Can you maintain success?

[babyjake1961]

Every new bit of the price curve over a fixed unit of time is unique and the number of the ways it can look is further virtually endless. That's how markets "change".

 

[radex78]

He's good, really good. He uses very clean charts with no inductors present on there. In your view, do you think it's easier with indicators?

I am not thinking naked chart is easier than use indicator, but in my daily trading still prefer use naked chart only with look on candlestick pattern, and I think candlestick itself already provided good data to forecasting

 

[Reds28]

Every new bit of the price curve over a fixed unit of time is unique and the number of the ways it can look is further virtually endless. That's how markets "change".

However much people like to say the market behaviour changes still it all boils down to an either ranging or a trending market.

 

[babyjake1961]

However much people like to say the market behaviour changes still it all boils down to an either ranging or a trending market.

What gives? You can't trade based on that alone.

 

[tomorton]

Every new bit of the price curve over a fixed unit of time is unique and the number of the ways it can look is further virtually endless. That's how markets "change".

What you say is true but its not what we're discussing.

Back to the first post -
"I hear some people say the markets change that leads to someone unable to maintain profitability over the long run."

So the issue is not price fluctuation, its market change. Price never stands still, but the issue is does the market really change its nature underneath the price rises and falls, and if it does, how do we recognise it?

 

[NVP]

What you say is true but its not what we're discussing.

Back to the first post -
"I hear some people say the markets change that leads to someone unable to maintain profitability over the long run."

So the issue is not price fluctuation, its market change. Price never stands still, but the issue is does the market really change its nature underneath the price rises and falls, and if it does, how do we recognise it?

in forex the market is constantly changing ......

the correlation patterns & Relationships between currencies
The strength and direction of those correlation patterns

that's it .........I personally have learned to observe the nature of those movements and to hang some basic rules off of the patterns I observe

then I trade the signals derived ......

over the years I havnt really changed that approach .........the market still does the same things since the moment I started this approach ..........

so its about understanding that markets change constantly - but also understanding that its still within absolute boundaries and parameters that it changes ......:smart:

N

 

[IFeelFree]

Market structure can change due to real-world events. For example, a stock market can go from bull to bear due to changing economic conditions or political events, a futures market can go from backwardation to contango due to changes in expected future demand for a commodity, and so forth. Trading in these changing markets requires that a trader adapt to shifting market conditions.

A question is whether mechanical trading systems employing technical analysis or computer-based trading algorithms can adapt to changing market structure? I'm trading using an algorithm I've developed which uses a fairly sophisticated statistical approach. Some buy/sell trigger parameters are updated weekly, based on the latest market data, which should provide a degree of dynamic adaptation to current market conditions.

 

[tomorton]

Market structure can change due to real-world events. For example, a stock market can go from bull to bear due to changing economic conditions or political events, a futures market can go from backwardation to contango due to changes in expected future demand for a commodity, and so forth. Trading in these changing markets requires that a trader adapt to shifting market conditions.

A question is whether mechanical trading systems employing technical analysis or computer-based trading algorithms can adapt to changing market structure? I'm trading using an algorithm I've developed which uses a fairly sophisticated statistical approach. Some buy/sell trigger parameters are updated weekly, based on the latest market data, which should provide a degree of dynamic adaptation to current market conditions.

All well and good. I suspect most programmes will be set up to respond to rising prices by doing (x) and to falling prices by doing . But these are the superficial and visible fluctuations. What's more interesting to debate is the - alleged - existence of off-chart evolutions of markets that - allegedly - are powerful enough to make some systems fail. Do they exist and how do we recognise them?

 

[IFeelFree]

All well and good. I suspect most programmes will be set up to respond to rising prices by doing (x) and to falling prices by doing . But these are the superficial and visible fluctuations. What's more interesting to debate is the - alleged - existence of off-chart evolutions of markets that - allegedly - are powerful enough to make some systems fail. Do they exist and how do we recognise them?

One obvious indication is that your trading system is no longer profitable. My system is based on mean reversion of a cointegrated portfolio (statistical arbitrage). I calculate a "score" for the cointegration level which should indicate how well my algorithm is expected to perform. If market conditions change so that the portfolio is no longer cointegrated, I should get an indication fairly quickly. In other words, it's helpful if there is some kind of technical or statistical test that indicates how well your trading system is performing.

 

[tomorton]

One obvious indication is that your trading system is no longer profitable. My system is based on mean reversion of a cointegrated portfolio (statistical arbitrage). I calculate a "score" for the cointegration level which should indicate how well my algorithm is expected to perform. If market conditions change so that the portfolio is no longer cointegrated, I should get an indication fairly quickly. In other words, it's helpful if there is some kind of technical or statistical test that indicates how well your trading system is performing.

This is interesting. What do you mean by market conditions change? What causes it? Aparr from losses instead of profits how do you recognise it?

 

[postman]

If you've been trading profitably for over a year, lets say with with strict discipline (good entry, exits, money management), is it possible for those people to remain forever profitable as long as they maintain the same discipline? I hear some people say the markets change that leads to someone unable to maintain profitability over the long run. But as far as I can see, certain markets have the same patterns repeating themselves, even over decades. Yes they do go through different phases, bull and bear markets, but a good trader will be able to make money whatever the cycle.

My belief is this. If someone is profitable over a two year period then surely he's cracked it.

