Goomboo's Journal

[Goomboo]

The behavior of traders lately really fed your tactic some extra fuel. Awesome to watch. Certainly beat me on the last week, I just didn't come up with a tactic and stayed conservative -- no losses, but hardly any profits. Mechanically draining the trend hypes probably is one very good tactic in such a situation.

I am reminded of that turtle from Love Hina that can fly at times. Good job on this.

Thank you for your kind words and I wish you the best in your trading.

I really feel that the long-term successful approach to trading is as you put it - mechanically draining the trend.  The author of The Psychology of Trading described successful trading as mastering the arcade version of pinball.  Basically you find a way to extract points from the game by doing something over and over and over again.  Repetitive, mindless...boring :p

http://www.amazon.com/Psychology-Trading-Techniques-Minding-Markets/dp/0471267619/ref=sr_1_1?ie=UTF8&qid=1329002221&sr=8-1

[Goomboo]

Hourly traders should be sitting on a 5% unrealized profit from the short position initiated 12 hours ago.

This trade should still be on and you should be sitting (still) at a 5% unrealized profit.

Emotions fly wild when volatility increases.  If you are trading in a disciplined and systematic fashion, the only emotion you should entertain is calmness and reason - all others can be detrimental to successful speculation.

[Goomboo]

The hourly traders should now be sitting on an unrealized profit of 13%.  It is important to stay disciplined in the face of losses and especially in the face of profits.  Even if this trade reverses and you watch your profits slip away, you must stick with the system.

[Oldminer]

The hourly traders should now be sitting on an unrealized profit of 13%.  It is important to stay disciplined in the face of losses and especially in the face of profits.  Even if this trade reverses and you watch your profits slip away, you must stick with the system.

Indeed. But oh its so so tempting to buy back in (not that Im going to) 

[Goomboo]

The hourly traders should now be sitting on an unrealized profit of 13%.  It is important to stay disciplined in the face of losses and especially in the face of profits.  Even if this trade reverses and you watch your profits slip away, you must stick with the system.

Indeed. But oh its so so tempting to buy back in (not that Im going to) 

Glad to hear it :p  Bottom fishing is the most expensive job on Wall Street

In my opinion, seeking a bargain is a great mentality to have in almost any field except trading.

[elux]

Just now: 21/10 EMA Crossover.

[gewure]

Just now: 21/10 EMA Crossover.

buy/sell? hourly?

[Goomboo]

Just now: 21/10 EMA Crossover.

buy/sell? hourly?

It hasn't quite crossed yet (depending on your data provider), but it is close - you should still be short on the hourly.

http://bitcoincharts.com/charts/mtgoxUSD#rg5ztgSza1gEMAzm1g10za2gEMAzm2g21zv

Also, the daily crossover has just recently occurred, so daily traders should be short as well.

[Crypt_Current]

Quick question about the system (and I might could have gathered the answer from the thread, but it is getting long and I skimmed it a couple times but to no avail, so...)

How do you know when to end a trade?  We know to initiate a trade when a crossover occurs... Do we wait until the next crossover to end that trade, even if it was more profitable before that occurs?

[RyNinDaCleM]

Quick question about the system (and I might could have gathered the answer from the thread, but it is getting long and I skimmed it a couple times but to no avail, so...)

How do you know when to end a trade?  We know to initiate a trade when a crossover occurs... Do we wait until the next crossover to end that trade, even if it was more profitable before that occurs?

The hourly traders should now be sitting on an unrealized profit of 13%.  It is important to stay disciplined in the face of losses and especially in the face of profits.  Even if this trade reverses and you watch your profits slip away, you must stick with the system.

Basically yes! You wait until the next cross.

[Goomboo]

Quick question about the system (and I might could have gathered the answer from the thread, but it is getting long and I skimmed it a couple times but to no avail, so...)

How do you know when to end a trade?  We know to initiate a trade when a crossover occurs... Do we wait until the next crossover to end that trade, even if it was more profitable before that occurs?

Yep, the system is crossover to crossover - you should always be in the market (long or short).

