And emotions and the lack of them.
This was the point I was going to make as well. Also add in that volatility is at an all time low - depending on the pair you might have to hold for 1-3 days to make or lose your 30 pips. That means another 1-3 pips lost on average - so you actually need to have an edge of 58/42 just to break even.
Lets say you have a 60/40 edge - which is brilliant - this gives you 2 winners per 100 trades you make. Given that there is a significant amount of human error (who hasn’t traded on the wrong pair, placed the wrong lot size or bought when they meant to sell once in a while), broker freezes and just plain laziness (sometimes you wake up too late or need to rush somewhere and can’t place a trade) you might be looking at 1 winner per 100 trades. If you place one trade a day at 1% risk per trade, on average you will pick up 2.5% per year for your efforts if you truly have a 60/40 system that stands the test of time (and most won’t).
1 winner per 100 trades??? Now that would be a bad run.
Merry,
I think you have misunderstood his premise. What I think he is saying is that if you took 101 trades and risked the same amount on each then you are likely to end up in a situation whereby you have 51 winners and 50 losers meaning you are left with just 1 winner. Eg, if you were to risk 2.5pc per trade and you had 101 trades over the course of a year then your profit at the end of the year would only be 2.5pc, which is less than an isa account.
I have done several back tests on mechanical trading systems from around 1975 to the present day and all such systems I tested were profitable (had a steady increasing equity curve) until around 1992.
Has anyone else noticed that phenomena?
Interesting. I’d say it’s probably due to technology making the markets more efficient. With the spread of computerized trading, any pricing inefficiency detected by a mechanical system would be corrected much more quickly due to the increased speed of both calculations and execution.
Richard Dennis’ Turtle Trading experiment used mechanical rules and was carried out in the 1980’s. They used calculators and printouts. It’s been said that the rules no longer work.
Jadd,
I suspect the introduction of computers are to blame.
Re donchian channels, I know from my own testing that there is a case to be made from doing the opposite of what one should do. I.e. instead of buying a currency when price touches its upper channel, sell it. And when price touches the lower channel, buy it.
For clarification I tested a 20 day channel on gbpusd and only bought if price had touched the lower channel and was above the 200sma. Did the opposite for selling.
Oh yes I see.
Did it work?
But I don’t want to use any indicators at all.
Today it’s NZDUSD short.
Hi Merry,
Yes my reverse donchian idea was profitable on GBPUSD. I should add that your entry would be the high of the bar that touched the lower channel (if going long) and vice versa for shorts.
I’m interested to know why you’ve gone short on NZDUSD as I have a limit order to go long on NZDEUR at 0.6382! ha My reasoning is that the NZD has been bought since the London open and the EUR sold.
Made 20 pips today selling nzdeur. Went short when price pulled back to the 300ema on 1m chart. Order got filled when price spiked at 1.30pm gmt. 20 pip risk, 20 pip profit target. 20 pips equals half of adr.
CORRECTION: i was long on nzdeur, not short
Loss yesterday, -25 PIPS, running total +45, today it’s USDCAD short.
Hi Merry,
as I look at the chart usd cad continues to fall so you must be a happy chappy? !
I wanted to sell eurgbp but my order never got filled.
Usdcad is a brilliant example of why I think you are on the right course with your strategy and why it is pointless trying to predict the market. Looking at the structure of usdcad today on a 5 minute chart it was bearish in the morning then bullish in early afternoon and now is bearish again!
It was the one that I picked from my 8 pairs, that turned to be a loss, my USDCAD from yesterday is still open, about 2 PIPS short of TP.
Yes, also what I see happen time and time again is that you’ve done all your analysis and you’re pretty much bang on, then the price just decided to hit a big number or something, take you out then go the way you predicted.
I have just this minute gone short on AUDUSD. SL 27, TP 27.
hi, may i ask which strategy are you using to enter this trade?
On a 5 minute chart I look at all forex pairs and compare where price is now (at around 10am) to where it was at 8am. On the assumption that most money is coming into the markets at the London open I figure that if the smart money is buying or selling a certain currency then it is best just to follow the smart money with a wide stop loss.
When I looked at the charts at 9.45am, I could see that price was telling me that AUD was being sold against all pairs and the USD bought against all its pairs. Ergo, sell AUDUSD.
I entered the market when price pulled back to the 60EMA on 1M chart. I was previously waiting for price to pullback to a 300EMA but that can mean you miss out on strong moves as what happened yesterday to me on EURGBP. I see the pullbacks as ‘value zones.’