Can you maintain success?

[Reds28]

I don't care what changes in the forex market. Whether the relationship between pairs, fundamentals, the way people trade, etc, etc, at the end of it all it is going to result in one of two things - either a ranging or a trending market. But that's not to say it isn't difficult trading, of course it is, or else we'd all be rich. But if you care to look at any chart of any instrument going back however long you want you will see there's ranging or trending periods. Everything else is encapsulated within that.

"Any 'system' that is profitable over time and produces consistently good results will be picked up by your broker. He will analyse your trades and reverse engineer your strategy then place the trades before you, in size. Thus pushing your prices out and reducing your profit."

Hogwash. I am just a tiny, inconsequential player in the market. Do you seriously think my trading strategy will impact a trillion dollar forex market.

 

[IFeelFree]

... I am just a tiny, inconsequential player in the market. Do you seriously think my trading strategy will impact a trillion dollar forex market.

If your trading strategy is significantly profitable, chances are that others are using something similar, or will discover it eventually. Profitable trading systems tend become less profitable over time as others discover them. When too many traders are using the same system, it ceases to be profitable.

 

[tomorton]

If your trading strategy is significantly profitable, chances are that others are using something similar, or will discover it eventually. Profitable trading systems tend become less profitable over time as others discover them. When too many traders are using the same system, it ceases to be profitable.

I just don't believe that the 10% of private traders who are profitable have sufficient weight in any market that the mainstream industry even notices we exist. This is just superstition or paranoia or something but just clearly not based on evidence or even logical theorising. Traders don't become losers because they're using a system that's not secret any more.

We've been seeing one or two folks on T2W even recently saying they're making huge pip gains every week but daren't disclose how they're doing it in case that makes the market sit up and take notice and magically stop it working. Absolute BS. But their thinking is hugely funny.

 

[barjon]

I just don't believe that the 10% of private traders who are profitable have sufficient weight in any market that the mainstream industry even notices we exist. This is just superstition or paranoia or something but just clearly not based on evidence or even logical theorising. Traders don't become losers because they're using a system that's not secret any more.

We've been seeing one or two folks on T2W even recently saying they're making huge pip gains every week but daren't disclose how they're doing it in case that makes the market sit up and take notice and magically stop it working. Absolute BS. But their thinking is hugely funny.

Yes, you've only got to read the article "Day in the life of an FX spot trader" that options-George mentioned recently to see that most professionals operate in a way that is so foreign to private traders as to be on a different planet.

There's also a lot of tosh talked about determining the sentiment of traders. Again, most professionals are trading to satisfy orders they have been given at a price that is acceptable to the client. If you're busy trying to sell half a million shares that's your job and it doesn't matter a whit whether you think the market is going up or down.

 

[IFeelFree]

... Traders don't become losers because they're using a system that's not secret any more. ...

Many traders have observed profitable trading strategies suddenly become unprofitable. Often it's because they become too popular. An example is the "buy-on-gap" strategy. Many traders know of different versions of this strategy. For example:

"In its simplest version, just buy at the open 100 stocks within the S&P500 which have the lowest returns from their previous day's lows to the current day's open, provided that these returns are lower than one standard deviation. (The standard deviation is computed as the 90-day moving standard deviation of close-to-close returns of a stock.) Exit such long positions at the day's close."

This strategy was profitable in 2007 and much of 2008 (up until the end of October 2008). It delivered 19% average yearly return with <4% maximum drawdown during this period. However, during the subsequent period Nov 2008 - April 2012, it delivered an average yearly return of negative 6%. The strategy was dead.

Another example is pairs trading. Many traders and institutions made money with this strategy in the 1990s and 2000s (including Long-Term Capital Management). However, many traders have seen formerly profitable pairs become less profitable and finally go "bad". At this point, many traders have declared pairs trading dead.

 

[tomorton]

There's nothing to say these strategies have been consciously killed off by as a result of becoming publicly known. We know the market is moved by the big players and it could be said therefore its rigged. But that doesn't mean we should all be paranoid they're out to wipe us out if we disclose on a forum what stupid MA crossover trades we're taking with our pathetic £5,000 accounts.

As for LTCM's strategy, that was always a stupid gamble, its just that those guys found ingenious ways to convince the money men it wasn't risky at all. Same as CDS's in 2008.

