The Truth About The Market

[EUR/DOG]

It is a well known fact that most people loose money trading, usually it is only a matter of time. If it weren’t true the trains and buses would be empty at 8 am, nobody would go to work anymore. A fundamental reason why it is so difficult to trade successfully is that the market is extremely sensitive to any changes that are introduced by participants. And it has to be. The very survival of the market depends on its ability to accumulate money. It is a unique, incredibly efficient self regulated system, a phenomenon that is yet to be fully understood. I’ve got a bad news for those of you who have spent fortune on TradeStation or other similar programs and simulators. If you are trying to guess a direction a stock or currency pair will move then think again. The ability of the market to react to any change, e.g. a new buy or sell order, no matter how small, makes back or forward testing rather unreliable if not useless. Because if the order had been opened with real, I repeat, REAL money the chart would look different now. The market would have reacted. Of course the system and indicator developers would want you to think otherwise, they have their families to feed after all. For that reason they are not going to tell you that there are better thing to do than searching for the right period of Moving Average for the rest of your life.

Things stay in proportion. A big order may visibly move the market and a small order will move the market too even though by a small number of points. But be rest assured there will be enough points there to create a situation when the system you are using fails because the computers know exactly how much money you have on your account and where your stop orders are. If it does not fail immediately it will inevitably fail over time. The market will detect it and re-adjust itself. Any attempt to squeeze money out of it is not unlike running around the house trying to catch your own butt behind the corner. Well, do I sound pessimistic? Yes, I do. But it is better to be a pessimist and sometimes earn than to be an optimist and always loose.

Now, let's look at a candle with a long tail pointing south. The tail represents a quick price movement down and then retracing back again to the original level. The process is known as “shaking”. Why did it happen? Because a sufficient number of participants bet on the market going up and had their stop loss orders are placed below (price). The market maker’s computers could see them and acted accordingly driving the price down and back up again. That’s why an ideal method to set a stop loss at the right point can never be found. These people had to close their positions with a loss only to see the trend going in the right direction afterwards. We already know that the market is fractal and the chart looks the same on any time frame. So how many people in the world are getting shaken off every second, minute or hour? Thousands. And that’s how the market makes money. Is there any answer to this? Yes, there is. Market neutral and hedge strategies.

 

[dcraig1]

The market maker’s computers could see them and acted accordingly driving the price down and back up again.

That is just not true in most futures markets. The only orders that are visible in the book are non-marketable limit orders. There is no conspiracy.

Whatever the merits of market neutrality are (and there certainly are some), defeating devious market makers is not one of them.

 

[Crap Buddist]

Nice post & pic...

Sounds like a bent game is being played? Are these just professionals abusing their position or are they rightly "filling their boots" when they can for making a market ?

Or , is that the business? like one of those japenese water ornaments, when enough money flows into the cup,(when the weight of money builds) the market makers tip it into their own pockets?

Maybe need to watch KILL BILL again...... the roof top scene with the water feature. Bugger was that 1 or 2 ? 1 I think..

 

[FXSCALPER2]

The reason why people fail at trading has very little to do what you say.

 

[fibonelli]

Market neutral and hedging strategies are heavily used by investment banks which have very large balance sheets. Therefore, I am not sure as to the relevance of this as a reason why retail traders fail.

An observation of the first message leads me to think that eur/dog is a play on one of our members.

 

[Crap Buddist]

i think eur/dog is a "play" on one of our members

which one ? is snoop dog a member or somethin ?

 

[trader_dante]

I am so tired of people telling you what does and doesn't work.

If it's not someone telling you that fib levels don't work, its someone telling you that candle patterns don't work, that trendlines don't work or that indicators don't work.

That stop runs kill you. Counter trend trading kills you. Spread widening kills you. Risk taking kills you.

That you can't make money if you only have a small amount to start, that you can't make money unless you are wired into the news, that you can't make money day trading, that you can't beat the computers that automate trading, that you can't make money if your stops are too large, that you can't make money if your stops are too small. You can't make money if you spreadbet, you can't make money if you are on manual dealer, you can't make money if you pay commissions, you can't make money unless you sit at your pc 24 hours a day.

It is all bullsh*t perpetuated by people that can't make money themselves so they vent their frustration by telling everyone else that they can't make money.

At the end of the day I CAN MAKE MONEY and guess what? I make it doing every single thing that I've been told "won't work".

Listen to your own experience not other people.

