BSD
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Starting out at this I always understood that the simplest solution would be best, and that there was absolutely no reason to re-invent the wheel.
I have a couple of moving averages that show what the trend is.
And stochastics to help identify pullbacks.
That's it.
Not rocket science, this !
Market Wizard and Multi-Billionaire Paul Tudor Jones:
PTJ: I teach an undergrad class at the University of Virginia, and I tell my students, “I’m going to save you from going to business school. Here, you’re getting a $100k class, and I’m going to give it to you in two thoughts, okay?
You don’t need to go to business school; you’ve only got to remember two things. The first is, you always want to be with whatever the predominant trend is.
TR: So my next question is, how do you determine the trend?
PFJ: My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.
TR: That is considered one of the top three trades of all time, in all history (1987 Crash)! Did your theory about the 200-day moving average alert you to that one?
PTJ: You got it. It had done under the 200-day moving target. At the very top of the crash, I was flat.
TR: What’s the second thought for students?
PTJ: 5:1 (risk /reward). Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.
http://tradethetape.com.au/tag/paul-tudor-jones/
Overcomplication is just a giveaway that someone hasn't grasped what's the wheat, and what's the chaff.
80:20 as everything in life.
I have a couple of moving averages that show what the trend is.
And stochastics to help identify pullbacks.
That's it.
Not rocket science, this !
Market Wizard and Multi-Billionaire Paul Tudor Jones:
PTJ: I teach an undergrad class at the University of Virginia, and I tell my students, “I’m going to save you from going to business school. Here, you’re getting a $100k class, and I’m going to give it to you in two thoughts, okay?
You don’t need to go to business school; you’ve only got to remember two things. The first is, you always want to be with whatever the predominant trend is.
TR: So my next question is, how do you determine the trend?
PFJ: My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.
TR: That is considered one of the top three trades of all time, in all history (1987 Crash)! Did your theory about the 200-day moving average alert you to that one?
PTJ: You got it. It had done under the 200-day moving target. At the very top of the crash, I was flat.
TR: What’s the second thought for students?
PTJ: 5:1 (risk /reward). Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.
http://tradethetape.com.au/tag/paul-tudor-jones/
Overcomplication is just a giveaway that someone hasn't grasped what's the wheat, and what's the chaff.
80:20 as everything in life.
Forexmospherian
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Starting out at this I always understood that the simplest solution would be best, and that there was absolutely no reason to re-invent the wheel.
I have a couple of moving averages that show what the trend is.
And stochastics to help identify pullbacks.
That's it.
Not rocket science, this !
Market Wizard and Multi-Billionaire Paul Tudor Jones:
PTJ: I teach an undergrad class at the University of Virginia, and I tell my students, “I’m going to save you from going to business school. Here, you’re getting a $100k class, and I’m going to give it to you in two thoughts, okay?
You don’t need to go to business school; you’ve only got to remember two things. The first is, you always want to be with whatever the predominant trend is.
TR: So my next question is, how do you determine the trend?
PFJ: My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.
TR: That is considered one of the top three trades of all time, in all history (1987 Crash)! Did your theory about the 200-day moving average alert you to that one?
PTJ: You got it. It had done under the 200-day moving target. At the very top of the crash, I was flat.
TR: What’s the second thought for students?
PTJ: 5:1 (risk /reward). Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.
http://tradethetape.com.au/tag/paul-tudor-jones/
Overcomplication is just a giveaway that someone hasn't grasped what's the wheat, and what's the chaff.
80:20 as everything in life.
Hi BSD
I have tremendous respect for Paul Tudor Jones - you have to have with the amount of success he has had - but would have to disagree with him on so many things
The main point for me is inefficiency - he's actually encouraging retail traders to be inefficient - purely by saying - you can still be successful with just a 20% + win ratio.
As an analogy - Yes - I could get away slumping it in a 4 star hotel in nice holiday resort - but I would prefer to stay at the Burj al arab - 7 star - because its better and 90% of holiday makers would also prefer it - so why suffer with mediocrity - if you can do better
Similar in trading - its totally wrong for normal retail traders with their normal small capital accounts of under $5k or $10k - to be mislead by this billionaire and other commercial guys.
Aim and make sure you have a method of at least 65% success rate - also aim for RR's of even 10 and 20 when you have learnt how to get your timing correct and dont be mislead with the inefficiency of investment type trading with multi millions or billions.
