SIUYA

Hi DoorDie.... as an old options trader and to help this thread or readers of it with a socially responsible message from the surgeon general ...not to hijack or attack it. - the measures of volatility often bandied about in trading rooms have little to do with how volatility is measured and traded by those actually trading it. This is an often missued and abused term. Both congestion and trends can have periods of both high and low volatility periods. Often a better suggestion is to use/think in terms of - momentum, continuation, reversal - as we are often trading these things and their direction - not the volatility. While you do attempt to define it and establish that volatility is often a generic term it is this statement as an example that can cause issue ..... "For a daytrader, a stock which moves by 0.5% will be less volatile at end-of-day than a stock which moves by 4%" - really? I assume you mean the range of the stock was 0.5% or 4% for that day. Within that day the 0.5% stock could have actually been less/more/just as volatile intraday, even if the range was smaller. Just an alert for those when talking volatility.

It means the open on that candle is the same as the close on that same candle.....it might be close but not exactly the same to the previous candles close can you count this - all depends on if you think close enough is good enough or you want to be sure. test it and see if you are comfortable with whatever system suits and that its suits your theory of how the market works - for some people it shows signs of market hesitation/market rejection or for others its signs of market as per normal.

attitude is the approach and acceptance - it has to be positive, has to be one of looking for opportunity, of actually working and looking for those opportunities and ensuring you have done the home work, of knowing that there will be losses, of knowing that their will be good days and bad, that its a grind, that its mentally demanding/frustrating, and of knowing that you are likely to be wrong and stuff it up and that you will learn from that...... belief is that once you push the button, you have had the right attitude

Just to be picky but I have to point out the obvious flaw here (as Tams does) - you already have a loss so doubling down does not save you from a loss..... disclosure - I go with the PTJ method While every one has their systems and everyone can and should do what works for them.....there is one thing that often most users of martingale systems dont recognise or want to admit - and this is what riles others up, and this is .... at some stage you will blow up (or even if using puke stops) the losses will be large and these are often large enough to either close and account or at least do enough mental damage as to impede future trading.......if you can accept that then great, but if you fail to even recognize that and then you are deceiving yourself (and possibly others if that view is "sold" without the added risk disclosure.)

Suggestion - dont think in terms of rules - often these are focused on - dont do this, dont do that, you are prohibited from this and that focus instead on checklists - what do i do if this occurs and this happens and that happens.....far easier to digest

as always OT, a nice summary and often this point is overlooked.... "In other words, we want, in most cases, to abide strictly and mechanically to our system, but retaining enough discretion to act upon objective and empirical facts the importance of which supercedes whatever the calculation of a moving average is on a particular day, such as price testing a clear and unambiguous support or resistance level." The system is often too binary, and given context applied with experience and common sense - as pointed out with the extra advice given about correlated trades, then often the system can be improved/finessed without actually having to do to much This is usually only achieved after tracking a system for a while and then you know when to "break" the rules to achieve the same overall strategy objective without adding too much extra risk. The same can be said for those times the system says to take a trade, but experience tells you to be a little extra wary. Ask yourself this - whats the difference between a 21day ma or a 20 d ma - a few pips maybe ??? Why use one and not the other??? To a computer this may mean everything, but to us when trying to capture 100s of pips the overall strategy is important. (plus it is soooooo nice to see the thread working and happy happy joy joy )

i agree with Russellhq that you need to look deeper into it and be able to track which days then also reverse. Additionally you have to be careful that each day does not start with a succession of losses as you start the process each day.....so I guess in statistical terms the series of trades becomes a series of series of trades (??? not sure if thats relevant ) Point for all of this is that no one system will work for everyone or every style or strategy. I was wondering about this the other day when discussing a martingale strategy with someone with a slightly different twist. This was spurred on by a discussion around position sizing based on the number of losses you have........ Basics were normally you trade 1 contract, but every time you get it wrong and stop yourself out you increase the size of the bet for the next new trade. eg; buy 1, stop out, next time buy 2, stop out, next time buy 3, stop out, next time buy 4 - win. Next trade buy 1 contract. Now of course this is system dependent, my guess it would work well in, requires more trading capital than many would normally have and would still require limits on the total volume, would probably be mentally tough to do and the obvious thing is that you will be disappointed if you get a 90% win rate as then you never really get to increase your size ...... I was wondering if any one has tried this, or been able to model it properly (I dont think I have the time but might one day to do it properly).....it was just a thought. :missy:

one statement does not make the other incorrect but more along the lines of ..... the first statement is about avoiding problems, whilst the second statement is in dealing with problems. Trading usually forces you to deal with problems that you CANNOT afford to avoid and the methods you have previously used to deal with other problems in life dont necessarily work as effectively when it comes to trading....should you choose to employ them rather than avoid the issues. as to your second thought...... it is related to the first statement as I feel that the whole fear/ego thing to do with trading shows us up in the clear fresh light many other endeavors fail to do so so glaringly (if that makes sense) When it comes to trading your PL is all that matters at the end of the day. Whereas starting a new business takes time and a myriad of issues can cloud why its successful or not, like asking someone out for a date......what constitutes success in this arena? The instantaneous PL in the red or the black is like an immediate reminder of right or wrong, and applying the same problem solving techniques to getting a successful date may not work in the market.......however viewing the whole thing as a numbers game might Either way keeping to the thread topic - you have to pull the trigger to participate and being gun shy (or trigger happy ) both in dating and trading parlance usually ends in embarrassment.

yep....thats an interesting one as it nails the whole do you let the system trade or do you have a system of rules that you follow but also look to break those rules, and the system not only gives you a point of reference for the profitability but also for the losses (you can take a crappy computerised backtested system and make it profitable by only taking certain trades)..... this is why I view context as so important..... Ultimately for me the default position is to take the trade, and a lot of this stems from my days as a market maker where (contrary to popular opinion) you are actually given a position. (that position my have a theoretical edge right at the start) but after that you then need to decide what to do with that trade. Do you run it, hedge it, cut it, reverse it????? So by taking every trade (or at least mentally being prepared to taking every trade) you are following the system and you have to come up with legitimate reasons for not to take the trade, or at least ensure you have a close stop so that a loser costs you very little......all semantics but it can help the mindset, and ultimately if you are following a system and you dont want to take most of the trades then the obvious question is....why follow the system at all....

there are many different ways - do you want them to be volume weighted, weighted by market capitalization, equal weighted, weighted as per you initial portfolio weightings???? how often do you change the index and put new instruments into it. The simplest index of the stocks you are looking at is an equal weighted index from a common base...get excel and muck around

that why you should view everything in terms of percentages

the thing that is black and white is the END RESULT. the thing that has many shades of grey is the EXPECTED RESULT often fear stops us from achieving the desired end result and the ego has us believing we can still get the expected result......or worse that we deserve the expected result.

Not to get too far away from OptionTimers thread, but it is topical that you mention this especially in a trend following thread. Personally I am old school and learnt the old way, and to a certain extent I envy you who can just rely on the computer. I have recently spent a lot of time effort and energy into trying to do so and have a few similar trading friends doing the same....trying to get the best out of both worlds......so dont feel like you are missing something Point being and linking back to this thread as Optiontimer has mentioned and even showed in the recent trade where the stop was too far away that applying things in a mechanized way but with the addition of a few heuristic/rules of thumb does not need to be too difficult. It is the strategy thats important. In one of the original market wizards books (or an interview) I think I recall someone say the best way to see the trend is to just throw the charts on the floor get on a table and look at those that are trending.....now that is old school.....and then decide how much heat to have in the trade. (pure day trading is different so as to not mix the two up and keep the focus here) Think about it this way (and not to say this is right) - as a trend follower your DEFAULT position should be to take the trade and ride the position, but you can then override the finese of the entry or the exit somewhat using simple (dont make them complicated) levels of support and resistance to keep you out of trouble. Even the original turtle trend following rules had a few simple rules in them like this and they even had a fail safe get in the trade rule so that if they missed the 20 day breakouts they still took the 55 day breaks.