My logical reasoning mind says we cant prove a negative, so I cant prove that all strategy's arent profitable over the long run. Indeed one is, "Buy and hold" has always worked.
However an example of a strategy that was profitable but no longer is. When major news items came out prices spiked +/- 80 or more points on the Dow within 2 minutes, it had the effect of knocking out stops and closing everyones position. Soon people got wise to this and put a small stop and a large limit on their trades (I did) so if it went 80 points in any direction I would lose 15 and gain 80 on the trades.
That no longer works!
Any 'system' that is profitable over time and produces consistently good results will be picked up by your broker. He will analyse your trades and reverse engineer your strategy then place the trades before you, in size. Thus pushing your prices out and reducing your profit.
The market is an ever changing beast if your strategy isnt, you will start to lose. IMHO.
Having been around the block a few times I have found this to be true for me.

I wish I could say I have 'cracked it', maybe dentist007 has, have you checked out his P&F thread, well worth a look. http://www.trade2win.com/boards/technical-analysis/183506-trading-p-f.html

 

[IFeelFree]

This is interesting. What do you mean by market conditions change? What causes it? Aparr from losses instead of profits how do you recognise it?

What traders using statistical arbitrage have observed is that sometimes the relationship between the trading instruments (stocks, ETFs, etc.) in a portfolio changes suddenly so that the cointegration relationship breaks down (as measured by the cointegration score). Depending upon the portfolio, this may indicate a change in the market structure, or it may simply indicate that too many traders are using a similar trading strategy with the same instruments, and so the trade has become "overcrowded". (This has happened with a lot of pairs trading strategies.)

As an example, a pairs trade involving the ETFs for gold and gold miners, GLD and GDX, fell apart in 2008 due to high energy prices. (Gold mining is energy intensive.) This was reflected in the cointegration score breaking down. However, when the oil fund USO is introduced into the portfolio, the cointegration is restored and a mean reversion strategy works again. However, this means trading 3 ETFs, rather than just a pair, so the math for calculating the portfolio weights is more involved.

In the case of statistical arbitrage, a drop in the cointegration score may serve as an "early-warning" that the strategy is going to fail. I don't know what the analogous warning signal would be in other types of technical or algorithmic trading, but I would want to look for some kind of statistical indicator if I was using such a strategy.

 

[babyjake1961]

What you say is true but its not what we're discussing.

Back to the first post -
"I hear some people say the markets change that leads to someone unable to maintain profitability over the long run."

So the issue is not price fluctuation, its market change. Price never stands still, but the issue is does the market really change its nature underneath the price rises and falls, and if it does, how do we recognise it?

You recognize it through failing strategies that used to bring profits in the past but now generate losses. No same set of strategy parameters can survive on the market over time.

 

[tomorton]

You recognize it through failing strategies that used to bring profits in the past but now generate losses. No same set of strategy parameters can survive on the market over time.

This is just what is said to happen, but what changes? How do we recognise and define the changes in market behaviour apart from price fluctuations and erosion of returns?

And if we can't do this, how can we be sure the market does change like this? Without knowing the problem its hard to devise a solution. Maybe it was just a crap strategy that was statistically lucky for a time, then collapsed back to mediocrity?

 

[tomorton]

What traders using statistical arbitrage have observed is that sometimes the relationship between the trading instruments (stocks, ETFs, etc.) in a portfolio changes suddenly so that the cointegration relationship breaks down (as measured by the cointegration score). Depending upon the portfolio, this may indicate a change in the market structure, or it may simply indicate that too many traders are using a similar trading strategy with the same instruments, and so the trade has become "overcrowded". (This has happened with a lot of pairs trading strategies.)

As an example, a pairs trade involving the ETFs for gold and gold miners, GLD and GDX, fell apart in 2008 due to high energy prices. (Gold mining is energy intensive.) This was reflected in the cointegration score breaking down. However, when the oil fund USO is introduced into the portfolio, the cointegration is restored and a mean reversion strategy works again. However, this means trading 3 ETFs, rather than just a pair, so the math for calculating the portfolio weights is more involved.

In the case of statistical arbitrage, a drop in the cointegration score may serve as an "early-warning" that the strategy is going to fail. I don't know what the analogous warning signal would be in other types of technical or algorithmic trading, but I would want to look for some kind of statistical indicator if I was using such a strategy.

Good examples, thanks.

 

[babyjake1961]

This is just what is said to happen, but what changes? How do we recognise and define the changes in market behaviour apart from price fluctuations and erosion of returns?

And if we can't do this, how can we be sure the market does change like this? Without knowing the problem its hard to devise a solution. Maybe it was just a crap strategy that was statistically lucky for a time, then collapsed back to mediocrity?

Many strategies are built to be consistently "lucky" for as long as a decade only to completely fail later.

 

[tomorton]

Many strategies are built to be consistently "lucky" for as long as a decade only to completely fail later.

OK, maybe buy-and-hold has worked for such long periods but its hardly an active strategy - when the uptrend stops it simply says to sit back and watch your investment erode away.

Otherwise, lucky for a decade sounds wrong (unless its on a one trade per year basis).

 

[babyjake1961]

OK, maybe buy-and-hold has worked for such long periods but its hardly an active strategy - when the uptrend stops it simply says to sit back and watch your investment erode away.

Otherwise, lucky for a decade sounds wrong (unless its on a one trade per year basis).

There arw lots of EAs online that prove my point.

 

[idimitrov]

you can maintain success easier if you monthly profit is not large, the larger it becomes, the harder it gets.

 

[IFeelFree]

you can maintain success easier if you monthly profit is not large, the larger it becomes, the harder it gets.

What do you consider large?