simple strategy....but very profitable

[Brandonf]

Joe and Bob are both probably on the right path, and doing the right thing. A purely discretionary system works just find. Many traders are proof of that. If you think in terms of what is important and build your philosophy around solid and long term proven idea's you will be able to trade in changing markets without jumping from one hot setup to the next. Generally this would be based upon some form of pattern recognition, which is by its definition discetionary.

A purely mechanical sytem also works just fine. I have a friend who runs an arbs system in equities, 100% mechanical and 0% discretion. The system returns over 500% a year with pretty small risk (its maximum capital is also very small, small enough that it would keep it from being of interest to most of the big houses that do this kind of trading, but large enough to be just great for my friend). A lot of the money being run in the futures market is also 100% rules based with no discretion applied. I suspect that this kind of trading appeals very much to engineers and other mathematical types, as they are who I most commonly see using them successfully.

Brandon

 

[jaan]

Originally posted by darkhorse
You can get an idea of where the chips will fall but you cannot say "I am assured it is possible to get 50% win/loss" or XXX reward to risk or any such thing. It is the false precision I disparage, not the validity of a logically grounded mechanical method.

oh, ok, then i misunderstood you indeed. i would like to make your statement above more precise, and say that in real life setups with (historical) edge you never know the probability of the outcome, because the historical edge may not survive the market changes. the lady's system with random long/short entry obviously is an artificial construct that lacks any edge.

- jaan

 

[jaan]

Originally posted by Brandonf
its maximum capital is also very small, small enough that it would keep it from being of interest to most of the big houses that do this kind of trading, but large enough to be just great for my friend

yes, very good point. it is also our experience that once you try to design a system that could handle really big money (FX, futures, even the most liquid stocks), you'll be competing with boys that have much bigger R&D budgets than you. hence, the more liquid an instrument, the more random is its price movement.

I suspect that this kind of trading appeals very much to engineers and other mathematical types

precisely. in our case, large portion of our motivation in building an automated system has been that the project is really cool as a science-project.

- jaan

 

[Gordon Gekko]

Originally posted by Magna
As to patterns that "only" need to come in 6/10 times, I'm reminded of one of Gary B. Smith's quotes:

"A good technician gets it right maybe 60% of the time. And a great technician, maybe 61% of the time."

hehe..awesome!

 

[Gordon Gekko]

Originally posted by Don Bright
...supply a name of one, just one person and their "system" that is controlling all this money and making all this money.

Not trying to be contentious, but I have a pretty good view of all the markets, not just "prop trading" as you seem to think. Give me a name, and I'll be happy to call him and find out how their system works, and post it here on the board. I'm not saying you're wrong, I just want to see it.

don,

can you honestly say that no type of trading system can work? for example, take someone like tony oz. i would say his trading style is much different than your oo style. would you say tony's method can't work? not tryin to pick a fight with you, just wondering how you'd answer this because i've seen many posts by you saying that this type of trading doesn't work.

thanks

 

[Gordon Gekko]

Originally posted by Magna
Seems I have to trot this out every couple of months, as many people simply do not have a grasp of probabilities, and think that if your entry-picking is less than 50% you might as well flip a coin. Not. Anyway, from an earlier post of mine:

"Hitting 50% of your trades is far better than random chance, and you are misunderstanding probabilities. I often see this when people compare picking winning stocks with flipping a coin.....The error in your thinking is taking the fact that stocks are either winners or losers (forgetting flat trades for a moment) and equating that with a probability of 50%. Nothing could be further from the truth. [It would be the same as saying] a monkey pounding on a typewriter will either type a novel or he won't, so it's a 50% chance that he will....."

sorry, but this needed to be quoted..again.

 

[Gordon Gekko]

Originally posted by Magna
The ladies setup, even tho it will provide a 10% loss or a 10% gain is not symmetrical in the same sense as a balanced coin. The latter will always land about 50% heads and 50% tails. But her trades will not necessarily do the same by any stretch of the imagination. As a simple case, suppose that she had a fondness for tech stocks and started selecting and trading them in the spring of 2000. Ten percent loss, or ten percent gain, and she's out. She would have had at least 95% losers. Even though she randomly chose them, even though she had a large sample. Think of trading as an unbalanced, unsymmetrical coin (that every once in a while, randomly, happens to be balanced).

In any case, there's nothing I can do to further explain it. Probability is tricky for people (I know, I was a math major in college), and folks just love getting stuck on this ridiculous notion that because stocks are either winners or losers, that somehow translates in their minds to a 50% chance of each. NOT.

well put, again.

 

[Cesko]

Originally posted by Gordon Gekko

sorry, but this needed to be quoted..again.

Logically incorrect argument. (Magna statement)

 

[God#9]

Originally posted by Magna
Hmmm, let's see, so if it's 10% down.....she just lost 10%. A lot of those 10% losses can sure put a serious dent in your capital. As to patterns that "only" need to come in 6/10 times, I'm reminded of one of Gary B. Smith's quotes:

"A good technician gets it right maybe 60% of the time. And a great technician, maybe 61% of the time."

In other words, if you think that picking patterns with a consistent 60% hit rate is a piece of cake, then you are kidding yourself.

This is complete rubbish, apart from the fact it is possible to have a ridiculously high percentage of winners, that you would not believe.

61% is not hard.

This can be done in different ways, too.

I FIRMLY don't believe new traders should have a low percentage of winners because they won't be able to handle the drawdowns (in their heads).

I'd be aiming for 75 percent, and encouraging scratch trades. If it takes lowering targets and increasing stops, I'd do this too. r/r is absolute propaganda.

 

[darkhorse]

Originally posted by God#9


I'd be aiming for 75 percent, and encouraging scratch trades. If it takes lowering targets and increasing stops, I'd do this too. r/r is absolute propaganda.

well said #9, that's great advice- for floor traders circa 1978....