Practicalities and philosophy of trading from a profitable trader

[D70]

There may be a reward to me holding a position over the weekend, or a reward to you taking the position from me and holding it, but it's not relevant to risk. Risk is about downside, not reward.

There's no doubt that things can gap during the day.

Consider opening a trade on some instrument. Trader A can close a loser any minute, Trader B can only close it at end of each day, trader C after each year (can't do anything before the year is up). All traders wish to exit when it's moved against them X points, all other parameters such as size are equal. Which trader has a higher potential loss and why?

Unless you've modelled this question over a bunch of instruments over 50 years you'll just be presenting your own beliefs. Do you have the necessary?

The point I was trying to make to Jungles was that he was making outlandish statements with no proof. One (me) cant believe these kinds of broad strokes without proof.

I wouldnt be surprised if entering a trade on a Friday night and closing it Monday morning doesnt yield better results than anyones trading "strategy".

 

[neil]

The poster is right about not trading during NFP and weekends. I will give you one clue. As soon as you enter the market you become a participant. Market charts reflects participants activity. Your activity affects the charts. It's the market makers who will profit.unless you are a market maker, or can mitigate your risk in your favour, most of you will not become successful at trading.

Absolute tosh dear boy !

 

[jungles]

Firstly, I am talking spot fx here.
Secondly, from my experience spot fx rarely gaps during the week; but it is not unusual for price to gap at NFP and on Monday/ Sunday open.
Thirdly, market gaps increase risk, because price can gap significantly past ones stop.
*You do not need years of research to appreciate this. It’s simple maths that any can understand.

Finally, ask yourself, do you need to increase your risk?

My trading style does not need to.

 

[Brumby]

Unless you've modelled this question over a bunch of instruments over 50 years you'll just be presenting your own beliefs. Do you have the necessary?

The point I was trying to make to Jungles was that he was making outlandish statements with no proof. One (me) cant believe these kinds of broad strokes without proof.

I wouldnt be surprised if entering a trade on a Friday night and closing it Monday morning doesnt yield better results than anyones trading "strategy".

If it is about overall profitability, the jury is out on this because there are swing systems that may require holding a position over weeks. However if it is about the sole ability to manage risk then the prospect of weekend gaps (no matter how remote) takes that away from you and you are at the mercy of the market. Shakone is talking solely about risk management and I agree with his view.

 

[browser]

Absolute tosh dear boy !

NFP is extreme volatility. Weekends are extreme low liquidity. Basics, dear chap, only amateurs and experienced losers trade these.
As soon as you enter the market, you become a trade to trade against. Chart patterns reflects collective trades, it changes when you enter. Therein lies the secret. How many of you trade without realising your money is now for the taking.

 

[goldmember1]

NFP is extreme volatility. Weekends are extreme low liquidity. Basics, dear chap, only amateurs and experienced losers trade these.
As soon as you enter the market, you become a trade to trade against. Chart patterns reflects collective trades, it changes when you enter. Therein lies the secret. How many of you trade without realising your money is now for the taking.

Since the conversation has changed slightly, I thought I would give my own opinion on this:

I think that small orders that go through brokers are not true DMA, rather they are internally matched through ECNs, so the true market rarely sees your order - however your broker can which means they can match it to their b book (essentially the well known and somewhat overemphasised broker stop hunt). Thus trading through NFP and weekends does not get seen on the interbank order book unless you are trading a size that the local ECN network cannot handle - I don't know the exact value that this becomes a problem, but many brokers guarantee at least 50 lots at a given price so I would expect that the figure is somewhere around 50-100 lot sizes. I am far away from trading that size, so the only think I need to look out for is local market making.

As for trading over the weekend, NFP, low liquidity and large news events, its largely unavoidable for the way I trade - but I do make a best guess at what the news will be based on my understanding of current events (the previous ADP, unemployment claims all pointed to a higher NFP for example). If I tried to avoid every small piece of news then I would be constantly jumping in and out of trades. Yes, unexpected news and developments can happen, but I just try and read up on them, find the significance and react to what they mean.

 

[browser]

Since the conversation has changed slightly, I thought I would give my own opinion on this:

I think that small orders that go through brokers are not true DMA, rather they are internally matched through ECNs, so the true market rarely sees your order - however your broker can which means they can match it to their b book (essentially the well known and somewhat overemphasised broker stop hunt). Thus trading through NFP and weekends does not get seen on the interbank order book unless you are trading a size that the local ECN network cannot handle - I don't know the exact value that this becomes a problem, but many brokers guarantee at least 50 lots at a given price so I would expect that the figure is somewhere around 50-100 lot sizes. I am far away from trading that size, so the only think I need to look out for is local market making.

