The Flip-A-Coin trading strategy and lessons learned from it
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Bundle, I've read every post of yours here and I got very sure u are the only guy here who understood what this game is all about. I really think u've found the holly grail.
I got "anchored". When I see, hear the word bundlemaker I feel confident,knowledgable,money. That's why I wanted to hear your comment.
But still speaking about maps, is there a general rule(high level) on how to break one's pattern?
Thanx.
P.S. Yeah that RULE#2 is bewildering. Could u chunk it down a bit?
I got "anchored". When I see, hear the word bundlemaker I feel confident,knowledgable,money. That's why I wanted to hear your comment.
But still speaking about maps, is there a general rule(high level) on how to break one's pattern?
Thanx.
P.S. Yeah that RULE#2 is bewildering. Could u chunk it down a bit?
I've always thought that people can have some success with predicting the future. Why? Because they have brains with which they can discover patterns and anticipate the future course of events based on their knowledge of these patterns. All the scientific knowledge is based on patterns we have found in the nature and have described and explained to a certain level of depth.
When you see a red light you don't flip a coin to decide whether you cross or don't cross the street, right...?
Why should the financial markets be any different?
What eludes most traders is that they are playing on a very even ground and their bets may have only a very small edge over the bets of the competition which is equally smart and informed. We are all looking at the same thing, reading the same books and watching each other. So there are, in my opinion, only two successful bets in the market - 1) that the MAJORITY of traders are less patient and less venturesome than you; 2) that the MAJORITY of traders are less informed and less perceptive than you.
If you can't make one of these bets than you will probably have an advantage if you flip a coin... well, until everybody realizes that they are too stupid to figure out the markets and start flipping coins. Then your edge will inevitably be lost
So in fact coin flipping is not escaping from your responsibility to make reasonable decisions, but may be (just may be) a very reasonable decision to make yourself unpredictable. Just like a goal-keeper may have an edge if he flips a coin to which side to jump instead of trying to read his opponent's intention...
When you see a red light you don't flip a coin to decide whether you cross or don't cross the street, right...?
Why should the financial markets be any different?
What eludes most traders is that they are playing on a very even ground and their bets may have only a very small edge over the bets of the competition which is equally smart and informed. We are all looking at the same thing, reading the same books and watching each other. So there are, in my opinion, only two successful bets in the market - 1) that the MAJORITY of traders are less patient and less venturesome than you; 2) that the MAJORITY of traders are less informed and less perceptive than you.
If you can't make one of these bets than you will probably have an advantage if you flip a coin... well, until everybody realizes that they are too stupid to figure out the markets and start flipping coins. Then your edge will inevitably be lost
So in fact coin flipping is not escaping from your responsibility to make reasonable decisions, but may be (just may be) a very reasonable decision to make yourself unpredictable. Just like a goal-keeper may have an edge if he flips a coin to which side to jump instead of trying to read his opponent's intention...Coffeezoo and Bundle, thanks again!
I'm receiving pms that show there are others understanding the message that Bundle summarizes.
It's great that so many can get a laugh from this thread. Got to admit... Pabst's sarcasm made me laugh as well as someone's comment about my understatement!
Since there's been so much confusion about the title of this post, for the LURKERS, I'd like to clear up something: I would NEVER take a trade on the flip of a coin, period. Please don't do that!! The jokesters have missed that this is a mental exercise; a progression of thoughts to fix bad trading habits. It worked for me and that's why I shared. If you're not yet clear on this, here's an example:
The struggle for certainty (see Bundle's comment) causes paralysis by analysis.
An example trade: Your instrument is in a perfect uptrend, and you're looking for an entry. You want to buy on a pull back. You do a fib extension and project prices will hit resistance at a certain level. Your projection is confirmed by straight line resistance. Prices hit that level and the range of the bars compress. A selloff hits the market and your instrument gaps down on volume higher than you'd like to see (1st bad sign).
In identifying the entry point, you notice that the bottom trendline created from higher lows is intersecting the 61.8 fib retracement on the most recent forward impulse, and the 38.2 retracement of the entire move. With strong confluence of support that reasonably should hold, you enter a limit order to buy your position.
