# How much analysis is enough? Does complexity equal profitability?



## tech/a (16 May 2008)

*You know I've got to hand it to some of those posters here.*
Motorway/Waves and the likes.
Their in depth analysis is second to none---well none here.

But my question to the populace is as the topic says.

While someone like Frankie D's analysis looks complex it really is very simple once learnt.

So to is VSA.
Correct use of conventional T/A is also simplistic when applied.
Even the canned trading methodologies with Advanced Get for Elliott Wave enthusiasts (XTL with trend,Type one buys and sells.type 2 buys and sells) are all quick and easy.

The bottom line is finding a profitable trading method and to my mind one which can be adopted and traded with the least ambiguity.
We all have better things to do than spend countless hrs pouring over charts,frustrated at conflicting opinion and analysis.

Simplistic trading can and is being practiced.
So how much do people really think they need to know,to be profitable?

I pose the statement that its more to do with knowing what we *DONT* need to know than what we need to know!
How many suffer from analysis paralysis?
How many actually find that after a great deal of analysis they feel that they are really only GUESSING?
How many feel they are on this never ending journey to find a profitable way to trade without actually knowing what it is they are looking for---stumbling from one idea to the next.
Looking for that edge but not knowing what will give it to them---even worse not knowing how to apply ideas to give them that edge.

Is there only a handful of true isms which when applied correctly will ensure success?--OR are there countless ways to succeed in trading---all vastly different.
Is there a common thread with ALL forms of APPLICATION of analysis regardless of what that analysis is---technical and Fundamental?


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## wayneL (16 May 2008)

My swing trading method is embarrassingly simple, almost offhandedly so. In that sense I will go right along with what your proposing here.

But on the other hand, I've stared at enough live charts to have developed a "rich mental map" that TH has mentioned before. So in that sense, it could be possible that I'm subconsciously analyzing more than I think I am. Probably certainly true as I have to like "the pattern".

But back to my first point, I have always been more profitable with KISS principles. Even when I first started off and knew SFA, just the few market truisms stood me in good stead... use low risk entries, cut losses short, lets winner run, use money management.

Here are my expectancy stats on my swing trading (ex option trades and day trades) since I've been in the UK (about six months):




That's a lot better than normal and has been helped by the increased volatility, but with just a very basic swing system using 30 minute bars.

Cheers


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## MRC & Co (16 May 2008)

I agree.

The more I analyse, the worse I do!  It's one reason I have grown to love simple, traditional T/A.  

I have gravitated towards as Nick Radge puts it 'micro patterns', not having a definition for them myself, I traded them and just thought of them as simply traditional patterns, but far better for shorter term swing/position trading, lower risk entries and many times, easier to see I found.  I also like clean and easily observable chart patterns, not ones in which ambiguity lies and imagination is required, as per many patterns some people apparently see in the charts.  

No offence to EW followers, but this is a reason EW has never caught my attention for longer than a couple hours at a time.

As Wayne stated _"use low risk entries, cut losses short, lets winner run, use money management"_.

I would say the same criteria, except to add cut initial losses short and learn where to exit as the trade advances in your favour, whether that be using gaps as support along the way, past resistance turned support levels, swing stops, or even a MA.  This is where it becomes more complex, depending on what the market environment is like at the time (volatility, trending etc), but is still relatively simple if understood.

I think many traders, using varying strategies, can apply the same principles, without even knowing it sometimes.  But ultimately, this is what makes them successful.  This is why it was so funny for me to read Adaptive Analysis, many of the things espoused (except the use of EW, though again, I do beleive in looking at the current trend in relation to the big picture), were similar conclusions I have finally come too after a couple years.  

What a rant, hope it makes sense.  But excellent thread Tech/A!

Wayne, those numbers are staggering, but I would never doubt you!  

Cheers fellas.  Off to have some friday night Aussie beers.  Enjoy your respective weekends!


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## professor_frink (16 May 2008)

tech/a said:


> *You know I've got to hand it to some of those posters here.*
> Motorway/Waves and the likes.
> Their in depth analysis is second to none---well none here.
> 
> ...




I predominantly use indicators to trade which come standard with every charting package and apparently don't work(or so I keep reading). I only have a rough idea on how to throw an EW count on a chart, I don't have a clue about VSA, FrankD's charts don't make that much sense to me, and I'd probably believe it if someone said motorway was speaking in a foreign language, as I have no idea what he's on about most of the time.

complexity = profitability? 

No.


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## MRC & Co (16 May 2008)

LOL!!!!!!!!

Professor, as always, a crack up!

What I would be interested to know?  Is with the use of the indicators, do you still apply the basic rules of letting profits run, cutting losses and money management?

I read the book of Gary Smith (one of the famed traders of the 90s and not the famed T/A Gary Smith), he HATED T/A and did not like to talk much about money management, little did he know he was actually using both and didn't even know it!!!!

His most prized set-up was waiting for a downturn over a few days, then a day where the market opens, moves lower throughout the day, only to rally into the close and end up higher.  Sound like a hammer reversal?  

If the position went against him, he would exit immediately and he would scale into the position as it went his way, sound like typical money management?


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## wayneL (16 May 2008)

MRC & Co said:


> Wayne, those numbers are staggering, but I would never doubt you!




I'm having a rather stunning purple patch at the mo. It's not normally like that.


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## MRC & Co (16 May 2008)

wayneL said:


> I'm having a rather stunning purple patch at the mo. It's not normally like that.




Maybe so, but I beleive I have seen your methodologies........very simple indeed and runs much along the lines I have gravitated towards.  

My belief is use the methods you beleive in and enjoy, apply the simple rules and you stand in good stead.  At least you won't wipe yourself out!  

If I can have a purple patch like that over the next 6 months, I will 

Good stuff!

Cheers


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## professor_frink (16 May 2008)

MRC & Co said:


> LOL!!!!!!!!
> 
> Professor, as always, a crack up!
> 
> ...




Yep. Basic rules of trading still apply. They are probably the closest thing to a truism in the markets IMO.

But I should clarify, I do trade a shorter timeframe to most on here, and monitor more than one market at once, so it kind of ends up this way by default - I need pretty colours on my chart so I know what to do without having to think too much



MRC & Co]My belief is use the methods you beleive in and enjoy said:


> I'm having a rather stunning purple patch at the mo. It's not normally like that.




Do you think the change in timezone has helped at all? Must be a hell of a lot easier to be 100% alert at dinner time compared with 4am


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## wayneL (16 May 2008)

professor_frink said:


> Do you think the change in timezone has helped at all? Must be a hell of a lot easier to be 100% alert at dinner time compared with 4am




Don't know yet. I'm certainly happier here, that may be a factor too. But I'll have to see how the numbers pan out over time.


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## Trembling Hand (16 May 2008)

professor_frink said:


> I only have a rough idea on how to throw an EW count on a chart, I don't have a clue about VSA, FrankD's charts don't make that much sense to me, and I'd probably believe it if someone said motorway was speaking in a foreign language, as I have no idea what he's on about most of the time.




Perfect! Love it.


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## Timmy (16 May 2008)

What a great thread tech - nice one!  Much to mull upon ... be back.


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## It's Snake Pliskin (17 May 2008)

tech/a,


> I pose the statement that its more to do with knowing what we *DONT* need to know than what we need to know!



How did you come to this realisation tech/a? 



> How many actually find that after a great deal of analysis they feel that they are really only GUESSING?



Naturally. Generally guess would be an apt word. But we could all split hairs and find suitable candidates to confuse the situation.



> How many feel they are on this never ending journey to find a profitable way to trade without actually knowing what it is they are looking for---stumbling from one idea to the next.



Now this may be the most profound piece in this post. Which leads to this.



> Looking for that edge but not knowing what will give it to them---even worse not knowing how to apply ideas to give them that edge.



I would say there is a lot more missing than just this. A juxtaposition of reality for example. 



> Is there only a handful of true isms which when applied correctly will ensure success?--OR are there countless ways to succeed in trading---all vastly different.



Perhaps the multitude of interpretations make that a difficult task to come up with a limited number of trueisms. 



> Is there a common thread with ALL forms of APPLICATION of analysis regardless of what that analysis is---technical and Fundamental?



Variety is interesting. I don't know the answer to this question.


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## nizar (17 May 2008)

wayneL said:


> Here are my expectancy stats on my swing trading (ex option trades and day trades) since I've been in the UK (about six months):




Theres some nice stats there Wayne.
Keep up the good work.


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## Timmy (17 May 2008)

Hi tech - your post makes a number of points and asks a multitude of questions, forgive me if I only address a couple of them.

You say some forms of analysis look complex but are simple once learnt, you use Frankie D's analysis, VSA, conventional T/A, AGet all as examples.  

WRT VSA I thought it was the most complicated thing when I first started studying it, but once learnt I agree it is simple.  Maybe this is just advancing from conscious incompetent to unconscious competent?  Motorway expounds on the Wyckoff method and I would argue the same thing applies - it looks very complicated but is simple once learnt.  It is daunting (is for me anyway), there is a lot of jargon to learn (many rail against the use of jargon but in a specialised field it is very useful).  Once you learn what the jargon means, and applies to, the Wyckoff people confuse you more by abbreviating the terms to initials - geez ...  LOL - once learnt, though, it is simple.

