2009.09.10 DRAIN THE BANKS - LIKE A RAT

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TheRumpledOne
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Postby TheRumpledOne » Sun Jan 02, 2011 10:19 pm

TRO2010_MP_HLC_PIPS is a 2010 DONATIONAL indicator.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!

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Postby wangyue22 » Mon Jan 03, 2011 5:47 am

hello TRO, this might be off topic for this thread, but for the last 283 pages, one question for the rat pack is which color to stick with and this came to mind.

stare at the picture for 20 seconds.

if the picture rotate counter clockwise = GREEN
if the picture rotate clockwise = RED
if the picture does none/all of the above, pick a color first, drain the banks for a bit and think about what that means

if you dont agree with this method, i will delete it asap.



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TheRumpledOne
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Postby TheRumpledOne » Mon Jan 03, 2011 12:51 pm

Image

"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat."

P64 HOW WE DECIDE (italics added)

========================= ====================

"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)

They happen regardless of time frame (with the obvious limitations explained above)

They are phenomena that can be exploited without the fear if found out by others, that they might cease to exist." - H. Rearden

=============================================

1) Price within 20 pips of the daily low - that is OPPORTUNITY

============================================

WHY ISN'T EVERYBODY DOING IT?

Most of you know I catch a lot of flak on my forums because SOME PEOPLE don't like the way I post.

One worn out argument that is used repeatedly is, "If this is so (simple, great, profitable, <insert your own adjective>), then why isn't everybody doing it?"

Simple answer is because SOYLENT GREEN is people!

We all know exercise is great, but how many actually exercise?

We all know smoking is bad, but how many do it anyway?

We all know which foods are bad for our health, but how many eat those foods?

We all know that we should save for our future and spend less than we earn but who does that?

The list is almost endless.

As long as there are people, there will always be some STUPID people and some smart people making STUPID decisions, where STUPID is defined as knowing better but acting otherwise.

Meanwhile, the RATS are still beating the Yale students.

=============================================

HAPPY NEW YEAR!

MAY ALL YOUR DEALS BE ACCEPTED.

=============================================

PLEASE DO NOT PM ME WITH QUESTIONS ABOUT TRADING, INDICATORS, CODING, ETC... Post your questions in the forum. Thank you.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby TheRumpledOne » Mon Jan 03, 2011 1:33 pm

Image

1) Price within 20 pips of the daily low - that is OPPORTUNITY

2) Red candle closes

3) Green candle closes - note the high price of the green candle.

4) Enter long at the green candle's high price

5) STOP LOSS IS 10 PIPS

6) Take whatever profit you can.

7) If the rules do not mention it, then it is of no concern.

<-------------------------------------------------------------------->

"The technique is so simple that just several lessons (or a few pages of explanations) cover it all. Now what? Now the student has to practice, practice and practice again to understand what he had been taught. The teacher DOES know much more than the student, but his understanding can't be "passed", "transferred" or taught in any way -- not even by reading books."


<-------------------------------------------------------------------->


MAXIMUM RISK = 2% * ACCOUNT BALANCE.

STOP LOSS = 10 PIPS. (INCLUDING SPREAD)

POSITION SIZE = RISK / STOP LOSS.

This is how you make 2% per day.
<-------------------------------------------------------------------->

The important part is to enter WITHIN 20 pips of the daily low. The RAT REVERSAL is only one entry method.

<-------------------------------------------------------------------->

PLEASE DO NOT PM ME WITH QUESTIONS ABOUT TRADING, INDICATORS, CODING, ETC... Post your questions in the forum. Thank you.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby GeorgeCh » Mon Jan 03, 2011 11:01 pm

So, I just took the system on a two-day backtest with a twist.

I manually scrolled bar-by-bar on 5M TF through EUR/USD on Dec 30 and Dec 31 (and yes, I realize this is not an exhaustive sample size by any stretch of imagination).

The idea was simple - by scrolling through the charts and making decisions on the basis of the information available to me at the time - rather than retroactively eyeballing through the available data - I could put myself in the shoes of a trader using the system with the element of uncertainty thrown it.

I used the following rules:

1. Wait for the price to make a new high.
2. On 5M TF, wait for a red candle to close.
3. On 5M TF, enter on the next candle as soon as the price reaches the previous candle's low.
4. SL: 10 pips; TP: fixed 5 pips (to eliminate the discretionary decision-making element).

System performance (1 is win, 0 is loss):


1
1
0
1
0
1
1
1
1
1
1
1
1
1

In short, the system produced 12 wins and 2 losses over the two-day period.

Depending on how aggressive you were with risk management, you would make at least 4.05% return over the two-day period - assuming that your SL is equal to 1% of account, and your TP is equal to 0.5% of account.

