TheDude

LOL If you want more comedy from Steve - look at his thread on 'how institutions trade S&P' or similar name. Pure comedy gold I tell you!!!! I'm sure you meant to add, but forgot (clearly Steve did), that many serious long term folk are looking at yield (dividend, coupon etc) as their primary reason for holding still...

In Theory 1, because they see a good price according to their idea of value. They need some sellers there to trade with. If there are no sellers, you have an issue. The clue is not to concern yourself overly with the others motivation. They dont care about yours.

I saw a program on this. Apparently its one of the best ways. The journalist also mentioned the brain becomes sharper and more nimble when we are hungry for longer periods (the days you done eat much). This is because of the animal instinct kicks in with the need to find food. He also fasted for 86 hours too. He could only drink a miso soup in the evening, and have as much water as he wanted. Nothing else. At the end of the day however, I think it's common sense. If you're overweight, you need to eat less and take more exercise. In moderation. If a 2-3 hour work out is making you eat a load after, it's kind of self defeating. A brisk walk 2-3 miles a day should do the trick. Why not have 2 meals a day instead of 3? As traders, we tend to sit round a lot, so do we really need 3 meals a day? We're not labourers are we! We dont burn many calories in front of the monitors.

This is how it works (according to me ) THEORY1: Price falls - buyers step in to buy cheap at a lower cost Price rises - sellers step in to sell at a premium profit This process keeps price 'in value', keeps mean reverting traders happy, keeps school teachers happy as it seems simple enough with an example of a grocery store. Simple Keynesian (did I spell that correctly ) THEORY 2: Behavioural Finance suggests when prices rise, it attracts more buyers who seek to take advantage of the rising prices with a view to profit - likewise, when price falls, sellers come in and cut their losses quickly, perhaps hoping to buy back later at a better price if they have an economic need for the product. So T1 models what happens in normal times when we have balance. The market forms its economic function. T2 model comes in in times of economic shortage/surplus. Both models exist, but not at the same time. There are perhaps TWO laws of supply and demand. Market Profile is about identifying the transition between the 2 models - from value to trend in the search of the next value where fair prices will/can exist. ES is unfortunately stuck in T1. It has all week. It must move to T2 soon though - but will need some news to push it there. This asks the next question: Do the markets dictate the news, or does the news dictate the markets?

Heres what Id do in such a situation (if I had a spare 50k cars...)- squeeze the market even further up. entice them all in. Sell 'em all I had. Sit back and watch everyone run for the door.

Wot about the Jews? Did you know they actually control all the markets, and are responsible for all the world wars too?

Is this going to be another pissing contest from UB? (ie you need all my special indicators to trade like the pros?) This is it folks, so listen up....... The path to success lies in determination and attitude. Not much else. It does not lie in how proprietary your indicator is, how fast your data feed is, blah blah blah. If youve got a sloppy data feed, a pig slow computer, and a dog that barks all day, well I guess you had better be an EOD trader, not a intraday trader. Lets not forget all those self made billionaires. Yes - most of them are self made. They had determination. I personally know traders who have made the big time in a few years too. Sure the odds may be small, but lets not forget all those kids who apply as grads to hedge funds, banks, asset managers etc EVERY YEAR and get turned down. I guess they never succeeded in being a 'pro'. So not everyone makes it as a pro, or a retail trader. You need to include these failed applications in your data sample. I thought you would know that given you pride your self in stats/probability theory. Sorry UB, but I find your stance to be negative. All those things you mention add to small edges, which I agree add up, but if you aint got it in the first place - well you just aint got it. And lets not forget - all the pro's you talk about make 20-30% a year on capital. A day trader will make 200-300% for obvious reasons. A good HF trader may make 1-2mill a year. A good prop/retail trader can make 10-20mil a year. The fact you dont know that means you have shut your self off from opportunity as you dont see what is really possible when your mind is free. Rant over.

Not really much conflict - just keep at it. Reading his other book may help. CISCO Futures may also throw some other light on his stuff (ie a lot of free stuff to wade through, but some is ok. Remember MP isnt a system. Its just a method to understand good locations to put day trades and swing trades, and how to measure the markets progress in terms of deciding to hold or cover, or add. Its also very good at defining where/how to see when the market is changing direction, or where the market shouldnt trade if your trade pretext is correct (ie take a loss). In other words, it teaches/enforces you how to trade properly!

