Best Thread Why do you think you can make money trading?

[meanreversion]

The system I run is a fairly simple trend seeking model, which buys/sells breakouts looking for larger moves to develop. If the move continues, the position is added to.

Most "breakouts" turn out to be false, hence a low hit rate. However, when a move does develop, the profit can end up to be many multiples of the initial stake.

Successful trades usually last 2-3 months, although can be longer. Losing trades are usually over within a week or so.

This type of system has been around forever, and is still run by the likes of JWHenry, Dunn Associates, Mann and other trend funds.

It is by no means a holy grail ---- accepting that the vast majority of trades will lose money takes a bit of getting used to. In quiet markets, it gets continually whipsawed. But once in a while a decent trade comes along.

As the approach is systematic, it allows for trading a wide variety of markets; in fact, trading many markets is a pre-requisite as you're looking for a trend somewhere, anywhere.

It's a system I believe has positive expectancy and so far this year has been fairly profitable. It requires patience and fortitude. Patience because it could be 3-6 months between big trend moves, and fortitude as you sit through loss after loss.

It's not most people's cup of tea, but in a way I think that's why it works.

 

[oildaytrader]

Most "breakouts" turn out to be false, hence a low hit rate. However, when a move does develop, the profit can end up to be many multiples of the initial stake.

How do you eliminate false breakouts on automated trading.Over the last few months the breakouts on currencies have done rather poorly?

 

[bevok]

I utilise a similar method to meanreversion's, based on the description (I like the ironic username!). I think the last sentance of his reply is the 'edge' of trendfollowing approaches. They are unpalatable because of being wrong a lot, the painful drawdowns and the counter-intuitive feel to buying new highs (people like a bargain). For this reason the method has an edge - not a lot of people can trade them, trendfollowers provide a service through providing liquidity in buying new highs (when everyone else is selling as their oscillators have entered overbought territory) and the maths makes sense.

I understand the maths of the other extreme (high probability systems with big stops and small profit targets) however I think the edge is very weak unless you have extremely low costs to trade (usually because you're a market maker, not taker). From the traders perspective it definately is a negative sum game, and if you're deducting costs from your wins it just makes long term profitability (through all the changes in market dynamics and so-called Black Swan events) so difficult.

 

[meanreversion]

How do you eliminate false breakouts on automated trading.Over the last few months the breakouts on currencies have done rather poorly?

I think this misses the point slightly. The objective should be to devise a system (whether mechanical or discretionary) with positive expectancy. The success rate is not relevant. Drawdown certainly is, thus if you want 100 pct success rate (and it's possible, simply never use a stop), then be prepared for total wipeout once in a while.

But why is being wiped out acceptable? Is losing all your money really worthwhile to say "I did 100 trades and only 1 lost money"?

Going back to the original question - you can't eliminate false breakouts, in the same way that you can't eliminate losing trades, they are all part of the question.

You can reduce the number of false breakouts at the expense of entering the trade at a much less disadvantageous rate, e.g. instead of buying on a 10 day high, buy on a 30 day high.

 

[meanreversion]

I utilise a similar method to meanreversion's, based on the description (I like the ironic username!). I think the last sentance of his reply is the 'edge' of trendfollowing approaches. They are unpalatable because of being wrong a lot, the painful drawdowns and the counter-intuitive feel to buying new highs (people like a bargain). For this reason the method has an edge - not a lot of people can trade them, trendfollowers provide a service through providing liquidity in buying new highs (when everyone else is selling as their oscillators have entered overbought territory) and the maths makes sense.

I understand the maths of the other extreme (high probability systems with big stops and small profit targets) however I think the edge is very weak unless you have extremely low costs to trade (usually because you're a market maker, not taker). From the traders perspective it definately is a negative sum game, and if you're deducting costs from your wins it just makes long term profitability (through all the changes in market dynamics and so-called Black Swan events) so difficult.

This is a very perceptive comment. Market-making is about a large number of small wins with the occasional f-ckjob. The idea is to make a 50-100k a day type thing but once in a while a customer runs you over. That's fine, market making has been very profitable over the last few years with spreads widening out.

