Help with dissertation

Hi guys,

Im a university student in my final year doing my dissertation, it is a research project, the title of the project is: "Identifying key characteristics of a winning forex strategy"

I have made some questions to be answered by some experienced and some intermediate experienced trader. It is a questionnaire to see what is a common answer amongst traders, and ultimately gain an understanding as to what actually is the key characteristic of a winning forex strategy.
I will make a new post on this, and I will be very very grateful if you can help me out to get answers in my questionnaire to the best of your knowledge please.

The questionnaire is at the bottom.

Kind regards

swissyking


Identifying key characteristics of a winning FOREX strategy

1) What is more important, technical or fundamental in a trading strategy? and why?

2) Do you think behavioral finance (psychology of the trader) affects the strategy he/she is following?

3) Are indicators necessary for a successful trading strategy?

4) How do you know when a forex trading strategy stops working?

5) Do fundamentals affect technical and if so why?

6) Why are indicators criticized?

7) Does discipline plays a big role in a successful trading strategy?

8) Does the success rate rely on the fact that a trading system must give more or less signals in a week? Generally speaking

9) What do you think should be or is the key characteristics of a winning trading system?

Hi again guys, i forgot to mention, im a trader, i have been following Trading made simple for 2 years now, and its been slow but great!

Try speaking with fund managers and/or large private traders with demonstrable proof of being winners.

Or you could just believe what anyone with the achievement of owning a Forex Factory forum membership wants to say. Its not like people lie on the internet, you know.

Thanks for that, but I'm trying to get a general understanding of traders view, also, I tried that but no luck, and I don't have enough time.

Swissy, is that seriously the name of your final year dissertation? What degree are you studying, and where?

Hi, yes, and Business & Finance, Wolverhampton university. this is part of my methodology.

Take my answers with a sizeable pinch of salt. I don't claim to be an expert.

1) What is more important, technical or fundamental in a trading strategy? and why?
A) The answer to this depends on the psychology of the trader and their goals. If the trader is after shorter time frame trading, the more likely they are to gravitate towards high volume trading which uses technical indicators almost 100% as guides to entry and exit points. Fundamental trading is more towards longer time frames and can use technical indicators but is not necessarily the central basis of the strategy. For me, at the moment I am using a scalping strategy based on a few indicators, but I actually started out wanting to try out fundamental trading strategies.

2) Do you think behavioral finance (psychology of the trader) affects the strategy he/she is following?
A) Yes, see Q1. People with less patience will likely scalp and those that can wait are more likely going to go for longer moves.

3) Are indicators necessary for a successful trading strategy?
A) Not necessary; there are people that can eyeball pure price action and make money. However, these people are not a majority (happy to be corrected on this one).

4) How do you know when a forex trading strategy stops working?
A) When your draw down is at a level where it would take an improbable sequence of events (big run of correct martingale calls) to bring it back up to profit. If the strategy actively uses Martingale as it's central strategy, then even a draw down of 40% in one trading session may not be a reason to say that the strategy has failed.

5) Do fundamentals affect technical and if so why?
A) Technical indicators inherently DO NOT account for the irrationality of the human species. Traders and the market do NOT operate mathematically the way the indicators predict. There might be short term mathematical behaviour but fundamental factors can totally screw up the market. Recent example is of the Doha Oil meeting over the past weekend that caused a huge drop in the UJ when market opened on Monday (I didn't check the news on the Friday and left my positions open over the weekend...got hammered on Monday but since I wasn't leveraged, I cut my losses when the market moved back in my favour on Tuesday)

6) Why are indicators criticized?
A) Because a lot of traders (expecially newbies) think the opposite to the answer in Q5. I also think that a lot of people misjudge the time scale that a indicator is good for. They may improperly use an indicator on a wrong time scale and when their account goes bust, they proceed to come onto forums such as these and then bag the indicator out as being *totally* useless implicitly claiming this to be true across all market conditions & time frames.

7) Does discipline plays a big role in a successful trading strategy?
A) Yes. Millions of articles on the web about this one.