I will skip to your last point/question: 
"Is there a common thread with ALL forms of APPLICATION of analysis regardless of what that analysis is---technical and Fundamental?" 
as I think this is the guts of your post.

Just as the saying goes "Guns don't kill people, people kill people" so there should probably be a phrase coined for traders/investors: 
"Analysis doesn't make or lose money, traders/investors make or lose money".  
This is merely a pithy way of encapsulating what Nick Radge argues in Adaptive Analysis  - there a multitude of ways money can be made in the markets, the common link between traders/investors using all different forms of analysis is control over risk/return - intelligent managing of positions once opened to work towards a good R/R ratio.

One more point, I do believe some forms of analysis are better than others at locating an entry point, and then helping to manage the position, but I also recognise that what I like best is not what others will like best...don't want to get all religious/political about the whole thing.


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## tcoates (17 May 2008)

How much analysis is enough? 

Enough to make the trade with confidence that you have made the right decision. That is, without second guessing whether you have made the right decision. 

If one system/indicator tells you to buy the stock, and other system or indicator gives an contradictory signal, which one do you believe?

Complexity comes as a result of the lack of understand of the system you are looking at. This is most probably a result of trying to find the magic bullet that will make you rich. Part of the complexity also comes from the different terms used. Weinstein looks a chart in different stages, Wyckoff adds other terms like "sign of strength". Now drag in VSA and you have supply and demand and selling pressure. And then you also need to consider the time frame.

Now here a question - suppose that you have a stock, recently oversold but using your indicators identify it is a buy. But what if there is no creek? or you have not jumped over the creek? or according to VSA there is a lack of demand?

Complexity can be reduced by finding the right mix of parameters that you are comfortable in using for trading.

As for a common thread in all systems - identifying a trade/purchase that will succeed. That is buying something that is oversold (or represents value) that will give you something back in return ($) later on. It is the definition of oversold (and value) that differs depending on your background.

Tim


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## diminike (18 May 2008)

When banks recommend a sell, buy, because they have already sold. 
When banks recommend a buy, sell, because they have already bought.

Stupid?

Dimi


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## tech/a (18 May 2008)

diminike said:


> When banks recommend a sell, buy, because they have already sold.
> When banks recommend a buy, sell, because they have already bought.
> 
> Stupid?
> ...




Just a slight alteration

When banks recommend a sell, buy, because they are buying. 
When banks recommend a buy, sell, because they are selling.


Instos have to buy and sell into strength.


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## theasxgorilla (18 May 2008)

The short answer to these two questions is:

1. Depends on what you are trying to achieve & what you believe is possible.

2. Depends on what the individual trader is capable of applying.

On the first point...if you believed that 30-40% win percentages were the norm for a successful trader, and you accepted this and you could achieve profitability from such stats, via simple application and analysis, then you'd do it right?

But what if someone opened up your eyes to a world of 80-90% win percentages, and monthly winning trades that equate to money in the in the ball park of a moderate sized house deposit?

And if you knew that the former person lived a normal life and invested an accumulated handful of hours a day into maintaining their trading activities and this sounded like something you'd like to emulate, then if you could you might try to get that person as a coach or a mentor.

The latter person sleeps and wakes at odd hours, and regiments their time and energy in ways that require extreme self-discipline.  And really believes that that hours spent studying astrology matters to how their SPY contract trade will turn out.

The latter person you couldn't get as a coach or a mentor under normal circumstances because they're elusive.  They never publish their results, never post on forums, and are not socially active, so your chances of bumping into that person at a party and learning about their success is pretty much nil.

Not all people are equally capable, in spite of coaching and training, to apply complexity.  And so if complexity equates to greater profitability, your chances of finding people to make that case are much lower.  So for this thread the scales are tipped in favour of getting the responses you wanted.

Take golf as an analogy as it's easier to equate things to handicaps to make a point.

Most of us here could probably lay claim to knowing a club pro.  Maybe we know a friend from school who grew up to be a pro.  None of us know Tiger Woods.  And even if we did, most of us accept that he couldn't teach us to be him.  

To be a pro, is it necessary to be able to bounce a ball on the end of a driver 20 times and then belt it down the fairway 300 yards?  No.  I bet your local club pro couldn't do it.  And in any case, it's superfluous to getting around a golf course in the fewest number of strokes.  But it tells me something about Tiger Woods and his mastery of his craft.

And you don't need to be able to do it to get your handicap down to 14.  Assuming you're an average able bodied male and assuming you invest enough of your time, the local club pro could probably coach you down to a 14 handicap by teaching you how to *repeatedly apply the basics well*.

14 is an arbitrary figure btw, it could be 12, it could be 20.

If anyone is claiming to be a Tiger Woods of trading here... please step forward .


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## MRC & Co (18 May 2008)

So how many known and famed traders (not on forums, but written about in books) applied complexity to the markets to gain their status?

I know of very few.  

Are you saying those who successfully apply complexity are all mute hermits?


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## peter2 (18 May 2008)

The correct amount of analysis will ensure that you start the trade. 
Any less and you will be uncertain and you won't start the trade. 
Too much and you will be uncertain and you won't start the trade.

Most of us do too little or too much. 

NO, complexity does not produce more profits (eg. LTCM).

Effective trade management equals profitability.


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## Timmy (18 May 2008)

theasxgorilla said:


> The short answer to these two questions is:
> 
> 1. Depends on what you are trying to achieve & what you believe is possible.
> 
> ...




ASXGorilla - that is a fascinating post, the points you make about the subject matter of this thread, the questions asked, being likely to lead to only a certain range of responses is a perspective I had not considered.  The strong likelihood (near certainty) of getting only a limited range of responses from a much greater possible range of responses is, thinking about it, a real shame for us all.  I like to get perspectives/ideas that I had not considered possible (or had not even ever considered) so your arguments as to why the range of responses are limited strikes a note of frustration in me.

I like your comparison of the two traders, especially your talk of the second, unknown trader.


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## MRC & Co (19 May 2008)

Timmy said:


> I like your comparison of the two traders, especially your talk of the second, unknown trader.




Or unknown for a reason?  

40% versus 80-90% of winners does not mean a thing, as discussed numerous times.  

I also find the post by ASXGorilla interesting, but flawed.

Find me this mute, unknown and maybe then it will be known.  Until then, the belief of some magic holy grail is exactly that, a belief.


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## Timmy (19 May 2008)

MRC & Co said:


> Or unknown for a reason?
> 
> 40% versus 80-90% of winners does not mean a thing, as discussed numerous times.
> 
> ...




Thank-you MRC, I appreciate your point of view; I will keep my mind open to possibilities beyond what is commonly accepted.


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## theasxgorilla (19 May 2008)

MRC & Co said:


> I also find the post by ASXGorilla interesting, but flawed.
> 
> Find me this mute, unknown and maybe then it will be known.  Until then, the belief of some magic holy grail is exactly that, a belief.




In any field of endeavour there are always exceptional human beings that are capable of such achievements as to be bewildering to the rest of us.  To not realise this is ignorance.  To infer that the application of simplicity over complexity is superior because you don't know of someone who uses complexity well is arrogance.  You don't know what you don't know, that's all.

Take my profession.  I work in the field of IT security.  Hackers, viruses and the like.  The fact of the matter, is that practically every single system in the world can be hacked, in spite of what most consultants get up and tell (sell) their customers.  That a system which remains unhacked is said to be secure, is really just an unproven claim.

People try to prove the claim by hiring penetration testers...so-called white hats, bad guys turned good...whatever you want to call them.  Just because these guys could not break into a system within the allotted time doesn't prove anything, except that a person with their skill level and that amount of time probably couldn't break in either.  But if someone had more time or greater wherewithal, then what?

There are hacks conducted by people that have never seen the light of day.  They can take many months, sometimes more than a year to carry out.  The complexity of the systems penetrated is such that most people calling themselves experts in this industry can't comprehend them.  Instead they just trust Microsoft et al when they're told to install a security patch...and they chant the same mantra to their customers, "patch your systems pronto", "install a firewall" , "update your virus signatures" etc.

I know there are people doing things on a daily-basis at complexity levels that most of us can't begin to comprehend. Realising this is the key to understanding why the rest of us have to aim for a 14 handicap, and follow mantras like "2% rule", "trend is your friend", "stocks are never too high to buy".

*The bottom line is that for most people and situations we have to keep things simple because complexity doesn't scale as well.*


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## wavepicker (19 May 2008)

Hello tech,

what I do might appear complicated to some, but for me and others I have taught(there are 3 here on this forum) it is actually quite easy.

The tools I use(EW, fixed cycles) actually depend on the type of patterns in play and the type of trading one strives to perform. The hardest thing to understand is the patterns, and unfortunately that has to be learnt by the brain. There are just some things that cannot be mechanized or programmed. The best computer is the one between the ears. 

Every moment in the market is unique and the market is complicated. To be consistant reqiures much effort and focus. The psychological aspect however by far is the most difficult to conquer and really makes the analysis look insignificant.

