They believe what they want to believe, despite the obvious evidence to the contrary. Short-term luck makes many such devoted traders strengthen in false faith. In a recent interview I was asked what is the best quality a trader should possess. My answer was as follows: Obviously, there are many different qualities that a trader needs to succeed. They are all important. If I had to choose the most important of them, I would say that this is the ability to feel the true reality. Unlucky traders have a distorted view of the market, about themselves and their actions in trading. It is very difficult for them to correct their wrong judgments, so they are doomed to failure.
The entire market world is built in a way that reinforces their erroneous views. This is the difficulty to overcome them. Introduction to the Theory of Chaos. It turns out that it is possible to study the history of market prices using mathematical and statistical tools and determine whether there are repetitive models and cycles at all. According to recognized authorities, markets are nonlinear dynamic systems. The Chaos theory is a mathematical analysis of such nonlinear dynamic systems. Chaos analysis determines that market prices are quite random with the trend component. The number of the trend component changes from market to market and from one time scale to another. Such notion as fractals is involved in chaotic systems. Fractals are objects that are similar to themselves as separate parts are connected with the whole. A popular example is a tree. While branches are getting smaller and smaller, each of them is similar in structure to the larger branches and to the whole tree. The structure is similar to that of market prices as you look at monthly, weekly, daily and intraday charts.
Just like with natural objects, as you approach, you see more and more details. Another characteristic of chaotic markets is called a sensitive dependency on initial conditions. This is what makes dynamic market systems so difficult to predict. Since we cannot accurately describe the current situation, and the errors in description infinitely multiply into the future because of the total system complexity, accurate prediction becomes impossible. Even if we could accurately predict the price of the stock exchange tomorrow (which we cannot), we would still have zero precision when trying to predict the price 20 days ahead. Many thoughtful traders and experts believe that those who trade on intraday data, such as five-minute charts, are trading with random noise and are thus wasting their time. Sooner or later they are doomed to failure. At the same time, these same experts say that the long-term price behavior is not accidental.
At each rate, the casino has a statistical advantage. And, although the casino may lose in the near future, the more players bet, the more it will win in the end. If you trade in a method that has a statistical advantage and strictly follow discipline (big question), like a casino, you can not lose in the long run.
In my calculations, success in trading depends on the system by one third, on the market portfolio by one third and on the discipline of the trader, his ability to follow the system accurately. We can never know for sure whether our system has a statistical advantage. The best thing we can do is to create it without adjusting it and check it on history. If the system has been adjusted, any tests on the history will be useless. An easy way to take action against fit is to use the same rules for all markets and test your system on as many markets as possible. If it turns out to be profitable on a large number of markets on a long history, with a large number of deals, it is likely that it will not fit. In order to maximise your benefit while reducing your risk, it is critical to find the right portfolio for your system and account size.
Because statistical advantage gives you a trend component of the price, you can first increase your advantage by focusing on markets with the historically highest trend component. I have written a book titled Trend Trends in Futures Markets, which provides systematic analysis of the trend propensity of 29 popular markets on all time scales between 5 and 85 days. Although we can measure the tendency of different markets to trend in history, we cannot know for sure which markets will be the most trendy in the next six months. Therefore, in order to reduce short-term risk, we must diversify. My research has shown that the optimal portfolios for trend following systems are between 10 and 20 markets. I personally trade 19 different markets with different trend following systems. Maybe that is why it happened? https://signal-means-profits.com/else/risk-of-corruption-eu-crisis.html
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