Sorry, bandit, it's been a very busy day...
The challenge I referred to was the one you described, where "someone pipes up with backtest" etc. I don't know how you define the concept of "edge", but I was referring to edge in a broad sense, as smth that enables you to make money. Therefore, it's something that I think should concern you a lot.
Now to address your first reason for why you think you can make money. Whenever someone tells me that they can make money because of the "growth of their account", I immediately grow very skeptical (provided I don't know the person beforehand and have no a priori understanding of their approach). Indeed, these sorts of claims are like someone who won the lottery claiming they're really good at making money.
So the bit that you describe further down actually makes a lot more sense to me (even though I have no idea what you define as "fairly standard price action"). It's a well-known behavioural finance result that people have an attachment to round numbers. That means that you can actually make money by using strategies that effectively exploit these investor biases. However, here's my question to you. Have you done any work on this? A trivial backtest or, better yet, an event study of some sort? How do you know this works consistently?
In fact, that was really the gist of my question. I don't know anything about you. Suppose I am trying to establish (whether as a potential investor or as a newbie looking to learn) if what you do is worthwhile. How can you make a convincing case that you're capable of systematically making money?
Hi Martin,
No problem I've been busy too. Some pretty funky action today.
OK, first point about "growing the account". I only mentioned this for two reasons. The first is that it's true and second that it's the only real test of success - a positive return in actual cash. Theory and practice are two different things, as I'm sure you'll agree.
Now I accept that making some money, even "consistently" and over an extended period, is not necessarily proof that the methodology is sound. To give an obvious example, trends can continue for years, and can give a false impression of sagacity to someone who is just a patient and unthinking trend follower.
"Fairly standard price action": by this I just mean the basics that you come across on most forums, the stuff that is so famously "free all over the internet". Basic bars (pins, engulfing bars etc), basic concepts such as flips in support and resistance, just very simple things. Now I try to take things a little further - for example, with a "flip" I ask why when price breaks does that area reverse it's role? To my mind it seems simple, and I'm sure you would agree. However, I understand that many people might not have thought about this or may not understand it. So, in mind of the criticisms of "mysticism" and so on (not from you I hasten to add) I'll explain this simply for anybody new to the concept.
Price hits resistance. Well, no it doesn't, because "resistance" is a fantasy. What happens is that when price is at a give price or price zone, selling becomes sufficient to overwhelm the buying that had previously caused price to move upwards.
Price breaks through the resistance. Again, no it doesn't, but you get the picture by now. Price often then rises for a time before coming back to prior resistance (a place where selling was previously strong, but had been overwhelmed by stronger buying). At which point price starts to rise again. I hope people can come up with their own theories as to why this might happen.
Take this a step further. Might there be any particular reason why the buyers (who overall are long) might actually wish the price to decline, at least temporarily? Again, this is simple stuff, but it's a good way for people to begin thinking about the market - as traders trading for reasons and goals, not as patterns, or indicators, or pin bars, or any of that stuff.
Back-testing. Yes I have done extensive back-testing, and forward-testing on demo, and forward "testing" with small amounts of cash. The back-testing has been done across a number of time frames, the live "testing" across fewer, and the live trading across fewer still. The principles that I have observed, such as the "pivot" effect of S/R, the importance of certain numbers and so on, have been demonstrated to my satisfaction. Perhaps more importantly, the principles make sense to me - with my view of what the market is, how could it act otherwise?
Of course nothing is certain, and price can do anything at any time. Which is why other things come into play (in terms of method and also discipline, stop loss rules, MM and so on).
To address your final point, potential investors need not apply. I am interested in my own money, not anyone else's. For newbies looking to learn, I have no desire to convince them to listen to me, but it would not be helpful to them even if I were to do so. In order to trade successfully it is necessary to convince oneself that the method is sound, because this impact trade management in particular - again, just simple things such as cutting losers and allowing winners to run. Therefore anyone who finds anything that I say of interest should do their own research. That is why I say that I have demonstrated it to my own satisfaction - that is all that matters to me, and it should not make the slightest difference to anyone else.
I am here to engage in the occasional interesting converstion that pops up among all the dross, not to convince people of my great trading talent. But my advice for new people would be to do your own research and follow your own reasoning.
To return to another point, the one about people speaking in riddles and so on, here is some practical advice for new traders. Pull up a short term chart, and then pull up a tick chart of the same instrument. The number of ticks must be discovered through trial and error, but the aim is for the action to be neither too fast nor too slow. Attempt to select a number that allows you to see "inside" the action of short timeframes during busy periods.
Pay attention to round numbers and areas where old support and resistance have reversed their roles, and watch areas where this has not yet happened but might do.
Familiarise yourself with basic candles or bars, whichever you prefer. Two are sufficient to start with, pins and engulfing bars.
Now watch market in real time and try, using the "flip" or "pivot" principle outlined above. The aim is to predict where you expect price will move to initially, bearing in mind that you should endeavour to have a good reason for your choice.
This exercise will astonish you and will transform your trading, whatever method you employ. If by some chance it does not, well so be it. There are many ways of approaching the markets, and if you find this kind of thing to be without use, then so be it - I won't argue. You will be right in any case, because trading is entirely personal. That is why two traders can point at the same object, one proclaim it to be black and the other white, and both be right. Or indeed wrong.
To return to Martin, I hope that this answers your questions and convinces you that I am worth at least listening to.
