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Thursday, August 18, 2016

NON COMPUTABLE PROBLEMS IN TRADING


SOMETIMES THERE ARE NO ANSWERS

One of the major problems we all face [life = trading, trading = life] are the “nitty gritty” details of implementing a plan with 100% certainty where we have insufficient information to produce anything but a probabilistic outcome; none more than trading to be sure.


This reality is the major reason I have never attempted or desired to place my algorithm into an “Expert Advisor” [EA] for people to have “the machines” [hello Skynet?] trade their account while they soak up sun on the beach. It never works that way does it? There are other issues as well, like having the liquidity provider bank [LP] know how your algorithm works because the “code” is placed into their system for execution, and so ahead of time you are letting these financial ripoff artists them know what “your game plan is”. Come execution time you find the fills you were getting on the “demo” aren’t nearly the same as in real time and so all of your hypothetical results from testing become “dried bullshit flakes in the wind” as the LP drops the bid or raises the offer a nanosecond before your EA needs a fill on a market order. I’m sure it’s just a coincidence this happens almost 100% of the time. [Note: There is one way, and only one way to get decent, fair market fills from an LP; sell on the way up, or buy on the way down. That’s it, there is no other option; you wait and sell after it starts to go down and you pay the price.]

When analyzing the gold volatility algorithm, there is a very subjective analysis needed when hunting for that “large spike” to liquidate. Granted, when price spikes to the exhaustion lines, it becomes purely objective, and it’s a “no brainer” to hit the “close position” button on the order box as you know with a very, very high probability that the market price is hitting a top in real time. But on other more popular liquidations, the problem becomes one of “measurement”, and on top of that it really begs the question, “How much more in the spike than what I’ve seen so far in the position; I mean a penny, 10 cents, 50 cents, a Dollar, what exactly?”  Hey, the computer code is calling and it really wants to know.

Often, it’s easy to distinguish the difference, but many times if your “code” is looking for something else, you get banged out before the move runs itself out, and so you are constantly getting out too early. OK, you say, I’ll just adjust the code; well now, your problem is you’re staying in the position too late, because the problem now is that the “code” isn’ calculating [or seeing] what you told it to look for, so you stay in the position past the top and suffer rotten fills again on the way down. In other words, this becomes a game you can never win.

Directly below are 2 algorithm signals from today.

The liquidation points are pretty easy to distinguish, and if I had 100 people in the room I think all 100 would say, “yea, this is the largest up spike since the inception of the position [appropriate white arrow and then appropriate orange arrow liquidation] and it’s definitely time to get out.” But there are plenty of other times, where if you coded a specific Dollars & Cents per Oz. extra gain over an average of spikes, you’d fall a penny short in the bid price and the EA would NOT get you out, and as a result you’d need a “Plan B” criteria in the code to exit. This isn’t acceptable to me as a professional trader; I’m smarter than an EA., and more importantly I know something when I see it! [Hint: In a trading pit you could feel it.]

Now, trading is not a game where you get “one shot” at profits and then the gig is up for the day; so, the upside here for every type of trader that uses my volatility algorithm is that you’ll get plenty of chances during the trading day to implement the algorithm [usually]; even if your best effort on trade 1 or 2 wasn’t “optimum”, and you somehow waited and got a worse price, just do it again the “right way” and learn the lesson. How’s an E.A gonna teach you that?

By making the volatility algorithm “visual” in nature, I can get you to focus your attention on the chart [rather than your equity], and by default get you to make trades based on the trade, not on money; you make the right trades, and the money takes care of itself!

Have a great day everybody!
-vegas

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