Something very simplistic

[Quah]

Aphie - Not to start a thread drift here - but I ran the 50/50 chance of a trade being profitable question past someone I know that has a Ph.D. in mathematics, specializing in statistics to see if he could explain how some outside influence (i.e. the "edge") is accounted for statistically. I asked him if you could say that the outcome of a trade will be 50/50 if you knew of some "edge" - here is what he said:

"It depends on whether or not you choose to profess a belief ONLY in classical statistics or are willing to concede that Bayesian statistics are more appropriate to certain "real world situations" (kind of like the difference between Euclidian geometry and Fractal geometry ... but not quite). If you are gambling in Las Vegas, classical statistics are fine because that's what the "house" uses; you won't win in the long run (with the exception of real poker, wherein the good players use Bayesian statistics ... example [although not real poker]: the casinos used to use a single card deck for "Blackjack" but the house/dealer was getting beaten to often because good players would "count the cards that had been dealt" and adjust their bets accordingly [reference the book "Beat the Dealer"] ... Bayesian statistics ... the casinos went to two decks for blackjack to eliminate the "card counting" [except for idiot savants la "Rain Man" ] ) but you won't lose as much either. On the other hand, if you are betting on a horse in the Kentucky Derby and you use classical statistics you're going to lose most of the time. "

 

[Quah]

I might not be around for the 15:47 trade so I’m going to stop for the day. Today seemed a little slow, and the trades took longer to complete vs. yesterday. I’ve included the approximate time from open to close for each trade in MM:SS format, rounded to 30 seconds. Figured I’d keep track of this since one of the goal of my system is to keep me in the market as little as possible. The first couple of ES trades overlapped each other – i.e. the preceding trade had not closed out by the time the next trade came along. When that happens, I just enter the next trade by the rules and manage each trade by the original rules, separately.

Someone asked about NQ, so I paper traded that today using the same rules – except with a 3 point profit limit and a 3.50 point stop loss. The results are posted after the ES trades.

For 9/12/2002:

11 Total Trades

10 Winners

1 Loser

Avg. Winner +1.025 / Avg. Loser -1.00

Gross 9.25 points - $462.50/contract

Commission $52.80

Net $409.70/contract

Total Time spent with an open position (and thus sitting in front of the PC) 50 minutes 30 seconds.

ES Trades:

9:33 S 901.50 +1.00 (9:00)
9:35 S 901.50 +1.00 (7:00)
9:38 S 902.25 +1.00 (2:00)
9:43 S 900.00 +1.00 (1:30)
9:51 S 898.50 +1.00 (1:00)
10:04 L 898.25 +1.00 (2:00)
10:25 L 895.50 +1.00 (13:30)
10:59 L 893.75 +1.00 (4:00)
11:54 L 896.75 +1.00 (4:30)
13:23 L 895.50 -1.00 S 894.50 +1.25 (13:30) (Note: First entry was 895.75, but got a 895.50 fill)
15:47 (Not taken)


NQ Trades (paper traded only)


9:33 S 937.50 +3.00 (2:00)
9:35 S 935.00 +3.00 (15:00)
9:38 S 936.00 +3.00 (7:00)
9:43 S 934.50 +3.00 (8:00)
9:51 S 932.50 +3.00 (18:30)
10:04 S 933.00 +3.00 (5:00)
10:25 L 930.50 +3.00 (11:30)
10:59 L 927.50 +3 .00 (5:00)
11:54 L 936.00 -3.50 S 932.50 +3.50 (42:00)
13:23 S 933.00 +3.00 (9:30)
15:47 (Not Taken)

 

[aphexcoil]

Quah,

Your system is certainly starting off on the right foot.

Honestly, I don't see much resemblence between trading and gambling. When one gambles, they are throwing odds into the wind and relying on good old fashioned luck.

That's why people kiss dice, have a hot blonde stand next to them or wear a trinket to the casinos. It gives them that "soft fuzzy feeling" that they just might be odds that are against them.

On the other hand, the market is a "market." It all goes back to, "I have a commodity which I would like to sell you, so what will you pay for it?" Obviously, some people are in a position to know more than others. Knowledge is definately power.

Do you think Greenspan, if he were to play futures, would be playing a 50/50 game? HELL NO. He can log on to his IB account, short 500 e-minis, go into congress and tell them the economy is having problems, go home, log back on and cover for a sweet gain. Where was the risk in that? There was none, because he has an edge (a rather large edge, of course).

However, I've heard of "getting an edge" all the time, but getting a time-proven edge is tough. The market will eventually spit out, in any given day, virtually every type of chart you could imagine.

I will now shut up and no longer make assumptions on trading until I make my first live futures trade.

 

[aphexcoil]

Quah,

Btw, you made more in one hour than I do in a day. Congrats!

 

[Quah]

Originally posted by aphexcoil
Quah,

Honestly, I don't see much resemblence between trading and gambling. When one gambles, they are throwing odds into the wind and relying on good old fashioned luck.

I dont think that is true for everybody. Surely the house isn't simply depending on luck.

If gambling was only based on luck, how can you explain the fact that many of the same players end up in the final rounds of the Binion's World Series of Poker each year?

 

[Madison]

Originally posted by Quah
I ran the 50/50 chance of a trade being profitable question past someone I know that has a Ph.D. in mathematics, specializing in statistics to see if he could explain how some outside influence (i.e. the "edge") is accounted for statistically.

I have seen this topic discussed, but I still can't understand how future price movements can be 50/50 in a feedback-dependent system. there would be no trends if this were true.

but I admit I may be missing something here, and in any case, good luck to you.

 

[Quah]

Originally posted by Madison


I have seen this topic discussed, but I still can't understand how future price movements can be 50/50 in a feedback-dependent system. there would be no trends if this were true.

but I admit I may be missing something here, and in any case, good luck to you.

Madison - I think you may have missed my stance on this - which is the same as yours. I don't think it's 50/50.

 

[aphexcoil]

Quah,

True poker, like futures, is a zero-sum game. Gambling at a casino is not.

 

[bennyo]

Originally posted by Quah


Sure, that is possible. Like I said, I have no idea what the edge is here - if there is any, and why it works - if it works.

Sure you have an edge,
- the stochastic, or the direction of the previous bar is an edge.
- Profit < Stop loss, but you win ratio is > 70%, so there is no problem.
- The fixed time periods keep you from overtrading.

So I see nothing wrong with your system.

Originally posted by Quah
As someone else mentioned above, maybe the edge is that is forces a strict discipline - and that removes many of the things that cause bad trades. [/B]

Yes, I agree.
The only thing a trader needs is an edge and DISCIPLINE.

Greetings
Benny,

 

[Gordon Gekko]

quah, there was a previous poster in this thread that said he backtested your system in tradestation.

i just wanted to say that i agree with your opinion that maybe it was not tested exactly as you are trading. not to say that the other guy doesn't know what he's doing, but don't be discouraged because of one test. especially when you didn't even create the test.

keep it up.. i understand where you're coming from with your system.

a note to others: some are questioning why he is entering at predetermined times instead of when HE wants to enter a trade. there is a hidden benefit to this imo. unless you're a great trader, you probably enter at times when YOU THINK it's a great opportunity, but really, it's a BAD time to take your position. by entering at predetermined times, he is being forced to make a trade based on 1 indicator at that time. he could be avoiding some really bad trades.

i agree with bennyo's assessment..