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Daytrading beliefs

December 30, 2013 Leave a comment

Richard Feynman

Cover of Richard Feynman

Mark Twain

Cover of Mark Twain

Matt asked:
From: Matth<snip>
To: Ken Long <longke@yahoo.com>
Sent: Monday, December 30, 2013 8:11 PM
Subject: Beliefs
Hi Ken:
          Been working on on my mission statements and business trading plan. I would like to model you – day trading (if you have no objections)
What are your beliefs that I could/should find useful.
Thanks Matt
===========================
my preliminary answer
i am on a journey of eliminating beliefs, trying to show cause why ANY belief is necessary as opposed to accumulating beliefs
i believe therefore that a couple essential beliefs are helpful; maybe these are attitudes more than beliefs:
1. Ask: what’s the evidence for this belief? Why is it necessary to have a belief on this subject?
2. What is a proper degree of confidence to hold on the basis of the evidence available?
3. What are the limits of the belief?  or alternatively:  how robust is this belief?
or, from a constructivist perspective: what is the utility of this belief-structure? What are the characteristics of the scaffolding? What does it allow me to do?
or Practically:
if you look at my daily and weekend report, I would say that each indicator/report-chunk is there because I have some belief that they have information content
or Specifically:
each published system has statements of core beliefs, assumptions, models, rules that stand together as a whole
the RFA e-book has a ton of things that might reward the research
my video on “Edges” recorded at an IITM workshop is probably a useful collection of beliefs
i have a very strong belief in the sayings of  Mark Twain with respect to human nature and behavior and in the sayings found in the complete book of Murphy’s Law when it comes to mankind trying to exert mastery over Nature, like “Measure with a micrometer, mark with a crayon, cut with an axe”
a lot of beliefs could be found in the chatroom archives where i respond to questions.  I find that questions push me to articulate beliefs out of the messy stew of ideas in my head at any time
whatever my belief sets  contain has to be large enough to stretch from the sparse beliefs and rules of the Frog to the increasingly complex RLCO-SQC framework
i am more interested in “intentional” action than I am in trying to find some kind of grand theory of everything for  daytrading; that’s in line with Feynman‘s belief that he was not trying to find ultimate truth, but rather simply trying to find out more about how the world works. I think that’s a healthy belief
i have a belief in the trade frames i make when i am preparing to act.  i believe they represent reasonable reward: risk ratio opportunities.  I believe that the habit of framing consistently builds proficiency an effective action/mental muscle memory and that over time provides an effective way to internalize adaptive judgement
start with the frog and RLCO frameworks; watch the live trading tapes and listen to my commentary for a belief set, especially when i am marking up the charts to try to create sense, sense enough to act
probably not the specific answer you were looking for, but it’s a start

Approaching trading as a High Reliability Organization (HRO)

March 19, 2013 1 comment

Logo of the United States National Wildfire Co...

Logo of the United States National Wildfire Coordinating Group. (Photo credit: Wikipedia)

We know from scholarly and popular literature that 90% of new businesses fail in the first five years as an additional 90% fill in the next five years and yet there are groups of organizations that are remarkably successful while operating the most difficult of circumstances when you would expect failure to be the norm. These organizations which thrive in high risk, high uncertainty environments in which failure is catastrophic are collectively known as high reliability organizations (HRO). Scholars have taken a number of different approaches to the subject of HR role in the literature. They have approached it from the disciplines as diverse as: neuropsychology, civil engineering, organizational psychology, sociology, naval aviation and nuclear propulsion.

My own research on decision-making under conditions of uncertainty led me to the scholarly literature on high reliability organizations(HRO) through the approach of social psychology where the two most influential writers are Weick and Sutcliffe from the University of Michigan. They had identified five qualities of HR role that lead to exceptional outperformance and the development of organizational resiliency. Resiliency is an important topic for traders because it describes strategies and resources that help the trader endure through emotionally challenging and training times. Because traders operate under high stress and uncertain conditions all the time, it occurred to me that perhaps the principles of HRO might have some pay off for traders. I was happy to find the important connections that can be of benefit to traders in developing  robust trading plans and emotional resilience.

