Fighting an Average Joe

How can we expect exponentially growing rewards? Can I know how you define risk? Asset variance?

Yes, I define risk as asset variance: the maximum drawdown level I can get when price fluctuates, making me lose small amounts of money on each stop loss I get inside the large move.

As for the exponential grows: when we enter into a sharp move with a single position, our profits grow linearly as price moves forward. But, if we add more into the winning direction, we get arithmetic progression.

For example, if price moved from 1000 to 2000, we get 1000 points of profit with a single position. But, if we add into this position every 100 points, we will get 1000+900+800...+100 at the end. And, even if price fluctuates inside this big move, we are limiting our losses to these small stops, 100 pips each, especially if we move stop losses to their breakeven levels for previous levels.

For example, when the price finally reach 1800, it's a good idea to move 1700th position stop loss into breakeven. So, if the price moves backwards, we will lose 100 pips at 1800th position, but even if price will sharply move backwards even more, we will close all previous positions without losses.

It's not an "exponential grows", but it's still better from overall rr ratio at the end, I hope. But, we can actually get exponential grows if we add exponentially growing amounts, as our "Poor Joe" does when he tries to average his losses. So, when we are in a winning position at 1000, we can add higher amount at 1100, etc. Something like "1 lot at 1000, 1.1 at 1100, 1.2 at 1200", etc.

It's just an idea, I plan to test it in the next few days on a simulator first, then on a demo account for a few weeks.
 
I've never seen a trend one way just turn into a trend the other way.
There has always been a degree of ranging after a trend ends.

Yes, getting into the trend is a tricky task by itself.

Moreover, I don't believe that I will be more correct at predicting the future than a flipped coin. The main idea of this system is not in correct predictions, it's in increasing your rr ratio to the point where you no longer need to be correct to win the game.

Even if I will flip the coin every time I enter the market, not trying to predict the move, I'm limiting my losses to several small stops along the way. But, there are times, you know, when something big happens. And these are events you can't predict.

So, when something big happens into the positive direction, I can cover all my previous small losses with a sharp move. If the same happens when I'm on the opposite side of the track, I will lose something around the size of my stop loss.

For example, I took about 150 pips of small losses this Friday, trying to enter the market into the right direction. At the end, I was rewarded by a move which gave me about 800 pips total. It means that from that moment I can be wrong for 5 times in a row, but I will still be in a profit.

I agree that such moves don't happen every day. On the other side, it's better to be ready for them all the time.

So, in short, it's not about predicting the direction of the price. We can't predict the future. It's all about stats. It's about taking plenty of small losses, waiting for a big move we can't predict.

PS: If you look at it from "Average Joe" perspective, you will find that it's such big events that cause him to lose. He is happy and profitable, taking small profits from the market for some time, until something terrible (for him) happens. He "knows" that currencies retrace to previous levels most part of the time, that he is safe taking small gains and waiting for his losses recover to breakeven. We will lose for a while, he will profit for a while. But, when it's time for him to lose BIG, we will earn even bigger, because we are not limited to a margin call level of our accounts.
 
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... it's just fun to research the market, looking for investment ideas, plus develop some internal tools along the way.

Honestly speaking, I don't want to become a trader. I'm more like a research guy, a marketing analyst and a software developer. I don't like to take big risks. I prefer safe ways to earn money like developing and selling software products. Or something like real estate/index funds/short-term bonds..

Hi lm

I was going to comment on some of your ideas in this thread and then saw your post from last week so preferred to ask:

how does all this fit in with what you said above? I'm a bit confused.

k
 
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Hi lm

I was going to comment on some of your ideas in this thread and then thought about your first post here and so preferred to ask: how does all this fit in with what you said above? I'm a bit confused.

k

I'm a researcher and software developer in my heart. I earn my living selling my software products for the last 15+ years. A one-man show.

On the other side, I hate developing and (especially) selling products I don't use. When I research the market (hobby #1), I usually organize and automate my work along the way (hobby #2), which gives me great product which I'm happy to develop, use personally, polish and sell to other people.

