2009.06.24 WHY 95% OF TRADERS LOSE PART III

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Paul
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continued

Postby Paul » Sat Nov 14, 2009 8:45 pm

Chaotic systems of FX markets show good predictability in a short time-scale and fair predictability in a long-time scale due to low sensitivity to initial conditions and to system's parameters. However forecasting is by nature of such systems always poorer in longer-time scales. Most polls published have little if any to do with science.

One of the major reasons of losing money is a change of your time-scale after opening your position. Sometimes it resembles driving a one way half of the street and observing traffic from the opposite direction.

Market makers place their road signs not you. The may change them frequently. A straight road to heaven sometimes suddenly becomes a long detour. Is your position sustainable then?

to be continued

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continued

Postby Paul » Sat Nov 14, 2009 11:39 pm

The present situation in the banking system and the role certain banks play are different than before the crisis. Banks maintain their liquidity through record low interest loans from their central banks (FED, ECB). At the same time they make up their balances by a substantial increase of their involvement in trading in the financial markets. This common practice among banks with investment branches has attained levels of a serious speculative bubble. Never before market makers have been involved in market speculations on such a large scale.

What could be potential consequences or hazards for smaller market participants? The first obvious one would be weakening the stability of the system now prone to rapid bursts of volatility. The second one means that an increase of the competitive factor among market makers will set different goals in the longer run and defending a common goal like the protection of the dollar may be more difficult to implement. The third one will impact smaller economies and drain their markets of free cash which is not going to be spent by consumers. Still another consequence will be brokers seeking more or new tools or applying the existing tools more often to protect themselves from sudden bursts of volatility. Such nervousness may lead to even more volatile markets, more frequent margin calls and perhaps to some problems of the retail trading. On a grand scale less control of the chaotic system may end up with a demise of the greenback similar to that of 1998. I hope against hope that 1998 will not repeat. But never before banks could borrow so cheap and so big and so hot money which inflates bubbles.

In technical terms, some models may cease to work, standard stoplosses may not protect well, spread may be wider. In 1998 ordinary spread on majors was 10 pips. When the dollar tumbled spread soared sometimes to 100 pips, very often was 50 pips.

I know that this is a little off the road but we have discussed poor trading results in general from the technicals and the system's angle. The above pertains to rare but possible scenarios due to the new developments among big players.

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harbingers of rapid bursts of volatility

Postby Paul » Mon Nov 16, 2009 7:32 pm

Both EURUSD and GBPUSD today are examples of rapid bursts of volatility.
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Paul
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Have you ever considered

Postby Paul » Fri Nov 20, 2009 1:26 am

Have you ever considered that to reduce latency firms filter or cut down the data coming in?

Filtering customizes the data for the algorithms in different trading units, stripping off an average of 90 percent of the data.

Now think about FX markets in terms of the remaining 10 percent of the data.

To make it as simple as possible: 90 percent of traders do not make profit. Maybe they are looking too much at the 90 percent of the data which firms have filtered?

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Re: Have you ever considered

Postby pablo101 » Fri Nov 20, 2009 2:22 am

Paul wrote:Have you ever considered that to reduce latency firms filter or cut down the data coming in?

Filtering customizes the data for the algorithms in different trading units, stripping off an average of 90 percent of the data.

Now think about FX markets in terms of the remaining 10 percent of the data.

To make it as simple as possible: 90 percent of traders do not make profit. Maybe they are looking too much at the 90 percent of the data which firms have filtered?


This makes sense :smt101
What line? The line that tells you which way you are trading! - MO

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Translation

Postby franck » Fri Nov 20, 2009 3:48 am

TheRumpledOne wrote:THE NEW MARKET WIZARDS

==== Do you use chart patterns in your systems? ====

Most things that look good on a chart-say, 98 percent-don't work.

==== Why is that? ====

The human mind was made to create patterns. It will see patterns in random data. A tum-of-the-century
statistics book put it this way:

"Too fine an eye for pattern will find it anywhere." In other words, you're going to see more on the chart
than is truly there.
Also, we don't look at data neutrally-that is, when the human eye scans a chart, it doesn't give all data
points equal weight. Instead, it will tend to focus on certain outstanding cases, and we tend to form our
opinions on the basis of these special cases. It's human nature to pick out the stunning successes of a
method and to overlook the day-in, day-out losses that grind you down to the bone. Thus, even a fairly
careful perusal of the charts is prone to leave the researcher with the idea that the system is a lot better than
it really is. Even if you carry it a step further by doing careful hand research, there is still a strong tendency
to bias the results. In fact, this bias exists in all scientific research, which is why they have persnickety
double-blind tests. Even the most honest researcher will tend to bias data toward his or her hypothesis. It
can't be helped. When I did research by hand, I took the attitude that I had to discount my results by 20 to
50 percent.