8) Does the success rate rely on the fact that a trading system must give more or less signals in a week? Generally speaking
A) I'm iffy on this one. I think if a person is manually trading then if they try and 'force' signals, then they are setting themselves up for failure. I think success or failure depends less on the amount of signals and more on other factors like, following trading system rules, win %, leverage/lot size etc. I will say that some strategies actively do depend on lots of signals but really this is code for market volatility rather than just having more signals for the sake of more signals.

9) What do you think should be or is the key characteristics of a winning trading system?
A) There are several not just one. Personally I believe that no matter manual or EA, if the system is not making profit after a debatable number of trades/time, that is the key characteristic of the system. The system can be based on the most beautiful maths, but at the end of the day, month or year, if you are not green pips, then throw that system out.

Hi, this is perfect, thank you so much, im trying to get an understanding of a common theme between traders, its a research project! much appreciated.
Good day!

Ah OK. I thought you were making it up because the questions are so qualitative but I'm sure there's method in the madness hope this helps

1) What is more important, technical or fundamental in a trading strategy? and why? Neither, it's a straw man argument and depends on the size of the trades/fund/timescales of the trader.

2) Do you think behavioral finance (psychology of the trader) affects the strategy he/she is following? Definitely, unless they've automated every component of their trades.

3) Are indicators necessary for a successful trading strategy? Demonstrably no.

4) How do you know when a forex trading strategy stops working? If you trade strategies, I guess frequency and size of losses against a baseline, measured against probability are the only things that would tell you. So ultimately drawdown. I don't use them myself.

5) Do fundamentals affect technical and if so why? Any sudden outflow/inflow of money will produce patterns on a chart, therefore they have to.

6) Why are indicators criticized? Because they work on an assumption that they will reveal hidden mathematical relationships in price without addressing the assumption one way or another.

7) Does discipline plays a big role in a successful trading strategy? In execution only.

8) Does the success rate rely on the fact that a trading system must give more or less signals in a week? Again, no, subject to trade size and execution limits.

9) What do you think should be or is the key characteristics of a winning trading system? PROFITABILITY! OK, Clarity, precision and sense as well.

Hi, Thank you so much. much appreciated, this is great help! please get other traders to help me out!

I could answer all your questions, but it may be useful for your dissertation to have a look through some of my threads, particularly ' Trader's Academy', which has lots of stuff by me and other traders on all aspects of trading.

1) What is more important, technical or fundamental in a trading strategy? and why?

Both! Which one that is most important at any moment in time depends on the moment in time; the market is a SLUT, and she will move at a moment's notice to the next tick of new information/rumor. MOSTLY, it is technical because of the herd mentality of the masses, but then suddenly a fundamental change happens and PA (Price Action) bitch-slaps the technical traders.

Markets are moved mostly because of technical analysis - because most traders create this paradigm with their belief systems and trading volumes, and yet technical analysis lags the NEW DIRECTION of fundamentals. So it becomes a flip-flop. When there is a NEW Fundamental directional shift, the technical dudes become its bitch too, and follow Fundamentals like an obedient puppy dog.

2) Do you think behavioral finance (psychology of the trader) affects the strategy he/she is following?

Do dogs lick their balls?

Psychology is just a map of the mind being used at one moment in time. The "psychology of the trader" is NOT a thing that can be mapped; most human brains are incredibly unstable and are subject to emotional nonsense - like "shit, my wife is suddenly home, I better quit jerking off into her panties, and I better pretend I really am trading Forex seriously". Try and map that by 10,000,000 traders all doing their thing at the same time.

You MUST abandon the belief that the human mind can be mapped as a group in any logical way. We are all wankers; but we all do it in different ways.

Your question is poorly worded. But most certainly every trader has their own idiosyncrasies. 100 traders with the exact same strategy will find 100 ways to execute that strategy. Is that psychology or mental illness? It is simply human.

3) Are indicators necessary for a successful trading strategy?

Of course they are. BUT indicators INDICATE! They are not a God. Sheesh!