Weick and Sutcliffe identify five qualities of HRO’s which distinguish them from traditional organizations which traders might seek to develop in their own trading plans:

1) Preoccupation with failure: To avoid failure we must look for it and be sensitive to early signs of failure; not to lay blame but to ensure the plan does not further unravel

2) Reluctance to simplify: Labels and clichés can stop one from looking further into the events; consider the evidence for your beliefs carefully and don’t oversimplify.

3) Sensitivity to operations: Systems  by nature are dynamic and nonlinear; it can be hard to know how the different pieces fit together and how quickly things may change.

4) Commitment to resilience: you must be able to perform during periods of high stress. This means you have to be able to absorb strain,, recover from difficult situations, and then learn and grow from previous episodes.

5) Deference to expertise: This means respecting the evidence of the results and having confidence in the quality of your justified conclusions. These are more important than platitudes and conventional wisdom.

Firefighters are an example of an HRO  in practice that traders can learn a lot from. The National Wildfire Coordinating Group (NWCG) has developed a set of 10 Standard  Fire Orders, which are a logically organized set of rules that have been keeping  firefighters alive and successful in their mission since 1957. They are to be implemented systematically and applied to all fire situations.  They also have identified 18 watch out situations that represent known conditions of especially high risk. These apply equally well to traders as I tried to show below.

Professional Trader Behavior (adapted from the NWCG: http://www.nifc.gov/safety/safety_10ord_18sit.html)

1. Keep informed on market conditions and forecasts.

2. Know what your market and target are doing at all times.

3. Base all actions on current and expected behavior of the market and target.

Market Safety

4. Identify escape routes and safety zones and make them known.

5. Post lookouts when there is possible danger.

6. Be alert. Keep calm. Think clearly. Act decisively.

Organizational Control

7. Maintain prompt communications with your brokers, partners in the market.

8. Give clear instructions and insure they are understood.

9. Maintain control of your trades, orders and decisions at all times.

If 1-9 are considered, then…

10. Trade the market aggressively, having provided for safety first.

The 10 Standard Orders are firm. We don’t break them; we don’t bend them. All traders have the right to a safe environment is.

The 18 Watch Out Situations

1. The market and your target not scouted and sized up.

2. You haven’t planned for or rehearsed this situation.

3. Safety zones and escape routes (protective stops) not identified.

4. Unfamiliar with market and sector factors influencing price behavior

5. Uninformed on strategy, tactics, and hazards.

6. Instructions and assignments not clear.

7. No communication link between traders, brokers and partners

8. Entering trades without predetermined exit points

9. Trading without stops.

10. Chasing a runaway breakout

11. Not being aware of critical states

12. Unaware of broader market condition.

13. Unaware of potential market turning points

14. Price range begins to expand in short term time frame.

15. Change in broad market volatility.

16. Ignoring signals of changing market conditions.

17. Difficult to judge where to play safety stop.

18. Feelings of physical, mental or emotional fatigue.

Note that these are just my own quick interpretations; yours might vary. The exercise in translating from firefighter perspective to that of a trader is definitely worth doing on your own as well. Give it a try!

charts of interest link

May 15, 2011 Leave a comment

daily report review link

May 15, 2011 Leave a comment

http://www.youtube.com/watch?v=ZHnn5XepgDw daily report review link

Categories: Markets, Teaching, trading

Premarket call May 08, 2011: all the precious metals up in the overnight trade


building on Friday’s momentum (or putting in the first peg of support) all the precious metals are up in the overnight trade; silver is in a perfect “max pain range compression” stage here, ready to break out of Friday’s relatively tight range in either direction with advantage

Weekend report review May 07, 2011 links on YouTube


Youtube link discussing the weekend reports

http://www.youtube.com/watch?v=0gBXLyJxCow

daily trading plan review link May 08, 2011


daily trading plan review link http://www.youtube.com/watch?v=ukYimU8A99U

opportunities developing tactically in precious metals, energy, commodities on their significant pullbacks.  Stable boring Dow stocks like KFT, JNJ, PFE, WMT cotninue to outperform