Baruch's Forex System Journal

Scientist · Mar 23, 2004

Quote from Baruch:

Bad decision. The rumour (and bomb threats in London) are hurting EUR. No, it's not easy trading the news...
More...

I told you that before. In fact, not only is it not easy, but it's actually silly to try. All you'll do is jeopardize your system, as you've just done again.

Have you backtested your system with news, or without news? If without news, then why do you look at news? I maintain it's a silly deviation from your trading rules / plan and will sooner or later be punished by the unforgiving dynamics of the market.

The fact that you didn't dare to answer my questions on the elaborate post I made on this subject only emphasizes the fact that you're uncomfortable with my notions.

To be quite honest, I think you're totally kidding yourself about your news interpretation. The only way YOU can really make (more) money out of news is by having a computer close to the news data center, an execution platform with 20ms ping to the exchange, a Bloomy, and an "evaluation-and-entry-bot" that reads out the eco# and reacts with instant automated execution based on the reaction parameters as pre-programmed, and fires an instant order to the exchange. The whole proces off computation and transmission might take 50ms, in which case you have a remote chance to be one of the first to get their order in. If you read out and react manually, it will take over 1,000ms no matter what you do. But at i.e. 8:30:01 EST, it's all over. You gotta get in at 8:30:00, or you're just dreaming. Exit may then be discretionary. That's how I think about it, anyway.

Trade the chart. Forget the news.

Scientist · Mar 23, 2004

Quote from random trader:

Your mind seems as rigid as your stops. What makes money is right, and what loses money is wrong. There are a million ways to lose money, but there are also a thousand ways to make money. There's no need to understand each of them. Let me stop at that.
More...

Ditto. Amen to that.

jrs3 · Mar 23, 2004

Brauch keep doing what you have been doing, these guys who have thousands of posts on this forum spend way to much time trying to show everyone how smart they are. IMO you will be better off staying out of these forums. Stay focused on your plan.

Good luck!

jrs3 · Mar 23, 2004

Sorry I mis-spelled your handle (Baruch)

Baruch · Mar 23, 2004

Quote from Scientist:

"You're doing all the wrong things..." - LOL!

Baruch, how long have you been trading for? You seem to think you know what's "right" and what's "wrong" in the markets. Watch out!

Fortunately, you're just at the beginning of your journey. As you do this for a few years, you will likely go through some crazy times of invalidation of your own older theories, times of hardship and times of total despair, when nothing seems to fit together. It's those times when you get most inspired to look beyond what the books say and what everyone else does. It's those times that you get some true insights into what the reality of trading really means.

One of the greatest realities of trading you will eventually learn about is that whatever the majority of people considers "right", will by very definition, be "wrong", if you want to extract profits.

Why is that so? Well, it's simple: The markets are an arena where a minority of people consistently derives a profit from a majority of people. Perhaps at the end of the day, 45% of participants take money off 55% of the others. Or perhaps 5% take money off 95% of the others. It doesn't matter. What DOES matter is the mathematics of this equation. The mathematics logically prohibit a majority to make money out of a minority, since you cannot squeeze blood out of a stone, so to speak. There always has to be a losing majority in order to make others profit. Otherwise, nobody would trade the markets.

Once you have understood this, the next point to understand is that the (losing) majority uses similar methods in approaching the markets - namely popular methods - most of which are found in all the myriads of trading books out there. I love some of those trading books, because the are a great reference for what your "opponents" in the market are looking at. Now that you're aware of it, all you have to do is fade those common practices, and you will more likely make money.

Matter of fact, it doesn't matter what technique you look at - once a majority of people has adapted it, it will become invalid, and other, minority-used techniques, will become rewarding.

Have you ever talked to really good traders and asked them how they think about going with the majority? Matter of fact, the few master traders I know are uncomfortable, no, literally afraid of positing themselves with the majority. When everybody is long, they really sit in the trench and wait for a good place to go short.

The quintessence of this wisdom is that the majority (and their beliefs, as portrayed in trading books and here on ET) is usually wrong, and that the only thing that's "right" in trading is whatever generates money. If it generates money consistently, with a decent R:R and / or hit rate, then it is right. In my case, what I do is "right", despite what you say about it being wrong. And I am sure I make more money than you. So, in relative perspective, I am "right", and you are "wrong".