99.7% of all retail traders are being mislead by the Market Wizards stuff and they guys they interview
Yes- its nice inspirational stuff - but trade under $50 or $100k totally different to these guys and then if you are lucky to ever have $5 or $20 million of your own money - then fine - go back to inefficiency and old school thinking
Just my own strong view - but maybe not the right place to debate it in this thread - so maybe another topic for a great debate.
Regards
F
BSD
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I really think that winning percentages are pretty meaningless and really only the focus of amateurs.
This guy is at a major hedge fund:
What he says, quite simply, is that very high winning percentages come at the cost of making less money overall, which is not what the objective should be. And that's not based on theories, but comes from his first hand experience working with some of the very best traders on this planet.
Brett Steenbarger:
"...As a rule, maximizing batting average/minimizing drawdown comes at the cost of lowering overall system profitability...."
"William Eckhardt:
The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. …
What really matters is the long-run distributions of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions seem to be crucial beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”
Market Wizards
George Soros:
"I don't care about being right or wrong on the market.
What counts is how much you make when you are right."
Kenneth Grant, in "Trading Risk: Enhanced Profitability through Risk Control", depicts his experience as risk manager for some of the best and most successful hedge funds, amongst others Paul Tudor Jones funds and Steve Cohens SAC Capital, that:
ACROSS ALL TRADING STYLES, TIME FRAMES AND TRADERS, ONE RULE HOLDS TRUE:
10% OF ALL TRADES INEVITABLY ACCOUNT FOR 90% OF PROFITS !
This guy is at a major hedge fund:
What he says, quite simply, is that very high winning percentages come at the cost of making less money overall, which is not what the objective should be. And that's not based on theories, but comes from his first hand experience working with some of the very best traders on this planet.
Brett Steenbarger:
"...As a rule, maximizing batting average/minimizing drawdown comes at the cost of lowering overall system profitability...."
"William Eckhardt:
The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. …
What really matters is the long-run distributions of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions seem to be crucial beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”
Market Wizards
George Soros:
"I don't care about being right or wrong on the market.
What counts is how much you make when you are right."
Kenneth Grant, in "Trading Risk: Enhanced Profitability through Risk Control", depicts his experience as risk manager for some of the best and most successful hedge funds, amongst others Paul Tudor Jones funds and Steve Cohens SAC Capital, that:
ACROSS ALL TRADING STYLES, TIME FRAMES AND TRADERS, ONE RULE HOLDS TRUE:
10% OF ALL TRADES INEVITABLY ACCOUNT FOR 90% OF PROFITS !
BSD
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That said F, psychologically I can 100% understand why people want to strive for higher winning percentages, and being comfortable with what you're doing is more important than anything else, as otherwise you won't be able to do what needs to be done !!!
Forexmospherian
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Well no time for Brett Steenbarger and I will explain how I see it - and obviously my thoughts don't count as much as Billionaires like George Soras - etc etc - but only this week Warren Buffett admitted he made a major mistake not dumping his Tesco shares - ( or maybe should not have bought them ? )
The formula for maximum efficiency and profitability as to contain the following
Win ratios / RR 's / drawdown / exit size / stake sizes / time in trade along with the maximum amount of trades you can get on whilst keeping them in profit.
HFT as changed the old ballpark - but the old school are fighting hard to make sure it does not continue to provide the profit success of its first few years and therefore using all possible methods to provide a "spoiler"
Its obvious if you could have a 90% win ratio and all winning trades had RR over 3 or 5 and say 50% over 10 - and all losses were dumped under 30 mins - you would make far more money than any trader with a win ratio of only 40% and his RR's never making over say 10
Its getting the balance and combinations correct and as Jessie Trader quite rightly proved with a very low capital amount the idea of 5000% or even 65000% roi within a month or two is all possible on very small account - if you know what you are doing and are aware that you could lose a small account of money
For example whats the difference for me to trade just 0 5% stake on a $50k account - ie $250 risk on stop or be prepared to risk say 5% stake on $1k account - ie only $50 - ie I am actually trading with less risk of actual cash.
$50 or even $500 is not the end of the world for most retail traders - but losing $25k on one trade would out psyche most retail traders - and cause them probably serious embarrassment - but on a $10 or $20 million account - it would not be even worth thinking about - ie its small and irrelevant
However - to do even 100% on say a $10 or $20 million in a month or two would be very very difficult to do - because of size obstacles - HFT could do it - until the rest of the industry saw what might happen.
