Throughout the course of this thread, we have discussed the importance of creating, testing, and using discipline to execute your strategy.  In this post, I will detail a key component of trading systems, which has received very little attention.

For your trading system to be a success, it really has to make sense.  If you are unable to describe your method on the back of a business card to the average person in less than 30 seconds, your system is probably nonsense.  Take for example the following situation in which you are asked to explain your system to a potential investor:

Situation 1 – The Moving Average Crossover
“So, what is your trading method?”

“I trade a moving average crossover.  Basically, I have a theory that price increases and decreases in relatively predictable trends, so I try to be long when price is increasing on average and be short when price is decreasing on average.  I have found that this method allows me to almost always be positioned with the trend.  I have backtested it, and it has proven profitable across nearly every financial market for the past 150 years.”

Situation 2 – The Fibonacci Gann Master
“So, what is your trading method?”

“I trade Fibonacci retracements, expansions and Gann angles.  I have a theory that there is a hidden order to the markets and price moves in the same mathematical pattern that a few things in nature exhibit.  Basically, it’s super complex but don’t worry, I’ve read a book or two.  If you’re interested, I’ll allow you to pay me for my analysis…but be warned, I am not actually making money using it.  Also, I haven’t actually tested it, so…”



Where would you entrust a $100,000,000 investment?

Throughout my life, I have found that the true masters of fields are those who are able to express advanced concepts in terms that the common person can understand.  Trading is no different.  Without fail, the most successful traders I have met have been those who are able to take their decades of experience and logically present their method in less than 30 seconds to the listening ear.

The serious trader should ask himself if his method actually makes sense.

I guess an asset which price was $0.079 on May 2010 and $266 on April 2013 has quite an appeal for traders

$0.079 to $32 is good enough

In this thread, we’ve covered a variety of different topics.  Each of these topics combines into a simple, central truth of trading.  The job of a trader is very straightforward: make the value of your account increase through time.  All of the activities which a trader participates in - strategies, techniques, risk management, psychological discipline – are all about making the line go from bottom left to top right.

This is the sole objective of the trader: profit.  A good trader is not concerned about being “right” in his market call.  A good trader does not care about selling the top or buying the bottom.   The great trader gets rid of his ego and focuses on what works: trading with an edge.

So what is an “edge”?  An edge is quite simple really: trading with a positive expectancy.  Rather than boring you with math and statistics, I’ll present two hypothetical traders.  Which trader do you think has an edge?  Which trader would you let manage your hard-earned money?

Trader A
-   Wins 70% of his trades
-   The average winning trade earns $100
-   The average losing trade results in a $500 loss

Trader B
-   Wins 30% of his trades
-   The average winning trade earns $1,000
-   The average losing trade results in a $100 loss

At first glance, you may think “Trader A rocks – he’s right 70% of the time!”  Wrong.  The truly successful trader is one who is able to structure his trading in such a way that even if he loses the majority of the time, his winners are of such a size that they more than compensate for strings of losses.  The chart below powerfully demonstrates this concept.  This chart is just a simple random simulation of the two traders above.  It shows the amount of money each trader has in his account after 100 trades.



So I ask you again: which trader would you trust with your money?  Can’t you see that trading really isn’t about being right?  It’s about making money.  Check your ego at the door and stop trying to be right in calling market direction.  After all, Trader A is right about market direction 70% of the time.  He's the guy who sold at the top and bought at the bottom - the market guru!  But at the end of the day, he's dwindling away his money because he doesn't understand the simple truths of trading.

Would you rather look smart or make money?

Oh and by the way, Trader B lost 14 trades in a row at one point.  Do you have the discipline to continue trading your system even in the face of 14 consecutive losing trades?  Most don't - but then again, the majority of people lose money in the markets.

The date range and point values aren't really necessary for his example, he's just exemplifying the circumstance of higher losses than gains, despite a higher gain frequency.

Switching to a longer cycle (daily vs. hourly, as an example) will give the proposed EMA cross-over system here more data to form opinion on trends, which would give you a safer number of wins. You wont catch tiny breakouts as often, but your system wont be fooled by nearly as many fake cross-overs either.

But as has been the tone of the thread: finding a risk level you're comfortable with as compared to a win frequency you're happy with.

Goomboo: do you use a bot? Could you share your config and explain it?

Sorry if these questions have been answered before, I couldn't find them.

How do you trade manually when Bitcoin markets are 24h?

Daily bar always closes at the same time. Before that, a crossover isn't confirmed. With hourly bars, it would be different of course.

Goombo said in the OP he uses hourly charts, I guess he changed his strategy - obviously there's no point in using hourly candles to find out if the daily EMA are crossing.

EDIT: here you have the OP