As for trading over the weekend, NFP, low liquidity and large news events, its largely unavoidable for the way I trade - but I do make a best guess at what the news will be based on my understanding of current events (the previous ADP, unemployment claims all pointed to a higher NFP for example). If I tried to avoid every small piece of news then I would be constantly jumping in and out of trades. Yes, unexpected news and developments can happen, but I just try and read up on them, find the significance and react to what they mean.

Hi ,goldmember those are very good points, but regardless if the trade is absorbed by matching client orders, or not, it affects the charts as the charts reflect total participant activity. Activity is morethan price, it is also about volume and tick volume.

If it works for you then your trading style must not be opening trades during that time most probably, but rather position trading in longer time frame. Certainly its't not avoiding every market moving activity, as this would be counter productive,but managing risk.
Now over to your excellent posts on psychology

 

[random12345]

NFP is extreme volatility. Weekends are extreme low liquidity. Basics, dear chap, only amateurs and experienced losers trade these.
As soon as you enter the market, you become a trade to trade against. Chart patterns reflects collective trades, it changes when you enter. Therein lies the secret. How many of you trade without realising your money is now for the taking.

So if I have a 5mi order 20 pts away from the current price 30 seconds before NFP, you're saying someone will move the market (and risk running into considerable orders) to pick up my cash even if the results cause a mass reversal away from that position and bust their own stops on their accumulated short positions along the way? Or are you implying they can magically move the market without being risk on themselves?

Someone please explain.

 

[random12345]

Since the conversation has changed slightly, I thought I would give my own opinion on this:

I think that small orders that go through brokers are not true DMA, rather they are internally matched through ECNs, so the true market rarely sees your order - however your broker can which means they can match it to their b book (essentially the well known and somewhat overemphasised broker stop hunt). Thus trading through NFP and weekends does not get seen on the interbank order book unless you are trading a size that the local ECN network cannot handle - I don't know the exact value that this becomes a problem, but many brokers guarantee at least 50 lots at a given price so I would expect that the figure is somewhere around 50-100 lot sizes. I am far away from trading that size, so the only think I need to look out for is local market making.

As for trading over the weekend, NFP, low liquidity and large news events, its largely unavoidable for the way I trade - but I do make a best guess at what the news will be based on my understanding of current events (the previous ADP, unemployment claims all pointed to a higher NFP for example). If I tried to avoid every small piece of news then I would be constantly jumping in and out of trades. Yes, unexpected news and developments can happen, but I just try and read up on them, find the significance and react to what they mean.

I've been catching up on this thread. Your thinking isn't too shabby, a lot of clarity of thought. CM is a bit hard on you because he used to have to use a 14.4 modem to get his quotes list back in the day

I'd only say so far:

- 8% shouldn't be considered too hard a cap at your level. Maturity with regards risk is very important, but I wouldn't apply that maturity to reward or it's a self fulfilling prophecy. I assume you are not sat on hundreds of thousands here so you don't want to limit yourself to 'what's achievable' early on. I would keep working at it and do that later...

- I can't let this ride. Margin Call was about fixed income MBS' that they packaged themselves after buying up the mortgages, not strictly about trading or frequency thereon (these are securities they flog to investors). They did not control the risk as directly as a retail trader would control risk with a stop or reversal as there are qualitative volatility factors and principal decay (not to mention tiny interbank liquidity for active trade in these) and the example you give is incorrect. Fixed income requires a lot of time to understand in itself (likely on a trading floor) and really shouldn't be used as examples on forex trading boards, but I'm just surprised people let this ride since mostly they are b'tards on this board.

- Don't buy too much into Fooled By Randomness et al - a lot of these quasi mathematical essays are sidetracks during your precious trading lifecycle, which not many of us should expect to last beyond 10 years. It's wishful thinking to assume that a lot of Insitutionals are thick and not what I experienced when I was part of that life. The book smacks of something he'd wanted to write since being annoyed with the brash CME type at the start of the book... doesn't make it relevant to the more present day and why are you dwelling on this sort of stuff rather than efficiencies in your own trading? :smart:

 

[goldmember1]

I've been catching up on this thread. Your thinking isn't too shabby, a lot of clarity of thought. CM is a bit hard on you because he used to have to use a 14.4 modem to get his quotes list back in the day

Thanks for your reply!

