Its impossible to make money from forex through technical/fundamental analysis

Because they are not designed to be predictive. They only tell you what price did in the past not what it is going to do in the future. Only noobies expect indicators to be predictive.

You do realise that would include all the creators and contributors of babypips, the very board that is facilitating our debate, not to mention the majority of your protractors? You do realise also, that by doing so, you are basically agreeing with the whole thrust of my thesis?

then tell me how anyone is supposed to trade, if not with historical information. Even leading indicators/systems use historical information.

You bring up an interesting point.

I am also aware that 70% of trading today is carried out by robots and AI’s.

However, that really results in two things:

  1. if the robots are better traders than humans, it makes the market even more efficient (hence more random for slower non-robotic traders and 90% of the slower robots)

  2. if the robots are lousier traders than humans, it makes the market unefficient (hence more random for everyone)

In the end, whether or not the market remains efficient or not, it still remains random.

The whole show can be summarised in the below phrase:

“A drunk and irrational man, is not necessarily predictable (and probably less so)”

So chaos doesn’t make the market better…it makes it worst.

I can’t tell whether you are being sarcastic to Rhody, but it seems to be an interesting point. Not all stockmarket indices go up. The Nikkei for example, has been falling for its 21st year. So far, it has lost 89% of its value.

The bullish drift of the index could very well be one big survivorship bias.

I am slightly puzzled too.

I figure you are trying to tell me that there were technical systems that would have gotten me into a bear sell for the GFC and a bull buy for the 2009 run up. Or the a short sell of the EUR/USD during the Euro crisis.

Well, even a roulette wheel can exhibit trends. But if you want to be a trendfollower in roulette, chances are the results won’t be pretty. The same goes for forex, as demonstrated by O so many studies.

The Research Institute of New Zealand

We are a bunch of researchers in New Zealand, and we study stuff.

We tested 650 different surgical tools, and we have determined that surgical tools are useless for doing surgery.

In our laboratory, each surgical tool was rigorously tested, following the manufacturer’s instruction manual.

Of the surgical tools tested, NONE of them, and I repeat, NONE OF THEM, successfully performed a liver transplant.

Attempting a liver transplant with surgical tools is futile — like attempting to trade with technical analysis tools.

Our testing proves conclusively that surgical tools are a fraud, advertised and sold to gullible doctors and hospitals.

In addition, our research proves that livers cannot be transplanted — rather, they pop into existence at random.

This is referred to as the Random Pop Theory of Livers.

And it takes its place alongside the Random Walk Theory of Markets, as one of the irrefutable axioms of life.

We challenge you to disprove any of the statements made above.

Signed,

N.Z. Bunch

Hahahahaha!!! That is classic Clint!!

:smiley:

An epicly bad strawman argument.

but it was genuinely funny :slight_smile:

Good morning all,

I know I said I didn’t want to get ‘involved’ here but on second thought: this thread does seem to be going in an unexpectedly pleasurable direction (I use the word ‘unexpectedly’ purely because of the title i.e. threads that start with titles such as this USUALLY end up being ‘p*ssing’ contests but so far this is apparantely not the case and it would appear is providing the basis of some good ‘solid’ discussion).

First: not being sarcastic to ‘rhodytrader’ at ALL i.e. quite the contrary. I don’t think that you (‘rklee1’) and I have had the pleasure of ‘crossing paths’ before (and if we have then I apologise for not remembering) but as most others around here will know about me: I’m a proponent of trading equities (mainly the indices) and commodities and not retail spot forex so that’s why I am in total agreement with John’s statement / observation. In addition: you’re quite right i.e. the indices don’t always go up or always go down and ‘research’ has shown that the old ‘buy and hold strategy’ would have gotten you ‘pretty much nowhere’ over the past few years. I don’t have the exact percentages at hand but the theory goes that if you bought the Dow Jones a couple of years ago that by the time it reached it’s lows (sub-prime and credit-crunch) you were not much better off than if you had invested that same amount of money in a bank somehwere (something like that anyway). But then that’s not ‘trading’ then is it i.e. that’s ‘investing’ (at best case it’s called ‘tradevesting’). But as I noted (and as I think you have understood): there are decent trading systems out there that would have caught the major moves upward and downward and even in spite of the inevitable ‘whipsaws’ would be be showing an overall profit to date.