My last business was about marketing products - I was selling keyword databases because I organized and automated my work as an internet marketer. I sucked at the marketing itself, but the products were great. If you are curious, google "xedant".

This time I research trading, hoping that I will find software ideas as well. I'm tired of marketing niche because, as I told previously, I don't like to do marketing. I'm good at research and coding, not at sales. I feel that trading niche is the one that can fit my lifestyle, because there is a lot of research and experiments along the way.

I don't want to become a trader, but I enjoy solving this complex problem. I also organize and automate my work along the way, which will give me great products to use personally and sell, as well.

For example, when I told several days ago that I plan to test my strategy on a simulator, it means that I'm already developing one. It's fun :) Both the research itself and the product development process.

But don't worry, I came here not to blatantly promote my products, but to learn and research. It will be great if I can help somebody, too. So, you can treat me as a trader, because when I solve this problem, I become a trader, even if I don't want to become the one at the end.

As you can see, I try to develop a trading strategy that fits my lifestyle. I don't want to spend days watching charts, I would rather find something I can trade several hours per week, spending the rest of my time on research and software development. Something that will not make me nervous, something I can trade mechanically.

On the other side, the more I research the market, the more trading opportunities I see. I feel that I can change my mind about "not becoming a trader" at the end :)

I plan to trade stocks after I finish my experiment in the Forex market. I see that stocks are much more profitable in terms of number of available trading ideas, so I plan to profit both ways: from the trading itself and from my products. But, as I told you, research and software development will be my top priority, anyway.

PS: Here is a screenshot of the simulator I'm developing at the moment: http://xedant.com/images/trading/sample.png
If you like it, please pm me to become the first beta tester in few weeks :)
 
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I'm a researcher and software developer in my heart. I earn my living selling my software products for the last 15+ years. A one-man show.

On the other side, I hate developing and (especially) selling products I don't use. When I research the market (hobby #1), I usually organize and automate my work along the way (hobby #2), which gives me great product which I'm happy to develop, use personally, polish and sell to other people.

My last business was about marketing products - I was selling keyword databases because I organized and automated my work as an internet marketer. I sucked at the marketing itself, but the products were great. If you are curious, google "xedant".

This time I research trading, hoping that I will find software ideas as well. I'm tired of marketing niche because, as I told previously, I don't like to do marketing. I'm good at research and coding, not at sales. I feel that trading niche is the one that can fit my lifestyle, because there is a lot of research and experiments along the way.

I don't want to become a trader, but I enjoy solving this complex problem. I also organize and automate my work along the way, which will give me great products to use personally and sell, as well.

For example, when I told several days ago that I plan to test my strategy on a simulator, it means that I'm already developing one. It's fun :) Both the research itself and the product development process.

But don't worry, I came here not to blatantly promote my products, but to learn and research. It will be great if I can help somebody, too. So, you can treat me as a trader, because when I solve this problem, I become a trader, even if I don't want to become the one at the end.

As you can see, I try to develop a trading strategy that fits my lifestyle. I don't want to spend days watching charts, I would rather find something I can trade several hours per week, spending the rest of my time on research and software development. Something that will not make me nervous, something I can trade mechanically.

On the other side, the more I research the market, the more trading opportunities I see. I feel that I can change my mind about "not becoming a trader" at the end :)

I plan to trade stocks after I finish my experiment in the Forex market. I see that stocks are much more profitable in terms of number of available trading ideas, so I plan to profit both ways: from the trading itself and from my products. But, as I told you, research and software development will be my top priority, anyway.

PS: Here is a screenshot of the simulator I'm developing at the moment: http://xedant.com/images/trading/sample.png
If you like it, please pm me to become the first beta tester in few weeks :)

hey that's some impressive developing ability there Max! And the simulator is looking great so far at least from a GUI point of view. You could potentially be successful in trading too if it interested you enough, you certainly have some skills to bring to the table.

