I’ll tell you my philosophy very simply: The price movement in any one day is completely random i.e. you cannot even guess where the price will go. At the end of the day you can invent a ‘trader myth’ to describe the forces that produced the result you now see. This is of no value regarding future price movements i.e. trend lines, Fibonnaci levels etc are of no value. If anyone is making money out of using them, I take my hat off to you, may it long continue, but you’ll only persuade me by publishing what is going to happen before it does and revealing your buy/sell positions as you make them. Do this for free for 3 months and then I’ll subscribe to your service! If, and only if, it is credible remembering how magicians can make balls under cups disappear and transport themselves from one side of the stage to the other before your very eyes. Historic analysis using optimisation software will calculate the value of your ‘rule parameters’ which would have given the best result, but will they work in the future?
But all is not lost, there may be a way to make money.
Just to emphasize the previous statement: if you make a good prediction (as I often do, but seldom act on) you have been lucky – random chance has been kind to you.
I don’t trust myself to trade by sight, but I am building trust in an automated trading system I programmed based on my beliefs - observable facts actually since one can say: “the price goes up and down, it does so at different speeds, the ftse generally moves in intervals of 30 points …” etc.
Will optimised ‘rule parameters’ work in the future? I’ve been running a live simulation since the beginning of November 2011, which has produced fantastic results, which I’d be happy to publish i.e. the results, not the method. But would I bet my shirt on it? If I toss a coin 100 times and it lands on heads 10 times in a row, would I bet on heads? I wouldn’t bet, the odds are 50/50 and if the broker is going to charge me for every call (spread), then I would definitely lose money. I love this game and thinking about how it works and what one could do to make money, but for anyone who simply wants to make money, I’d say “buy a scratch card”.
It is 11:00 am on Thursday 26th July, my automated system has just generated a sell – even I don’t know why at the moment, it would take me about 10 minutes minimum to figure it out, but I'm not going to because I know it's done exactly what I programmed it to do. Yesterday no trades were generated, the previous four days all produced significant profits. Heads or tails for this one?
PS Trade reversed at 11:45. Am I confident? No feelings whatsoever, the program is in control.
