The only thing different between what I do and what many other traders here like Candle and Dozu do is that I put all of my "trading logic" into 100% mechanical rules to identify when to buy or sell. Whether you are buying a pullback in an uptrend, trading momentum, pattern recognition (aka chart patterns) to identify low risk entries, etc, I prefer to use a mechanical approach because that is the only way I can have confidence that the method I am using has a positive expectation. There is really nothing "magical" about systems trading. It's just a way to gather input, analyze it, and make a decision. There is no way to know how it will do in the future, just like there is no way to know if a trend will continue or not.
tom_p "(4) Let's talk about roulette, which you use as an example of a negative expectation game. Have you read "The Eudaemonic Pie" by Thomas A. Bass, about a bunch of computer wizards who tried to win at roulette? They went to Las Vegas and played roulette, in disguise, with computers in their shoes. Using physics, a computer can actually predict, fairly roughly, where the little ball will land. And the person with the computer in his shoe bets on the numbers all around that predicted number, and gains a fairly strong advantage. Where there's a will, there's an advantage. " I'm sorry but this is typical of the BS so prevalent in this industry. Roulette is a mathematically impossible game to beat. If you played it without time constriction you would eventually lose. Now blackjack and poker are a different kettle of fish. dottom "Trend following seems to have worked pretty well shorting ENE. In fact, trend following strategies have done quite well in interest rates & currencies as well just to name two sectors " Before I make my comments please understand I am a real trader putting my own money on the line every day. I have followed both discretionary and fully (months of research) mechanical systems for a number of years. I can say categorically that if you are blindly using a trend following system - no matter how you cut it - multiple entrants, pullbacks, multiple exits etc etc you will end up with a zero sum game. At best you might figure a profit - but the best I could ever manage is a system with a profit factor of around 1.4. This is just too close to the bone and there are safer homes for your capital. The bottom line is that if you are using a system to trade currencies (yes I agree, they are the trendiest markets in the world by a long shot) you should also be trading all the other commodity sectors with the same system with the same parameters. This is where the constant chipping away of your capital makes the whole game worthless. If you are talking ENE, then you should be trading many other stocks as well. Stocks are even more mean reverting and random in their movements generally than commodities! DT-waw I have read some of your earlier posts and can I make a suggestion to you about making money in this business? Forget trading. Ultimately by it's very nature most people will lose. You have the same probability of making it big as a hollywood actor. But the big difference is that when you have made it in that field you do not have to go about proving yourself from scratch every day! Even I am at the stage where I am treating the whole exercise as a bit of fun until I spot my next business opportunity worth investing real money into. You're a smart guy. Perhaps if you do some extensive research and come up with something that is a new way of looking at the markets you could make a very nice living charging subscriptions to a website, doing seminars etc. This is where the real money is!
The subject matter in question was not trying to predict the game of roulette, the mathematics of which are obvious, but predicting the underlying assumptions of that model. In order for the results to be fully random, the wheel has to be perfectly balanced, be spinning at a variety of speeds sufficient to produce random results in combination with the dealer dropping the ball at random locations and flipping it with random speeds. As it turns out, many dealers when they spin the wheel do so with a similar velocity, many spin the ball with a consistent velocity, and many begin the drop at the ball around the same area on the wheel (e.g. some wait for one of the green zeroes before spinning the ball). In addition to this, no wheel is perfectly balanced! The greater the unbalance, the less random the results. You add all of these variables up and you have a chaotic system that seems random most of the time, but there are definite patterns that can be exploited. The way they won money was to predict what area of the wheel the ball would land on, and then make the bets accordingly. Betting a particular number is too difficult, but you can identify patterns of what area of the wheel the ball is likely to land. You only need a small advantage to be profitable. Doyne Farmer did this very thing by calculating the "calibration of the roulette operator's flick of the wheel, the speed of the bouncing ball, and the tilt of the wheel's wobble." Farmer went on to found LTCM which proved that using Chaos to trade the markets works. Their eventual failure was due to poor money-management and over leverage, and nothing to do with their mathematical model. In fact, because of this the casinos have made several changes to the game, including shifting dealers frequently, stopping the wheel after so many spins and spinning the ball the other direction, using multiple balls with different size and mass, recalibrating wheels periodically, and switching wheels periodically so you cannot handicap a single wheel over time. Now gaining an advantage is too difficult (not to mention illegal to use a device like Farmer used in the casinos). This is all well documented. I also put my money on the line trading, and a mechanical method at that. Just because you haven't found a system you have confidence in does not mean that one does not exist. If you don't believe that mechanical systems based on trend following work, then you have to also believe that discretionary systems based on trend following does not work. The reality is most discretionary systems are just complex mechanical systems where the trader has not been able to fully mechanize the system. Some parts of the trading analysis are too complex to easily model. In addition, I believe there is a huge group of "hybrid traders" whol use a mechanical setup, and then use discretion to execute the trade (Tony Oz scanner as an example). These methods are neither 100% discretionary nor 100% mechanical, but clearly show that a system of some kind is being utilized. There is a lot of evidence of traders here on ET who have been consistently profitable using a method that trades with the trend. Regarding Profit Factor, 1.4 is at the low-end of what I consider "tradable systems," but you also need to look at Sharpe ratio, Payoff ratio, and Recovery Factor. Even though at 1.4 PF is low, the equity curve is what is most important, and the other risk factors address that better than just PF, but PF is a good benchmark to start from. I prefer PF above 1.8 myself.