Although you could code your trading very quickly don't assume you have to do this in the beginning, its not necessarily the best thing to do I don't think. I'm not saying that it isn't though!
 
hey that's some impressive developing ability there Max! And the simulator is looking great so far at least from a GUI point of view. You could potentially be successful in trading too if it interested you enough, you certainly have some skills to bring to the table.

Although you could code your trading very quickly don't assume you have to do this in the beginning, its not necessarily the best thing to do I don't think. I'm not saying that it isn't though!

Thank you!

Yes, you are right: "if it interested you enough" :)

At the moment trading is interesting for me because it gives me motivation to develop various tools. But, as soon as I see that these tools can help in trading, the intrinsic motivation to trade will come as well :)

As for the trading style, thanks to the forum, especially to its "newbie" part, I found a cool idea I missed 10 years ago. I knew that the market is moving because of people, not some systems or indicators, but I never got an idea that you should understand whose money you are taking from the table when you win? And who is taking you money when you lose? This is a zero-sum game, you know.

So, this time I'm focused on finding setups where I can clearly see the loser. In case of the Forex market, it's this plethora of newbie traders who are driven by their emotions. It's different from stocks because there are no clear short-term trends, plus there are plenty of noise in the signal. So, the only chance to win is to filter out the noise by sitting in the market for as long as I can. When 99% of traders are trying to profit from the noise itself, it's a good idea to skip the noise, waiting for a clear signal to come.

And, what's more important, is that we can't predict when the signal will appear, and what will be its direction. It's just the same noise at the higher level, if you look at it from a broader perspective. It may happen that, when I'm sure that I caught a signal, good guys who trade on annual charts catch me in the low-level, from their perspective, noise, as well.

Yes, these setups are hard to backtest. It's not about indicators, it's more about manual testing, looking at various parameters outside of the chart: market sentiment, news, etc. So, I'm starting with the easiest part of it - improving rr ratio by doing the opposite of what other traders do. But I don't want to stop there, I want to develop a tool that will finally enable me to backtest stratiegies, using the complete set of available information in the past.

I see that you like the idea and overall look of the simulator. I pay a lot of attention to tiny details, I never release products that aren't polished. They just "work as expected". For users it looks like they are simple and natural, but there is a lot of work on the inside, hundreds of experiments and plenty of code, design and hours thrown away.

For example, in my previous business, where I sold keyword databases, there were about 2,500,000,000 keywords total. I didn't release an online version of the product until I found a way to search through all these keywords with a wild pattern like "contains some string, or a phrase, or a word". And the speed of the optimized algorythm was so amazing that I managed to serve all my 3,000+ customers with all their heavy requests from a single custom-built server for $2,000, sitting at my house on a fiber 100mb home connection.

And their requests weren't like "show me first 100 keywords that contains "web template", for example. It's a trivial task, plain old SQL can do the trick. But, when they searched for "web template", they got several millions of keywords in a fraction of a second into a list which can be sorted, edited, expanded, filtered out by subqueries as you type them, exported, downloaded, etc. Query like "business" that gave about 50,000,000 keywords as a result, took not more than 7 seconds, providing not a "database pointer", but a stand-alone list of keywords out of billions.

I even sold my keyword management engine to my old competitors at the end. I can't reveal their names, but if you know the SEO market, you can look at top 20 keyword research businesses in this niche, 70% of which got my sources and data :)

So, as you can see, coding my trading isn't an option, which I can easily pass in the very beginning. It's my life and I enjoy every part of the product I develop at the moment, starting from the data storage (I managed to fit 15-year tick data into a format which gives real-time disk read speed, taking just 2 times more space than its 7z archive, to measure its memory use efficiency) and up to order setup interfaces, enabling you to do anything you need with a mouse, not even touching the keyboard.
 
...you should understand whose money you are taking from the table when you win? And who is taking you money when you lose? This is a zero-sum game, you know.

