What exactly IS a trading method/system?

Beginner Questions
1

I have seen many, many trading methods and systems promoted both here and elsewhere. And, according to the posts from many others here, I am not alone in this.

Some swear by Price Action and others by Indicators, some by automation and others by discretionary. There are, perhaps, as many systems and combinations of methods and indicators are there are years in the history of trading itself.

Since this is a primarily Newbie-biased site, I thought maybe it could be useful to discuss what actually is a method/system for trading?

As an analogy, one could collect a vast range of cars at the top of a hill with a finishing line at the bottom and a deep ditch either side of the track. The cars lined up are everything from a lamborghini to a Rolls Royce, from a range rover to a 1960’s VW beetle.

If we push each of these, driverless, off the top of the hill, which is most likely to hit target or end up in a ditch?

Then, if we place a driver in each car, which is most likely to hit target or end up in a ditch?

What I am asking here is, what is more important, the driver or the car?

Can a great system compensate for a lousy trader? or can a good trader survive even with a lousy system?

Which is the more critical, trader or system?

Which can be improved easier, trader or system?

This thread was actually inspired by this post on another thread:

“Which broker or where can I get Autochartist software with zero delay in live data feed for free on demo platform?”

I thought, all that is missing is the “live account” and “automatic filter of losing trades” and we could all retire! :smiley:

When I first started technical analysis I deliberately drew my charts by hand on graph paper - it was a laborious and educational process! One really understood where we were after that!!! Now we want it all upfront, instantaneous, and pre-analysed…

So what IS technical analysis really about? Is TA more intelligent than the reader or is the reader an interpreter of what the charts are merely showing?

So who is the robot? The system or the reader?

What do you think?

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2

Hi Manxx

I think the driver/trader is more important than the car/strategy.

A profitable strategy is wortless in the hands of a poor trader and a profitable strategy wont turn a poor trader into a good trader.

On the other hand, a good trader with a poor system will eventually succeed because a poor system in the hands of a good trader will eventually become a profitable system. Thats assuming the trader is allowed to make adjustments and turns the strategy into his/her own strategy. If it becomes his/her own strategy, and he/she is a good trader, the strategy becomes a good strategy by default.

You dont become successful by having success. You have success by becoming successful. So instead of trying to find the right system/strategy in order to become a good trader, we should strive to become a good trader first. A profitable system will follow.

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Brilliant! :slight_smile: :slight_smile:

That is exactly what I was getting at. (I am always amazed how intelligent people manage to say in a few concise words what I try to clumsily chew out in about 10,000 words! :smiley: )

This issue is a bit like the old saying that, " give a person a fish and you feed them for a day, but teach them to fish and you feed them for life".

Getting back to the car analogy, it seems to me that very often a newcomer to forex starts by seeking out a “good” system from amongst all the internet videos and forums and then goes away and tries it on a demo, when it doesn’t work they jump to another…and another and another. But how much do they really stop to analyse the market and product itself and what the method is actually saying, and -even more important,- what are they learning about themselves and their trading skill?

It reminds me of driving with a navigator. How often does a navigator tell you to turn right or left when there isn’t actually a turning there? Do we anyway faithfully and blindly just turn off into the ditch? No (well, maybe once! :D) But isn’t that exactly what a trader is doing when they blindly and rigidly and faithfully follow the rules of the method without applying that “something” extra that tells whether it is actually sensible or not?

What I am interested in is what is that "something"? What is it that makes us capable of driving the method rather than the method driving us?

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If you study 100 profitable traders in search of that underlying “something” that makes them successful, you will find 100 different strategies as a result of 100 different perspectives. Some strategies and perspectives will appear very similar and other strategies and perspectives will appear totally unreconcilable. It will become very clear that in the search for that “something” extra, strategy is the 1st variable you can cross off the list.

Somehow, regardless of perspective or system, successful traders manage to identify a proven edge by approaching the market in their own unique way. The important factors are that the individual approach each trader takes has to make sense to the trader and has to render a statistical edge.

If this statistical edge is applied with discipline, consistency, and an emphasis on risk management, profit will eventualy follow.