The day after entering your limit order, the market sells off much more aggressively than you expected (2nd bad sign). Volume is scary (another bad sign), indicating lots of distribution. Other instruments you're watching see support get broken (yet another bad sign).
Hmmmm.... What if support doesn't hold... this thing could really accelerate downward.
The doubting begins.... Am I trying to catch a falling refrigerator? Will support hold? It gapped down on higher volume... that's a bad sign. Is the move over? Should I be shorting instead?
As with Bundle's comment, you are now analyzing the potential for the other side of the trade, and sure enough, traders are taking that position otherwise they would not be selling in the first place.
Then it happens. Doubt overcomes confidence, and the limit order is withdrawn.
When prices reach your "now canceled limit order," range bars constrict, demonstrating that support may be taking hold. Further price action shows a "wash and rinse" i.e., prices spike down clearing the stops as the market makers may be collecting inventory. The action leaves a hammer bottom on the chart.
Well, now the trade may not be so bad after all! The chart printed out a hammer, but it's red--not as positive as it could be.
The following day prices gap up about 6 %, barely retrace and then surge forward.
The train has left the station--without you--because that limit order was canceled. Now the choice is to chase--or add it to the stockpile of other missed trades caused for the very same reason.
What happened? paralysis by analysis. The desire for certainty. Hesitation. To overcome this problem, I made the argument to myself that--on even a coin toss, with proper money management, IN THEORY one should be able to make money. So, why not take a position that has odds better than a coin toss? The psychology works this way: have faith in your edge--in that it gives you a better probability than a coin toss--and take the trade!!
Please see daytraderpete's post; he explains it perfectly.
The coin flip mental exercise helped me overcome hesitation. The other FAR MORE SERIOUS problem is getting emotionally committed to a position, because TA backed up with money mutates into a belief. TA says the following: this is support, prices should hold and reverse. You find confluences and therefore come to the BELIEF this is the case. Support breaks. TA says THINGS HAVE CHANGED and prices are going lower. NOW you are in conflict, your BELIEF is in conflict with the most recent evidence, and besides that, you're losing money on the position. The thinking goes.... maybe if I just hold... surely I'll have an opportunity to get out even. Now a belief has mutated in to hope. Tunnel vision sets in.
One cannot trade on beliefs, period!! If you look at your entry point as nothing more than a coin toss with an edge, you have to recognize there are only two possibilities: prices move in your favor or they don't. You ONLY have an edge, NOT a guarantee. If you follow beliefs, you'll give away your money. If you follow a trading plan based on TA, money management, and a clear understanding--and acceptance--of probabilities, well then (draw your own conclusion)...
I hope this clears it up.
profound comments...
excellent advise
couple that with the training that you should buy into winners as they have proven a base and continue their winning direction (that allows for shorting falling stocks, and buying rising stocks), instead of whinning about the ones that got away or not getting in at the turning point.
couple that with participation is the objective and goal, not perfection...participate more often than one does not and one should in theory, WIN.....
cheers to all
what a surprise this year has been
How about this: There is no successful entry/exit strategy that is based on Price vs. Time Graphs alone! No matter how you slice it. It is simply not enough! It is like driving your car looking in your rear view mirror only. You can only see what has already happened and have no idea of what is about to happen! It is more fruitful to predict cloud patterns lying on the beach. âOh, look, this cloud looks like head-and-shoulders, let's go long!â I also can tell you that trends (the way everybody understands them) do not exist! If I flip a coin 10 times and 10 times it landed on heads does it mean that I am in a "head" trend? Can I predict anything from it? It will take some of you months may be years to realize this but you will come to the same conclusion. So, what is the answer? I'll tell you. But before I do let me hear the response. May be I'm just wasting my time talking to cement heads that are still convinced that there is a magic chart pattern that you can find and live happy ever after!
I like the analogy with the rear view mirror
I do believe however that trends tend to continue and you can bet on that. It's human psychology in action. But I want to hear your conclusions from the statement that "...trends (the way everybody understands them) do not exist!" Thank you.