Summary thread: this thread should contain all the important information from 100s of other BabyPips threads.
BabyPips contains many threads about ‘making profit’. My questions:
- Is anyone willing to create (and manage) this thread? Who wants to be the manager (OP)?
- Are the viewers willing to look thru 1 (or more) threads? Who wants to extract interesting sentences from threads to complete our overview on: making profit?
Introduction:
The readers on BabyPips are not in the “institutional circuit”. We all know that knowledge is power. Moreover, a community that is not striving to benefit from one another, is not effective. So, as to progress and find out what each of us need to focus on in the forex world, we work together on this thread.
How:
- Pick a thread below;
- extract 1, 2 or more sentences and then post them in this thread;
- add questions behind your sentences (if needed).
FOR EXAMPLE
“When testing your trading system, make sure it has a positive skew (many smaller losses and few big winners).”
Source: https://www.forexfactory.com/showthread.php?p=10668737#post10668737
–> if the statement clearly needs an argument ‘why’, then add a question behind the statement:
Why do we need a positive skew?
–> readers of this thread will then discuss (answer) it.
Goal of this thread:
- building a complete overview on: making profit.
Categorized as:
*How to make profit
*How can we predict price
*What indicators/systems to use and what definitely not?
** martingale
*How to properly test a trading system
*Statistics
*currency correlation
Please UP this thread so people will read this.
This thread is made by and made for retail traders (like us).
Are you interested to create this thread (and manage it), then I would really appreciate it. Then please use below layout (or similar) for the new thread:
----- LAYOUT -----
NEW THREAD:
HOW TO MAKE PROFIT IN FOREX!
Introduction: … (for example: there is no guarantee to make consistent profit, but… if I would recommend anything at all, the best direction I can point you to, is
----- deep neural networks (dnn)
This CAN work, because:
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This CANNOT work, because:
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----- Fuzzy Logic
This CAN work, because:
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This CANNOT work, because:
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----- HFT (high frequency trading)
This CAN work, because:
- After installing MetaTrader4, every trader should also install an HFT EA that convert tick data into a database, SQL & FXT. Then the tick database can be processed for entries and prediction of the next tick direction
This CANNOT work, because:
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----- Machine learning and data mining techniques
This CAN work, because:
- Machine learning Machine Learning with MATLAB - MATLAB & Simulink
This CANNOT work, because:
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----- Kalman filter
This CAN work, because:
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This CANNOT work, because:
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----- FD (Frequency Distribution)
This CAN work, because:
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This CANNOT work, because:
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----- Law of Averages
This CAN work, because:
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This CANNOT work, because:
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----- Law of Numbers
This CAN work, because:
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This CANNOT work, because:
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----- MM
This CAN work, because:
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This CANNOT work, because:
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----- Structure analysis
This CAN work, because:
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This CANNOT work, because:
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----- anything related/based on self-adapting to the market
This CAN work, because:
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This CANNOT work, because:
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Forex Myths busted:
Introduction : … (every YouTube trainer in forex tells you that his indicator works. Below I will explain why they CAN work or CANNOT work.)
----- indicators (oscillators, trend/ranged, volume, MAs)
This CAN work, because:
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Most indicators are leading/lagging (past). Some indicators (like trendline breakouts, Andrew’s pitchfork, …, …, …) are indicating the future, which has a higher probability. Because: …
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Best indicators: MTF, non-repainting, linear regression, filters, vhf, ds, adapting, floating/quantile levels, newest prices/averages, CFB (composite fractal bahavior), digital filter, DSL (discontinued signal line), QQE (quantitative qualitative estimation), theory based (Ocean, Kaufman, Aroon, Ehler, Blau, Schaff), and …, …, … because:… All these non-repainting indicators can be downloaded here MT4 Indicators Threads List.
- the best indicators can be downloaded on the forex TSD website (now it’s called: forex-station). But more modern methods would be to use machine learning and data mining techniques to try predict price changes
- Why is macd divergence trading more recommended than trading macd crosses?
This CANNOT work, because:
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Most indicators take very basic aspects of statistical analysis
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Fibonnaci and MAs cannot work, because…
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Most indicators do not use data that are statistically measurable, provide no tradeable info, and is non representative of market generated data/info (candlesticks). If the only data you have available to you is OHLC what you need to do is “un coerce”/reformat the data back into a market generated format. Data that has both a “price” column and a column that marks “time”. By breaking the market into it’s components/units: TPO’s… "pricetime events", “time price opportunities”, “time that price occurred” , all the same. You now have a data set that is quantifiable & measurable is unbiased by observer TF (objective data). Frequency “Counts” of each time a price is used over time Gives you a single multidimensional distribution/display of prices (Structure).
“Demand” can be read from the frequency of times a price has been used…
By keeping a tally/count how many times a “price” is used at each 30m interval your data now has a “price” column and you have a count of the “times” a price was used in a “time” column. you have then restored your data to it’s original market generated Pricetime format. Now you have a display of MGD that displays both price and time in which you can now use for analysis. How much of the traders’ activity contains “actual demand” created by traders willing to hold their positions overnight? And as volume is not a direct indication of “actual demand”, it has little or no value. Demand moves the market, not volume (activity).
etc
----- patterns, waves and cycles (1-2-3 waves, Elliot waves, HnS (head and shoulders), wave pattern, bullish engulfing candle pattern, etc)
This CAN work, because:
- Look for patterns and pattern aspects for each currency pair, timezone (session) and market condition. Don’t measure candle height/swing height (amplitude), swing length and volatility, but rather follow the pattern itself.
This CANNOT work, because:
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----- PA (price action)
This CAN work, because:
- Researchers found that trading with the trend gives an additional edge of 10%. Can anyone post the research link?
