Goomboo's Journal

[Goomboo]

So you never act on a signal until after a full 24 hour bar has posted, and then you just take the current price as the exit price?

Correct - all of the decisions I make are on the daily timeframe.

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[Goomboo]

Here's an update on the performance of the hourly trading system under the highest Mt. Gox commission of .6%:



A couple of things worth noting:

• The system performance before any trading expenses is a 2,437% gain since the beginning of the year
• This assumes no slippage from crossing the bid-ask spread
• This assumes no commissions
• This assumes no delays in execution
• When factoring in a .6% Mt. Gox commission, trading the 10/21 crossover resulted in a net gain of 484% since the beginning of the year

Here's a breakdown of the monthly performance of the system, assuming a .6% Mt. Gox commission:



Here is a graph showing the performance of the system assuming the lowest Mt. Gox commission of .25%:



A few things worth mentioning:

• Paying the lower commission of .25% resulted in a net gain of 1,278% since the beginning of the year
• This commission currently only applies to accounts trading more than 500,000 BTC per month: as trading size increases, systematic performance will vary due to increased slippage

[Goomboo]

In order do well in this business, you must be able to admit your mistakes.  As I have shown through backtest and statistical example, a trader can be radically successful by only being correct 30% of the time.   It is very important that the aspiring trader grasp this truth: the percentage of the time that you are “right” is irrelevant.  What matters is that your losing trades are substantially smaller than your winning trades.  For example, if you structure your trading in such a way that you lose $1 when you’re wrong but make $3.00 when you’re right, you only have to be right 26% of the time to make money in the long run.


I would say that most traders who lose money mentally understand this example.  It isn’t too difficult to grasp that if a winning trade is multiples larger than a losing trade, you don’t have to be right too often to make money.  Most traders are simply unable to do this, however.  Simply said, people don’t like being wrong.  We tend to have unhealthy egos which prevent us from quickly admitting mistakes, but this is exactly what must be done to successfully trade.


What typically occurs in the trader’s mind is rationalization.  He invents a myriad of excuses to stay in a trade rather than cutting his loss:

- “But on a larger timeframe it’s still trending upwards”
- “It will turn back around, let’s just look at it next week”
- "I heard that someone big will be buying soon, so I'll wait for that"
- “I’m still outperforming buy and hold”

Each of these excuses fails to account for the fact that as a trader, you are in the absolute game, not the relative game.  A trader’s sole job is to make the equity curve go from bottom left to top right:




 
This is the only reason that a profit-seeking trader exists.  If your goal is to succeed in this business, you must stop rationalizing and comparing and instead focus on return.  You are in the absolute game, not the relative game.

[S3052]

are you saying you never hold overnight?

Here is what it means to trade the 10/21 crossover:

- When the 10 period moving average is above the 21 period moving average, hold BTC
- When the 10 period moving average is below the 21 period moving average, hold cash

So this means that I will be holding for days, weeks, or even months at a time.  The longer I hold and don't have to trade, the better for me!  I prefer to buy and hold through a massive trend rather than paying commissions, crossing the spread, and churning my account through trading.

Here's a chart to show what I mean.  The red circle shows where I would sell my BTC and the green circle shows where I would buy back.  This means that for this month and a half, I should have held cash and not BTC.



So to directly answer your question: I hold overnight...I hold for as long as the trend remains.

I've been following EMA / MACD on 10-day timeframe as well as 2-month an am sometimes surprised by a 10-point overnight drop where I miss an exit...  I'd think the ability to generate real time alerts would be key to trade these kind of signals given that the market is often active 'after hours' as Japan awakes, etc...

I think we're talking about two different things.  When I say the "daily timeframe", I mean that each bar on the chart I examine is comprised of one day of trading data.  How much data is actually shown on the chart is irrelevant for this exercise.  

When I read your post, the "10-day timeframe" sounds like you have 10-days of information on the chart.  What matters is the what one bar on the chart represents, not how much data is on the chart.  Notice how in my chart above, at the very top it says "1 day bars" - that means that each candle represents the open, low, high, and close for an entire trading day.  This is what I mean by the daily timeframe.

sorry if I sound negative, but when looking at the past months of trading, I do not think that the 10/21 moving average is a good trading indicator. most of the time it gave false signals or it too late to generate outstanding profits. have you backtested it seriously over the past 6, 12, 18 months?