Much of what I say is in general terms that is reduced down to more simplistic terms that is easy to understand in about 300-400 words. There are plenty of holes and generalizations in what I say, but I am trying to get a general point across rather than specifics.
5-8% per month as a figure is a decent figure to aim at - this is not fixed, there are plenty of people who manage to get higher than this in the short term. I am working on beating this figure through various low risk methods but I will hopefully come onto that another time.
Although Margin Call wasn't about forex, the point I wanted to emphasise was about the application of risk assessment to trading and how many retailers ignore it (generally misunderstanding money management as not risking more than 2% a trade) rather than the specifics of the instrument. The example served as an illustration of what I wanted to say next.
Nick Talebs book is one of the more interesting books I have read on the trading but yes, should not be followed verbatim. I am also aware that his fund isn't particularly high performing, but he has some great analogies that I borrowed because I felt that they emphasised the points I wanted to make, not that I thought that his trading style should be followed.

I fully understand what you saying, but I didn't want to mention/or argue about many of these points as they serve as illustrations to save a lot of verbiage - lots of my posts are wall of text as it is!

Conclusion to statistics posts

As cliff notes to previous few posts on statistics. I have made the following conclusions that I follow in my own trading. You may disagree with them, and apply other thoughts, but they have been instrumental in driving the way that I make money. There is a lot more in depth that you can go into - there are various books and online resources that can help. There is also software that is a shortcut for calculating odds but I recommend that you understand the principles behind them rather than just feeding your results into a computer. The interpretation (as in anything not just statistics) is very important if you are going to draw a conclusion. The conclusions I drew are this:

1. Losing an account/blowing account is far more probable that what win rates and loss rates indicate (see permutations)

2. Survivability grows accounts (with constant compounding) more efficiently than high risk systems

3. Despite systems repeatedly having an edge over the market, single systems or techniques are short lived and need to replaced to maintain an edge

4. Population studies show us other factors outside of mere win/loss rates and statistics influence profitability and drawdown and that these factors are very significant. Any trading should be taken on the side of caution.

Of course statistics are necessary to tell you whether your system will work or is worthwhile continuing with. Its incredibly important with technical trading but it equally tells us that winning 80% of the time with 2:1 win rate is not all there is to it.

My trading system is based a lot on surviving as this is what makes money as an investment.

Why have I emphasised this point? The issue is that even if you have a 75% win rate system with a 2:1 reward/risk ratio (which no one I have ever seen has achieved) it will still eventually blow up given enough time. If you trade 50% risk on that system it will blow up very quickly. If you trade 1000 times per day, it will blow up in a matter of months. No matter what system you use, no matter how great it sounds, if you do not understand that all systems have finite lifespans in the matter of trades that are rapidly shortened by trading many times per day or by increasing risk per trade, then you have missed the point. I have also made the point of looking at your own statistics and relating that to the theoretical statistics (either given by a guru or by backtesting) and questioning why there is a discrepancy. Is there something you are doing wrong, or is the fault of the system itself?

You might ask - why have I spent several posts discussing what I could have posted in one post - its because it serves to illustrate and emphasise certain points. You can quibble about small points but rather than discuss those I want to put forward my general ideas and I hope you find them useful.

This concludes the 'statistics' part as I want to move onto talking about other subjects in further posts.

 

[goldmember1]

Market speculation Part 1

The few posts I will make will probably be contentious and people will have their own opinions - but take in mind that what I have discerned myself:

We all trade the 'market' as speculators. The price is volatile and we hope to take advantage of volatile movements to make money. Many forex traders trade a derivative rather than true instruments, (although there are obviously people who trade shares, futures etc) and it can be easy to forget that there is a world outside of pure speculation. Many teachers in forex I have read seem to indicate that trading is just a 'battle between bulls and bears' and the price moves up or down depending on whose will is the strongest. I entirely disagree with this view, and tend to teach this bulls and bear theory as the mainstay of their teaching (again, some people will disagree with me and think that bulls and bear speculators rule the market).

