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Most people who advise would-be futures traders advise them to trade
using a mechanical system. In fact these advisors will state that
one of the primary reasons for traders losing money is either not
having a mechanical system or not following the mechanical system.
A glance through futures magazines or other publications will
reveal a heavy concentration of articles about systems and
advertisements for mechanical systems. Many of us receive
advertisements through the mail or over the telephone for mechanical
systems. So it is true that mechanical systems are the backbone, so
to speak, of futures trading. Very few people approach futures
trading without some kind of mechanical system, and that behavior is
encouraged by the futures industry.
Why is that? Is is because mechanical system trading is
profitable? I don't think so. Of all the commercially available
mechanical systems, how many of those do you think are actually
profitable in real time trading even assuming that the trader
will religiously follow each signal? How many personally developed
mechanical systems allow the trader to profit? Well, the presence
of forums like these, and the great number of "new" mechanical
systems that come out each year argues against ANY of
the mechanical systems actually being profitable. After all, if you
could just plunk down some money, buy a mechanical system, trade it
and make money, what would there be to discuss? It would seem to me
that IF mechanical system trading is profitable, then with the great
number of mechanical systems available, the discussion about how to
make money trading would be a moot point, because instead of trying
to figure out how to trade profitably, traders would instead be
following their mechanical systems and making money. Obviously, if
90% of traders lose money, and they are virtually all using
mechanical systems, then either the "magic mechanical system" hasn't
been marketed yet or mechanical system trading in general is not
profitable. (Of course that assumes that we ignore the con line
that "most people don't have the proper discipline.") So
we have dispensed with the idea that mechanical system trading is
promoted because the promoters believe it is profitable. But that
still leaves us with the question of why mechanical system trading
is promoted.
To answer that question, we can go again to gambling for an
illustration.
Mechanical Systems are also very popular in gambling, not with the
occasional vacation gambler, but with the devoted gambler, who is
not unlike the devoted futures trader except in the minds of those
traders who imagine themselves to be somehow "better" than "mere"
gamblers. Of them I say let them wallow in their own fantasy. But
for people who have an open mind and are not afraid to face facts
from some other related activity, gambling illustrations can be
very beneficial.
Casinos love mechanical system gamblers. In fact if you are a
mechanical system gambler, the casino will go out of its way to do
anything necessary to make you happy. They will give you free rooms,
food, entertainment, and sometimes even free transportation.
Obviously they don't do that just because they want to be
nice to you, they do that because they know they will profit
handsomely from a mechanical system gambler.
Let's look at two gamblers, Joe and John. Joe is on a vacation, and
he decides to pass some time by gambling. So he is walking by a
craps table or a 21 table and decides to try his luck. He may buy
in for several hundred dollars, play a while, lose some money,
say "This sucks," pick up the rest of his chips, and walk away. The
next day he may try again, and this time he may make a few dollars.
But he will probably leave town losing only a little money. Of
course the casinos were glad to have him, but he is really a
"small fish." John, however, is another story. John is a
mechanical system gambler. He comes to town with several thousand
dollars and armed with a brand new mechanical system, he developed
or modified. All the casino personnel know him by name, because he
has been there so many times before. However, unlike futures
traders, John most likely realizes that his mechanical system will
not negate the house advantage, but he likes to gamble and realizes
that he can gamble most effectively with a mechanical system. John
will buy in at a table for perhaps $2000, and he won't just make a
few bets like Joe did, he will play for hours each day. Now the
casino knows that over the long run, they will profit by the house
percentage on every dollar placed in action. Even if John plays
only the "best" bets, and even if he hedges, and even if he calls
bets "off" sometimes, he might well place that $2000 on the table
ten times or more during the day. That is the same to the casino
as placing $20,000 on the table, for the house percentage is on the
amount bet--each time a bet is made--not on the amount a person buys
in with. In other words that $2000 is recycled over and over again.
