firewalker

I was wondering if everybody is still happy about the way things are going here, I mean with posting live trades. I've noticed the frequency and number of people posting their positions has dropped a bit, and I was wondering if I missed something or if some people are discontent for some reason. Please let me or wasp know if this is the case.

I did some research and was surprised to hear that there is more to the so called calendar effect than just anecdotal evidence. Apparently there is statistically significant evidence that shows that the market does have a tendency to react in a specific way on certain days or times of the year. Not all of these 'calendar effects' hold up after a statistic test. The October effect for example, seems more psychologically - because of the crashes in the past - than anything that actually holds up over time. What was interesting about all of this, is that the Friday Effect has been subject to a recent study by Leon Zolotoy (attached). In his conclusion he states: Our results strongly suggest that the firms continued to report "bad" news on Fridays during the last two decades. The mean earnings surprise is significantly lower and the proportion of "bad" earnings announcements is significantly higher for the Friday earnings announcements compared to other trading days. This tendency persists over the whole time span of our study. Moreover, our findings suggest that for the last ten years the investors systematically overreact to the "bad" earnings announcements released on Fridays, compared to their response to the "bad" news released during other trading days.

Is everybody still okay with the way things are going here (as per posting live trades that is)? I've noticed that there have been little live trades lately...

I did some research myself and was surprised to hear that there is more to the so called calendar effect than just anecdotal evidence. Apparently there is statistically significant evidence that shows that the market does have a tendency to react in a specific way on certain days or times of the year. Not all of these 'calendar effects' hold up after a statistic test. The October effect for example, seems more psychologically - because of the crashes in the past - than anything that actually holds up over time. What was interesting about all of this, is that the Friday Effect has been subject to a recent study by Leon Zolotoy (attached). In his conclusion he states: Our results strongly suggest that the firms continued to report "bad" news on Fridays during the last two decades. The mean earnings surprise is significantly lower and the proportion of "bad" earnings announcements is significantly higher for the Friday earnings announcements compared to other trading days. This tendency persists over the whole time span of our study. Moreover, our findings suggest that for the last ten years the investors systematically overreact to the "bad" earnings announcements released on Fridays, compared to their response to the "bad" news released during other trading days. I've also attached another paper (Dellavigna & Pollet) which has some interesting findings: Friday announcements have a 15% lower immediate response and a 70% higher delayed response. A portfolio investing in di?erential Friday drift earns substantial abnormal returns. In addition, trading volume is 8% lower around Friday announcements.

I'm not sure Wyckoff focused on daily charts only. Although Section 7 of the original course is about determining the trend by the daily vertical chart, he did write the "Day Trader's Bible" (provided here) and he notable said that a true tape reader day trader doesn't hold overnight.

I was basically looking at the same yesterday, which I why I was surprised to see the NQ hit resistance but the ES stay behind. Might be worth following both next to eachother, I've often found breakouts to be far more reliable when the corresponding resistance level on a correlated market is breached simultaneously.

Thanks Eiger, I appreciate the contribution to this thread. Excellent points. Having mantras as such is a good way of preventing ego having the upper hand of you. It also helps you to stay open to the possibility of the 'truly unexpected' (think of 9/11 and these kind of events). I've found it personally difficult in opening myself to the other side of the trade: when I'm stopped out of a short, in most cases this means the long side comes into play and my stop might have been a very decent long entry. This obviously requires decent backtesting, but it also needs a very flexible mind imo. It helps a lot to think in terms of 'scenarios': if X happens than I'll do A, if Y happens instead, I'll do B. Having a predetermined idea of what the market should do, is a recipe for failure imo. Having said that, it seems that despite the majority voted for option (1), most comments we are getting here seem to be in favour of option (2). Perhaps those who voted for (1), would care to share some of their thoughts and tell us why they see the market as such? Nobody ever said anything else ammo. Even through history who (reportedly) had the uncanny ability to 'predict' some market moves, admitted they spent hundreds if not thousands of hours studying the market action.

This might interest you: The DJIA and the S&P have always been strongly correlated. In fact, I just checked the CME website and they say it's been above 95% for some years now. Have a look at the attached correlation matrix file for more comparisons.