This CANNOT work, because:
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To what extent is the Forex market random (price prediction):
Introduction: … (scientists have proven that Economic News moves the Forex market. Below we will go in depth to what extent the forex market is random.)
For example:
- scalping below 10 pips is trading with more random price feed, than above 10 pips. Because:…
- structure analysis: the forex has structure because central banks (CB) insist on it, and tier 1 and 2 banks function in a way that delivers structure (I’m looking at a 4h to 1D chart). Most of the time, this relationship (between CB and Tier banks) works well, but when structure falls apart, the CB’s take control (ie, 2008). No matter what, order will be/is imposed on the forex, and the processes these organizations use, in respond to fundamental announcements and regular international fund flows, will determine structure.
- Every month, week or day the market condition changes, because of economic news, … and,… and …
Question: how to predict for how long the new market condition lasts? - etc etc
How should (or shouldn’t) you trade:
Introduction: … ()
For example:
- never trade on a live account when you trade on a demo account on the same instance. Because:…
- rather forward test on a small live account, than on a demo. Because:…
- when manual trading you should use price data feed from an independent source, and then open new entry positions in your own broker’s platform. Because:…
- The best way to trade forex is not alone, but with 1 or 2 partners. In this teamwork you divide tasks: technical analyses, fundamental analyses, programming, etc and daily organise meetings to discuss, update and give one another deadlines and if needed stimulate each other where needed. Simply put, you will be able to see the progress in Google docs (which is where you find collected data from all your partners in 1 ‘MS Excel table’). The forex signals from that Excel table you are then able to use (as confirmation) for your entry/exit positions.
- use hedge buffers (two or three price zones) to make your trading system profitable in an uptrend and also ranged market.
- Always take trades on 58sec before open bar/candle closes so your price will be on the very top of new open bar/candle. Is this really better?
How should (or shouldn’t) you automate an indicator or EA:
Introduction: … ()
For example:
- Program in Python instead of mql4. Because:…
- pull prices from an exchange and calculate your indicator using TA lib or alphavantage. Use pandas date time index dataframe using rolling methods.
- Good practice is first understanding the math behind each before observing behavioural patterns, or if you are good enough, expecting patterns from the math.
How should you test a trading system?
Introduction: … ()
For example:
- Why is backtesting not effective to measure the profitability/probability of your trading system:
- Why is it better to forward live test 100 trades to check if the result is 75% winrate (instead of backtesting for 2, 5 or 10 years)?
- whenever testing indicators, patterns or strategies keep checking if therein you are able to read the demand/supply mindset of the market.
When is a system robust:
- Optimizing (curve-fitting), Profit factor (PF) and sample size are not so important. Because market conditions can remain in place for indeterminate periods of time. (https://www.forexfactory.com/showthread.php?p=10668737#post10668737)
- Rather look at P/L, drawdown, positive expectancy, Sharpe, REAL averages, positive skew (many smaller losses and few big winners), short holding period, trades frequently and … ? And why?
- Test results are also good if the system runs on a great variety of different market conditions. (Of course sample size is a proxy for this as the greater the number, the more chance you encounter a greater variety of different market conditions but it is no guarantee…so using a fixed number like a backtest of 200 trades etc to be representative of a more robust performer is a bit of a misnomer. If your system is a high frequency trader then that sample size can potentially arise in a single market condition. In testing your system under an array of different market conditions…then the longer the test the better.)
- identify which market conditions perform best
- maximize position rate: for example, max open positions is 10, then make position size: 10% per position.
- how to test if the results are just luck? How to find out if your predictive signals (in your system) don’t actually exist?
- System diversification is a great way to manage the correlation between return streams. There are many different ways you can diversify to achieve improved risk-weighted returns including:
a) instrument diversification…ideally across asset classes whereby you look for uncorrelated instruments that allow you to achieve higher risk-weighted returns than what is achievable with a single instrument (thus, not EUR/USD and GBP/USD. Since these two are correlated it could consider (in testing standpoint) that you are still only trading one currency pair);
b) timeframe diversification which also allows you to deploy uncorrelated return streams to optimise risk-return relationships; and
c) system diversification in which you deliberately construct your return streams to offer uncorrelated relationships. (https://www.forexfactory.com/showthread.php?p=10667433#post10667433)
How do big institutions make profit:
Introduction: … they use technical and fundamental analyses. They use quantitive (Quant) trading: mathematical computations and number crunching to identify trading opportunities. This includes HFT, algos, statistical arbitrage and the availability of comprehensive databases. Many quantitative traders are more familiar with quantitative tools, such as moving averages and oscillators. (Quantitative Trading Definition) Quants use data mining (Data Mining Definition) and a Bloomberg terminal (Bloomberg Terminal Defined).
Quants have the choice between dedicated backtest software, such as Tradestation, a numerical platform such as Excel or MATLAB or a full custom implementation in a programming language such as Python or C++.
(https://www.quantstart.com/articles/Beginners-Guide-to-Quantitative-Trading)
For example:
- Here is a small list of places to begin looking for Quant strategy ideas:
Social Science Research Network - www.ssrn.com
arXiv Quantitative Finance - arxiv.org/archive/q-fin
Seeking Alpha - www.seekingalpha.com
Elite Trader - www.elitetrader.com
Nuclear Phynance - www.nuclearphynance.com
Quantivity - quantivity.wordpress.com
- which indicators do they use?
- most retail traders are scalpers. Does the same apply for big institutions?
- which methods do they use: neural networks, Kalman filter, fuzzy logic, machine learning and Frequency Distribution (FD)?
Is one NEW thread effective? (that sums up 100s of threads)
- yes
- no
0 voters