51:49 system make us profitable?

[beatt]

Why is trading so complicated.

Let me make this presumption:

If I would take trades randomly and do set the same pip amount for profit and the same for loss (for example 15 pips), would be the result after many trades 1:1 (if I don't take into account the broker costs now) ?

I suppose it would be 1:1. Then here's my second presumption:
Can we found some high probability situations in the market that make the price go in one direction with a little more probability? What about breaking through the previous resistance, making higher highs and higher lows (the reverse for shorting)? Isn't there a bigger probability of going the price up after a breakout? Or breakouts from patterns like triangle, double bottoms, head and shoulder. Aren't these supposed to be as backtested signals for higher probability of price going in the specified direction?

I am not sure if these signals are really backtested and are considered as higher probability signals at all, that's what I would like to know. But when I was reading Gann books, I think there was such a statement about exact price patterns having higher probability.

If I presume that there are these higher probability situations/patterns:
Well, how higher the probability do we need above the 50% to make us profitable, even with the simple strategy as having profits at the same amount of pips as the losses? Again, I am not sure now, but could 55 - 60% higher probability be enough to make us profitable? And could it also cover the broker costs?

I am not sure if I explained my question right here. So I try once more.

If we have a system that gives us 50% probability of winning or loosing. Then our portfolio should be stable after many trades, right?
If we move the system even a 1% closer to winning probability, our portfolio should very slowly grow, right?
Can the higher probability patterns, candle formations, breakouts, indicators move us these few percents higher into the winning probability?
And if yes, why the simple strategy as having set the same pip amount for stop losses and take profits is not enough to be profitable? Or is it?
Is that because of the broker costs, that destroy this overall simple strategy? Are the broker costs so devastating in this strategy? Or is there something completely else I need to grasp?

Thank you.

 

[arabianights]

Brokerage costs will be the main issue, but you also have to take into account that such a tiny advantage might be illusory (i.e. isn't there at all and just seems to be from noise) and if it does exist that it requires placing so many trades for the edge to appear that your capital might disappear first!

 

[beatt]

Thank you arabianights.
Maybe I gave a bad title to this post. I don't mean only 1% advantage above the 50. I mean 1 and more percent advantage, with 51% being as the start of making any system profitable, if the loss/profit is of the same amount.

I am interested if there are some patterns that make this probability much higher than 51%?
If not, why else are there all these indicators, chart patterns, candlestick formations, fibonaci etc.
Aren't they just for this higher probability advantage?
And if yes, why do we need to set target profit much higher than stop loss if we have something that can tell us, that the price is going in our direction with higher than 50% probability?

 

[Claudia123]

Get a copy of the FT pin it on a wall and throw a dart - 50/50 chance you will pick a winning stock. Now that is random trading - need to try it!!!

 

[case777]

Get a copy of the FT pin it on a wall and throw a dart - 50/50 chance you will pick a winning stock. Now that is random trading - need to try it!!!

Wasn't there some experiment once where they just let a little girl pick stocks out of a list, and then traded them, and made a profit? I'm sure I saw it in the news once.

 

[megamuel]

Apparently you can enter a trade on the flip of a coin i.e. heads go long tails go short, and still make money if you use good money management... Anyone want to experiment?

Sam.

 

[beatt]

I suppose there were lots of experiments already.

 

[adamscj]

Apparently you can enter a trade on the flip of a coin i.e. heads go long tails go short, and still make money if you use good money management... Anyone want to experiment?

Sam.

"make money" is such a subjective term. Over what timescale?

It's not possible for money management to make up for a bad (or random) strategy over the long run. Martingale's are a good example - give you the illusion of solid performance over a random variable but you'll always come unstuck in the end (call it Murphy's Law, Taleb's black swan, whatever)

 

[Claudia123]

"make money" is such a subjective term. Over what timescale?

It's not possible for money management to make up for a bad (or random) strategy over the long run. Martingale's are a good example - give you the illusion of solid performance over a random variable but you'll always come unstuck in the end (call it Murphy's Law, Taleb's black swan, whatever)

Martingale will always win - if the bookies or casinos would let you and you could afford the stakes!!! Joking apart, what you say i agree with - anything 'random' short or long term the market will eat you alive.

 

[megamuel]

I can't remember where I read about it now but yeah it was probably all balls anyway. If you google 'Trading coin toss' or 'flip coin trading' or something like that loads of results come up and there are lots of threads about it on here also... but I couldn't be bothered to read any of them long enough to see a conclusive result!

Sam.

 

[glyder]

I suppose it would be 1:1. Then here's my second presumption:
Can we found some high probability situations in the market that make the price go in one direction with a little more probability? What about breaking through the previous resistance, making higher highs and higher lows (the reverse for shorting)? Isn't there a bigger probability of going the price up after a breakout? Or breakouts from patterns like triangle, double bottoms, head and shoulder. Aren't these supposed to be as backtested signals for higher probability of price going in the specified direction?
.

beatt,
I think what you've described is the key to the basic mechanics of trading.Its what they teach on many courses and in many books. First find your edge (eg breakouts) and then trade it withinthe contextsof a money management system thatcuts losses.....but somehow the profitable execution is more tricky than the theory.