Hi Traduk, I think this is the important element in your approach......it works best in those mean reverting type markets such as the equity indexes. For the other instruments whereby larger, longer term trends are trying to be captured then scaling in with existing open positions can definitely work....it really becomes more an order of finese and the difference between time frames being traded. plus when you say "I see that most people tend to load up into a winning position which moves average entry price away from stop and increases risk whilst also reducing average profitability. "......not always. You can move the stop up for each additional entry, which means you can keep a similar risk profile whilst improving average profitability for those bigger trends (probably no so applicable to day trading where you need to be out at the end of the day.)

welcome....first suggestion is as a longer term investor, dont get too caught up with a lot of discussions that are short term focused....very different mindset. at a guess you will have to focus a lot on money management as often the best fundamental values are found in unloved downward trending instruments, and these can remain unloved for large periods of time - so you need to work out how to stay solvent. Alternatively by applying virtually any simple momentum type indicators (longer term moving averages, donchian breakouts) over those instruments that form the subset of undervalued and now trending instruments will also work with less worry.....let the market also agree with your ideas of value As a longer term investor and a financial adviser you would also understand the best thing you can do is probably wait for the market to trend as well - for stocks are notoriously highly correlated. When it comes to trading in down markets - particularly when it comes to stocks personally I have found that the best trades are to sell the short term rallies, selling breakdowns in stocks tends to hurt a little more as the majority of stock investors are long only and look to buy dips which then cause breaks to be more short lived and subject to the so called short covering rallies...otherwise the general principles still apply

Good point often overlooked - a good test for this is that often many indicators will give you trades at similar price levels - regardless of the indicator, and often this search for the perfect set of indicators (the holy grail) causes traders to loose focus of the strategy in search of the perfect way to implement that strategy. Too often the easy access to computers, programs and instant access to data is more harmful than helpful.

(sorry sdoma....i could not help myself.) and I am with Tams.....putting limits on things is not a great thing and I view it this way. If you have a system that is back tested etc etc; then you should be taking EVERY trade as you dont know when they will win or loose but if you put limits on it then you are selling the system short and then why bother having a system. If you have a more discretionary viewpoint then this changes things to the extent that you are ideally only trading when you think the odds are in your favour and have already applied your filters, and so again you should then be taking most trades as they appear, and not just when you made some arbitrary amount then stopping. however....if you know from your own experience you lack the focus in the morning or the afternoon and that you are better not to trade then, its a different story. It boils down to this.....a daily profit or goal is another arbitrary number that will limit your profitability. I would also disagree with what you said with this "but most professional firms make you do this and enforce that policy via risk managers"...... this might be true for the boiler shop type rooms that really make their money from you paying them commissions etc, (not really my specialty) but the only time I have seem this in place in the serious prop shops is on a few occasions - when managers have pulled people aside and told them to take a break after a series of loosing trades or massive wins - not based on some arbitrary number but based on knowing that it was affecting their mindset - and this is not done on a daily basis.

I think Ego is worse..... It is the fear of being wrong which hinders many traders, and you see it all the time, and thrown about in many threads....how often do you read about ego and not fear....(and my expert psych analysis attached)...paraphrased examples such as 1...I hate it when the market stops you out at the bottom and then reverses, in other words, you had no fear of trading, and so you could stop and reverse or you could just get over it and keep trading, instead you focus on how you were wrong and that you hate it, and that it always seems to get you.......no, its just trading 2...I just want to revenge trade and get what the market owes me Sorry.....the market does not even no who you are. It will not offer satisfaction for revenge, it will likely just proove you wrong over and over again, and until you see things as a series of trades this mindset will hurt you. there is no fear of further trading to get revenge, instead many seem more motivated to proove themselves just to satisfy their ego. 3...those sticking market makers/global cartel took my money. You gave it to them.....and fear probably wont stop you from doing it again, but controlling the ego and working out how best to trade might help. 4....i did not want to take the loss why - the loss was already there as there is no such thing as a paper loss, all you did not want to do was admit you were wrong and your ego wanted you to hang in there to proove you were right. You dont fear the loss - you already have it, you fear the confirmation of you being wrong. 5...I rode it all the way down for a 10% loss, doubled up and then got out at break even. you are likely to be on the way to the poor house and your focus was on being right, not on cutting the loss moving on and looking to reenter. 6....I paid good money for this system and it sucked. In other words, you either did not do your homework, believed the hype, did not listen to others, thought you had the quick path to success......none of these revolve around fear....its all about ego thinking that you are smarter than others. You dont seem to fear the loss of money on these systems.??? 7....my system is the best and you others dont know what you are talking about, and I am too busy teaching paid students to tell you the secrets. nothing about fear hear except maybe to pray on your ego that you want to be the club that knows the secrets.....or maybe this is a fear for some people....until they finally realise there are no secrets. 8....I SIM traded and then when it came to real money I lost..... probably because you either did not realise that SIM trading is not 100% representative of the markets and that when it came to real money your account did not lie to you like you most likely lied to yourself while SIM trading......not out of fear, but out of pride. 9.....if 5% of traders make money and the rest loose normally if you applied this to other things in life such as.....5% of parachutes will open, the rest wont, 95% of surgical patients will die on the table, there is 5% chance of you not choking today...... yes, they are silly examples, but think about it, in these examples we would all say i am not stupid I wont do that, whereas in trading our egos say I will be in that 5%....there seems to be no fear involved. .............. so yes I think ego and the bruising of it hurts more than the fear....as there is two things you can loose in this game....money and pride....in most of Randes examples (I am sure he and others could comment here) the people he talks about are accomplished traders who are suffering some fear, and I apart from the fear of losing some money, its more the fear of being wrong and still not accepting that in reality we cannot predict the future, we cannot tell whats going to happen, no matter how much experience we have, all we can do is place bets and accept when we are wrong and ride it when we are right. While maybe this is the fear and so its actually the same thing, you are right, too often this focus on fears and facing them and overcoming them misses the point of not actually needing to face up to the traders real fear.....that we cannot master the markets as we cannot control ourselves........and this is not very ego boosting.