My latest tool, The Cycle Trading Bands I use is the easiest approach I have seen on this forum or anywhere and can be coded very easily. It's much, much easier than Frank D's approach or even any Smiple MA crossover. I developed it specifically for trading FX but can be used for anything. It is the best I have seen anywhere bar none and my 5 y.o daughter can even use it. Those comments don't come lightly, and I am not even or have no interest in selling this approach. It's my edge, and will stay my edge.

Cheers


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## tech/a (19 May 2008)

> The bottom line is that for most people and situations we have to keep things simple because complexity doesn't scale as well.




And what is seen as complex to some isnt to others.
Waves/Frank/perhaps some would see some of my methods complex.

*My next question.*

*"Effective trade management equals profitability."*

Is this true?


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## Frank D (19 May 2008)

_Much much easier than Frank d’s approach?????_

Much easier for whom??

The day trader who has to be glued to the screens all day, or the person who wants to look at the market once or twice a week?


_My 5 year old can even use it…._

So your 5-year should become a pro-trader before you then.


_My latest tool…_

I have a sneaky suspicion that your cycle bands are a tweak of other peoples intellectual property…


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## MRC & Co (19 May 2008)

Ok, I see your point ASX, but I would say a 'market' is FAR more complex than any human brain can comprehend, makes IT and golf look simple and pale in comparison IMHO.

Was in Black and Scholes who did however, develop a formula for price prediction and win a noble prize?  After following on from some French mathematician academic from generations ago?  And what was their conclusion after years of analysis?  I am sure I saw the formula, and it was scaled down to the point of absolute simplicity as are most mathematican equations I have come accross in my study of statistics.  The derivation is where the complexity lies, but not the end product.  

This would be the closest thing to complexity I have found in the markets with an incredible end result, and it fell to it's knees infront of the fallacy of composition.  

Perhaps the person using this complexity keeps quiet to avoid the same ends, however this is starting to sound like the Phantom of the Opera to me, "open up your eyes, see the fantasy unwind" !  

I do not say it is the impossible, but I will say it is closer to fantasy and no matter where you posed the comments Tech/a did, he would find the same answer, unless he found this hidden enigma and posed it simply to he/she.


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## wavepicker (19 May 2008)

Frank D said:


> _Much much easier than Frank d’s approach?????_
> 
> Much easier for whom??
> 
> ...




As easy as watching a candlestick change colour Frank.

You come out with all this BS not long ago about how complex EW is because you just didn't get it, telling us your tool is the ants pants. Well good luck to you Frank. Tell that to the 3 others on this site whom I have taught and did "get it". Mind you I didn't charge them, and that thought never entered my mind just helped them as any other trader would, and they are close friends of mine now.


As for the Cycle Bands, the core concept is not my idea, have made that quite clear in other threads. The core concept has in fact been around for over 40 years and you can still buy the book on this approach to this day.
I managed to fuse together some seperate ideas from 3-4 other cycles technicians who based their approach on the original core concept. These guys have never divilged how their own IP so it's been impossible for me to copy it. 
The simple fact of the matter Frank is that there are 5-6 different ways of doing what I am doing, and the way I do is vastly diferent from the way others do it. So at the very best there might only be a slight resemblence there but the mechanics and calculations  and multiple timeframe analysis are very very different. It does not matter at all anyway Frank, because only I and one other person use this tool for own personal trading. It ain't and never will be for sale. 

In the same way, the core concept of your tool was not 100% your idea either was it frank??


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## chops_a_must (19 May 2008)

How is Frank's method anymore complicated than using any other pivot point method?

Looks quite similar to hi/ lo systems in multiple time frames to me as well...


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## wavepicker (19 May 2008)

chops_a_must said:


> How is Frank's method anymore complicated than using any other pivot point method?
> 
> Looks quite similar to hi/ lo systems in multiple time frames to me as well...




Hello Chops, My point was that the tool I have been using is simpler. 
I am sure tech is correct and that what frank is using is actually quite straight forward, but the layout and presentation at first glance for the newbie looks rather daunting. Just the thoughts of  some other traders from another forum.
I have no doubt that Frank probably put togther a quality approach and I respect the fact that he has been kind enough to present it in such detail.

I personally have never had any problems with Frank or his approach, only his crticizm of my analysis in particular EW in the past without justification IMO especially when the analysis being put forward at the time turned out to be pretty well spot on.

Cheers


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## chops_a_must (19 May 2008)

I haven't seen it, so can't say which "tool" on here is simpler...


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## theasxgorilla (19 May 2008)

MRC & Co said:


> Ok, I see your point ASX, but I would say a 'market' is FAR more complex than any human brain can comprehend, makes IT and golf look simple and pale in comparison IMHO.




Precisely.  All the more reason why exceptional human beings able to apply complexity will outperform.  Stands to reason IMO.

FWIW, markets make golf look simple...but IT?  Hmmm, with IT it's possible to be right...with markets its only possible to be on the right side of a probability.  There in lies the difference, but both are complex IMO.

ASX.G


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## wayneL (19 May 2008)

theasxgorilla said:


> Precisely.  All the more reason why exceptional human beings able to apply complexity will outperform.  Stands to reason IMO.
> 
> FWIW, markets make golf look simple...but IT?  Hmmm, with IT it's possible to be right...with markets its only possible to be on the right side of a probability.  There in lies the difference, but both are complex IMO.
> 
> ASX.G



I've been thinking about this question over the weekend and I think the first thing we (most of us anyway) have to acknowledge is that we are not individuals with superior intellect, capable of devising systems of extraordinary complexity. Nor do most of us have the tools (in terms of information and IT systems) needed in order to implement such complexity

Therefore, in our little private retail trader universe, I doubt complex systems outperform simple ones... unless we are talking about option traders. Here I have seen the superior intellect (and massive cajones) come into play and seriously outperform mug traders like us.

So yes, complexity can pay dividends, but not in picking direction. It works in arbitrage and derivatives


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## MRC & Co (19 May 2008)

But is it not now hard in the world of arbitrage to really make serious $$ Wayne?  I was speaking to an Ivy League graduate who manages his own Hedge fund over in the States with exceptional intellect, and this rings true in his view.

Though I hear it is possible in Zimbabwe with their Government officials and currency 

So the successful use of complexity lies in the use of complex option strategies and their non-directional bias in your opinion?  

Names like Larry Williams, Jesse Livermore come to mind as very simple and very successful traders, I would say, these retail guys far more successful than most institutional traders............  

Livermore was revolutionary, with his pyramiding as positions went his way, cutting losses instantly, using sentiment in a contrarian fashion..........however, emotions got the better of him, with some of his quotes ironic in every sense of the word!

I acknowledge, my intellect however, is not even close to being able to develope a revolutionary system!


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## It's Snake Pliskin (19 May 2008)

And then there is the "trend forecasting" gang vs the "trend following" gang.

Tech, you still haven't answered my question on how you came to the realisation of your comment.


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## It's Snake Pliskin (19 May 2008)

MRC & Co said:


> Names like Larry Williams, Jesse Livermore come to mind as very simple and very successful traders, I would say, these retail guys far more successful than most institutional traders............




Livermore blew up in trading and considered his life a failure in his suicide note. 

Williams had a money management problem too and nearly blew up after making a lot of money, or so it goes in one of his books. I respect him more for his simplicity in approaching the markets.


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## tech/a (20 May 2008)

Snake.

Its a culmination over the years. As you understand what it is that *REALLY *makes you profitable you actually realise that its *NOT* the analysis.

While its a contributing factor (Analysis) its not the reason you'll make profit and less of a reason why you'll make outstanding profit.
It becomes pretty clear that most analysis isn't required to trade profitably.

Its great to know and in many cases absolutely fascinating. You can and some do spend lifetimes perfecting *"Rightness".* That's fine but that's not what you need to do to be spectacularly profitable.

I'm a builder and while I know all the ins and outs of building a house people don't have to know how to build a house to profit spectacularly from property---proven many times.

I'll bet there are analysts on this and other forums second to none,but there are traders here and elsewhere who's analysis isn't a speck on theirs---but I'll bet there are traders who profit way way beyond what these analysts think possible---because they know they* DONT HAVE TO BE RIGHT!* only profitable.


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## Frank D (20 May 2008)

Wavepicker,

My criticism of EW was because it was  missing a key component to technical analysis, and that was Time.

Time is the only ‘thing’ in the markets that traders can forecast.

I said once you incorporate Time into your analysis it will be much better as a trading tool

So what did you do, which you weren’t doing before?

You introduced Time components, and not that long ago.


_"Mind you I didn’t charge them"....._


I have a thread over 200 posts of free friggin information knuckle head.

So I can’t charge a price for my intellectual property?

 I’m not holding a gun to people’s friggin heads to buy my book.


*Let me tell you, the majority of members on this site never heard of pivots until I started talking about them, The majority of traders never looked a higher timeframes until I started to talk about them. The majority of traders never looked at timeframes in multiple numbers (more than 1 ) using pivots until I started to talk about them. The majority of traders never heard of ranges bars until I started to talk about them, never heard of Spiral-points until I introduced them to day-trading, 3 and 5-day dynamic ranges.....and so on.*

All this information is freely given on this site and others before.

The tool is a pivot, which is an indicator, just like a Moving average is an indicator.