Here is a simple illustration. Let us say that there are 10 traders on this forum, all with fair retail accounts of $30-50 000. They get together and decide that there is a great place on the 61.8% retrace and all decide to go long GBPUSD for 1 lot each. They plan to buy for 20 pips profit. Overall they move $1 million, but because they close their longs, they sell off their total 10 lots within 20 pips, and in fact the longer term movement is only $2000 (10 lots x 20 pips x $10/pip). Even if they have direct market access (and their trades are not b booked or herded off somewhere else which is more than likely) the effect they have is only short term, and the long term effect is $2000 only.

On the other side, we have a 18 year old from London who has decided to spend the summer backpacking around the United States. He figures that he will be gone for 6 weeks, and can spend $50 a day on hostels and eat pancakes etc to get around. He converts GBP to $2100 at the bank so he has enough to spend, and his order is keyed in. This will be a long term effect since that money will be permanently converted.

Of course the 18 year old will not have direct market access either (just as the retail traders will not) but it illustrates a point. 10 retail traders pushing quite large lot sizes for retailers all trading off the same trade idea have less of a long term effect than a spotty 18 year old who decides to go travelling for the summer on a budget. The backpacker has no idea of technical analysis, fundamentals, or what the central banks are doing. All he knows is that he wants to go to the US to get laid, and he has decided to put his order in today because yesterday he was hungover. His order was placed at 10.30am because he missed the 10am bus.

Note this is for illustration purposes only; I fully realise that the backpacker does not have DMA and there is an order book, but the point I am trying to make is that there are a lot of factors outside of trading that influence supply and demand for a currency. It does not have to be a backpacker, it could be rich family travelling to the US from the UK, or a UK company doing business in the US.

These deals have nothing to do with bulls or bears. Or battles between them - they are decisions that are made in 'real life' away from the trading charts. Note this is a part 1 - I will continue this thread of thought.

 

[random12345]

Market speculation Part 1

The few posts I will make will probably be contentious and people will have their own opinions - but take in mind that what I have discerned myself:

We all trade the 'market' as speculators. The price is volatile and we hope to take advantage of volatile movements to make money. Many forex traders trade a derivative rather than true instruments, (although there are obviously people who trade shares, futures etc) and it can be easy to forget that there is a world outside of pure speculation. Many teachers in forex I have read seem to indicate that trading is just a 'battle between bulls and bears' and the price moves up or down depending on whose will is the strongest. I entirely disagree with this view, and tend to teach this bulls and bear theory as the mainstay of their teaching (again, some people will disagree with me and think that bulls and bear speculators rule the market).

Here is a simple illustration. Let us say that there are 10 traders on this forum, all with fair retail accounts of $30-50 000. They get together and decide that there is a great place on the 61.8% retrace and all decide to go long GBPUSD for 1 lot each. They plan to buy for 20 pips profit. Overall they move $1 million, but because they close their longs, they sell off their total 10 lots within 20 pips, and in fact the longer term movement is only $2000 (10 lots x 20 pips x $10/pip). Even if they have direct market access (and their trades are not b booked or herded off somewhere else which is more than likely) the effect they have is only short term, and the long term effect is $2000 only.

On the other side, we have a 18 year old from London who has decided to spend the summer backpacking around the United States. He figures that he will be gone for 6 weeks, and can spend $50 a day on hostels and eat pancakes etc to get around. He converts GBP to $2100 at the bank so he has enough to spend, and his order is keyed in. This will be a long term effect since that money will be permanently converted.

Of course the 18 year old will not have direct market access either (just as the retail traders will not) but it illustrates a point. 10 retail traders pushing quite large lot sizes for retailers all trading off the same trade idea have less of a long term effect than a spotty 18 year old who decides to go travelling for the summer on a budget. The backpacker has no idea of technical analysis, fundamentals, or what the central banks are doing. All he knows is that he wants to go to the US to get laid, and he has decided to put his order in today because yesterday he was hungover. His order was placed at 10.30am because he missed the 10am bus.

Note this is for illustration purposes only; I fully realise that the backpacker does not have DMA and there is an order book, but the point I am trying to make is that there are a lot of factors outside of trading that influence supply and demand for a currency. It does not have to be a backpacker, it could be rich family travelling to the US from the UK, or a UK company doing business in the US.

These deals have nothing to do with bulls or bears. Or battles between them - they are decisions that are made in 'real life' away from the trading charts. Note this is a part 1 - I will continue this thread of thought.

