When Indicators Don't Lag

[fortydraws]

so I guess what I am saying is that NOTHING is 100%, be it indicator based or not.

I doubt any price action trader would disagree with you. All DbPhoenix suggested was that the very divergences that indicators signal with a bit of lag can usually be picked up a bit earlier by someone trading price. This can be discovered rather easily if one decides to view price in terms of discreet bars of one's selected bar interval. For example, stochastics measures the close of the most recent bar relative to the range of the most recent n-bars. If the bar of the prior swing low closed on its low, and price has just re-tested that swing low by making a lower low but the current tick is above that low and higher in its range, you might have what we scribblers lovingly call a "dog that didn't bark" long opportunity. Whereas someone trading the indicator alone may also be looking for a long signal - but that signal might first require the current bar to close, thus ""confirming the divergence" and then the netry might require wating for the high of that bar to be broken as "further confirmation. By this point, the price action trader might be close to scaling out with the first batch of profits and moving his or her stop to breakeven. The indicator trader, using bars to frame much of their trading, is thus getting in later, likely using the low of the signal bar as a stop loss, and therefore assuming greater risk.

None of which is 100% for either trader. And one can debate the price action trader's greater information risk vs the indicator trader, but one would need to frame that debate in the context of the greater price risk assumed by the indicator trader.

 

[romik]

...but one would need to frame that debate in the context of the greater price risk assumed by the indicator trader.

That is non-factual statement, conviction based on an assumption or negative personal experience. A lot of posters believe that a high win ratio is key to successful performance and I say your win rate can be negative as long as you don't cancel winning trades at first sign of a possible reversal.

 

[fortydraws]

one can debate the price action trader's greater information risk vs the indicator trader, but one would need to frame that debate in the context of the greater price risk assumed by the indicator trader.

That is non-factual statement, conviction based on an assumption or negative personal experience.

No, this is based on the accepted definitions of "information risk" and "price risk." Again, there appears to be a language barrier. A pity, as I find many discussions here at ET filled with potential for interest and learning are short-circuited by those who resist using accepted vocabulary to frame said discussions.

As a good primer on this subject, I would recommend Justin Mamis's The Nature of Risk. Two other works where this framework can be extrapolated, though not without thoughtful consideration, are Nate Silver's The Signal and the Noise and William Poundstone's Fortune's Formula. I'd recommend Mamis first, as it is the most explicit.

 

[romik]

We are aren't discussing poetry, we are talking how to make money. Your mind is too preoccupied with a potential loss, mine is preoccupied with a potential win. Guys like you close trades at first sign of trouble, seen it hundreds of times. Small stops, small targets, high win rate fixation.

 

[fortydraws]

We are aren't discussing poetry, we are talking how to make money.

There is likely a gap between that no amount of "discussion" can fill. So good luck to you

 

[Buy1Sell2]

That is non-factual statement, conviction based on an assumption or negative personal experience. A lot of posters believe that a high win ratio is key to successful performance and I say your win rate can be negative as long as you don't cancel winning trades at first sign of a possible reversal.

This in truth is the most important aspect of successful trading. Most traders and educators miss the point that this is what a successful trading method has as it's foundation.--Not scribbles.

 

[dbphoenix]

We are aren't discussing poetry, we are talking how to make money. Your mind is too preoccupied with a potential loss, mine is preoccupied with a potential win. Guys like you close trades at first sign of trouble, seen it hundreds of times. Small stops, small targets, high win rate fixation.

The win rate in and of itself is irrelevant if one does not cut his losses short and let his winners run, which is fundamental to the SLA/AMT.

 

[Buy1Sell2]

We are aren't discussing poetry, we are talking how to make money. Your mind is too preoccupied with a potential loss, mine is preoccupied with a potential win. Guys like you close trades at first sign of trouble, seen it hundreds of times. Small stops, small targets, high win rate fixation.

Exactly. The SLA is all about being right at every turn. It never takes into account trade management as evidenced by the numerous students that are taking profit at 4 and 5 points and setting stops inside the noise. One can trade with a less than 50% win rate and be highly successful. This is due to the fact that most winning trades can be let run instead of cut short at the first sign of retrace or pullback.

 

[dbphoenix]

Exactly. The SLA is all about being right at every turn. It never takes into account trade management as evidenced by the numerous students that are taking profit at 4 and 5 points and setting stops inside the noise. One can trade with a less than 50% win rate and be highly successful. This is due to the fact that most winning trades can be let run instead of cut short at the first sign of retrace or pullback.

There are no instructions to take profits at any given level.

There are no stops.

There is no such thing as "noise".

Deaf.

 

[fortydraws]

The win rate in and of itself is irrelevant if one does not cut his losses short and let his winners run

Which is the same as saying that one's edge or mathematical advantage, if one has one, is dependent upon both the win rate and the payoff (odds). This is what those who regurgitate the unthinking 2% risk mantra do not grasp. Money management protocol is developed in light on one's edge, not instead of an edge.

Below is all one needs to know to begin an investigation on one's own as to whether DbPhoenix is on the right side of this or Bu1Sell2 and his flock.

From Edward Thorp's The Mathematics of Gambling:

First, the inability of any money management scheme to overcome a no-edge proposition, trading method, game of chance:

On why a fixed fractional money management system selected in the absence of edge considerations less than optimal. (I would also add that betting 2% of capital if your edge is less than 2% will eventually break your bank).