Proven edge + discipline + consistency + RISK MANAGEMENT + hard work = that “SOMETHING” extra.

Thats my theory :slight_smile:

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According to me; you can’t expect a good result from a wrong trading system or plan! Besides, low skilled Forex traders also would be unable to make a decent trading result! Only professional traders can make money here! In order to your thread, driver & car both are important!

6

Thank you PanchoVilla and Luke_Ronchi! We have some useful material here already!

I agree with that but it is quite a generalisation and we need to know why this is so! This is what we are seeking here. We need to expand this a bit. The fact that you mention “profitable” traders means that there are many different ways of achieving consistent success in trading. This may be partly due to many of those “successful 100” trading different markets, but there may also be many trading the same market, but in different ways and yet with success.

What we are surely saying here, then, is that successful methods are actually bespoke tailored to the trader and not a universal one-size-fits-all off the shelf method? And that this is more dependent on the nature of the trader rather than of the market they are trading?

Here, we are suggesting the same point. If a system//method is good why is it that a low skilled trader still couldn’t make a decent living from it? We are concluding here that the input from the trader is indeed critical to the successful application of a method? But why? What is this input? This something?

Again. I think you are right, but what do we mean by a “proven edge”? How can several successful traders approach the same market with their own individual “edge” and yet still all make consistent profits? It clearly is not something unique and solely embedded in the market itself. It must therefore also be in the trader.

But if that is the case then why do we bother applying S/R lines, MA’s, indicators, chart patterns, trend lines and so on to our charts? Is not this “edge” actually some kind of a partnership between the trader and his chart?

What I mean by this is that does it matter what we put on our chart as long as it is fulfilling a certain function that the trader has previously defined and requires from it?

By way of example, if I start a thread and state that “I have made 10,000 dollars from this system and about 30% p.a. ROI. It comprises these two lines and this indicator and I am going to share it with you all”, then I am sure the next few posts would be "thanks, “can’t wait”, “looking forward to it” “can you post a chart” "what values are you using " “can we see your FXBook”. And I’m sure a lot of people will immediately go and set it up on their demo and start trading it. Why? Because someone said that are making money from it!..But we have just agreed that it is the trader that makes the success and not the method!!!

So, if you are interested in exploring what is an edge, maybe we could try an experiment:

Here is a clean 4H chart of EURUSD for the last 2 months and I want to apply an MA. I invite all of you to make a suggestion what MA you would like to apply and the reasons why, what do you expect it to tell you, and how you will use that info. There is no right or wrong answer here as we have already “proved” above. The edge is not so much in what it is but why it is there…maybe?

4H EURUSD.png1651×921 28.6 KB

7

I still firmly regard that the most profitable, efficient and self-controllable trading ‘system’ finds the trader. At some point we all find our neiche approach, the question though is how long will you wait to find your agreeing neiche. As ever this brings us back to the learning curve.

There are as many trading approaches as there are traders, but until you find the seldom approach you’ve not progressed passed the learning curve, right? This explains by one reason, of perhaps many why this is an incredibly hard career to prosper in?

This is not easy, don’t let anyone fool anyone here!

I still feel I personally want to be in and out of trading asap. Moving onto far more stable investments, of which trading is not. It’s pure speculation at best.

This then brings me back to the most pressing question:

What amount of money would you have to make in order to close the door on this industry and move onto an industry where you can invest in (not speculate) tangible assets?

We have no assets in this game that appreciate, we have no real underlying value, we just speculate. We are gamblers of the truest nature [using risk management as a way to justify everything]. Don’t be fooled. We’re not buying or selling anything real. We’re speculating on a line on a chart. There is absolutely no intrinsic value here…

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You bring up some great points Manxx.

  1. I agree 100%

  2. Absolutley. 2 traders can trade the same market at the same with 2 different methods that are radicaly different, even to the point of being contradictory, and still have success.

Peter Brandt made a similar point in an interview when asked about the importance of a method/system. He brought up a case where 2 successful and well known traders were trading the same instrument. One was a fundamental trader that was very critical of technicals and the other was a technical trader that completly ignored fundamentals. Both traders had fantastic success trading the same market @ the same time.