 

[beatt]

rikrok: but is there any backtested results, that prove that for example breakouts are really providing the higher probability of price movement in one direction? Isn't that an ilusion?

Because for example there are two groups of breakout traders.

One group do follow the new breakout direction.

And then there are counter trend traders, which I will post description from the "Way of the Turtles" book that I am now reading:

Instead of buying when markets make new highs, traders who use
countertrend strategies sell short at prices close to the same new
highs, counting on the fact that most breakouts of new highs do
not result in trends.

Ok, one group does believe that the breakout gives them edge that the price will follow in the direction of breakout. Another group does believe exactly the opposite.

Do they backtested what breakouts really cause?
Or they just blindly think that this is their edge and if they are profitable, then it's more about their money management rules?

 

[glyder]

rikrok: but is there any backtested results, that prove that for example breakouts are really providing the higher probability of price movement in one direction? Isn't that an ilusion?

Because for example there are two groups of breakout traders.

One group do follow the new breakout direction.

And then there are counter trend traders, which I will post description from the "Way of the Turtles" book that I am now reading:

Instead of buying when markets make new highs, traders who use
countertrend strategies sell short at prices close to the same new
highs, counting on the fact that most breakouts of new highs do
not result in trends.

Ok, one group does believe that the breakout gives them edge that the price will follow in the direction of breakout. Another group does believe exactly the opposite.

Do they backtested what breakouts really cause?
Or they just blindly think that this is their edge and if they are profitable, then it's more about their money management rules?

Hi Beatt,
Ithink you are right when you say its the money management rules that are key.
Ihave done the TU course and thats effectively what they teach..breakouts with money management techniques. There are true and false breakouts but true ones often give a good return. (BTW... The course is OK, but expensive and prob not necessary for anyone to take who has the resources on this and other forums, but I needed a bit of a push in the right direction, and hadn't discovered these forums at the time.)

Linda Raschke also has a system which is anti breakout called turtle soup. She's a short term trader, so theres a matter of style involved too.

In theory either way will work with good money management.
My dificulties come in scanning for/ finding good opportunities and not jumping into the markets at other times just due to wanting to be trading rather than waiting.
Discipline in other words.

 

[beatt]

I have read just now at the MoneyTec forum, the trader "theposer" wrote there years ago:

I trade part time but its my full time income. Bit of advice for someone who is looking for inspiration and is sick to death of the utter waffle and tosh that come out of the mouths of these pessimestic traders who say garbage like things such as 'it takes a unique person to make a profit in this game' and twits that say 'i've been trading for 2 years and i'm barely profitable, you need alot of experience and training to do this' My background is horse racing and i was and still can be very profitable at that game, my methodology was all about probabilities, odds, percentages etc if you apply this to the forex the bigger picture is:

YOU HAVE A 50/50 CHANCE OF MAKING A PROFIT EACH DAY since the currency pairs will either finish higher or lower at the end of each day you could in theory just toss a coin.

NOW combine this with a stop loss of say something like 35 pips your chances of making a profit over the course of time are gigantic because the a currency pair will finish maybe 70-80 pips (on average) ahead or below where it started at the beginning of the session and sometimes as we all know it can even run 200 odd pips in a session, but you can never lose this much because of your stop loss.

Now i'm not saying to just toss a coin and hope for the best all i'm saying is REMEMBER THE BIGGER PICTURE at the end of each session it can only finish 2 ways up or down you just have to guess right which you cant every time but hey you just need to have a better than 50% guess rate and you will profit overall or simply include a stop loss and it dont matter if you havent got a guess rate of 50% because the profit/reward ratio will be about 2 or 3 to 1.

IGNORE THE MISERABLE ONES they wont help you because they cant see the BIGGER PICTURE

Can it be that simple? Anyone tested this strategy? Or even using it profitably?

 

[arabianights]

I've created a new thread inspired by the money management question.

http://www.trade2win.com/boards/gen...-complete-idiot-s-2-minute-guide-trading.html

 

[glyder]

I have read just now at the MoneyTec forum, the trader "theposer" wrote there years ago:
?

I think that quote ignores few complexities like being stopped out due to whipsaw moves.
But, it might work out over the longer term.
Or, maybe I should be ignoring those complexities and just get on with it..!
With an 'edge' eg pinbars / breakouts / fib rets or some confluence, it should have an even better. Chance.
I find it amazing and frustrating that I can spew out all these terms and I even understand what they alll mean and how to find the set ups, but still that hasn't made me a consistently profitable trader yet.....
whats missing is probably discipline, confidence, time, and (much further down the list) sufficient capitalisation...

 

[Aspire]

Yeah, that guy is ignoring the fact that markets don't move in straight lines and you can very easily get stopped out for your 35 ticks only to see it 200 higher by the end of the day.

As for the original question...

The problem with applying it to traditional chartist's setups like break outs, triangles, head and shoulders etc is that these are places you get a lot of squeezes or just people stopping out as it edges past a certain point only to return to value afterwards etc.

How about just looking for a strong trend in the middle of nowhere where the volume is still strong and there are no big levels or anything in the way of your target? That could be worth testing.

 

[beatt]

You will get stopped many times for -35. But you can always reenter or reverse trade. I am not sure how many of you tested this simple strategy and tried to tweak it?
I am learning MetaTrader programming and will test it.