irrelevant......if it was ultimately going to catch up with them because they spent and borrowed too much then being under the radar is no excuse, fiscal irresponsibility is still irresponsibility weather you are too big to fail or too small to worry about and hence under the radar yes - those that are in the most trouble under the radar are being focused on because those above the radar have their own problems and can no longer bail them out in the normal way - now understand this - prior to the government led bailouts the markets and the local constituents/government bailed these countries/states out through their continual and irresponsible spending, its just that when the musical chairs stopped, not only were there a few chairs short in the room, the remaining chairs were made of paper not wood.....because fiscal irresponsibility is still irresponsibility ok, so China and India which have growth above 9% growing populations and 1/3 the worlds population has nothing to with fueling prices? While the pricing of many commodities is in USD, and the US is protecting its own interests with a weaker USD, however how is this such a problem unless you peg your own local currency to the USD? We in Australia have deflationary pressures from the USD falling the AUD rising..... these excuses etc are largely a result of local politicians blaming others for thier own lack of planning and irresponsibility. Did they not realise that their local populations were growing, did they not realise they might have such a problem, have they not heard of peak oil?.....when it comes to economics there is no one size fits all model that we like to think, there are many factors that cause local inflation and local issues.... Many local famines are more a direct result of drought, corruption, wars. Commodity prices were in massive deflationary periods while the world population and demand has grown.....added to the fact that investors now view commodities as an asset class, then simple demand and supply is more likely to give the reasons for commodity price rises....not just because the US is printing money....this is a factor but a too easy excuse what - these things did not exist before currency markets and international trading....? while i understand your pink insides, I too have a heart but lets not confuse the issues with emotional items that blur interesting point about brains - who is it that caused the problems, is it the central banks, or us (the chicken and egg question) we let it happen, we encouraged it and actively encouraged it, and will continue to do so as being humans we will generally defer future gains for present gratification....are not the central bankers trying to just clean up our mess, and the real debate should be is are they doing a good job, or should we be left to our own devices??.......because you know that history shows us that depressions and other financial disasters that let the markets collapse usually see the rich remaining richer while the rest of society suffer. Greece was irresponsible, and as they seemed to be more irresponsible than most and as they are smaller of course they suffer......it seems like you are advocating a Greece bailout and the status quo? Plus who exactly are these mysterious persons who pull the strings? are these the same people that encourage free markets only to allow us to enslave ourselves? Is there a better system, or ideally should we try and improve the current system? Is life simply just not fair and it becomes a numbers game were some win and some loose? or are conspiracy theories, blame games and fist pumping just another way for us to placate our own inabilities to prosper from the current system ? (Ingot (and any others) - I am sure you understand my questions are to provoke thought, and also realise that if you say black, i will say white, if you say white I will say black - thats what discussions are about )