You’ll not find, or ever find anything in technical literature anywhere that matches my model and principles.

However, theories on support, resistance, cycles, rotation and extension have been around for over 100 years, those ideas aren't mine.

My last post on this thread....


----------



## MRC & Co (20 May 2008)

It's Snake Pliskin said:


> Livermore blew up in trading and considered his life a failure in his suicide note.
> 
> Williams had a money management problem too and nearly blew up after making a lot of money, or so it goes in one of his books. I respect him more for his simplicity in approaching the markets.




Yes, I stated this above on the Livermore case, however, due to emotional problems and not following his own rules.

I beleive Williams still trades live infront of many people quiet successfully?


----------



## wavepicker (20 May 2008)

Frank D said:


> Wavepicker,
> 
> My criticism of EW was because it was  missing a key component to technical analysis, and that was Time.
> 
> ...





Frank, my problem with your criticism was that you condemned my work(EW) as too complicated, especially some analysis on ANZ at the time saying that one should never short banks. My EW analysis pointed to a third wave about to start in the banks, the rest is history, the banks got hammered and so the AMT model in that case was not successful, but there is nothing wrong with that because nothing is perfect and all approaches have flaws.

In so far a time goes, I did not incorporate it into my style on your say so. In fact I started looking at time back in late 2003. The cycles approach which I have worked on(and still working on) started back then.

I have looked at your work briefly and applaud the effort you have put in around it’s foundations. I understand your approach has a number of unique aspects that are built upon a foundation. But what I am doing also does too.

As an example Frank/Chops this is a chart of a trade I entered last night


I entered the EURUSD short last night at 1.5613(stop 1.5636), with the changing of a candle colour AND MY REQUIREMENTS. Trading strategy was to take partial profits at 1.5560 and close out the rest 1.5501. You would have to be pretty unlucky to get stopped with this strategy but it does happen on occasion as it's not perfect.
112 pips later in my favour trade completed. Typically get between 2-3 of these setups a week using multiframe time analysis of the 1hr and 4hr chart combo.

Now you tell me how hard it is to trade from this chart?

BTW, the appearance, the way I use these is changing continually as I try and improve this and add new ideas either my own or others I  pick up from other people. There are similar approaches around and this does show resemblance in appearance as the core concept is over 40 year old. Channel analysis has been around for ages.
The way I use this is mine, i.e. the calculations, the mechanics behind the construction, the way the cycles are calculated dynamically and the mechanics behind the multi timeframe analysis is very different and that aspect is my own.( in large due to my Noise and Vibration and cycles background in my day to day job)
 As mentioned before it does not matter because this will never be commercialized, I just like to trade. But also this approach is also continually evolving.


END OF THIS DISCUSSION

All the best

Wavepicker


----------



## MRC & Co (3 June 2008)

To add to this debate, I was takling the other day to some self proposed mathematical genius graduated from an Ivy League Uni.  Here was his comments, which I have to admit, some are a bit over my head!

His arguement is that any trying to trade traditional TA will ultimately fail, unless you simply get lucky.

Anybody have any comments?

Quants generally have PhDs in pure mathematics, physics, or engineering. They do multivariate time series analysis, and look for statistically significant price and volatility relationships. They try to do walk-forward testing through Monte Carlo simulation and boot strap simulation. These days, the proprietary stuff is more sophisticated and often times very secretive. A lot of there models are then automated through algorithms, and trade rapidly, hence the smaller bid ask spreads you see now adays...the algo bots correct most of the mispricings in the markets these days.

Im using a French keyboard, so my grammar sucks.

And TA is crap. Hence why there arent any billionare day traders. Soros was global macro, same with Jim Rogers. Neiderhoff is a quant. Steinhardt was FA and just plain information hoarding. 

Now, PRice Action and tape reading might have some validity. Scalping works, but its stupid.

See, time series analysis is kind of TA, except it means something. Drawing wedges on a 5 min chart means nothing. Theres no argument. Im just saying, you will fail-the law of large numbers will catch up with you. Learn a real trade, no pun intended. Your playing slots, not poker -and instead of a casino, you have a broker.


----------



## It's Snake Pliskin (3 June 2008)

MRC & Co said:


> To add to this debate, I was takling the other day to some self proposed mathematical genius graduated from an Ivy League Uni.  Here was his comments, which I have to admit, some are a bit over my head!
> 
> His arguement is that any trying to trade traditional TA will ultimately fail, unless you simply get lucky.
> 
> ...




Nice addition to the discussion. 

I agree TA is hit and miss and relies a lot on luck. I recently undertook some investigation into another pursuit which revealed some stuff about trading that I had probably not clearly seen. I realised long ago that TA is hit and miss and even with the best intentions it can be hard to get a better than 50% win rate. The recent realisation was more profound and understandable.

But it is not about the analysis. It is about the law of large numbers and if you have a positve edge then it is simply the total of wins not the percentage of wins that tells the story, but we all know that.

Yes FA has its merits as does TA, but it ain't tennis.


----------



## Trembling Hand (3 June 2008)

Can some of the "it doesn't work" crowd please tell me when my LUCK will run out.  I mean I must be the luckiest person alive. On average 150 trades or more a day for the last 3 years. Surely my luck should have ran out by now. I mean that is at least 30,000 trades probably many more.

I keep looking over my shoulder for "the law of large numbers to catch up with me" But even after all that brokerage I still seem to be out running the wankers that sprout this "I carn't so no one can" RUBBISH.


----------



## professor_frink (3 June 2008)

Trembling Hand said:


> Can some of the "it doesn't work" crowd please tell me when my LUCK will run out.  I mean I must be the luckiest person alive. On average 150 trades or more a day for the last 3 years. Surly my luck should have ran out by now. I mean that is at least 30,000 trades probably many more.
> 
> I keep looking over my shoulder for "the law of large numbers to catch up with me" But even after all that brokerage I still seem to be out running the wankers that sprout this "I carn't so no one can" RUBBISH.




I do believe the standard counter to this argument is survivorship bias. You are the one in a million that has survived according to the mathematicians and academics There's no winning this type of argument so best to try and avoid them.


----------



## Nick Radge (3 June 2008)

> Hence why there arent any billionare day traders




These guys may not be billionaires but they're chart traders and wouldn't be far off:

Louis Bacon
Paul Tudor-Jones
Toby Crabel
Jerry Parker
Salem Abraham
Rich Dennis 
Bill Eckhardt 
Keith Campbell
Ken Tropin
Monroe Trout


----------



## professor_frink (3 June 2008)

Nick Radge said:


> These guys may not be billionaires but they're chart traders and wouldn't be far off:
> 
> Louis Bacon
> Paul Tudor-Jones
> ...




Does Crabel still daytrade or has he got some longer term stuff he uses these days?


----------



## Trembling Hand (3 June 2008)

You can include Martin Schwartz in the chart/daytrader multi-million list


----------



## tech/a (3 June 2008)

Son is finishing his Doctorate in Physics. Majoring in Photonics and Lasers at Adelaide Uni.

I took him to Nicks seminar on Saturday. Ive always mentioned to Kris that I'd love to work with him on trading once finishing his Doctorate.

Driving home I asked---what do you think (meaning trading principal in general).
His reply.
"I love it---but you dont need me!".

Now that wasnt a personal observation by Kris on my ability to trade but on HOW you profit from trading.
Snakes got the gist.
I'll just be thankful for any "luck" that comes my way.


----------



## prawn_86 (3 June 2008)

Just throwing my  in.

I think its all well and good to slowly build up a portfolio and then eventually after holding super long term it is worth billions. IE - Buffett etc.

The thing that makes it harder for daytraders (and MRC this is why there may not be many billionarre DT's) is volume. They cant exactly put say $100mill through to scalp instantly without shifting the price.

hope that makes sense...


----------



## theasxgorilla (3 June 2008)

MRC & Co said:


> Now, PRice Action and tape reading might have some validity. *Scalping works, but its stupid.*
> 
> See, time series analysis is kind of TA, except it means something. Drawing wedges on a 5 min chart means nothing. Theres no argument. Im just saying, you will fail-the law of large numbers will catch up with you. *Learn a real trade*, no pun intended. Your playing slots, not poker -and instead of a casino, you have a broker.




Looks like the law of high-IQ has caught up with your buddy.  That is, the law which says that if you are hyper-intelligent and invest a lot of time and effort into getting well recognised letters behind your name you'll invariably come to believe that no-one should be able to out-succeed you with less sophisticated methods.

Two words: open mind.


----------



## tech/a (3 June 2008)

theasxgorilla said:


> Looks like the law of high-IQ has caught up with your buddy.  That is, the law which says that if you are hyper-intelligent and invest a lot of time and effort into getting well recognised letters behind your name you'll invariably come to believe that no-one should be able to out-succeed you with less sophisticated methods.
> 
> Two words: open mind.





One word:
Rubbish


----------



## theasxgorilla (3 June 2008)

tech/a said:


> One word:
> Rubbish




Maybe in your narrow view of the world.  Then again I don't expect that in your field you'll run into this situation much.


----------



## MRC & Co (3 June 2008)

But what is multivariate time series analysis?  

And what is global macro?  

*Now, PRice Action and tape reading might have some validity* - isn't TA exactly that, capturing price action but relating it to crowd psychology?