[Goomboo]

Greetings, and thank you for the comments and questions.

I do not think that the 10/21 moving average is a good trading indicator.

This really depends on your definition of the word "good".  What do you mean by "good"?

Disciplined traders, who have systematically followed this method, have earned a 484% return in closed profits since the beginning of the year.  Even at the highest level of Mt. Gox commission, they have earned a profit in every month except one this year.

Now is that "good"?  I don't know.  Good is a subjective word which implies a comparison.  I'm sure we could spin the results whichever way desired through comparisons, but as I have stated throughout this thread, I believe that it is an effective and tested method of capturing profits when price trends.

Rather than me just stating my opinion, here is a backtest of the 10/21 crossover for the past 2 years on the daily timeframe, which is what I trade:




Now is this "good"?  I still don't know - beauty is in the eye of the beholder.  What is good for one certainly isn't good for all.  For me, it is an effective and tested method of profiting which suits my nature.

most of the time it gave false signals or it too late to generate outstanding profits.

The vast majority of trading signals will be unprofitable.  It really isn't about being right, it's about making money.  Trades must be structured in such a way that the average winning trade is much larger than the average losing trade or you simply will not earn profit in the long run.  A moving average crossover strategy allows you to have potentially unlimited profits while capping your loss size.  This is crucial for successful trading.

There are trade-offs in every endeavor and with every method.  Trend following, by nature, will result in many false and late signals.  It's just the nature of the game but history has shown that by consistently playing it, profits can be earned.

It's essentially Pareto's Principle in action: 20% of your trades will account for 80% of your profits.  It's your job to make sure that the 80% of weak trades do as little damage as possible.

have you backtested it seriously over the past 6, 12, 18 months?

This depends on your definition of "seriously".  What do you mean by "seriously"?

Throughout this thread, I have stressed time and again that it is the duty of a trader to attempt to disprove his method.  Why would you trust your hard-earned money to something which doesn't work?  To directly answer your question: this method has been backtested across decades of trading data and found to be profitable in the majority of liquid asset classes.  In fact, this method is used in most technical analysis textbooks in the chapters on automated and systematic trading precisely because it tends to work over the long run.

In my opinion, I have backtested the method seriously and I believe in the longevity of the results.  But then again, what works for me may not work for you.

[S3052]

Greetings, and thank you for the comments and questions.

I do not think that the 10/21 moving average is a good trading indicator.

This really depends on your definition of the word "good".  What do you mean by "good"?

Disciplined traders, who have systematically followed this method, have earned a 484% return in closed profits since the beginning of the year.  Even at the highest level of Mt. Gox commission, they have earned a profit in every month except one this year.

Now is that "good"?  I don't know.  Good is a subjective word which implies a comparison.  I'm sure we could spin the results whichever way desired through comparisons, but as I have stated throughout this thread, I believe that it is an effective and tested method of capturing profits when price trends.

Rather than me just stating my opinion, here is a backtest of the 10/21 crossover for the past 2 years on the daily timeframe, which is what I trade:




Now is this "good"?  I still don't know - beauty is in the eye of the beholder.  What is good for one certainly isn't good for all.  For me, it is an effective and tested method of profiting which suits my nature.

most of the time it gave false signals or it too late to generate outstanding profits.

The vast majority of trading signals will be unprofitable.  It really isn't about being right, it's about making money.  Trades must be structured in such a way that the average winning trade is much larger than the average losing trade or you simply will not earn profit in the long run.  A moving average crossover strategy allows you to have potentially unlimited profits while capping your loss size.  This is crucial for successful trading.

There are trade-offs in every endeavor and with every method.  Trend following, by nature, will result in many false and late signals.  It's just the nature of the game but history has shown that by consistently playing it, profits can be earned.

It's essentially Pareto's Principle in action: 20% of your trades will account for 80% of your profits.  It's your job to make sure that the 80% of weak trades do as little damage as possible.

have you backtested it seriously over the past 6, 12, 18 months?

This depends on your definition of "seriously".  What do you mean by "seriously"?

Throughout this thread, I have stressed time and again that it is the duty of a trader to attempt to disprove his method.  Why would you trust your hard-earned money to something which doesn't work?  To directly answer your question: this method has been backtested across decades of trading data and found to be profitable in the majority of liquid asset classes.  In fact, this method is used in most technical analysis textbooks in the chapters on automated and systematic trading precisely because it tends to work over the long run.

