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Posts Tagged ‘Trade’

Why trade?

September 24, 2011 Leave a comment

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I have to trade because of the intellectual and emotional challenge and the satisfaction I get from trading well.

I love to trade because I find it interesting, and it challenges me every day to discover who I am and what I can do.

I like to trade because it combines my passions for action, research, intellectual challenge and adaptation.

Trading directly supports my personal and financial goals and rewards me for the time and effort invested compared to other things I can do with my time.

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experiment with housewives trading the futures during one of the most volatile weeks in the last 50 years

August 14, 2011 1 comment

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the ladies traded very well, netting  2K for the week, using simple support & resistance levels, with good risk management and money management techniques.

they traded 2 indices: Russell2000 and the DJIA, at  contract per trade, with an initial risk of 250; they added some practrice tardes in some currencies later in the week fro the experience: mostly Aussie and Canadian dollars

the 3 of them around 2 laptops and 2 extra screens doing their collaboration was very instructive and motivational to the rest of the trading room.  They  were very good and learned a lot and will soon be prepared to go live, now that they have a good understanding of the platform

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May 27, 2011 Leave a comment

MACD 12,26,9

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Important insights from one of our workshop participants this week:  a ton of good learning inside these ideas

Our initial stop placement reflects the information available when our trade is initiated. Any price action after the trade provides additional information and can be used to update the stop placement. An example is the use of the MACD histogram to exit before taking a full 1R loss.

If your system is designed to catch singles, don’t wait for the home run before exiting. Take the single and move on (until you can recognize when the market is making it obvious that this time you should hold on for more).

Markets may have unique characteristics that should be taken into account when making framing and trading decisions. DBA, for example, can be framed with tights stops, seems to make orderly moves, and sees more action only after the opening of the grain futures markets.

Framing trades with tights stops right after the open feels like getting caught in a dolphin hunt (the underwater tornado). The lunch and afternoon sessions tend to provide a better environment for identifying trades using the WMB method.

The importance of understanding the type of move you’re trying to capture (F –> C; B –> A), and matching your entries/exits with that type of move.

After learning how to trade large index ETFs (IWM, SPY…), index futures provide a way of using the same skills to produce higher returns. 

Respect the R.

Opportunities are available any time the market is open. 

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a good friend of mine interviewed me for his trading web site…

May 13, 2011 1 comment

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Describe your style of trading (short / medium / long term, trending / contra trend, what instruments….)

I would describe myself as a trader in a combination of short-term and medium-term time frames. In my short term trading I would classify myself as intraday with willingness to hold overnight if circumstances warrant it. My medium-term timeframe consists of swing trading and once a week adjustments to my asset allocation strategies. I usually have a combination of both trend following and countertrend trading techniques (otherwise known as reversion to the mean, which is a very important component of my overall strategy.)

Could your trading methodology be programmed into a computer?

I try to analyze my successful discretionary trading into rule sets that could be performed mechanically but currently I have a strong discretionary component to almost all of my techniques. When I do my back testing I always test against a mechanical rule set in order to determine if there is an edge that is persistent. Then in my trading I separate out  the combination of mechanical rules and discretionary trading in order to see what my personal value add as a trader is, if any.

What data services do you use? What does this cost a year?

I keep it pretty simple really, I get live price quotes from ScottTrade which is appropriate to use to manage all my accounts except for a few prototype testing accounts. I use Yahoo real time quotes because I like the way it integrates with Excel.

Describe your computer set up

I use a widescreen monitor for my primary trading machine which is a high performance laptop with a broadband connection. I  keep a second laptop with a separate Internet connection open at all times as my fail safe.

How many hours per week do you dedicate to trading?

 

I dedicate 3 to 4 hours a night to preparation for the next day’s trading session with probably an additional five hours on the weekend for research and additional preparation. And then of course I am alert to the market when the US market is open. I probably work harder in preparation than I do an actual trading, because preparation is all about what might happen, whereas actual trading focuses simply on what is happening.

What sort of annualised return should a trader reasonably expect?

