Worthless Trash wrote:Ah, so you just meant being more flexible and more complex, the thing is that all these things are programmable, the advantage is that if all this flexibility and complexity works it's much better done by a machine than by a human, a machine has the advatage of precision, discipline and importanty it can test if the strategy works long term. If there's nothing truly subjective like going by istinct it's all programmable. Not saying it's simple obviously.
You're right, all of this is programmable. But the more complex your automated program is, the easier it is to make errors. If you really break it down, there are tons of variables affecting currency movements, from central bank activity, all the way down to that local glass producer hedging against fx movements. Measures of volatility can be controlled for by using standard deviations of recent movements, and adjusting accordingly to scale down position size. There are hundreds of ways to come up with a system. But the problem is, it has to be broad enough to work consistently on the long term. And by being broad enough, it won't capture much profit. A more intricate system working on pricing inefficiencies are only available to private programmers and quants, but even then, these exploits are arbitraged away over time. As a simple example, a system buying on RSI, STOCH, and PP showing oversold and selling on overbought might work for some periods, and flunk in others. There is no set rules, and this is where systems come at a disadvantage, because they fail to adapt and make decisions. Market psychology is also big, confidence and humbleness are key traits for a successful trader. Studies have shown that men who had high serum testosterone in a particular morning made almost three times as much profits trading than other men. Being more aggressive can make you more money, but there is also more risk involved.
Given the number of traders in financial markets, the laws of probability would suggest that a fairly large number are going to beat the market consistently over long periods, not because of their investment strategies but because they are lucky. It would not, however, be consistent if a disproportionately large number of these traders used the same investment strategy. So not only your system has to be exclusive, you need to make sure that the luck factor is minimized during any successful backtesting, something difficult to derive. Or else, you aren't really capitalizing on mispricing.
I for one, believe that trading is most of the time, pure luck, with only a slight edge based on technicals, because they serve as a self-fulfilling prophecy to many traders looking at the same charts. What makes you or breaks you in the end, is money management.