I THINK I know (this morning after ‘sleeping on it’) what I was trying to say yesterday:

Technical and / or fundamental analysis ON ITS OWN i.e. used ‘in isolation’ is ‘useless’ in ANY market. In other words: it’s what you DO with the results of that analysis is what makes the difference (and therefore the difference between being profitable or not over time). I know that sounds like I’m ‘stating the obvious’ (and maybe I am) but indulge me here (if not for any other reason so that I can clarify my OWN statements to MYSELF)!!! LOL!!!

As an example: sometimes you will hear that ‘today the EUR reached it’s 1998 high against the USD’ i.e. some or the other trendline drawn from ‘way back when’ has been reached. That is ‘technical analysis’ ‘in isolation’. Yes: the ‘expectancy’ is that because this ‘resistance level’ has been reached and it’s deemed to be ‘strong resistance’: price will falter and turn around so it would theoretically be prudent to short EUR/USD at that time. But (to me anyway): that’s ‘just a line drawn in the sand’ that may or MAY NOT mean anything. In other words: one could simply short EUR/USD at that point and ‘hope for the best’ i.e. ‘hope that resistance holds’ OR one could be following a ‘technical trading system’ that would indeed get you short EUR/USD at that very same point BUT the said ‘technical trading system’ would (should) at very least incorporate money (risk) management and indicate to the trader at any given point in time whether they are ‘right’ or ‘wrong’ on the trade (if they’re ‘right’ the said ‘technical trading system’ should keep them ‘in’ the short trade and if they’re ‘wrong’ then the said ‘technical trading system’ should have them stopped out with a loss that is proportional to their capital and reversed to ‘go with’ the trend). I hope that makes sense and explains better the point that I was trying to make yesterday???

I guess (once again) what I’m TRYING to say is this: you can draw all the trendlines and triangles you want on a chart (‘technical analysis’) but it’s what you ‘do’ at the time that makes the difference. In other words: once you add money (risk) management, take profit and / or stop levels, stop and reverse points etc. then you no longer are relying on ‘technical analysis’ alone but a ‘technical trading system’ and therein lies the difference (as best as I can explain it anyway) between being able to be profitable trading ‘technically’ or not.

Some more points (and believe me I’m trying to be argumentative here but merely contributing some ‘random’ thoughts):

I’m sure you’re aware of the ‘Turtle Experiment’. I’ve studied the ‘experiment’ ‘ad infinitum’ I believe. One of the reasons that the Turtle’s (who actually followed the ‘technical trading systems’ that is) did INDEED make money is because they traded a wide range of markets / instruments. Basically: you could take their ‘technical trading systems’ and backtest them on a single instrument and you may or may not turn out to have been profitable over a given period of time on that particular instrument. But apply the same ‘technical trading systems’ to a wide range of markets / instruments at the same time and overall the ‘technical trading systems’ were profitable (I call this the ‘shotgun approach’ but call it what you will). ‘Technically speaking’ (and even as noted by some of the Turtle’s): if you REALLY think about there is / was nothing ‘significant’ about a new 20-day (or 55-day) high or low (there is / was no ‘magic’ figure). What made the difference was money (risk) management and the number of trades / markets / instruments. That being said: POSSIBLY a new 20-day high or low is INDEED more ‘significant’ than say a new 37-day high or low but ONLY because millions of traders all over the world are watching that specific level.

