thoughts on harmonic patterns?

[spectastic]

I don't know why my last post quoted so strangely...

A low win-rate is just not going to cut it. The only way to get around that is through creating unique payoff structures through options. But if you're trading stocks and are profitable with a low win rate, then you are just lucky. Low win rate profitability = luck.

why not? if a trading system has a 30% win rate but an average of 4/1 payout/risk, that's still a profitable system. The guys I mentioned have r/r that exceed 4/1 because they can find good setups, are quick to admit they're wrong, aren't afraid to reenter when the trade makes sense again, but are also wise enough to not revenge trade. I can see why hedge funds might have problem with this kind of strategy because they're not 1 click away from stopping out. But I don't see how this is blind gambling

However, I can see how for an intraday trader, a higher win% is needed because intraday movements don't typically provide as much trading range as larger time frames, and they tend to be very choppy. which means the opportunities to find highly asymmetric r/r is much more rare.

My contention with your process is that it is not very informative. E.g. you actually do not know if big money is moving or not, because 1) large traders obfuscate their trading 2) most trades are crossing dark 3) you do not know the direction of the trade unless you know what their initial position was 4) technical data (price, volume, etc.) is not enough to know the intent of someone.

Also, just know that every portfolio manager and their mother is trying to do this. And the most advanced ones spend hours on the phones talking to their sales coverage, buy side peers, and others in order to put their finger on the pulse of the market (e.g. positioning). When you are trading in the market, you are competing against some of the smartest people for each penny. You cannot cook a Michelin starred meal without the right ingredients, tools, and knowledge.

but I don't wish to know the intent of any specific big trader, their position size, average price, investment horizon, or if their intent is actual investment or delta hedging. I only care about the tug of war between the aggregate buyers and sellers, and who I think will win in the next few days or weeks. And even if I'm wrong, that's ok because my risk was predefined. Afaik, this is the general process that a lot of prop traders use, but by your notion, all these guys are winning by blind luck too. So it just doesn't really add up

General stock directions are fine because they are a signal of momentum. There's a lot of autocorrelation in asset prices (e.g. momentum factor) and thankfully you don't need to be super sophisticated in order to spot a rising trend. However, true momentum is cross sectional, which means you can improve your results by ranking the stocks on your watchlist.

Going back to catalysts -- those are the things that really set the tone for a stock or create volatility. I would not buy a stock that is hitting ATHs after missing estimates & lowering guidance.

yep, hence studying a few setups and ranking stocks by how they look according to many many hours of looking at that particular setup play out or fail.

 

[longandshort]

why not? if a trading system has a 30% win rate but an average of 4/1 payout/risk, that's still a profitable system. The guys I mentioned have r/r that exceed 4/1 because they can find good setups, are quick to admit they're wrong, aren't afraid to reenter when the trade makes sense again, but are also wise enough to not revenge trade. I can see why hedge funds might have problem with this kind of strategy because they're not 1 click away from stopping out. But I don't see how this is blind gambling

Let's put it this way. A professional trader would look for "setups" by backtesting data (fundamental, technical, etc.). The data would need to show a positive return (this means the return > risk) can be generated in order to be considered.

Backtesting looks something like this:

The professional trader then analyzes it for drawdowns and risks in order to improve risk management.

Once done, they place live money behind the trades and start to build a track record in that trade.

If they are getting a sub 50% win rate, then it means that they are not successful in identifying the trade in the first place.

but I don't wish to know the intent of any specific big trader, their position size, average price, investment horizon, or if their intent is actual investment or delta hedging. I only care about the tug of war between the aggregate buyers and sellers, and who I think will win in the next few days or weeks. And even if I'm wrong, that's ok because my risk was predefined. Afaik, this is the general process that a lot of prop traders use, but by your notion, all these guys are winning by blind luck too. So it just doesn't really add up

When you say "prop guys" do you mean randos that day trade, or prop trading firms like Jane Street, Susquehanna, etc.? Legit prop trading firms have a very detailed understanding of market structure.

I think there's an expectations gap here. You can make a lot of money trading, but you won't make it by analyzing charts for the right "setups". You need to study what actually drives prices to find what right combination of things leads to an asymmetric payout that you should buy fast and in size.

Just as a comparison with the above backtest -- this is why a lot of professional investors believe in the "value factor":

 

[SunTrader]

LaS,

Professional traders don't use daily bars to test a strategy - though I see you said "backtesting looks something like this".

 

[murray t turtle]

LaS,

Professional traders don't use daily bars to test a strategy - though I see you said "backtesting looks something like this".

%%
OK;
some of them use candles. BUT IBD still uses daily red\ white + blue bars/charts. IF 95% dont use daily bars, fine with me/ i use candles more...............................................

 

[longandshort]

LaS,

Professional traders don't use daily bars to test a strategy - though I see you said "backtesting looks something like this".

That's true, professional traders use log changes of set intervals.

 

[SunTrader]

That's true, professional traders use log changes of set intervals.

And LIBB

 

[easymon1]

Stop-Gap Matters.

 

[murray t turtle]

Stop-Gap Matters.

%%
Stop-gap matters;
continuation gaps also................... Including but not limited to daily charts also.

 

[murray t turtle]

Is it a coincidence Scott Carney and Scott Warner's names are identical except for two letters and both teach market geometrical gibberish with no track record? You can find the Scott Warner thread (someone selling his "bargain" books for hundred$) near the top of today's posts.

%%
$100 books\ sounds like that is a violation of a good PT JONES trading RULE= NEVER play macho man with market[ books] ,overtrading .LOL,

 

[MKTrader]

%%
$100 books\ sounds like that is a violation of a good PT JONES trading RULE= NEVER play macho man with market[ books] ,overtrading .LOL,

Speaking of guys named "PT" don't forget PT Barnum's famous quote "There's a sucker born every minute." And a little more word association: PT Barnum of Barnum & Bailey's famous circus and Scott Carney (carny = carnival)? Maybe there's a conspiracy here involving circuses, con men and exotic trading techniques.