What analysis do you use for trading?

[motorway]

I cant help but think that's a crock...with enough information you can put percentages to likely out comes but there's always a random element that can determine the final outcome...depending of course on the nature of the event.

The more complex the event the more potential for a random 'happening' to determine the outcome....dumb luck is real.

Also think you guys are over complicating something that is in essence very simple.

Simple things are simple but complex to really understand

eg LIFE , GOODNESS , EVIL & LOVE....

brty==>

How does EVOLUTION WORK
WHY is there such beautiful "design"

RANDOM & SELECTION, and a negative selection at that ... the use of a Stop loss.

It is not that the fittest survive ( that just is result like survivor-ship bias ).. It is because the unfit don't --They get STOPPED OUT

LEVY FLIGHTS are random.. but are used in nature for optimal foraging , predation , and escape..

How do you balance a baton on a finger ?
Not by prediction , but by error correcting and by a levy flight..

And the best balancers delay their corrections
They can keep the baton unbalanced and create smooth movement ( TREND )

A lot of things in nature look like prediction
But is just good ERROR CORRECTION

If I have a coin and it has a small bias to heads
What will turn up on the next TOSS ?
how much would you bet ?
And still is it possible you only get TAILS ? Till you go broke no matter what your MM ?

Will it rain Tomorrow ?

Will the market finish UP on MONDAY ?

Difference between PREDICTION and FORECASTING / ANTICIPATION..

The Bias on that COIN
is not fixed either

It is a LEVY FLIGHT TOO

But yes , THERE ARE MEMORY EFFECTS so HERDING etc

TRENDS VERY IMPORTANT

ANTICIPATION , FORECASTING YES..

Motorway

Previous studies have suggested that there is an element
of predictive control in human stick balancing at the
fingertip. However, the fact that survival statistics for stick
balancing can be reproduced by a stochastic delay equation
having only an unstable fixed point raises the possibility
that the control is, at least in part, nonpredictive.

This suggestion is supported by the observation that the controlling
movements made by the fingertip can be described by a Levy
flight . Levy flights have been shown to be optimal for
random search patterns and have been detected in a variety
of search tasks including animal foraging strategies
and human eye movements during reading.

This observation strongly suggests that the nervous system is not capable
of predicting the movements of the balanced stick, but develops
a foraging strategy.

Mandelbrot suggests the market moves as a LEVY FLIGHT TOO

If so we need an OPTIMAL FORAGING STRATEGY


Wyckoff did not have that term
But his description of market action and how to FORAGE
I see as similar ..

Waves of buying and selling last as long as they do



Motorway

 

[It's Snake Pliskin]

Sorry, but I don't think the aim to minimise losses justifies moving a stop to break-even. Why break-even? Why not a few ticks above or below? Why precisely break-even? For psychological reasons.

I like your enthusiasm for the topic. But anything other than limiting losses is about being right. Limiting losses is part of the numbers. Being right is about being right.

And it is not the most important stop in any case; the original stop is the most important and should be the most logically grounded.

But the initial stop guarantees a loss if hit. That affects the numbers.

 

[lukeaye]

Motorway, does you head get sore? You clearly have far to much information stored. You are like a walking encyclopedia

 

[brty]

I did not wish this topic to disintegrate into a debate on random, that has been discussed in other threads. Suffice to say that random is a concept that occurs in the minds and theories of Mathematicians and Statisticians.

Motorway..

LEVY FLIGHTS are random..

They are also only theoretical, and don't exist in the real world..

http://www.nature.com/nature/journal/v449/n7165/abs/nature06199.html

If I have a coin and it has a small bias to heads
What will turn up on the next TOSS ?

Coin tosses are clearly not random, biased coins or not, not a smart example to use. I can toss a coin and get 20 heads in a row, with the first 20 tosses. I can take the same coin and toss it another 20 times and get 20 tails in a row. I'm a good tosser .

Wayne,

Hah! The rub comes in the inconvenient fact that we will never have enough information to predict systems like the stock market - enter chaos theory.

Speak for yourself, personally I have found definite sequences of events that make trading profitable, consistently. So did a number of Market Wizards in Jack Schwagers book, which is why they left the academic world to be traders.
In the academic world they see the market as random, because no-one can accurately tell where individual share prices will be at a future point in time, yet they do not study how a common series of events lead to certain outcomes with monotonous regularity (certain, as in high probability).

