Why most systems fail:

[mrsoul]

The reason most systems fail is because in order to make consistent money in this game you have to be entering the market at the time when the aggregate supply (if you are short) or aggregate demand (if you are long) is on your side.

There are millions of traders placing orders at the same time and most are looking at different things to enter the market, so unless you enter the market when the aggregate demand/supply is on your side, it will be very different to make consistent money.

For example, a trader is looking for a stochastic cross to enter and at the same time the stochs cross another trader is entering the opposite way based on fundamental reasons, another trader is entering to play a breakout, and another trader is entering based on a rsi reading.

This basically means that most entries are no better than flipping a coin because you don't have the bulk of orders on your side and we all know that you can't make money flipping coins.

The point is that unless you find a way to enter the market when the AGGREGATE demand/supply is on your side, you will get your head handed to you in the long run.

Does anyone have any ideas on how to ascertain when the aggregate demand/supply is on your side?

 

[foredog]

My take on it. most sytems are either breakout or fade/reversal, so the chances are that the market conditions wll only suit the system half (give or take) the time.

so you need to try and make sure the losses are small and the winners average a lot more than the losers.

Thats my take on it anyway, sure some will disagree, that's what makes a market!

Sorry doesn't really answer the end question though.............

 

[Paul71]

The reason most systems fail is because in order to make consistent money in this game you have to be entering the market at the time when the aggregate supply (if you are short) or aggregate demand (if you are long) is on your side.

There are millions of traders placing orders at the same time and most are looking at different things to enter the market, so unless you enter the market when the aggregate demand/supply is on your side, it will be very different to make consistent money.

For example, a trader is looking for a stochastic cross to enter and at the same time the stochs cross another trader is entering the opposite way based on fundamental reasons, another trader is entering to play a breakout, and another trader is entering based on a rsi reading.

This basically means that most entries are no better than flipping a coin because you don't have the bulk of orders on your side and we all know that you can't make money flipping coins.

The point is that unless you find a way to enter the market when the AGGREGATE demand/supply is on your side, you will get your head handed to you in the long run.

Does anyone have any ideas on how to ascertain when the aggregate demand/supply is on your side?

Let's say i was buying a market, at or on a certain TF, i'm essentially looking for 3 three things. First is volume levels, i'm looking for a level that is moving that particular TF. Second would be any obvious SR levels. Third would be the action of the price at or around SR, i'd be maybe looking for HS pattern or something. But all these points can be traded individually ie. you could just look for buying or selling SR, which is where you will see the volume going in anyway and then on top of that you'll get the HS sometimes. Situations are always different though so i think it makes sense to have a few tricks up your sleeve rather than being a one trick pony, imho. But to answer your question i think it's always wise to go with the bigger trends as much as poss, these are major holders of buying and selling force. Hope this is helpful.


Paul.

 

[TAjammy]

it's probs because people turn systems into discretion

 

[cr6196]

...look at a chart, if it is going up "aggregate demand" is on your side...i suppose a moving average wouldn't be misleading as well...

Adding on to your original point though, i think the most reason "systems" fail is that psychologically trading is extremely difficult, and you need a set of skills that most people don't have, trading isn't much of an intellectual challenge unless you want to make it so.

 

[foredog]

trading isn't much of an intellectual challenge unless you want to make it so.

Goldman Sach trading floor Monday 9am

 

[donaldduke]

Systems don't make money. Traders make money.

Good systems do not fail. Traders fail.

 

[HawkTrader]

Interesting thread guys, keep the thoughts and ideas coming.

I guess one of the ways to bring the 'aggregrate' supply/demand to your side is by watching momentum. Not the indicator, but for momentum in price. If price is moving at great speed in one direction, look to catch that... just a thought.

 

[mrsoul]

Interesting thread guys, keep the thoughts and ideas coming.

I guess one of the ways to bring the 'aggregrate' supply/demand to your side is by watching momentum. Not the indicator, but for momentum in price. If price is moving at great speed in one direction, look to catch that... just a thought.