Confused me now. What do you mean by the 'money is permanently converted?' A physical foreign exchange desk simply gives him USD out of their USD float, takes the GBP and banks the GBP if they have any left at the end of the day, they can convert that back to USD as they need at an interbank physical rate later on depending on the float balance requirements for the next day.

No money is lost from the fx market this way. Market prices are determined outside of physical delivery almost entirely. The retail physical end's footprint on fx rates is barely tangible, they just provide a convenient way to exchange currencies and profit when they bank their relative floats for each day (as they will have increased in total value since the bank will convert at a better internal rate (not necessarily the spot) than they sold to the customer and their cashing fee will be low at their yield).

I'm afraid retail participants do have more of an effect than your teenager. The next customer comes in and swaps 1.5k GBP for USD. Their USD float goes up by $2400 say. Their GBP float is the same as the start of the day. His 'trade' never hits the market even by the most spurious route of float encashment and played no function in determining spot. If the retail trades did hit the interbank or their brokers hedged risk there then they have some tiny barely measurable effect at least.

 

[goldmember1]

Note this is for illustration purposes only; I fully realise that the backpacker does not have DMA and there is an order book, but the point I am trying to make is that there are a lot of factors outside of trading that influence supply and demand for a currency. It does not have to be a backpacker, it could be rich family travelling to the US from the UK, or a UK company doing business in the US.

Hi thanks for reading. I actually previously placed the bolded quotes to help people understand the point I was making. At some point the foreign exchange float will be totalled up and a portion balanced on the spot market, so the 18 year old does have an effect, just as filling up your car with gas does not effect the spot oil price, but adds to the cumulative effect.

Market Speculation Part 2

Of course, a busy bank is not just going to have one 18 year old walk through its doors in a day. There are plenty of real life interactions you can do to directly participate in the foreign exchange - you can send money abroad for business, to help out your grandmother pay her hospital expenses outside of Medicare etc. There are also foreign exchange transactions that you can do that influence others to carry out foreign exchange transactions. Clicking on adwords on Google can cause a non US company to pay Google in dollars. Buying American Airline tickets influences the airlines overall profits that can cause eventual conversion to dollars.

Although none of these effects will happen instantaneously on the spot market, they will be balanced on the spot market at some point. We can go further to realise that there are many influences that we have on the foreign exchange market - the weekly grocery shop in the UK for example is a plethora of foreign exchanges as rice comes from America, wheat from India, oranges from the Eurozone, milk from Poland. Filling up your car at the petrol station while you do your weekly shop influences the oil prices (again, this is not an immediate effect on the spot price, but eventually has an effect on total demand). Buying a foreign car has an effect, all significant real world price movement.

Although none of this is instantly relayed to the spot market as there is no DMA access, the seemingly random timing can effect the market as the books will be balanced at different times. Whether you decide to buy your car this week or the next, book your holiday this week or the next effects the total number of foreign exchange transactions that goes through on the market this week or the next. Other more significant effects can be 'seemingly random' - a overseas business deal might be agreed this week or the next because the chief negotiator sprained his ankle. A UK businessman thinking of buying a shipment of American goods might be distracted by a trip to Vegas. A foreign exchange transaction might be delayed until the next day because the woman from the back office had to pick her sick daughter from school.

The overall sum of all these movements is chaotic and much of it random to the outside especially when you add up all the transactions, all the businessmen, parents with sick kids, sprained ankles, backpackers etc in Singapore, Russia, Brazil, Qatar and Vietnam all having their influence on the market in real money. With so many participants and so much "randomness" it does put a lot of limitations on how much you can realistically predict.

 

[goldmember1]

Speculation part 3

With all these seemingly random events then it becomes hard to imagine how you can possibly predict what is going to happen over a short term. There are of course many teachers and traders who claim to be able to have figured out how to accurately 'predict' the outcome of these many events. Now, these events are not random, but from the outside perspective and because we lack the ability to track millions of transactions that take place over the world, I would consider them beyond the capability of a pivot point or a candlestick to predict. The charts or technical analysis has to contain all of these elements and the speculative elements caused by hedge funds, retailer traders, pension funds, life insurance who may not be directly be speculating on currency but may require foreign currency to purchase bonds or equities in certain countries.

