Direction is everything.

S

Splitlink

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The only way to make money is to be sure that the market direction is correct and, if it isn't, to reverse it ASAP or, failing that, at least, to be out of the market.

If the above is correct, all other other considerations, systems, paid for, or not, are superfluous.

Anyone coming into the trading arena should know this.

Deducing market direction is not an easy task, although it may seem so. Nevertheless, concentrate all your attention on this because it is the fundamental pillar of successful trading.
 
Obviously, this does appply to directional trading of outright positions.

There are other ways to trade though - 'statistical arbitrage' aka pairs trading is still a predictive strategy but the prediction is usually that you think 2 correlated items who's correlation has gone out of it's historical mean will revert back the mean.

There's options strategies that rely on something not moving too. There's options strategies that rely on something moving a lot but without any preference of direction.

It can be as complicated as you want. These more exotic gambles are attractive at first because they appear to absolve you somewhat in terms of making a prediction. At the end of the day though, you can't really escape it.

So - sometimes direction isn't important but what is important is that you make a call on what you think will happen.

IMO of course.
 
Splitlink said:
The only way to make money is to be sure that the market direction is correct and, if it isn't, to reverse it ASAP or, failing that, at least, to be out of the market.

If the above is correct, all other other considerations, systems, paid for, or not, are superfluous.

Anyone coming into the trading arena should know this.

Deducing market direction is not an easy task, although it may seem so. Nevertheless, concentrate all your attention on this because it is the fundamental pillar of successful trading.
Click to expand...

Poppycock.:)

A well worked out trade money management plan alongside multiple entries and exits will do the job just as well. In any market conditions.
 
So C_V - you can make money if every trade goes against you ?

That's some pretty hot money management skills you have.
 
I tend to agree - from what I see of other methods, the lower risk also equals lower rewards and that doesn't fit a lot of retail accounts.

Of course, there are thousands of ways to trade, it could be that there are non-directional methods that require less capital to enable you to make a living wage.
 
I did not expect a deduction so simple to be well taken by all the theorists on market prediction. I read so much about where to put the stops that it is clear to me that the direction is not an issue--but it should be.

Stops and Market Management are essential to a trader's survival, no doubt about that, but they are what I mentioned earlier, another way of describing damage control.

The essential of good trading is to have a correct opinion on direction.

Stops and MM are the last resort of an unsuccessful trade but traders, old and new, do not always see them in that light. In fact, I get the impression that some are more pleased with only losing a little, rather than taking a profit.
 
I read so much about where to put the stops that it is clear to me that the direction is not an issue--but it should be.
Click to expand...

Hi Split, To me it would come back to this . Has the trader answered the question of

a) does he feel the markets are random or

b) doe he feel the markets are not random


This I think should be understood by the individual so they can develop the correct techniques to apply based on this fundamental understanding. I call it the matching principle, but I think it important in order to get the traders internals aligned with his externals, in order for them to be best positioned to perform to the best of their ability.

If this is not known then I see it as no surprise why people are confused with their own actions, behaviour and performance.


If they feel markets are chaotic and random, good lets develop a technique to exploit that or if they feel the markets are ordered and not random, then good lets developed a technique to exploit that and to exploit the random volatility !

How do you perceive the markets to be ?


This also ties in with this, If you know why you are starting a trade then you'll know when to stop it.

Again we can hand and glove that as soon as the trader knows the answer to the previous question.

So is the trader going off to the random school of trading or the Not random school of trading ? That is the direction they firstly need to establish and know for themselves.


Just my views into the pot.
 
spinola said:
Hi Split, To me it would come back to this . Has the trader answered the question of

a) does he feel the markets are random or

b) doe he feel the markets are not random


This I think should be understood by the individual so they can develop the correct techniques to apply based on this fundamental understanding. I call it the matching principle, but I think it important in order to get the traders internals aligned with his externals, in order for them to be best positioned to perform to the best of their ability.

