Why most systems fail:

[mrsoul]

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 Opposite when funds are withdrawn.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.

I was actually refering to currency trading but the same thing applies for stocks or any other market.
In order to make any real money trading, you have to be on the same side as the aggregate demand (if you are long) and on the same side as the aggregate supply (if you are short).

It doesn't make a bit of difference why the traders are entering the market, the only thing that matters is that you are on the same side as the majority of the orders- buy or sell.

It really is that simple.

However, the million dollar question is how do you ascertain if the majority of the orders (aggregate supply/demand) coming into the market are long or short.

If you can figure this out, you have the keys to the mint.

Any suggestions on how to ascertain this, Pedro?

 

[pedro01]

Perhaps most systems fail because the market isn't systematic.

Supply and demand at the point you enter can be assessed on stocks, not sure about currencies. It will of course change.

So - perhaps the key is not a system that understands past/current supply & demand pressure but one that assesses drivers of supply & demand and makes a judgment call on where supply & demand is going in the future based on those drivers.

Either that OR be in the market for such a short amount of time that current supply/demand is still in effect.

 

[virtuos0]

I was actually refering to currency trading but the same thing applies for stocks or any other market.
In order to make any real money trading, you have to be on the same side as the aggregate demand (if you are long) and on the same side as the aggregate supply (if you are short).

It doesn't make a bit of difference why the traders are entering the market, the only thing that matters is that you are on the same side as the majority of the orders- buy or sell.

It really is that simple.

However, the million dollar question is how do you ascertain if the majority of the orders (aggregate supply/demand) coming into the market are long or short.

If you can figure this out, you have the keys to the mint.

Any suggestions on how to ascertain this, Pedro?

If you are talking about currency trading then this is impossible, forex is an OTC market and to ascertain supply/demand you would have to have complete orderflow information (buy orders - sell orders). This information isn't even available to banks for the entire market.

Even if you had the information it still wouldn't necessarily be helpful because demand/supply is not the only factor influencing price discovery. It also depends who demands the supply, when the demand it, and who they demand it from!

You can look at the COT report which may give you some small hints about aggregate demand/supply or the report by the BIS which is most accurate but I think is only puslished every 3 years if I remember rightly!

 

[virtuos0]

Perhaps most systems fail because the market isn't systematic.

You hit the nail on the head there, nothing more needs to be said about systems.

Although that isn't to say that an edge can't be found over the market, but that edge won't be found in a system.

 

[dcraig1]

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.

In other words, most systems fail because they are not adaptive. Almost by definition, systems based on fixed lookback periods cannot be adaptive.

 

[VingTsunKuen]

..... you have to be entering the market at the time when the INSTITUTIONAL supply (if you are short) or INSTITUTIONAL demand (if you are long) is on your side.....

Fantastic point and observation!
And really this is simple as that...Supply and demand are two things which are driving price around.We can tell that price is in constant motion between an area of demand and an area of supply,on any timeframe.
When supply or demand is most out of balance we are able to find entries which are high odd,low risk and high reward.And that is exactly what we as traders want,right?
So really the point is that price is tha king and chart can really tell you what to do and when to do it..
Cheers,
VTK

 

[N Rothschild]

another useless post by mrsoul

 

[mrsoul]

another useless post by mrsoul

Rothchild is just a losing trader with an ax to grind and that explains his wanton hostility.

 

[N Rothschild]

for sure!

 

[rathcoole_exile]

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?

most systems "fail" because you are a w@nk@ who keeps trying multiple systems, without the fortitude, moral rectitude and strength of character to persevere

 

[rathcoole_exile]

Perhaps most systems fail because the market isn't systematic.

Supply and demand at the point you enter can be assessed on stocks, not sure about currencies. It will of course change.

So - perhaps the key is not a system that understands past/current supply & demand pressure but one that assesses drivers of supply & demand and makes a judgment call on where supply & demand is going in the future based on those drivers.

Either that OR be in the market for such a short amount of time that current supply/demand is still in effect.

You're trying to have a rational discourse with a Baboon ?

 

[N Rothschild]

mrsoul loves to post what doesnt work, where are all the posts on how to be a trading god?

 

[aidysproule]

Hi Everyone,

I've just started trading and I'm using pivot points, MACD simplified and RSI as indicators, using a decent stop and only letting it run 10 pips, is this a good way of trading or not? So far so good for me.

 

[virtuos0]

Hi Everyone,

I've just started trading and I'm using pivot points, MACD simplified and RSI as indicators, using a decent stop and only letting it run 10 pips, is this a good way of trading or not? So far so good for me.

No, it's doomed to failure because those things have no predictive power of any kind, you are essentially trading randomly. It's only a matter of time before you get back to breakeven.

 

[Hilarymannah]

Hi aidysproule,
The pivots are good points to bounce off with a twenty pip limit and a ten pip stop,...very good,...use your midpivots also.

 

[tenbobtrader]

are you a broker ?

 

[aidysproule]

No I'm not a broker, what makes you ask that? I have 1 person that agrees with my method and 1 person that doesn't, anyone have any other thoughts on my method?

 

[shadowninja]

Try it and let us know. My observation of daily pivots is that if you trade the right direction, they're good for much more than 10 pips. The trick is, of course, in finding out which direction is right.

 

[TWI]

In my experience systems have a very small edge in the market and what this means in reality is that you need to execute them precisely. Over time when you combine execution costs and even a single extra tick of slippage into the mix it can impact your profit significantly. Once the system is developed and is turned live the only real job to concentrate on is execution. Other than this time should be devoted to further system development, certainly not fiddling with something that is already live. If you fiddle with somethign already running then you certainly were not ready to turned it on in the first place.
Of course, if manually executing, it takes a lot of discipline to place the next order after a string of losses but if you do not then you should not be running the system in the first place. If using auto execution then these days market orders are not be the way to go.
Another important factor is how to diversify your systems. For example, is it better to run one system across multiple markets, multiple systems across one market or multiple systems across multiple markets? Risk managing the first and last of those options is far harder than the second as you have to consider all the correlations and execution can become an issue so back to the original point.
I do not think the hardest part of system trading is developing the system with an edge it is implementation and ralising when it is falling over that is key, but that is another subject.

 

[aidysproule]

Is there any websites that I can expand my knowledge as I hope to try and make trading into a 2nd imcome? I am currently reading throught Baby Pips.

Thanks for all the replies so far.