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Interested in contrarian trading? Ask me!

  • Poll

  • which order do you prefer to use for entry?
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  • #1
  • First Post: Edited 9:42am Jan 20, 2016 2:04am | Edited 9:42am
I'm in the mood of giving back what I know to the community. Certainly I don't know everything but I did have some nice experience as an FX Dealer at a retail brokerage and later institutional trading.

This is not really a trading system but a foundation you can use to build your trading system on. More importantly it'll probably help you to have the correct psychology to trade against the crowd (hopefully). So any comment and discussion are more than welcome.

I know most retails wonder what is the ingredient of successful trading, I hope I will be able to provide you the answer. So let's start!

What's this thread about?

- The reasons the collective crowd is always net loser in financial markets
- Contrarian trading or trading against the collective losing crowd
- Sentiment Analysis, or the analysis of different market participants' positioning on the chart
- Some psychology and contrarian trading system design

One thing I can promise you. You will be able to make sense so much much more about how the financial market really works; without any indicators or even fundamental analysis. This is the key to explain almost anything in financial markets ( as far as I understand of course )
  • #2
  • Edited 9:22am Jan 20, 2016 2:36am | Edited 9:22am
Alright, so first question, is this true that most traders are losers? They always say that 95% traders are unprofitable, but is it true?

Here's a snap shot of a MT4 Manager (from my old broker), a backend management software that MT4 Retail broker uses to manage aggregate client positions:
Attached Image (click to enlarge)
Click to Enlarge Name: mt4-manager.png Size: 225 KB


Out of the 14,300 accounts opened there, there are only 200-300 active accounts left.
The number of online accounts is 197
The total open orders and positions are 2,983; which if an account have around 10 orders, total active accounts are around 300.

So you do the math... the long term survival rate is around ...2%. Even less than the 95% estimated. My experience is that this number may even be lower. Possibly around 1%, as the new clients haven't been stopped out yet... but they probably will be.
  • #3
  • Edited 8:41am Jan 20, 2016 3:02am | Edited 8:41am
I was also puzzled by this fact... As I thought why the statistics is so skewed against the retail traders and so beneficial for the B-Book broker (My broker is an B-Book). You can certainly understand why - it is an extremely lucrative proposition to trade against these retail traders.

I set out to find the answer why. At first I did suspect Retail losses are not because of their trading systems, or even the entries, but something's wrong with the majority of traders regardless of their entry/systems.

One day my boss was in the mood of greedy. He told me ( I was the dealer) to build a system to trade against these losers as he saw so many people were losing money, he thought that it was easy, all we needed was open the opposite positions of these traders. i.e. if the trader buys EURUSD at 1.0900 then we will sell EURUSD at the same time; when the trader got stopped out with loss we take profit.

Most traders here probably have thought about this idea before, but it seems noone has ever achieved it- to reverse a losing trader/systems into a profitable one.

Well I must say the journey to find out how to reverse a losing system is not easy. But I finally managed to do it. And it was a very worthwhile journey.

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Will be back on this much later... how to reverse a losing system into a good one.

I'm out for now.
  • #4
  • Jan 20, 2016 4:44am Jan 20, 2016 4:44am
mooniekool
Thanks will follow with interest..
Regards
  • #5
  • Jan 20, 2016 7:55am Jan 20, 2016 7:55am
Carry On Mate..
  • #6
  • Jan 20, 2016 8:38am Jan 20, 2016 8:38am
Go on bro
  • #7
  • Edited 9:36am Jan 20, 2016 9:14am | Edited 9:36am
Thanks qprfc, dilkasraj and Irwan1976. Let's continue, shall we?

The only useful indicator for FX Trading

So during my time working as an fx dealer, I created a proprietary sentiment indicator for them to understand our clients' behaviours. Essentially what this indicator will do is:

- Measuring Aggregate number of Long positions and Short positions of all clients. For example, at a specific time, the indicator shows 9,000 retail traders are holding long positions and 1,000 retail traders are holding short positions.
- Measuring Aggregate Volume of Long positions and Aggregate Volume of Short positions. For example, 80,000 lot of buying vs 20,000 lot of selling
- Measuring the Net position (long- short) position of all traders
- Measuring all retails' open orders, including all aggregate stops and limits at different price levels.