Hmm, interesting... but when Wyckoff mentioned the 'basic' law of supply and demand, did he make a big distinction between what happens in the stock market and what happens in any other market? Quote: "This is true not only of stocks; it is constantly being demonstrated in markets for wheat, corn, cotton, sugar and every other commodity that is bought and sold; also, it is reflected in other markets such as real estate, labor, etc." In any market, be it consumer goods, real estate or commodities, participants can affect price deliberately imo. Buyers and sellers are to a certain extent always governed by greed of fear. I'm thinking of asymmetric information situations, the classic used car example where the seller might try to manipulate the buyer by hiding information. In an economic system there might also be external factors at work (competitors, government regulation,...) which are not as much present in the markets where each transaction usually can take place without intervention from other parties (other than a broker). If supply & demand is all that moves the market, is the actual price a proper representation of the actual value of something? My first impression of TL is that there are a lot more 'open debates' possible here than elsewhere, I wouldn't call these discussions "battles". I don't see any reason why you should bow out, perhaps just a slightly more focus on the topic is needed?

What exactly do you mean by "one chain"? The thread initiating post raises several points, all at once, which might not be ideal if we want to make sure everybody is talking about the same thing... So how about this: the law of supply & demand states (simply put) that if demand > supply => price will rise to form a new equilibrium. Looking further behind the reasons why there is demand, is something traders most of the time couldn't care about. Neither do I tbh. We do assume however that buyers have sufficient reason to belief that the 'value' they perceive of the good/service/instrument is higher than the current price so they are willing to pay a premium in order to acquire some. What's interesting about it all of this, is that Ariely suggests that the 'price setting' itself influences the way the value is perceived. The reason I quoted Soultrader, was not to debate his setup or his trade or what he saw at that particular moment, but to reflect for a moment about what he said about demand: " ... higher prices will attract more buying." Is this the case in each market and why would that be so? Is the public more interested in buying shares when they are on the way up, then when stocks are selling off? Are we going to buy more food because food prices are rising? Or is the demand initiated by the public (in the markets) of a different kind than the demand for primary goods?

I wholeheartedly agree. But as you probably will have noticed by the elements I raised in the first post, this isn't as much about the practical trading implications, as it is about the economic 'laws' or 'theories' that we've come use to build our foundations on. Although I don't expect any of this to help anyone become a better trader, I'm not so sure that studying the (lack of) rational behavior is completely irrelevant, since there's a whole field of scientific research trying to integrate psychology with neo-classical economic theory... I'll assume you meant it was unnecessary and irrelevant to know who is moving the market (smart money, dumb money, weak hands, strong hands, the public, market makers, etc, etc...) in order to understand it or make profit from it. And that's something I obviously agree upon. No, I hope the discussion won't revolve around patterns or volume, as I mentioned neither in my primary post. I realize that perhaps not as many people would like to engage in this type of discussion, as it might have little or no practical benefits tradingwise and be more of an abstract discussion...

I think it probably is, because I've never used nor calculated pivot points... what other numbers do you have for today? On the DOW I have 12230 and 12320, on the ES 1363.

This might interest you: http://www.traderslaboratory.com/forums/39959-post6.html

out half at 12275 for +45

choppy opening here stop moved to breakeven...

DOW long 12230

... out -20 ES holding steady though... only YM that's falling really

well you're welcome to post some of the more profitable trades now that you're back btw, DOW long 12237, stop 17.

Bearbull, it seems that even Wyckoff did some forecasting of his own: "Further development of this method of judging the market from its own action resulted in my using it as a basis for predicting the probable course of the market, and this eventually led to my issuing weekly, “The Trend Letter” (first published in 1911) which had a most successful career for many years. In fact, the forecasts contained in this Letter were so accurate that a large following was developed." Probably, although on the other hand, one wonders sometimes why highly successful traders would want to hang around a trading forum... I guess that would be topic for another type of forum

Wow. A lot to think about in only a couple of sentences there Soultrader. I decided to start up a new thread at once as my reply got more lengthy than I expected. See here: http://www.traderslaboratory.com/forums/showpost.php?p=40123&postcount=1