Now where were we in relation to stops??

brty

 

[wayneL]

Wayne,



Speak for yourself, personally I have found definite sequences of events that make trading profitable, consistently. So did a number of Market Wizards in Jack Schwagers book, which is why they left the academic world to be traders.
In the academic world they see the market as random, because no-one can accurately tell where individual share prices will be at a future point in time, yet they do not study how a common series of events lead to certain outcomes with monotonous regularity (certain, as in high probability).


brty

Of course. But I think that is exploiting randomness rather than disproving it. The point I am trying to make is that random <> randomness.

There is still order in randomness and chaos that a trader can exploit, but randomness is still always in play.

 

[Synergy]

In the academic world they see the market as random, because no-one can accurately tell where individual share prices will be at a future point in time, yet they do not study how a common series of events lead to certain outcomes with monotonous regularity (certain, as in high probability).
brty

I think you've hit the nail on the head.

It's amazing how so many people doing basically the same thing can have so many varying views on topics that likely play a vital role in what we're trying to achieve.

 

[brty]

Wayne,

But I think that is exploiting randomness rather than disproving it.

In a random/randomness world of academia, repetitive patterns, sequences of events should not be happening, so I don't think we (you included ) could be doing what we do by 'exploiting randomness'.

I think that most traders/investors believe in elements of randomness in the market, how do 'most' go??

brty

 

[Mr J]

Just on that note ... The best entries are often found at the spike extremities.... and a high percentage of the 'obvious" Stop loss levels are more often than not the best entry points ..... From my experience, rushing entries through impatience creates the most unwanted "heat" in any given trade situation.

Exactly. If we feel we need to increase a stop to allow for a likely spike, we should just delay the entry.

I always thought that all market participants were there to make money, made definite decisions about when to buy and sell and didn't just put in 'random' entries and exits.

I find it amazing that anyone could think the markets are random. As you say, there is reason behind every action and every participant - they're not monkeys throwing darts (even if the result is the same!), and even then, monkeys don't throw darts randomly either.

I cant help but think that's a crock...with enough information you can put percentages to likely out comes but there's always a random element that can determine the final outcome

The percentages are irrelevant. The outcome is decided by human action, and if we were completely informed, we know what these actions are and how they will move the market.

we will never have enough information to predict systems like the stock market

Of course not - we'd have to know what every participant is going to do. They're not going to tell us, especially not so far in advance that we could do something about it.

I like your enthusiasm for the topic. But anything other than limiting losses is about being right. Limiting losses is part of the numbers. Being right is about being right.

I feel like I'm getting a trophy for 4th place now . I disagree, I've made adjustments other than limit losses that make me less 'right', but they significantly increase my expectancy, and that is what trading is about. If my risk amount is already at an amount that is acceptable for me, why should I lower it? Why would I want to lower it? The goal is to make money, not to limit losses to minute amounts. A good trader has such an edge that the issue of trade size is not risk, but comfort.

But the initial stop guarantees a loss if hit. That affects the numbers.

Not sure what you mean? Are you suggesting other stops may be more important because they can 'guarantee' break-even or profit?

Coin tosses are clearly not random, biased coins or not, not a smart example to use. I can toss a coin and get 20 heads in a row, with the first 20 tosses. I can take the same coin and toss it another 20 times and get 20 tails in a row. I'm a good tosser .

Of course it's all random, otherwise it would all be too much to think about :.

The point I am trying to make is that random <> randomness.

Isn't randomness just a noun? The trouble I have with debating 'random' is that most people assume equal chance for any outcome. My understanding is for it to just follow a probability distribution, and then this brings up the problem of perspective. If we say coinflips are 50% and I win 80%, it's not random. However, if we correctly measure my coinflips at 80%, then it is random. Then when we compare my flipping to the flipping of others, my result then becomes non-random again, since we are now applying the original assumed probabilities.

So we end up having situations where people are suggesting coinflips are random (meaning 'equal'), some people suggesting that they are not random because coinflips are not 'equal', and then a few other people arguing that coinflips are random, although in a completely different way to the first group. The first group are wrong, the second are technically wrong but right to argue against the first group, and the third group are technically right but not doing either of the first two groups any favours.

It actually brings up a big issue with people using incorrect definitions. Another one I reguarly come across is 'gambling', and the debate over whether participants are 'gambling'. They are, by the proper defintion, and most people are just arguing with a popular (but incorrect) definition, or just fighting the negative connotation.

 

[wayneL]

Isn't randomness just a noun?

Yes it is a noun. Nouns can have more than one meaning however.

e.g. Chaos is also a noun, but has a different meaning in science and mathematics than it does in the vernacular of the common schmuck.

So it is with randomness.

DYOR

 

[barney]

Exactly. If we feel we need to increase a stop to allow for a likely spike, we should just delay the entry.

