I thought I'd put in a little blurb here because.. well, I can! I recently tried to get back into the trading game and after some coaching and therapy (not necessarily trading related), I've been keeping my mouth shut more because it keeps me out of trouble haha. I pick a lot of fights people.
I realized that I really want to keep people away from making the mistakes I did, but that it’s not always my place to force that ideal onto others. If people want to donate their money, so be it. Of course, I didn’t come up with all my ideas myself, it came with the help from reading what a lot of other really great (and articulate) people have written over the many many years. Here’s what I have to say.
From a philosophical (logic) standpoint, everyone must understand that the routes they choose as traders have pros and cons. Traders must understand that these should be FIXED. If I trade manually, I cannot complain that ‘I would make money, if only I had a robot’. If I trade with an EA, I cannot complain that ‘I wish sometimes there was an override button’. These are FIXED. Now, I can trade both with an EA, and I can turn off the EA and trade manually. However, EACH trade can fall under only ONE category. Such is the same with how we approach TA/FA.
IF you choose the TA route, you have 2 options, discretionary vs mechanical. These are FIXED. If you trade discretionary, you will NEVER know your true edge or profitability. You CANNOT. Yes, you have past p/l, win rate, charts, graphs, whatever, but the fact that there was no precise moment of trade means that no 2 traders of the same system will make the exact same trade at the exact same time.
If you follow, you’ll understand that when we demand a REAL EDGE from the market, or proof, the instant we do that, we are no longer trading discretionary systems. If you want your edge to be defined, you must do so with math.
I used to think many people were okay with being discretionary traders, that things would just ‘flow’ and they would ‘get it’ or not. But other time I’ve come to see that a lot of traders really just want success at any cost. They want a system that REALLY wins. This means they want mathematically based models. It MUST be. But so many traders are scared of math for some reason. It’s what I call trader hell - the desire to make money, without the desire to put in work into it. This is where almost all true failed traders fall. It is without question. How many traders quit saying ‘yea I tried it but I couldn’t get the hang of it’ or it wasn’t for me, or I realized I didn’t want it that badly, or something like that. How many traders say ‘it’s rigged, there’s no proof, it’s all bs, it’s 100% random’?
I know these traders do not really mean what they say. I know they are mad, but have not really cared about winning, as they wanted justification for their losing. What was that quote? Every man gets what they want from the market? It’s more true with time I believe. I know they do not really mean it because you’ll find that these traders know almost nothing about the market. Truly. There are so many FACTS about the market. Things that if you take the data, do something to it, and count it, are true. People say ‘oh but if something is 60% now, it might not be 60% later’ But just look. If you take 5 minute data from last month, and then you take 5 minute date for every other month this year, and they all fall within expected standard deviation, there is no arguing. It is simple math. I mean really. If you’ve tried your hand at the numbers, and couldn’t find anything, then great. You’ve given it your best shot, and you can at least say you know of things that statistically are random, or have no traceable edge, etc. but at least you have that.
To end, here are some things I think about. Traders:
-do not care enough about math
-do not question things enough to look for answers
-do not understand that any trader HAS to create a model of the market. They may not call it one, it may not be written down, but it must exist.
-do not question the model enough
To be concrete, here are some things I am thinking about:
What makes an MA good?
Should an MA minimize the number of bars that do not touch the line?
Should it have minimum variation in slope from bar to bar? (because MA = 1 is very accurate but useless)
Should it have a maximum number of bars before price touches the MA? (mean reversion strategy)
Should it minimize the time it takes between moving from a positive slope to negative slope? (MAs at trend reversals)
Is it possible to combine MAs without using multiple MAs?
Is there a way to know when price is moving towards the fast MA vs the slow MA?
Is it possible to have a “morphing” MA that slows down or speeds up based on price volatility?