If this is not known then I see it as no surprise why people are confused with their own actions, behaviour and performance.


If they feel markets are chaotic and random, good lets develop a technique to exploit that or if they feel the markets are ordered and not random, then good lets developed a technique to exploit that and to exploit the random volatility !

How do you perceive the markets to be ?


This also ties in with this, If you know why you are starting a trade then you'll know when to stop it.

Again we can hand and glove that as soon as the trader knows the answer to the previous question.

So is the trader going off to the random school of trading or the Not random school of trading ? That is the direction they firstly need to establish and know for themselves.


Just my views into the pot.
Click to expand...

I think that the market is random in the low time frames but not in the higher ones. Lower TF traders use closer stops.

This is like a football field with 22 players on it and a big steam roller with a width the same as the pitch. It runs from the centre, up to one goal mouth, then reverses to the other, leaving 22 ex-players with the juice squeezed out of them. The roller then proceeds in the direction in which it has decided to go.

I have read many times, complaints by traders that they make money in the first part of the trade, only to see it, finally, go into loss. The reason , in many cases, is that the market cleans the whole area out of the stops and it does not matter what direction the players are going in, because there is no direction.

The last resort? Damage control.

However, IMO, although anyone who considers that larger TFs are random may be correct, they should,also, be considering whether they should be traders. I, personally, believe that it has direction, otherwise I see no point in doing it.
 
Splitlink said:
The essential of good trading is to have a correct opinion on direction.
Click to expand...

Sorry, but I strongly disagree with this statement. The very essence of trend following is NOT having an opinion on direction. My system has put me into several trades recently which I've thought were doomed to end in failure (e.g. short natural gas about two months ago), but which ended up making money.

If you are a trend follower, or trade breakouts, your opinion is that markets will be volatile. It is emphatically not an opinion on the market's direction.
 
meanreversion said:
Sorry, but I strongly disagree with this statement. The very essence of trend following is NOT having an opinion on direction. My system has put me into several trades recently which I've thought were doomed to end in failure (e.g. short natural gas about two months ago), but which ended up making money.

If you are a trend follower, or trade breakouts, your opinion is that markets will be volatile. It is emphatically not an opinion on the market's direction.
Click to expand...

If I am a trend follower, and I consider myself to be one, I have a strong opinion on the market direction. For me, pullbacks must complete. If I anticipate what will happen inside a pullback area--and being human, I do, quite often-- then, I take more risk with my trade.
 
If you are a trend follower, or trade breakouts, your opinion is that markets will be volatile. It is emphatically not an opinion on the market's direction.
Click to expand...

Are you suggesting that it's possible to trade a volatility expansion on a coin flip and make money consistently? I can't see how you could do that without having a directional bias. Maybe I'm viewing things far too simply.
 
Splitlink said:
If I am a trend follower, and I consider myself to be one, I have a strong opinion on the market direction. For me, pullbacks must complete. If I anticipate what will happen inside a pullback area--and being human, I do, quite often-- then, I take more risk with my trade.
Click to expand...

Fair enough, that's your approach, but there are several very large and successful hedge funds out there (BlueCrest, Winton, JWHenry) which operate mechanical trend systems with zero opinion as to direction. Ergo, the essence of good trading cannot be having an opinion on the direction, because if it were, they could not exist.
 
Well, maybe not an opinion but even a mechanical system has to make a directional assumption.

Mind you, not all trading's like that - if you are pairs trading, for example, you couldn't give a toss about direction, just that one is trading stronger than the other.

jon
 
robster970 said:
Are you suggesting that it's possible to trade a volatility expansion on a coin flip and make money consistently? I can't see how you could do that without having a directional bias. Maybe I'm viewing things far too simply.
Click to expand...

Argh, please don't start with the coin-flip thing again, that's been debated to death on another thread.

You really don't need an opinion on direction to make money. You do need a view on the likelihood of trends existing or not, or the markets being volatile or not.
 
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