Good thought HawkTrader.
I am sure that many traders have made this observation: when price starts moving FAST in one direction, it seems like it usually tends to continue in that direction for a while.
It must be because the aggregate demand/supply is tilted in that direction.

The only drawback that I see is that you probably don't get this happening many times, but if you watch multiple pairs, you probably can get at least a couple of trades a day.

I think that this idea is definitely worth demoing and I am going to Demo it starting Sunday.

Keep the idea wheels turning.

 

[HawkTrader]

MrSoul, I've actually been testing this on a simulator (based on historical data) over the weekend. It is certainly profitable, but the problem is controlling risk and letting your profits run. It's hard on the 5m time frame! Price can just turn on you so quickly. Also, it's very discretionary. One person might say the momentum is moving fast, others might disagree... that being said, it is certainly profitable, especially if you look to enter on the momentum break of new high/lows.

 

[mrsoul]

MrSoul, I've actually been testing this on a simulator (based on historical data) over the weekend. It is certainly profitable, but the problem is controlling risk and letting your profits run. It's hard on the 5m time frame! Price can just turn on you so quickly. Also, it's very discretionary. One person might say the momentum is moving fast, others might disagree... that being said, it is certainly profitable, especially if you look to enter on the momentum break of new high/lows.

Hawk,

I've been trading for a while and I have always noticed this but I have never developed a set of parameters around this idea to put it into practice.
I think that the most important thing to look for is the velocity at which the price accelerates (basically just the speed of the price change).
You know from looking at the market the whole day what the average speed of price movement is, so it is pretty easy to discern when the speed of price starts accelerating.

I don't think that you have to look at whether it is breaking new highs/lows but rather look at the change in speed and then, as you said, just hop on.

As far as risk is concerned, I would just place a fixed stop loss- maybe 15-20 pips and use a trailing stop to take me out of the market.

I think that you can try to make 1.5-2 times what you are willing to risk with this method.

I don't think that it makes a difference what time-frame you look at since time-frame is not the idea here.

You can look at a 5 min. chart or just a daily chart- it doesn't matter for the entry since you are looking for change in speed.

Time-frame might matter as a way to look where to take profits, but I think a simple trailing stop might be te easiest way to exit.

Let's face it, when the speed of price change starts accelerating there is usually something going on and usually the aggregate demand is tilted in that direction, so it usually is a good time to enter.

By the way, how did you historically test this idea?

 

[HawkTrader]

Hawk,

I've been trading for a while and I have always noticed this but I have never developed a set of parameters around this idea to put it into practice.
I think that the most important thing to look for is the velocity at which the price accelerates (basically just the speed of the price change).
You know from looking at the market the whole day what the average speed of price movement is, so it is pretty easy to discern when the speed of price starts accelerating.

I don't think that you have to look at whether it is breaking new highs/lows but rather look at the change in speed and then, as you said, just hop on.

EDIT: I've found this, but you have to sign up to download...

http://www.fxfisherman.com/forums/f...et-forex-experience-faster-using-trading.html

As far as risk is concerned, I would just place a fixed stop loss- maybe 15-20 pips and use a trailing stop to take me out of the market.

I think that you can try to make 1.5-2 times what you are willing to risk with this method.

I don't think that it makes a difference what time-frame you look at since time-frame is not the idea here.

You can look at a 5 min. chart or just a daily chart- it doesn't matter for the entry since you are looking for change in speed.

Time-frame might matter as a way to look where to take profits, but I think a simple trailing stop might be te easiest way to exit.

Let's face it, when the speed of price change starts accelerating there is usually something going on and usually the aggregate demand is tilted in that direction, so it usually is a good time to enter.

By the way, how did you historically test this idea?

Thats the interesting thing about it, it's very hard to put a set of rules to it. In fact, I don't think you can. The problem I've noticed when testing (and watching price in general) is that when a pair (I'm watching Currencies) starts accelerating, sometimes you hop on, and then it just happens to slow and/or reverse! I've been watching GBP/USD though, I'm sure it's different with different pairs.

