Quote from TruthSeeker247:
Over the last three weeks, my maximum loss per trade has been $156.25. Obviously, I haven't always been able to assure that but 99% of the time I have. I don't place limits on the maximum profit I will take per trade. I basically let the trade go and go and go and get out on movements that are obviously not pullbacks. My profit per trade is usually $500 or so. I don't look for small fluctuations; i try to grab at many points of profit per trade. Average holding time for winners is 4 hours 21 minutes. Average holding time for losers is less than 4 minutes 47 seconds (over the past three weeks)...
Efficient market theory holds that any financial news is already reflected in the market. That being the case, what you describe as shifts from equilibrium to disequilibrium flies in the face of economic theory. This is not to say that what you say is not true. But you seem to be trying to defend efficient market theory yet at the same time present a state of affairs in which such efficient market theory is clearly being decimated. I don't believe markets are efficient. The fact that there are shifts from equilibrium to disequilibrium makes my case. The facts that it is possible to be consistently profitable defies the notion of market efficiency.
Statistics bother me because they attempt to quantify things which are often not quantifiable. Risk can not be accurately quantified. You calculate the risk of a particular trade or strategy to be .000001%. COME ON> >>>> > that's guaranteed money right? When it fails you conclude: it was an anomoly. I'm not a big fan of quantitative models. Their results are useless, IMHO...
Good effort, you´re using good risk management, not hanging on {or hoping on} losers, letting winers ride... profits to risk ratio around 3:1...
Sounds like you have a sane strategy.
On market eficiency, I study economics, and I´ve done my share of thinking as to why economic models dont work in the market. Here´s few thoughts about it.
I consider the markets to be in equilibrium only when no trades are happening. When a trade happens then the market is out of balance. I consider a trade to be an inefficiency correcting it self, for example, you where bullish, now you´re not, there´s an inefficiency in the way you feel about your long position, you sell inefficiency solved.
If you look at a market that´s completly efficient, it´s imposible to make money there... {like rica foods...} the damn thing moves once a month, or less! It has near 0 volume. The few people that actually care for that stock all agree on price... it´s in equilibrium.
But a market like QQQ for instance, won´t be efficient more than a few milliseconds at a time... it becomes unefficient over 100MM times a day...
The problem with economic theories {when applied to the market} is that those theories are based on a fix moment, therefore the asumption of ceteris paribus {everything else remains constant}, that happens to be in most models. In a stock that prints 500 shares per day, you can asume ceteris paribus most of the time and still be right... but when you look at qqq all things never remain constant. Ceteris paribus doesn´t work here, and that´s a problem for many models...
In a completly caothic market you can say that ceteris paribus is never true... however this is another extreme and is not right either.
The reality of the market is that many things remain constant, while others dont. The markets are efficient as to observing long term price levels, but become less efficient as time frames become shorter.
Several things do remain constant {and that´s why the markets have ranges. For example GE, most of the time all traders in GE asume that the finantial information of the company remains constant {fundamentals} however, that doesn´t imply that each trader´s expectations for the company remain constant... they are constantly changing... and therefore the stock has several million, small inefficiencies every day, while remaining inside a broader range.
The markets are efficient but they have a margin of error. We trade inside that margin of error, and that margin becomes larger as you increase your time frame. But as the time frame increases the unusual prices become less comon, so that market becomes more stable... withing a larger error margin {the markets are usually not wrong about long term price, but when they are it´s not pretty... think ENRON}. This is why instant time frames in the market are randon, but it creates paterns in the longer time frames...
Statistics do apply to the market, however not in a simple way, you have to go through fractals and chaos theories... {this 2 theories also explain why the markets reflect fibonnaci patterns, the golden ratio, and natural exponential growth ratios[interest rate]}
The easiest application of statistics to the markets is risk management {is actually an indirect application} and you´re already doing that.