Well Kurt, after thinking of this for 2 seconds, I have decided on the answer. The egg came first. Inside that egg was the very first chicken. The parents of that egg were some other creatures that were not quite chickens, but close. Their offspring inside the egg had a mutation, which classified it as the chickens we know and love today. I think the world around us - and thus such 'problems' as chickens and eggs are far more important than trading. If you think trading comes first, I dont think the chances of success are good, as it suggests obsession. Obsession is never good. Especially if based or worldly things such material wealth that draws most to trading. The Dude haveth spoken. :applaud:

Interesting. When I traded fx futures - that was one of my main reasons - the manipulation. People say it's the biggest, most liquid market etc, but they forget the fact that the fx market exists so governments can control/exercise fiscal policy/manipulate. You get head wind of that (interest rate moves and so forth) and you have your trend which is kind of guaranteed for a good few months + giving swings etc. Look at the Brazilian Real. Currently pegged to USD. That isnt going to last forever. I want to be there when they start thinking otherwise! I guess the rules for stocks world wide are very much different. Because they are the staple of so many pension funds, 'manipulation' is seen as a bad thing. It affects Mr Main Street and his long term wealth in a brutally honest way. If a CEO sells a bunch of stock before poor earnings or similar, hes in jail for insider trading. If a govt sell its own currency ahead of a rate announcement it's seen as a 'fiscal measure'. The fact that that it (may) devalues the entire countries stock market in real terms/notional value - and thus the pensions/savings is ignored.

Well if a picture paints a thousand words, that sentence is worth a thousands CL lots!

Totally agree! Lets remember, sometimes these guys get laid off, venture in to our neck of the woods and find out it aint so easy after all!!

True. I guess it removes some of the bias from the equation. I mean if your handed a sell order in a screaming rally, you can at least say to yourself 'Well I never made the decision', and wait at least until the move slows. You can only do your best.

Thats interesting. Why the move from stocks to FX? I would have thought some fundamentals/news stories would be pretty useful in FX - interest rate decisions obviously and other economic releases. I used to trade FX futures exclusively. It seemed it was really the reports that would set the trends for the next x days. I could never get my head around stock fundamentals or longer term commodity fundamentals though. Mixing charts with other methods as you mention seems a common sense approach to me (FWIW). I read somewhere that if you look at the stock market, 80-90% of returns in the last 70 odd years have been made in the 3 days around FOMC rate decision days. In other words, you could have the entire gains of the last 70 years by only being in the market for 30 or so days of the year each year! You cant tell that from a chart! (the article was on zerohedge)

Sorry I cant agree. If you turn up at a quantative fund for example, the quants do their thing, but they dont trade. The signals get passed to a trader who does the trading (price improvement) - whether that will be discretionary entry or passing the trade to an algo to execute. In macro driven funds, theres a similar situation. The analyst comes up with the trade idea/position mandate and feed that to the trader for execution. In the middle of both these scenarios there will be a risk manager who will determine position size based on capital, correlations and the like. I think this is key to the self directed trader. So much is made about 'you must have discipline' and 'you must execute when you get your setup'. It's the kind of pony that Mark Douglas spouts. In reality, the analyst in you may have 'identified' a possible setup, but it is upto the 'trader' in you to decide if it should be executed or not, or perhaps more 'when' to execute. Can the feel of 'when' to execute be gained from a chart? It may be silly to go long just before resistance. It may be the best time. A chart will not be able to advise you on timing, just that resistance exists. You need to look elsewhere. A mechanical trader will say 'but its in my rules to take the trade, I have to'. I'd say thats the height of stupidity. I'd suggest a better position may be to think 'ok, Ive got to get long at some point, but when? The markets at support and theres not much buying. Is this really a good spot to go long? The Turtles would disagree with me on that last point I think. Some of them were more successful than I am though. Going back to the start of this post though.... So if the analyst comes up with the idea, and passes it to the trader, why? Where is the main skill that leads to profit? Is it in the skill of analysis, or the skill of trading? Maybe its the risk manager in the middle? Sure, all 3 help to some degree, but which is the main core skill that most profit will be attributed to? Where are the pros spending most money? That may give us a clue.

I sometimes get the feeling that a lot of traders that use charts are really technical analysts who also happen to own an account, and test their analysis skills with orders in the market. Could it be that there is more to this game (as it is indeed a game), than the ability to read a chart?

Thats my point. TA is very easy to learn. Thats why most are drawn to it. Does easy mean better? Are all those quants who build algorithms based around bond maths, figuring out convexity etc wasting their time when all they need do is look at a chart to make money? If we were to distil what the average TA trader does, it would probably look like this: 1. back test some pattern or out come of indicators, 2. risk no more than 2% of the account 3. aim for a 1:3 profit target 4. build a 'trade plan' around these points and follow it religiously, then start a process of self doubt when their actual results dont fit the back tested results. 6. think up of a new idea as the old one doesnt work. Blame it on volatility, or some other cycle 7. Repeat from step 1. until the religion part does match history (but it never will because the world and the industry keeps changing) Anyway, getting back to the point, is that why TA is followed by so many - because it's easy? It offers a short cut. Is 'easy' the best route to follow? Does it offer the deep understanding necessary to understand whats going on internally within the market structure to know when to trade?

Sure past levels are important. Thats why we all use charts - to get an idea of context. Do you also use charts to base your execution decisions on as well? If so, how did you come to decide to use a chart to base these decisions upon over other methods?