This applies more to longer term trends but generally is applicable to any trend if you are trend trading the default position when you are in a position/trade is to let it ride (otherwise you are not trend trading) So when it comes to getting out when trend following you will naturally always have drawdowns of equity after a big run up. You are not meant to be trying to pick the top or bottom OR, you had better have a pretty good method of re-entering the trend if you have levels to get out......unfortunately this is the trade off you face. when it comes to getting out after following a trend for a long time - you often have plenty of time - trends dont often reverse without some form of consolidation. Personally I have always struggled with this due to the trade off involved, but I have found that the first big pullback after a trend (lets say an uptrend and big pullback is -- price crosses over a few swing lows, or hits a MA, or a lower donchian channel) gives an indication (a very big indication) that its time to exit a trade on further rallies, rather than have any hard and fast rules to exit on the first draw down......but this does not mean trying to then short.... Curtis Faith covers this in his book Trading from your gut....in it he talks about the combination of auto trading a system with using instinct to exit with out being too dogmatic

sure - you charge fees, take a global macro viewpoint, build positions and follow trends, use other peoples money....oh and did I mention charge fees.

This is like the Abbot and Costello routine... maybe one of you guys had better give up trading....or better still trade with each other and the one who ends with the most money is right.

Not to get into an argument over semantics Tim, but "So when a stock moves from $40 to $50, your setup is to enter long at $45" causes the confusion for a lot of people. Many dont differentiate between the setup and the trigger, and they often miss the crucial extra differentiation. the setup is the prior action before the trigger - they may be different, and a setup may be rejected before its actually triggered. eg; setup = instrument has broken up, i now think it is in an uptrend, and i wish to look to purchase a 50% retracement. you can then either - place a limit trade at that retracement (so the trigger actually is a trade at that price) or you can apply another trigger....eg; at the 50% retracement I will purchase on the first up day, or I will look for a move above a short term moving average near the 50% retracement area.....

you are correct Ingot - this is part to rile you up but also as part of a discussion....what I believe may not be what I think......so on that vein.... isn't there a bit of a disconnect here though..... we want free markets, but then we want the government to bail us out - or ideally protect us from those more unscrupulous people who would fleece us from our money. we want free markets but we complain when speculators act in already regulated markets we want free markets and less regulation and when we get it we have the GFC. We want democracy and all the power to be vested in us.....and yet generally/universally we already show ourselves to be incompetent when it comes to trading markets, managing our finances and money and generally able to rip up plenty ourselves......and we rile against giving power and authority to people who generally show they are competent in this regard. We want the government to lock people up who do what - exactly what we encourage and incentivise them to do in the first place, and then we call for less regulation and yet with even less government regulation we will have even more incentives to look after ourselves. We want less regulation and yet for markets to work efficiently we need trust in the systems that regulate the market participants to ensure that we as participants in the market do have measures of protection from dubious FX brokers for example.... We want free markets and the ability to create wealth, but then we want to be able to stop people who made their money from protecting it - we dont want those fat cats pulling strings in government in their favour. We want everyone to be able to participate in the ability to progress and fullfull their destiny through hard work and brains, and yet we perpetuate the cult of celebrity and continue to have monarchs and dynastic families and wealth passed on through generations merely through luck of birth. we want governments to provide services but we dont want to pay taxes. We dont like it when others get rich and yet we want the ability to do it ourselves??? ......................... What in my opinion we need is a few simple things and these are whole other discussions.... - appropriate checks and balances to avoid the concentrations of power (seperation fo church, state, monetary authorities, ratings services not being paid by those who get rated etc - white collar criminals and politicians having bigger financial penalties as well as jail when they are found guilty - the one thing that should be regulated - which would solve a lot of issues - is the amount of leverage allowed to anyone (this would at least restrict the collapses a little)(and while this may impinge on your freedoms it is a simple measure of keeping excesses down and still rewarding risk taking but not allowing excessive risk taking) - proper accounting where by you cant hide in off balance sheet vehicles, creative accounting becomes a crime in itself and where ....which helps lead to - proper accountability both for government and corporate executives where failure is ok but you are not rewarded for it and thats probably the best we can get as there is always that fine line of reward for risk v penalities for excessive risk taking etc etc.

but aren't the central bankers merely cleaning up the mess that the politicians actually created by pandering to the desires and needs of the masses to spend spend spend without working, retiring and having a lovely existence without paying taxes and yet still demanding a welfare state and tip top state provided services.????? chicken and egg maybe