Quote from Jim_Nasium:
When I described my approach in a previous post without mentioning the MA's you seemed think it was sound in theory. I can and have traded it with and without the MA's, without the MA's is pretty much the method Marc Rivalland describes in his book, but I thought they can't hurt so I leave them there.
It IS sound in theory. But traders often spend years trading theory and continually losing by dribbles and drabs, with the occasional big win to keep them going. Those who don't understand markets convince themselves that the market is doing this to them, for whatever reason, but the fact is that they are doing it to themselves.
I see what you are saying. Entering a trade at a moving average I am actually buying/selling at the average price, rather than the price where it is over-extended and due to revert to mean/average? Interesting.
More or less. What is more important is that the moving average is in your head, not in the market, as is anything else that requires a setting or a calculation.
Getting out the previous high seems logical, often the price reverses as it gets near the previous high and forms a double top so I get out just before that happens. The targets aren't just figures I pull out the air, like "I think I would like to make 3.5 x my risk on this trade so I can buy a bunch of lap dances this weekend". If I tried to hang on to the runners I would a) have to accept a lower win rate and b) figure out a way to know when the move was losing steam, which I have not been able to do as of yet.
But price also often barrels right through that previous high and leaves the resistance-phobic trader in the dust. Support and resistance exist, but don't anticipate them. Let the movement play out. If there's a reversal, you'll nearly always have time to get out. And even if you don't get out at exactly the best price, you're in profit, so what difference does it make whether or not you give a little back in order to find out what's in the market's hand?
Nor is it a given that letting your winners run necessitates a lower winrate. It's still a winner unless you sit there like a deer in headlights and let price come all the way back to your entry.
As to knowing when price is losing steam, that can be made mechanical as well, without indicators.
If I know from my trading records and research roughly how likely my target is going to be hit and I know what my risk is and what my potential reward is then surely it is something useful, no? Let's say I know on average I win 50% of my trades (if only) then it makes no sense for me to taking trades which can only return 65% of what I am risking. My winners would not cover my losers, BE would be 1 x R.
That would depend on how you're figuring the probabilities and what the sample size is. But if everything were working the way it's supposed to in this scenario, you wouldn't be "struggling".
I am reading about it, funnily enough the first page on mean reversion I came across contained a lot of talk of MA's = ).
Just because someone has written an article or a book or whatever on something doesn't mean they know what they're talking about. This is the case now and was the case a century ago.
Selecting a moving average to serve as a mean is more often curve-fitting than not. The mean of price movement is the average of highs and lows in a range, whether lateral or diagonal. Knowing where this mean lies can serve to tell you where price is going and also serve as a trigger for a trade. If you continuously move it every time price fluctuates, it loses much of its utility. Bollinger Bands are a prime example of this.
Obviously I am not saying I am right and you or wrong, I mean you could be wrong, but most likely at least I am wrong, I have the trading records to prove it. I am just trying to explain my thought process, to me my point of view seems pretty self-evident in theory.