From a design perspective I think you want to target 20% return per year with no negative months and a maximum drawdown of 10%. This is simply a heuristic to use as a target for assessing the potential of specific trading strategies and as a benchmark for my own.

Describe a trading strategy that you used to use (and, if you dont use it anymore, why not?)

You should try to catch breakouts and ride them for a long way. I used to try to trade the after-hours market. I used to try to time news events and initial public offerings. All three of these strategies I have proven to my own satisfaction that I cannot do. No amount of wishing will make it so.

How do you go about creating a trading strategy? Do you back test?

These days it normally begins with the observation of opportunity that catches my eye and looks like it might offer signals that I could take advantage of given my current setups and preferences. I start looking for that pattern to manifest with some frequency in stocks or exchange traded funds. If I see it happening often enough I will start designing some rules. I also have other strategies for different time frames and styles of trading that as I look at the interplay between them sometimes ideas for extending them will just jump into my head. I use a lot of reasoning by analogy and many times that will suggest a style of trading that I hadn’t previously considered. I read books with different ideas to see if I can find something that appeals to my style.

If your trading strategy was a car, what model would it be?

The 1993 Volvo 940 Turbo station wagon that is blue in color with leather seats and plenty of comfort and safety for long distance rides. It’s a steel cage surrounding me, because safety is most important. It has plenty of room to carry all my gear and lots of friends. It gets excellent gas mileage of 25 miles a gallon. I expect it to run for at least 20 more years. It is completely indifferent to the stylistic concerns or opinions of others.

Do you like volatile markets?

I absolutely love volatile markets because it allows me to get the most return in the shortest period of time and features more human psychology than quiet markets. Since I believe my edge consists of trading against human psychology, volatility is for me.

If you had to recommend one book on trading, what would it be?

I think the most important book on trading is your trading journal which reports all of your preparations, your notes and insights and trading records, periodic debriefings, your trading plan, and which represents your professional trading practice in action. If you don’t have that book you are in deep trouble.

If you had to make just one recommendation to spread bettors, what would it be?

Work out why the guy on the other side of your trade is in the trade; and then work out what can go wrong so that you can know your risk and avoid running off a cliff.

Do you agree with the saying: trading is a hard way to make an easy living?

Trading is certainly hard work, something you have to do every day to stay on your game. I think it’s like anything, in that if you really enjoy it it doesn’t seem like work.

Do you offer any services to traders?

I share my strategies, techniques, ideas, and personal records through a website, e-mail distribution, and host a daily live trading chat room for like-minded traders. I charge just enough to cover my costs, and keep my wife off my back. I publish my thoughts about trading on my blog atwww.kansasreflections.wordpress.com . A lot of people seem to enjoy reading them and I know that helps me by getting the words out of my head onto paper where I can review and reflect. My website is www.tortoisecapital.org and I invite your readers who are interested to try my unlimited free trial.

Any other thoughts on spread betting or trading?

Respect the game and give it the effort and attention that it deserves. Always know your risk and never be afraid to walk away from something that you don’t understand. And remember that when you think you understand, something might just be about ready to change.

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May 07, 2011: silver pauses in its downward slide

May 6, 2011 1 comment

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silver finds a temporary support level after a nearly 4 sigma selloff in 5 days. the slight recovery.holding of support allowed for a reasonable intraday trade to the longside, but Monday’s trade should be especially interesting. Failure below yesterday’s low will be an autotrade in ZSL, but a breakout above today’s High will be a 551w pattern trade and/or typical  ”max pain range compression”  style tarde (mprc)

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The effect of learning preference on stress management in peak performance moments

April 24, 2011 Leave a comment

interesting use of the auditory channel to improve performance when under stress
i do the same thing with the use of drum solos to help me concentrate when trading at key moments in the trading day
 classic chokes — appear to rise from the process known colloquially as “thinking too much” or “paralysis through analysis,” and among cognitive scientists as “explicit monitoring.” Explicit monitoring, says Beilock, is “conscious attention to normally automatized physical operations that destroys the athlete’s normal fluidity.”
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Traders Roundtable: the fifth P of successful trading is Performance

June 5, 2010 1 comment

A lot of beginning traders are under the mistaken assumption that if they have a back tested system, good preparation, and a relaxed state of mind that they have an almost certainty of being successful.

