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I believe all traders should apply the "smell" test to anything read or
heard regarding profitability ... traders who find extreme high
profitability techniques generally trade them rather than publish them.
Researchers, i.e. non-traders, who find such systems generally partner with
traders to trade them. Many good techniques lie in the 50%-60% range -
shockingly low to some I am sure!!! One may filter or combine techniques to
improve the percentages but the market is a fickle master which despises
certainty. When the technique is well understood, a failure often provides
high probability trading information. The value in many of the better
techniques lies not in their probability, but in the ability to manage risk
at low levels e.g. a failure signal occurs close to the entry point and
drawdowns are small. Additionally, or alternatively, the better techniques
identify trades which have a high probability of running well when
successful i.e. the profit to loss ratio is far more important than the win
to loss ratio. Thus a technique which is profitable 40% of the time with a
4:1 profit to loss ratio will return more than a technique which is
profitable 75% of the time with a 1:1 profit to loss ratio ... whether the
trader has the stomach for a 60% losing trade ratio is another matter. In
any event, all techniques employed in trading should be thoroughly tested
and understood by the trader so that the trader understands the strengths
and limitations i.e. where and when the technique works or fails.
Earl
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