Agree 100% ..... the hardest part (for me, and I assume many traders) is not having the discipline to wait, even though the potential risk is recognized. Over trading without a proven positive expectancy is a recipe for mediocrity at best ..... and I'm tired of being mediocre

A good trader has such an edge that the issue of trade size is not risk, but comfort.

Absolutely ...... and the main reason for me, that I keep trying to hone my trading skills .... A successful trader needs do no more than increase the size of his starting bank to prosper ..... something we all should have recognized in the 'Nothing to Something' thread from the "T" man

 

[nomore4s]

If my risk amount is already at an amount that is acceptable for me, why should I lower it? Why would I want to lower it? The goal is to make money, not to limit losses to minute amounts.

By reducing risk and losses to minute amounts does this not make it easier to achieve the goal of making money?

If a trade moves in my favour why wouldn't I move the stop to reduce my risk? Or even more importantly if a trade doesn't move in my favour or the way I expect it too, why wouldn't I move the stop to reduce my risk? Or close out the trade for a less then 1R loss, which is essentially the same thing as moving my stop?

Why would I want to lower it?

Why wouldn't you want to lower it?

 

[Mr J]

e.g. Chaos is also a noun, but has a different meaning in science and mathematics than it does in the vernacular of the common schmuck.

But the definitions for chaos are legitimate, but the common understanding of 'randomness' is not?

By reducing risk and losses to minute amounts does this not make it easier to achieve the goal of making money?

Wouldn't it be easier still to increase gains?

Why wouldn't you want to lower it?

We already do that when we keep our risk amount constant. Why? Because any action that increases our edge - such as increasing the size or frequency of wins, or decreasing the size and freqency of losses - mathematically justifies a larger risk amount. By keeping it constant we're risking less relative to our edge than we were before.

 

[wayneL]

But the definitions for chaos are legitimate, but the common understanding of 'randomness' is not?

So you think the common schmuck's understanding of chaos in the scientific senseis au fait while their understanding of randomness is rooted in the common vernacular?

Oh please! You are just arguing for the sake of it ffs!

Excuse me while I go and chastise myself for indulging in futile discussion.

 

[sinner]

I reckon everyone interested in this debate should read "Trading in the Zone" by Mark Douglas.

He points out:

The market is a paradox: You cannot define any given outcome from the moment you place your trade - but at the same time events are occuring in the market every day (these events are called waves or trends) which would be extremely rare occurences if the markets were truly random.

The five truths:
1. Anything can happen.
2. You don't need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Eveiy moment in the market is unique.

I think it's always important to remember those points.

However. There is one method we can always trade on, there is one thing that is always consistent about the market, and that is the market structure. What do I mean by that?

Well, random or not the price action of any chart is always in one of three phases:

1. Consolidation/Range (equal or similar highs and lows)
2. Fakeout -> Breakout -> Re-test (new high or low outside of consolidation)
3. Trending (higher highs and higher lows or lower highs and lower lows)
4. Wash, rinse, repeat.

So, all you need to do is to figure out:

1. Which of the above phases you are in.
2. What is the simplest, most profitable way to make money from that phase (incl possibly not trading that phase).
3. Grind the setups you have until the phase changes.

If you trade the market structure, the question of "random" becomes mostly moot.

 

[nomore4s]

Wouldn't it be easier still to increase gains?

lol, Do you find it easy to increase gains, do you?

By reducing risk and losses to minute amounts I'm actually increasing my gains by improving my overall R/R ratio, and improving the overall gain to my account on my next winner.

We already do that when we keep our risk amount constant. Why? Because any action that increases our edge - such as increasing the size or frequency of wins, or decreasing the size and freqency of losses - mathematically justifies a larger risk amount. By keeping it constant, then - relative to our edge - we're risking less than we were before.

Great in theory but not so great in application imo. $1 risked is still $1 risked and still affects your profitability and capital base when lost no matter how your edge is improved, so if you can reduce it to 50c why wouldn't you?
Any opportunity to reduce my risk without compromising my edge is taken, as reducing my risks and losses is easier to control then trying to get another 1R out of a trade - because no matter what my edge, once I'm in a trade I have no control over whether the market will give me a winning trade or not. Having an edge is not about the current/next trade it is about the next 100 trades and by reducing the risk (if possible) on the current trade I'm actually exploiting my edge even further.

