Important – Why systems are profitable (or not) - Page 8
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Thread: Important – Why systems are profitable (or not)

  1. #71
    Quote Originally Posted by ;
    Point taken.

    I was trying to say is it's the web position that ultimately determines P/L, and that orders are little more than a car for adjusting one's web position. For instance, if I'm net short 5 lots, and I wish to reduce my vulnerability to 4 lots, I could either close 1 lot, or'nedge' by opening a long position of 1 lot (assuming that my broker is not NFA-regulated).

    But you are right in saying that different order types can affect fills and consequently increase or reduce'slippage'.
    Essentially I agree with what you are saying.

    The question is how frequently you re-balance your position so that your real net ranking equals your desired web position.

    The more common you re-balance the more trading prices in form of commissions, disperse and slippage you incur.

    On the opposite side the less frequently you re-balance your internet position the bigger are the volatility in your P/L that's undesirable (such as should you quantify your trading performance using the sharpe ratio, or another step that requires volatility of the equity curve into account, your performance will probably be lower).
    Not as granularity in position changes also means that the market noise will have bigger effect on the result - which can also be undesirable, especially in the event that you use some kind of optimization or data mining to adjust the parameters of your egy.
    There's also a chance, that you'll have a lost opportunity cost should you re-balance less frequently - such as in the event the rule is that you re-balance only if the discrepancy between actual and desired position is bigger than one lot, than maybe you missed the chance to make some profitable low quantity (lower than one lot) trades.

    The purpose is, you need to research how your egies generate signals and should you would like to act on every change in the desired location.
    You ought to get a balance between the trading costs incurred by re-balancing and the expenses resulting from not re-balancing should you choose to not re-balance on every desired position change.

    Phuuu... I hope I left marginally understandable what I wanted to state

  2. #72
    Nice picture on the weighing scales.

    My view is the markets are unpredictable almost all of the time. The trick to get a trader is to discover small pockets of predictablilty at which the odds of a transaction are in your favor.

    There was an example on USDJPY today - where a 95.40 setup as a breakout degree to go long. To me it seemed like you should get a pop if JPY could get there and really it hurried to 95.65 before withdrawing back. After that initial pop isn't possible to understand, what happens. The edge I had been trading has been that orders would probably have built up over 95.40 which could result in a pop.

    Your entry criteria must provide you an edge. How you handle the transaction once you have open profits is not the same question. What I think is significant is that you took advantage of a small island of predictability to get into the market at a low risk point.

  3. #73
    One more items - those systems with 1:20 risk/reward are waiting to occur. If you're trading with a 50 pip TP and 1000 pip STOP you're making a bet that the market is rangebound within an broad range. In the event the market trends hard and you're on the side then you are going to blow up or you've got to spend the trade with so little leverage that a 1000 pip stop does not indicate a reduction.

  4. #74
    Let us be clear about something (and I mean no offense to anybody and am not referring to anybody in particular):

    Your advantage doesn't come out of your entry method and depart method nor does it come from cash management. Sure you can have egies with constant profits or oen with big profits and little consistent losses, but each have their tradeoffs plus one does not have an advantage over another. This is the identical thing which gets choices traders in trouble- that they believe that a certain choices egy such as a condor has a border over just buying calls- .

    Your advantage must come out of a egy that somehow tells you what the market is likely to do if something happens. This sign should provide you a bias (long or short). Other mechanical components and Exits and entries are nothing more than optimizations. Nobody can time the market exactly and the only way you understand what the right entry/exit size will be is by curve fitting and which will not help you in the long term, because you are assuming that what occurred in the past will continue in the future.

    Do not worry too much about stops. Make them small enough so that you don't get killed if you lose, and big enough so that you don't get stopped out of your profits because of intraday unpredictability.

    If this does not make sense I am publishing a post on this now and it's going to be out next week. If I remember I will post it .

    Hope this helps to save some trouble if you are fretting too much over entries and exits.

    Kris Matthews

  5. #75
    Quote Originally Posted by ;
    Your advantage does not come in your entry method and exit method nor does it come from cash management....Your edge must come out of a egy that somehow tells you exactly what the market is likely to do if something happens. This signal should give you a bias (short or long ).
    Quote Originally Posted by ;
    Your entry criteria must give you an advantage. The best way to manage the trade once you have profits is not the same question. What I think is important is that you took advantage of a little island of predictability to get in the market in a risk point.
    These are really excellent points that resonate with my current method of thinking. So far I've struggled to find any type of edge with my exits. I've thought that permitting profit run provides some type of advantage only because I've read posts by vastly experienced traders like Joel Rensink (e.g. here), Peter Crowns et al which seem to suggest this. Exit is a cliche. I've never been able to prove that - at least mathematically - to my satisfaction.