Find out what works for you and just do it.

There is no such thing as CAN'T.

 

[firewalker99]

I am so tired of people telling you what does and doesn't work.

If it's not someone telling you that fib levels don't work, its someone telling you that candle patterns don't work, that trendlines don't work or that indicators don't work.

That stop runs kill you. Counter trend trading kills you. Spread widening kills you. Risk taking kills you.

That you can't make money if you only have a small amount to start, that you can't make money unless you are wired into the news, that you can't make money day trading, that you can't beat the computers that automate trading, that you can't make money if your stops are too large, that you can't make money if your stops are too small. You can't make money if you spreadbet, you can't make money if you are on manual dealer, you can't make money if you pay commissions, you can't make money unless you sit at your pc 24 hours a day.

It is all bullsh*t perpetuated by people that can't make money themselves so they vent their frustration by telling everyone else that they can't make money.

At the end of the day I CAN MAKE MONEY and guess what? I make it doing every single thing that I've been told "won't work".

Listen to your own experience not other people.

Find out what works for you and just do it.

There is no such thing as CAN'T.

One of the best, straightforward, no non-sense posts I've read on t2w.
Excellent stuff t_d.

EUR/DOG, you should frame this one and put it next to your computer screen.

 

[Trader333]

I’ve got a bad news for those of you who have spent fortune on TradeStation or other similar programs and simulators

You obviously have not taken a trip across to the Technical Trader forum where using Tradestation is making one of the members of T2W thousands of dollars each and every day.


Paul

 

[SPUDS DEEP]

It is a well known fact that most people loose money trading, usually it is only a matter of time. If it weren’t true the trains and buses would be empty at 8 am, nobody would go to work anymore. A fundamental reason why it is so difficult to trade successfully is that the market is extremely sensitive to any changes that are introduced by participants. And it has to be. The very survival of the market depends on its ability to accumulate money. It is a unique, incredibly efficient self regulated system, a phenomenon that is yet to be fully understood. I’ve got a bad news for those of you who have spent fortune on TradeStation or other similar programs and simulators. If you are trying to guess a direction a stock or currency pair will move then think again. The ability of the market to react to any change, e.g. a new buy or sell order, no matter how small, makes back or forward testing rather unreliable if not useless. Because if the order had been opened with real, I repeat, REAL money the chart would look different now. The market would have reacted. Of course the system and indicator developers would want you to think otherwise, they have their families to feed after all. For that reason they are not going to tell you that there are better thing to do than searching for the right period of Moving Average for the rest of your life.

Things stay in proportion. A big order may visibly move the market and a small order will move the market too even though by a small number of points. But be rest assured there will be enough points there to create a situation when the system you are using fails because the computers know exactly how much money you have on your account and where your stop orders are. If it does not fail immediately it will inevitably fail over time. The market will detect it and re-adjust itself. Any attempt to squeeze money out of it is not unlike running around the house trying to catch your own butt behind the corner. Well, do I sound pessimistic? Yes, I do. But it is better to be a pessimist and sometimes earn than to be an optimist and always loose.

Now, let's look at a candle with a long tail pointing south. The tail represents a quick price movement down and then retracing back again to the original level. The process is known as “shaking”. Why did it happen? Because a sufficient number of participants bet on the market going up and had their stop loss orders are placed below (price). The market maker’s computers could see them and acted accordingly driving the price down and back up again. That’s why an ideal method to set a stop loss at the right point can never be found. These people had to close their positions with a loss only to see the trend going in the right direction afterwards. We already know that the market is fractal and the chart looks the same on any time frame. So how many people in the world are getting shaken off every second, minute or hour? Thousands. And that’s how the market makes money. Is there any answer to this? Yes, there is. Market neutral and hedge strategies.

Can you explain market neutral and hedge strategies please, dog? I'm sure the newbies, like me, would benefit from a well explained post on the subject.

 

[Lord Flasheart]

Great first post by the DOG, sadly I cant agree with much of it.90% of traders apparently lose we are told, yet we have a near 50% choice when we start. So its simple it is the trader that is the problem and his biggest faults are either money management or discipline. A rader with poor money management can make money trading but still quit. In year 2 of my trading I started with £10,000 and made a profit of £10,000 but still lost a my living exspenses came to 30,000 does that make me a good or poor trader? Discipline can make a trader who calls the market correct 90% of the time a loser. ALL of the things the dog said dont work or make money can work if used correctly,there are people out there using simple moving averages and making lots of money and there are people with all the state of the art equipment losing fortunes.