 

[NVP]

Some good points here ......but remember we are all mere individual,observers in a global market that is so vast we cannot comprehend it's size or true dynamics.......

Sure we can all offer our own opinion on what markets do over time ......but as long as there are markets there will be winners and losers......just make sure you are in the former group during your brief tenure in the game

N

 

[radex78]

If your trading strategy is significantly profitable, chances are that others are using something similar, or will discover it eventually. Profitable trading systems tend become less profitable over time as others discover them. When too many traders are using the same system, it ceases to be profitable.

Maybe yes, if many trader around the world using same system and all them making trades on same time together, it will increasing demand on the market, and it will influenced to movement of price, but maybe will difficult for many trader use same system and will trade on same time, because each trader have own psychology

 

[NVP]

Maybe yes, if many trader around the world using same system and all them making trades on same time together, it will increasing demand on the market, and it will influenced to movement of price, but maybe will difficult for many trader use same system and will trade on same time, because each trader have own psychology

also remember there are 2 sides to every trade (a buyer and a seller)...........and both can be right .......

 

[IFeelFree]

There's nothing to say these strategies have been consciously killed off by as a result of becoming publicly known. We know the market is moved by the big players and it could be said therefore its rigged. But that doesn't mean we should all be paranoid they're out to wipe us out if we disclose on a forum what stupid MA crossover trades we're taking with our pathetic £5,000 accounts.

It's not a conscious effort to steal others' trading systems. Its simply that millions of traders around the world are trying to beat the market, and in many cases they're going to stumble upon similar trading strategies (often, by learning such strategies from others). Over time, the most profitable (and easiest to implement) trading strategies will be adopted by more and more traders. Eventually, a point is reached where too many traders are using a similar strategy, and that strategy tends become less profitable as a result. That's what has been observed with many once-popular trading strategies.

As for LTCM's strategy, that was always a stupid gamble, its just that those guys found ingenious ways to convince the money men it wasn't risky at all. Same as CDS's in 2008.

LTCM used too much leverage, pure and simple. This made them vulnerable, especially as they were investing heavily in riskier investments, such as Russian bonds. If they had limited their leverage, and restricted their trading to less risky investments, they'd have done fine. They got greedy.

Compare LTCM to another quant fund, Renaissance Technologies' Medallion fund, which (as of 2013) has returned an annual average net of 38% after fees. Since its 1988 launch, the fund has lost money in only one year, 1989, which saw a drawdown of 4%. Those guys at Renaissance Technologies are smart and did it right.

This brings up an interesting point. How do you beat the market with a strategy that other traders are unlikely to discover? If you have a strong math and programming background, one way is the develop your own trading algorithm, using sophisticated mathematical models. How many traders have the knowledge to implement that kind of system? I've been trading for the past 8 months with an algorithm I've developed that uses sophisticated statistical analysis. I'm on track to get >50% yearly return, with <10% maximum drawdown. I only trade once per week. I literally spend one hour a week trading. The rest of my time is free to do as I please. (I'm a retired physicist/software engineer.) I don't want to spend all my time staring at charts.

 

[tomorton]

Well, I do agree with (and like) a lot of what you say but I see so much of it is off-track. Yes, millions of traders are indeed trying to beat the market but a) their combined capitalisation amounts to zero so will never have the weight to affect the market's behaviour as it will never be able to move prices such that the big players will find it profitable to pay them any attention, and b) we are constantly reminded that what 90% of traders do is bound to fail. So even if they had massive capital behind them, they're mostly going to lose it and certainly their actions would not be worth following / replicating.

Beating the market is an impossible dream. Following market trends is an unbeatable strategy as no player has the strength to skew prices for long enough to beat out a single other player. Acknowledgements to Sun T'su.

As far as Renaissance Technologies are concerned, if they have a viable strategy, there is no reason the market will be found to have changed to make it fail. which was my original point anyway - that if you have a lucky strategy, whether you now it to be such or not, it will fail and you can only try and blame it on market "change", but if you have a successful strategy, it will not fail, and therefore there's no evidence there's such a thing as market "change".

I've got to say there's no justification to worry about another 10 or 100 or 1,000 private traders discovering and replicating any strategy you or I could think of - the big boys have either already passed that stage or know it won't work long-term anyway.

By the way, I'm with you - I see trading "full-time" as being hell, not heaven. I can't think of anything that would confirm failure more than having to trade full-time.

