Practicalities and Philosophies of Successful Trading by Goldenmember

Beginner Questions
85

I had to look out what that word meant! A study of factors outside our understanding?

[B]Charting Part 7 - Trends on the chart[/B]

One of the most often heard trading mantra’s is ‘trade with the trend.’ If you are not trading with the trend, then you are ‘picking tops and bottoms.’ Sound advice but it is often difficult to interpret (for very good reason). In fact, I would argue that trading the trend is one of my most hated forex sayings, because it does not really provide any logical basis behind it.

Firstly, when most traders mention trade with the trend, they are talking about the chart trend. If the trend is up, you should be buying, if the trend is down you should be selling. Unfortunately, trends differ depending on the ‘timeframe’ (I do not like timeframes as they are artificial chunks of time, but I am using this as it is a common trading term that can be understood as I don’t want to have to provide another explanation about how I view time - that will come later).

For instance, a 15 min ‘downtrend’ could be within a 4 hour ‘uptrend.’ And that 4 hours uptrend, could be within a daily downtrend. And that daily downtrend could be in a weekly uptrend. Again, we come down to the highly subjective nature of ‘the chart trend.’ Very similar to the support and resistance example I mentioned previously, trader A will say that its a 4 hr downtrend so advise shorting, while trader B will say its a daily uptrend so advise long trades, while trader C will say “thats what makes a market (thats all folks!)”.

Chart trends are a retrospective look. You can only draw a trend from a point in the past to the present. It does not dictate the future. It is even worse in my opinion than price action systems, support and resistance systems, and indicator systems because it cannot be tested on a statistical basis unless you have a set mechanism of identifying that trend. For example, if you are testing whether ‘buying an uptrend works’ you would have to set a fixed criteria such as (if the daily closes over previous daily close more than 3 times then that is an uptrend). If your criteria is “if the chart looks like its 'pointing up” (charts do not point by the way - they are ‘pointy’ because they stop at the present time forming an abrupt halt) then it is impossible to test as the nature is so subjective.

So you might think - so what, why isn’t a wholly subjective method of trading valid? I have no further answers for you if you ask this question, because I think I have written 10 000+ words on this subject.

So, chart trends - be aware of them and teachers/traders/bloggers that talk about them. I do believe in trends, but the trends are not to be found in the price chart of the EURUSD.

On finishing, I am aware that many of my posts are XXXX is false, rather than offering YYY is true, but I have noted that trading is very much a ‘filling an empty cup is easier than filling a full cup - and the old contents need to be thrown out.’

86

Entropy is a concept for thermodynamics, but I guess it could be applied to the Market too, as follows: Entropy is a measure of the number of specific ways in which a system may be arranged, often taken to be a measure of disorder, or a measure of progressing towards market equilibrium. And this equilibrium is mostly uncertain and hard to define.

87

And what is your point mate? Now we know what is not good for trading (almost everything) in your opinion. Can you ofer to us, what is solution to be profitable trader like your self? If you don’t use indicators, don’t use trend, don’t use support and resistance, dont use price action, don’t use fundamental? And have fantastic trade results. Who are you, what you are?

88

@goldenmember
Very interesting posts, I had not posted so far but am reading and looking forward for the developpement! ^^

@rammar
I don’t interpret what Goldemember wrote that way. He is not saying to get rid of all that (indicators, PA, S/R; etc…). I am lazy to pull it out but he made a post about indicators which was in the favor of their use if I recall well.
He is saying to be careful how we interpret them and not to give too much weight to them when taking our decisions; and definitively not give too much weight to few of them (which would also mean ignoring the others). This is opposed to saying for example that “PA is all what you need to trade” or “fundamentals are the only real truth”. He has a balanced view on these tools and he is careful to not give them more meaning than what they really are. He explains how people focusing on few elements can see opposed things on the same chart and both be right (partially right actually).