I have seen (mainly on babypips) posters who will have a question such as "I did a perfect trade - why did it go wrong?" or "I made 30 pips profit on this trade, but I missed out on 60 pips by exiting too early" and post up their support and resistance lines and indicators and wonder why "real life" did not follow their charts. In my mind, attempting to predict price perfectly (I have mentioned before) is impossible. There will be no doubt people who argue strongly against me and claim they are able to predict perfectly, but predictably I have never seen anyone offer any track record who has those claims. Instead of predicting or forecasting (which reminds me very much of divination of other soothsayer type arts) I prefer to use evidence to speculate on future prices.

Again, I have to write that this may be nothing new to some people but it is a point that some traders who I speak to still do not understand. These traders are still trying to practice forex in the hope of getting better predicting or getting a feel for the future, or practicing their soothsaying skills. In my opinion (repeated often) this is a waste of time, and traders should be looking at evidence based trading to speculate. So what do I mean by evidence based speculation and how does it differ from raw speculation?

Evidence based speculation can come in many forms - it can come in detailed technical analysis tested over many years, it can come in fundamental interpretation of events. it can come from inside information on shares, it can be based on previous scenarios (eg: an earthquake in Japan, or a nuclear disaster), it can come in the form of well tested automated systems among many other things. It is not based on "oh this pivot has confluence with this 61% fib line, I have no idea of the % of time that causes a retrace x amount of pips but it should retrace because the lines match up so I will buy." This speculation is not evidence based and is purely an anecdotal method which is problematic (before anyone from trade2win says, I realise that this thread is anecdotal, but this is the way I choose to write it) and the source of why there are threads where someone posts "where did I go wrong with this trade" (there is always someone replying back who says "user the higher timeframe" which always makes me chuckle but I will come onto that another time). So when you speculate, make sure that your basis for speculating is sound - this is where the hard work or homework comes from and is the basis for profitable trading.

 

[goldmember1]

Speculation part 4

The first form of valid speculation (in my mind) that I will talk about is through tested technical analysis. I realize that there are traders out there who are profitable who do not even need to test systems and just take trades based on faith that their teacher or tutor or forum poster was profitable and they claim a lot of money. If you are one of those traders or believe that trading on faith without testing is a good way of trading then I am not here to stop you. I just do not think it is a good idea.

Tested technical analysis is a lot different from the technical analysis that I frequently read on forums, blogs and forex sites such as fxstreet and the like. The technical analysis could read as: "The AUDJPY is reading oversold on the stochastic which could make a good signal to buy." In my opinion, this is a terrible way to trade or even conceptualize trading, and I would be surprised if anyone made money that way. I still get the occasional trader who I speak to on skype who will excitedly send me a capture of their chart of whatever pair they are looking at. They have a chart and an indicator on that chart, or a support/resistance line, or a trendline and excitedly say that the price bounced off that line and that it was obvious that the price was responding to that line/indicator/trend line and how that proved their technical analysis.

This line of thinking is so extraordinarily wrong to me (it might seem great to a lot of people out there, but I am not going to spend a long time arguing, I am just going to make my point) because it is purely anecdotal. It is like giving a cancer patient a Starbucks coffee - if their blood tests come back better the next time they were at the doctors it must mean the Starbucks coffee is a cure for cancer! Or if you saw 2 magpies outside your window in the morning, and the New England Patriots won, it must mean that everytime you see 2 magpies outside your window you should bet on the New England Patriots to win!

If we go back to our coin flippers, lets say one of them ends up inventing the magpie indicator. If on the journey to work he sees 8-10 magpies, the magpie indicator shows that the world is 'overmagpied' he should bet on tails. If he sees 0-2 magpies, the world is 'under magpied' and he should bet on heads. 3-7 magpies then he sits on his hands. There is no clear connection between magpies and coin flips, but the effect is to reduce the amount of coin flipping and betting so the coin flipper survives longer, and his equity curve merely shows a slow decline rather than a steep one. This might remind you of the equity curve of many students of these non evidence based technical analysis schools - long slowly dropping equity curves.

 

[goldmember1]

Speculation part 5

I mentioned the wrong way to do technical analysis on the last post - in my opinion technical analysis must be robustly backtested. There is no way around it unless you want to bet on magpies to predict the coin flips. You can either do this through manual backtesting - there are some excellent forex testing packages out there that can let you backtest visually.

Commercial ones include Forex tester 2, and simple forex tester - I think forex tester 2 is $200, and simple forex tester is about $60. You can also use free forex testing systems - V hands is a tester for MT4 and is ok, a better one is available from MT4i who do a visual backtester. These systems are free but are limited by the strategy tester. There is also a python version that someone on babypips made that I haven't tried. All these methods take time, but are infinitely preferable to test a system over a few days rather than spending months trading the 'magpie indicator live' while watching your equity and life drain away.