 

[SPUDS DEEP]

Bloody hell! I'm getting pms after my first post! I'm not into 'urban legends' folks, just want to learn to trade well. Eeeerrr, see you all soon.

 

[A Dashing Blade]

A fundamental reason why it is so difficult to trade successfully is that . . . blah blah . . .

THE fundamental reason why it is so difficult to trade is to be found in your head. End Of.

 

[urep]

It is a well known fact that most people loose money trading, usually it is only a matter of time. If it weren’t true the trains and buses would be empty at 8 am, nobody would go to work anymore. A fundamental reason why it is so difficult to trade successfully is that the market is extremely sensitive to any changes that are introduced by participants. And it has to be. The very survival of the market depends on its ability to accumulate money. It is a unique, incredibly efficient self regulated system, a phenomenon that is yet to be fully understood. I’ve got a bad news for those of you who have spent fortune on TradeStation or other similar programs and simulators. If you are trying to guess a direction a stock or currency pair will move then think again. The ability of the market to react to any change, e.g. a new buy or sell order, no matter how small, makes back or forward testing rather unreliable if not useless. Because if the order had been opened with real, I repeat, REAL money the chart would look different now. The market would have reacted. Of course the system and indicator developers would want you to think otherwise, they have their families to feed after all. For that reason they are not going to tell you that there are better thing to do than searching for the right period of Moving Average for the rest of your life.

Things stay in proportion. A big order may visibly move the market and a small order will move the market too even though by a small number of points. But be rest assured there will be enough points there to create a situation when the system you are using fails because the computers know exactly how much money you have on your account and where your stop orders are. If it does not fail immediately it will inevitably fail over time. The market will detect it and re-adjust itself. Any attempt to squeeze money out of it is not unlike running around the house trying to catch your own butt behind the corner. Well, do I sound pessimistic? Yes, I do. But it is better to be a pessimist and sometimes earn than to be an optimist and always loose.

Now, let's look at a candle with a long tail pointing south. The tail represents a quick price movement down and then retracing back again to the original level. The process is known as “shaking”. Why did it happen? Because a sufficient number of participants bet on the market going up and had their stop loss orders are placed below (price). The market maker’s computers could see them and acted accordingly driving the price down and back up again. That’s why an ideal method to set a stop loss at the right point can never be found. These people had to close their positions with a loss only to see the trend going in the right direction afterwards. We already know that the market is fractal and the chart looks the same on any time frame. So how many people in the world are getting shaken off every second, minute or hour? Thousands. And that’s how the market makes money. Is there any answer to this? Yes, there is. Market neutral and hedge strategies.

Your post says much and must say I agree with it. It took me a while to actually believe this was happening. I was like why would a measly 1000 shrs matter enough? But it did.Then I saw this post by someone who was a heavy in the Canadian Brokerage industry

This is a post from Bill Cara's blog 10.2.2006

{(Humungous Bank & Broker's) H B & B trades against the order flow of its clients, including the hedge funds. It's basically a no-risk business because the broker-dealers hold the collateral, analyze the holdings and the strategies, and use this all-important info for their own gains. And, in the futures business, for every gain there is a loss.

Would any casino player play 21 (blackjack) if the dealer's knowledge of all the cards on the table was a rule of the house? Would anybody play poker if one of the players knew in advance everybody's cards and how they would play them (and was the banker)?

I have been saying this for years but too few people listen. ... ... HB&B is the player that is keeping government regulation out of "their" capital market, and that's because they are the winner and everybody else the loser. But, except for the fact it is the People's capital market, they get away with it because the People have stopped thinking -- they've been brainwashed into believing that "our" market needs to be under the control of HB&B.}

This is from his Bio on the Blog:
{Bill Cara has extensive experience in the Canadian securities industry. He was the co-founder/CEO of Qtrade Investor (Canada’s leading online broker), founder and President of Security Traders International (offshore trading broker), President of William Cara Investment Bancorp (registered Ontario securities dealer), founder/CEO Canaccord Capital’s Eastern Canada Operations (Canada’s largest full-service independently-owned broker-dealer) and broker and portfolio manager with Dominion Securities and Dominion Securities Investment Management (now RBC).}


Show a a Market Neutral or Hedge strategy for the ES Mini's or something like that and explain why the computer can't adjust to this or run stops in both directions as well.