Tech and ASX, you are agreeing I beleive.  Tech argues it is not high IQ but trade management which determines results.  ASX is stating this guy I was talking to (not my buddy), believes as he is hyper-intelligent, he can not be outperformed by lesser academic traders.  So you are on the same wavelength I beleive.


----------



## wavepicker (3 June 2008)

MRC & Co said:


> And TA is crap. Hence why there arent any billionare day traders. Soros was global macro, same with Jim Rogers. Neiderhoff is a quant. Steinhardt was FA and just plain information hoarding.




tell that to this guy MRC: He has made milions on millions using simple pattern trading techniques

Amongst his recommended reading list: "Elliott Wave Principle"


*Get Rich with Dan Zanger, The Investor Who Turned $10,000 into $42 Million
Posted by Blain Reinkensmeyer
September 26, 2007 at 4:15 pm
Dan Zanger holds the World Record for boasting a 29,233% return in his own portfolio in single year.

Through his site chartpattern.com Dan now runs a daily newsletter sharing his stock picks that has made some readers over a million dollars.*


----------



## professor_frink (3 June 2008)

MRC & Co said:


> But what is multivariate time series analysis?
> 
> And what is global macro?
> 
> *Now, PRice Action and tape reading might have some validity* - isn't TA exactly that, capturing price action but relating it to crowd psychology?




when he says global macro, he is talking about looking at things from a macroeconomic perspective, the big picture.

I think once you start talking time series analysis, you are moving towards the wide world of statistics and data manipulation(I think, I'm no math genius)


----------



## MRC & Co (3 June 2008)

Yeh, that's what I gathered Professor.  

Wavepicker, I am not stating what you quoted.  I am simply stating another perspective from an arrogant Ivy League mathematician.


----------



## Nick Radge (3 June 2008)

Ah yes, good pick up WP. Zanger made $22m in 2006, purely from chart patterns and short terms moves. He used to have his tax returns on his site for validation.


----------



## theasxgorilla (3 June 2008)

MRC & Co said:


> And what is global macro?




Ah, this is the stuff that really makes the world go round.  It's what I think of when people talk about 'the elephant in the room'.  Government policies (intervention, regulation, subsidisation, tariffs), central bank monetary policies, wars, cartels etc.

China industrialising = what?  demand for resources, demand for AUDs, higher profits in Aust, overheated economy, higher interest rates, even higher demand for high yielding AUDs

How much analysis is enough in this space?  As a lowly retail investor it's probably never enough, because you can never know and understand everything...there is too much information and there are two many invisible elephants.

But you can make educated guesses.

Oil at $80 a barrel = what?  not really hurting anyone yet.  Are Australians and Americans really driving the smallest cars they can feasibly get away with?  Are European governments really making do with the least amount of fuel taxes they can sustain their policies with?  No.  Is demand subsiding? No.  Oil can go higher (yes I realise this is hindsight analysis: but the Europeans still haven't implemented their proposed reforms to reduce their fuel taxes, and Americans are still driving a disproportionate number of SUVs, and Australians still drive cars that are twice as fuel hungry as the Europeans and pay half as much for fuel.  Conclusion: Oil can still go much higher than $135).

As always the plus side to being a retail investor is that you can move your person and your capital around much more freely than the big boys.  eg. Australian interest rates and property prices too high?  Move to Sweden.  Swedish wages too low and taxes too high?  Get an ex-pat job in the Netherlands etc.  Medium-to-long term risk of a decline in the EUR?  Transfer savings to a currency bloc expected to increase against most other currencies (Asia?).



MRC & Co said:


> *Now, PRice Action and tape reading might have some validity* - isn't TA exactly that, capturing price action but relating it to crowd psychology?




That's what I thought.  



MRC & Co said:


> Tech and ASX, you are agreeing I beleive.  Tech argues it is not high IQ but trade management which determines results.  ASX is stating this guy I was talking to (not my buddy), believes as he is hyper-intelligent, he can not be outperformed by lesser academic traders.  *So you are on the same wavelength I beleive.*




I doubt it :

I'll say this.  My belief is that people should be mindful of their biases.  Strong belief in or even a demonstrated path to success is not sufficient to invalidate all others.  

Keep an open mind.  Accept that there are many paths to success (profit), and when you feel you've observed enough, pick one and go for it.

"TA is crap" sounds like arrogance to me.  Arrogance and success are frequent bedfellows, but as M says to Bond in Casino Royale: "Arrogance and self-awareness seldom go hand in hand".

Your friend is probably not qualified to have an opinion on TA that I would value.  He's not aware of this, and it's not your job to make him aware of it, just so long as you're aware of it.  

It sounds like he may have a good deal of valuable insight on Quant Analysis/Trading though.


----------



## MRC & Co (3 June 2008)

Yeh, Global Macro is how I started out in this business after a fascination with economics (particularly Macro) and ended up graduating with my Economics GPA the highest of my two degrees.

Can definately predict trends, but you still need your exits, position sizing, money management etc, which is why I have gravitated towards TA, easier to get a feel of IMO.  But then again, that is just what makes me comfortable.  

ha ha, like the idea of moving your person!


----------



## Timmy (3 June 2008)

I believe I am amongst friends here.  And I am a devotee of TA.  I preface my comments with these remarks in the hope of avoiding, or at the very least reducing, the flames ......

Can trading with TA be separated from trade management?  That is, does trading with TA 'work' without trade management.  Does trade management work without TA?  I wouldn't even know where/how to begin testing this idea, so will throw it out there.

Does trading with TA rely on trade management/MM to be effective?

Another question .... does better TA equate to better expectancy (trying to hold everything else - which I suppose is trade management/MM -  equal)?  I suppose an answer can be found in 'whatever works for you' - and recognising there are many paths to succes, as ASXG points out.  But without wishing to start a pointless argument, with us all peeling off into our various 'camps', are there better forms of TA, such that trading with those forms equates to better expectancy?


----------



## Nick Radge (3 June 2008)

> That is, does trading with TA 'work' without trade management.




In my opinion, no. The only reason I am a successful trader using TA is because I am a good manager of bad trades. I am yet to find any TA that offers any kind of edge above a 50/50 bet.

I will not get into a discussion on the fact that FA is any better. Its simply not. I can provide a weeks worth of reading as evidence.

The goal of participating in the markets is to make profits.

We all need each other to facilitate liquidity.


----------



## MRC & Co (3 June 2008)

Have you ever looked into or observed quant trading Nick and any opinion? I would have thought it would be used at Mac.  

Despite my not grasping exactly how it works, it interests me nonetheless, though, I could not handle the math, I have no doubt about that


----------



## tech/a (3 June 2008)

MRC & Co said:


> Have you ever looked into or observed quant trading Nick and any opinion? I would have thought it would be used at Mac.
> 
> Despite my not grasping exactly how it works, it interests me nonetheless, though, I could not handle the math, I have no doubt about that




*The Maths*
I spent some time with a Quant professor at Adelaide Uni who had done a paper using the Stock market as his sample. I was invited by Kris as I traded.
I remember podting it on reefcap.

The maths and the formulas used were just way beyond me I just tried to make head and tail of the Charts (Distribution) that he put up. Basically he could prove that he could find an edge in a data set.
However after my discussion he also admitted that he could prove that there wasnt an edge.

So from my discussions with maths brains way beyound mine Kris I think summed it up very well.
"Dad he said I can prove mathematically that Black is White and nothing is something!"

To me there is the mathamatical answer.

*To T/A.*
Having discarded most T/A other than VSA and Patterns
I have come to the conclusion that these tools of analysis do one thing.

They supply me with Trade Start/Failure/and End points of reference for my trade management.
NOT ONLY for the three distinct points mentioned but also for continuation of trade management over the duration of a trade wether that be pulling back or belting the hell out of a trade.
With this I can and do skew the results in my favor.

The answer is in the simplicity for all who want to see it.
I like many before me and many will follow---thought there was/is more--has to be ---RIGHT????


*To academics.*
I have found those that ASX talks of are found where they are developing in their field.Those "generally" who have mastered their field understand the expertise in a Professor of Automotive reconstruction (Panel beater) or a Doctor in House Construction. All have their place and few overlap.


----------



## nizar (3 June 2008)

MRC & Co said:


> Scalping works, but its stupid.




Try telling that to the Japanese guy that turned 13k into $100m+ in 8 years.
I believe he was mainly scalping.


----------



## nizar (3 June 2008)

Nick Radge said:


> These guys may not be billionaires but they're chart traders and wouldn't be far off:
> 
> Louis Bacon
> Paul Tudor-Jones
> ...




Paul tudor Jones has a net worth >$1billion.

He is really a machine.
Check this out.


> Founded Tudor Investment Corp. hedge fund 1980. Predicted 1987 stock market crash, returned 125% net of fees that year. Assets now $20 billion. Estimated average annual returns 24%


----------



## nizar (3 June 2008)

tech/a said:


> *The Maths*
> Basically he could prove that he could find an edge in a data set.
> However after my discussion he also admitted that he could prove that there wasnt an edge.




Sounds like neural nets.