I guess one of the other big problems with a discussion such as this is that for every ‘study’ that shows that ‘technical analysis’ or ‘technical trading systems’ CANNOT be profitable you’ll probably find an equal number of ‘studies’ that ‘prove’ the contrary (if you look hard enough and this is the reason why I included that link to the Van Tharp commentary). Larry Williams (to name but one example) has discussed this very issue of ‘coin flipping’ and whether the markets are truly random or not. If memory serves me correctly: he ‘proved’ that buying the S&P 500 on certain days of the week and selling the S&P 500 on certain other days of the week took the ‘supposed’ ‘randomness’ out of the (this particular) market. Now whether that falls under ‘technical analysis’ or ‘fundamental analysis’ or NEITHER is open to debate of course.

OK: this was my first post this morning and my OWN head is ‘spinning’ now so time for some coffee!!! LOL!!!

Regards,

Dale.

Hi,

Sorry but I I think you’re being a bit ‘harsh’ on ‘Clint’ there.

Come to think of it: the way I read his post it could very well be another way (and a rather more concise way than my usual ‘waffling’) of explaining what I was getting at.

‘Surgical tools’ either on their OWN or in the hands of an inexperienced ‘practitioner’ are ‘useless’??? Could it not be the same with both ‘technical analysis’ and ‘fundamental analysis’??? Just a thought.

Regards,

Dale.

You are correct [B]IF[/B] you trade without any sort of edge.

In fact, this is a very good starting point for system development. I’ve already told you twice what you need to do to rectify this :smiley:

In the same that you get a nice downward sloping equity curve due to transaction costs, you can get a nice upward sloping curve if you could shave a little bit off the losses, and add a bit more to the gains.

In the same was a 2 pip spread on each trade can destroy your account, a 2 pip gain can build the account. Understanding the magnitude of the problem that your trying to overcome, and understanding that you dont need to make a thousand pips per month is one of the key problems new traders face, and forums such as babypips are extremely damaging in setting unrealistic expectations.

Take your garbage EA. Do you think its possible to reduce those losses ever so slightly ?, do you think its possible to eek out those gains by a couple of pips, do you think its possible to improve that win rate by a couple of percent

Here’s some actual numbers achieved over a period of 18 months by one of the guys I’m currently mentoring. Its a day trading system based on TA (one single indicator). He has a win rate 58%, an average win 40.1 pips, and average loss -23.2 pips. Those numbers are based on over a thousand trades. Noone here would be remotely interested in trading that sort of system, it doesnt make enough “pips”, the win rate is too low, it has losing days, it has an equity curve with 12% drawdown at some stage.

He already has 1001 ideas on how this can improved, simply because he understands the rules of the game he’s playing, and he understands how to apply technical analysis in a way that you dont.

The reason that you have a negative gradient in your equity curve is because you dont know what you are doing !

If you actually took some time to understand the problem, you’d have a positive gradient ! messing about testing other peoples EA’s, and reading forums does not count as working. Thats whats known as [B][I]wasting time[/I][/B])

Seriously. Ask any financial academic whether the Efficient Market Hypothesis or Random Walk Theory has been proven or could be proven. They will tell you the same thing I’m telling you. Randomness is the absense of pattern. There are an infinite number of potential patterns in price time series. Since they cannot all be tested you cannot [I]prove[/I] the absense of pattern. For that reason the aforementioned will always remain Hypothesis and Theory respectively because while they can be refuted with evidence of pattern, they cannot be 100% proven. If they could have been, don’t you think we’d be talking about the “Efficient Market Rule” and/or “Random Walk Reality”, or something like that? Your “studies” have provided [I]evidence[/I], nothing more.

You can also prove it to yourself. Take your pick, test as many indicators or systems as you like. Test them in combination if you want. Use as many backtest results as you want. You will find wins and losses are evenly distributed, minus the amount of trades times brokers costs. Your equity curve is downward in proportion with the number of trades taken. I have confirmed this myself, so can you.

Statistical probability of winning vs. losing trades is only one part of expectancy. You have to also factor in the size of the winners as compared to the size of the losers. This is not roulette where you have a fixed risk and fixed payout.