If you wonder what a stop and limit is:
- A buy stop order is always a pending buy above market price, a sell stop order is always below market price
- A sell limit order is always a pending sell above market price, a buy limit order is always below market price

So as a dealer,
I'll treat a stop loss of an open sell position as a buy stop order, the same way as you put a buy stop as an entry to buy breakout
I'll treat a stop loss of an open buy position as a sell stop order, the same way as you put a sell stop as an entry to sell breakout
I'll treat a take profit of an open sell position as a buy limit order, and take profit of an open buy position as a sell limit order

Hope you guys are not confused yet

I use this indicator to observe how these positionings change in relation to market price actions and specific price levels; hopefully to find some consistent patterns of the crowd behaviours.

Why do I say this indicator is the best indicator you can have? Because it doesn't lag, it isn't calculated based on past data, rather a snapshot of reflecting current Retails' sentiment. Better, it is independent from the price, unlike all other indicators relying heavily on OCHL and volume (which is also historical data).

P/S: very sorry I won't be able to share with you this indicator since it belongs to my broker and I have left them for quite a while. However I do have some charts to share with you guys.

More charts coming soon, hang on!
  • #8
  • Jan 20, 2016 10:06am Jan 20, 2016 10:06am
A simple preview on MT4 of the indicator with Net position (long-short)

Blue = Most clients are holding long positions
Red= Most clients are holding short positions

Attached Image (click to enlarge)
Click to Enlarge Name: sentimenttraders.png Size: 58 KB


Any questions so far?
  • #9
  • Edited 6:19pm Jan 20, 2016 10:16am | Edited 6:19pm
Quoting mooniekool
Any questions so far?
I might be jumping the gun, but I think I see where this could be heading. I've always said that, to be profitable, a trader must be net long while price is rising, and net short while it's falling, frequently/heavily enough to overcome costs.

If that is the requirement to be profitable, then it would follow that retailers lose because they do the opposite. Thus:

Entries: they trade pullbacks (use limit orders to enter) instead of breakouts (stop orders). (Hence the poll at the start of your thread?) This means that these retailers are entering while price is moving against them -- buying while price is falling; selling while it's rising -- thus putting themselves on the wrong side of momentum. Or put another way, their mindset tells them that they must buy low and sell high (rather than buying high and then exiting even higher, or selling low and then exiting even lower).

Exits: they continue to hold their positions while price is moving against them -- i.e. remain long while price is falling, and short while it's rising -- in the hope that price will eventually bounce back. (Instead of following the textbook maxim of cutting losses quickly, and holding on to winning positions).

Am I close?
______________________

[EDIT] So while price is plummeting in the yellow area, a growing number of clients are holding long positions? Crazy stuff!
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  • #10
  • Jan 20, 2016 10:58am Jan 20, 2016 10:58am
Guys, you are not even close to the truth! It's not about strategies, or discipline to follow the trend and cut losses.......There is something else. The real reason why people lose in the market is the transaction cost. (spread, commissions, slippage). It's almost like the zero on the roulette. Without it is a fair game..... So the trading game is heavily skewed against the player (trader).
The reality is that it's relatively easy to beat the market. It's relatively easy to design a system with consistent edge. To find profitable edge is easy. The hard part is to find edge big enough to overcome the trading cost!

I've done thousands of experiments over the years with algo trading and I have at least a dozen of 100% automated systems which are extremely profitable on a spread bellow 0.3 pips. assuming there is no friction.
Here is just one example. This system is a high frequency algo based on standard deviations and probability distributions. (market profile).
For the last 2 years it averages 60 trades per day. Turning 10K into 9.9 Mil. (this simulation is on GBPUSD but It works on all markets with similar results) It is absolute money machine, but unfortunately completely useless.
Attached Image (click to enlarge)
Click to Enlarge Name: HFT EQ(GBPUSD 2014-2016).png Size: 24 KB
  • #11
  • Jan 20, 2016 11:09am Jan 20, 2016 11:09am
mk- please go on. you r hurting people already.
  • #12
  • Jan 20, 2016 11:21am Jan 20, 2016 11:21am
Quoting alphaomega
Guys, you are not even close to the truth! It's not about strategies, or discipline to follow the trend and cut losses.......There is something else. The real reason why people lose in the market is the transaction cost. (spread, commissions, slippage). It's almost like the zero on the roulette. Without it is a fair game..... So the trading game is heavily skewed against the player (trader). The reality is that it's relatively easy to beat the market. It's relatively easy to design a system with consistent edge. To find profitable edge is easy....