----------



## theasxgorilla (3 June 2008)

tech/a said:


> *To academics.*
> I have found those that ASX talks of are found where they are developing in their field.Those "generally" who have mastered their field understand the expertise in a Professor of Automotive reconstruction (Panel beater) or a Doctor in House Construction. All have their place and few overlap.




I must admit that Australia is pretty good as far as being meritorious goes, but when you're talking about US 'Ivy Leaguers', for example, I wouldn't underestimate the elites will to keep their elite clubs elite through discrimination.  It's a whole other world.


----------



## It's Snake Pliskin (3 June 2008)

nizar said:


> Try telling that to the Japanese guy that turned 13k into $100m+ in 8 years.
> I believe he was mainly scalping.




....and he was assisted with a large sum thanks to a brokering error that he didn't have to pay back even though big banks DID!


----------



## It's Snake Pliskin (4 June 2008)

Trembling Hand said:


> Can some of the "it doesn't work" crowd please tell me when my LUCK will run out.  I mean I must be the luckiest person alive. On average 150 trades or more a day for the last 3 years. Surely my luck should have ran out by now. I mean that is at least 30,000 trades probably many more.
> 
> I keep looking over my shoulder for "the law of large numbers to catch up with me" But even after all that brokerage I still seem to be out running the wankers that sprout this "I carn't so no one can" RUBBISH.




Survivorship bias. 

Humility is a good quality. I think the reaction here in an (intended) intelligent discussion is overdone with emotion.

It's a U not an A.


----------



## theasxgorilla (4 June 2008)

It's Snake Pliskin said:


> It's a U not an A.




I think TH is right.  Run is an irregular verb, so _to have run_, or I presume, _to have run out_ is correct for both present and past tense.


----------



## wayneL (4 June 2008)

It's Snake Pliskin said:


> It's a U not an A.




Not intended as a challenge, I'm still learning this confusing language of ours, but I would have used a U as well.

a/ Surely my luck should have run out by now.
b/ My luck ran out when I started losing.

Comment?


----------



## wayneL (4 June 2008)

SNAP


----------



## It's Snake Pliskin (4 June 2008)

theasxgorilla said:


> I think TH is right.  Run is an irregular verb, so _to have run_, or I presume, _to have run out_ is correct for both present and past tense.




ASX,
It is conjugation. Have run is correct not have ran as Th put it. 
It goes like this:
run, ran, run.
I run everyday.
I ran home last night.
I have run a marathon before.

Wayne, yes luck has a U. Spot on.


----------



## theasxgorilla (4 June 2008)

It's Snake Pliskin said:


> ASX,
> It is conjugation. Have run is correct not have ran as Th put it.




Sorry.  I thought you made the correction to "have ran".  Geez we're a picky bunch aren't we??


----------



## wayneL (4 June 2008)

It's Snake Pliskin said:


> Wayne, yes luck has a U. Spot on.




A lucky gess I gess.


----------



## It's Snake Pliskin (4 June 2008)

wayneL said:


> A lucky gess I gess.



Fanny mun.

Ah Wayne, I just realised I didn't see the words you were giving examples of in your sentences. I just quickly saw LUCK and responded. Your examples are good.
Cheers.


----------



## Temjin (4 June 2008)

It's Snake Pliskin said:


> Survivorship bias.
> 
> Humility is a good quality. I think the reaction here in an (intended) intelligent discussion is overdone with emotion.
> 
> It's a U not an A.




Heh, I agree with the emotion part. So much involved in here right now. 

Wasn't there a research article (from Van) saying the higher the IQ a group of traders are, the worse results they get. It seem "intelligence" is an impediment to successful trading. Of course, some complex PHD guru will disagree with me otherwise. 

Also, isn't it true that simplicity is the key to successful trading and that humans often have a bias for doing "complex" things because it give them some sort of intellectual satisification?


----------



## Trembling Hand (4 June 2008)

It's Snake Pliskin said:


> Humility is a good quality. I think the reaction here in an (intended) intelligent discussion is overdone with emotion.
> It's a U not an A.




Humility from the self appointed Grammar Nazi. LOL.


----------



## bingk6 (4 June 2008)

Nick Radge said:


> In my opinion, no. The only reason I am a successful trader using TA is because I am a good manager of bad trades. I am yet to find any TA that offers any kind of edge above a 50/50 bet.




Hi Nick,

At the risk of extrapolating what you're are saying a wee bit too far, are you suggesting that you would be able to duplicate the level of performance that you have been demonstrating in your power setups by using your trade management procedures on say, a randm entry ?

At the end of the day, a random entry is pretty much 50/50 and if there aren't any TA techniques that offer above 50/50, then one should theoritically be able to generate returns approaching the levels reached by your power setups using trade management techniques alone.

Would appreciate your clarification.


----------



## nizar (4 June 2008)

bingk6 said:


> Hi Nick,
> 
> At the risk of extrapolating what you're are saying a wee bit too far, are you suggesting that you would be able to duplicate the level of performance that you have been demonstrating in your power setups by using your trade management procedures on say, a randm entry ?
> 
> ...




Good question, I too am looking forward to the response from Nick.


----------



## Trembling Hand (4 June 2008)

bingk6 said:


> At the risk of extrapolating what you're are saying a wee bit too far, are you suggesting that you would be able to duplicate the level of performance that you have been demonstrating in your power setups by using your trade management procedures on say, a randm entry ?
> 
> At the end of the day, a random entry is pretty much 50/50 and if there aren't any TA techniques that offer above 50/50, then one should theoritically be able to generate returns approaching the levels reached by your power setups using trade management techniques alone.




T/A setups are not about achieving higher than 50/50. A T/A edge comes from the favourable R:R not the win:loss.

Cannot speck for Nick but its about finding patterns that have probable targets larger than any expected loss.


----------



## bingk6 (4 June 2008)

Trembling Hand said:


> T/A setups are not about achieving higher than 50/50. A T/A edge comes from the favourable R:R not the win:loss.
> 
> Cannot speck for Nick but its about finding patterns that have probable targets larger than any expected loss.




TH,

I hear what you are saying, and pretty much agree with all of it. However, even with a random entry, isn't it possible to manage your trade in such a way that if the trade goes against you, to cut it off quickly and if it goes for you, to let it run, which is the essense of achieving a favourable R/R ?

I guess my question is, in the case of a really successful system, how much of the success is attributable to the setup (or the pattern) and how much of it is attributable to the on-going management of the trade once a position has been initiated.


----------



## Trembling Hand (4 June 2008)

bingk6 said:


> TH,
> 
> I hear what you are saying, and pretty much agree with all of it. However, even with a random entry, isn't it possible to manage your trade in such a way that if the trade goes against you, to cut it off quickly and if it goes for you, to let it run, which is the essense of achieving a favourable R/R ?
> 
> I guess my question is, in the case of a really successful system, how much of the success is attributable to the setup (or the pattern) and how much of it is attributable to the on-going management of the trade once a position has been initiated.




What about this,

Maybeconfused one of TAs overlooked qualities is *identifying that something is about to happen*. That the punters are coming in.
It may not be the direction or magnitude you expect, but at least you will have an answer soon. 

With a random entry you will still need a catalyst to get some action. Most TA will be based on some sort of movement or pattern.


----------



## peter2 (4 June 2008)

Is an entry into a pre-existing trend a random entry?
I think not. I look for impulsive moves and presume that they will continue.

Is it 50:50 that price will continue in the direction of the trend?
Not for me, I want to trade with the trend as I think there is a higher probability that price will move in the direction of the trend than reverse. 

The direction of the next tic may be random but is the direction of the next 100 tics still random?


----------



## Temjin (4 June 2008)

bingk6 said:


> TH,
> 
> I hear what you are saying, and pretty much agree with all of it. However, even with a random entry, isn't it possible to manage your trade in such a way that if the trade goes against you, to cut it off quickly and if it goes for you, to let it run, which is the essense of achieving a favourable R/R ?
> 
> I guess my question is, in the case of a really successful system, how much of the success is attributable to the setup (or the pattern) and how much of it is attributable to the on-going management of the trade once a position has been initiated.




While I can't say for those who are more experienced here, my understanding is that a profitable system (with long term expectancy) is largely attributed to the on-going management of the trade and how that trade is exited. Obviously, entry also contribute to the overall system's profitability but the theory from the more "successful" traders is that they tend to place more priority toward managing their trade than finding a 80+% chance entry setup. 

It's the exit that determines how much profit (or loss) you get per trade. Not the entry.


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## It's Snake Pliskin (5 June 2008)

Temjin said:


> Heh, I agree with the emotion part. So much involved in here right now.
> 
> Wasn't there a research article (from Van) saying the higher the IQ a group of traders are, the worse results they get. It seem "intelligence" is an impediment to successful trading. Of course, some complex PHD guru will disagree with me otherwise.
> 
> Also, isn't it true that simplicity is the key to successful trading and that humans often have a bias for doing "complex" things because it give them some sort of intellectual satisification?




Temjin,

You have raised some valid points in the discussion.

I agree things are best left simple. Let the market be your ultimate dominator. Now it takes some form of intelligence to realise what it is all about without still not knowing. So why is intelligence any worse than arrogance, or even worse, gullibility when they will all clearly be inferior to the whole? (rhetorical)

I like T/A and it makes sense for what I see it as being able to help me with. Nothing else. Regardless of setups, catalysts, opportunities, whatever, luck is still a part of the reality because the only thing we can control is ourselves.


