Trading: The Ultimate Challenge?

[forker]

Money makes it difficult, not the process. The crux of the problem is outlined by the flaw in your logic through starting small. Great post though albeit underpinned with weak foundation. Remove the money aspect and you'd see traders raking in the pips. We see this all the time with demo accounts yet people struggle to replicate success with the real thing. Money makes people do stupid things. We see this all the time in the news. Growing an occount sounds logical. But if the person doing it is not prepared, by being prepared I mean being able to remove money from trading, they will never find their way. Why do you think so many are subject to losing streaks preceeded by winning streaks. There are only 2 outcomes from any single trade which gives you 50/50 chance of being on the right side. So how does a losing streak come about! Is it coincidence that it follows success? What drives a trader to make a string of bad decisions! This is where the difficulty is. This is why so many quit.

 

[BeginnerJoe]

There are only 2 outcomes from any single trade which gives you 50/50 chance of being on the right side.

Does that mean you can show a statement containing 50% winners ?

In quiet markets, there is only 1 outcome: 100% loose no matter which direction you bet. The purpose of the market is to fill orders. If you hang yourself out with a stop loss, it will be filled.

 

[barjon]

............There are only 2 outcomes from any single trade which gives you 50/50 chance of being on the right side...........

Yes, that's often said but I think I agree (blimey ) with the sort of thing BJ is saying. It might be 50/50 that it'll set off on the right side, but not necessarily that it'll stay there to complete a successful trade.

 

[Shakone]

Yes, that's often said but I think I agree (blimey ) with the sort of thing BJ is saying. It might be 50/50 that it'll set off on the right side, but not necessarily that it'll stay there to complete a successful trade.

50/50 lol.

There are only two outcomes to whether I'm alive or dead tomorrow. Must be 50/50 then Thank god I had a good day and made the most of it.

vielgeld, the reason I ask about how long you've been trading is because I want to know in what sense you mean easy. Everything can seem easy once you know how. To Kasparov, chess is easy. But it's not easy to get to where he got. It's not easy for someone starting out now. Quantum physics might be easy for me, but not for someone without any training in maths, or any proper teaching in the area.

I could write a long post explaining why I disagree with most of what you wrote. But to keep it short. You mention chess and poker as being more difficult. In poker, given an initial hand, I can calculate my chance of winning, i can know whether that is a good hand, and adjust my betting strategy accordingly. After the flop, I can calculate again whether I have the best hand or not. Of course there are variations, the one with the best hand might fold, but statistically you can calculate your chances to some degree. The game has fixed rules, and odds are known. In chess, I can run all variations of moves from any position, and optimise based on what i think is important, that's what a computer chess program does. Rules are known, options are set.

Tell me, given all past data on a trading instrument, if you are long at a particular time, what is your chance of winning? What is your chance of winning when you vary stop loss and targets? If you can't do this and give me a number to the same accuracy as poker or chess, then what does that tell you? While we're on it, what ARE the rules of this trading game?

And we haven't even got started on the psychological diffuclties...

 

[BeginnerJoe]

what ARE the rules of this trading game?

1. Be patient
2. Don't loose pips
3. If pips must be lost, make it a small number
4. Make pips
5. Show a statement

Trading is easy once you are able to implement these rules with mastery.

 

[The Leopard]

1. Be patient
2. Don't loose pips
3. If pips must be loosed, make it a small number
4. Make pips
5. Show a statement

Trading is easy once you are able to implement these rules with mastery.

Spelling mistake, corrected it for you.

 

[forker]

Does that mean you can show a statement containing 50% winners ?

In quiet markets, there is only 1 outcome: 100% loose no matter which direction you bet. The purpose of the market is to fill orders. If you hang yourself out with a stop loss, it will be filled.

Don't be an idiot.

 

[VielGeld]

Money makes people do stupid things.

It does.

But I would argue that only makes the process harder, so it's still all about the process.

Vielgeld, the reason I ask about how long you've been trading is because I want to know in what sense you mean easy.

This is why I specifically set apart the learning curve and the act of trading in previous post.

If going by the learning curve, then I have no shame in saying it has been the most brutal I have gone through. Nothing compares.

But since getting a better hang of what's what... eh. It's actually quite a simple process.

------

It should be said I do have the benefit of having taken part in competitive ventures before, and against national-level competition as well, so I've been through that process of attempting to become good at something competitive.

So comparing that against trading... meh. There's harder stuff out there.

Everything can seem easy once you know how.

So you indeed agree that trading is easy?

You mention chess and poker as being more difficult.

More specifically, one-on-one competition.

In poker, given an initial hand, I can calculate my chance of winning, i can know whether that is a good hand, and adjust my betting strategy accordingly. After the flop, I can calculate again whether I have the best hand or not. Of course there are variations, the one with the best hand might fold, but statistically you can calculate your chances to some degree. The game has fixed rules, and odds are known. In chess, I can run all variations of moves from any position, and optimise based on what i think is important, that's what a computer chess program does. Rules are known, options are set.