.. I'm focused on finding setups where I can clearly see the loser. In case of the Forex market, it's this plethora of newbie traders who are driven by their emotions. It's different from stocks because there are no clear short-term trends, plus there are plenty of noise in the signal. So, the only chance to win is to filter out the noise by sitting in the market for as long as I can. When 99% of traders are trying to profit from the noise itself, it's a good idea to skip the noise, waiting for a clear signal to come.

And, what's more important, is that we can't predict when the signal will appear, and what will be its direction. It's just the same noise at the higher level, if you look at it from a broader perspective. It may happen that, when I'm sure that I caught a signal, good guys who trade on annual charts catch me in the low-level, from their perspective, noise, as well.

I see this as like your philosophy of the market and it may be good to do this kind of top-down thinking. You next have to know what your strategy is to make money from it. And then what specific rules/processes you follow to implement the strategy. It will be good to hear how you get on :)

btw i'm not asking you to spell it out to me, i'm just saying its what you need to clarify to yourself. its not easy to do, it can takes years to do it successfully.
 
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I see this as like your philosophy of the market and it may be good to do this kind of top-down thinking. You next have to know what your strategy is to make money from it. And then what specific rules/processes you follow to implement the strategy. It will be good to hear how you get on :)

btw i'm not asking you to spell it out to me, i'm just saying its what you need to clarify to yourself. its not easy to do, it can takes years to do it successfully.

Yes, you are right, it's a philosophy mostly at the moment. Just an idea, as I told initially.

On the other side, I see people who execute it on a regular basis. It means that I can, too. Yes, it will take some time, but there is no built-in personal advantage or disadvantage. Trading is a game that requires no physical abilities which you can't develop if you were born "disadvantaged". It's a game of learning, research and practice. Maybe even some automation on top of that.

On the third side, what other options do I have? Follow some random strategy where I can't find my edge? Where I don't know the source of the money I earn? Where I don't see people practicing it on a regular basis? It's much closer to gambling, I don't like it.

I see the future of me as a developing trader similar to agile software development process. You learn something small, try it, polish, evaluate the results and move to the next level. It's not a "waterfall", where you can plan your future 30 years ahead. It's more like Kaizen, the sequence of incremental improvements, each of which isn't revolutionary.

My first goal, for example, isn't to "win". You can't plan to profit from the very first alpha version of the product.

My first goal is to learn to stay in the "green zone" (aka "all positions profitable") for as long, as possible. As I told previously, I will reward myself not for the amount of profit I take from the market, but for the amount of time I'm sitting in virtual profits, even if these profits will evaporate over time. It alone can't make my future trading system profitable, but it's a big step towards developing a solid trading style.

When I'm sure that I'm able to fight the urge to take small profits, I can invest some more time into finding some solid entry rules. Then I will work on polishing my actions when the price reverses and goes against me, etc.

It's an evolution, not a revolution.

I see the core problem of novice traders: they are trying to become champions from the very first day. But, if you want to become a top boxer, you should not try to kick Oscar De La Hoya on your first training session. It's better to start with some exercises to become fit, then practice to hit and evade hits, then learn about strategy and tactics, etc.

For me "being in a green zone" is an exercise similar to plain old running. You can't skip it, because, without it, even if I will find a perfect setup, I will take profits prematurely, breaking all rules of any trading system.
 
Nice article you have shared in here. Thanks for sharing it here. Keep sharing such posts in here so that the newbies would learn through it.
 
Trillion dollar a day markets aren't driven by Average Joe's

If we are talking about "big guys" here, are you sure that they trade on 5-minute timeframes?

As I told previously, any signal is a noise at a higher level.

For me, it's not that important who is moving the trillion dollar a day market. I want to know whose money I can take from the table. I can't compete with world banks, especially at the very beginning :)
 
This week I started to trade real money. A small $100 account just to test the idea after simulated trading, then paper trading on a demo account.

So far, so good: +30% in 4 trading days, trading as a robot.

Here are more details and screenshots: https://pastukhov.com/2018/03/17/first-trading-week/

Next week I will try to optimize this trading setup using simulator to practice feeling the market.
 
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