Should those values be increased to the recommended 2% SL and 1% TP, the return would be 8.22%.

And, just to throw it out there, were you crazy enough to do 5%/2.5%, you'd end up with a whooping 21.37% gain.

Now, obviously, this sample size cannot be representative of the population; more to the point, the winning streak probably skews the results somewhat.

On the other hand, it should be noticed that one of the losers could have been turned a winner by exiting at 5 pip profit, and that at least two winners could have been turned into even greater winners by following the subsequent downtrend.

Before I take this system for a live spin, I'll run more such tests and revert back to you.

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Postby PTG » Mon Jan 03, 2011 11:44 pm

GeorgeCh wrote:So, I just took the system on a two-day backtest with a twist.

I manually scrolled bar-by-bar on 5M TF through EUR/USD on Dec 30 and Dec 31 (and yes, I realize this is not an exhaustive sample size by any stretch of imagination).

The idea was simple - by scrolling through the charts and making decisions on the basis of the information available to me at the time - rather than retroactively eyeballing through the available data - I could put myself in the shoes of a trader using the system with the element of uncertainty thrown it.

I used the following rules:

1. Wait for the price to make a new high.
2. On 5M TF, wait for a red candle to close.
3. On 5M TF, enter on the next candle as soon as the price reaches the previous candle's low.
4. SL: 10 pips; TP: fixed 5 pips (to eliminate the discretionary decision-making element).

System performance (1 is win, 0 is loss):


1
1
0
1
0
1
1
1
1
1
1
1
1
1

In short, the system produced 12 wins and 2 losses over the two-day period.

Depending on how aggressive you were with risk management, you would make at least 4.05% return over the two-day period - assuming that your SL is equal to 1% of account, and your TP is equal to 0.5% of account.

Should those values be increased to the recommended 2% SL and 1% TP, the return would be 8.22%.

And, just to throw it out there, were you crazy enough to do 5%/2.5%, you'd end up with a whooping 21.37% gain.

Now, obviously, this sample size cannot be representative of the population; more to the point, the winning streak probably skews the results somewhat.

On the other hand, it should be noticed that one of the losers could have been turned a winner by exiting at 5 pip profit, and that at least two winners could have been turned into even greater winners by following the subsequent downtrend.

Before I take this system for a live spin, I'll run more such tests and revert back to you.


George, have you taken the spread (bid/ask differential) into account ?
This is my new signature: "new signature".

GeorgeCh
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Postby GeorgeCh » Mon Jan 03, 2011 11:56 pm

PTG wrote:George, have you taken the spread (bid/ask differential) into account ?


Empirically, no; visually, in all of the above cases, it would not have made a difference, in that a winner would still be a winner (in other words, the difference wasn't substantial).

In the test that I am doing right now, however, I treat winners that win by one pip as losers, simply because 1 pip is the minimum spread one can expect on this pair.

I can also tell you already that a fixed 5 pip TP is NOT profitable; it worked fine in the above scenario, but the system is getting slaughtered in early September. To avoid this, you really need to use TRO's "take what you can get" approach to exits - trying to let winners run and cut losers asap.

Unfortunately, in the testing, I have seen several instances where a trade went dangerously close to TP only to revert in your favour (sometimes even after making a new high, as long as that new high fell into the 10 pip TP allowed). This would call for more discretion in cutting losers prematurely.

Alternatively, settling for three pips per trade would have turned at least a few of the losers into winners; however, this would have to be weighted against the ensuing greater impact that each losing trade will have on your performance.

None of this should be interpreted as a statement that the TRO method is in any way deficient; this is simply an attempt to better understand the exit strategy to optimize results.

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Postby GeorgeCh » Tue Jan 04, 2011 12:00 am

Actually, over the course of this week, I will try to compile an Excel spreadsheet detailing which entries I took and what the outcome was. It will also enumerate how far the winner would have run had it not been closed at 5 pips and how far into profit the loser went before reversing and turning into a loss.

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Postby TheRumpledOne » Tue Jan 04, 2011 2:15 pm

Image

Are any of you GREEN RATS feasting??
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby GeorgeCh » Tue Jan 04, 2011 3:13 pm

Had a great time on EUR/USD today as a red rat - took three profitable trades.

The two key lessons of the day are:

1. Let the winners run - really, I mean it. Each and every time I closed a trade at 4-5 pip profit after spread, I could've made thrice as much had I held on to it for longer.

2. Stick to the rules - it becomes incredibly tempting to bend the rules and start trading swing lows (since, as a green rat, you're already trading swing highs). The problem is that, while you can usually tell that a swing high is a swing high (it is within 20 pips of the daily high AND it is exhibiting reversal signs), swing lows are more discretionary in that they haven't gotten the upper barrier of daily high to hold them back or to function as an expected reversal area.

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