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Top Tenets of Mechanical Trading
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Top Tenets of Mechanical Trading

  #1 (permalink)
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Top Tenets of Mechanical Trading

Saw this over at Forex-TSD and thought some of you might enjoy this

1. If you cannot quickly recite the daily, weekly and monthly support & resistance values for any pair you're planning to trade with an EA, you shouldn't be trading.

2. If you can't manually calculate the currency exchange conversion values for any pair you're planning to trade with an EA, you shouldn't be trading.

3. If you cannot read and understand the code of an EA you're planning to trade with, you shouldn't be trading with it.

4. If you haven't learned to successfully trade manually for at least a year or two, you shouldn't be mechanically trading trading with an EA.

5. 99% of all EA's are destined to fail. Some sooner, some later.

6. Technical indicators don't work. They're a big fib to appease retail traders.

7. Knowledge of only price action, a few key patterns, and support/resistance is necessary to trade.

8. If you cannot quickly name the 10 key news events and their dates/times during the upcoming month, you shouldn't be trading.

9. You're worst enemy in trading is your broker.

10. Broker Pip spreads are only a portion of your trade cost. You are regularly gouged by slippage costs. If your EA has a default slippage value of 3, guess what your typical slippage will be? If it's set to 4, guess what your typical slippage will be?

11. The only EA's that will be profitable are the ones that are cleverly designed to out-fox the brokers and other insidious market forces by resorting to tricks, gimmicks, and smoke & mirrors tactics.

12. Any EA's freely available publicly will lose your trading account.

13. 95% of "traders" on public forums are as uneducated as you are about trading. Be wary of free advice.

14. The average trader who is persistent and lucky enough to eventually become a profitable trader regularly will first lose $20K - $30K in the markets and spend another $10K on books, lessons, eBooks, subscriptions and software. The rest will perish somewhere along that path.

15. The amount of time you are "exposed" in the market through active trading, either manually or mechanically, is inversely proportional to your profitability success rate.

16. Two high probability trades yielding 15 pips each and using a lot size of 50 is all you need each week.

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  #2 (permalink)
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  #3 (permalink)
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Quite depressing but true


Yes - I can concur with most of that - how did he know it was 20K - spooky.

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  #4 (permalink)
Big game hunter
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I probably agree with all of that but ......

I have always wondered how anyone " knows " these stats like the 99% of EAs fail or the famous " 95 % of all traders bust out " . Who tracks everyone who has ever traded ? or lost it all ? is it even possible to do ? My point is its an opinion ( one I agree with ) . I respect the intention of these folks since they try to warn us of the pitfalls but in my experience all the good intentions in the world wont stop people from crashing and burning . If you try to share the truth with someone seeking advice and they dont like it theyll just keep asking until someone tells them something they like .

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  #5 (permalink)
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Remember, I think the majority of these people (myself included) include traders who quit as failures.

They may have quit before they blew up their account, but they still quit, so I don't see them as succeeding or as successes.

So if you look at it that way, plus the knowledge of how many people do blow up accounts, then it's not hard to imagine the 90-95% number to be accurate.

But I agree with you in questioning the scientific nature of the number itself.

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  #6 (permalink)
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Good stuff.

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  #7 (permalink)
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Eric j View Post
Who tracks everyone who has ever traded ? or lost it all ? is it even possible to do ? My point is its an opinion ( one I agree with ) .

Well, actually there are statistics, and you don't have to track everyone to produce acceptable statistics. There are studies are out there, if you search for them. I'd prefer the ones by university economists to the ones by advocacy groups.

One of the rare futures reports I've seen (most studies cover stocks) said something like: most traders get hurt fast and quit after just a few trades (over 90%). Of those that don't quit quickly, about 2/3rds lose money to 1/3rd who win. I don't remember the details but that was the gist of it. Google can find it. But, before you get too excited about 1/3rd of them being winners, there is a power law in effect. In other words, the majority of the winners didn't hardly win anything. That finding is consistent with what "The Poker Face of Wall Street" book contends, and it matches the distribution of poker winners as well. Most long-time players just kinda hang in there, barely subsisting or dying the famous death of a thousand cuts.

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  #8 (permalink)
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Richard View Post
Well, actually there are statistics, and you don't have to track everyone to produce acceptable statistics. There are studies are out there, if you search for them. I'd prefer the ones by university economists to the ones by advocacy groups.

One of the rare futures reports I've seen (most studies cover stocks) said something like: most traders get hurt fast and quit after just a few trades (over 90%). Of those that don't quit quickly, about 2/3rds lose money to 1/3rd who win. I don't remember the details but that was the gist of it. Google can find it. But, before you get too excited about 1/3rd of them being winners, there is a power law in effect. In other words, the majority of the winners didn't hardly win anything. That finding is consistent with what "The Poker Face of Wall Street" book contends, and it matches the distribution of poker winners as well. Most long-time players just kinda hang in there, barely subsisting or dying the famous death of a thousand cuts.

That might be true ...... I personally know one trader that trades since 10 years and makes a living only by trading ..... so I think that if you are really motivated but also talented .... you can still make a living .....

Do not be discouraged however .... I am currently applying trading techniques to manage my portfolio(Stocks and FX) (coupled with fundamental analysis) and these work great ! maybe many get killed beause they use a much to short time frame ......

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  #9 (permalink)
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Eric j View Post
I have always wondered how anyone " knows " these stats like the 99% of EAs fail or the famous " 95 % of all traders bust out " . Who tracks everyone who has ever traded ? or lost it all ?


Big Mike View Post
So if you look at it that way, plus the knowledge of how many people do blow up accounts, then it's not hard to imagine the 90-95% number to be accurate.

But I agree with you in questioning the scientific nature of the number itself.

There are studies on these topics which can give you a ballpark estimate.

In (1) they found that 70% of the studied day traders lost money during 1997-1998. Only 10% of the studied population traded in a way so that the risk of ruin wasn't 100%.

In (2) they found that approx. 80% of the US day traders wasn't profitable.

In (3) they studied the day traders in Taiwan and found that more than 80% lost money, but that there still was clear evidence of a small unit of day traders that was continuously profitable.

In (4) they studied Finnish day traders and found that only 30% had solid profits, i.e. 70% lost money in the end.

So, as Mike said, it is not hard to imagine that the number 90%-95% could be correct, but the real distribution is probably more like 70%-95%, depending on how the market microstructure for the security in question is at that time.

References:

(1): SHELLENBERGER, 1999, Report of the day trading project group.
(2): JORDAN och DILTZ, 2003, The profitability of day traders
(3): BARBER, 2005, Do individual day traders make money? Evidence from Taiwan
(4): LINNAINMAA, 2005, The individual day trader

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  #10 (permalink)
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You have don very nice points.The technical approach to a stock trading strategy is based purely on price action. A technical trader is not influenced by any factors of the security which are not reflected in the price action of the security.Any trading strategy starts with a universe of securities from which you can make your selection.I have never tried to pass a value from one indicator to another indicator.

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