Good Lord, Shak. I do hope you wouldn't run a strat like this vs. a human player...

Tell me, given all past data on a trading instrument, if you are long at a particular time, what is your chance of winning? What is your chance of winning when you vary stop loss and targets? If you can't do this and give me a number to the same accuracy as poker or chess, then what does that tell you? While we're on it, what ARE the rules of this trading game?

How the hell should I know the numbers? No one knows until after the fact. I can give you a sample based on past data, but that's all it is.

There are no rules. You make the rules. You observe the subject/object and make decisions based on its behaviour and your capacities. That's how you end up winning.

And we haven't even got started on the psychological diffuclties...

You train them away! It's not a hard decision to make!

1. See bad habit.
2. Bad habit makes you lose money.
3. Realize bad habit needs to go away.
4. Kill bad habit, bad!

Rinse, repeat. I don't give a toss how "hard" it is to do; just do it! It should be an easy decision!

1. Be patient
2. Don't loose pips
3. If pips must be lost, make it a small number
4. Make pips
5. Show a statement

Trading is easy once you are able to implement these rules with mastery.

You're one to talk!

Get in 2000 more hours screentime, punter.

 

[Shakone]

"I hope you wouldn't run a strat vs a human player" You mean one where the probabilities are known and I can play in my favour. I definitely would, whether I'm playing a human, a chimp or satan himself. In poker or other games of chance. I'd use exactly the probabilities, mixed with an understanding of maximising gains. You'd be an idiot not to use the probabilities. Most of the poker text books will also focus on this type of thing.

You admit you don't know the numbers in trading. Good. Probabilists/statisticians don't either. They do for poker, but not for trading. The point is, if you can't tell what the probabilities are in trading, but can with poker, or other games of chance, it's telling you it's a more complex/less understood game than either poker or chess.

There are no rules. You make the rules.

Again, I disagree. But we'll agree to disagree on this, as I don't think we understand eachother.

I've reached the top in another area of my life, which many would consider very difficult or beyond them. And I have to say trading is much harder. It's not only an intellectual challenge. You have to work on yourself a lot. And if it's easy for you, good for you. Perhaps you're more naturally suited than I am. But I don't think it will be easy for most who try. And even after many years, I'm still learning, and still find it hard. And to suggest to anyone who is new to trading, that this is going to be easy, is doing them a disservice.

 

[new_trader]

VielGeld,

Some questions:

1) Are you financially independent?
2) Do you derive all of your income from trading?

 

[bbmac]

When you boil it down - trading is really about mastering 2 essential components: Firstly identifying repeating patterns from whatever analysis we use, then understanding the typical and maximum metrics experienced with those patterns and based on this optimise our money management accordingly when we are confident in those patterns to start live account trading such that we achieve a positive expectancy across our forward sample of trading. Knowing the importnat metrics of our trading edge helps us to understand wwether it is performing within it's typical-maximum known parametres insofar as strike rate, typical-maximum consecutive losing trades etc are concerned. This is importnat so that we are not tempted to continually abandon an edge without really knowing whether it is an edge and works for us in live trading. This is really the 'easy' part relative to the second essential component (for most.)

What makes trading difficult for most is that they firstly fail to understand this basic necessity (that defines what a trading edge is) described above, and they also constantlly fail to master the second part : Ie they are unable to develop the necessary mental/psychological skills that help protest them from the potentially debilitating effects of the emotions we all hear about - greed, fear, hope, revernge, frustration, boredom etc that can cause us to abandon/ignore the rules we have set for our trading edge - this generally leading to worse results than had we followed them. It is the development of this necessary 'trading psychology' that is arguably the harder part but I wonder how many even get beyond mastering/achieving the 1st part ?


G/L

 

[the hare]

It is the development of this necessary 'trading psychology' that is arguably the harder part but I wonder how many even get beyond mastering/achieving the 1st part ?

I don't think the first part is particularly easy, and I say that as someone who has spent a lot of my professional career solving some very complex problems, and being very well rewarded for doing so.

Simple mechanical approaches that work retrospectively are ten a penny, but generally by their very nature, they wont work in the future. Once that realization has been gained, that leaves most people with the need to develop discretionary skills, and that requires experience, and probably a great deal more time and effort than most are prepared to invest.

The whole process is initially made more difficult than it needs to be due to various entities promoting disinformation for their paymasters. Whilst understanding why your opponent wishes to spread particular disinformation might be useful in the long term, its not particularly helpful to those starting out.

I've seen enough people fail over the years to know this stuff is a lot harder than it looks, and I understand just about enough to know that any success is possibly due to variance, or having a method that's in phase with market conditions. I also know that what I'll be doing in 10 years wont be the same as what I'm doing today, and that's going to take a lot of work, and its not going to be getting any easier any time soon.