i disagree, this is only valid for people who scalp, not every trader scalps, some traders trade higher TF with higher targets and stops, so those traders dont care about this.
I am what Many Dream to be but only a few can achieve, im a part of the 1%
  • #13
  • Jan 20, 2016 11:24am Jan 20, 2016 11:24am
I think Exits are very important......... retail traders Exit loosing trades too late and Exit winners too early.
I am what Many Dream to be but only a few can achieve, im a part of the 1%
  • #14
  • Jan 20, 2016 11:33am Jan 20, 2016 11:33am
there is no such thing as early/late entry/exit because you never know if you were early or late until something occur/does not occur.
As Above, So Below
  • #15
  • Jan 20, 2016 11:42am Jan 20, 2016 11:42am
Quoting hanover
{quote} I might be jumping the gun, but I think I see where this could be heading. I've always said that: {quote} If that is the requirement to be profitable, then it would follow that retailers lose because: Entries: they trade pullbacks (use limit orders to enter) instead of breakouts (stop orders). (Hence the poll at the start of your thread?) This means that retailers are effectively attempting to pick tops/bottoms, but -- more importantly -- they are entering while price is moving against them, i.e. buying while price is falling; selling while...
trading and entering/exiting a trade should not be considered just pressing a buy/sell button at highs or lows and just wait for the outcome.
my personal opinion is that entry is responsible for 10% of the successful trade, exit for 30% and 60% goes to trade management, i.e size positioning, scaling in and out when necessary just like a general who commands the army in a battlefield. it is not just you make one shot and if fail to aim the enemy, then you are dead.

Please disregard this post if you think it is irrelevant to the topic.
As Above, So Below
  • #16
  • Jan 20, 2016 11:45am Jan 20, 2016 11:45am
Quoting tashkent
there is no such thing as early/late entry/exit because you never know if you were early or late until something occur/does not occur.

there is! example, when i started forex a few years back i didnt follow a system, all i did was buy or sell, whenever i saw gains, doesnt matter hot much i would bank the gains, losses would run untill they turned to a profit..... sometimes id have to close them because they wouldnt stop getting bigger and entirely burn myself... so basicaly i would "early/late entry/exit" the most important was the exits killing me.
I am what Many Dream to be but only a few can achieve, im a part of the 1%
  • #17
  • Jan 20, 2016 11:46am Jan 20, 2016 11:46am
Quoting tashkent
{quote} trading and entering/exiting a trade should not be considered just pressing a buy/sell button at highs or lows and just wait for the outcome. my personal opinion is that entry is responsible for 10% of the successful trade, exit for 30% and 60% goes to trade management, i.e size positioning, scaling in and out when necessary.

I agree with this!


can you please explain your MM that you use in your trading and your targets?
I am what Many Dream to be but only a few can achieve, im a part of the 1%
  • #18
  • Jan 20, 2016 11:47am Jan 20, 2016 11:47am
Quoting alphaomega
Guys, you are not even close to the truth! It's not about strategies, or discipline to follow the trend and cut losses.......There is something else. The real reason why people lose in the market is the transaction cost. (spread, commissions, slippage). It's almost like the zero on the roulette. Without it is a fair game..... So the trading game is heavily skewed against the player (trader). The reality is that it's relatively easy to beat the market. It's relatively easy to design a system with consistent edge. To find profitable edge is easy....
'I have at least a dozen of 100% automated systems which are extremely profitable on a spread bellow 0.3 pips'
just put 2000$ in any one of them and have a life time earning, simple is that. NO it is not possible Market is alive, she change her habits so every move is a new move.
don't predict direction, but dance with flow of water
  • #19
  • Jan 20, 2016 12:25pm Jan 20, 2016 12:25pm
Without fail, retail longs seem to pick an average higher price than shorts do. Here is the latest data from FF

Attached Image
  • #20
  • Jan 20, 2016 12:25pm Jan 20, 2016 12:25pm
Quoting mooniekool
A simple preview on MT4 of the indicator with Net position (long-short) Blue = Most clients are holding long positions Red= Most clients are holding short positions {image} Any questions so far?


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