  1. Exactly! There is no universal way to analyze and interpret the market, and consequently, no universal right or univeral wrong way to analyze and interpret the market. A trader must develop an individual approach, analysis, and interpretation to the market, in his/her own unique way that makes sense to that trader, even if it doesnt make sense to anyone else. The long term results will determine if the traders method was right or wrong

  2. Yes. This is why it is very difficult for a trader to simply copy another traders profitable system. That profitable system wont be as profitable if you remove it’s originator from the equation. The perspective, logic, intricacies, etc, that make a profitable system profitable will all be missing from that system.

Instead of SEARCHING for an existing system, traders should DEVELOP their own system.

  1. Once again, I agree. It has to be the trader. Thats the only logical conclusion given the facts

  2. Yes. Its the individual/unique analysis, interpretation, and consequent conclusions a trader arrives at when looking at a chart that matters. The sum of these factors exists only to the individual trader, and are not universal, may or may not be similar to other traders, and might not make sense to anyone else.

A trader must be able to identify a verifiable edge that exists within the framework of his/her own individual analysis.

And by “edge” I mean a well defined method that exists within the framework of a traders own analyisis, that is systematic, repeatable, and capable of identifying opportunites, entries, exits, etc, that render a consistent profit over time when executed with discipline, consistency and with a strong emphasis on risk management

  1. Yes…without question. Its the trader and not the method
9

Right on. Thats the only logical conclusion

10

[quote=“RISKonFX, post:7, topic:107339, full:true”]
_I still firmly regard that the most profitable, efficient and self-controllable trading ‘system’ finds the trader. At some point we all find our neiche approach, the question though is how long will you wait to find your agreeing neiche. As ever this brings us back to the learning curve. There are as many trading approaches as there are traders, but until you find the seldom approach you’ve not progressed passed the learning curve, right? This explains by one reason, of perhaps many why this is an incredibly hard career to prosper in? [/_quote]

Sorry, but I totally disagree with you here !

This is the whole point of this thread - that we shouldn’t just blindly try a bit of this and a bit of that until one day a “system” happens to find us. That is precisely the “off the shelf” approach that almost every newcomer here on BP seems to take.

One has to make the effort and really understand what a method/system really is, and in particular what its individual components are, and how it helps us. It is a box of tools. You should pick the tools you want in it because you know what they are capable of and what they are used for and you use them skillfully because you have learnt and practiced with them.

[quote=“RISKonFX, post:7, topic:107339, full:true”]
This is not easy, don’t let anyone fool anyone here! [/quote]

Has anybody here said that it is easy? Why do you want to say this? And nobody is trying to fool anyone here - why such a negative insinuation?

[quote=“RISKonFX, post:7, topic:107339, full:true”]
I still feel I personally want to be in and out of trading asap. Moving onto far more stable investments, of which trading is not. It’s pure speculation at best. [/quote]

Strange contradiction here, James. You seem to be insinuating that somehow “speculating” is sordid and wrong and unlikely to succeed - and yet you obviously anticipate making money from it in order to “move onto” some other form of investing.

Speculation is speculation regardless of the vehicle. The fact that it might appear to be less risky does not change the fact that it is speculation. If you buy a property that you do not need and rent it for profit, you are speculating that your rental income will exceed your running costs and changes in your property value. There are many big companies that have lost fortunes on property speculating.

Trading is nothing more than buying something lower and selling it higher. The fact that we do not actually own the underlying product is irrelevant here. We are buying and selling “betting slips” based on a analytical assessment of a future direction. This is only pointless and rash if the market is totally irrational and random. But it is not irrational and random - it has an underlying asset that is moving in accordance with the changes in the majority swings in buying and selling that asset, whether it be trade, investment or speculative positioning.

But it is erratic - and that is the problem that makes trading complex. It may not be random but it certainly runs into a lot of turbulance from time to time that throws even the most experienced traders off course!

But that is the whole point of this thread - not what we do with the money when we have made it, not when is the best time to quit and get into something safer, not whether trading/speculating is immoral, unethical and/or just plain stupid. But simply, if we are going to trade then how should we learn it.