If the market wasn’t random, why do moving averages, bollinger bands, trendlines have no more predictive value than a coinflip, especially since these are the very systems used by traders here??

TalonD is totally correct. There is a reason they are called indicators and not predictors. They measure things. They don’t predict things. It is the trader/analyst who does the predicting - or better stated, is seeking to use the indicator information to suggest positive expectancy trading opportunities.

If numerous studies have shown that wins and losses for all systems are evenly distributed like the results of a coin flip, that represents extraordinary evidence that the market is random. There is more evidence for the random walk ‘fact’ of the market than the theory of evolution!

Are you suggesting here that for any given trading system winners and losers have equal odds? If so, you haven’t done nearly enough testing. I could give you examples on both sides of the spectrum - high win% and low win%.

Sorry if I am missing something here, I haven’t really read the whole thread.

it seems to me that if you use the word random in your theory on either side of this discussion, then you have a wrong terminlogy:

My suggestion, is that if the market was in fact random- then I would side with the originator in that it would be impossible to make a profit, because of the random factor:

Random - means price can go ANYWHERE at ANYTIME - for example
on a forex pair price opens at 1.5555, and then next tick price is at2.0003 and the next tick price is at 1.3333 completely random see.

I think you will have to agree that price simply does not and cannot do that, therefore random is not a correct usage in your definition.

and so if price is not random. Hmmm.

I feel pretty strongly and I bet I am right 99% of the time that if on a 5 minute chart, price opens at 1.5555, I am willing to bet on this particular 5 minute period price does not reach either point 1.5655 nor does it reach 1.5455 (a 100 pip gain or loss in a 5 minute time frame).

Above is a usesless peice of information most likely- but does prove that there MUST be some sort of PREDICTABILITY somehow.

Absolutely! Why do you think the creators of this forum earn their living by generating advertising income from a forum rather than by trading?

You do realise also, that by doing so, you are basically agreeing with the whole thrust of my thesis?

Not at all. I think there are things about price that can be predicted. Just that simple indicators are not it.

There could be some truth in this.

I would compare it to testing tennis shots as a beginner. If all you tested was a forehand cross-court against an opponent, you’d find that you’d lose more points than you won. Same if all you played was a backhand slice. You could produce a study for dozens of different shots in isolation, only to discover than none of them work consistently. You would, at the end of the study, conclude that learning tennis is actually impossible to do.

Now we know one thing as absolute fact, people make money trading. It’s more difficult to prove that retail traders make money but much easier to demonstrate that banks do. Take a look at Barclays P & L and you will find a rather substantial sum of money accounted for by their traders.

So using the tennis analogy, how can they be doing it? Well it’s surprisingly simple. They aren’t playing just one shot. They have learnt all the shots and mastered most of them. They know which shots to play in the right conditions. They know that if the ball is bouncing high and their opponent has been sent to the left of their side of the court, a whipped forehand down the line to the right of his court with plenty of topspin, should produce a favourable outcome. Using all the many tools at his disposal, he picks out the right one for the right conditions and gets a result.

What am I babbling on about? Well, there are all manner of opinions out there about trading but my deeply held, personal belief is that the long-term, successful and reliably consistent traders are those who have learnt to trade the charts for what they are. This way, they are not relying on the effectiveness of a “system” continuing to work as it once has, they can make objective decisions based on all the information available and their knowledge of price movement. So we know that price reacts at daily highs and lows, sometimes. That support becomes resistance and visa versa, sometimes. That major fib levels are observed, sometimes. That the candles tells us the right information, sometimes. That trendlines offer support and resistance, sometimes. The same for key moving averages. Daily opens, pivots, big round numbers, volume, heads and shoulders, pennants, flags, gartleys. Supply and demand zones. There is a whole wealth of information in those charts that a simple system cannot factor in. So, if you trust all this to a point, assess your higher timeframes, judge the trend, find a key level and then, the most important word of all, find confluence. If you have a confluence of three or more factors that sometimes work, you end up with stacked odds that are hugely in your favour, Your three or four things that sometimes work in isolation, work wonderfully when their collective effectiveness has made a greater sum of the parts.