 

[bbmac]

Relative to the second part the first seems to prove easier for most but I am not saying that it is easy per say.

I don't understand why you say that because simple mechanical approaches work retosectively they won't work in the future - by their very nature. What is it about their nature that makes this absolutely so ? Whilst the general rule of thumb re backtesting and I am sure almost everyone's experience that has done it is that the past tends to be better than the future (forward test) I am sure that this is because of part 2 that I decribed in my post above. With back testing we suffer from confirmation bias in that we can see what happened next whereas with the forward test ie live trading (the forward test) there is always a decision to make and this is where the psychology comes in.

The discretionary skills you refer to is in part/in effect the part 2 that I refer to in my post, and I agree it requires '...experience, and probably a great deal more time and effort than most are prepared to invest..' (or indeed can invest due to mercantile considerations.)

Re your last paragraph; I have been doing the same stuff for years and I am confident that my edge will still produe in 10 years.Thiss is not to say that I don't tweak it along the way but there has been no/nor do I forsee the need for wholesale changes to it so long as the central dynamics of supply and demand drive the market.

G/L

I don't think the first part is particularly easy, and I say that as someone who has spent a lot of my professional career solving some very complex problems, and being very well rewarded for doing so.

Simple mechanical approaches that work retrospectively are ten a penny, but generally by their very nature, they wont work in the future. Once that realization has been gained, that leaves most people with the need to develop discretionary skills, and that requires experience, and probably a great deal more time and effort than most are prepared to invest.

The whole process is initially made more difficult than it needs to be due to various entities promoting disinformation for their paymasters. Whilst understanding why your opponent wishes to spread particular disinformation might be useful in the long term, its not particularly helpful to those starting out.

I've seen enough people fail over the years to know this stuff is a lot harder than it looks, and I understand just about enough to know that any success is possibly due to variance, or having a method that's in phase with market conditions. I also know that what I'll be doing in 10 years wont be the same as what I'm doing today, and that's going to take a lot of work, and its not going to be getting any easier any time soon.

 

[new_trader]

VielGeld,

Some questions:

1) Are you financially independent?
2) Do you derive all of your income from trading?

*Tumbleweeds*

 

[R.Charnock]

Gosh, anyone would think T2W was a trading site. Isn't it about time this thread was dumbed down?

 

[Shakone]

I don't understand why you say that because simple mechanical approaches work retosectively they won't work in the future - by their very nature. What is it about their nature that makes this absolutely so ?

Perhaps the fact that they are simple and therefore easily (inevitably) discoverable is what makes this so. I don't think this is absolutely so though.

Would you say your edge is a simple mechanical approach? From what I've seen of your stuff, it's not that simple, there's some discretion around the strength of various supports and resistances, it's multi-timeframe uses indicators (divergence?), fibs perhaps and price action, and that's just for entries.

 

[the hare]

Relative to the second part the first seems to prove easier for most but I am not saying that it is easy per say.

I don't understand why you say that because simple mechanical approaches work retosectively they won't work in the future - by their very nature. What is it about their nature that makes this absolutely so ? Whilst the general rule of thumb re backtesting and I am sure almost everyone's experience that has done it is that the past tends to be better than the future (forward test) I am sure that this is because of part 2 that I decribed in my post above. With back testing we suffer from confirmation bias in that we can see what happened next whereas with the forward test ie live trading (the forward test) there is always a decision to make and this is where the psychology comes in.

The discretionary skills you refer to is in part/in effect the part 2 that I refer to in my post, and I agree it requires '...experience, and probably a great deal more time and effort than most are prepared to invest..' (or indeed can invest due to mercantile considerations.)

Re your last paragraph; I have been doing the same stuff for years and I am confident that my edge will still produe in 10 years.Thiss is not to say that I don't tweak it along the way but there has been no/nor do I forsee the need for wholesale changes to it so long as the central dynamics of supply and demand drive the market.

G/L

To clarify, my comments where concerning purely mechanical systems, and preferably implemented in such a way that the role of psychology is removed.

Your last sentence explains the fundamental reason why I don't believe that simple mechanical systems that back-test well historically will do so in future. The data on which these simple systems are built is non stationary, and unfortunately, things change, possibly due to legislation, or possibly due to the way that participants in the market modify their behavior over time. If you want to make a simple system more robust, then of course you can accommodate simple stuff like changes in volatility etc, but there are still factors that cant be determined in advance.

From a more practical perspective, I found that attempting any form of walk forward optimization with simple systems is quite detrimental, almost to the point that you are better off fading the optimized parameters.

I could give a great many more practical examples, but that's just boring trading stuff, and we need more lulz.