A better way is to test through expert advisors or to learn how to program. By using tick data you can get fairly high accuracy (1 min data from metaquotes only gives 25% accuracy which is reasonable for a 'higher timeframe system' but poor for anything trading below the 1 hr chart. The disadvantage of this is that you have to learn to program or you have to have a friend that knows how to program. Once you are able to program efficiently then you are able to quickly sort profitable systems out, and by using useful tools like the myfxbook strategy tester you can isolate and spot weaknesses.

I am only a beginner at programming, but spend some of my free time learning instead of chart watching and its allowed me to filter out a lot of rubbish systems. For example - here is a classic stochastic buy when oversold, sell when overbought system, a stochastic crossover system, an RSI oversold/overbought system and a 3 ducks system with a couple of filters:

Some are classic 'magpie counting' type trading systems (though the indicators can have their uses) that might sound great they really are ineffective, but someone convincing enough on a forum was to extoll their virtues, you might devote a significant portion of your life to it. Others are actually useful of course, once you have found a system that works (either through programming or manual testing), then you can apply forward testing on a live account having saved a significant portion of your life and fortune by speculating the right way.

 

[D70]

Speculation part 5

I mentioned the wrong way to do technical analysis on the last post - in my opinion technical analysis must be robustly backtested. There is no way around it unless you want to bet on magpies to predict the coin flips. You can either do this through manual backtesting - there are some excellent forex testing packages out there that can let you backtest visually.

Commercial ones include Forex tester 2, and simple forex tester - I think forex tester 2 is $200, and simple forex tester is about $60. You can also use free forex testing systems - V hands is a tester for MT4 and is ok, a better one is available from MT4i who do a visual backtester. These systems are free but are limited by the strategy tester. There is also a python version that someone on babypips made that I haven't tried. All these methods take time, but are infinitely preferable to test a system over a few days rather than spending months trading the 'magpie indicator live' while watching your equity and life drain away.

A better way is to test through expert advisors or to learn how to program. By using tick data you can get fairly high accuracy (1 min data from metaquotes only gives 25% accuracy which is reasonable for a 'higher timeframe system' but poor for anything trading below the 1 hr chart. The disadvantage of this is that you have to learn to program or you have to have a friend that knows how to program. Once you are able to program efficiently then you are able to quickly sort profitable systems out, and by using useful tools like the myfxbook strategy tester you can isolate and spot weaknesses.

I am only a beginner at programming, but spend some of my free time learning instead of chart watching and its allowed me to filter out a lot of rubbish systems. For example - here is a classic stochastic buy when oversold, sell when overbought system, a stochastic crossover system, an RSI oversold/overbought system and a 3 ducks system with a couple of filters:

Some are classic 'magpie counting' type trading systems (though the indicators can have their uses) that might sound great they really are ineffective, but someone convincing enough on a forum was to extoll their virtues, you might devote a significant portion of your life to it. Others are actually useful of course, once you have found a system that works (either through programming or manual testing), then you can apply forward testing on a live account having saved a significant portion of your life and fortune by speculating the right way.

What happens if you flip the 20/80 stochastic system? Steady rising curve??

 

[random12345]

Speculation part 5

Note - don't get too enamoured with trading FX ticks if you want to automate. Live ticks do not equal historical ticks or anywhere close unless you have a seriously low latency connection near a major hub as proper hft/quant/algo funds would do.

You will receive about half the ticks (if you're lucky) in live than your broker will show on historical data. This is easy to test on a true charting package that can handle tick data. You can collect bid/ask/trade live for a week, then refresh with historical data from the broker's server - spot the difference - for example news bars will be replaced with multiple smaller bars. This is especially true for fx - may not be so bad for futures, especially the ES due to the tick size vs average daily range difference. Timestamping ticks does not help. The only way around this is to use snapshot tick data such as Prorealtime do, but then you're not trading true tick data.

Anyway, the upshot is that old tick data backtested for anything that is acceleration, momentum or pattern based is notably inaccurate vs live performance.

 

[rawrschach]

lol typical t2w. Someone wants to talk about trading and the witch hunters rock up.

Let's go back to discussing the merits of buying and selling the same market simultaneously.

 

[bismillahwd]

Great topics!
I gotta scroll back from 1st page now




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