The point is by using stops your win rate goes down, in return for which you avoid crippling your account or wiping it out. If I look at my stats, there are times when I made 20% to 30% a year with less than 40% win rate. Now I know for a fact that the win rate would sky rocket way over 50% if I had no stops. Equally, in that reduced percentage of losers there were trades that would have crippled the account had I not used stops. Random entries theoretically gives you a long run 50% win rate. I reckon the moment you factor in stops, that rate will drop sharply. So to say that TA which gives less than 50% win rate is worse than random entry is to miss the point that stops impact on win rate.
That's what ultimately lead me to developing & trading automated systems ... I always lost money discretionary trading, at some point I realized I wasn't confident in my trading plan because I had not backtested it, and forward test on sim was not enough to convince me. But it took me several years of R&D and over a dozen non-viable trading systems before starting to get some backtesting results not immediately invalidated by forward testing or live trading. My lastest system works a lot better than any prior one ... I believe the main reasons for that to be: 1) no trade management artifact - as strange as it seems ... but too often, the "natural" outcome of a pattern is interfered by trade management 2) using many patterns at once (currently 24) 3) having a large sample-set for a least a few patterns : - 2 are ~3000 instances in-sample (6 years) - 1 is 2000+ instances - 2 are 1000+ instances - 6 are 500+ instances 4) having a trade frequency large enough that the law of large numbers can play-out in a reasonable time horizon (the system generates on average 6 trading signals per day)
1. I agree with you--- random entries ( within reason ) and you don't need the percieved advantage of TA that provides just a little over 40% winning trades. Are you saying that you don't even have 40% winning entries trading? I dont' understand what you mean here. 2. I don't know, man. maybe he is a way better money manager than me thus will have much better results Remember, I am not saying that TA users can't make money-- I am saying the TA has nothing to do with their success.
I looked at that article. My conclusion is the guy has his head so far up his arse he can't think straight. He used starting capital of $40 million. Firstly, what percentage of all brokerage accounts in the States have $40 million or more as a balance? Secondly, would you like to hazard a guess that with starting capital of say 100K, the account would have wiped out?
Surf, you should take a basic course in theory of probabilities. Edge is not necessarily high odds of something happening. It's all about the balance of risk/reward. I already quoted Soros on the matter, but will repeat since I love this quote by him, it's a great demonstration of true speculator mindset: "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." So to summarize: chance of winning or losing an average trade has NOTHING to do with existence or absence of the edge upon the entry. OK, now to answer your second question: I am sure it's not just money management et cetera, because I also asked myself the same question. It's probably logical for everyone to ask such questions in regard to TA or whatever activity based on probabilities and not certainty. So did I. And I performed thorough tests by applying exactly the same money/trade management in exactly the same instruments and everything else being exactly the same, except the entry. Difference in results is so flashy even a short sample size of like 20-30 trades makes it obvious. Needless to say that difference is in favor of TA entries. Otherwise I assume, making money in the markets would be a question of disciplined money management and it would be simply too good to be true (as it usually is in life when looks so ). Hope it clarifies my point somewhat.
TA provides a foundation on which, and framework around which, you can build a consistently profitable trading plan. You use the terms "accurate", "win rate" and "money management" above as if they have meaning in isolation. They have no meaning in isolation; they are only useful in trading relative to each other, meaning all of them must be taken into account to create consistent profitability in a time frame meaningful to the trader's income/wealth objectives. Here's my post from another thread regarding this: You can use any framework for trading as long as it --- and your trading rules surrounding it --- are consistent. Consistency is not certainty. Consistently profitable trading is based on positive expectancy, not certainty. Your trading plan based on research and testing over a large sample size (such as applying a set of trade entry and trade management rules to 500 appearances of a particular setup and finding enough positive expectancy to produce a net profit after slippage and commissions) will provide the consistency you seek without any need for certainty in predicting the outcome of any individual trade. Think of a well-researched and tested trading plan as a car that will take you through the streets of the Market City each day as you look for potentially profitable opportunities. If you took the car to a good mechanic and got the seal of approval (research, development & testing phase) before buying it, the chances of a breakdown are reduced. If you drive mindfully and safely, and wear a seat belt (stay focused and patient, follow your setup/entry rules, and honor your risk management plan), your chance of getting killed in an accident is quite low, and your chance of being available to take advantage of every opportunity is high. I know several traders who have absolutely everything they need to extract ample profit from the market every week. They have well-researched and tested trade ideas with specific rules for entry and exit, yet they're unable to realize their dream because of common bad habits related to fear of uncertainty and/or a never-ending quest for certainty (usually in the forms of further testing, changing rules, adding/removing indicators, testing other markets, and so on). There is a level of certainty in trading and if I were to express it in terms of tossing a coin for a living, it would look much like one of these scenarios: 1. You toss a fair coin. For every head you receive $130; for every tail you pay $100. 2. You toss a coin that is balanced to come up heads 60% of the time. For every head you receive $130; for every tail you pay $130. 3. You toss a coin that's balanced to come up heads 30% of the time. For every head you receive $500; for every tail you pay $180. 4. You toss a coin that is balanced to come up heads 90% of the time. For every head you receive $50; for every tail you pay $250. None of these scenarios is random, because the entire package --- the combination of win rate, risk/reward, and number of consecutive trades required to realize the positive expectancy of the system --- is required for success. I (and almost all the consistently profitable traders I've met) have used the technical analysis of price action in combination with contextual filters and MFE/MAE analysis to develop an objective trading system. Some have automated their systems, thereby proving the objectivity of this approach. I'm sure that "price drivers", fundamental analysis, tape reading, volume analysis, dark pools, HFT, arb strategies, complex option strategies, lagging indicators, and other methods can work profitably as well. When someone makes claims regarding any of these, I'd want to investigate the process for profiting from them, and apply that process to a thorough statistical analysis before taking the claim at face value. Some methods (mostly technical price action strategies) are available at no cost or low cost (books, on-line resources, trading rooms). Since these methods are available for free or for low cost relative to the speed with which beginners blow $5K and $10K accounts, what are you trying to save everyone from, Surf?
The most valuable resource of all-- time. surf PS-- you have talent writing. have you considered writing a trading book? I mean this sincerely. surf
I'll remind you again and again. 1) You yourself use TA. 2) You yourself argue/debate against others that use TA. The difference is that you use TA for different reasons and then minimize the importance of those reasons. 3) Traders you say that have profitable proven trading records (e.g. Timothy Sykes via price moving averages, breakouts, chart patterns) are on record themselves in saying they use TA while using their TA with other important elements of their trading plan like fundamentals. 4) I am not here to debate with you about arguments involving cornix. With that said and getting back to my prior message post. The point I'm making is that random entries will not beat a proven verifiable profitable trader. If you think I'm wrong, you're essentially saying that random entries will outperform Timothy Sykes...correct ??? If so, why would random entries outperform Timothy Sykes performance. That's my thesis here, a proven verifiable profitable trader that uses TA as one of his/her trading tools even if that TA is less important than his/her other trading tools in the trading plan... That profitable trader will continue to outperform random entries. P.S. There's a chart somewhere (I'm trying to find) where someone posted random entries versus the Dow (real performance) the past 50 years...most of the years the Dow out perform random entries.