But I would agree that it certainly is plain stupid if you do not really understand what you are doing and why -and since a method/system, TA or otherwise, is what all traders use in order to be consistent then it makes sense to investigate what constitutes a good system, how can we develop one, what does it actually do - and, maybe most important, what is my role as the pilot of my method/system.

Any wannabe pilot who takes off knowing only that he should keep his plane level and above a line that reads “horizon” is not going to get very far before he’s crashed out.

No matter how negative one feels about the chances of success with trading one is not going to stop people from trying as long as the regulators allow it. It is far too easy for many people to get sucked into this who shouldn’t be anywhere near this kind of business, are totally unsuited to it, have entirely the wrong conception of what to expect, have no idea what they are doing - and are losing money that they cannot afford to lose and doing irrepairable damage to the lives and families.

But if they are going to do it, then I feel it is worthwhile trying to open their eyes as to what it takes and what work has to be done and what should be taken into account - and I hope that we can achieve something along those lines here. That is really all this is about…and it would be valuable to hear your input to this, too, as one of the few seasoned traders here…but maybe you are right and this type of thread is a complete waste of time - and it does take up a lot of time!

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So no takers on applying an MA to such a chart. The objective was not to see who gets the “best” answer. The idea was to explore why we use MA’s, what they tell us and how are they useful and what is their role in our overall toolbox.

TA is a strange thing and produces many false understandings. For example, we have all heard people boasting about they only use naked charts - and then they post a candlestick or bar chart with no indicators. But in fact timeframes are themselves only an irrational division of a continuous price stream broken up into segments for analysis.

The function of a higher timeframe is simply to smooth price action such that the movements within the selected candle or bar is “hidden” - that is also a form of TA. A daily candle shows only the high, low ,start, and close. An hourly chart of the same day shows the same period broken into 24 segments each with its own H, L, O, C.

Therefore the choice of TF and the selection of appropriate tools for that TF is very critical to its success in meeting our own trading desired style.

By way of example, here is an 8-hour and a 5-min chart of last Friday’s EURUSD - (i.e.the three candles between the red vertical lines on the 8-hour chart and then the same candles broken down into three periods on the 5 min chart) I have placed the same 8H 5-period EMA on both charts. The MA on the 8-hour shows some kind of relevance and value. But the same EMA on the 5min chart is of no value to anyone.

Maybe that is obvious but it is valuable to understand the relevance and relationship between your choice of indicators and the TF you wish to trade withing. Nothing in TA is absolute, it is all relative -but to what and how do we use that.

EURUSD 7.7. ex.png1670×922 43.1 KB
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I would argue that there are levels to strategies. The most optimized of which consistently outperform the rest. Developing such a method sure makes “becoming a trader” easier.

The mentioned theories are popular misconceptions. The real issue is the psychology behind your not wanting to test everything you come across because you know that level of optimization will demand years of your life. This is what leads traders to look for alternative reasons for there lack of success. Ironically blaming their lack of discipline as it pertains to following a plan. Instead of addressing the lack of disciplining pertaining to strategy development.

Simply putting things in the proper order. Develop a sound strategy and then develop the discipline to follow it. This seems obvious to me and I’m not sure how you could do it the other way around. As I said, levels to this game. Your emotions go nuts when applying a sub-optimal strategy, profitable or not. This is actually part of my assessment when taking on new clients. I make sure this belief hasn’t rooted itself into my students. It really is all about the operation, the method. Performance psychology is something professionals have to worry about. Amateurs are more concerned with rigorous practice to develop the proper technique. Acting like you have professional trader issues to deal with is not going to make you a pro. You need to pay your dues. Not everyone makes the cut either so don’t think this is something anyone can do. It takes hard work and dedication just like any other professional sport or highly competitive profession.

Just because you are unable to push yourself beyond a certain point, doesn’t mean your theory applies to everyone. If you’re reading this and are confused about what to focus on, trust your instincts. Independent thinking is a required skill, It is a skill because you have to make a conscious effort to make sure you’re processing the information for the proper amount of time and with the right amount of energy. The ability to prioritize effectively is also required. That too is a skill because you must dynamically allocate your time between projects. You must have an impenetrable resolve.