Don't forget that while your foolproof trend-following approach works beautifully today, it might just make you give back everything tomorrow, if a ranging mode occurs. Think you're a hero yet? Think again. You will find over time that the markets usually follow what I call the "Pawlow's Dog Pattern". The Pawlow's Dog Pattern is my interpretation of the way "the market" likes to "train" people to certain behaviours, by making them frequently reoccur, until a simple stimulus, such as a chart pattern, or an MA crossover, can trigger you to take action. This "Pawlow's Reflex" will soon manifest as a behaviour pattern amongst the larger crowd, and become a beautifully exploitable pattern for a minority. To our further convenience, the guinea pigs / dogs - once trained - tend to remain with their old methodologies for quite some time longer, giving their money away in the meantime. Eventually, the reflex will fade as a consequence of the pain triggered by large losses, and that's when people change to adapt new patterns, and the whole thing blows up and starts over again...

I am sure you are familiar with Pawlow's reflex experiments and theories. If not so, I recommend you read up on it, because it has fundamental implications for market behaviour. I was familiarized with the Pawlow concepts already in highschool.

So, the conclusions are:

- Don't take things for granted, never judge anything as "right" or "wrong", since in the market, this depends 100% on a minority / majority factor, not logic or anything else. If you think otherwise, you're kidding yourself. There is no academically justifyable set of reasons for any market action. There is only a mathematically quantifyable equation which constantly shifts - to the favor of the most flexible.

- Always stay humble. Use the best times to prepare yourself for disasters. The more success, the more humility is required.

I hope this gets you thinking a bit. And if it doesn't, then the upcoming losses you will face as a consequence of this inflexibility / bias surely will.

Regards
Scientist
More...

Scientist,

Thank you. Yes, I believe in "the right thing". Cutting your losses, let your profit run, not adding to losers. Etc.
And when I read The Old Masters - Baruch, Livermore, Gann & Co. - and the new ones - people like Richard Dennis, William Eckhardt, George Soros, Paul Tudor Jones, Marty Schwartz - they also did/do.
So I don't think "the right thing" is a wrong thing.
.

Baruch · Mar 23, 2004

Quote from Scientist:

I told you that before. In fact, not only is it not easy, but it's actually silly to try. All you'll do is jeopardize your system, as you've just done again.

Have you backtested your system with news, or without news? If without news, then why do you look at news? I maintain it's a silly deviation from your trading rules / plan and will sooner or later be punished by the unforgiving dynamics of the market.

The fact that you didn't dare to answer my questions on the elaborate post I made on this subject only emphasizes the fact that you're uncomfortable with my notions.

To be quite honest, I think you're totally kidding yourself about your news interpretation. The only way YOU can really make (more) money out of news is by having a computer close to the news data center, an execution platform with 20ms ping to the exchange, a Bloomy, and an "evaluation-and-entry-bot" that reads out the eco# and reacts with instant automated execution based on the reaction parameters as pre-programmed, and fires an instant order to the exchange. The whole proces off computation and transmission might take 50ms, in which case you have a remote chance to be one of the first to get their order in. If you read out and react manually, it will take over 1,000ms no matter what you do. But at i.e. 8:30:01 EST, it's all over. You gotta get in at 8:30:00, or you're just dreaming. Exit may then be discretionary. That's how I think about it, anyway.

Trade the chart. Forget the news.
More...

Hi again,

Yes, you have a point here.
But I just love to follow the news, and it would be very boring for me not to do so. How can you sit all day before your screens and only look at the charts? How can you follow the movements without wanting to know what makes them?
PS. Yes, I want a Bloomy.

Baruch · Mar 23, 2004

Quote from Scientist:

Ditto. Amen to that.
More...

Hi again,

Amen.
I love to read your comments, Scientist.
Promise me that you will write that trading book.
Now.

Baruch · Mar 23, 2004

Quote from jrs3:

Brauch keep doing what you have been doing, these guys who have thousands of posts on this forum spend way to much time trying to show everyone how smart they are. IMO you will be better off staying out of these forums. Stay focused on your plan.

Good luck!
More...

Hi jrs3,

Yes, I do. But I like to hear from other traders. I don't care that I don't agree with them - or that they don't agree with me (sorry for them).

Baruch · Mar 23, 2004

Quote from Scientist:

Ditto. Amen to that.
More...

Hi again,

I don't understand: You always says that you have very tight stop - you only take small losses. But you also says that adding to losers is OK? And trading without stops is also OK?

AC3 · Mar 23, 2004

Baruch sorry 2 bother U during the trading day but had a question that maybe Im just missing something ........ when Euro crosses the 50ma R U executing the buy sell at that moment (w/ a filter) and not minding the RSI or R U exectuing the buy or sell as it crosses the 50ma w/ confirmation from the RSI in the form of a overbought oversold sig? Again apologies if u have ans this already.........