There is no way of knowing what the maximum profit in a given trade would have been - If you did know this information, you'd be the best trader of all time.  This said, all we are doing is mechanically extracting profits from the trend - if the market is trending, we are committing our capital to trade with it.

If you are looking for something more than the "hard and fast rules", I highly suggest that you spend the time to read it.  You may have to invest a few hours, but I believe that in the long run, you are better off putting in the effort to understand the reasoning behind it all.

For anyone interested in learning what this thread is about, I suggest reading pages 1-15 (every single post and every single attachment).  This is more than a simple moving average crossover system, the whole point is to help you make better financial decisions, not teach you some "hard and fast rules".  If you don't have the discipline to learn the back-story, what makes you think you will actually stick with it when the road gets rough?

[jojo69]

you can lead a horse to water

[Goomboo]

The recent discussion has brought me to share one more aspect of our trading system we explored earlier.  As a refresher - the trading system was this moving average crossover on the EURUSD exchange rate for the past 10 years.  Basically the whole point was to show that by taking an incredibly simple system and by consistently applying it to the financial markets, you can extract superb profits in the long run.  Additionally, we explored the pitfalls of human thought and how you really must be able to sit through a string of losses to ultimately profit.

An aspect of the system we have not covered is the max favorable excursion.  We discussed max adverse excursion, which is basically on average how much every trade went against you before the close of the trade (either for a profit or for a loss).  Max favorable excursion is similar in that it is how much a trade went in your favor on average before closing (either for a profit or for a loss).

The reason we did not discuss max favorable excursion is that a true trader should be focused more on risk than return.  You should be scrutinizing, analyzing, and quantifying every aspect of risk, financial loss, and ruin that you are in danger of experiencing.  Only after we have accounted for and understood the risks of our system should we move on to learning how to deal with a profit.

Below is the chart of the statistics of the moving average trading system.  Look at the MFE (located near the bottom) and the average trade (located near the middle).  Once you have examined these figures, join me in the paragraph below the picture.




The MFE (max favorable excursion) for our system was 2.65%.  This means that on average in every single trade (either a profit or a loss), you were sitting on a 2.65% profit at some point.  The average trade is the average result of every single trade of the system: .37%.  See the disparity here?  Let this sink in...imagine you are trading this with $1,000,000.  On average, in every single trade, you were up $26,000 but at the end of each trade, you averaged a profit of around $3,700.  You were required to have the discipline to sit there for days watching over $20,000 of profit slip away on every average trade.

Well, you say, we know the MFE, why don't we just take a profit every time we are 2.65% in the money?  Here's why - notice our largest trade in the data above?  12%.  If we took a profit at 2.65%, we would never have had held this trade to completion.  This one trade alone accounted for nearly 1/6th of our total profit.  Additionally, there are a few other large trades that accounted for the bulk of our profits.  By cutting these short, we would more than likely be trading a losing system.

The conclusion of this matter goes right back to the beginning - without consistency, confidence, and discipline, the odds are strongly against you in trading.  Even with these things, you only have a small chance of making money in the long-run.  You must have the discipline to sit there and watch your profit dwindle away.  If you are sitting on the 18% profit that those who stuck with the system are holding, you need to skeptically look at this number and know that if this is the end of the trend, you will make less than this.

[Otoh]

I like how it's so dogmatic    good luck with that 

[Goomboo]

Hourly traders should still be short and sitting on a 26% unrealized profit.

[Otoh]

& we have crossover 

[proudhon]

& we have crossover  

Nice.  Glad I got back in at ~$4.30.  

Edit:  That's not a 10/21 daily crossover, btw.

Edit2:  Oops, had to look at the first post.  I guess you guys are following the hourly chart.

[Otoh]

yep hourly, it's on the cusp atm, neck & neck

[realnowhereman]

Lesson learned for me: a crossover is only a crossover when the next period is over.  Touching the line is not a crossover.

This one wasn't.  Presumably then I should be short. Dagnamit.

[jojo69]

Lesson learned for me: a crossover is only a crossover when the next period is over.  Touching the line is not a crossover.

This one wasn't.  Presumably then I should be short. Dagnamit.

personally, I like to see some air between them on a finished candle before spending the fees.