If you don’t meet these requirements your time would be more efficiently spent pursuing another career. Theres no shame in that. It is what it is.

13

This step is precisely what this thread is about! but a step that everyone skips over so lightly over.

Sure, psychology, money/risk management, etc all play an extremely important part in trading - but what I am trying to investigate is the “how” when it comes to designing and evolving one’s own trading method/system.

Seems everyone has a lot to say about how hard trading is and how it depends on this that and the other - but we are trying to achieve something concrete here about how a newcomer can go about developing a method through understanding what their charts are actually all about and thinking about what they put on it and why, without going through the mish/mash proces of try this/try that, buy this/buy that.

So far, nobody has even started on that process here…and maybe I am not so very surprised about that…

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Absolutely correct - speculating is highly unlikely to succeed long term. We just need to look at the success rate, don’t we? This is noting new. I’m not suggesting that money can’t be made here, at all actually, but I for one would much rather invest, not speculate, in real assets with zero leverage. A real difference between betting on a derivitive and taking ownership of an asset, perhaps?

This is very true, yes you are speculating to a certain degree, but, a house is not a derivative - and assuming you have no mortgage this means you have no leverage. What I take financial comfort in, and the areas I move into later down the line should really in no way drive the direction of this thread, and I hope they don’t! However, as previously said, I most definitely will shift my focus away from speculating on derivatives [unless I want to speculate with with zero leverage].

Can’t disagree with this, and I hope others listen to this advice as and when it is perhaps produced.

I don’t really think others will start to lay down a process, predominantly because, as you’ve hinted at, they don’t know themselves? Remember, there are only a a handful of active ‘seasoned’ trades here - of which I can easily count on a single hand. It’s slim pickings to get quality advice all in one place!

I didn’t say this, in my above post? I did say “there is absolutley no intrinsic value here” - but this was in reference to speculating, not to your thread, haha

15

RISKonFX
I don’t know why you are bringing up all this stuff here on this thread. It really has nothing to do with the idea of discussing what constitutes a good method and what kind of process one can go through to achieve it.

It really is irrelevant what you think personally about speculating, it is what people here want to do. Nor is it relevant what you personally intend doing with your money when and if you earn sufficient.

I also think a handful of seasoned traders is more than enough to get things rolling here - but, as usualy this site produces nothing concrete in terms of input from such people except from Clint and Lexys. Apart from that it is just negativity and the same old regurgitated and re-regurgitated waffle about “must have discipline”, “must have risk management”, “must have an edge”, " must have a method" and yawn, yawn, yawn.

I am beginning to suspect that many, even those that claim to know something about trading, actually have no idea what these cliched terms really mean in practical application. Maybe these people have simply picked up a lot of terms and concepts and become proficient at throwing them out here and there jusdt to sound clever. Of course, as you yourself would say, I am only talking in general terms here…

It also seems to me from our few encounters that you are far more interested in generating verbal swordfencing that contributing anything concrete - oh well, as I said, I didn’t really think this would get anywhere anyway, I really should know better by now…:slight_smile:

I think we both have better things to do than this. Well I have anyway…

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Good Luck Manxx - it is what it is.

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No it is not. It is what YOU, and you alone, have turned it into.

You are offering nothing positive here and nothing that is remotely connected with the topic. Why do you do this?

Your cynical destructive attitude is surprising since you claim to be a sucessful trader. Are you afraid of others learning and doing better than you have?

All others here have contributed to the theme and you have simply splashed mud all over it. As you might yourself say, “Not cool”.

Might be better if you find another sandpit to play in - or is it that you find mine so attractive that you just want to mess up the sandcastles?

we are all on the same side here, seems you never really understood that…

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But go ahead and throw your last word here. That is what makes you feel so good, isn’t it? That last clever word?

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Well, it didn’t take long for you to dig out the childish comments, really.

As I said before, good luck and it is what it is.

20

I didnt respond @ 1st because I rarely use an MA… but i’ll give it a try.

200 sma
60 sma
15 ema

The 200 for a long MA
The 60 because its a 2 month chart
The 15 because its 1/4 of 60