Geez - you guys must be real old timers!! I hope no offence is taken at that! So it seems - and correct me if I'm wrong, that you would use the chart to get an idea of the context in order to understand the bias, if any, but not actually make the trade decision? I have a theory that when most new people come to the markets these days, they read a few books perhaps, go to a few web sites, may be even get ripped off by some internet guru and his easy money TA course. This is why (I think) so many people are drawn to charts, when there are so many other ways of making a coin. Why arent these methods taught? Pretty much everyone uses a chart I guess to get a quick feel for the market, but thats different to basing an entire strategy around a chart. Going back to options is a prime example where a chart can be useful, but isnt the main determination of success. The understanding of options and how they are priced is I'd say far more important. So few people trade options though. Is that because they dont want the work and time to understand them? They'd rather go for the easy quick buck that a chart seems to offer?

When you started trading, why did you decide to base your decisions upon charts (assuming you did)? What influenced you to use a chart as the basis of your trade selection process over other forms of market generated information? The alternatives being: Fundamentals Order Book Time & Sales Seasonal data Correlations and other statistical data (for the sake of argument, lets call their output GRAPHS, not CHARTS in the OHLC sense). I assume there are others.... Just wondered....

Thats easy - The most common issue facing traders is all the spurious and misleading crap that supposed educators force down them. Thats not directed at you (as Ive never really paid indepth attention to your methods). Technical Analysis, Risk management, Stop losses and how to use them. Realistic expectations Its all marketing BS put out by the brokerage community to get people to trade more. TA is a case in point - its easy to learn, and appeals to people as it seems to simplify the ordered chaos. Its also easy to prove in hindsight. The reality is however, is that when some guy is buying that support because of some fib number, indicator, or line he has drawn - this only exists in his imagination, someone else (with a time horizon of 3 months) could be clicking on the big SELL button for 2,000 lots. Where's your support now? Whats worse, is that he really wants to buy 6,000 lots, so he's trying to get a lower price. He probably doesnt even look at a chart. Or, he may look at a chart (unlikely - but lets entertain the idea), but he has different lines to our friend who just blew another $1000 with his stop loss placed below support - just like the mentor/book told him). The bigger trader had a different indicator setting, and so sees things very differently.

Cant agree with this. It's a very common approach. You're assuming the biggest loss possible is the one in your historical database. Thats fine until the next, bigger black swan comes. Thats why professional traders are generally at their desks during market hours - even if they are position traders. On the first sight of trouble, you should puke. Dont sit round hoping it will come back, only to see 20% evaporate. You can always get back in if it was a false alarm. Ok, so you may bet a gap down or something. In that case, you'll take the hit. The only real defence is listen to the old adage - only trade with money you can afford to lose. Generally, the only money you should have with your broker is enough to cover margin for your size + worst case scenario. That means your risk per trade will typically be a magnitude significantly higher than this 2% risk bull shit everyone blabs on about. If your black swan does turn up, then Im sure your broker will be taking steps to liquidate your position before you can! You cant guarantee it, and you do have ultimate liability, but rest assured your brokers business is more important to him and his risk manager than your business is to him! If your holding many positions in a diversified portfolio, then 2% is fine, but as traders, not investors, it's a spurious, silly idea, taken out of context. 2% came about from asset managers, not traders. Im not saying every trade should be all out. That of course would be silly. What I'm really saying is that most of your trading funds shouldnt really be with your broker. They should be elsewhere earning a return, but readily available at short notice if needed. JMO.. I digress....

What interested me, was that I would hae thought a close outside the BB would have been an indication of continuation - does the reversion/correction just occur on the next day? Perhaps if you were to trade in the direction of the first close when you get a day with a close in the same direction again (suggesting the correction is over), you could have the beginnings of a CTA businness ??

1 - What about before it ticks to an all time high/low? Or, by my understanding of your statement, between the last high and the old all time high? If it had been trending up for 3 weeks before making the new high, then was it still mean reverting during those 3 weeks? 2. Thats just a complicated way of saying the market moves up and down. Markets may have been more mean reverting 10-20 years ago before the information explosion, but these days ideas of value (mean) are changing more quickly, with different time frames considering different mean values. You may think the mean is at x. Mathematically, on your time frame, you may be correct. However if the herd disagrees and thinks it's at y (for them), you are probably toast. How does mean reversion therefore help one make money?

Maybe so, but as we all know, the markets can remain irrational (non mean reverting?) longer than a trader can remain solvent! Why wouldnt you use BB's as an entry signal? If they contain 88-95% of price data, surely the BB would offer great opportunity to someone who believes in reversion to the mean? Thats one of the fundamental concepts of the BB. If I were into mechanical TA systems, they'd be right up there for me. But, alas thats very much an off the cuff statement, as Im not into mechanical TA systems.