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Sensei
You are wise in much and I for one thank you for your participation, both in forums in general and here in particular.
I must humbly disagree here.
If signal type A has such an advantage over signal type B, why trade signal type B?
If signal type A decreases in reliability when volatility decreases, why trade signal type A in a decreasing volatility environment?
I think the more prudent approach is to trade A all the time, with the ability to ADD to the position in those times when volatility is both high, and the position is in profit.
Simply, the original position is constant, but the actual size can be increased as the MARKET allows via movement in one's "desired" direction.
Now, suppose signal type B is better than signal type A when Volatility decreases. Here one could trade B rather than A, but the initial position size of B should be the same as the initial position size of A under A's optimal condition-increased volatility.
As I see it, if one is not willing to put the same amount of contracts on B, he is saying that he believes less in B than A. But if one believes less in B, why take the signal in the first place? Again, if the desire is to make more trades, trading more markets, via sister trades or not, or trading more timeframes seems the better course of action.
When test out a new signal type C, yes one could start out with fewer contracts. But once the test period ends, either the value of C merits a full position or no position at all.
I believe in UNDER trading is size and frequency. Too many traders need action and thus look for multiple ways to get in. Yet, if there is a wide disparity among signal types the edge is lessened due to overtrading.
Again if one starts out with x amount of contracts and then adds on as the market proves the trader to be in tune with it, then the best signal type under the best conditions ends up being the one with the most contracts in total. But this is at the end, not the beginning. And the beginning is of course when nothing is truly known about the eventual outcome........
It is not the mutiple signal types I question, rather the variation of size associated with each. Either they are all 5 contract worthy, or some are not while some are. And if some are not, why trade them? |
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Hi PivotProfiler,
It's all about opportunities.
Lets say
signal A gave pattern signals at the following times with results -
0940am = $60, 1042am = $125 and 1535pm = $95 for a total of $280 profits
On the same trading day,
signal B gave pattern signals at the following times and results -
1002am = $48 and 1118am =$175 for a total of $223 profits
Now, lets say signal A has a reliablilty of 85% while signal B has a reliability of 72%.
If I only trade signal A because its more reliable while ignoring a profitable signal B that's less reliable in comparison to signal A...
I just lost the opportunity to make
an additional $223 dollars.
A few days of lost opportunities adds up quickly by the end of each trading month.
Thus, instead of having 5 trade opportunities...I only had 3 trade opportunities on that particular trading day.
Lets change the story to changing volatility conditions for one pattern signal.
Signal A is reliable 78% of the time in normal to high volatility conditions and gave 2 trade signals during these conditions on a particular trading day.
Signal A is reliable 69% of the time in low volatility conditions and gave 5 trade signals during these conditions on the same trading day.
If I ignore Signal A during the low volatility condition when the risk is greater...
I only have 2 trades for the day instead of 7 trade opportunities.
Further, because where trading a profitable strategy when the risk is higher...to reduce that risk to equal the same/similar risk level when volatility is high...
We need to reduce our position size when the risk is higher but the strategy still has a positive expectancy.
The above story will change if we stop comparing a Profitable situation versus Profitable situation into a
Profitable situation versus Losing situation.
Thus, if comparing a profitable strategy versus a strategy that's not profitable...
Then I would strongly agree with you why bother with the other strategy that's not profitable.
By the way, I have multiple strategies for different types of price action.
For example, if have a pattern signal that only appears a few times per year in a particular type of price action involving market seasonal cycle.
I have another strategy that appears every trading day at least twice involving market breadth indexes.
I have another strategy that appears twice each day involving Japanese Candlestick patterns.
I have another strategy that appears twice per day involving intermarket analysis.
I have another strategy that is only used during the U.S. presidential elections via a market seasonal cycle.
All have different reliabilities and all are profitable.
Your suggesting someone shouldn't use multiple strateiges and only trade the strategy that's the most reliable...
I'm going to lose a lot of money because of the lost trade opportunities due to the fact I don't have one strategy that appears
all the time.
Therefore, when you suggest to trade the most reliable method all the time...
In my particular situation and I'm assuming its the same for any other trader that uses more than one strategy...
The pattern signals just don't appear
all the time.
By the way, my most reliable profitable method only appears during U.S. presidential elections and if I tweak it so that it appears every day, every week or whatever...anytime or all the time...
It's a losing method.
The key here is that the market is not the same all the time and we should be thankful this is true every trading day.
I also think one of the reasons why some traders (not all traders) overtrade is because they want to be active in the markets but they are using a strategy that doesn't produce many trade opportunities.
Thus, they easily get impatient and fear missing something that results in them taking additional trades that's not part of the trading plan (overtrading).
Therefore, it can be debated that having only one strategy, it can encourage overtrading if that one strategy isn't active enough for you in producing opportunties to make money.
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Look at it this way, lets pretend your only using one strategy and its very reliable with a reliability factor of 89% when the markets is trending.
Then the market changes from trending to a tight trading range and you stay on the sidelines because you know your strategy is not reliable in tight trading ranges (it's not profitable).
Now lets say you have the opportunity to develop a new method via something you've read on the internet at some discussion forum about tight trading ranges.
Your able to develop a method that's 75% reliable during tight trading ranges and not reliable in trend like market conditions.
My questions to you are the following?
* What are you going to do if the market is range bound for the next two trading days?
Yep, this is a trick question. :rolleyes:
* Are you going to trade the same position size if you decide to trade in the trend price action and the range bound price action?
* What if you tweaked (made an adjustment) to your trend strategy so that you get trades when the market is range bound but the tweaking (strategy variation) is not as profitable but still profitable...
What are you going to do as in your position size managment...less contracts or no trade (0 contract)?
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With all that said above, its possible your talking about strategies that appear all the time as in giving multiple signals each and every trading day.
Only type of trader I know that uses one strategy that gives him multiple pattern signals as in
all the time are
scalpers.
I'm not a scalper even though I will exit a position fast if profit levels are reach soon than expected, price conditions change dramatically after my entry or my stop is hit (stopped out).
I day trade (a few signals per day), swing trade (a few signals per month) and I position trade (a few signals per year).
However, I do take more than a few trades per day as a day trader but only because I'm the type that's constantly testing something new in an effort to improve my performance.
Also, you can overtrade as a position trader too if you only get 5 trade signals per year and one year you overtrade and do 12 trades in which 7 were not part of the trading plan.
Thus, overtrading to me is taking trades that are not part of the trading plan and has nothing to do with frequency.
A pattern signal is a pattern signal. Therefore, if on Monday your pattern signal appears 3x...than you should take at least 3 trades.
If on Tuesday your pattern signal appeared 15x...than you should take 15 trades and its not overtrading unless you add in one trade that's not part of the trading plan to make it 16 trades on Tuesday.
To conclude my discussion on this...
Had I stopped learning new things many years ago when I had my first profitable strategy and only stayed with that one strategy (ignoring the stuff that's less reliable even though they are profitable)...
I don't think I would be where I'm at today and I hope I learn more things that either improves what I'm using or gives me additional profitable opportunities.
In fact, many of the world's top athletes or top business owners are doing
multiple things to help them stay at the top sort'uv speak.
Yet, if you can reach your goals with one strategy that appears all the time...
More power to you and keep using that approach.
Mark
(a.k.a.
NihabaAshi) Japanese Candlestick term
"Volatility Analysis opens the doorway to consistent profits."