If only it were that easy. All the preparation and the world does not guarantee effective performance. We still have to get in the water and start swimming with sharks. Your judgment, self-discipline and stress management techniques will all be tested on a regular basis once you begin trading.

There won’t always be enough time to double check all your rules, so sometimes you’re going to have to use your best judgment when the unexpected occurs.

This is the main reason why actual performance of traders varies from the statistics of mechanically back testing systems.

By measuring the difference between your performance and that of a theoretically mechanical system you can determine what affect your judgment is having upon your performance. You could call this the trader quality number and use it as the basis for judging your skill improvement.

In order to judge the effectiveness of your performance you must keep good records, and set aside time at the end of the day, week, month and quarter in order to compare your actual performance against your benchmarks.

These comparisons allow you to determine if you’re making progress in your skill development is a traitor.

Make sure that you take into account the market condition under which her performance is achieved, so that you can understand the markets influence on your outcomes. You could be a good trader with a good system but using it in the wrong market condition in your performance will suffer. Only your strategic judgment of using an inappropriate system would be bad, while everything else could be right on time. By fixing that one error in judgment, you would make a dramatic performance improvement.

you must group your performance numbers into Ben’s based on the type of strategy that you’re implying so that you can determine which system works best for you.

You should be looking at measurable concepts like risk to reward ratios, percent successful trades, size of the average winner and loser, size of the worst loss, size of the biggest gain, standard deviation of your returns. You should be putting your are multiple distributions and with frequency histogram to examine the variation of your data set.

Analysis of performance is every bit as important as back testing your next strategy, so make sure that you are faithful to your trading Journal and your professional discipline.

Good trading!

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Should I have a long or short bias at this moment?

May 28, 2010 Leave a comment

Yin and yang stones
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There were two duelling hypotheses at work today in the market, looking at symbol:  in SPY, the exchanged traded fund for the US S&P 500 index.

Price had gone back and forth between buyers and sellers, bulls and bears..

Was the high of the day seen at 110.8 and /or was the low the day established when price it 109.56?

Depending on your directional bias for the intraday trade, either one of these hypotheses could be true and is supported by evidence the price actually reach those levels during the morning trade.

Which bias is correct?

Now note that you don’t have to have a long bias or a short bias, exclusively. You can have both but to a certain degree; it’s a “fuzzy logic” concept.

A person that is 5’6″ is short (to a certain degree) and tall (to a certain degree), as is a person that is 6’3″.  They have differing degrees, and differing amounts of evidence;

Remember,  the context matters too: 6’3″ is tall on the street, but not in the NBA; 5’6″ is tall in Thailand.

So, the market momentum or price condition, its “state of nature” has elements of both long and short in it; it must, by definition, or it wouldn’t be a market.

In the same way yin-yang has elements of the other even in the most extreme moment

The moment it became “all long” the market would cease to exist..

So, at any moment when you are trying to get a read on which way to be looking, you must actually be simultaneously holding both ideas in your head, and evaluating the evidence of likelihood and opportunity in both directions to make a decision about which way offers you more value .

The trade MUST be able to be framed by someone in some time frame at some probability of gain, because someone is taking the other side of the trade.

To me, that is the essence of thinking about the reward to risk ratio of 2:1 all the time, and estimating the Green-Yellow-Red zones to gauge what i think price action and support and resistance levels are telling me.

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Education advice for new traders

May 25, 2010 8 comments

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Learning to survive in the world of daytrading and swing trading is no small undertaking. If it were easy, everyone could do it. The ocean of trading is filled with sharks who are looking to gobble up easy marks. You want to make sure that you’re not an easy catch for them.

Some people learn best on their own, through a combination of reading and reflective practice. Other people are more social in nature and seem to do better by joining a trading tribe and learning from a group mastermind. Either way can be successful for you, but you have to know what style of learning is best suited for you.