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## MRC & Co (5 June 2008)

You may wish to read Van Tharp.


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## tech/a (5 June 2008)

Nick Radge said:


> In my opinion, no. The only reason I am a successful trader using TA is because I am a good manager of bad trades. I am yet to find any TA that offers any kind of edge above a 50/50 bet.
> 
> I will not get into a discussion on the fact that FA is any better. Its simply not. I can provide a weeks worth of reading as evidence.
> 
> ...





Taking the above.
*Strings.*

Wins 10 
Losses 15
Wins 20
Losses10
wins 5 
Losses 10
Wins 10 
Losses 10

*50/50*

All losses 1 unit.

10 wins 2.5 unit
1 win 8 units
10wins.5 of a unit
9 wins 3.5 units
15 wins 1.6 units.

*Do I care if my technical analysis/any analysis is 50/50*




> It's the exit that determines how much profit (or loss) you get per trade. Not the entry




In my view a very important place in a trade from an M/M view.
This is where initial RISK is found and can be controlled.
Here you have to opportunity of adjusting your anitial risk or watching it get taken out slowly.


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## Nick Radge (5 June 2008)

> At the end of the day, a random entry is pretty much 50/50 and if there aren't any TA techniques that offer above 50/50, then one should theoretically be able to generate returns approaching the levels reached by your power setups using trade management techniques alone.




Basically yes, thats what I'm saying.

TA is scorned by academics because it, that is a price pattern, has no statistical predictive power. I agree. A company whose earnings continue to grow offers predictive power over time but one will need to wear the price volatility in between.

Many of the most successful traders in the world use basic breakout models, after all, every trend starts from a breakout of some type. A fundamentally strong stock will only offer profits if the share price increases and trends higher. A breakout will capture that without the need to read mega amounts of data to assess the fact.


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## bingk6 (5 June 2008)

Trembling Hand said:


> What about this,
> 
> Maybeconfused one of TAs overlooked qualities is *identifying that something is about to happen*. That the punters are coming in.
> It may not be the direction or magnitude you expect, but at least you will have an answer soon.
> ...




TH,

I like your answers and I suspect that you're pretty close to the mark.

Personally, I too believe that exit and the trade management side of the equation is by far the more critical side. However, what I cannot reconcile (at lease within myself) is that if the exit and trade management side is so critical, why is it that most traders are not prepared on enter their trades on a random basis and just depend on trade management?

Putting it another way, if I were to generate 1000 different *random* entries. how may traders would be prepared to say OK, I'll run with these 1000 random entries and would be confident enough to say they would expect their performance to be on par with their existing systems ? I suspect not many. So therein lies a potential problem. Therefore, for the traders that truely believe that trade management and exits are the key and that entries (via T/A or F/A or voodoo or whatever else) offer no better than 50/50 (and I include myself in this category) why would they not be prepared to trade on random entries ???


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## Nick Radge (5 June 2008)

You have answered the question for yourself. You won't be prepared to run with a random entry because you are not comfortable with doing so, even though you know it probably be a profitable exercise so long as you manage the trade. However, if one is not comfortable when pulling the trigger then they won't trade.


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## MRC & Co (5 June 2008)

I find the trouble with random entires, is that a lot of stocks simply chop around.  

This is why it is preferable to find stocks with strong, longer term momentum behind them, as even though they may still chop around even after breaking a pattern, of which you may loose 1%, they will most likely keep running in the longer term (but you will not be around to see that if it continues to chop around, as you will not hold onto hope).  

However, if it does break your way straight away (40% of the time in Radge' case), it is far more likely to keep running, due to past momentum and the breakout, and it is ultimately these runners that you need to create far more winning $ than loosing $, despite any win/loss %.  This is where I don't think Nick gives himself enough credit, in finding the 'right' charts to trade, not only his trade management.

If you simply trade choppy stocks, I think it would be very hard, regardless of trade management, to make any decent profits after data, commissions etc.

Just my humble opinion.  Feel free to correct me.


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## _ExY_ (5 June 2008)

bingk6 said:


> Hi Nick,
> 
> At the risk of extrapolating what you're are saying a wee bit too far, are you suggesting that you would be able to duplicate the level of performance that you have been demonstrating in your power setups by using your trade management procedures on say, a randm entry ?
> 
> At the end of the day, a random entry is pretty much 50/50 and if there aren't any TA techniques that offer above 50/50, then one should theoritically be able to generate returns approaching the levels reached by your power setups using trade management techniques alone.




Perhaps...

Although your method has 50/50 win/fail the TA(method for choosing entries) may still be a critical part of the system as the nature of the entries can only be profitably managed by nicks' trade management system. Or you could say for nicks' trade management system to be profitable it has to manage trades that perform in a specific manner, which are chosen by the TA system.


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## sleepy (5 June 2008)

Nick Radge said:


> TA is scorned by academics because it, that is a price pattern, has no statistical predictive power. I agree. A company whose earnings continue to grow offers predictive power over time but one will need to wear the price volatility in between.




Or if you are really smart you could combine TA and FA

For example, Dan Zanger primarily focuses on chart patterns,  company earnings and volume.

sleepy


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## theasxgorilla (5 June 2008)

I like the idea of testing random entry and using it as a benchmark and then trying to beat it.  If you can beat those results you have an edge, and if you can't you might still be winning in spite of yourself.


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## nizar (5 June 2008)

theasxgorilla said:


> I like the idea of testing random entry and using it as a benchmark and then trying to beat it.  If you can beat those results you have an edge, and if you can't you might still be winning in spite of yourself.




Is the word "edge" only related to entry?


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## Nick Radge (5 June 2008)

ASXG,
You've done a lot of work on Edge Ratio. Its not something I agree with specifically in regard to Curtis Faith and the Turtle system. What's your thoughts?

As for Zanger looking at earnings, I struggle with that relationship. Lets face it, since when will a 2-week view on a stock be impacted by earnings alone. I appreciate increasing earnings will to a stock price appreciate over the longer term, but tying that relationship together on a smaller time frame brings in randomness and market noise as well.


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## Shane Baker (5 June 2008)

Nick Radge said:


> ASXG,
> You've done a lot of work on Edge Ratio. Its not something I agree with specifically in regard to Curtis Faith and the Turtle system. What's your thoughts?
> 
> As for Zanger looking at earnings, I struggle with that relationship. Lets face it, since when will a 2-week view on a stock be impacted by earnings alone. I appreciate increasing earnings will to a stock price appreciate over the longer term, but tying that relationship together on a smaller time frame brings in randomness and market noise as well.





Hi Nick

In the literature DZ sent me a couple of years ago, he claims that he filtered his universe of stocks using the earnings before applying his pattern analysis techniques.

Cheers

Shane


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## Nick Radge (5 June 2008)

Shane,
There is no doubt he uses it. I have subscribed to his services in the past and its clear he's influenced by earnings growth. From a filtering perspective it makes complete sense - a stock with earnings growth will be pursued more than one without, however, my point is, will that be enough to overcome short term aberrations? Maybe...its been awhile since I made $22 mil in a year!  Still learning...


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## theasxgorilla (5 June 2008)

Nick Radge said:


> ASXG,
> You've done a lot of work on Edge Ratio. Its not something I agree with specifically in regard to Curtis Faith and the Turtle system. What's your thoughts?




Yeah, I've coded it up and Amibroker, and worked with it a fair bit in a losely structured way.  

I think that the intention is good, that being to compare entry effectiveness in a statistical and scientific kind of way.  But based on what I've come to believe about the purpose of a good entry, I think it's usefulness is limited to identifying the short-term effectivness of a good entry 'trigger'.

If the purpose of a good trigger is to enter a trade at a point when you are most likely to drag your trailing stop up past 1R, breakeven and beyond, then some MAE/MFE analysis represented as an e-ratio can be an effective way to see whether during the first weeks of a trade being open, if one entry trigger and/or set of parameters was historically more likely to achieve this than another.

Framing a good entry 'setup' is more likely to help with identifying which markets are likely to sustain a trend though, IMO.


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## Temjin (5 June 2008)

theasxgorilla said:


> Yeah, I've coded it up and Amibroker, and worked with it a fair bit in a losely structured way.
> 
> I think that the intention is good, that being to compare entry effectiveness in a statistical and scientific kind of way.  But based on what I've come to believe about the purpose of a good entry, I think it's usefulness is limited to identifying the short-term effectivness of a good entry 'trigger'.
> 
> ...




Some good thoughts there ASXG.

I would like to know your opinions as well Nick. This E-Ratio has given me alot of curiosity since it was revealed. 

I particularly appreciated how Curtis managed to validate this concept by running a random entry through different timeframes and somehow get an edge ratio of roughly 1.0. 

ASXG, do you think you can repeat Curtis's exercise and see if you get similar results?


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## theasxgorilla (5 June 2008)

theasxgorilla said:


> Framing a good entry 'setup' is more likely to help with identifying which markets are likely to sustain a trend though, IMO.




I suppose that could include earnings growth in a given company, as in Shane's example above.


