Profitable system. Now what? - page 4
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Much better E.C.N.
Tighter spreads for your system much better my friend
Thank you
I wonder
whether we could make money either way (either direction)
if we enter in the correct price level -- with reasonable volatility / momentum in that time
This comment makes me think of how often people ask whether the Forex market is random or not. Different people give different answers. The correct answer is that this is not a question that can be answered with a simple 'yes' or 'no'.
The market is a paradox. It is both random and guided at the same time. Which perspective you take up will depend on what you are trying to achieve.
Simply put, the market is random because no method of predicting the future price will consistently work. This becomes clear when you look at huge data samples of the most popular indicators. Technical indicators are simply derivatives of the price. their for they can only tell you what has happened.
This has no actual bearing on what the price may do next....unless it does.
Yet even this is an illusion. The price doesn't respect your indicator, your indicator is simply getting lucky.
The Forex market is incredibly intricate. It's players are many and varied. It is entirely possible for an indicator or a 'system' to move in sync with the market for a period of time and produce profits. Yet, if you were to somehow track that same indicator over many many years the result would be break even or worse.
Why?
Because the market is dynamic, but not in an intelligent way. It has no actual memory in and of itself and it sure as hell doesn't give a damn that your moving average cross is 'supposed' to win on average.
If you say, 'but my system has been working for years!' I will say:
"Then you are an extreme example. All things are a spectrum and you got lucky. Maybe the dynamic of the market will continue to support you, maybe it won't. If you were to somehow use your system for 100 years it would break even."
Every bank and retail broker knows this.
The price is random as far as we mere mortal retail traders are concerned.
Okay, okay, here's the exact reason why: (This is important)
We, as retail traders only have access to the chart. The 'price action' as it's called. We do not have access to order flow.
Order flow is everything. We can't see where the majority of stops are at any given time. We cant guess at who is buying at x time and what their motivation is. All we have is gross volume. I mean gross, as in ugly, because it is. It is utterly useless information.
Unless you know why the players are doing what they are doing the price is random, period, and there is no hope of predicting it on a consistent basis in the way that most people think of it.
A good example of this is the Heiken Ashi indicator. This massager of price data paints a nice, easy to read picture, and it is possible to get lucky with it. Yet, and here's the key, each time you open a trade based off it's signal you have a 50/50 chance of closing in the money or via a stop. That's right, 50/50 and anyone who says otherwise is lying to you.
The price doesn't care where it's been. PEOPLE DO.
The problem comes in when you look at price data, and price flow and say 'price has been going down, heiken ashi has confirmed it, price is about to sink!'.
You don't know who has been selling, you dont know who has been liquidating. Opening a trade based solely on the trigger of a technical indicator is foolish, but assuming that you know what the market movers are doing is even more foolish.
So then, what does matter?
CLUE:
The Herd.
If you are doing what 95% of the retail traders are doing at any given time I can promise you that you will lose your trading account. Forex is a zero sum game. Someone wins, someone loses, every time.
The retail traders that use either fundamental analysis or technical analysis think that they have an edge, but they are all using the same blunt instrument.
We can't SEE it on order books or in the order flow but it is a safe assumption to make.
Because they are all using some form of indicator (news and speculation is an indicator too) they are all actually trading off of pure price action whether they realize it or not and the price doesn't have any memory of what their charts are telling them to do.
The price isn't aware. Some traders act like it's some of slippery God that givith and taketh away. This is fallacy. The price is merely the purest economic indicator.
Supply and Demand. S&D. Get that concept into your head. That's all there is to it. The Herd does not often make correct assumptions of where price will go but the price (a function of supply and demand) has no choice but to be reactive to their franctic buying and selling. And what do they do when they buy and sell? They place stop loss orders. What happens to supply when masses of stops are hit at once?
Do you think the banks are unaware of this?
We, as retail traders can not 'read the books' or have a perfect perception of order flow but we can make certain educated guesses in certain situations.
I'll give you a clue:
Support and Resistance
Though this is not the end all and be all.
So, yes, I treat the market as if it were random.
If you and a friend flip a coin for ten years when you are done what you will see is that the results usually remain about level for each of you but ever so often a trend will develop either way and then come back into harmony.
An astute observer from another planet could surmise that our coins are somehow smart and have a will of their own. It would seem to them that Side A of the coin would want to show it's face more often than Side B and vice versa.
The alien would be wrong. the coin has no memory. What the two friends would observe is sheer statistical noise. Given a large enough sample any data will develope trends.
What does this mean for us? If the price might as well be random how can we make any money?
I will answer this briefly, then I will say no more:
You make money from the people who know less than you.