|
PureBytes Links
Trading Reference Links
|
>Just thought I would share how mean the market can be sometimes.
>
>I have been paper trading, and have had 4 losses in a row. So I was
>nervous to get a good trade. My system uses entry signals but it is
>descretionary as to when to get out. I got a signal today and the
>market moved in my direction. I got out one tick before the market
>continued in my direction. Then I got another signal. And again
>I got out 1 tick before the market moved strongly in my direction.
One thing that might be useful to keep in mind is that in a system
that is correct 50% of the time (which is typical of most trading indicators
and flipping a coin too) strings of losers and winners will approach 15 in
and row. In other words, if a coin is flipped 1000 times, probably (key
word)
at least once, heads will occur 15 times in a row, tails 15 times in a row
also.
There will be even greater occurances of 10 and 11 heads in a row, and
numerous runs of 4 and 5. Very few indicators are better than a coin toss.
The same can be true of winning and losing trades. Those strings of losers
will occur even more frequently in a system that has 40% winners. A winning
system only needs bigger wins by a certain percentage. The probability
of winning times the average win minus the probability of losing times the
average loss just needs to be greater than zero to generate profits over
time. A casino wins about 55% of the time - they wired it into the rules
of the game. With only a 5% edge, they can pay all of those employees,
give away free drinks and meals, build lavish palaces and subsidize travel.
The casinos in New Jersey alone, paid taxes on $6 billion from the take
on slots alone in recent years. Your broker and and his colleages in the
pits get about 5% slippage and commission. If you use a use just about
any indicator it's going to be "right" about 50% of the time, leaving you
with
a 45% system. You just have to make sure your average win is greater
than your average loser, and not quit just because you started off with
that string of 15 losers in a row.
Flippantly,
Ted
|