At least that is what I understood :smiley: (correct me Golden If needed)
So far I share that point of view. I would not have been able to express it so clearly tough, I am too young of a trader probably :smiley:

I dont think he can give us a ‘solution to be profitable’ as I dont think copying what other people do is a solution, and I’d say you cannot copy what other people do correctly. Now I think we are all curious to see what is his system and how it will be in phase with what he said before.
Personnaly I am curious to see if his system will have similarities to mine, and if I have been more or less going down the path he took before.

89

Hi, thanks for your insight and information.

[B]First question:
[/B]
You said: “even if you have a 75% win rate system with a 2:1 reward/risk ratio (which no one I have ever seen has achieved) it will still eventually blow up given enough time. If you trade 50% risk on that system it will blow up very quickly. If you trade 1000 times per day, it will blow up in a matter of months . . . all systems have finite lifespans in the matter of trades that are rapidly shortened by trading many times per day or by increasing risk per trade,”

What should we do after knowing this fact?

Do you suggest we take less trades?

[B]Second question:
[/B]
You said: “Despite systems repeatedly having an edge over the market, single systems or techniques are short lived and need to replaced to maintain an edge”

Could you please explain why?

Is this because “all systems have finite lifespan in the matter of trades” mentioned in the question one? (I don’t think so, but would like to know your explanation).

Thanks in advance for your reply!

90

Hi Goldenmember:

What is your entry signal for 3 Ducks when backtesting:

Did you buy when 5 min candle crosses above 60 SMA only?

Or did you buy when 5 min candle crosses above 60 SMA [B]AND on a break of the high [/B](as indicated in the original system)?

Thank you!

91

  1. You never use S/R?

  2. If you do use S/R, please tell me when, and how.

Thanks again for your insight!

92

How do you find the trends?

Are you going to talk about it (the way you find the trends) in a future post?

93

Quality thread

94

@rammar, I did not say that SR was useless, PA was useless, fundamentals are useless - Orpexo (thanks!) summarises what I said quite well. Technical methods have limitations (as do all methods) and its important to match the technical limitations to appropriate money managements through statistical analysis of your trading. There is no ‘holy grail prediction’ or ‘footprints left by smart money.’ These things don’t exist (in my opinion).
@beijin -1. All systems with set parameters fail after a while - you should base your trading impartially on statistics of methods/or your own trading and use probability to find the lifespan of your system. Trading less risk will increase the lifespan.
2. Single systems work because they are ‘curve fitted’ or happen to fit ‘the curve’ through survivorship bias in the markets current parameters. These parameters are under constant change. Single systems can work, but they need constant adaptation. Some single systems can work with no adaptation but they suffer a lot of drawdown for their gains.
3. My 3 ducks EA was programmed with breaking the high of the last X candles - its an imperfect way of doing it, but it generally works well
4. SR does work, but the way that it is taught I think is incorrect. I will probably talk about how to find it later although my writing has slowed down a lot.
5. Trends are based on long term investment into and within a country not 3 green candlesticks

95

@goldenmember, maybe I was a litle to hard in my mail, but I expected your summary after your long explanation what we do wrong. If your explanation is ofer for a new trading programm I am going to leave this thread.

96

You have some interesting points, even some I haven’t considered in quite the way you discuss them. Some of your points however I do have some issues with.

For instance, have you considered when trying to ascertain how well retail traders can perform, that the retail traders with more capital and usually more skill, may not trade with the retail forex brokers but rather with futures brokers, and therefor their accounts will not be seen in for example myfxbook since that’s pretty much only for retail broker accounts?

Secondly, I’m curious to know exactly how you define support and resistance when you find that it is fairly much a 50/50 thing. It may well be if you look at it hard and fast and expect price to turn exactly at this or that number. But if you instead have some patience and watch price as it interacts with the S/R zone, it becomes quite reliable as price almost always shows its “hand” after a while.

In my five years of trading I have found supply and demand to be the absolute key to consistent and profitable trading, but certainly only when used correctly. Have you happened to come across Richard Wyckoff in your readings? If not, it may change your views.