Also, my username doesn't really reflect my trading style, it's more a thought I've always had about FX in that it moves in great big cycles, with ultimate mean reversion. But I'm talking a timeframe way beyond that which I'll ever trade. For example, GBP/USD goes to 2, back to low 1's, up to 2, and then seems to "mean revert" to 1.5, its natural level. EUR/USD started off at 1.2, went to 0.85, reverted to 1.2, up to 1.6, back to 1.2 etc.

 

[bevok]

Interesting thought, perhaps there is a 'natural' relative value between economies to which price eventually gravitates when the madness of crowds dies down. I suppose this 'balance point' might change gradually over time with long term macroeconomic and geopolitical changes, however that would be in an even greater timeframe! Better stop there, I might be in danger of coming up with some mad cycle or wave theory

 

[fayalac]

Interesting thought, perhaps there is a 'natural' relative value between economies to which price eventually gravitates when the madness of crowds dies down. I suppose this 'balance point' might change gradually over time with long term macroeconomic and geopolitical changes, however that would be in an even greater timeframe! Better stop there, I might be in danger of coming up with some mad cycle or wave theory

Just take a look at the charts.
In very short time frames, (1, 5, 15 min) you can be trendless but at higher TF´s theres a trend. Even more, you can be trendless upto a 1 hr charts but if you take a look at the daily charts theres a trend, the longer the TF the more accurate an indicators information will be.
Only some higly skilled traders use 1 and 5 min charts.

 

[meanreversion]

I'm not sure how you would mathematically describe "noise", but there has to be a lot of it on the short timeframes. The dailies will give you a better idea of underlying trend.

Taking it a little further, are weeklies or monthlies better at showing trend than dailies? What about the yearly chart? I think at this point you start to lose a little colour on what's going on. Besides which, very few traders respond to "yearlies" so it's better to look at something more popular, like dailies.

 

[Splitlink]

I'm not highly skilled but I use a low TF chart because of my work schedule. There are not enough hourly bars in a morning for me and things start to happen that I don't want to miss, just on lunchtime, and that can make me late for work!

Never mind, I'm not complaining. I do what I want in the time I have available and it gets me away from the computer.

 

[montmorencyt2w]

Long term trends are so easy to spot in hindsight.

Look at the Euro since late 2009. Look at it now, and you wonder how anybody could have failed to make money.

I certainly made a bit, but I certainly didn't follow it all the way down. I captured some goodish chunks, but I missed a hell of a lot more. And there were times when it looked anything but obvious it was going to continue.

On occasions I have followed other pairs that on the face of it looked even better trenders, and ended up losing big time. C'est la vie.

 

[meanreversion]

No sense in hindsighting yourself. If you had a plan and followed it, then there's no problem. If you had a plan and didn't follow it, thereby not making as much as you could have, that's an issue. If you had no plan but made lots of money, then you're in the "better lucky than good" camp. If you had no plan and lost money, give up (or get a plan).

 

[oildaytrader]

If you had no plan but made lots of money, then you're in the "better lucky than good" camp.

It proves you are an out and out trader ,it is like throwing a person in a shark tank and finding he profits,why did the sharks find luck for him?.Luck is only for theorists of the market.

 

[wackypete2]

It proves you are an out and out trader ,it is like throwing a person in a shark tank and finding he profits,why did the sharks find luck for him?.Luck is only for theorists of the market.

You're f***ing kidding me, right?? If you have no plan and made money then that makes you a great trader??

The dumbing down in some of these threads is in full effect.

Peter

 

[oildaytrader]

You're f***ing kidding me, right?? If you have no plan and made money then that makes you a great trader??

The dumbing down in some of these threads is in full effect.

Peter

Its not the plan which makes money , but the trader's skills .How can you have a plan for something dubious in a dynamic market?All the best laid plans go awry.What happens when the plans go awry?It is the trader's skills coming into play?

Every time you get in your car , do you have a plan of your every driving manoeuvre move in advance?What if the plan changes due to other factors,what happens to the redundant plan?