Any y book by any reputable trading author will suggest that the key to success in the market is finding your own unique niche and relying on your own preparation and insight to make your way through the complexity. If all you are doing is following the crowd, you won’t be able to find any advantage and then you might as well be investing in low cost index mutual funds or exchange traded funds.

As a trader, you need to have a personal and unique edge that allows you to consistently pull profits from the market. As such, you should plan on doing a lot of self work and individual research in order to find techniques and strategies that are well-suited to your personality.

Reading books is a good way to help expedite that search, but there is no substitute for your personal effort. The books of Dr. Alexander Elder are a good place to start to begin learning the basics of professional trading. He does a good job of analyzing psychology, risk management and trading strategies for the new trader and experienced trader alike. His background in psychology and decades of professional trading practice make him well-qualified to provide advice to beginning traders. You could do a lot worse than starting with his books.

No matter what though, the best book that you can read about trading is the book that you write: your own trading journal, in which you will identify every trade you make, why you made it, the results and the specific lessons that you can learn from your practice. There’s no substitute for this kind of reflective learning.

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Risk management for new traders

May 24, 2010 3 comments

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Daytrading seminars, trading books, television commentators and radio advertisements are filled with promises of easy money in the stock market. With just a little bit effort and a fistful of dollars, you too can be enjoying the lifestyle of the rich and famous.

We know in our hearts that this is not true and yet everyday people put their hard-earned money down on the hopes of finding their path to financial freedom in the stock market. This is the same feeling that sheep have on the way to being sheared.

You should remember that anytime you begin a new venture,  you are easy money and that you can expect to pay a price in time, effort and money to learn how to survive in the trading game.

Your education begins with an honest assessment of the kinds of risks you are likely to face. You should be writing a business plan as a trader in order to account for these risks and the way you intend to manage them, so that you have a fighting chance of breaking even in your first year as a traitor and then surviving long enough to learn how to make profits.

At a minimum you should at least consider how to address the following kinds of risks:

1. Psychological risks: these are the challenges that your ego, peer pressure and family situations can bring to trading. If you’re trading family money, or trading in public, or trading for any reason other than to make money to feed your family then you run the risk of getting in your own way with your poor psychology. The stock market acts in a way to cause the most pain to the most number of people based on herd psychology. If you do not work on your psychology than you will be a herd animal offering your money to the carnivores. Conduct self assessments into your strengths and weaknesses, take trader psychology profiles to determine what manner of strategy is best suited for your psychological makeup and conduct routine daily journaling to itemize your performance and learn from your mistakes.

2. Market risks: there’s no way to avoid the risk inherent in the market, because it is precisely the risk which provides the opportunity for reward. You therefore must become a master of the specific dynamics of the market you have chosen to trade. How volatile is it? Who are the major players? What are the cycles associated with the instruments you intend to trade? What are the rules for capitalization, leverage and clearing of trades? What are the seasonal risks associated with fewer trading targets?

3. System risks: these are the risks that are inherent in particular trading strategies that are designed to achieve an edge in certain markets. There are risks associated with mechanical trading systems, just as there are risks with intuitive or discretionary systems. Knowing your system well, means that you can identify the explicit risks as well as the implicit risks with each strategy. With a healthy dose of humble pie and a conservative nature you can work to minimize these risks.

4. The risk of nonlinear events: any system can be backtested long enough to give you a sense of how it should perform in the kinds of markets that have already occurred. The hidden risk of back testing is that you may experience discontinuous events which change the correlation numbers for your systems.  There are  portfolio engineers who study the past in order to find the relationships between different asset classes. When nonlinear events or catastrophes occur, it is normal for these historical correlations to change dramatically and you can find out where you thought you were hedged in fact you are double exposed.

The short list of risks only begins to scratch the surface of the kinds of challenges awaiting a traitor in the world of the equity markets. If this shortlist is intimidating then you have a fighting chance to be able to survive in your first year. If these risks don’t concern you at all,  chances are you’ll be seeking employment elsewhere.

Respect the game, respect the markets and acknowledge the real risks waiting for you on the road to financial freedom through daytrading. Good luck and good trading!

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