gebichl actually all good points. it is not contradictory to what I say. on the contrary. you point out very well what many of the failing traders are doing. their thinking is wrong and they should reverse it : - jump from strategies to strategies => choose one or two strategies and only do that. - searching for the holy grail (sure way to win) => there is no holy grail. it is a probability and money management game. - Many people out there searching for action Can you sit still and trade strictly your system when the market is jumping up (without you)? => trading is not about action. it is about making money following a plan with the odds in your favor. so all the things you mention these people are doing aren't making much profits for them, right ?! again, reverse the thinking and at least they have a better chance to succeed. It is easy to say, but indeed it is that obvious. True, the behaviour is hard to change. but you do see here that often the difference between success and failure is the perception of what trading is. what you describe are very common perceptions about trading. they help the statistics of very poor retail success with active trading (and now even long term so called investments in a way). tntneo
Note that 4 out of 5 new businesses (80%) fail in the first two years. Similar to all small businesses; failures in Trading are normally due to lack of proper preparation for the business, lack of operational capability, lack of proper capitalization, and cash flow issues. This risk is mitigated by extensive preparation, a proper business plan, and proper capitalization for the business. - Greg
GB, Good points. A need for action is deadly. If a trader is jumping from short to long all day, they have no plan and no market view. They are merely trading noise. Why not just go to vegas and play the pass line all day? Odds are similar and you have no data fees.
I like the basic idea of the thread (and thanks to tntneo for moving it over to a new thread) and while I perceive its intent is to persuade us to analyze our basic trading techniques so that we may make fundamental changes where necessary (which is a good thing) I wanted to focus more on systems to see if the concept is applicable there. Let's say you are a systematic trader and your system isn't quite what you had hoped (has cycles of good/bad). Can't we take this same idea and essentially trade a system against itself when it starts having a run of bad trades? Isn't this the basic concept of an adaptive trading system? For instance let's say you have a simple always in the market system that flips whenver a signal triggers but it has a bad run, so instead of continuing with the system you fade the system until it starts having a run of good trades again. I do see potential problems with this strategy however, and would like to hear from others as to whether they have found this a worthwile study (or not). For instance (for simplicity) let's say you have a system that has profits of 2 pts and losses of 2 pts. You set a criteria that when it has 3 losing trades in a row you fade the signals. Let's say the system then goes through a run of 3 losses and 3 profits. If you traded the system normally you would end up even. If you trade the opposite after the first 3 losses then you end up with a net loss of 12 points instead of breaking even. Thus I have to ask if anyone has found merit in this approach or does the above example end up inevitably biting you in the end, wiping out all your previous advantage?
Are ya'll trading the charts or with your "gut." Just curious. Trading is simple if you follow the charts.
Or to put it another way, perhaps the unholy grail is creating a consistently unprofitable system, but the holy grail is fading it. bwahaha!
TriPack, I like your idea. I did not want to talk about systems, I am a system trader though. But usually when we talk system on the board, threads tend to go mutate into silly battlefields. I know several trading opposite systems at the same time (break out systems vs range systems). it is a bit what you are talking about. not as effective, it only smooth the equity curve. it does aknowledge that nothing works all the time but having 2 systems active at the same time one will always make money. if the drawdown of the other one is reasonable it's a winning combination. back to your idea, the risk is to optimize the parameter activating the 'fading' system. After how many bad trades do you activate it ? reversing a system when it does not work for a little while is not always a good idea. you need to a method to determine the main system is failing for a while. there is always a lag but it can be worked out (if you are careful about optimization). actually succesful discretionnary traders do that. when a method is no longer working (and they know it won't) they do something else. I for myself I do that. In summer I trade a totally different method than during the rest of the year, it works well because I can justify the change in behaviour. It is mainly due to very low volume. in this case markets tend to stay in range in the shorter time frame, they trend less. I could code this in a system. from my testing and experience it is easier to use these strategies with a time frame not too short. holding longer does really pay in trading (less slippage, commissions etc). some plays of course need to be done in a few seconds / minutes, but doing only these types of trades is much more difficult for me than combining them with longer swings. it is actually a very profitable combination tntneo
That is good to know because it helps me understand the basic issues I am facing (optimization of the "flip" variable) and also to know where the problem lies. My first attempt at creating a mirror opposite of the results on a 24 pt loss day turned out to be a 17 pt loss day. So I can see that there is long term hope, just my short term coding needs some work. Thanks for the great ideas!
tntneo: the idea is intriguing (to fade yourself if you are losing). but unfortunately i don't think it is that simple. Some things don't have opposites- i.e. light has no opposite, darkness is the absence of light rather than the opposite of light. the common macro level reasons traders fail are these: - they do not have discipline. - they do not have patience. - they do not have commitment. - they do not have understanding. - they are paying too damn much in commissions. - they are getting raped on slippage. - their are too proud to be humble. - they are too smart for their own good. - they don't have internalized understanding. - they don't have the drive. - they are unwilling to wait out the learning curve (usually at least a year, sometimes two, sometimes five, and some thickheaded people will just always suck at trading no matter how many books they read and seminars they attend, because deep down inside they can't hack facing objective truth). None of these things can be 'faded.' When you are trading successfully, you are like an engine running smoothly. It only takes one bad piston or cracked ring for the whole engine to seize up. Gotta have the whole package, or you don't get to take home the dinero. None of this stuff can be done "opposite"- if you don't have it, you have to pay the price of finding it, which is often too high for most folks.
From William R Gallacher's *Winner Take All* ----- to my knowledge the first and most articulate statement of tntneo's very valid point: "If losing were strictly a matter of chance, the losing rate of traders would be determined by commission charges, since winning and losing trades would tend to balance. [In other words, trading *should be* a zero-sum game, minus the spread and commissions.] But what I am suggesting is that the habitual loser possesses a *losing technique*, which ensures he will achieve results far worse than those he would achieve if he were to trade simply at random............[Let's ask a losing trader] to trade with the sole objective of losing money. Will this chronic loser now be able to lose when he wants to, in the same way he lost when he was trying to win? Not a chance. He will win, simply because he is trying to lose. The reason for this apparent paradox is that, while the chronic loser's objective may be changed, his *behavior* in pursuit of that objective cannot be changed. Faced with the bizarre objective to trying to lose, the chronic loser will grab at losses quickly because taking losses will be instantly gratifying. Likewise, he will avoid taking profits on winners, since all his instincts will tell him to procrastinate. For the trader trying to beat the market on pure technique alone, there could hardly be a better strategy ----- if it could be implemented ----- than that of simply fading, or opposing, all the trades of the chronic losers. If you were to examine the accounts of the typical brokerage firm, identify all the *open trade* losses, take the opposite position in your own account, and hold those opposite positions until the clients closed them out, you would, in effect, be galvanizing the collective power of losers anonymous. And you would win, because you couldn't help but win!" The cliche is true in spades: Cut your losses short, let your winners run! From my experience ----- both direct and indirect ----- I'm sure at least 90% ----- probably 95% or so of traders ---- let their losers run too far (whatever the optimal parameters are for the instrument(s) involved), and probably nearly that many take profits too quickly, often much too quickly from the standpoint of optimal trading vis-a-vis their instrument. And in a nutshell, that's why they lose over time ----- too many big losers and too few big winners. As Gallacher's comments imply, if you can just get out (or reverse) the instant you know you're on the wrong side of the market, without any hope that prices will come back, and ride those winners just as long as you can possibly stand it, without any fear that the market will take a big chunk of your profits away, then you can't help but be a consistent winner!