"Toss Up"

"Toss Up""

A quote from Elder's " Come into my Trading Room" says :-

" A good system gives you an edge in the long run, but there is a great deal of randomness in the markets, and any single trade is close to a toss-up".


This implies that no matter what you do or how much technical analysis you apply, you are still facing a more or less 50-50 scenario. ie. up or down

So while technical analysis is a valuable and proven tool, it is possibly a waste of time to go overboard on it when facing a " toss of the coin" situation.

Pay heed to TA - yes - but back your own personal judgement and just go with the flow.

IMHO good money management and a good feel for probabilities is the real key to this numbers game.

Any comments ? !!
 
Agree with you about how important good money management is. And personally I oly trade based on strong signals based on the rpice chart and don't use contrived indicators.

I donlt think the percentage of winningtrades is something very useful to look at -
I know one trader who skims tiny percentages on lightening fast trades who claims to have >90% of trades making a profit.
I also know of another trader who goes for the occasional big win but accepts that >75% of their trades will make a loss.
Both of these make a tidy profit int he long run doing doing what they do.

Its not the percentage chance of making a profit from any given trade it is the expected profit from a trade that measures the success of a system.

W.P.
 

neil

Legendary member
URANUS Trading Signals

Found this on a web site discussing ADX/DMI indicators:

http://www.elitetrader.com/vb/showt...0624#post320624


In our book, Computer Analysis of the Futures Market, we tell an amusing anecdote about a trader who seemed a bit loony because he used a Coke bottle with a broken radio antennae sticking out of it to receive trading advice from other planets. This advice, like most trading advice, was only related to the entries. When the voice from the Coke bottle told him to enter a trade he would come back to my desk and want to put the trade on right away saying something like: "They are buying soy beans on Mars, buy some beans for me".

The other traders sitting around the board room would overhear these frantic orders and became quite interested in this strange trading advice. Naturally they were quick to make fun of the trader when he was losing but they didn't have much to say when he was winning. The trader with the Coke bottle eventually learned that to avoid ridicule he had to take his losses quickly and hold on to his winners as long as possible. His trading steadily improved and he wound up being a surprisingly good trader. Obviously, his reliance on trading advice from other planets had nothing to do with his success. His entries were no better or worse than random but he had learned to be very good at his exits.

We should do the same.

Seems like a "Toss Up." ?

:eek:




__________________
neil
 

Trader333

Moderator
AlanB,

I agree with you. From an historical perspective and over 101 trades on futures (which I dont trade anymore) I had the following results :

Losing Trades = 45

Breakeven Trades = 51

Winning Trades = 5

Total Profit after trading costs £4119

It was only money management that allowed this as a 5% win rate is pretty low.

Cheers

Paul
 

Finlayson

Well-known member
when I first started trading I was shown 2 things, an entry signal & a trade management technique..........I thought at first that the 'entry signal' was the important thing & was the reason for my profits.

I now know it is the other way round. the 'entry' signal was just a mental trigger too put me in the market. then came the important part of the trade management.

I have now learnt to read markets better , so I can take better entries.........but I still use the same 'management technique' & think this is the important part.

once we have made a decision & entered the market anything can happen!........so it must be what we do after we have entered that counts
 

Trader333

Moderator
Throwing caution to the wind was the last thing I did here. I just cut my losses immediatley or if the market moved a small way in my favour and reversed I got out at breakeven and, as the saying goes, let my profitable trades just run and run.


Paul
 

jpwone

Well-known member
<i> I just cut my losses immediatley or if the market moved a small way in my favour and reversed I got out at breakeven and, as the saying goes, let my profitable trades just run and run.
</i>

And that single sentence sums up all you need to know about trading.
 

CityTrader

Established member
Alanb... I agree with you, except the statement the TA is a "proven" tool.
But then regular readers will know my feeling on TA, backed up by the huge amount of abuse I got couple of months ago!
 
Good for you Wayno.

I have followed your lead and just given Murphy's " Technical Analysis Of The Financial Markets" to my dog for shredding.
 
I cant imagine any successful traders do. Peedee.
 