Have any of your studies even contemplated this? I seriously doubt it and it’s an approach that is far too subjective to ever been properly assessed.

My own journey in trading started with high expectations and then started to descend into the same doubts as you have. Then, I finally “got it” and since getting it, my entries are over 80% accurate. Fluke? Yeah, I could swallow that but as every good month passes, the odds on that diminish rapidly. Far more likely than fluke is that I have actually just learnt how to trade.

There is the reality. I don’t know what your agenda is or whether you are trying to convince yourself more than other people but the real truth behind the failure of most retail traders is that they don’t learn to trade properly and never reach the stage where they can let a winner run to it’s conclusion and stop a losing trade before it even hits the stop loss.

Getting there isn’t easy but you can get there. That most wont, is what keeps the market working the way it does. We simply cannot all win.

Good post,[B] Mystic[/B]

Some extremely long posts are worth reading. Yours is one of them!

Well, speaking strictly for [B]The New Zealand Research Institute[/B], I can tell you that we have never tested any real-world trading scenarios. In fact, we wouldn’t know where to start.

But, all seriousness aside, we did, however, perform the tennis tests you describe. And we have proven conclusively that it is impossible to play tennis.

Absolutely correct. That should be branded on the forehead of every newbie.


By the way, what do the letters in your avatar stand for?

thanks mystic.

No they don’t.

Barclays makes money from market making and cross market arbitrage. They DO NOT take directional trades, unless they are hedging a foreign transaction (which is not really trading, bit insurance). They also make money from carry investing, a form of arbitrage where you borrow money from a low interest paying country to invest it in a high interest paying country, essentially earning ‘free money’.

A common misconception by many newbie traders (not including you) is that trading must be possible because banks do it. What they do not know is that banks don’t trade. They do market making (making money off other people buying and selling, like your forex platform), arbitrage, and the provision of margin loans for investment.

A few tiny rogue banks may practice ‘trading’. They usually go bankrupt within a year which is why you seldom hear of them, except when they go bankrupt.

Every one of those indicators you have listed, have been proven false, both in isolation and in combination.

sounds to me like you are using a stop loss that it four times bigger than your take profit. Am I correct? If so, thats why your system may be 80% accurate, but that 20% loss will cost you everything plus some more.

Well, there is the answer right there for why trading doesn’t work. If a person’s business model is based on competing in a zero sum game, then that is gambling. and gambling DOESN’T work, never has.

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Even if you are right, and I seriously doubt it, these academic researchers also say that not having evidence that the market is random doesn’t = evidence that trading is possible.

Now add in the fact that many studies have shown that trading is impossible.

and you have a pretty bleak picture

Correct, but only in a non-random market.

In a random market, the size of your winners and losers won’t make the slightest difference. If for example, you have a take profit that is 3 times bigger than your stop loss, you will simply, on average, hit your stop loss 3 times for everytime you hit your take profit. Minus 4 transaction costs, and you have a downward sloping equity curve.

ALL studies to date show that same curve.

Then how exactly do you trade??

Yes.

so you should give me an example to disprove me. I have already provided at least one study to back up my claim, why hasn’t anyone else?

you are absolutely right.

Well, there is the answer right there for why trading doesn’t work. If a person’s business model is based on competing in a zero sum game, then that is gambling. and gambling DOESN’T work, never has.

… ahhh… got there in the end :slight_smile:

Well, there is the answer right there for why trading doesn’t work. If a person’s business model is based on competing in a zero sum game, then that is gambling. and gambling DOESN’T work, never has.

Poker gambling works, Good players always take the money from bad players and come out ahead even with the house taking it’s cut from every pot. A good trader doesn’t have to be better than the banks he only has to be better than you.

is forex gambling? LOL all together now… yes it is! not it isn’t! yes it isn’t! no it is!