Does the Market Respond to Karma?

[higherSelfishness]

You tested your system for months, maybe even years and it has exhibited, time after time, exceptional performance. Now, you finally have your account set up and ready to go.

. . . Trading begins on Monday. The apprehension sets in. Something is nagging at the back of your noodle. There's something you know, but you don't want to admit it.

Alas, Monday comes and as if the Market were greeting you at the door, welcoming you to join, you almost immediately get your signal to enter.

First trade: stopped out.

You knew it was never going to be a cakewalk. You've seen your system work over and over again. And you've seen it lose, too. But you've seldom ever lost two in a row. It has only happened once or twice the entire time you've tested it. You take it well and continue.

Second trade: stopped out.

At this point, already, not even hours into your very first trading day, you are rather despondent. It is, in a phrase, pretty effin' ironic that the moment you have money on the line, the Market beings to demonstrate, out of the blue, your system's "worst case scenario." That of which you have calculated would happen maybe, at most, 2 or 3 times per year. And here you are - the day you enter, it's obliging.

Welcome, indeed.

So you've seen your system lose two in row a handful of times. But you do not remember ever having seen it lose three times in a row. You stay disciplined and continue with the plan - and you know, if you quit now, the next trade will be a winner, and you will have missed it. And you continue.

Then you realize something. Why are you not excited? Your tests have shown that you can be making a lot of money very quickly here. If you win even this trade, and continue with the system as you've done on paper for so long, the implications are giant - in fact, they are LIFE-CHANGING.

So why, at this point, are you nearly certain you're going to lose this trade too?

:-0

Irony hath known no bounds. It is the unfortunate coincidence of all unfortunate coincidences. The moment you dipped your toes in the market, your system, which has honestly done so well for so long, fails.

(For me, at least, this is a true story.)

Maybe it tricked you. The MKT just did something it always could have done, but rarely ever did. You take what happened, integrate it into your rules and begin testing again.

. . . You see "exactly" what happened before, and with your new rules incorporated, your system does wonderfully. OK. Problem solved. Back in again.

Lather, rinse, repeat.

This reminds me very much of the "double-slit experiment" famous in quantum mechanics. When you're testing the system, you see it as a wave of probability, and it is only a probability because your "test" does not account for one thing - YOU'RE NOT ACTUALLY DOING IT.

When you actually do it, the Market (like our little electrons), responds, because you have added your vector into the MKT, and EVERY action has an equal and OPPOSITE reaction. The electron-wave "collapses" into a particle (or, in essence, into actuality and not probability.) These produce two very different patterns.

So, your system has been "super-posited" for quite some time. It can either go this way, or that - +1 or -1.

Again, it can go either way.

Why, oh why, does it always go to -1??

 

[Trader333]

Why, oh why, does it always go to -1??

It doesn't for those who understand what it takes to be successful.

 

[malaguti]

You tested your system for months, maybe even years and it has exhibited, time after time, exceptional performance. Now, you finally have your account set up and ready to go.

. . . Trading begins on Monday. The apprehension sets in. Something is nagging at the back of your noodle. There's something you know, but you don't want to admit it.

There's a difference between testing based on historical performance, and then testing that very same system live. You need to test that same system, for many many weeks for real (but on a demo account obviously) before you can truly verify your results. Only then will you know just what to expect and how good that strategy was.
And even then human emotion will play a part when you stop demo and really trade the thing.

 

[BeginnerJoe]

Why, oh why, does it always go to -1??

Very simple. This is how the market works:

1. Stop orders mean guranteed profit - they are money laying on the ground ready to be picked up.
2. Hit the stop orders

The only time the market doesn't hit your stop orders is because there is more profit to be made from hitting other stop orders. After hitting the other stop orders, it's time to hit your stop orders. Do you see why your testing is worthless ?

 

[Shakone]

Which is more likely, that the entire market is so affected in terms of direction by your one little order, that it will go the exact opposite way to what it would have done? Or that you didn't test your system properly and underappreciated just how often it fails?

 

[higherSelfishness]

Perhaps I should qualify this as a satirical and proverbial. While it is true, it is from long ago, and I meant to expound once preempted by whatever response I might receive (if any.)

 

[higherSelfishness]

It doesn't for those who understand what it takes to be successful.

Just gonna softball it in like that, huh?

 

[higherSelfishness]

There's a difference between testing based on historical performance, and then testing that very same system live.

Oh, but OF COURSE, my fellow trader! Figured I would have been afforded as much, that the system was tested live.

So, let's revise the first sentence in my initial post to: "You tested your system LIVE for months . . . "

 

[higherSelfishness]

Do you see why your testing is worthless ?

Joe, I have no idea what you're talking about.

Stop order means guaranteed profit?

Pardon?

 

[rawrschach]

Sure it does. But £1 a tick isn't enough karma for the market to notice your existence.