In my opinion, I have backtested the method seriously and I believe in the longevity of the results.  But then again, what works for me may not work for you.

Thank you so much for taking the times to address all my questions. And indeed, you have tested it seriously.
Perhaps I was a bit misleading.

My point was more that there can be better entries and exits than the 10/21 automated method.
It is still a great method with the 10/21 mov. averages but there can be better ones.

The 10/21 method is up 2x versus buy and hold.
Our forecasting method from the newsletter is up much more...

[Goomboo]

Perhaps I was a bit misleading.
...
The 10/21 method is up 2x versus buy and hold.
Our forecasting method from the newsletter is up much more...

And I think you still are being misleading.  I'm not here to sell anything.  I'm here to try to convince people to think for themselves.  You on the other hand, seem to be promoting a newsletter.

Our forecasting method from the newsletter is up much more...

Prove it.  Show me audited results from a known accounting firm.  The fact that you post this sentence in a vague and mysterious aura begs the question: do you even know how well or poorly you are doing?  A trader knows exactly where he stands at any given time.  "Our newsletter is up X% over the past X months with a success ratio of X%".  Please don't bother answering this question - it really doesn't matter.  This thread is about empowering people to make wise trading decisions and not paying others to do it for them.


Now, this is written to the general public reading this thread:


Even if you find a newsletter with superior results to any other alternative, it still begs the question - which of these is more valuable?

- Subscribing to a newsletter and making some money?
- Or learning the discipline necessary to succeed in difficult endeavors?

I am not trying to make you rich, I'm trying to help you understand that trading is very difficult and to truly succeed you must assume responsibility for your own results.  The problem with newsletters is this:

- When I make money from my newsletter subscription - "I'm a genius, I made a great trade"
- When I lose money from my newsletter subscription - "You messed up, why did you make me do this trade?"

It's a perpetual denial of responsibility.  When you're right, "go me", when you're wrong "boo on you".  It's silly, irresponsible, and ultimately results in poor performance in life or finances.  Trading is about taking responsibility for your actions and owning up to your decisions.

This is exactly what I said 17 months ago:

I will say one more thing about this.  I absolutely agree with your conclusion.  I stand by the advice I gave one month ago.  Nowhere in this advice do I suggest anything but owning up to your financial decisions.  

If you have been blindly following the system without going through the below steps, shame on you, you missed the whole point of this thread and you are robbing yourself of a chance at successful trading.  Furthermore, you never learned the most important lessons of trading - consistency, confidence, discipline.  Why are you trusting some random person on the internet with your finances?  If you really cared about consistent profit and winning in the financial markets, you would put in the work necessary to trust your edge.  Stop outsourcing your decision making and take responsibility for the money that you worked hard to earn.

I reiterate; what is more important: making a few hundred dollars trading a system you learned on the internet or developing the discipline to be a wise steward of whatever money is entrusted to you?

[RyNinDaCleM]

Thank you so much for taking the times to address all my questions. And indeed, you have tested it seriously.
Perhaps I was a bit misleading.

My point was more that there can be better entries and exits than the 10/21 automated method.
It is still a great method with the 10/21 mov. averages but there can be better ones.

The 10/21 method is up 2x versus buy and hold.
Our forecasting method from the newsletter is up much more...

Another point is, Goomboo introduces a simple system (two MA's), that any rookie trader could pick up easily and profit from, without any other TA knowledge.
Is it THE most profitable? Perhaps not. But for ease of use by anyone including Grandma who can't use the internet, you can't beat it.

[rampantparanoia]

I understand this is a journal thread, so its gifts are given based on stream of consciousness. However, I was wondering - is it possible to have a summary in the OP of your trading strategy, Goomboo? Or possibly a "table of contents" to all suggestions provided in this thread?

It would make it a lot easier to go through 43 pages

Thanks!

[Goomboo]

I understand this is a journal thread, so its gifts are given based on stream of consciousness. However, I was wondering - is it possible to have a summary in the OP of your trading strategy, Goomboo? Or possibly a "table of contents" to all suggestions provided in this thread?

It would make it a lot easier to go through 43 pages

Thanks!