I enjoy your insights a lot, so please keep them coming.

97

The problem with trading is that ‘no one single person’ can be skilled enough in every area of analysis to warrant all their opinions to be correct. So by one person discounting one approach and then suggesting that another approach works better has to be taken with some salt.

It’s their opinion and their thought, how we (or others) want to ascertain these comments is and should be with descretion.

98

Very impressive writing and I understand the vital points you are making.
However with all respect I cannot get around that the essence and extract of your posts/articles is to
outline the importance of statistics in trading. Which of course is undeniably primary objective in trading but only
part of it and not the whole package.

Do I make sense?

Cheers

99

this is probably the best most objective cool clearheaded thread i have ever read on this or any other forex related forum (not that im years into it).
I totally agree (if i understand correctly what you’re saying) even if i think im far from the statistical genius you are and definitely less educated on the matter.
The fundamental flaw and risk of technicals is they never take into account the period you’re trading in. And im not talking timeframes or timezones or exchange-crossover zones, day or night.
I mean all of these systems, without exception are based on the raw numbers taken over all time, not taking into account wether it’s , say, 1995, 2008 or 2013. Wether there’s what’s known as emerging markets leaving a mark on the global picture wether china is on the rise or not, wether the us government has a debt crisis or not. They look at numbers only and take from that how likely a given move is at any given time.
This just has to be flawed somehow, or at least lacking (beyond the proverbial omega point i read here a bit above).

Basically, what im trying to communicate in my own laymans terms is that any kind of accepted system or indicator should be labelled with a certain kind of probability of being applicable to a single currency pair at a certain time of economic situation in order to be more likely to have more success (does that even make sense in english) since this generalisation somehow (and i cant calculate that) feels like it decreases the probability involved. Maybe its not even possible to say how less likely a system or indicator is to point in the right direction given any kind of situation involved, sadly, im not a mathematician, maybe some of the more prominent experienced people could put a few tags on that but i think the omega point is an issue here again (yay i learned a new word)
Personally i use almost nothing but general trend for my pair and sometimes fibonacci looks a bit like eerie magic. Like eg the usd jpy been ranging at the 23 level for months after it got back up but thats about it. I also totally agree that retail traders as a whole probably dont even make a serious dent in the daily movement. You obviously have some serious insight in all things there mate, im looking forward to reading more

100

ill make this the final post i do here since i wouldnt want to hog a thread so fresh as this one but at the risk of repeating part of what i said in my first answer (take into account that im in this for no more than a year dont have a huge capital to work with)
I dont believe a system that is profitable in all circumstances is possible unless it includes an a.i. that can react to real world events and inject those. I have only taken a brief look at mql but i dont think that would be possible. I also feel that <b>if</b> it would be then from all these thousands of people being in it for all these years its somewhat likely at least one working system would have been invented by now and it would be sold for a sht-load of money. Since i havent found one ill stick to my guns and say it doesnt exist. Adaptability is a key factor imo, not looking for the holy grail to make money while sleeping (im not saying that is what you or you are doing, i am saying a lot of people i read seem to be looking for that)
Also, final, i personally think its not a good idea to have a set target for monthly or weekly increase since it might affect decisions. Its probably (imo) better to focus solely on what looks like a good opportunity given everything you know and learned so far from every possible source you had which means month a will yield more according to circumstance and month b will yield less, nothing or loss.
For instance if i take one of my accounts i had the best month in august. Looking back i think this is because i felt more comfortable placing more trades than usual since volatility tends to be less during the last summer month (for that pair) and theres less risk of spikes. Came september i put in less than half the number and i had about 1/8 of what i had in august, holding back to see where it went after summer, expecting it to jerk around a lot more (which it didnt). Come october im left with 3 times what i had in september, most of it in the period <i>after</i> the us government was done headbutting since during that time i didnt really feel like taking a lot of risk up or down. No set goal, no loss either.
As for chart reading i dont bother with hangmen or headless shoulders or horsemen either. Like mister member says all you get there is retro-information. Theres a few probabilities i <i>think</i> i notice like for instance if after a weekend the pair has moved up or down x number of points it tends to retrace more often than not back to where it quit on friday for around x/2 maybe during the first hour of sydney but thats about it and the x/2 is more like an approx. even. A trade then and there could be good for maybe 10 or in best case 20 points but theres <b>no certainty</b> that it will.

