MeiHua, thank you!
These are very interesting findings that you present MeiHua.
To be honest I’m surprised buying weakness and selling strength perform better than the opposite. If you look at for instance Richard Dennis and his Turtles, the technique they used focused on buying strength and selling weakness.
I suppose the trick is defining a trend direction to make sure you enter pullbacks and that you’re not, in fact, trying to catch the falling knife, aka picking tops and bottoms.
I just keep myself open to all possibilities, each market has its characteristics. Then I just follow the numbers, it’s really that simple. If it told me the breakouts were better that is what i would have written something completely different.
I really like to read what Meihua writes , because it shows that the thinking is open to many possibilitis, and there are many ways to approach a trade and still be profitable.
MeiHua, I’m doing the sort of analysis you posted here, but with my strategy.
I found that MFE/MAE are good tools to define high probability take profit with low probability stop loss, and the MFE/MAE gives the reward to risk ratio.
First, I made a little test using random entries and using data from EURUSD since 2008. It gave me 200 % with 6.5 reward to risk ratio; that is using only random entries on daily view and using the 14 ADR as stop loss.
Now I’m trying to backtest my strategy, but I want to define my stop loss based on the MAE and my take profit based on my MFE. Do you have any study that use that values?
Thanks!
Hi MeiHua
Your research is interesting and thanks for the good work but you must show maximum drawdown and consecutive losses (losing streaks). I don’t know those numbers but I’am pretty sure that they couldn’t be sustain by the majority of traders or firms. Any system should take into account parameters which will affect the human component.
Have you trade your system live on platform such as Myfxbook, ZuluTrade or others… it would be interesting to analyse live results and this will give more credibility to your research.
It is true that buying weakness and selling strength is more profitable as it is where liquidity is
Quanti
From my experience I will tell you this: If you have lost last couple of trades… there is a very big urge to close your winning trade fast (idea of your winnign trade to turn into loss is devastating).
I typically aim for R:R 1:5 and up when I have found valid setup, so consequtive losses do happen and letting profits ride have been an personality issue for me.
My rules even say:
- Follow your rules.
- Don’t close a trade without a reason!! Market will try to fool you out of your good trades!!! You will be rewarded for keeping your winning trades longer. Still, make realistic targets and if a very good countertrend setup shows up then exit the trade and possibly open a trade in opposite direction or exit and wait for a pullback.
- Know your judgement points during the trade, stick to your made judgements.
I believe I have improved in this area recently (winnig trades with very high R:R), but still sometimes it is just too hard to follow them.
Here is a USDJPY trade: this is one of two valid countertrend setups from me, I have given for this name: price exhaustion - divergence. I have lost last two or so trades when this comes. So I open the trade and it goes well (in a sense that I don’t get stopped out). But it kinda doesn’t go anywhere and I become impatient. Then there appears something resembling small double bottom and I have several attempts to exit my trade, but I talk myself that i have to keep it longer… then price goes up… and I exit my trade. So I broke rules 1) 7) 8) and rest of the day I sat in misery of what I did.
I don’t have to show max draw down, consecutive wins or losses or any of that. Do you know why? Because as i have stated several times over, THESE ARE CONTROLLED EXPERIMENTS, IS NOT A SYSTEM FOR TRADE. They can be made into systems by using these basic ideas but in the form they are now they are just ideas that have proven positive expectancy.
Now about my credibility, No i don’t trade these systems on myfxbook,zulu or whatever. Because they are not systems. Credibility in any research field comes through several processes, the ability to replicate the experiment, statistically significant samples, and peer review. All of which this thread has, not to mention my research so far has also had statistical error values of less than 5%. So yes, in the standards for which medicines, airplanes, and new compounds are created, my methods and findings are valid.
The bold part of your quote is the only thing I am concerned with, and which I have proven has an edge. What you do with that, if you make a system with it, or you add it to your discretionary tool box or do nothing with it. That is totally up to the reader.
What does this have to do with the material presented in my thread? This is a thread about quantified results. If this is a set up you would like to share, please share the statistics backing that up following the procedures I have laid out. If not please post in another thread.
Yes John Sweeney’s MAE MFE are terrific tools. I use them in my own system development. But they are entry specific and system specific. There is no generalized answer there. What I do is I look at the distribution of the MAEs and MFEs and then start removing the negative outliers that do not affect the winning trades. Thats the easiest way without doing analysis on each trades life cycle. I don’t want to derail my own thread, but if you want to PM me or create a new thread I will gladly share other ideas.
These as you call them “quantified results” are well know, self explanatory and nothing new. There have been threads about this both on FF and traderslab.
The thing I was talking about in my post is that: if you now that something works in theory it doesn’t yet mean it is easy to put in practse. And what I examined in my post is possible psychological issues that come from system that has more losers than winners. After couple of losing trades in a row one might start to lose trust in his system or might start to cut winners short as it was my given example.
Generally what “your quantified results” say is: price tends to trend and you should buy pullbacks. Doh, everyone knows that… but few can make it really work in practise. You should stop wasting time doing things that have been done countlesss times and think about how to make it work in practise.
I am sorry you were unable to see how my post was related to this thread.
Sure I am sure you can find it other places. I never claimed it was revolutionary. But the fact that I can prove that in fact the axioms we take for granted are actually valid is the important part. There are plenty of axioms out there which are just blatantly false. More so than are true. Some of which I have debunked in another thread. infact your statement price trends is and buying pullbacks does not work for all markets, it just happens to work for fiber. So you can’t just be so brush that off as a given, which is what most people do. And the entire point of this thread, to prove what we take for granted as advantageous or not.
