Futures Trading Analysis

[k p]

I like you kp. You have a great writing style that conveys a pleasant personality.

Wow... if that is your view... why the heck are you online here arguing with us???

And I think you're right about one thing for sure... I do have a pleasant personality.

Just that i believe the outcome of each entry and even series is random. Whereas the price action folks somehow believe that their entries somehow provide greater odds of success acrosd single trades or series.

Huge problem here. If you are talking about one entry, this is one thing, if you are talking about a series of entries, this is a whole other issue.

No trader will tell you that they know their next trade will work out. I do believe that some are operating at the 80% or 90% win rate, but that's at the top of the game and not necessary for consistent profitability. But what they will know is that if that trade doesn't produce profits after 10 or 20 outcomes, then something is wrong and needs to be changed.

But moving right along to this:

Remember im talking about traders without any edge whatsoever other than money management skills.

If this whole time you're talking about trader's without an edge... then why are we even arguing? Of course you can't make money if you don't have a statistical edge. Go flip a coin, go to the casino, etc. This is all a waste of time if there isn't an edge to begin with.

With a real structural edge, nothing else matters since it can be automated and scaled. It wont last since the market will morph to quickly eliminate it. But while it lasts its great.

Here is the thing about price action trading. Traders are people, and people do things because of how we are hard wired. You want to grab my attention? Get a pretty girl to walk past me and I am guaranteed to look up 100% of the time. You want to make money? Look at a chart and show we places where in the not too distant past, people all of a sudden started buying, causing price to rise, and as we get down to this level again, lets watch what happens.

Have you noticed at the store, when you are shopping late, anytime something is on sale, drastically reduced, its never there when you finally show up? Whenever people see mouthwash at 50%... they buy it all up and there is nothing left for me. It pisses me off because it happens every time and I always shop late. Point being, people all react to incentives. Make it cheap enough and they will buy. Its really no different in trading. Not that its easier, trust me, but if I was a store manager and I knew we were about to run a 50% off mouthwash sale, I will order 3 times the amount of stock that I usually do because I know I will have no trouble getting rid of it.

 

[NoDoji]

Hi
With that said-- how do you predict the odds of a favorable price move on each trade?

First I select a setup using eyeball analysis. A setup is a price behavior pattern (for example, in a non-trending enviroment, price came from a swing low, tested the previous swing high, and turned without breaking through that high). I've noticed over time that when this occurs price has a strong tendency to find support at the swing low and make another attempt to visit the high.

I now examine every appearance of this setup with a specific instrument during my selected trading hours and I note in a spreadsheet the results: How often does the support hold and how often does it break down? If it breaks down by less than N ticks, how often does price revisit the high? If it breaks down my more than N ticks how often is it possible to exit at break even before the risk:reward ratio becomes negative?

Eventually this sort of study leads to a positive expectancy result based on rules. An example might be that if the support level holds or breaks down by less than 4 ticks, a 12 tick profit is possible 61% of the time. If the support level breaks down by more than 8 ticks, an adverse excursion of more than 12 ticks occurs 63% of the time. If the level breaks down by more than 3 ticks, but less than 9 ticks a break even exit is possible 73% of the time.

So now I can create a set of rules based on this price behavior in this defined price environment and then apply the rules to 100 consecutive appearances of the setup and see how close to my original study the results are. If I find the result to be very close to the original study, I have a positive expectancy trade setup to add to my arsenal as follows:

In a non-trending environment, price comes off a swing low to test a previous swing high and turns back down off that level.

1. Place a limit order to buy 1 tick above the previous swing low.
2. If filled, place a stop loss of 12 ticks and a profit target of 12 ticks.
3. If price breaks through the swing low by more than 3 ticks, move the profit limit order to the entry price.

 

[samuel11]

So now I can create a set of rules based on this price behavior in this defined price environment and then apply the rules to 100 consecutive appearances of the setup and see how close to my original study the results are. If I find the result to be very close to the original study, I have a positive expectancy trade setup to add to my arsenal as follows:

Is this your out of sample vs in sample test or did I read incorrectly?

 

[NoDoji]

...as long as you hammer out your plan and follow it.

This is the part that no one can do and it's why 99% of traders fail. Even Surf's hedgies eventually blow up because they think they can make a killing and deviate from the plan "just this once"

 

[NoDoji]

Is this your out of sample vs in sample test or did I read incorrectly?

What is an out of sample test?

 

[samuel11]

What is an out of sample test?

You calculate statistics on 100 observations; and then you check them on another 100 observations. In sample is the 1st set, out of sample is when you “verify” these stats...

 

[debitspread]

As to losing, you're not exactly operating from a position of strength in that regard.

Don't follow this. From a quick browse of his threads, looks like he's generally accurate and profitable. Of course no one gets every trade right. And I understand his group does PhD-level quant research, and offers out the results for free here. "Gift horse in the mouth..."

 

[dbphoenix]

.

Don't follow this. From a quick browse of his threads, looks like he's generally accurate and profitable. Of course no one gets every trade right. And I understand his group does PhD-level quant research, and offers out the results for free here. "Gift horse in the mouth..."

Beware of Greeks bearing gifts . . .

Price Drivers are an attempt to quantify the items that move price prior to it moving. We firmly believe that after price moves, its too late for anyone but hindsight reading chart jockeys who pretend to trade, therefore its a must to anticipate how the Price Drivers will move the price and position yourself accordingly before the fact. Take a look at our recent SHAK trade----- to see how it is done with very limited regard to price.

surf

 

[Gringo]

And, this last point is where a lot of academic work fails to do justice (there is another political reason: As a PhD student or un-tenured prof., going against (or publishing work contradicting) the Chicago School (in Finance or financial economics) is committing career suicide. This is why you will see a lot of challenge to EMH coming from Physicists than economists; but we will not discuss that here!).

The Hayek Dilemma!

 

[monoid]

The Hayek Dilemma!

Or should we call it a "Disaster"! :eek: