Fighting an Average Joe

This is a discussion on Fighting an Average Joe within the Forex forums, part of the Markets category; I'm relatively new to the Forex market, if not take into account some experiments 10 years ago when I lost ...

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Old Nov 24, 2017, 10:07am   #1
Joined Feb 2008
Fighting an Average Joe

I'm relatively new to the Forex market, if not take into account some experiments 10 years ago when I lost about $1,000 and quit

So, here is an idea which I got, which may be naive, but anyway:

What if we try to trade against an "Average Joe"?

What are key characteristics of this person?

1. He takes small profits, especially when they are in danger. It's clearly visible if you analyze Oanda Order Book sentiment indicator for a while. If there are a lot of traders with unrealized profit, they will prevent the market moving further, until they finally close their profitable positions while the market is moving sideways, making them feel danger every time they virtually lose their virtual profits.

2. He never closes his losing positions until they become profitable or breakeven. Yes, there is a hard stop loss every time named "margin call", but I don't think that a lot of traders get it each and every day, so we should not take them into account. It's, again, clearly visible from Oanda Order Book. I feel (yes, it's my opinion, not facts) that there is no correlation between traders with unrealized losses and market moves. They are not eager to do anything, they just wait for something magical to happen until the end.

So, what will be an ideal setup against our Joe?

We can reward ourselves not for the amount of money taken from the market, but for the total time spent in profits, not losses. It means that we will try to enter the market and close losing positions almost immediately, leaving profitable positions almost forever. This way we will have unrealized profit almost all of the time we are in the market, not losses.

But, unlike poor Joe, we will never take these profits from the market, but just be happy that we have some profitable position running. It's not for us to decide what will be the target profit level, it's the market who has the power.

And, taking into account the danger of leaving open positions over weekends and holidays, it may be a good idea to open them throughout the week, then close at the end of the week, in the last hour of Friday or somewhere close to it.

Yes, it still leaves an open question how to find the direction of the market this week, especially when market is moving sideways for a long time. On the other side, these small losses when we try to enter the market until we find a correct direction will be relatively small to the overall gain on good weeks.

This strategy doesn't mean we will profit each and every week, or even on a monthly basis. It will lose money frequently, plenty of small losing trades in a row. But, when we finally find a correct direction by our genius or by throwing a coin, it will reward us for all our losses at the end, with a single big move.

So, what do you think? Is it a solid idea or am I missing something?
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Old Nov 24, 2017, 10:25am   #2
Joined Feb 2002
I think personalising the game into you against a certain opponent risks diverting your efforts and planning into unforeseen measures. These might win the battle against the opponent but will they mean you take on more risk, or make less profit?

Think of driving a car from A to B. Do you want to drive from A to B quickly and without excessive risk? Or do you want to get to B before the guy in the pick-up in front? The destination is still B, but how does that make your journey better?

As for weekend risk, this surely depends on the instrument you trade. Equities and their indices can have large weekend gaps, but usually in forex these are very small, not worth losing out on a continuing price move.
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Old Nov 24, 2017, 10:45am   #3
Joined Feb 2008
Max Pastukhov started this thread
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Originally Posted by tomorton View Post
I think personalising the game into you against a certain opponent risks diverting your efforts and planning into unforeseen measures. These might win the battle against the opponent but will they mean you take on more risk, or make less profit?

Think of driving a car from A to B. Do you want to drive from A to B quickly and without excessive risk? Or do you want to get to B before the guy in the pick-up in front? The destination is still B, but how does that make your journey better?

As for weekend risk, this surely depends on the instrument you trade. Equities and their indices can have large weekend gaps, but usually in forex these are very small, not worth losing out on a continuing price move.
I feel that driving the car faster than the other guy is not the right analogy. Trading is about stealing other people money. It doesn't create wealth, it redistributes it. So, if we want to win, we must understand that if we win, somebody will lose. Or vice versa

If you want both you and Joe win, who will be the loser?

I feel that the key to the market is in psychology, not in maths. Maths will give you some stats on human psychology, that's all. My teacher on the theory of probability always told us that it's more important to understand what you are trying to measure, than the numbers themselves.

I agree with you on weekend risks, I just want to find some easy way to determine how long should I keep profitable trades running if I don't have any target price level at the end.

Anyway, I'm not arguing you, I just want to find some inner flows in this model, Thank you for the feedback

I'm already trying this strategy on a demo account. I like the feeling of being in unrealized profit all the time
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Old Nov 24, 2017, 10:55am   #4
Joined Feb 2002
Well, I don't think trading is about stealing other people's money either. And as for the psychology, this is important - but mostly in awareness of your own psychology. Why? - because if you lose, you beat yourself, the market didn't beat you. Another reason why personalisation of this game is misleading.

