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AC,
In trading, it's often called "the search for the holy grail" (the
search for some pattern or indicator that guarantees profitability).
There is none.
Suppose that every morning when you wake up, somebody offers to take
the other side of a bet, should you decide to make it: "It won't rain
today." You have to decide to make this bet, or pass on betting, at
sunrise.
If it doesn't rain at all, you win some interesting sum of money
strongly linked to how much you initially bet. But if one single
raindrop falls, you begin losing money, and you lose increasing
amounts of money the more rain that falls. However, if the sidewalks
are completely dry by sunset, you don't lose anything, but you are
required to bet against rain again tomorrow, even if it's raining at
the moment of sunrise tomorrow morning. But if the sidewalks are
still wet at sunset, you lose some painful multiple of your initial
bet.
Should a single raindrop fall, you have to immediately decide whether
to take your small loss, or go for completely dry sidewalks at sunset
and a possibly better tomorrow. But the more it rains, the more you
lose if those sidewalks are still not completely dry by sunset.
Indicators?
Would you bet against rain on a cloudless sunrise, or a sunrise that
was overcast? How about overcast with thunder rumbling in the
distance? Might you consult an almanac to see what the odds have
looked like in the past (forget about "common sense" for the moment)?
If you could use sky condition *and* relative humidity (at sunrise),
you might be able to get an even better historical perspective. How
about those two, plus wind direction? I'll even let you use a
barometer, but only once a week. ^_^ (Your "weekly" indicator.)
But, and most importantly, would the bet, in any case, ever be
risk-free?
(Of course not, weather is enormously complex, subject to something
called the "butterfly effect", and, guess what, that sounds at least
a bit like modern casinos -- er, I mean financial markets.)
Could you be wrong quite a few times consecutively, even with
multiple indicators that *tended* to be accurate in the past, and if
this were true would it have any effect on your bet size,
particularly your bet size relative to your total assets?
But the really big question is always going to be: "What will you do
if it starts to rain?"
Sometimes you will observe that there is but a single rain cloud,
with lots of fair skies around, and you may decide (and may be
correct) that it's worth going for dry sidewalks by sunset and a
possibly better tomorrow. Sometimes you'll be right; and sometimes
the skies will just suddenly get darker and darker, despite what you
thought. Sometimes you'll get your dry sidewalks by sunset, but it
will be raining buckets at tomorrow's sunrise.
Now you know everything you need to know about trading, really. You
need to know what (occasionally very fallible) indicators *tend* to
point toward "no rain", and then you need to have a plan for when it
unexpectedly starts to rain anyway.
Experience, eventually, will help you decide when to let the bet run,
and when to run from the bet.
Oh, and there's one other thing you need to know: Trading tends to
be conducted only during monsoon season. ^_^
Yuki
Sunday, March 25, 2007, 10:11:32 AM, you wrote:
d> I started out thinking this indicator with that would be a magic
d> bullet. When I found out that long-term things didn't work out, I
d> tried using different settings - and then combining different
d> indicators, etc...
d> I soon came to the conclusion that ANY indicator will make you a
d> profit during a trend, but that same indicator will lose you most if
d> not all of that money during a ranging whipsaw market. I have not
d> found an indicator/combination that:
d> 1. Keeps you out of a whipsaw market
d> 2. Alerts you to a trend - but not too late whereby you miss most of
d> the move.
d> Maybe I have not found the right combination, and I don't think it
d> exists.
d> However - comments for discussion are welcome.
d> AC
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