With that $2000, it is very possible that John can make $20,000 or
more worth of bets. The casino likes John, and he probably never
has to pay for a room, food, show, or companionship. They like John
so well because they know that they will eventually grind him down
due to the house advantage, no matter what mechanical system he
uses. From the perspective of the casino, the benefit of a
mechanical system is that it keeps a "trader" in action a long time,
and gives them a large number of "trades" over which to realize the
house advantage. Casinos are not afraid of mechanical systems, even
card counting mechanical systems, because, after the initial
panic, they have learned over the years that the supposed benefits
of card counting turned out to be a paper tiger. This is
illustrated in the growing number of casinos that advertise "Single
Deck 21" to draw the card counters to their demise.
Anyway, the futures industry likes mechanical system traders for the
same reason the casinos like system gamblers. Trading a mechanical
system involves commitment. If you can get a trader to "believe in"
a mechanical system, you can bet that he will make a large number of
trades. Since the futures industry makes its money mostly off of
slippage and commissions, the more trades someone makes, the
better. There is a lot more slippage and commission to be made off
of 100 trades than 10 trades. Really, the futures industry is a
relatively small industry, and there are relatively few traders.
Thus the industry must make the most out each trader. The best way
to do that is to maximize the number of trades each trader makes,
and the best way to do that is to get him to trade a mechanical
system.
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, Al Venosa <advenosa@xxxx> wrote:
> Thanks a lot, George and Scott. I very briefly read the article
Scott
> referenced, admittedly without studying it in great depth.
However, I
> found the explanations so convoluted and confusing as to have
limited
> usefulness. I guess if you really wanted to learn the system,
you'd have
> to buy Fisher's book, which I am not adverse to doing. When I get
a
> chance some time, maybe I'll do that. Thank you, George, for your
> explanation. I prefer totally mechanical systems, especially since
I
> have a full-time job, unable to watch the monitor all day to make
> discretionary decisions. I'll keep this reference handy for the
> not-too-distant day when I retire. The system looks promising, and
I'm
> glad to hear you are successful using it. Have you developed entry
and
> exit code in afl yet? Do you think it could be made into a fully
> mechanical system without discretionary decision-making?
>
> Regards,
>
> Al Venosa
>
> Geo Singleman wrote:
>
> > It is not a system, it is a methodology, for which credit goes
to Mark
> > Fisher, who is a NyMex energy trader/local and has a clearing
> > operation for
> > energy futures. The methodology called ACD is explained in his
book - The
> > Logical Trader.
> >
> > It is a simple Opening Range breakout system with additional
nuances based
> > on daily pivot ranges.
> > Simply stated, it is as follows:
> > On a good A Up, your bias is on the bullish side and you go long.
> > Good A Up is when the price trades for at least half the time
used for
> > determining the opening range. e.g. if 15 minute OR, then price
must
> > trading
> > certain number of ticks above OR High for 7.5 minutes for it to
be a
> > good A
> > UP. Same with A Down, where you get a bearish bias and must
think short.
> > There are other layers such daily pivot range and price behavior
at or
> > through the pivot range. The OR time period and the offset
depends on the
> > tradable and its volatility profile.
> >
> > I trade this method and make a living at it. It is not
mechanical and
> > a lot
> > of discretion is involved in determining trade locations and
size. What it
> > does give you is a way to define the risk so that you have a
clear trading
> > plan - especially if and when the market proves you wrong.
> >
> > Geo
> >
> > ----- Original Message -----
> > From: "Al Venosa" <advenosa@xxxx>
> > To: <amibroker@xxxxxxxxxxxxxxx>
> > Sent: Friday, October 01, 2004 02:54 PM
> > Subject: Re: [amibroker] Awesome trading system
> >
> >
> > > The "system" is not a system, since it has no
buy/sell/short/cover
> > > statements in the code. I copied it into the IB and plotted
it, but I
> > > have no clue what I'm looking at. Anyone care to explain what
it's all
> > > about or why it's awesome?
> > >
> > > Al Venosa
>
>
>
> [Non-text portions of this message have been removed]
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