as always, pardon my jargon, im not very good with expensive words but i think what i meant to say should be clear

101

@Ranmar - I am not going to provide a quick summary of what to do to trade well because it doesn’t exist. I’ve already explained a lot of things that will help in your trading, and thats what I am going to continue to do.
@o99 guy - I’ve spent some time in S/R. Yes price interacts in those levels because there are no doubt orders there (both buys and sells). However, you and I are interested in profiting consistently from those levels and there is only a tight edge from profiting vs losing at those areas unless you have a directional prediction (and no, the higher timeframe doesn’t give you it). I’ve taken a look at Wykoff, and I don’t find his concepts useful or practical.
@ixs and kasravi - thank you for your words
@orpexo - you’ve disabled your PMs

102

Sorry, that should be corrected now ^^

103

good read. i like it

104

Charting Part 8 - Other predictive indicators

There are many other predictive indicators that I have not covered. This includes volume, moving averages, pivot points, trendlines, fibonacchi lines and many other trading tools that some traders use. With all these tools before you look at them you need to make sure that you understand what benefits and advantages they give. I have looked at many of these indicators, and from my experience I have not found an edge in them. Although anecdotally there are examples where volume and trendlines “work” but there is not the level of consistency where they are able to turn a consistent profit.

I could go on at length about my findings or the reasons that certain indicators do not work or are not reliable. Ultimately a lot of these indicators and chart tools rely on a convincing story behind them - for example, someone PM’d me to ask me my opinion on volume. I have read up on some traders using it, and using volume is used as a marker for ‘smart money’ hiding their trades. My opinion on the effectiveness of volume for instance is that it cannot be reliable for a retailer because the broker volume is significantly different from the real market volume even if you use an aggregated feed. There are also various other reasons why it doesn’t make very much sense to me.

The same can be applied to trendlines - for instance some people assume that a trendline will give after the ‘third time.’ I’m not quite sure why someone would even go to assign a logical explanation for this apparent phenomenon, but the explanation borders on the improbable and I do not use methods that I find illogical.

A popular trading tool is the fibonacchi tool (which was used to model rabbit populations), and many traders use the 38% and the 61% lines to trade with. Often it is in conjunction with a line of support and resistance or a pivot line, perhaps divergence, RSI, or another chart tool. As I recognised it the 38% or 61% ‘pullback’ was a mathematical event where an exponentially growing population (such as rabbits) would die off and then repopulate. That requires traders to assume the same in their trading - that the value of the asset they are buying or selling is going to exponentially grow like a warren of rabbits. If you put it down to plain English to someone who never traded before - it does sound slightly ridiculous - you are going to buy Euros at the 61% fib because a mathematician calculated that a rabbit population grows in a certain way.

I have noticed also that traders have extended the fibonacchi lines and now use 50% and 78.6% as well as the 38% and the 61%. In essence if someone is teaching ‘fib’ retraces they can’t be wrong - because if there isn’t a pullback at 38%, there is a chance at 50%, and another chance at 61%, and another chance at 78%, and at 100% of course there is a double bottom. Of course you are going to get a retrace off ONE of these lines, but is it random luck or is there a real edge? Before you waste any time using this tool (which I use for measurement only not placing orders), test it and see whether it really benefits you at all - I have my own results. For instance you can look whether one of the fib lines has any more reversals off it than the others - the result might surprise you.

So, I have ended up badmouthing almost every trading tool out there - because I feel they are used in the wrong way - there is a right way to use them in a technical trading method (which I have mentioned already) and in a way to help illustrate your charts (which is another way I will come onto).