Consistent Losers

[drayco]

I agree with you Ampris about divergence. It's the only way i really feel comfortable trading and have success with. It would be nice to have an indicator signal when it occurs. I will always trade that way, but i still would like to build a pile of the crappiest systems and methods known to all losers. And when the pile gets big enough to pick through and make the crappiest of crappy systems i am going to reverse the signal and see how she flies.

[drayco]

I contacted Tradeforexsignals.com and sent them this:

Could you please send me the entire history for all of the pairs you trade? I am not interested in one winning pair! What i am seriously interested in is a consistent losing method. I am considering trading your very worst performing pairs and reverse the signal. The only way i would trust doing this is if i have your word you will be sticking with the same methods so they may continue to work for me.
I am more interested in your first service, but any of your consistent losers with the minors may work for me as well.
Thank you and please understand i am serious about this.

If any of you have been following these guys then you know that their Majors were just absolutely the best losers around. Very consistent! They sent me this:

Hello,

Interesting question and theory !!

We probably don't have any pairs that would fit your criteria as they are all now performing reasonably well through various weeks. What you must understand is that when we started trading with FX-Auto.com we introduced a 300 pip stop loss on all trades that was never in place throughout last years trading. This had a dramatic bad effect on many trades.

More recently we have introduced new systems for the GBP/USD and GBP/JPY (the worst performing pairs on the old system). The other major pairs have had their stop loss levels changed and this has led to a dramatic reduction in bad trades. With our Minors system, we now only trade the GBP/CHF, EUR/AUD and AUD/NZD - the more successful pairs.

I would suggest if you want to trade with our signals you might try the new GBP/USD system and the also GBP/CHF. This pair alone has made +1409 pips since March (after all spreads) whilst the GBP/USD has made +365 pips in its first 3 weeks of trading.

Regards,
www.tradeforexsignals.com

My point here is that as far as robot trading goes they had a consistently terrible performing system that would have delivered some great returns if the signals had been reversed. Instead they tweaked it to make it lose less often.
The main thing is consistency and they had it. I would love to know what the code for that system of theirs was when it was at its worst.
I think many times we create a really bad system, mess with it to make it better and give up and move on to something else when we really had the best thing at the start. Plus, if nothing else looking for the ugliest dog can get you thinking in different ways.

[Coral Shores]

There is something missing in all this though that has not really been identified or discussed - the fact is those bad systems will have a period where they do well. During that period you will give back most of your gains or worse.

Similarly, there are many good systems that suddenly go bad.

The MA Cross system you cite simply as an example will do poorly maybe 70-80% of the time (just pulling reasonable numbers) but then have huge gains during trends.

Do you really want to trade a system that you know will do well for maybe 6 months, 12 months or however long and then give it all back?

The first step is really to identify where your actually problem is. Why does that bad system reverse at some point or that good system crash and burn?

The answer is that the underlying market conditions changed and no one adjusted. You could reverse the MA Cross system and do well until the market trends. Conversely, you could follow the hot system of today with only a few months worth of a track record which suddenly dies as the market moves into a cyclical phase.

With the problem identified (market profiles change affecting the favored system) you have a few options:

1. apply sensible money management to ride out the period where your system is not favored with as small a loss as possible.

2. change or adjust your system

3. do not trade during conditions that your system is not favored.

All of these options involve trade offs and risks.

Option 1 requires you be patient and disciplined.

Options 2 and 3 require you have knowledge to determine the current condition and its probable end.

The solution for many is to stop and take a step back. Instead of looking at indicators and systems take a closer look at market behavior. Study how the market pushes hard in one direction, then constricts - either to push higher or reverse.

As yourself how does this affect your system?

If you are using oscillators (stoch, rsi, macd) do you want to take a trade after the market has taken off from a consolidation phase? Or, do you want to respect this indicator more after the market has made a large move and is consolidating again?

Would a MA Cross system be more or less accurate immediately following a breakout or following a retracement?

Without a solid understanding of market dynamics you risk reversing a bad system just before the market favors it, or hoping onboard a good system just before it falls off the cliff...

The litmus test is can you identify what factors caused the system to fail? Now, can you identity what conditions precipitated those factors? Then you have predictors that you can consider integrating into your system.

Here is an example:

1. The system failed because the market started to trend and my RSI based system does not do well in these conditions. (factor)

2. Before this failed trade ADX increased, or the price reached 1.2200, retreated, then made another attempt with increased volatility. (precipitating factors).

In the future one would not follow this system when a trade signal was accompanied by an increase in ADX or the price pattern above. Instead, the trader would switch to another system or stay clear of the market. Another option would be to enter the trade, but with less leverage (money management rules).

[drayco]

Agreed.
Any system will be on or off with market conditions.
What interests me is that with most of the robot trading the losers seem to lose more than the winners seem to win.
When i finally put together a good losing method i will use heads-up to the market and employ good money management. I feel there are some gold nuggets that have been tossed in the crap pile.
I'll use a good system that has a good number of trades with a respectable win% and small drawdown or i'll use a horrible system with a good number of trades and a really bad win% with huge drawdown. Either one will do just fine and now i am looking for the latter.

[Coral Shores]

What you must understand is that when we started trading with FX-Auto.com we introduced a 300 pip stop loss on all trades that was never in place throughout last years trading. This had a dramatic bad effect on many trades.

Wait, did anyone else catch that? They introduced a 300 pip stop loss, it got hit and that was the reason behind the deviation from previous results?

So, in previous months they EXCEED a 300 pip open drawdown on a trade?

Are their wins even close to 300 pips?

[Coral Shores]

[quote]

Originally Posted by drayco

Agreed.
What interests me is that with most of the robot trading the losers seem to lose more than the winners seem to win.

This is typical, if you are referring to the fact that many of their systems lose 200 pips and make 50 pips per trade (as an example).

It is a trick to lure subscribers. If you increase the stop loss you will have longer winning streaks - until you hit a bad patch and then you give it all back in some massive sudden drawdown.

[drayco]

Those 300 pip stops being hit could be a darn good thing! I would be delighted every time it happens.

[Coral Shores]

Originally Posted by drayco

Those 300 pip stops being hit could be a darn good thing! I would be delighted every time it happens.

Oh, i gotcha - for the reverse.