The better question is WHICH INDICATOR/S ARE SUCCESSFUL. None that are commercially released are.

But I do love mine.

4) How do you know when a Forex trading strategy stops working?

This NOT an astute question. "Working" is like an on/off light switch. It is either On or it is OFF. It makes money or not.

This is why EAs cannot work. Market conditions are always changing. There is NO SUCH THING as an EA that can make money in all market conditions. Ranging market conditions are 85% of the time; so trending EAs will fail 85% of the time. Ditto but in reverse for ranging market EAs.

The best I have achieved with how I made my millions is to KNOW when to step aside and NOT trade during a trending market. To then return to trading when that 3-5 day of trending shit has run its course.

5) Do fundamentals affect technical and if so why?

Fundamental changes, REAL fundamental changes - not just perceptions of change - change the direction of PA (Price Action). Big banks and corporations/hedge funds etc vote with the new direction of Fundamental change. Technicals on the other hand ONLY map what PA has happened. Eg, the Fibonacci needs PA to have already happened for it to map out what it expects will happen next. And then the traders follow that road map and (maybe) make it happen.

But Fundamental change is the horse, and technicals ride on its back. Fundamentals are the dog, technicals are the tail that wags behind.

Fundamental PA leads technical analysis.

6) Why are indicators criticized?

Because traders are idiots. The human only has a small measure of IQ. And of that measure, 50% are of below average intelligence. Read as - 100=average IQ, and 50% are below 100. 50% of traders are of below average intelligence.

We only know of concepts of God, because of the 50% of people of below intelligence and their need to "out-source accountability" for their decision making. And so indicators are criticized - no God could be so stupid as to send them an indicator that doesn't tell them the truth.

Dah! Indicators INDICATE. They are NOT God. But some people need their God.

7) Does discipline plays a big role in a successful trading strategy?

Discipline IS SUCCESS. If in doubt (of a trade), get the fuck out. THAT is one piece of useful discipline.

Trust the probabilities of your trading system totally, and hedge your ass in case those probabilities hit your down side. That's powerful discipline.

It is NOT a BDSM or SM thing. Discipline is the difference between winning or losing; it is the river flowing in the direction of your success. NOT being disciplined is you getting flushed down the toilet and drowning.

8) Does the success rate rely on the fact that a trading system must give more or less signals in a week? Generally speaking

Again, I think your English could be more clear.

Success means NOT losing. The trading system I mentor in uses an EA that sets BE (Break Even) + 1 pip at 5 pips profit. In the classic "The Richest Man of Babylon", Rule 1; protect your capital, don't lose it. Hence my systems rule of setting BE+1 at 5 pips profit so that as best as possible, money cannot be lost.

The trading signals of your system should have a risk assessment attached. Eg, Signal (A) should have say a 65% PROBABILITY of success. Signal (B) should have a 95% PROBABILITY. Trading between these 2 levels should therefore be between 65%-95% - PROBABLE..... YOU chose your trades based on PA at the time.

9) What do you think should be or is the key characteristics of a winning trading system?

Give the same trading system to 100 people, and somewhere between 1-20 people will profit from it.

It is NOT negotiable that the trading system must be solid. But it is ALSO NOT negotiable that the person driving the trading system must be solid too.

The human is NOT an intelligent organism. It is prone to fears, emotions, and too many areas on incompetence to list here.

BUT, with a proper focus on HOW to develop, over a few years humans can actually dominate Forex. And quite frankly, I think 10-12 year old kids would be the very best of students. Most adult minds are broken or corrupted with nonsense.

Whereas the 10-12 yo brain would see Forex as just a computer game to have fun with and "clock" (win).

Hi, i will defo look at it, i need info, if you can please take some of your time to do this for me, id be greatful.

Hi, this is perfect, thank you so much for dedicating your time for my study, means alot, have a good day!

this is probably one of the best posts in FF I have seen in a LONGG time ! So much wisdom on trading here from a true experienced trader.

I might post my dissertation after completing it, for any traders which wants to know and apply the key characteristics of a winning forex system, or at least what your system must acknowledge to be successful.