A lot of your posts are great in theory but highlight just how inexperienced you are in the practical application of those theories. You sprout on about how easy trading is but we all saw in your journal thread that when it actually came to trading & applying these great theories you have, you didn't find it that easy at all. Having or finding an edge and being able to trade & profit from that edge are 2 different things

 

[mazzatelli]

I find it amazing that anyone could think the markets are random. As you say, there is reason behind every action and every participant - they're not monkeys throwing darts (even if the result is the same!), and even then, monkeys don't throw darts randomly either.

https://www.aussiestockforums.com/forums/showthread.php?p=538385#post538385

 

[barney]

By reducing risk and losses to minute amounts I'm actually increasing my gains by improving my overall R/R ratio, and improving the overall gain to my account on my next winner.

Great in theory but not so great in application imo. $1 risked is still $1 risked and still affects your profitability and capital base when lost no matter how your edge is improved, so if you can reduce it to 50c why wouldn't you?

Howdy NM4 ..... appreciate and respect your comments etc, but .....

Is there any evidence that moving an initial stop point to B/E actually "increases" gains simply because it makes a given trade a no loss trade?

For eg. Who is to say that if the original stop had been left in place, (and just missed being taken out) that the trade may not have continued on for a 2,3 or 4R winner ............

Basically it looks like a judgment/experience call to me, and for that reason I see no bias to support either argument ............ just an observation

Cheers.

 

[motorway]

I did not wish this topic to disintegrate into a debate on random, that has been discussed in other threads. Suffice to say that random is a concept that occurs in the minds and theories of Mathematicians and Statisticians.

Motorway..



They are also only theoretical, and don't exist in the real world..

http://www.nature.com/nature/journal/v449/n7165/abs/nature06199.html

Stick balancing is not in the real world

and yes the debate will go back and forth

http://news.sciencemag.org/sciencenow/2008/02/27-01.html

But it is interesting distribution to study and certainly exists


Coin tosses are clearly not random, biased coins or not, not a smart example to use. I can toss a coin and get 20 heads in a row, with the first 20 tosses. I can take the same coin and toss it another 20 times and get 20 tails in a row. I'm a good tosser .

So you will not bet on my coin at all ?
Only one you toss yourself... So application is that you only trade shares where you control all the fluctuations / tosses ?

Wayne,


Speak for yourself, personally I have found definite sequences of events that make trading profitable, consistently. So did a number of Market Wizards in Jack Schwagers book, which is why they left the academic world to be traders.
How many were lucky , how many since blew up ?

In the academic world they see the market as random, because no-one can accurately tell where individual share prices will be at a future point in time, yet they do not study how a common series of events lead to certain outcomes with monotonous regularity (certain, as in high probability).

STOPS are about profiting from what we don"t KNOW or CONTROL .. WHAT IS RANDOM TO US[


Now where were we in relation to stops??

If you really control the fluctuations , the coin tosses you maybe don't need them


brty

Sometimes I think I know what but WHEN doesn't oblige


How many types of loss is there to guard against ?

OPPORTUNITY LOSS is probably the BIGGEST


Is there anything as important as TIMING ?
STOPS are really part of entry technique

I see not much point getting out AGGRESSIVELY
If that is not letting you enter something BETTER placed
with better timing

and I do not toss the coin
or control the fluctuations

But markets do trend have memory that is TRUE.
Have structure

& PHASES

But in aperiodic and random way
else there is no use for SYSTEMS
or contingent orders
for stops

Just need to FLIP heads on demand...

When the sun shines
and the hay is there to be made
The first secret is having the money to make the money..



Motorway

 

[sinner]

PS: I believe anyone using the terminology of "free trade" to mean moving stops to BE is using the terminology incorrectly.

A free trade is one where you commensurately reduce your risk as the market makes profit available to you. The most commonly implemented free trade strategy is to take half your lots off when the trade reaches the same units of profit as the same units risked. This leaves your original SL in place, but still allows you to continue opening new positions with the same capital you had before entering the trade.

Moving your stoploss limit to breakeven is not a "free trade", in fact it is adjusting the original parameters of your trade against yourself. If you are willing to be stopped out at your entry price - why enter there in the first place? Never give a contract back to the market unless you have to (i.e. as defined in your rules): take off half your lots at 1:1 R:R and hold the remaining trade as a risk free asset on your book.

 

[brty]

Motorway,

WHAT IS RANDOM TO US

Finally getting to the point, and reality. Why would anyone trade something that appeared random to them?? Simple answer is that this is a straight gamble, real traders, winning traders do not play in something that appears random to them, they wait for the setup their experience has shown has an edge.

So you will not bet on my coin at all ?
Only one you toss yourself... So application is that you only trade shares where you control all the fluctuations / tosses ?

Please do not belittle your arguments by playing the man instead of the ball. When I was talking about coin tosses, I was talking about coin tosses, not a colloquialism for something else.

brty