Financial Freedom Through Electronic Daytrading

qwiktrade + tradeRX,
I think you're arguing about different things. I'm sure tradeRX and you would agree that if one only trades those situations with positive expectation, then one eventually will be successful. 50% winning trades does not necessarily mean a breakeven trader (unless stop=profit, and no commissions), just as 60% winning trades does not necessarily make a winning trader.

 

I don’t think an author’s ideas are useless because he has never traded actively, but I would tend to favor those authors that are more intimately familiar with the practical aspects of applying a theory.

I understand where you are coming from tradeRX, but I believe that what you are asserting is dependant on what you value. If the profitability of a system is paramount then the percentage of wins, while an important aspect of the approach that you may wish to improve upon, takes a backseat to the net profit. Systems that attempt to capture large trends at their inception can often experience very low success rates in terms of percentage wins. They are profitable systems, though. If your goal were to be right more than you were wrong than I would agree that you aren’t doing that good of a job with less than 50%.

 

Dustin. Any truly VALID system of predicting bottom prices would not result in a stop, two, three or more times. After all, isn't the purpose of the system (eg, RSI) you were using to determine the bottom? Well, if you were stopped out several times, then it didn't accurately pick the bottom. Otherwise, you wouldn't have been stopped out several times. Right?

What you had was really the simple strategy of repeated buying and selling for small losses until finally through random chance you found yourself in the money on the right side of the position. Then you upped the bet attempting to compound your profits knowing the risk of loss was less because you already had a small profit in the trade.

This is a far cry from a truly valid system of picking winners that beats a totally random outcome. To my mind, THAT is the standard that must be met to qualify as a success in picking winning positions.

The super simplistic strategy of cutting your losses short on every trade until you find yourself in the money, then hanging on till the trade either retraces and you stop out essentially even, or you eventually sell for a large win is just this...a simple method. It has NO predictive value with regard to price movement. It's a trade management strategy only. And I doubt it would work in the long run.

 

Quiktrade. If, as you say, "you can expect about 2 out of every three trades not to reach the 4 dollar mark, and eventually stop you out..", then you truly have a valid predictive system. But you are using it improperly.

Let me explain. "Expect" means consider probable. Therefore, you are saying that it is probable (exceeding random chance) you will find yourself on the wrong side of the trade 2 out of 3 times. Then it makes sense to fade your own system. Turn it upside down ...don't go long but SHORT every trade! According to the expectancy of your system, 2 out of 3 times you will be in the money. Ride the 2 "losers" down (now winners to you) for four points, sell the one long "winner" quickly, and make a fortune!

Trade your system backwards and make big bucks. Now you have.....

8 winning shorts = 8 wins @ 4 dollars X 1000 shares = $32,000.

4 losing longs = 4 losers @ 1 dollar X 1000 shares = $4,000.

Total profit = *$28,000* (- commissions)

That's $20,000 more profit just by turning your system on its head.

 

RSI can't pick the bottom....but it can tell you that you are <i>near</i> a bottom (or top). This is where the value lies. I don't just buy and sell randomly all day until I hit a winner like you seem to think. There's not much else to say on this topic. Good luck to you.


Dustin

 

tymjr.

>"Systems that attempt to capture large trends at their inception can often experience very low success rates in terms of percentage wins. They are profitable systems, though. If your goal were to be right more than you were wrong than I would agree that you aren’t doing that good of a job with less than 50%."

The whole point is if the system CAN predict large trends at their inception, then it has TRUE predictive value. Otherwise, all you are doing is simply a trade management strategy of buying and selling until you find yourself in the money. Then holding on hoping for the big gain.

But what system truly predicts not just winners, but LARGE winners, better than any random outcome?

 

tomp.

>"I'm sure tradeRX and you would agree that if one only trades those situations with positive expectation..."

That's the problem. A situation that has a positive expectation by definition beats a chance outcome. Otherwise, fade your own system and get rich.

 

The system I’m thinking of doesn’t necessarily attempt to predict large trends or trends at all. It seeks to isolate an area of potential exhaustion. The reason it enters a number of times before catching the counter extension is due to its heightened sensitivity to contraindications, a stop that is not optimized to market volatility, and it’s unwillingness to await confirmation. This allows it to have a very favorable risk/reward profile. Additionally, reversing the system using the same stop criteria is not profitable due to the now reduced extensions in the direction of the original trend.