively smoothly" more often than creating a certain sideway wave form, resulting in a larger, but calculated SL. If this ratio is 20:1 or better (statistically and with a "p" value <0.001), then this strategy...
How does that information benefit you, without a knowledge of direction you dont really have an edge?

What is the standard deviation of this "wave movement" so that you can put the STOPLOSS outside it?

If the ratio is better than 20:1 doesnt that mean that you need a much bigger SL to fade it , or do you trade it inversely by trading the move and this will be the TP.

Also in any case you need to measure the standard deviation so that you can put the SL outside of it.
"There's a sucker born every minute" - P.T. Barnum
  • #355
  • Sep 8, 2014 3:45am Sep 8, 2014 3:45am
Quoting Proximus
{quote} How does that information benefit you, without a knowledge of direction you dont really have an edge? What is the standard deviation of this "wave movement" so that you can put the STOPLOSS outside it? If the ratio is better than 20:1 doesnt that mean that you need a much bigger SL to fade it , or do you trade it inversely by trading the move and this will be the TP. Also in any case you need to measure the standard deviation so that you can put the SL outside of it.
@Proximus

Thanks for the response. Your questions show that you are much better in statistics than most traders, which is why I responded in your thread. As for now I have no idea about the standard deviation of the "SL triggering price wave movement"; it is still to be determined. If possible at all...

Just to recap: the mentioned strategy is a kind of zig-zag type "entry and reentry" with SL (if needed); taking 10 pips TP if the initial entry direction was picked correctly. If not, it re-enters with double lots at each further re-entries triggered by SL of the previous trade. Max. 4 entries per series. So if TP = 1 unit then one SL results in 15 units loss (1+2+4+8). A 20:1 W/L ratio results in 5 units net profit per 20 trades, a 30:1 W/L ratio gives a 14 units net profit per 30 trades, etc.
  • #356
  • Sep 8, 2014 5:00am Sep 8, 2014 5:00am
Quote
A 20:1 W/L ratio results in 5 units net profit per 20 trades, a 30:1 W/L ratio gives a 14 units net profit per 30 trades, etc.
This is completely wrong. The ratio converges toward the winrate. The difference is unbounded. The difference is a Bernouilli trial based random walk.

Even in the case of 20:1 W/L (95% success rate!) you have 51.9% chance of hitting at least one loser in any sequence of 15 entries. Each time you take a loss you need 15 winners to recover from this loss. But you have more than 50% chance of hitting a second loss before. You'll then need between 16 and 30 winners in a row to recover the two losses. But you have between 54.2% and 76.9% of hitting a third loss before that. And so on... the probability of not covering the loss is monotonically increasing.

There is no black swan in martingale. A black swan is an unpredictable disastrous event. The bankruptcy is not only predictable it is the most expected event!
No greed. No fear. Just maths.
  • #357
  • Edited 8:19am Sep 8, 2014 5:39am | Edited 8:19am
Quoting PipMeUp
{quote} This is completely wrong. The ratio converges toward the winrate. The difference is unbounded. The difference is a Bernouilli trial based random walk. Even in the case of 20:1 W/L (95% success rate!) you have 51.9% chance of hitting at least one loser in any sequence of 15 entries. Each time you take a loss you need 15 winners to recover from this loss. But you have more than 50% chance of hitting a second loss before. You'll then need between 16 and 30 winners in a row to recover the two losses. But you have between 54.2% and 76.9% of hitting...
Well, if we were rolling a dice, all the above were 100% correct.

But in this case we are playing with "psychologically twisted DICE" (meaning: greed & fear). In other words, this strategy opens its first trades with London Open and New York Open, when "fresh money" comes in and "itchy fingered" daytraders start their days.

To put it another way: This strategy's REAL EDGE is not a "clear" mathematical probability (as it does not have any), but the "typically" increased market volatility after the opening of London's and New York's financial markets with high impact "news" dropping in.
  • #358
  • Sep 8, 2014 5:45am Sep 8, 2014 5:45am
Quoting Paracelsus
{quote} @Proximus Thanks for the response. Your questions show that you are much better in statistics than most traders, which is why I responded in your thread. As for now I have no idea about the standard deviation of the "SL triggering price wave movement"; it is still to be determined. If possible at all... Just to recap: the mentioned strategy is a kind of zig-zag type "entry and reentry" with SL (if needed); taking 10 pips TP if the initial entry direction was picked correctly. If not, it re-enters with double lots at each further re-entries...
The SL is more like a risk control feature.Trading without stoploss is obviously a fallacy and one trader will pay very dearly if he doesnt use SL.

Attached Image (click to enlarge)
Click to Enlarge Name: EURCHFH1.png Size: 18 KB


Imagine yourself being long on the EUR/CHF and not using a SL during that spike. Would that be an easy margin call ? I think so.

Anyway, but if you use SL then its a problem with stophunting and SL being hit too much.Well that can be countered by putting large SL, but how large exactly, there must be a method to measure the optimal place to put the SL to, and thats where the standard deviation comes in. 3 SD from the mean is a very good place to put the SL, because in a normally distributed data, there is only a 0.269% chance that it will be hit.
But the price is not normally distrubuted, and its hard to estimate it, so its very complicated, and its another topic.

There is a very simple formula to calculate the edge: (Reward or TP * Winrate) - (Risk or SL* (100-Winrate) )
Where the winrate is in percentages,and reward risk preferably in pips so that the measurement units fit, and the result of the formula will be the expected value, or the average profit / trade in pips.If the result is negative then it has no edge.

EDIT: Also just a side thought, if we use the formula, and if we were to not use SL, then the risk is infinite right ? And the edge is also negative infinite, so this also proves that all NO SL SYSTEMS ARE BIG B.S.,and have no real edge
"There's a sucker born every minute" - P.T. Barnum
  • #359
  • Sep 8, 2014 5:56am Sep 8, 2014 5:56am
Quoting Proximus
Imagine yourself being long on the EUR/CHF and not using a SL during that spike. Would that be an easy margin call ? I think so.
Unfortunately, in such a case you could face a margin call even with a very tight stop loss. Very often in these spikes price moves immediately thousands of pips away. Since the movement is not gradual, your stop loss won't matter. Just like it happened today: Someone may have been long in GBUSD with SL at 1.6275 when the markets closed on Friday, but since the pair opened at 1.6166, he will lose an extra 109 pips.

Many times however, spikes like the one in your image are just software glitches that will be corrected by any respectable broker and the account will be restored.
  • #360
  • Sep 8, 2014 5:57am Sep 8, 2014 5:57am
Quoting Paracelsus
{quote} Well, if we were rolling a dice, all the above were 100% correct. But in this case we are playing with "psychologically twisted DICE" (meaning: greed & fear). In other words, this strategy opens its first trades with London Open and New York Open, when "fresh money" comes in and "itchy fingered" daytraders start their days. To put it another way: This strategy's REAL EDGE is not a "clear" mathematical probability (as it does not have any), but the "typically" increased market volatility after the opening of London's and New York's financial...
You can write in BIG, in bold or in blue to help convincing yourself that's won't change the facts. Your psychologically twisted dice makes things even worse because you don't know how it is biaised and this biais changes over time. Martingale is only a matter of faith. Keep believing.
No greed. No fear. Just maths.
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