I never enter exit order at profit targets. I let price go as far as it will, and I get out either at the extreme of profit minus my initial capital risk, or if price pattern is so weak its obvious the trend is over. But I also pyramid the winning trades along the way.
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Old Nov 24, 2017, 11:34am   #5
Joined Feb 2008
Max Pastukhov started this thread
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Originally Posted by tomorton View Post
Well, I don't think trading is about stealing other people's money either. And as for the psychology, this is important - but mostly in awareness of your own psychology. Why? - because if you lose, you beat yourself, the market didn't beat you. Another reason why personalisation of this game is misleading.

I never enter exit order at profit targets. I let price go as far as it will, and I get out either at the extreme of profit minus my initial capital risk, or if price pattern is so weak its obvious the trend is over. But I also pyramid the winning trades along the way.
Yes, I agree with you that the main benefit of learning psychology is in getting a better understanding of your inner self. It's funny that I started to learn psychology 15 years ago to become a better marketer. I soon found that I changed the way I feel and organize my business and my life in general. It didn't help a lot in marketing, but I have no regrets about the time invested

You are definitely right in your decision to let profits run. But what if your pattern detection "engine" is broken? Can you please look at your statements and confirm that you could earn less money if you wait a bit longer?

It's not an abstract question: you are an experienced trader, so it's important to understand whether I can rely on my judgment of trend reversal patterns, or not? I talk about the times when I will finally get enough experience to see these patterns and act on them.

The main question for me at the moment is simple: should I exit my trades after a given time, or should I look for some other ways to find the right moment? Technically speaking, by refusing to sell something I agree to buy it at the moment. So, when you close some of your long positions, does it automatically mean that it's a good time to go short?

Is there any more effective way to get maximum profits other than waiting for sime time for a newbie trader? And will it change over time?
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Old Nov 24, 2017, 11:43am   #6
Joined Feb 2008
Max Pastukhov started this thread Here is yet another insight on the topic:

I read a lot of "newbie" topics on this forum, I got deeper into threads of those people who position themselves as experienced traders. I see a common pattern here: all of them talk about "trading the market", not trying to predict it. So, you trade what you see at the moment, not what you expect to see in the future. Trade present, not the future, in short.

It's easy for me to get short-term feeling of the market. I feel that it will reverse at the moment, but this feeling doesn't add anything if we take into account spreads and comissions. All these feelings become obsolete when we are talking about higher timeframes. And, if you let your profits run, what is a chance that, when you are closing your long-running trade, you are acting according to a short-term feeling, not the long-term one?

If you decide that it's the right time to close the position, is it according to a momentum? Or is it according to a long-term vision, compared to the length of a trade? Relatively long, sure, if we talk about hours, not days.

And, if you close the position, do you "trade the market" or not?
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Old Nov 24, 2017, 12:04pm   #7
Joined Feb 2002
I don't rely on patterns as such, unless you call a trend a pattern. Most of my trades are long-term trend-following. I enter when a trend is established though that means I miss the reversal at the start. I exit when the trend ends though that means I miss the price extreme at the end.

I could make more profit on an individual trade by holding longer, but this is only visible after price has moved on. Before then, if the trend weakens seriously, the risk of loss becomes greater than the risk of gain and that's a good exit scenario.

Getting out and reversing is an aggressive strategy and usually won't work on a long-term time-frame. It fails to follow any of my rules on trend-following so I don't do it.

Each position stays open until it is stopped out by either hitting the original stop, or by hitting the new stop after it hit break-even (and I opened a new duplicate trade). But all positions are closed if net gain reaches +25% of the account size (and I intend to take a week off if that ever happens again).
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Old Nov 24, 2017, 12:28pm   #8
Joined Sep 2013
Quote:
Originally Posted by tomorton View Post
I don't rely on patterns as such, unless you call a trend a pattern. Most of my trades are long-term trend-following. I enter when a trend is established though that means I miss the reversal at the start. I exit when the trend ends though that means I miss the price extreme at the end.

I could make more profit on an individual trade by holding longer, but this is only visible after price has moved on. Before then, if the trend weakens seriously, the risk of loss becomes greater than the risk of gain and that's a good exit scenario.

Getting out and reversing is an aggressive strategy and usually won't work on a long-term time-frame. It fails to follow any of my rules on trend-following so I don't do it.

Each position stays open until it is stopped out by either hitting the original stop, or by hitting the new stop after it hit break-even (and I opened a new duplicate trade). But all positions are closed if net gain reaches +25% of the account size (and I intend to take a week off if that ever happens again).

One question: fundamental or technical? How do you define you are in a trend? Bloomberg or WSJ advice?
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