Better not to have a plan to trade in a shark tank.Having trading skills are better than a plan, you need trading skills not a plan.

Plans are made by trading Kama Sutras promising fire and glory , only to fizzle out like a failing firecracker..

O D T

 

[montmorencyt2w]

No sense in hindsighting yourself. If you had a plan and followed it, then there's no problem. If you had a plan and didn't follow it, thereby not making as much as you could have, that's an issue. If you had no plan but made lots of money, then you're in the "better lucky than good" camp. If you had no plan and lost money, give up (or get a plan).

I had a fundamental view of the market, and it proved to have been correct, although that view was challenged on more than one occasion. I had a plan; won quite a bit; luck helped a bit I think. Have given back some, but not on EUR/USD.

 

[meanreversion]

Its not the plan which makes money , but the trader's skills .How can you have a plan for something dubious in a dynamic market?All the best laid plans go awry.What happens when the plans go awry?It is the trader's skills coming into play?

Goodness me, have you been smoking something or were you born with a screw loose?

I seem to recall in the not too distant past (about a month ago) you advocated mechanical trading systems. These are, by definition, a complete trading plan.

But now you have jettisoned 1,000 posts of your belief in these systems, and suddenly it's all discretionary, make it up as you go along, what use is a plan.

I don't wish to be rude, but you are a retard.

 

[oildaytrader]

Goodness me, have you been smoking something or were you born with a screw loose?

I seem to recall in the not too distant past (about a month ago) you advocated mechanical trading systems. These are, by definition, a complete trading plan.

But now you have jettisoned 1,000 posts of your belief in these systems, and suddenly it's all discretionary, make it up as you go along, what use is a plan.

I don't wish to be rude, but you are a retard.

What good is your plan , if markets change , and trends breakdown much more frequently and fizzle out?What if both bulls and bears disappear, and market becomes totally random for a period of time, a period longer than traders can remain solvent?What if fake trends increase , volatility increases knocking out stops frequently and profit targets are no longer achievable due to trend failures?

This when you need discretionary skills to trade in difficult markets , where no game plan will work consistently.

I am a believer in mechanical systems , they need to be robust to survive extreme unforeseen instrument and market behaviour.Mechanical systems work fine when markets remain rational, unfortunately can remain irrational longer than traders can remain solvent.

O D T

 

[oildaytrader]

Let us for example look at a very good mechanical system on stocks.It made money for last 25 out of 30 years.As a result of the financial crisis ,the long trends fail due to lack of buyers and short trends fail due to lack of sellers.Occasionally the trends would work.

How do you trade the above markets as a swing trend trader ?

 

[meanreversion]

What good is your plan , if markets change , and trends breakdown much more frequently and fizzle out?What if both bulls and bears disappear, and market becomes totally random for a period of time, a period longer than traders can remain solvent?What if fake trends increase , volatility increases knocking out stops frequently and profit targets are no longer achievable due to trend failures?

This when you need discretionary skills to trade in difficult markets , where no game plan will work consistently.

I am a believer in mechanical systems , they need to be robust to survive extreme unforeseen instrument and market behaviour.Mechanical systems work fine when markets remain rational, unfortunately can remain irrational longer than traders can remain solvent.

O D T

You repeatedly contradict yourself. You believe in mechanical systems, but you don't because they fall apart when markets become "irrational".

You are breathtakingly clueless.. I feel embarrassed for you. Tell me, how do you ascertain when the market is "irrational"? Is it irrational now?

Do you realise that mechanical trend systems make their money PRECISELY BECAUSE markets are irrational? Hmm?

Do you actually have any idea what you are talking about?

 

[oildaytrader]

You are breathtakingly clueless.. I feel embarrassed for you. Tell me, how do you ascertain when the market is "irrational"? Is it irrational now?

Do you realise that mechanical trend systems make their money PRECISELY BECAUSE markets are irrational? Hmm?

Only after the event.It is now due irrational to the euro and financial crisis.

What evidence do you have to prove your claims?Where is hard evidence ?Prove it in forms other than claims fictitious claims by internet marketeers , authors and book sellers or mentors.