Its so important to make sure all retail traders know that retail trading any capital under $100k - or even quarter of a million - is a totally different ballgame - ie different risk structures - different psychology - different methods - different results etc etc to hedge funds and trading big capital.
I could write a book on how I see it - maybe - one year I will ;-)
All the best
F
BSD
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Of course I totally agree with that.
It's the IF of that where it gets kinda tricky matching the vision with results.
But all the best to you too.
Done for the day, moi, off for a quick beer by the water.
Gotta focus on what's the important stuff.
Forexmospherian
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Hi tomorton
I suppose thats the nice part about multi intraday trading - a RR of 5 is possible off just a 17 - 20 pip move.
Best swing trade I have ever got - which was last year - worked out a RR of approx 200 ( yes 200 ) off the Eur/Aud falling over 4 months - but I only had either 15 or 20% of the original stake left on from the entry and during the move I had to allow pullbacks up to 180 pips to stay with it -which did have a 900 + target - but even then if I had been taken out i would have still ended up with an RR of over 40.
I appreciate unless you are maybe full time and also intraday - it not possible to manage these type of trades and so most longer term swing traders using the 50 / 100 / 200 MA set up need the 60 to 150 pip stops to look at getting a RR of anything like 5.
All my trades are of soft stops of 3 to 7 pips and a good swing trade for me will be 2 to 5 days with an aim of over 200+ pips. Maybe less than 10% make it - but maybe 20% make over 50 pips - and so even then a RR of approx 10 - and the rest all then end up with anything from just 2 pips to 20 pips based on moving the stops into profit after the initial scalp by dropping stake size
Regards
F
Sounds good F, and it certainly works for you. I don't have any of the personal tools for daytrading but happy to credit rewards of 5:1 per trade intraday are possible - in fact maybe should be routine, to justify the effort, time and risk.
Its always disappointing to read industry features about trading which suggest the most fantastic returns on a specimen trade - but don't highlight the amount of time and work required to launch just that one trade - and that it only lasted 5 minutes. You're doing a good service by being so absolutely clear about the blood, sweat and tears and toil it takes to become a good daytrader.
Its always disappointing to read industry features about trading which suggest the most fantastic returns on a specimen trade - but don't highlight the amount of time and work required to launch just that one trade - and that it only lasted 5 minutes. You're doing a good service by being so absolutely clear about the blood, sweat and tears and toil it takes to become a good daytrader.
After reviewing old trades and performance, some slight revisions to this simple method -
1. last Close must be above 200EMA
(unchanged)
2. vertical sequence on chart preferably reads, from high to low – price, 50EMA, 100EMA and finally 200EMA
(downgraded from 'essential' to 'desirable')
3. swing phase using 3-bar reversal chart must be bullish (i.e. last swing, low or high, is higher than previous)
(unchanged)
4. how many daily Closes are above 50EMA in last 3mths?
(simplified trend measure)
5. how many consecutive weekly bars are completely above 200EMA, counting back from the most recent? (the more the better)
(timeframe extended from 50EMA to 200EMA, point of reference changed from weekly Close to whole bar)
6. is last full week’s bar completely above 50EMA? (caution if it straddles it or is completely below)
(unchanged)
7. how many adjacent weekly bars overlap the last full week’s range? (caution if more than 3)
(unchanged)
8. has price risen over last 1mth and 3mths?
(new - obvious)
Applied across a market, 1 and 8 alone should give a pretty clear basis as to whether to consider buying or selling a particular target. In forex, that might mean e.g. buy EUR/JPY, sell USD/CHF, and no trades right now on EUR/CAD. I use the 'consensus' of these results from across the pairs I can spreadbet, applied to the major currencies to then allow a sense-check that my longs and shorts are on the right side of the bias. At present, I see -
AUD - 1 buy, 2 wait, 4 sell
CAD - 2 buy, 2 wait, 2 sell
CHF - 5 buy, 1 wait, 0 sell
EUR - 4 buy, 6 wait, 0 sell
GBP - 5 buy, 3 wait, 1 sell
JPY - 1 buy, 1 wait, 6 sell
NZD - 0 buy, wait, 5 sell
USD - 3 buy, 8 wait, 1 sell
I hope this goes some way to quantifying the indecision in the majors at the moment for various fundamental reasons, the USD and EUR especially. Currently, I am long GBP/JPY, short NZD/USD.