The Human "rats' mind" keep doing the same thing aka human nature.

1) Loss after multiple bars/act gone
2) Profit after single bar

It will be good to have a chip planted in my brain the actual Rat's "rats mind" to do the OPPOSITE.

I can't imagine the Edge of Entry Point donated by TRO plus doing the OPPOSITE


Thanks!


:wink:
* anyOne can be prOfitable tradING ANY line. see it?

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Postby TheRumpledOne » Tue Nov 24, 2009 10:22 pm

Image

Image

YOUR MONEY AND YOUR BRAIN: How The New Science Of Neuroeconomics Can Help Make You Rich
By Jason Zweig
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!

Please do NOT PM me with trading or coding questions, post them in a thread.

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Postby TheRumpledOne » Wed Nov 25, 2009 12:56 pm

Image

YOUR MONEY AND YOUR BRAIN: How The New Science Of Neuroeconomics Can Help Make You Rich
By Jason Zweig
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



Please do NOT PM me with trading or coding questions, post them in a thread.

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Postby TheRumpledOne » Wed Nov 25, 2009 8:30 pm

Ignoring Big Chances, Bumblebees Just Seek Small, Reliable Gains
By NATALIE ANGIER
Published: Tuesday, September 3, 1991

TO anybody who has been attacked by an enraged bumblebee, the insect seems impulsive to the point of kamikaze madness, willing to risk life and stinger to protect its nest.

But in its everyday behavior while out rummaging for nectar and pollen, it seems, the bumblebee is a model of conservatism.

In the most detailed study yet of how an animal estimates the costs and benefits of various foraging strategies, Dr. Leslie A. Real of the University of North Carolina in Chapel Hill has discovered that bumblebees make decisions about the marketplace of flowers with a degree of caution that would please an Amish elder. Avoiding the Big Gamble

Reporting in the current issue of the journal Science, Dr. Real said that bumblebees preferred small rewards in measured doses over the possibility of winning big but with a high chance of failure.

When presented in the laboratory with two types of artificial flowers, one that holds a modest but predictable amount of nectar, and the other that sometimes offers huge quantities of food but at other times contains little or nothing of the bee's beloved liqueur, the bees quickly learn to avoid the chancy flower and home in on the known quantity.

The results indicate that the bees make decisions in a manner quite unlike the strategies used by many humans, he said, who often rely on a subjective sense of luck, fate and intuition before choosing a course of action. Dr. Real suggests that the conservative approach is of great benefit to the bee, and that a more daredevil approach would probably doom the little creature to extinction.

"A bee will go after a predictable resource rather than a risky one," Dr. Real said. "Bees are processing information in a very particular way, and following certain computational rules that end up being good for the bee in its particular environment."

The new findings, which involve elaborate calculations of bee flight dynamics, bee energy needs, bee brainpower capacity and bee ingestion mechanics, give fresh insight into why animals make the choices they do about local resources and how best to harvest them.

"The questions he's asking are incredibly important, and it's great that he has an ecological perspective," said Dr. Thomas Eisner, an evolutionary biologist at Cornell University in Ithaca, N.Y. Surprisingly Sophisticated Choices

Other scientists were impressed by the report's emphasis on bee intelligence. Rather than dismissing the bee as a stupid creature whose every action is a reflexive, hardwired response, as many researchers have in the past, Dr. Real says that the bee uses its limited neurological capacity to good advantage, and that it reaches surprisingly sophisticated conclusions about life from a restricted sampling of the environment.

"This is a question of animal problem solving," said Dr. Gene E. Robinson, an entomologist at the University of Illinois in Urbana-Champaign, who works on honeybees. "Real isn't writing a neurobiological paper, but he's trying to ask, How does an animal make a decision and what do the results say about the underlying neural processes that may be taking place in the brain of a bumblebee?"

Dr. Real chose to study bumblebees because, unlike honeybees, they do not dance or in any other way seem to communicate with one another about potential food sources. Instead, each bumblebee makes its foraging decisions independently.

