When I started with technical trading, I felt like entering the medieval alchemist scene. A multitude of bizarre trade methods and hundreds of technical indicators and lucky candle patterns promised glimpses into the future, if only of financial assets. Often the methods are merely recipes to be followed meticulously, like the spells in ancient conjuring books. Opening and steve hopwood forex robot positions manually without a trading system can work.
When you have some information about the particular asset that the other traders don’t have. Or when you got a stroke of luck. Otherwise you can rightfully expect to lose your money at the rate of the transaction costs. 13 pips per trade, according to FXCM statistics. None of the studied basic indicators was any better than throwing a coin. Ralph Nelson Elliott claimed in his 1938 published book that the prices of financial assets always move up and down in a fractal pattern of five waves.
And indeed you can see all sorts of waves when you stare at curves long enough. Although cycles in price curves are real, they have no reason to appear in series of five. In the early 20th century, the trader William Delbert Gann was desperate, as he could not support his family with his trading. But suddenly he discovered the way to success: Planting anecdotes that promoted himself as a genius trader, and selling esoteric trade systems and books. It seems that Gann was the ancestor of all scammers in the trading scene.
He did not die rich, though, as in his late years he apparently began to believe in his own methods. It’s widely accepted as a normal trade method and discussed in many trading books. Even Perry Kaufman, in his standard reference of trading systems, published code to calculate the Jupiter-Saturn cycle! Indeed, trading would be a breeze if you could calculate tomorrow’s prices just from the positions of sun, moon, and planets.
Candle patterns had been developed in the 18th century by Japanese traders for predicting the local rice markets. And indeed they might have had some value back then. 1, 2, 3, 5, 8, 13, etc. But there’s no reason to expect it in the price levels or time periods of financial assets.
As far as I know, no one has ever discovered any price series property related to Fibonacci Numbers, or to Golden Ratios, Golden Squares, or Golden Whatevers derived from them. By connecting pivot points on the price curve, you can produce funny polygonal figures such as diamonds, butterflies, crabs, or bats. Their shapes predict profitable trade entry points. I admit I have not yet tested a system based on trade predictions by polygonal figures.
I’m only sure that harmonic trading is profitable for the tool and seminar vendors who promote it. This makes you wonder what Your Trading Style might be. Do you trade fast, slow, risky, greedy, or in the style of the Kamikaze? And should this style affect the distance of the stop loss? So you’ve created a detailed plan by which percentage it has to grow every week. Unfortunately, the markets could not care less about Your Trading Plan. And if you’re following some system, your wins and losses will often have serial correlation.
On any trader forum you’ll find some lengthy thread about a system with miraculous profits. The thread starter has discovered the ultimate trade method. They are offered by anonymous vendors on countless websites. And supported by likewise anonymous users that all claim on trader forums that they have earned millions with that particular robot.
Theoretically, a correctly developed and tested robot could indeed work, if algorithmic trading works at all. Can you see from the above curve when this robot started selling? Hint: It’s close to the end. But amazingly, many of the described systems survive not even a simple backtest.