About the testing, I can't find a direct link at the moment, but if you search Forex Factory for it, you should find it. Basically it's an "indicator" that you can load onto MetaTrader, and price 'plays' like a movie in real time and then you can trade it.

EDIT: I've found this, but you have to sign up to download...

http://www.fxfisherman.com/forums/f...et-forex-experience-faster-using-trading.html

 

[mrsoul]

Thats the interesting thing about it, it's very hard to put a set of rules to it. In fact, I don't think you can. The problem I've noticed when testing (and watching price in general) is that when a pair (I'm watching Currencies) starts accelerating, sometimes you hop on, and then it just happens to slow and/or reverse! I've been watching GBP/USD though, I'm sure it's different with different pairs.

About the testing, I can't find a direct link at the moment, but if you search Forex Factory for it, you should find it. Basically it's an "indicator" that you can load onto MetaTrader, and price 'plays' like a movie in real time and then you can trade it.

EDIT: I've found this, but you have to sign up to download...

Get Forex Experience Faster Using a Trading Simulator - Forex Trading | MetaTrader Indicators and Expert Advisors

I bet if you placed an OCO order you can make money doing this.
As soon as you see price starting to accelerate, enter the market wit a 15-20 pip stop and a 25-35 pip profit and just keep the OCO order until it is hit.

 

[HawkTrader]

So where do you suggest placing the actual order?

 

[mrsoul]

So where do you suggest placing the actual order?

As soon as you see price start to accelerate dramatically just enter the market in the direction of the acceleration.
This acceleration should be pretty easy to spot since it will be a sharp deviation from the average price speed.
Don't force the trade; make sure that the price speed is accelerating rapidly.

After you enter, place a 15-20 pip stop loss and a 25-35 profit limit.
Set the stop/limit as an OCO order (one cancels the other) and then just wait until either your stop or limit gets filled.
Now, while the stop should be fixed, if the price gets close to your limit and starts stalling, you might want to exit then.

I am going to trade this method starting Sunday and I will try for a risk/reward ratio of at least 1 to 1.5 but preferably 1 to 2.

 

[candles]

D e L t A

 

[pedro01]

For example, a trader is looking for a stochastic cross to enter and at the same time the stochs cross another trader is entering the opposite way based on fundamental reasons, another trader is entering to play a breakout, and another trader is entering based on a rsi reading.

Are you implying that retail traders are the driving force behind prices the majority of the time ?

Are you also saying that technical indicators such as stochs, rsi, etc are the things that are driving most trading decisions ?

I would dispute both of those assumptions.

 

[mb325]

I would dispute both of those assumptions.

I don't think he assumed either of those things!?

 

[mrsoul]

Are you implying that retail traders are the driving force behind prices the majority of the time ?

Are you also saying that technical indicators such as stochs, rsi, etc are the things that are driving most trading decisions ?

I would dispute both of those assumptions.

No I am not saying that retail traders move the market.
It clearly is the big players and heavy hitters moving the market but many of these players buy and sell for different reasons.
I just used the examples of stochs crosses and other technical indicators to illustrate that many traders, especially the big boys, buy and sell for different reasons and that unless you have some type of aggregate supply/demand on your side before entering the market, it will be a long, hard road.

In short, clearly retail traders aren't moving the market; it is the big boys who do this but they enter for different reasons and you have to enter when most of them are going the same way.

 

[pedro01]

I just used the examples of stochs crosses and other technical indicators to illustrate that many traders, especially the big boys, buy and sell for different reasons and that unless you have some type of aggregate supply/demand on your side before entering the market, it will be a long, hard road.

The big boys are not entering the market because of any of the reasons you stated.

ETFs are a great example in this case. New inflow of funds = they issue new shares = the APs buy the underlying. Opposite when funds are withdrawn.

Then you have program trades splitting large orders to prevent leaving too big a footprint.

Then of course, you have market makers in stocks that do all sort of things to move prices around to 'shake the tree' a but,

Systems don't fail because one guy uses RSI/stoch/MACD/MAs to go long and another guy uses RSI/stoch/MACD/MAs to go short.

Systems fail because they use RSI/stoch/MACD/MAs.