Agree with Rtm, dancingphil's comments are right on the money. All I would add is:

1) What is more important, technical or fundamental in a trading strategy? and why?
Nothing to add, Phil nails it perfectly IMO.

2) Do you think behavioral finance (psychology of the trader) affects the strategy he/she is following?
Yes, markets are ultimately the product of a collection of different belief systems, and psychology has a bearing on the way that each trader frames his beliefs about the market, and then places his orders accordingly. The more discretionary the approach, the greater the room for psychology to operate.

3) Are indicators necessary for a successful trading strategy?
Indicators can be helpful when they highlight phenomena that is not otherwise obvious from price itself.

4) How do you know when a forex trading strategy stops working?
Unless you can predict the future, there's no easy way of knowing whether a strategy has stopped "working" forever, or is temporarily encountering unfavorable market conditions. It's important to know the strengths and weaknesses of your system, and (like Phil says) avoid trading when conditions are unfavorable.

5) Do fundamentals affect technical and if so why?
To whatever extent fundamentals affect price movement, they necessarily affect technicals, because all technicals are derived from price.

6) Why are indicators criticized?
Because people don't understand how to use them effectively. Many folk, especially newcomers, tend to become over-reliant on indicator-based approaches because they lack the knowledge and self-confidence needed to make decisions from their own (nuanced) analysis. In that way they can deflect accountability, by blaming the indicators for any subsequent failure.

7) Does discipline plays a big role in a successful trading strategy?
Discipline affects execution of a strategy, as distinct from the strategy itself. In reviewing the reasons for any previous trading failures, it's important to be able to distinguish whether problems lie with the strategy, or the execution.

8) Does the success rate rely on the fact that a trading system must give more or less signals in a week?
Everything else being equal, more signals in a given time will accelerate the rate at which a system's P/L travels toward the desired goal (in the case of a profitable system), or ruin (in the case of an ineffectual system).

9) What do you think should be or is the key characteristics of a winning trading system?
It depends largely on the nature and goals of the system. But getting the right balance between maximizing return, and protecting indispensable capital, is a universal requirement. And while this is not really part of the 'system', the trader needs to somehow find a way of focusing on the process, and letting the money take care of itself.

Good luck with your dissertation. Picking the brains of FF members should help you on your way to an A+.

Both, but it depends on the strategy and where the trader is achieving his edge. If the trader is a quant freak trying to gain an advantage through superior technical studies, that is more important. If the trader has a genuine interest in macroeconomics and is trying to use that to his advantage, fundamentals are more important.

2) Do you think behavioral finance (psychology of the trader) affects the strategy he/she is following?
Yes, we generally enjoy doing things that we think we are good at. Confirmation bias also plays a part .... if a trader thinks he has figured out some big secret, he will likely cherry pick information that confirms his belief and build a strategy around that.

3) Are indicators necessary for a successful trading strategy?
I don't think they are necessary, it depends on how they are used and whether the trader understands how an indicator is calculated and whether it adds anything to his strategy.

4) How do you know when a forex trading strategy stops working?
The trader deletes his Trade Explorer and stops posting in FF for a while

5) Do fundamentals affect technical and if so why?
Yes, fundamentals change the relative value of a currency, TA is the study of how price moves to revalue itself.

6) Why are indicators criticized?
Technical indicators just rehash and repeat information that already exists on the chart, they don't add anything new.

7) Does discipline plays a big role in a successful trading strategy?
Yeah ...discipline, patience, humility, perseverance, intellect, lucidity ..... it's all important. If you are lacking in one area you will fail, so it's pointless arguing about which mental element is the most important.

8) Does the success rate rely on the fact that a trading system must give more or less signals in a week?
I don't think so. A lot of the most successful traders, over a period of several decades, take very few trades per year.

9) What do you think should be or is the key characteristics of a winning trading system?
The system must be based on verifiable and predictable periods of non-randomness which exist in the market itself, independently of anything the trader is doing. If something disappears because you look away, it isn't really there.

LOL.

You gotta be kidding.