Seriously. I mean. Well, I have heard people mentioned some of the following concepts before. But you know, in another moment, we would hear others saying the opposite. This is how trading is like. Now, allow me to spark some new controversy:
Most, if not, all trading strategies don’t work
Now we have strategies based on fundamentals, technical indicators, mere price action, or even magazine covers… Have you ever come across a trading strategy that has a success rate of 80% or more? Now, I have to qualify this. If it is a trading strategy based on daily charts, then it has got to have that success rate for more than 3 years. If it is a trading strategy based on 5-minute charts, then it has got to have that success rate for more than 3 months. Ok, the above values are fictitious, but you get what I mean. The period for judging the success rate of that strategy has to be significant enough. One hit wonders don’t count.
If you subscribe to tradersinterview.com, you would hear that most of the successful traders trade with strategies that wins at most 60% of the time, and that is considered very good already!
Then came along a EXPERT expert advisor (EA) developer friend. Since he started EA development 2 years back, he had coded over 30 strategies into EAs (some from well-known forex educators too) and unfortunately, not many could even hit the 50% mark.
Most, if not, all technical indicators don’t work
For the same EA developer friend, getting EAs to backtest with technical indicators is a simple task. And when he does backtesting with an EA, he is not merely looking at 6 months or 1 year or historical data. He can get his EA to run over 5 or 10 years worth of historical data in 1 night! From his very mouth: “INDICATORS DON’T WORK”.
Trailing stops are not the most effective
This one is difficult to stomach. It seemed so profitable at first. You know, when you are profitable, keep on adjusting your stops as the price continues to move in your direction and capture as much profits as you can. This same EA developer friend (again!) has deduced from his EA that for the long term, trailing stops are not as effective as “soft stops” (This is proprietary, so don’t ask me what is it). Mainly because it is tough to determine the right value to trail behind with as the market changes and this limits profits.
It is difficult for humans to trade emotionlessly
This is from Ray Barros. He shared that even traders at his level can also be affected by emotional disturbances. In particular, he shared an instance of how he forgot to put a stop when he had to rush to the airport on hearing that a relative is critically ill. In the end, a winning position turned into a losing position. How true, certain circumstances is really inevitable.
Position sizing is the key
If you had attended our meetup back in Feb 09, you would have already be blown away by a pro EA developer friend’s presentation. Here are his presentation slides (Registering for an account at Meetup.com and joining the Automated Forex Meetup group is required to download the slides). In essence, he showed the equity graph of trading a pivot strategy without and with proper position sizing. And the equity graph with proper position sizing applied is a up, up and away 45% equity graph!
Ebb and flow
This concept is up for discussion. Only 2 traders told me about this to date. Ray Barros discussed Ebb and Flow in his blog. Essentially, the concept behind is to take a larger position when things are going your way and vice versa.
Now, any other proven concepts that you would like to share?
in post image by ĻiĻ Pië
If you find this post or this blog is helpful to you in any way...do consider buying jmot a kopi (aka coffee)!
Facebook Group
The only way to be truely satisfied is to do what you believe is great work and the only way to do great work is to love what you do… - Steve Jobs
I disagree with some of the points stated above. However, I agree fully on the position sizing. I think that is one critical point to be a successful technical trader.