Go ahead and stick to those other fora then, because to my knowledge babypips has never had anything like this before. I understand the psychological implications of low win rate systems, but again this has nothing to do with the fact that the edge provided is statistically valid. The psychological implications does not remove the net positive expectancy. which is what is being discussed here.
If you re-read my post, I don’t believe to have been rude so I’am surprised of the tone of your answer.
First, if you start a thread with some ideas, you should accept that there will be positive, neutral and negative remarks.
Second, if you see ‘newbie’ next to my username, it is not that I’am learning to trade, this is just that I don’t post on forums. My only posts are related to a thread that I started where I was amused as how many people give advises without showing any track records. I’am demonstrating with FXCM demo accounts that it is very easy to show track records, surely easier than the analysis you did. You are welcome to visit my thread by clicking on my username. I can’t see why a profitable trader wouldn’t like to show his results on a demo account. Unfortunately, they most of the time angry at the question. By the way I already traded 2 accounts profitably and just starting a new one. I start always from scratch in order to show consistency.
Third, I’am sure that you like stats and your work may impress ‘newbie’ traders but if you refuse to give max drawdown and losing streaks, I’am sorry to say that your whole demonstration come a bit short. Expectancy of a system is important I agree but you must know how you reach this expectancy. Even if you trade mechanically, you must take into account the human component of trading (trading psychology).
If you have 15 consecutive losses and you trade real money, I doubt that you won’t try to twick your system, the same if you keep losing all your gains two or three times in the row, I doubt that you won’t be incline to take your gain early. 5:1 ratio is almost impossible to sustain in the forex market unless (maybe) if you take positioning trades. Either you will need to place tight stops and you will be taken out to often or you need to have large stops and your 5:1 target will be difficult to reach before incurring drawdown.
Fourth, I understand that you don’t trade with a 5:1 but you should understand why some people may want to know how the outcome of your demonstration can be executed into live trading.
Quanti
I’d like to intervene and suggest to [B]everybody [/B]to calm down and keep a pleasant tone here.
I’ve seen many good threads get derailed and it always starts like this. Let’s not have that happen here please!
Honestly, this thread gets trolled a lot. And I spend more time policing it then I would like. So maybe I am a bit short tempered these days. For which I apologize. Legitimate conversation, critique and good information will always be welcome.
I honestly don’t care about the tag next to your user name or my own. I am not here to impress anyone. i am sharing what I believe is useable information. Information i use myself. Honestly, i couldn’t care less about your accounts, demo, live, account 1 or 100. Just as much as you should not care about mine. But thats besides the point, I just wanted to share something. If you learned something useful from my post great, if not then no more than a waste of a few minutes of time. I am not selling anything, I am not giving advice, I am not telling anyone to do anything. Its all open ended to allow people to do what they wish with it.
I believe if I was giving something to be traded either systematically or discretionarily, then the characteristics you mentioned would be important. But since its not, it is just exploring the markets tendency to do one thing over another in my opinion its not relevant. Maybe in the future I will include them.
Regarding 15 losses in a row, and systematic trading. This depends on your evaluation and system control settings. If you trade systematically, then you have processes and distributions that allow you to determine whether or not your system is performing within specifications. Monte carlo methods, chi squared tests, system process control, whatever you decide to use.
If these analyses tells you that 15 losses in a row is a possibility, or even within a normal means. Then you should should have known that before even trading demo with it. If it occurs live and is outside the boundaries of your expected distribution then you have a problem. But again its a using the system specific parameters to determine what is acceptable and what is not. This same analysis can be used on any single variable of your system, expectancy, win loss ratio, trade duration. Whatever you feel.
But determining if your system is broken or not is a logical conclusion based on the characteristics of the specific system being looked at. If you tweak a system early is just like making undisciplined trades, usually wrong and will end up to your detriment. This is all independant of the fact that you could use position sizing methods to optimally size the risk to what you feel comfortable with.
edit
I saw o990l6mh posted while I was writing this. From now on I am going to keep a cooler head myself. But also I am going to be selective about posts I reply to. This just keeps me sane, and hopefully keeps this thread on track.
Thanks for your answer. I don’t try to derail anything, I was just pointing out some missing numbers which is for me critical to evalutate any trading approach. If you don’t want to give them, I respect that and it is done for me.
I saw this thread and I had to drop off a comment in defense of the OP, while at the same time giving him some lite critique.
I see the merit and purpose of what you posted here MeiHua, but I do think you have failed… to consider your target audience. While this kind of scientific method would be great in a University business essay, or a seminar for the Goldman Sachs Quant Department… that’s just not where you are! This place is full of people “off the street” who really just want to make a buck, and they want the “how-to” and none of the theory. Theory doesn’t ring up $ on their little penny accounts, so that is why you aren’t getting the positive assessment you likely deserve.
So yeah, good idea… wrong place to share it!
My regards,
Art V.
I have a question. I would like the average daily range of all pairs lol. how would you go about collecting that? Hmm someone is a Seinfeld fan :-D. Best show ever. Are you akeakamai?
Investigate the definition of “Arbitrary” and you will be at, or very close to the answer you seek. Yup Seinfeld makes me realize what absolute crap can pass as comedy these days. Of course my name isn’t Art Vandalay, just like I’m sure your name isn’t “Iya Jenkei”. I don’t know who “akeakamai” is, sorry.
I’am not sure who you are referring to but unless we were talking about the different paths of Monte Carlo process on the pricing of a highly complex structure products or others such demonstrations, I really don’t know what a Goldman’s quant desk has to do here.
I know you DON’T have any idea of what a quant desk is doing in an investment bank so before sending remarks, make sure to do your homework first otherwise it really sounds ridiculous.