Note: Dbphoenix & gassah, you are the moderators here and if you guys should feel this thread belongs more in the Psychology forum, I perfectly understand if moderators move it over there. ______ Below is a quote from Soultrader posted in another thread, but I thought it was more appropriate to take the discussion here. Although I don't want anybody to think this is strictly Wyckoff related, it might encourage a discussion about "The Basic Law of Supply and Demand". A lot to think about in only a couple of sentences there. I'm not sure that price can rise without demand, as Soultrader says... If there's no demand for a product/good/stock, the suppliers will have to lower price because in each auction process the purpose is to find an equilibrium point so a transaction can take place, right? VSA talks about "no demand" and "no supply" and we often read traders talking how "price fell of itself". So price can fall of itself (lack of demand), but how many people say price rises without demand (lack of supply)? What Soultrader is saying touches some of the very foundations of economics 101 imo. We've all been taught price rises because demand outweighs supply and vice versa. Marginalist economic theory tells us that consumers will try to reach their most preferred position, a point where any further increase in consumption of a specific good (or service) no longer provides them extra "utility". So why would they buy at increasingly higher prices if previously the same good/utility/stock was available for them at a lower price? Soultrader wrote "higher prices will attract more buying", so he's saying that price itself has an impact on what buyers and sellers do. Does the 'law' of supply and demand no longer works because people don't act rationally? The demand for goods and commodities is generally thought of as the result of a utility-maximizing process... Micro-economics tells us, given any set of goods, each participant in the economic process/system will try its best to obtain the best point of equilibrium which means that the consumer will strive towards utility maximization. But what if this isn't the case? What if the supply & demand in itself is only a factor in an economic system where some perverse mechanisms are at work to trick those participants? Some empirical research into the field of behavioral economics tells us that there are psychological causes behind many types of not-so-smart financial decisions (plenty of examples in this book). I think what Soultrader is saying here, touches some of the very foundations of economics 101. We've all been taught price rises because demand outweighs supply and vice versa. Marginalist economic theory tells us that consumers will try to reach the most-preferred position, a point where any further increase in consumption of a specific good (or service) no longer provides them extra "utility". Now... you're saying that price itself has an impact on what buyers and sellers do. Does the 'law' of supply and demand no longer works because people don't act rationally? What if the supply & demand in itself is only a factor in an economic system where some perverse mechanisms are at work that make us humans make decisions that are far less than optimum? Are these elements that influence our decisions subconsciously in a sense that we can't control them? What about traders self-sabotaging their plan? Back to supply and demand, does the so-called anchoring effect (where people's decisions are overly influenced by specific information or value or a bias towards any of those) come into play? Some experiments seem to imply that we -sometimes- let our objective measures of 'value' be influenced by seemingly unrelated elements. How about the experiment (described in this book) where students were asked to write down (a) the last two digits of their social security number and (b) the maximum price they were willing to pay for a bottle of wine, a book and a box of chocolates. Surprisingly, the security numbers had an influence on their bids and there was a clear pattern! The higher the numbers, the more the students were willing to pay. In that case, price was not being determined by the interplay of supply and demand but - as Ariely wrote - "determining itself". So how about the 'basic law of supply and demand', are there holes in the micro-economics package that teaches us this is the reason why price fluctuates?

I think you raised a number of interesting questions there, Rocky. Most questions have already been answered, so I'll just add this: Although you said "in its most simple form", it's worth to note that the weight of each stock in the index is important. Especially if an index is only composed out of a small number of stocks, the rise of three big caps can easily outweigh the fall of a dozen smaller caps. It's interesting to observe the correlation between several US indices, in particular the DJIA and the S&P considering the former is a price-weighted index. This means an absolute rise of 1$ in a 300$/share can be negated by a 1$ drop in a 5$/share; the S&P is a market-weighted index (recently changed to a float-weighted index, although this doesn't make as much difference). What I'm trying to say is that the index does not move up or down just because the number of stocks that go up outweigh the number of stocks that go down. It's a bit more complicated than that

In an article link provided by eggbeangame (http://www.zealllc.com/2008/spxdown.htm), the author states: "While bears are much tougher trading environments than bulls, they can still be traded profitably by the prudent." What do you think/experience? Is a bear market more difficult to trade than a bull? Is it because the average volatility usually is greater? Does it have an affect on your strategy for intraday trading? There are many more experienced traders here than me, so let's hear those with the experience

Thanks for the post. Nothing spectacular or new, but a good read imo. I think indeed it's worth noting what the author writes: "Bears see more extreme days than bulls in both directions, down and up." And I also posted something similar in the Bulls or bears... thread: "The biggest stock-market up days ever witnessed in history happen during bear-market rallies. These fast bear-market rallies quickly calm fears and convince investors that “this couldn’t possibly be a bear”." And for those out there who think the market always goes up (I guess it does, eventually): "Investors who bought stocks in late 1999 or early 2000 along with the popular mania had just started breaking even again by late 2007."

I too had not expected so many people to vote for option (1), perhaps it would be interesting to explore what reasoning is behind these choices? I agree. True, which I why I mentioned some examples of what people would denote as 'predictive systems' in posts #2 and #3. It seems that a lot of people think or believe that seemingly unrelated external factors (lunar cycle for example) have an effect on the stock market, but are unable to do anything with that belief. I'm being pragmatical about all of this. Ask people why they believe in God. I suspect a majority does so because it helps them solve some metaphysical issues and gives them an easier answer. This is not meant to be offensive in any way or towards any form or religion or belief Well, that's the kind of predicting we are talking about. Does anybody here use any of these 'tools'? To what extent does it 'work'? Let me know how the cycles turn out this week Indeedo.