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## theasxgorilla (5 June 2008)

Temjin said:


> ASXG, do you think you can repeat Curtis's exercise and see if you get similar results?




Probably not.  My testing has been exclusively on ASX equities...and his test was on futures.  Futures, from what I understand, have a tendency to trend in both directions quite happily.  Equities take a long time to climb up the stairs and a short time to fall out the window.  Any testing on equities during the last 10 years has a much higher probability of sampling random entries during the bull phases, as that's what the market has spent the most time doing.


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## MichaelD (5 June 2008)

bingk6 said:


> Putting it another way, if I were to generate 1000 different *random* entries. how may traders would be prepared to say OK, I'll run with these 1000 random entries and would be confident enough to say they would expect their performance to be on par with their existing systems ? I suspect not many. So therein lies a potential problem. Therefore, for the traders that truely believe that trade management and exits are the key and that entries (via T/A or F/A or voodoo or whatever else) offer no better than 50/50 (and I include myself in this category) why would they not be prepared to trade on random entries ???




I basically would (and actually do with real money). The entry for my long term trend following system is laughably simple and barely different to random entry.

Blindly following its rules over the last 12 months has seen me currently fully pyramided into coal, iron ore, steel, fertilizers and oil and well out of financials which I was heavily into 12 months ago.

And blow me down, what sectors are over and underperforming at the moment...?


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## Timmy (5 June 2008)

Nick Radge said:


> ...its been awhile since I made $22 mil in a year!




Yeah, these dry spells are a bitch.


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## wayneL (5 June 2008)

Re Random entries:

The 50/50 success rate we all experience would certainly indicate a random entry would suffice, but I have this nagging doubt.

Let's say we take a give set of exit conditions, shouldn't matter what they are so long as consistent. If we test differing entry conditions with our set exit conditions, we shouldn't see much difference in the bottom line.

Yet, when I was doing a lot of testing, different entries made a lot of difference. 

Can we explain this by being "fooled by randomness", or is there a difference in results from different entries.

If so, that puts a dent in the random entry theory.

I have splinters in my @rse on this issue.


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## Temjin (5 June 2008)

wayneL said:


> Re Random entries:
> 
> The 50/50 success rate we all experience would certainly indicate a random entry would suffice, but I have this nagging doubt.
> 
> ...




Read this thread if any of you haven't seen this thread on TradingBlox Forum yet. It's quite interesting on how these ppls were trying to replicate the random theory. (to no success of course) 

http://www.tradingblox.com/forum/viewtopic.php?t=3637

This is another interesting one.

http://www.tradingblox.com/forum/viewtopic.php?t=3779

Apparently (at least from his results so far), a specific entry with a random exit gives 42 profit runs out of 50. Something to ponder...


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## MichaelD (6 June 2008)

Temjin said:


> Read this thread if any of you haven't seen this thread on TradingBlox Forum yet. It's quite interesting on how these ppls were trying to replicate the random theory. (to no success of course)




The testing demonstrated does not prove what it purports to prove.

Problems;
1. The universe is wrong. Random entry + ATR stop only works on equities since they have a long term upwards bias to exploit. No other market exhibits this upwards bias. A crude example illustrating this is buy and hold - do that in equities and you'll end up ahead eventually. Do that in Forex or Futures and you won't.

2. A 3.0 ATR stop on daily equities data is too tight and will whipsaw to death. 3.0 ATR will work on weekly data, but not daily.


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## Timmy (6 June 2008)

For those interested in Dan Zanger, here is the article in which he was first featured (Fortune magazine, Dec. 2000).


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## bingk6 (6 June 2008)

wayneL said:


> Let's say we take a give set of exit conditions, shouldn't matter what they are so long as consistent. If we test differing entry conditions with our set exit conditions, we shouldn't see much difference in the bottom line.
> 
> Yet, when I was doing a lot of testing, different entries made a lot of difference.
> 
> Can we explain this by being "fooled by randomness", or is there a difference in results from different entries.




I too have done some testing comparing a range of different entrys to a common exit and have arrived at the same conclusions, they do fluctuate a lot. I am not talking about singular runs of each entry/exit combination, but monte carlo runs as well as using GP's random skipping of trades and the averages (incorporating a large number of runs) fluctuate a fair bit. This tells me that certain entry/exit combinations do tend to work better than others. 

In fact, I go as far as to say that it would almost be miraculous if anybody was able to show results from a large number of entries, being matched to a common exit showing results that showed little variance.

It certain does put a dent on the random entry concept and is the reason why most traders do not use it IMO.

With regards to the edge ratio, my belief is that this has good potential in that it allows for the evaluation of the effectiveness of an entry, independent of any exit. That is not to take anything away from the importance of trade management and exits, but it does offers an opportunity to develop a superior entry/exit combination that will hopefully outperform a system incorporating a random entry.


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## theasxgorilla (6 June 2008)

nizar said:


> Is the word "edge" only related to entry?




Sorry Nizar, I missed this.

I think talking about 'edge' is contextual.  We can zoom in on entry and try to quantify 'edge' there, or we can zoom out to 37,000 feet and try to quantify 'edge' overall.

As an example, an 'edge' in gambling is of course the 0 or 00 on a roulette wheel.  That's the house's edge.  Your edge is something that allows you to beat the house in spite of their edge (2,63% in Europe and 5,26% in the US).

Your edge in trading is something that allows you to win inspite of the fact that you are instantly in the red by an amount equal to round-trip brokerage (and perhaps interest) every time you enter a trade.

Of course if everyone is only trading long, and the market was going up anyway, then everyone gets an edge over the house.  In this situation you might be more interested to know if you had an edge above and beyond that intrinsic edge.  So you could compare your results with an index.

I think people would be surprised to find that there is a lot of edge in simple money and trade mangement ideas like non-market-cap weighted capital allocation.  That is, investing in 10-20 shares with equal position sizing instead of 500 shares position sized according to market capitalisation.

ASX.G


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## theasxgorilla (6 June 2008)

wayneL said:


> Yet, when I was doing a lot of testing, different entries made a lot of difference.
> 
> Can we explain this by being "fooled by randomness", or is there a difference in results from different entries.
> 
> ...




I haven't really thought through the idea of random entry/exit outside of a long-only LTTF system within the context of a bull-market.  I did the testing because I had an overwhelming suspician that the success of any LTTF during such a period had more to do with market exposure than any well thought out entry or exit method.

Consider the attached mock up of a bull market.  A good entry will present most of it's trading opportunities during the long bull phases and fewer, if any, during the short and sharp down moves.

With enough runs (which turns out not to be that many) it is possible for a random entry/exit system to out-perform the designed LTTF.  This is providing that the parameters for the random system are such that it results in about the same amount of market exposure as the LTTF.

On the other hand, if the market looks more like the second mock-up, then this kind of testing will result in fewer situations where the random entry/exit outperforms the LTTF system.  Here the down moves are longer, and to match the market exposure of LTTF the random entry-exit system will be forced to take trades that have a higher probability of occuring during these unfavourable conditions.

I think when you do a random entry/exit test you need to think what it is you're trying to demonstrate, and if necessary, introduce some constants eg. prevent the random entry/exit system from taking trades if price is not above the x-day EMA (match x to whatever your actual system uses).  

If you code up an entry you want to test and you randomise a function within your system to keep forcing it to take different paths thru the data, and then compare the distribution of 10,000 iterations of that, against 10,000 iterations of a random entry/exit system you could say you are measuring the edge of your entry....where 'edge' might mean higher CAGR, lower max.DD, higher win% etc.

This assumes that you have enough data and your random function is able to force the system with your actual entry to take a sufficient number of diverse paths through the data.

Personally I think that this is not a very time-effective way to design a system   There are too many permutations.  And it seems that when you focus on one area too much you end up fine-tuning that and when you re-introduce the other parts it turns out they don't work as well together any more.  A top-down approach with a bit of 'common sense' thinking about what should work and why is probably a more time-effective way of doing it.

In any case, I was able to prove to my satisfacation that position sizing, stop losses, leverage and market conditions, altogether, were responsible for the lion share of LTTF success on the ASX during the past 5 years.


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## julius (7 June 2008)

RE: Random entries

If you look at  breakout patterns, many are characterised by range contraction.

Volatility/range contraction has a significant impact on the risk:reward relationship of an entry signal - it shifts the expectancy of the trade in your favour because you are able to run a tight stop, relative to past price action.

So by trading breakout patterns you are only participating in trades with favourable risk-to-reward. Not to mention it often aligns with medium-term inflection points...

Compare this with a random entry: either 1. the stop is relatively 'tighter' or 2. the reward is relatively less.

If the stop is tighter, the win% will suffer, which will negatively impact expectancy. Alternatively, If the stop is adjusted to the most recent price action, the reward will be comparatively less, beause the potential upside of a random entry versus a pattern entry is exactly the same.


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## sleepy (9 June 2008)

tech/a said:


> *To T/A.*
> Having discarded most T/A other than VSA and Patterns
> I have come to the conclusion that these tools of analysis do one thing.
> 
> ...




Great post John,

The irony is that most will either never get it ... or spend many years of frustration before returning to the same conclusion.

sleepy


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