JTrader

Guest
During an unsuccessful trading session I sometimes think that I may as well choose a random entry, which should present a 50/50 success rate. This is because technical analysis cannot guarantee success.
However, I consider TA a valuable tool in justifying my decision to enter a trade, stacking the odds in my favour, and due to my trading style resulting in more than half of my trades being profitable, I therefore believe my decisions to enter trades will present odds of more than a 50/50 chance of success.
However, as I am also aware that the markets can and often do react in ways that you would not have envisaged I therefore think a lot of market action is random.
If any trade has a 50/50 chance of making profits, I would find it extremely hard to trade if less than 50% of my trades were profitable.
Overall I find TA useful, especially with hindsight, but, it cannot guarantee success.
 

stevet

Established member
" A good system gives you an edge in the long run, but there is a great deal of randomness in the markets, and any single trade is close to a toss-up".

once u learn that every single tick in the markets has a meaning and there is no randomness in the markets - you may be on the way to being a trader

markets only appear to become random at the same point as your depth of knowledge ends - chinese looks like random scriblings to me- but if i studied chinese for a bit - gradually the randomness would start to diminish and i would start to understand what the scriblings were saying to me - anyone see a connection with the markets there!


"I just cut my losses immediatly or if the market moved a small way in my favour and reversed I got out at breakeven and, as the saying goes, let my profitable trades just run and run."

in theory a great way to trade - and interlectually a good comment on a fundamental basis of trading

but unfortuntaly in real life trading there are a few probs, but then there would be wouldn't there!

leaving aside the brokerage fee building upon even scratch trades, one main problem is that quitting at a scratch is not as easy as it may appear - simply because of the spread - so a market has to move your way to make up for the spread and the chance of it not coming back to that level at least once or twice as it tests for support, before it moves on, is pretty remote

and its not just the action of traders going long or short which move the price by taking the bid and ask size - you also have to take into account the size above and below the last price being pulled when the participants get nervous, which is what causes fast moves in seconds and then u just cant get out of the position at a near price as there is no size sitting in the book to get out at

once its made that fast move - u r sitting on an actual loss or just lost a bit of your profit - and now dont know if the market is gonna bounce back or continue away from your entry - this action is a killer on the Dow futures due to illiquidity , ( the real prices dont get reported by the system the CBOT presently uses, so on a chart it might look fine - but in reality people get stopped out at prices way away from any posted last price) - but it also happens all the time on high liquidity futures such as the Nas and a lot on the S&P,and on the estoxx ( but then again they dont report all the trades either as they use the same system as the CBOT) - so for most - cutting losers and running profits is not as easy a way to make bucks as it might seem - but if trading was easy - no one would want to do it!

BUT, if anyone feels they have developed a methodology which overcomes these and other issues and either works, but they just need support, or is near to working, and they feel they are just missing the last bit of the jig saw, let me know - maybe i can help
 

Trader333

Moderator
Stevet,

I am not too sure at the point you were trying to make with regard to how I trade. Brokerage fees for me are the equivalent of a 1c or sometimes 2c movement so getting out at breakeven (which accounts for my costs) is not too dificult in a market which has moved a small way in profit but then reverses. Also because I only trade Nasdaq stocks using level II with spreads of 1c to 2c and because I know how to route orders for the best fill it really isnt that difficult to have zero loss trades in around 70% of cases. Even if the spread widened I can sell at the Ask and have done to improve either profit or reduce loss.

Of course if you are spreadbetting then it is a totally different game and none of this is possible.


Paul
 

RogerM

Established member
Assume that you have a monkey as a trading partner, but the money is all yours. One of you enters a trade and the other is responsible for managing the exit. Which would YOU prefer to do - manage the entry or the exit?
 

Scripophilist

Active member
IMHO it's all about the exit. If you have a low probability entry success rate then you need to be careful about what exit strategy you use. If, for example, you only had 25% winners with a trailing stop of 10% (Lets say an average loss of 10% per loss) you could have quite large drawdowns when you have consecutive losing runs.

@25% and with 1000 trades and the fixed loss described above you could easily have a bad run that would wipe out 92% of your captial. That would take some guts to ride out.
 

stevet

Established member
Trader333

my point was not about how you personally trade, but about the philosiphy oif the point made in the quotation marks and the point of my post is to find people who understand the problems involved and who might be close to a solution, but need a little help

apart from futures, i also trade nyse and nas stocks, but have used intraday optons trading to do it - so am pretty well versed in market makers, and specialists moving prices where they want and pulling size on level 2 - and also how level 2 is used to trick and deceive and point people in the wrong direction

its no secret everyone looks at level 2 nowadays - so its a key tool for the big kids on the block to take most for a ride - its also a great tool to take you out of a trade if you are nervous, better to exit at the wrong time than not at all, but needs another skill base to forecast entries ( and you even need to have a real understanding of the bandwidth issues to do with level 2 data)

i am just hoping to add a bit of debate to real trading issues in order to learn or help
 
 
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