2009.09.10 DRAIN THE BANKS - LIKE A RAT

[Trader_V]

Man oh man I can't believe it has taken me this freaking long to figure this whole trading thing out!!!

TRO I have to thank you. The books were a great read!! (Why You Lose at Trading and How to Win at Trading) There were some very eye popping moments for me while reading

I do have a question for you though. In a post you wrote a while ago you said "The "rat" entries have a STATISTICAL EDGE that can be exploited for profit."

I would really like to understand this a little further. My basic understanding of this is that trading in only one direction provides a small statistical edge. But I am curious as to what that edge is.


For the rest of the folks who are reading this, here are some of the words that TRO has said hat have been rattling around in my head for a long time but I could never put it all together. Then all of a sudden the light bulb went off and I got smacked with the big ole Forex Trading 2 x 4!

This one beat me up for a good long while "PRICE IS THE SAME ON ALL CHART PERIODS." once you grasp this concept it makes so much freaking sense!

"THERE IS NO TREND."

"TREND IS A CONCEPT."

"TREND EXIST ONLY IN THE MIND OF THE TRADER."

"Look at the chart and tell me if the trend is up or down."

"TREND IS RELATIVE TO THE OBSERVER JUST LIKE TIME WHICH IS ANOTHER CONCEPT."

"One must separate what is REAL from what is CONCEPTUAL."

"Now, 2 patterns of market behavior happen on a regular basis:

1) the price breaks to new high's (or low's)

2) the price reverses from new high's (or low's)

"During a 60 minute period, how many 5 minutes candles are there? 12. Do you think your chances of winning are better with up to 12 entries or 1?"

"Now, there are 24 hour bars in a day but only 1 previous daily high/low. Do you think your chances of winning are better with up to 24 entries or 1?"

"You can control the size of your loss (skill) but you can't control the size of your win (luck)."

"You can not control the probabilities of wining or losing."

"You can not control your average win size."

"The only part of the equation that you can control is your average loss size."

If you take this information and like TRO says "internalize it" add a little common sense and good money management you will be well on your way to becoming a profitable trader.

Hopefully these key quotes will help some of you folks out there

[TheRumpledOne]

"I would really like to understand this a little further. My basic understanding of this is that trading in only one direction provides a small statistical edge. But I am curious as to what that edge is. "

You eliminate the chance of ALWAYS being on the wrong side of a trade.

Look at this chart:



If you only went long, sooner or later you would win.

If you only went short, sooner or later you would win.

But if you are a YALE STUDENT and attempt to guess the trend, you could be short when you should be long and vice-versa.

[johnsund]

Avery - the above description of why trade in only one direction is absolutely the best yet. Thanks for your perspective.

[PipN8EZ]

Traders, I've noticed Tro last post used a daily chart up, is that what you suggest to use? I'm just starting and trying to figure this method out, and could use all the help I can get on it... Please throw me your suggestions...

[MightyOne]

You trade off of a daily extreme w/ a 5-15 minute chart.

It is also possibe to trade the minute chart, but on those charts it is optional & often a waste of time to wait for a chart pattern BO; you should just short w/ in 20 pips from the high if you believe the house of cards will fall.

[PebbleTrader]

PipNISEZ,

EXPLORE through the different time frames and REDUCE RISK in each one, until you find yourself in the smallest time frame you are willing to trade.

[TheRumpledOne]

Traders, I've noticed Tro last post used a daily chart up, is that what you suggest to use? I'm just starting and trying to figure this method out, and could use all the help I can get on it... Please throw me your suggestions...

I used a D1 chart to answer a question.

[TheRumpledOne]

GREEN RATS and RED RATS both made money.

Who knows what the Yale students did?

[dparke1]

TRO. Thank you for your tireless teaching. I have the donational indicators and templates. I like the set up you have in the above post. Do you have a template for it? Maybe I have it and don't realize it. Thank you.

[dparke1]

Never mind found it! Thanks.