    Maybe I should clarify my position. I wrote article #1 and I'd love to think I've improved greatly since then. I believe in the ideas that I voiced this orders are only a vehicle for fixing net position, and it is the timing in making these alterations, relative to price movements, P/L is ultimately determined by which. Back then I was not indicating that FXTitan or StevieT had detected something approaching the Holy Grail. But the simple fact that both promised to be extremely profitable by using wide (or no) stoplosses indicated to me that profit can be attained by means aside from using'traditional' entry/exit/MM strategies, and I had been trying to think outside the squares to determine the reason why. Post was my first attempt. Judging by a few of the responses I did not do it well.

    In regards to discussions on technique, I'm no longer dogmatic. Back in the 1990s,'' Jack Schwager said something like you'll find a couple of ways to profit in the market, but the irony is that they're all difficult to find. However, from what I've read on trading forums, many people have a tendency to feel that the only possible strategy that contributes to profit is the particular one, which (human nature being what it is) is understandable, but IMO it is also an ignorant and conceited assumption. Cliches and generalizations are hard to prove universally. Just as a trader may think that his advantage comes out of his leaves, for instance, and he has a lengthy track record to demonstrate, doesn't necessarily indicate that it applicable. Moreover, (whether rightly or wrongly) all analysis makes the assumption that an element of previous behaviour is much more likely than not to continue to replicate itself later on.

    I agree with Kris that every entry/exit method is ultimately a compromise involving win rate and win size (R:R). Boost you, and everything else being equal, the other is diminished in like proportion. The secret is to find situations where everything else isn't equal, an'inefficiency'. Like JZW, I think that there are large (er) likelihood entrance setups, and that areas of support/resistance (like the'flipover' S/R from the chart that he posted) can give one an advantage, along with a low risk entry (which may lead to a high RR trade). I imagine you mean something like when you say Your advantage must come out of a egy that somehow tells you exactly what the market is likely to do if something happens. That's the basis of a prospective entry installation if I understand correctly.

    However, while I feel that a powerful setup can help to kick-start a trade, I do not think it is totally accountable for its final result. I've read opinions like look at the way the pinbar produced a 400 pip movement, but my opinion is that while it could have in part influenced order positioning around the entry point, a zillion subsequent imponderables ultimately conspired to generate the move, along with its eventual end. The fact is that nobody has as to who the participants are in every point, an omniscient opinion, and where their'collective' sentiment lies. To whatever extent certainty is currently lacking, trading becomes a action that is fortuitous.

    Having said all of this, I have no clue how I'll be thinking in a different 18 months' time: yet another reason not to be dogmatic. I'm reminded of Gregory of Nyssa's quote Concepts create idols, only wonder grasps anything. That's too ethereal to be totally inclined here, but once oneself is locked by one the learning process is compromised. Learning how markets operate is a travel.

  6. #76
    Hanover,

    I couldn't have said it better. That is exactly what I meant. But, I didn't mean to say that the installation is the most significant part, but instead obtaining the timeframe right and the bias. Selecting the entry is less or more luck.

    If you have the ideal bias (based on what you feel the market ought to do based on fundamental or technical situations ), price will probably be forgiving in the event that you do not time things just right.

    But if you have the ideal prejudice but the wrong time period, you will either end yourself out early if your stop is about the order of an normal range for a more compact time period or you will give up a profit that represented a nice move for your timeframe by holding on too long. By way of instance, if you trade on the four hour time period and you have a profit after a couple of times but wait for a couple more weeks to your profit to grow but it rather becomes a reduction, you didn't value your timeframe.

    Get these two things right and you'll grow dramatically as a trader!

    All of the very best,

    Kris Matthews

    Quote Originally Posted by ;
    These are really good points that resonate with my current method of thinking. So far I've struggled to find any kind of statsitical edge . I've thought that letting profit run provides some kind of advantage only because I've read articles by vastly experienced traders such as Joel Rensink (e.g. here), Peter Crowns et al that seem to suggest this. Exit is a cliche that is frequently voiced. But, I've never been able to prove this...

  7. #77
    This is an thread.

    I just wanted to make a few remarks:

    1. Regarding the scale diagram together with positions: I agree 100% that they are identical for Foreign Exchange trading. But, they are not equivalent for stock trading, due to the no short-sale except on uptick rule for U.S. stocks. Hedge funds have used the trade series of trades . In the event the SEC goes afterwards, they just say, no, I wasn't shorting the stock, I was liquidating my (hedged) long, when mathematically, the 2 sides would be same pnl-wise. In this scenario, hedged is more elastic than unhedged. There's a name for this technique: it is called short selling against the box.

    2. With regard to having a high percentage of winners and a very small percentage of enormous disappointment (s), it is an intriguing concept, but hard to estimate the parameters, as you mentioned. You are effectively attempting to gauge how big a distribution's tails. Guess what was one of the major sources for the CDO mess that is subprime? You guessed it - that the engineers underestimated the size of these tails. It is a bet against the black swan. Selling our buddy that keeps the Martingale , returning or far OTM options, all fall into the egory. One is betting against the black swan of a long set of streaks. Maybe not now, although it can be something that I may try when I am 90 years old. Do so at your own discretion.

    Afterwards, I will reread this thread more carefully a second time. Thx for taking and posting the time to draw those diagr.

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