Hello JetTrader,
Thank you for the continued discussion.
I think our definitions roughly boil down to the same thing plus or minus a few semantics. Although I have reservations about the need to set a capital requirement on a specific schedule, because trading usually does not lend itself to being the kind of profession where one can state I make [$XX.XX]/quarter/year. Besides adding the unecessary pressure of having to conform with a schedule, individuals may prefer to simply trade the market, knowing that they have a positive expectancy system/methodology, and so the money will eventually come quicker than one knows what to do with it.
For argument's sake let's say that this 7 pip trade was a short which was initiated. In order for price to move down 7 pips, downward liquidity would have to be consumed, pulled or a combination of both in order to get price to trade at this level. There are specific reasons why orders are transacted resulting in the consumption of liquidity, and personally, I find it difficult to assign valid factors to a 7 pip move.
Perhaps you may rely on statistical analysis, or employ the use of high frequency methods, to identify these instances, and that may be your edge. However, I personally feel uncomfortable leveraging the outcome of a trade on a probability distribution, and instead seek only to trade when I can potentially identify factors which will constitute others to consume liquidity, and position myself to act before or in their wake. And those reasons better be damn good. Failure of the trade will be the result of my errors in analysis, or an unexpected, random event eg. (God-forbid) a 9.8 magnitude Earthquake in the U.S.
I did try searching for further information on magnitude and capacity, but could only find this thread, and so I am still ignorant as to its meaning. However, one should note that in taking such micro-opportunities, slippage and commissions may account for a notable portion of the move, as opposed to say a 250 pip move, where the former amounts to less than 1% of the move.
Off the top of my head, let's take a recent example. On March 17, 2011 the USD/JPY spot rate tumbled 5 big handles in the wee hours of the morning, before returning to its prior levels. Did the fundamental state of the U.S or Japan sommersault within the hours in which the event occurred? Was there a technical event which incited participants to act to produce that kind of a move? If you are able to isolate the real reason for the move, you'll see it had very little to do with either Technical Analysis or Fundamental Analysis.
Sure the market is driven by both technical and fundamental components, but to assume that these are the only drivers would result in one foregoing some very profitable opportunities. Additionally a distinction should be made between News Trading and Fundamental Analysis.
Such absolutes may prove a hindrance in exploring new possibilities that evade perception at a cursory glance. However, your analogy with Pluto and Earth shows at least you have a creative imagination.
Again I am ignorant on this concept of Magnitude/Capacity, so cannot comment contributively. However, it sure does sound pretty out of the box to me.
In this analogy, you have concrete reasons as to why your neighbour is doing what he is doing. It seems like a no-brainer when and where to go wait for him and pounce to discuss your Carbon Footprint. This is because you have mapped out his drivers - walking his dog, or going to visit his car on given days. Suppose you create bars or log his movements, and map your probability distributions to his likely movements for the next coming week. Will your bars tell you that he will not be there next week, since he has a new driver - the need to visit his ailing mother out of town? To find out his intentions, you need to go to the source, and find out what's driving him - the information obtained would have you resting comfortably at home for the next week instead of wondering why your probabilities are so off-track as of late.
In my eyes, the two of you are closer than you think because your methods do not discount probable, concrete reasons as to why the market is moving, and use historical data and probabilities to project future events. The simple bars of data omit a large chunk of core information which can be used to assist in determining direction, since it manifests itself off the charts.
I tend to disagree, and believe that the best way to make the determination is to map the DNA of the market, market driver by market driver, empirically. Then you'll definitely have the pulse of the market, and be able to gauge market sentiment accordingly because you can assign logical reasons as to why it's doing what it's doing.
Market drivers are the catalysts that create the bars - bars do not create market drivers.
The same can be said for pulsing the market accurately - you can know with a very high degree of accuracy in some situations where the market goes over proportionally larger periods of time.
Because you know exactly what it's intentions are.
Regards,
xXTrizzleXx
Thank you for the continued discussion.
DislikedI define a good trade as one that consistently moves the needle on the equity curve meter, closer to the trader's previously defined capital requirements, on a specific schedule, likewise defined by the trader.Ignored
QuoteDislikedOtherwise, people are just making or losing money in the markets, with no rhyme or reason behind the gains or losses. Success, has to be defined as the movement towards a specific capital requirement over time and on schedule. If there is no End Game, then there is really no way to define success.
QuoteDislikedSo, if one nets 7 pips per trade and doing so moves the needle on schedule to a specified capital requirement, that 7 pip trade was a total success by any definition. How much of a trend does one need to amass a whopping 7 pips per trade - answer: Not much at all.
Perhaps you may rely on statistical analysis, or employ the use of high frequency methods, to identify these instances, and that may be your edge. However, I personally feel uncomfortable leveraging the outcome of a trade on a probability distribution, and instead seek only to trade when I can potentially identify factors which will constitute others to consume liquidity, and position myself to act before or in their wake. And those reasons better be damn good. Failure of the trade will be the result of my errors in analysis, or an unexpected, random event eg. (God-forbid) a 9.8 magnitude Earthquake in the U.S.
QuoteDislikedHow much Magnitude or Capacity does the trader need to amass those same 7 pips per trade - answer: Enough to cover the spread, slippage, commissions (if any) and any manual entry errors made by the trader, without blowing a hole in an MAE level that is too risk adverse to a 7 pip trade.
QuoteDislikedIf you can name any component of market behavior that falls outside of either Technical or Fundamental analysis, I'll write you a check for $1 million dollars on the spot.
QuoteDislikedThe market's price behavior is driven by both technical and fundamental components - the only two broad spectrum components in existence for any traded market. People either trade on the News/Economy (fundamental), or they trade on the Numbers/Data (technical), or they try to do both simultaneously and price will move as a direct result of both concurrently.
QuoteDislikedUnless one can show me that price actually moves because Pluto has a wider orbit than Earth, than all price behavior can be defined as a function of both technical and fundamental components as defined above.
QuoteDislikedIts simple - substitute ATR....
QuoteDislikedTo fully derive that, calculations of historical bars of data must be undertaken in such a way that reveals the true status of the market's Magnitude/Capacity, which is something that gets beyond my desire to disclose in the open. However, starting with ATR and thinking outside the box about measuring OHLC market movements relative to ATR, will give the trader a pretty good Magnitude/Capacity Indicator of their own.
QuoteDislikedIts very simple on the surface....
QuoteDislikedHow many traders know about the wealth of directional information contained in simple bars of data? Not many. Instead, most "technical traders" are looking for a cross on some EMA to determine when the time is right to enter or exit the market.
QuoteDislikedThe best way to make that determination, is to map the DNA of the market, bar by bar, empirically. Then you'll have the pulse of the market, its heartbeat and its respiratory rate. It won't tell you where the market is going all the time, nor will it tell you where the next jackpot 1,000 pip move will come from.
Market drivers are the catalysts that create the bars - bars do not create market drivers.
QuoteDislikedBut, having mapped the bars of data precisely, you can know with a very high degree of accuracy, where the market goes over smaller, shorter and more compact time-intervals. That's where the precision comes in.
Because you know exactly what it's intentions are.
Regards,
xXTrizzleXx