And if you were bigger the market would move in your favour.

 

[higherSelfishness]

Which is more likely, that the entire market is so affected in terms of direction by your one little order, that it will go the exact opposite way to what it would have done? Or that you didn't test your system properly and underappreciated just how often it fails?

Shakone, thank you for the perfect segue ( . . . check's in the mail.)

But may I suggest a slight edit in the syntax of your remark? "Which is more likely . . . " is a very good question. But what really matters is, "which is the case?"

Was the system tested properly, or not? (I am sure there are many others who can attest to at least some similarities in their experience(s) and my own.)

Yes? Then, which is the case? You pretty successfully caricaturized it, but like it or not, you do have an affect on the market . . . maybe much akin to a diver in the ocean - which is to say, little. But what really matters is "the ocean" sure as hell as an affect on you.

 

[the hare]

So you've seen your system lose two in row a handful of times. But you do not remember ever having seen it lose three times in a row.....

You are havin a laugh right ?

2013 is setting up to be a bumper year 4 teh trading lulz

Great stuff, 3 consecutive losses as rare as rocking horse sh1t.

 

[DionysusToast]

If you want to see 3 consecutive losers in a row - I'll do a webinar!

 

[BeginnerJoe]

Joe, I have no idea what you're talking about.

Stop order means guaranteed profit?

Pardon?

They stop you out, they make a profit. Just in case you don't get the message, they stop you out again, and make some more profit. As for who they are, it doesn't matter. What matters is they get a guaranteed profit.

 

[BeginnerJoe]

Sure it does. But £1 a tick isn't enough karma for the market to notice your existence.

And if you were bigger the market would move in your favour.

Put £1 in the market and see if they notice you. Do it, and don't just talk.

 

[trendie]

If you want to see 3 consecutive losers in a row - I'll do a webinar!

tautologically speaking, you're saying the same thing twice. :cheesy::cheesy:

 

[Shakone]

Shakone, thank you for the perfect segue ( . . . check's in the mail.)

But may I suggest a slight edit in the syntax of your remark? "Which is more likely . . . " is a very good question. But what really matters is, "which is the case?"

Was the system tested properly, or not? (I am sure there are many others who can attest to at least some similarities in their experience(s) and my own.)

Yes? Then, which is the case? You pretty successfully caricaturized it, but like it or not, you do have an affect on the market . . . maybe much akin to a diver in the ocean - which is to say, little. But what really matters is "the ocean" sure as hell as an affect on you.

I didn't use which is the case, because neither may be the case. It may also be that you have fully tested it, that the market isn't affected by your order, and that you simply don't trade the strategy properly. Of course you're playing devil's advocate, but contrary to Beginner Joe's beliefs, the market doesn't care about you. It just is what it is.

 

[BeginnerJoe]

contrary to Beginner Joe's beliefs, the market doesn't care about you.

It does. It's the primary means for the market to make money, and that money comes from you and others like you. If for some miracle the market doesn't appear to care about you, it's only because it has profit to make elsewhere at that time. But more often than not it will come back for your money. The market is extremely efficient in pick up all free money that is out there. This is why 90%+ of the people lose, and those who claim to make money are unable to show a statement.

The market operates on a simple formula: on aggregate, sell high, buy low. A counter-strategy to that isn't possible, or at best unreliable. Testing on past data is futile because whatever level you buy at for real, you will have sell back at lower because the price will move to create a profit for the market. The market is about making money, making money from you that is.

 

[SlowlyButSurely]

It does. It's the primary means for the market to make money, and that money comes from you and others like you. If for some miracle the market doesn't appear to care about you, it's only because it has profit to make elsewhere at that time. But more often than not it will come back for your money. The market is extremely efficient in pick up all free money that is out there. This is why 90%+ of the people lose, and those who claim to make money are unable to show a statement.

Are you suggesting that large fund managers sit at their desks reading the order book picking off £10-£100 from retail traders all day?

I think it far more likely that the 90% of retail traders that do fail are just bad at trading.

 

[BeginnerJoe]

Are you suggesting that large fund managers sit at their desks reading the order book picking off £10-£100 from retail traders all day?

Do you know of any fund managers who wouldn't bend down to pick up £10 to £100 on the ground ? But why only £10 to £100 ? Can't they spike the price to make a bigger profit ? They should have the funds to do that if they so choose.

But I doubt it is the fund managers doing this kind of thing. I believe they are amongst those 90% who lose. The people who win are likely to be the big banks, who go round all day, every day, sweeping up heap loads of £10 to £100 laying around quite visibly that nobody else seems to want. To them it's just normal business, and there's no need to gamble - just walk (move price) over there and pick them up. In the mean time, all the casino joes blame their own psychology for the banks taking their money. In the case of the OP, blaming karma. Life can be a funny place.