The researchers built artificial gardens of 100 blue cardboard flowers and 100 yellow cardboard flowers, interspersed randomly, with little dishes placed on top of them. The blue-flower dishes were supplied with fixed amounts of honey and water -- representing the nectar -- while in the yellow-flower dishes the quantity of food was varied. Some trays were left empty, while others were filled far beyond what was apportioned to the fixed blue flowers.

Marking individual bees with daubs of paint, the researchers set them free to forage. The bees began by randomly visiting flowers. With their keen color vision able to discriminate between blue and yellow, they needed only a sample of five or six flowers before they started focusing all their efforts on the predictable blue flowers. They did so even though the average amount of nectar under each flower type was the same.

The only difference was that in one case it was divvied up evenly, and in the other it was distributed with more in some dishes and none in the others.

For another foraging session, the flower colors were changed, with blue representing varying rewards, and yellow the sure bet. The color made no difference. After visitations to only half a dozen flowers, the bees this time overwhelmingly preferred the steady yellows over the fickle blues.

Dr. Real then began playing around with the ratio of risk to benefit in the varying flower dishes, offering tiny bits of honey in some dishes and bigger amounts in the remaining; but still the bees opted for the flowers that had the constant, moderate amounts of food.

Only when the ratio of payoff to risk became considerable did the bees begin preferring the flowers with the varied amounts. But at that point, the average amount of nectar to be had from all the variable flowers was several times greater than could be extracted from the sum of the predictable flowers, a set of odds that could hardly qualify as a Dostoyevskian gamble.

After many additional experiments and complex engineering and economics calculations, Dr. Real has concluded that the bee's fundamental computational rule is to obey what it has deduced about flowers after the most seemingly cursory of samplings.

"They seem to be influenced by short-term calculations of benefit rather than by long-term calculations," he said. "If the bee were just concerned about the total nectar it could extract over an entire patch of flowers, then it might take the longterm average of those flowers. But it seems to be more concerned about the rewards it will get from a particular flower, so it computes the average value very differently."

While that may seem like a short-sighted and small-minded approach to seeking food, said Dr. Real, it actually works to the bee's advantage. "There are lots of other bees and other pollinators in the same patch that are exploiting the same types of flowers," Dr. Real said. "So what the bee needs to worry about more than anything else is the quality of this flower it's on, rather than thinking about those flowers that may be spread out around it."

In general, he said, any given crop of flowers in nature is likely to have been picked through to some degree by other nectar-seekers. Only seldom is a floral stand so virginal that a visiting forager could expect the patch to be bursting with food. Because bees need to keep eating, they cannot afford to hunt around for such a rare blessing.

Thus, it behooves a bee to accept the realities of competition and to make the best of a modest situation, finding a small group of flowers within the larger patch that offers a reasonable if unremarkable quantity of nectar.

Dr. Real believes the bees are so geared toward this sort of pragmatism that they end up pooh-poohing the occasional juicy reward as a probable irrelevance.

"Bees ignore rare events and pay attention to common events," he said. Indeed, his calculations showed that the bees somewhat underestimate the chances of a rare event occurring, which is why he had to bump up the ratios in his variable flowers relatively high before the bees would change their natural predilection for the predictable. "A bumblebee perceives the rare event as being even rarer than it is," he said.

Such an attitude stands in decided contrast to that of humans. "Psychologists have long suggested that humans underestimate the likelihood of common events, and overestimate the likelihood of rare events," he said. "They homogenize probabilities and treat them almost like they're 50-50.

"Humans are optimists, and they believe rare events will happen more frequently than they actually do."

Dr. Real suggests that it is just this sort of faith that keeps Las Vegas and state lotteries in business.

Diagrams: "The Mind of a Bumblebee" How do bumblebees weigh benefit and risk in deciding which plants to visit? In an experiment designed to probe the insects' thinking processes, a researcher set out an artificial meadow of reliable blue flowers, each containing a small amount of nectar, and chancy yellow flowers, some containing nothing, some a jackpot of nectar. Bumblebees turn out to choose a safe thing over a lottery. They prefer blue flowers with reliable though meager nectar to yellow flowers with a greater but inconsistent reward. This is a sensible strategy when nectar-rich flowers are rare. When yellow flowers are made the reliable source of nectar and blue flowers the unpredictable source, the bees switch from blue to yellow after sampling only three flowers. The quick switch conserves energy. (Source: Science)

http://www.nytimes.com/1991/09/03/news/ ... gewanted=1
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby TheRumpledOne » Wed Nov 25, 2009 11:24 pm

Your Money & Your Brain
Written by Jason Zweig

http://www.indexuniverse.com/publicatio ... ?Itemid=11
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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