1. last Close must be above 200EMA
(unchanged)
2. vertical sequence on chart preferably reads, from high to low – price, 50EMA, 100EMA and finally 200EMA
(downgraded from 'essential' to 'desirable')
3. swing phase using 3-bar reversal chart must be bullish (i.e. last swing, low or high, is higher than previous)
(unchanged)
4. how many daily Closes are above 50EMA in last 3mths?
(simplified trend measure)
5. how many consecutive weekly bars are completely above 200EMA, counting back from the most recent? (the more the better)
(timeframe extended from 50EMA to 200EMA, point of reference changed from weekly Close to whole bar)
6. is last full week’s bar completely above 50EMA? (caution if it straddles it or is completely below)
(unchanged)
7. how many adjacent weekly bars overlap the last full week’s range? (caution if more than 3)
(unchanged)
8. has price risen over last 1mth and 3mths?
(new - obvious)
Applied across a market, 1 and 8 alone should give a pretty clear basis as to whether to consider buying or selling a particular target. In forex, that might mean e.g. buy EUR/JPY, sell USD/CHF, and no trades right now on EUR/CAD. I use the 'consensus' of these results from across the pairs I can spreadbet, applied to the major currencies to then allow a sense-check that my longs and shorts are on the right side of the bias. At present, I see -
AUD - 1 buy, 2 wait, 4 sell
CAD - 2 buy, 2 wait, 2 sell
CHF - 5 buy, 1 wait, 0 sell
EUR - 4 buy, 6 wait, 0 sell
GBP - 5 buy, 3 wait, 1 sell
JPY - 1 buy, 1 wait, 6 sell
NZD - 0 buy, wait, 5 sell
USD - 3 buy, 8 wait, 1 sell
I hope this goes some way to quantifying the indecision in the majors at the moment for various fundamental reasons, the USD and EUR especially. Currently, I am long GBP/JPY, short NZD/USD.
I like this simple trend-following systen too, FX-Ed, by Ed Ponsi ("Forex Patterns & Probabilities", 2007)
* Check 10, 20, 50, and 200EMAs in descending order (for uptrends)
* Check for at least the last 10 consecutive closes above 10EMA
* Buy when price dips intra-day below 10EMA
* Set a stop-loss equivalent to half the daily ATR (14 days) below the 10EMA: trail this higher as price rises, leave it alone if price falls.
(invert directions for short in a downtrend)
* Check 10, 20, 50, and 200EMAs in descending order (for uptrends)
* Check for at least the last 10 consecutive closes above 10EMA
* Buy when price dips intra-day below 10EMA
* Set a stop-loss equivalent to half the daily ATR (14 days) below the 10EMA: trail this higher as price rises, leave it alone if price falls.
(invert directions for short in a downtrend)
0007
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I've used systems like this very successfully for non-short-term trading. The important thing seems to be getting the MAs reasonably parallel and in the correct order. You can play about with different values/types/prices but it all comes out more or less the same in the end if you spot a good trend. Using PSAR makes for a good stop wide enough to keep you in the trade commensurate with enough risk to make it profitable while trailing and reducing as the trade becomes more profitable – again quite useful to play around with the PSAR settings to find what suits you best.
The best thing about this mode of trading for me is that it's basically "fire and forget" just do most your work at EOD and let the profits accrue. Scanner software will find your potential trades very easily, feed that data into a spreadsheet to work out the best trades, place your order the next day. Nice and simple.
Not a bad day for trend followers, despite the NFPR and everything else.
Its a simplistic guide that its good to buy when price is above the 200EMA and short when its below.
Of the 35 pairs that I monitor, 31 followed that simple rule today (so far) - most of those that started the day above the 200EMA went up, most of those below the 200EMA went down. Looking at the weekly price changes, 24 of the 35 went the "right" way.
Quite pleasing really. Best of luck all.
Its a simplistic guide that its good to buy when price is above the 200EMA and short when its below.
Of the 35 pairs that I monitor, 31 followed that simple rule today (so far) - most of those that started the day above the 200EMA went up, most of those below the 200EMA went down. Looking at the weekly price changes, 24 of the 35 went the "right" way.
Quite pleasing really. Best of luck all.