Haha, I hear you :p

Yeah, when I get some free time, that's not a bad idea at all.  I really want this Journal to be a helpful starting place for Bitcoin traders and a 43 page thread can be daunting.  Until I get some time to summarize the thread, it could suffice to just read all posts directly by me, even though this is still 16 pages plus :/

[Goomboo]

We're 9 days into a trend and daily traders are sitting on an unrealized profit of around 10.5%.  As always, these profits should be viewed with skepticism in that price erosion is entirely possible.

The red arrow on the chart above shows some of the frustrations facing a disciplined trader - a period of "whipsaw" or "whiplash" in which you enter and exit the market in a short period of time.

For those who are new to the thread, welcome.  This thread is about learning the principles of successful trading through a simple trading system:

- When the 10 period moving average is above the 21 period moving average, hold BTC
- When the 10 period moving average is below the 21 period moving average, hold cash

Rather than blindly trusting these rules, we have backtested this strategy across decades of financial data and performed an optimization of 5000 unique combinations of moving averages to arrive at these figures.  For the time being, it appears that the system is robust, tested, and has continued to generate profits.


As a side note, hourly traders are sitting on an 11.9% unrealized profit.  While these unrealized profits are decent, traders should be mindful that anything can happen in this volatile market and all profits should be viewed with skepticism rather than greed.

[Goomboo]

Greetings all,

To make this thread more accessible to the new trader, I have updated the initial post to include a table of contents.  This is essentially a quick overview of the topics discussed in this thread.  For a more in-depth discussion, please view the context surrounding each post.

The Logic Behind Moving Averages
A Simplified Example of Trading the S&P 500
A Note About Leverage
Technical Trading Strategies Can Be Profitable for the Long-Term

The Steps to Profitable Trading
Traders Don't Predict - They React
Stick with the Plan!

Technical Analysis Tools Don't Work As Advertised
A Decade of Trading Results
You Can't Fade the System Forever
Don't Cut Your Profits Short
Risk Management Defines Us As Traders

Rules You Won't Follow Don't Matter
Why You Shouldn't Trust Your Gut

4500% Closed PNL: Don't Get Too Excited
Be Skeptical of Historic Results
Bitcoin Trading Is Very Expensive

Optimizing the Trading System
A Good Reading List
A Comparison Between Simple and Exponential Moving Averages

Stewardship Is Key
What If Too Many People Trade the Strategy?

Trader or Investor? It's All About Personality
True Fundamental Analysis: Fact-Telling, Not Story-Telling
We Search for Reasons When There Are None

Simplicity Is Key
Trading with an Edge

Trading Isn't for Everyone
You Must Honestly Examine Your Performance
Separate Your Ego from Your Desire to Trade
Trading in a Drawdown
The Backbone of a Trader Is Discipline
Avoid Worthless Speculation
Foolishness Abounds During Periods of Market Volatility
Trading Is About Survival
The Sole Job of a Trader

Updated System Performance As of 7-27-2013

[zy02264]

Thank you Goomboo! You did great job! Just wondering is that easy to analyze stock on BTCT by Ninja Trader? I can download the JSON for stock historical price. Is that possible to import it to Ninja Trader? Thank you!

[Ray Anastasio]

Thank you!  I've been picking through this thread the last few days and this is very helpful.

Also, can we sticky thus somewhere with the index at the top?

[Voodah]

Greetings all,

To make this thread more accessible to the new trader, I have updated the initial post to include a table of contents.  This is essentially a quick overview of the topics discussed in this thread.  For a more in-depth discussion, please view the context surrounding each post.

Excellent ! Thanks for taking the time for that, it was much needed.

[mryayo]

Just wanted to say this is one of the best threads (if not the best) I have seen in most forums and also on the bitcoin forum. The knowledge in this thread is great not only for BTC but even trading in general. Definitely a must read for anyone that even want to trade stocks, options and forex.

Thanks Goomboo!

What is a Goomboo?

 

[vokain]

well, this is a goomba



so a male version??

[CivilUnrest]

Very nice, thanks for the summary.

[22naru]

your're the master. cheers

[pulsecat]

Is there any alarm that trigger when EMAs cross? I haven't seen one yet. Like http://namcdn.com/btcalarm/, but this is triggered by price.

You may try this approach:

• Register at Cryptotrader.org then verify your email address
• Open https://cryptotrader.org/backtests/C5P7CMhCXSw2W7qeh
• Click 'Trade' button

That's it. The script will send an email alert to inform you that the trend changed direction.