[/QUOTE] I'd actually flip the ratio to say that success is 90% strategy development and 10% "psychology" by which I mean following the rules of the strategy to the letter and resisting the urge to scrap it once you have a bad streak, which is going to happen. So, the 90% of your time should be dedicated to getting to this point (quoting from one of your links): "In fact, the best traders often use methodologies that are endemic to basic market structure and will therefore always be a part of the markets they trade. Thus the possibility of the market changing form to the extent that the approach becomes useless, is very small." If your strategy does not originate from something the market will do consistently, regardless of external conditions, then it will not endure and ultimately your expectancy will go negative (once trading costs are factored in, anyway) and you will bust your account.
[/QUOTE] Let us say the market changes due to " a black swan type event " and the market does the opposite of the strategy.What will happen to the strategy?90 % has gone into the strategy.Only 20 % should be put into multiple strategies combined. and this 80 % on psychology and the rest will save the trader from extinction. http://en.wikipedia.org/wiki/Black_swan_theory
In my lifetime we've had black swan type events (crash of 1987, 9/11) as well as a serious longer term market crash (2008/2009) and even a mini black swan type event for a short period of time on May 6, 2010. If your trading strategies are based on "methodologies that are endemic to basic market structure", how would such events cause the market to do the opposite of the strategy? I believe trend-following trading tactics will produce a favorable statistical edge as long as there's a market with enough participants to move price. When, historically, have we seen the market change in a way that negatively impacted trend-following strategies? I've seen historical charts in various time frames from the early part of of last century onward and I've never seen a time period where price started acting in a way that invalidated trend-following strategies.
Markets don't change because of "black swans". If anything, "black swans" are "the exception that proves the rule". "Black swans" are best dealt with via robust money management rules, not strategy. And if a "black swan" came along which flipped the strategy directly on its head, so? If you could design the strategy to work one way, you should be able to redesign it to work in a 180-degree opposite way. Anyone who has a successful strategy will tell you that once that happens, "psychology" becomes a non-issue and continued refinement of the strategy is the top priority. I have a strategy for the ES which works and I spend all of my time testing different exit strategies and ways to exploit overnight moves and zero time worrying about my "psychology". Does the market frustrate me at times? Sure, but I'm not going to deviate from what I know works even if it might be "psychologically" satisfying to do so. Also, with all due respect, read the quote I pulled from that link again. The fact is that markets have a logic to them and there is no way that logic will ever change as long as human nature does not change. In other words, the logic is "endemic" to the markets, just as the quote says. Once you find that, not even "black swans" will frighten you away from taking the trades that are triggered by that logic. From there, it is a matter of finding your own personal utility function relative to risk tolerance to determine position-sizing and just taking every trade you see. Strategy development is your "battle plan" and psychology is simply having the courage to follow the plan. Would you tell a general to spend 80% of his time on building his courage and 20% on his plan or 80% on making sure his plan was sound enough to inspire courage on its own? Come on, it's a no-brainer.
They won't, of course. The only real debate is: 1. What requirements MUST be met for something to be considered "endemic to basic market structure"? 2. How many methodologies meet those requirements? I think I have a good grasp on the first one, but no idea of the second one. But, in my experience, knowledge of these questions is in itself the rarest thing among retail traders, who spend most of their time on ephemera. I don't even like to talk about what I've found related to the first question, but I will say this, my "psychology", a.k.a. my bias at a given moment in market history, is NOT "endemic to basic market structure" and is, therefore, COMPLETELY irrelevant.
I designed and operate 44 automated day and swing strategies , they worked fine for the period 2001 to 2008.In 2009 to 2011 the systems work , but with much lower returns , due to extremely huge amount of fakes, bad news and much more uncertainty in the markets. Recently the trend has been more trends at night , and mainly mixed markets with high volatility and many more fakes with huge uncertainty during the day, You would really need a great day trading strategy to survive these conditions.If the strategy was well designed ,it would probably eliminate the psychology problems, but what is the strategy?
You probably won't be surprised that I'm not going to give away any details, but I only use 1 strategy and it encompasses all possible market movements, so that I always know exactly what price to buy at, sell short at, exit or re-enter. I have never seen a chart which didn't exhibit the characteristics I look for in a trade, either, whether it was from a bull or a bear market or from this century or last century or US markets or foreign markets. That's what I mean by something "endemic to the basic structure of markets". I haven't backtested it against every market out there, but because the logic of it is so general, I can't see how it would ever stop working. That said, it could stop working tomorrow, but I see no reason to assume that it will.
I have to have to agree with you. I am also not going to follow this thread anymore. After just making double my profit on my last Forex trade than I did on my S&P futures trade, I realize how easy it actually is to trade once one focuses on reality. However, it is impossible to help someone who has mental issues which cloud their ability to trade successfully unless they want to help themselves. For those who actually do want help. I would say look at a chart that shows what price did during the day. It does not matter matter if it is a stock chart, futures, or forex. If you are able to see certain times where you would have made profit, then the next step is to test that in real time as price moves alone the hard right edge of the screen. If you can see a trend that develops during the day, you should be able to profit off of it.