Trading: On the Long Way to Be a Successful Trader - The Two Very First Steps - page 2

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Zypkin:
chiwing:

HOW EVER THE REALITY tell me that fixed SL distance is better, you can see the top 3 EA of ATC 2008, also using same SL distance

Got your point but I'm damn curious to see how those EAs would be doing right now :)

You are basing your judgment on a reality which is 3 months long.
No need to add anything else.
Heve you ever thought that out of more 700 EA there are for sure some that fit the Market behavior for a short given time???
This doesnt mean they are better than others... they are only a lucky match to the current Market's conditions.
... at least until it is proven that that kind of result can keep going for long long time.

However, this is not the point one should look at.
SL is seldom reason for which a strategy wins... but it can be reason for which a strategy loses!
SL comes handy only when the position is a loosing one... so if your strategy is so good that position always go in profit shortly you could use no SL at all. But we all know that there is no such strategy and that's why we have to keep using SL.

A good idea to check effect of fixed SL on ATC EAs would be to look among the loosing EA and see how many implements fixed SL or no SL and how many variable SL. I expect that you can find in percentage more EAs with variable SL among those in profit than among those in loss.

Anyway, successful EAs are those who can produce a constant profit on the long run, no matter how small/big it is.
When I trade I want to be able to gain profit continuously... not make money today and go bankrupt tomorrow.
That's why one thinks through what he is doing and tries to use some logic. Fixed SL has no logic at all.

A.

yes, fixed stop loss don't logic..
besides, those EA in ATC can't get the top 5, i don't think after 2-4 years they will get better that the top 3~ ~
it's my experience of using/ backtesting EA
 
"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat." - P64 "HOW WE DECIDE"


What I realized was all conventional trading wisdom is "wrong".

I have distilled trading into the following:

 ALL YOU NEED TO KNOW ABOUT TRADING
  • Price either goes up or down.
  • No one knows what will happen next.
  • Keep losses small and let winners run.
  • POSITION SIZE = RISK / STOP LOSS
  • The reason you entered has no bearing on the outcome of your trade.
  • You can control the size of your loss (skill) but you can't control the size of your win (luck).
  • You need to know when to pick up your chips and cash them in.

Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)

You can not control the probabilities of wining or losing.

You can not control your average win size.

The only part of the equation of the equation that you can control is your average loss size.


THE ILLUSION OF CONTROL


"Individuals appear hard-wired to overattribute success to skill, and to underestimate the role of chance, when both are in fact present."

[Langer, E. J., The Illusion of Control, Journal of Personality and
Social Psychology 32 (2), 311-328 (1975)]

FINANCIAL MANAGEMENT


"After a full cycle of rise and fall after which stocks were valued just where they were at the start, all his clients lost money (Don Guyon, 1909).

Many academic works suggest that most managers underperform "buy-and-hold" strategy; persistence of winners is very rare, etc.

Most funds consistently fail to overperform random strategies (dart throwing)."


OVER-OPTIMIZATION

 Rats beat humans in simple games

People makes STORIES!

 "Normal people have an "interpreter" in their left brain that takes all the random, contradictory details of whatever they are doing or remembering at the moment, and smoothes everything in one coherent story. If there are details that do not fit, they are edited out or revised!"

(T. Grandin and C. Johnson, Animals in translation (Scribner,
New York, 2005)


PDF here

The rat will beat you if you do not understand this.

 
Zypkin:
SEBAZ:

Good jobs pals! This is really great.

A lot of people think that trading forex is just trying to make money, without considering really what will happen if you fail to secure what you have made. I would like you to comment on the good strategies to adopt while scalping using the 5, 15 and 30 minutes chart window.

Keep moving.

TONY.


Tnx for your comment Tony.


Well, I'm really not a big fan of scalping cause I think it is "physiologically" dangerous on the Forex Market.
What I mean is that in live trading your plan of gaining i.e. 5 pips can be easily spoiled by a requote of the server.


I'll make you an example:
think you have in your hands the M5 chart of today (I mean actually all the bars that still have not come are already known to you) and you can open your orders knowing exactly every movement of the market.
Now, you want to get the most out of it and scalp on M5 to get profit from ALL the movements... after all you know them already, why you shoulndt get advantage of it? :)

When doing scalping in M5 it's fair to assume that your target are 5 to max 10 pips, right?
So now place your orders, chart in your hands, and let's see what happens.
Well... most likely many of your requests will be requoted, both in opening and closure of the trades and this will result in a disaster.
Remember you have 2 pips spread... add 2 pips requote on opening and 1 pip on closure and your 5 pips profit are gone already!!!
Do you get my point? :)


I think scalping works fine only on the strategy tester where no requote is applied and where transaction are made instantly. In the real world things are different.
One can overcome this with pending orders (which I consider a superior way of trading) and as a matter of fact if you set your openings and TP with a pending order you can be sure you'll get it right. Question is... without your magic chart of the future, do you have a system for scalping that gives you 5 pips of margin for placing a pending order? :)
You see that the question is still open.


Anyway, I strongly recommend not to trade on any timeframe lower than M15 cause this is the minimum for proper selection of SL. I hope I can explain this better in another article. Also movements on M15 are a bit wider and this will allow you coping with requotes most of the time.


Hope this short answer gave you some good idea :)



Cheers,
Andrea



I have RARELY been re-quoted at my current broker, but always was requoted at my other. I think if this is your only reason for not scalping...then you should get a new broker...in my opinion!

David
 
The solution is not in the SL and TP.

Supose that to make a minimal FX trading team with success you need:

Fx is on activity 24 hours a day > We need to stay in it 24 hours a day.

An FX team needs several kind of intelectual capital: management staff, strategical staff, director staff and operational staff. As we will need 24 hours available, we will need a minimum set of four members in each time frame (4 members x 3 time frame) = 12, plus one of each for the backup... we will need 12 + 4=16 members minimum...

Have you this amount of time or effort to invest in FX? The FX as all the investments have your own level of information, the war is on that level, more information, more success.

The first level of MM is at the project startup and in your own conception.
Minimum amount as equity... $5M :) All the rest is food for shark

It's only an appart of a newbie, sorry for the poor English
Luís
 

this is a good article however is the author still around..as I may have some coding questions (which I hope he can answer?)

basically, I want to put as much of this article has to offer into my stoploss, risk money management into my EAs, or even as library which can be use on ends.

I am very impressed by the well-thought of equations, nominal pip values, etc. unfortunately, this article does not come with any codes. so if anyone can lend a hand, really appreciated, and if the author is seeing this, wherever you are, Im here.

 

Great article, @Andrea Bronzini. Thank you very much for writing this up.

It's very interesting to single out SL as the only thing a trader can practically use to turn certain odds in his or her favor. And it provides a practical handle on how to set stop losses. Invaluable and it makes this article a must-read for any trader, I think. I love the idea of using support and resistance levels for setting SL values. But why not using those for TP levels as well?

Am I correct to understand that this article argues that using support and resistance levels for SL will positively benefit the bottom line as it actually impacts the balance of loss vs gains. But TP levels do not impact this same balance?

My second question is then, how to best determine TP levels (outside of blindly optimizing)?  

Cheers! 

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