"In fact, after this even the casinos made several changes to the game, including shifting dealers frequently, stopping the wheel after so many spins and spinning the ball the other direction, using multiple balls with different size and mass, recalibrating wheels periodically, and switching wheels periodically so you cannot handicap a single wheel over time. " Which is exactly what other market participants do eventually to ensure that you cannot take money off them by simply trend following! If it is not them that stops you, it is the government. Just compare an intraday 1 min chart of the s&p future leading up to the 1987 crash with the that leading up to the fall in 2000. The former is by any regards "trendy", displays lovely elliot waves etc. The latter is a random chop brought about (IMO) by the result of program trading and also the many federal and exchange trading limits/trading rules which make the market not a real unrestricted market at all. In fact I would go so far as to say the most capitalist country in the world actually has some of the most 'communist' restrictions on it's "free" markets seen worldwide at the moment. Who says the cold war is over?!
<< I'm sorry but this is typical of the BS so prevalent in this industry. Roulette is a mathematically impossible game to beat. If you played it without time constriction you would eventually lose. >> Funster, in 1979, 6 years before "The Eudaemonic Pie" was even published, I forked out $2,500 for a genuine English roulette wheel (the bugger weighed a ton ) for the sole purpose of using physics to beat the wheel. It was a solo effort, and my funds and the state of microchip technology at the time were sufficient to only design a very bulky and, shall we say, easily detectable computer, so I abandoned the project in 1980. I can, however, say that in laboratory (home) conditions I could easily beat the wheel and I have no doubt that it was successfully done in live, casino conditions. Suffice it to say that this is a subject very close to my heart, and when you uncategorically call it BS, I know you're full of it.
question for ALL . which do you think is more profitable REAL ESTATE INVESTING OR TRADING ? ( Assuming same level of skill , discipline , passion , e.t.c ) over the long run. ( long run =3-7years )
I agree there is a lot of arb activity, especially in the index futures. Intraday "noise" is much more now than it "used to be" but arb activity has only a minor affect on noise if you go to larger time frames. I use a 5m and 30m for intraday trading and have done quite well. I would like to see some stats that show how much more arb activity there has been in the last quarter vs. previous quarters to see exactly how much different this past year is than any other year? As arb related activities constitute a larger % of the market volume, then you simply have to go to higher time frames to filter out the noise (or use a very good DSP ala Mark Jurik but that is another subject matter). The central banks have been arbing currencies for decades and the currencies have been a great trading vehicle, but you have to trade on longer time frames then you would trade stocks. Day trading currencies on 1m or 5m bars is very tough b/c of the heavy arb activity. A lot of people are saying 2002 is going to be oh so much more difficult thatn 2001, or the markets have changed, and many other similar statements, but I still see the same intraday trends as I've always seen and my results have been consistent the past 3 months as it was the past 6 as it was the past 24. Sure it's not the tech bubble, but the markets are very tradable IMHO and there are several people on this board who are consistently profitable using an approach that follows the longer-term trend. In fact, today was a good example. Ride that trend down, baby!
Oolarinm, Flipping properties can be profitable... for example taking out a property and renting it out, you should easily be able to pocket $400 a month profit after costs and taxes... with 50 properties in your portfolio, thats $20k a month,which is great... the issue boils down to doing what you WANT to do... either flip properties or flip stocks. Similar numbers could hold for running a chatroom, come to think about it! For example $200/month x 100 clients. I think flipping properties is actually a more consistent income stream than flipping stocks, if you choose the right properties they will ALWAYS generate income, regardless of market conditions. Candletrader
Candle, I am profitable trading ( trade for 90minutes a day ) . I asked the above question cos it seems to me that alot of people get into trading not because they love it but for the money . So if one finds out that properties CAN BE more profitable or a at least as profitable, maybe then could make others consider it . I am combining the two JUST WANTED OPINIONS FROM OTHERS. THANKS
tom_p "and when you uncategorically call it BS, I know you're full of it." Sorry if I offended you Tom, but a few years in this biz has really attuned my BS detectors! dottom If you want to see 1/4ly figures for program trading (which includes index arb) have a look at the nyse site. They post these figures: http://www.nyse.com/marketinfo/programtrading.html You're right about currency futures being no good for intraday. But I think it is more about liquidity than anything else. Most institutional currency trading occurs on the interbank market. Here they can make much more flexible contracts for their needs such as swaps and date specific forwards. However perhaps something like the eurocurrency futures are more in keeping with a market that is 'arbed' to death. For example one of the most liquid contracts in the world, eurodollar, barely moves at all intraday (save for the odd macroeconomic shock). And yet the number of contracts being traded and $ value is mind boggling. Yeah, today was a nice es/nq/qqq trend. However we will soon return to the normal chop, once a few more people have been suckered in by the sight of such a trend. oolarinm Real estate. Don't forget it is a market that goes up and down like any other! And at the moment it is doing very well, perhaps too well. Kinda reminds me of 1999 in nasdaq stocks in fact... Probably the best question to ask I have heard before buying in a general area is this: "Can a normal worker afford to get a rung on the housing ladder here?" If the answer is yes, you're probably reasonably safe to buy.