 

[NVP]

Trading is not easy


trading is not easy
Trading cannot be just be just a mechanistic model or Automated
trading is not Easy
Trading cannot be just using Fundamentals
trading is not easy
Trading cannot be just using Patterns or Technical Analysis
trading is not easy
Trading cannot be just mastery of your emotions
trading is not easy
Trading cannot just be good money management and rigid discipline
trading is not easy
Trading cannot just be many years of research , Experience and practice
trading is not easy

Sucessful trading is all of these and more ....rolled up in your own head....unique to you and you only

and even then - guess what ?

Trading is not easy

N

 

[bbmac]

I would say my edge takes a long while to learn but it is principly rule based and mechanical Yes. This is such that there is an emphasis on getting with trend/the main money flow and only going against that when there are compelling reasons to do so. As stated above it is really about learning these rules, keeping potential supp/res factors up to date and then acting only at the highest rated repeating combinations of these should they develop and an entry set-up/set-up combo develop (either with or contra trend.) The 'with trend' set-ups are used consistent with a methodology that identifies when a trend is present or not and potential strength of that trend and are centered around the classic buy/sell the pullback in a trend but again at the highest probability repeating pre-identified potential sbr/rbs factors.

An example of the support/resistance/sbr/rbs factors is below for the immediate downside of the Friday closing price of gbpusd cash (these combo's are all rated per my edge's methodology for doing so - so I know in advance where I will consider going against trend should the right entry set-up/set-up combo validated by individual pa develop - if price tests these areas.)

5563-56 prev 4hr/1hr sw hi/lo zone (minor 4hr sw lo zone)
5549 Daily s1 @/around
5548-46 4 x fibs
5529 76.4% 5453-5776
5524-09 prev 1hr sw lo zone incl 5520=50% main 5267-5776move, 5514 = Daily S2 @/around, and 5518 = 85.4% 5473-5776
5501 85.4% 5453-5776 and Weekly S1 @/around
5495 61.8% 5320-5776
5492-76-72 prev Dly/4hr/1hr sw lo zone, incl 5491=76.4% 5402-5776
5465-52 prev Dly/4hr/1hr sw lo zone, incl 5460=61.8% main 5267-5776move, and 5457=85.4% 5402-5776
5437 Daily S3 @/around
5427 76.4% 5320-5776
5418 Weekly S2 @/around
5412-02 prev minor 4hr sw hi x2 & Dly/4hr sw lo zone
5387/86 85.4% 5320-5776/76.4% main5276-5776move
5360 Daily S3 @/around
5340 85.4% main5267-5776 move
5332-19 prev Dly/4hr sw lo zone
5300-5290 ascending weekly trend line on current daily candle
5281-67 (-34) Prev Wkly/Dly/4hr sw lo zone

NB: 'fibs' refers to fibs of the moves up to 5776 from major 4hr/daily swings from and including 5267-where not individually named


The repeating entry set-ups I use never change - the contra-trend set-ups for eg can and preferably do develop on successively higher t/f's from that being used as the actual trigger for entry and these repeating combinations across t/f's adds confluence/confidence to the reasons for entry. The entry set-ups are just part of the overall edge - there are repeating support/resistance/rbs/sbr factors that too combine on the same and higher t/f's and it is the repeatingly strongest (most likely to see a reaction) confluence of these (pre-identified) at which I look for the entry set-ups to develop (or not=no entry) validated by repeating individual/small combo of candles price action as the trigger for market entry.

Some will call all this complicated - but for me it has become second nature and provides me with the highest probability trading I know and the best chance to minimise risk and maximise reward - and that's the upside of such a 'detailed' approach/edge.

G/L

Perhaps the fact that they are simple and therefore easily (inevitably) discoverable is what makes this so. I don't think this is absolutely so though.

Would you say your edge is a simple mechanical approach? From what I've seen of your stuff, it's not that simple, there's some discretion around the strength of various supports and resistances, it's multi-timeframe uses indicators (divergence?), fibs perhaps and price action, and that's just for entries.

 

[the hare]

Perhaps the fact that they are simple and therefore easily (inevitably) discoverable is what makes this so. I don't think this is absolutely so though.

I was going to use that argument.. If a million trade station users can determine a set of optimum parameters at a push of a button, then someone's going to slaughter them.

I don't believe that these "simple systems" actually exit as such, they are just an accident of random chance. Just because a 38/104 EMA cross worked on a 2 hour chart for Microsoft during 1998 isn't really relevant.

BB's method is at least exploiting a number of market characteristics. S/R exists, support becomes resistance, resistance becomes support, changes in long v short term volatility, mean reversion, trend persistence etc. You can criticize the TA tools being used in isolation, but they're being used to cut through the noise of faster time-frames, rather than being applied as part of a rigid rules based strategy (although there are a couple of his set ups that do work quite well when mechanically implemented)