It is our job to trade "the future" No "History"

It is our job to trade "the future" No "History"

Over the years I've been trading and writing I've often written about mind set - the right frame of mind for trading to become a winner.

I'm told that it is our job to trade "futures," not "history."

The future is the next bar on your table. You may not know how it will develop, how fast prices will move, or where it will end. Since none of us know where the next tick will be, it is impossible to know where the tick after that will be, or tick after that, etc. All we know at any time is what we are witnessing. It is interesting that you see may not be true.

If you're shopping day, we are not sure what you see is a bad tick, especially if it is not too far astray from the price action.

On a daily bar chart does not always tell the truth, either. The outdoors can not be where the first trade took place. Nearby is the only consensus, and can be quite remote from where the last trade took place. The high, can be high and low may not be low. If you do not believe, then I challenge you to pick up all the newspapers and look at some of the back months.

For example, if the exchange announced that month opened back in 9755, with a high of 9802, low of 9760 and the end of the 9784th Does that make any sense? How low can be higher than outdoors? How can eventually be higher than high? However, it is kind of garbage that must be placed in this business.

Now you know the problem with back testing. Back testing and simulation testing are based on nothing but lies. That is why they do not work when you actually put to the test with real data.

In fact, there are many reasons why back testing and simulation will not work and I like to dump in your lap right here.

Because you really do not know where they are high or low, or if the market traded ever really exist, you do not know if your simulated station was taken out or not.

If you say you have a system where if you get three days followed by a down day, the market will be up to twelve days from now 82% of the time, then the whole universe of statistics may be based on what is not true.

Have you ever watched Cocoa open until the end? You can clearly see that trading opened, but by the time the market closed, the open will be set at a time from the opposite side of close. It may be fifty or more points away from where I saw it open and trade as well as born out of time and report the sale.

The way they report cocoa prices are going to give a good beacon to many traders. Why? Because they are going to look too "doji is" (open = close), more than are really there. Cocoa is not the only culprit, but historically, it is certainly one of the worst

When you see the finished bar of the table, you have no clue which way prices move first. You do not know if they moved down the first or first. You do not know whether or not prices opened and then moved into high, down low, then traded in the lower half of the price range until the end, when prices soared to a high and there closed. You have no idea of ​​the overlap. I've seen prices trade from one extreme to the other more than once in every extreme.

In each of these cases, your protective stops were taken out intraday.

You do not know anything about the volatility of the market on any given day, once you see a complete price bar. They were timed their normal prices, exchange to a minimum tick, ticking, or were they two or three times the minimum every time you checked the prices?

Even if you purchased tick data for simulation, showing each market tick made, you know that volatility was. For example, do not know if the S & P is ticking five minimum tick fluctuations or 25 minimum tick fluctuations, and if it does quickly or slowly. You do not know and you know, and anyone who tells you their system simulated on the basis of such false nonsense, is a liar.

Not knowing how fast the market was really means that you can not know what could be slippage. The sooner the market, the greater the slippage. You can sit there and say she'd gotten into a certain price or to have exited at a certain price, but if you know the volatility of the market, and how fast the market was, do not know enough to say that I've done such and such. Not knowing how fast the market was no way to know how many there would be slippage on your entry or exit from your. Without knowledge of slippage, you may not know the risk.

This is true and instability. Volatility is composed of range of motion, speed, and tick size. If you do not know the degree of slippage, will not know the extent of risk they would face.

As if that was not bad enough, also do not know how thin the market at the time you need it traded. If you are position trading, you can not go to a reported a day (which is always too late to pass you) because there is no way to know what the volume was at that time, the price would have been hit. So here again you have no idea of ​​what might have been slippage occurs, and once again you will know what is the risk.

If you want to spend your money on commercial systems based on unknown, then you must take risks for it. Since this is the business of taking risk, you have the right to ensure the prices of any market that you care to.

Insurance companies spend a lot of money to make sure that the risks they take are statistically sound. It is the equivalent of finding a good, well-established, liquid markets to trade in. But any market can become completely chaotic. Markets can become extremely fast, and they can become quite volatile. So even if your system is back-tested in a liquid market when that market becomes fast and / or volatile, your back-tested, simulated system will be able to handle him and lose. It's like going to write life insurance the battle front.

If your back-tested, simulated system does factor in some space for fast and / or volatile markets, then, when it will be trading in a slow, not tough markets with built in factor, we used a system that is completely inappropriate for slow, non-volatile market in which you are the best you can hope for is "optimized system. How can you possibly expect to compete with retailers who act and react to the fact that it is at hand at that time?

Extensive back-testing is for historians, not traders. It is the wrong view of the markets. Your trade must be seen ahead, without being ridiculous about seeing into the future.

If you do not know where the next tick is, how can you possibly know where the next market will be turning point? Can you see the future?

You may want to trade astrologically. These people are always trying to peer into the future.

In the auto business they have a saying: "There's an ass for every seat." There is also a fool for every fortuneteller who claims that you can see in the future.

I guess you can always go to your local witch coven and hire to tell you what will make tomorrow beans. It may even be the best from time to time.

You can always do, as a charlatan not run the biorhythm for each market based on first began to trade. Or, you can give the market forecast based on the same date. The biorhythm, you'll know what time of day the market must be rising, and what time of day would be the lowest level.

You know what day the market will be ecstatic to reach a new high, and that day will be in the dumps and make a new low. However, you will find that from time to time the market will reach new lows of the day was to reach new heights. Well, it's easy enough to explain. You can tell everyone "We had an inversion. Inverts the market again, lows will be high, highs and lows will be!"

Joe Ross, trader, author, trading educator is one of the most eclectic traders in the business. His 47 + years include position trading of shares, and future. He day trades stock indices, currencies and exchange rates. He trades futures spreads and options on futures, and has written books about it all - 12 to be exact. Joe is the discoverer of the Law on the charts, and is famous for the Ross house and Traders Trick Entry.