TECHNIQUE: After three profitable trades, skipping the next setup.

If you flip a coin and come up heads 10 times in a row, does it increase the odds that your next flip will be a tail?

No, it does not.

And unless your system specifically calls for you to skip the next "X" trade, the probabilities of it being a loss or a gain are the same as any other trade. You'll be guilty of inserting your own feelings of caution, thereby negating your system.
 
lindq said:
If you flip a coin and come up heads 10 times in a row, does it increase the odds that your next flip will be a tail?

No, it does not.

And unless your system specifically calls for you to skip the next "X" trade, the probabilities of it being a loss or a gain are the same as any other trade. You'll be guilty of inserting your own feelings of caution, thereby negating your system.
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True, generally speaking.

Also, after a series of winning trades, it would suggest that his system has recently been in synch with the market. That would hardly be the time to abstain. If anything, when he experiences a painful string of losing trades, perhaps that would be an opportune time to tighten selection criteria, at least until the rough patch is behind him.

P.S. Just to put a finer point on it, I guess I'm saying that a sequence of trades is not necessarily quite as independent as a series of coin flips, because the former is somewhat dependent on market conditions at the time in relation to what the trading method is geared to trade. Heck, even otherwise random coin flips would not be independent if the coin was not perfectly balanced and fairly tossed. So underlying conditions play a role.
 
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speedo said:
No one know if the next trade will be a winner or a loser. If your system has a positive expectancy, the more signals you take (while observing your trade management rules), the more you will gain over time.
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True. But some market conditions are more conducive than others for a given method. Therefore, not all setups are necessarily created equal (irrespective of subsequent outcome). I was just suggesting that trading should probably be less aggressive on the heels of a losing period, in terms of both position size and criteria.
 
Frederick Foresight said:
True. But some market conditions are more conducive than others for a given method. Therefore, not all setups are necessarily created equal (irrespective of subsequent outcome). I was just suggesting that trading should probably be less aggressive on the heels of a losing period, in terms of both position size and criteria.
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More than a few times, I've walked away from a choppy market to come back hours later to find the cleanest stair-step patterns you would want.
 
Iwilldoit said:
the probability of having a fourth profitable trade will be less (on average)?
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Not unless there's some specific, market-related reason, pertaining to the set-up, why three profitable trades are more likely to be followed by a loser.

Which seems very unlikely?

Otherwise it's just the gambler's fallacy, I think, like waiting for three consecutive reds before betting on black at roulette? That has absolutely no logic at all. Once you have your edge, you should exert it in the market at every possible, qualifying opportunity to do so.

And yet, when the original "Turtles" were taught, a similar rule was indeed part of their training and instructions (which I never understood).

For myself, I'd want to see overwhelming, statistically significant proof that three winners are more often followed by a loser, before taking this idea seriously at all.
 
speedo said:
More than a few times, I've walked away from a choppy market to come back hours later to find the cleanest stair-step patterns you would want.
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Believe me when I tell you that I feel your pain. But what would have happened if you relentlessly kept trading that chop, in and out, in and out? In any event, I'm not suggesting that the trader should necessarily abstain, but rather to be more selective on setups. And there is nothing to prevent him from going full throttle again when the chop breaks. Getting in early is great, but it can be unnecessarily expensive during unfavorable conditions.
 
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