 

[IFeelFree]

Beating the market is an impossible dream....

Then why are we traders? (I assume you're a trader, no?) If we can't beat the market, we should just invest in an index fund and forget about trading.

My experience indicates to me that it is possible to beat the market, if you are smart, disciplined, flexible, and willing to put in the effort required. I've made some good trades (such as getting out the stock market in early 2008, and getting back in in March 2009) and I've made some bad trades (such as selling my gold position in 2013, two years after it peaked). Overall, I've done better than I would have with just a buy-and-hold strategy. My latest effort with algorithmic trading supports my confidence in myself. I've made a 32% return over the past 8 months.

 

[tomorton]

Then why are we traders? (I assume you're a trader, no?) If we can't beat the market, we should just invest in an index fund and forget about trading.

Beat the market - yes and no I suppose.

No, we can't make the market bend to what we want it to do. So many failing / failed traders have tried to do just that in the most literal sense - they seem to think they do can be somehow smarter than all the professionals and see imminent price changes that haven't happened yet, or that they can make a profit undetected like ninjas using algorithms they put together in the wee small hours in their back bedroom (as it the market even cared).

But, yes we can and must and do outperform the benchmark indices through short-term agile trading.

 

[barjon]

I always get a bit confused about these "trader" debates. There are traders who are traders per se (trading their own or their employers account) and there are traders who are trading in response to client orders. This latter group probably trade the big money and they are not competing with other traders, just trading to get the deal done at an average price that is satisfactory for the client. Nor, of course, are they trading according to their own analysis/sentiment/ feeling of market direction.

It seems to that what we do as private traders is, as Tomo concludes, insignificant in he extreme.

 

[radex78]

also remember there are 2 sides to every trade (a buyer and a seller)...........and both can be right .......

Yes it's right, buyer and seller will always there as two power in the market, and which one as winner is that having higher volume trasnaction I think

 

[Reds28]

If your trading strategy is significantly profitable, chances are that others are using something similar, or will discover it eventually. Profitable trading systems tend become less profitable over time as others discover them. When too many traders are using the same system, it ceases to be profitable.

I am not convinced with your argument. My systems are nothing new, they have been traded for years and possibly even decades. All I need is price to move regularly (as it normally does) and the ATR to remain stable over time. I have tweaked my systems a little. Two of my systems are working really well in demo so far. I have given up trading the really short time frames because you have to be glued to the screen, making it mentally exhausting. I used to hate trading the daily as always preferred the hour charts, but now beginning to warm to it. I saw the hourly as a good fit between reliability and knowing the outcome of the trade in a good time. From now, I will trade the daily, 4hrs and the hour, mostly the daily and hourly. The hourly still gives plenty of room to think logically which the really low time frames do not not seem to do as well. Good entries are a high priority.I also find the lower the time the greater the randomness, though it should be said there are people out there who are of course doing really well on the 15, 5 minute charts.

 

[IFeelFree]

I am not convinced with your argument. My systems are nothing new, they have been traded for years and possibly even decades...

It is known as the "lemming effect". The problem with too many traders following the same strategy is that some savvy traders anticipate the trade and front-run it. Or they sell early, causing the trade to fail prematurely. Or the market structure changes and a strategy that previously worked well suddenly blows up. You may trade your system successfully for years but if it causes you to take on positions that mimic what many other traders are doing, the trade can become too overcrowded and fall apart. For example, until last summer, strategies based on going long momentum stocks like Apple and Netflix worked well for years, but the trade simply became too popular, and since then a lot of these stocks have dropped dramatically.

 

[tomorton]

So, if too many people are buying something this always drives the price down?

 

[ffsear]

If your trading strategy is sa ignificantly profitable, chances are that others are using something similar, or will discover it eventually. Profitable trading systems tend become less profitable over time as others discover them. When too many traders are using the same system, it ceases to be profitable.

There is no such things as a profitable system. All you have are profitable traders, who don't relay on any such system but just good risk management and self control. A profitabke trader adapts with with the market, he changes his approach dependent on market conditions and knows when to stand aside.

 

[Sonicscooter]

There is no such things as a profitable system. All you have are profitable traders, who don't relay on any such system but just good risk management and self control. A profitabke trader adapts with with the market, he changes his approach dependent on market conditions and knows when to stand aside.

B00l0ck5.......do you make this stuff up?