Reversion to the mean. It is the exact opposite of the typical cut your losses short and let your profits run, but it works. Individual trades are very high risk but there are ways to control risk besides using stops.
ok you guys, then show me a system that trades in the direction of an MA's slope that is profitable in the long run. I say to use the direction of the slope because I really hope you guys aren't talking about crossover systems You'll make bank during trends, and you'll lose it all and more during chop. I think we've all been at the point where we think that a 300 period WMA (or your favorite MA type) on an intraday ES chart is the holy grail. We even test it for a few weeks and make more money in a day than we used to make in a month at our old office jobs. Until you get to a point where it doesn't work... and then you lose it all, and more. Some people try to add "filters" to "block out the bad signals" but it's futile. You can't tell ahead of time if price is going to be choppy or trendy (despite what the "gurus" who PM you try to get you to buy... er, I mean... believe). ET member ironfist tested the crap out of all of these in jjrvat's thread. The best results came from using an MA's slope + specific PA-based entry and exit rules, but I think even at best it was approximately a break even system. Don't forget to use accurate entries (the first bar after the slope changes, not the bar on which the slope changes). Nearly everyone forgets to do this and no wonder their systems look profitable.
^ This is one of the best posts on ET. Remember, most people try to "let their winners run" and "cut their losers short." Most people also lose money. Think about why when you buy, it's usually at the top. Think about why as soon as you sell, price reverses and rallies like a mofo. (I'm obviously not talking about the ET millionaires who can predict price direction with MACD )
The holy grail is an extremely simple and elusive device, that tells you when to follow/or long volatility (the trend) and when to fade or stand aside/short volatility (chop). Any stupid MA method can follow trends, and any stupid oscillator method can fade choppy markets. Therefore the holy grail tells you when to do which. That's why is holy.
Careful dude, ET gurus are going to start PMing you and offering you "special deals" on their indicator that does just what you're talking about. LOL AT THE FACT THAT ALL CHOP/TREND INDICATORS ARE BASED ON HISTORICAL DATA. I don't need an indicator to tell me if the market was just choppy or trendy
IMHO it is even simpler (and more elusive). I only want to know when the market is going to trend. Trading in chop is too much work for limited reward, and therefore unholy.