Avarice

Stelvio. The Stelvio pass

J, you will find a summarized description of the system in post #344. I wouldn't get too hung up about finding the "right" indicator parameters. One of the main points that has been made in this threat is that the technical manner in which you enter a trade (i.e. stuff like stochRSI settings, even the usage of stochRSI or any other oscillator) is a personal choice and pretty irrelevant. As long as your trade selection method complies to OT's rules (enter on a weakening pullback of an ongoing trend) you should be good with respect to this thread. I know this didn't help much but if you want to dig deeper you should really read the entire thread, it's pretty instructive (at least it was for me). :missy:

"In the new economy, there were three kinds of people: the haves, the have-nots, and the have-not-paid-for-what-they-haves." Satyajit Das on the credit binge leading up to the 2008 bust in his book "Extreme Money"

No it hasn't. In fact there are ever more proponents of the efficient-market hypothesis claiming that future price movements are indeed random in nature and that it is impossible to consistently beat the market over a long period of time. On the other hand the fairly new field of behavioural finance claims that irrational behaviours of market participants have an impact on prices -- which would imply that price movements are not random. But up until now none of these theories have been proven to be correct, so keep searching

I rip my data off an eSignal data stream. I thought a long time about creating a database for storage and analysis but I came to the conclusion that simple text files offer the most benefits: (1) the data is human readable (great for bug hunting and cross-checking), (2) offline storage and backup is a non issue, (3) the data is universally accessible and easily transformable. As for data organization, I have a folder per security with a file per contract (i.e. ZC\Z2011_D.txt is daily settlement prices for December corn, ES\H2012_1.txt is one minute data for March ES, you get the picture.) It's not very sexy but it works. A word about ripping data off streams - if you want real tick data check with your provider first. IB for instance does NOT provide realtime tick data, they stream snapshots. Also, check how far back your provider's historical data goes. With eSignal some contracts go back 30+ years on EOD data but intraday prices are backward available for a few years at most. If you need more you'll need to buy your data from a specialized vendor (this can get expensive real fast, so check if you really need it.) Once you got the data on your hard drive you'll need to think about scrubbing it (filtering out bad ticks / quotes.) You'll find some pretty technical stuff on the web, google it; then decide whether it's really worth the hassle. Obviously this really depends on your strategy, if you trade long-term trends this is gonna be easy (just ignore the errors), if you scalp this is going to be a major pain. If you'd like to trade futures you'll probably need to construct a perpetual contract for backtesting purposes. I found Ed Seykota's article pretty useful (while you're there do check out his article on risk management, it's a good read.) As for software I'd recommend MATLAB. It's simply a fantastic peace of software. It's very flexible, the online community is huge and very helpful. The learning curve is a bit steep (especially if you don't have prior programming experience) but it's doable, given the right motivation :missy:. Caveat: you'll have to program most of your indicators yourself, there aren't that many that come standard out of the box. But, strange as it might seem, I found this rather helpful -- it made me *think* about what those shiny lines on my screen actually meant instead of just trusting them because They Told Me To use them. This is me though, I don't really know R or Octave (a free MATLAB clone.) Hope this helps, A

I haven't watched the video so I'm not endorsing anything. But discussing investment strategies in the current environment without at least a certain degree of consciousness of events that brought us here seems an exercise in futility to me. Maybe you'd be better off trying another venture, riches galore await the bold.

A professor stood before his philosophy class and had some items in front of him. When the class began, wordlessly he picked up a very large and empty jar and proceeded to fill it with golf balls. He then asked the students if the jar was full. They agreed that it was. So the professor then picked up a box of pebbles and poured them into the jar. He shook the jar lightly. The pebbles rolled into the open areas between the golf balls. He then asked the students again if the jar was full. They agreed it was. The professor next picked up a box of sand and poured it into the jar. Of course, the sand filled up everything else. He asked once more if the jar was full. The students responded with a unanimous "Yes!" The professor then produced two cups of coffee from under the table and poured the entire contents into the jar, effectively filling the empty space between the sand. The students laughed. "Now," said the professor, as the laughter subsided, "I want you to recognize that this jar represents your life. The golf balls are the important things--your family, your children, your health, your friends, your favorite passions--things that if everything else was lost and only they remained, your life would still be full. The pebbles are the other things that matter like your job, your house, your car. The sand is everything else--the small stuff." "If you put the sand into the jar first," he continued, "there is no room for the pebbles or the golf balls. The same goes for life. ! If you spend all your time and energy on the small stuff, you will never have room for the things that are important to you. Pay attention to the things that are critical to your happiness. Play with your children. Take time to get medical checkups. Take your partner out to dinner. Play another 18. There will always be time to clean the house and fix the disposal. "Take care of the golf balls first, the things that really matter. Set your priorities. The rest is just sand." One of the students raised her hand and inquired what the coffee represented. The professor smiled. "I'm glad you asked. It just goes to show you that no matter how full your life may seem, there's always room for a couple of cups of coffee with a friend."

This is one can I've been kicking down the road for some time now, seems like yet another good argument to get that LLC finally rolling.

How is everyone doing here? It's been awfully quiet over the past weeks Quick heads up from me, I trade OT's strategy mainly on the pool of instruments he posted on page 1 of this thread (agriculturals, currencies, debt, energy, indices and metals). I went live on August 1st and I'm happy to report that after almost 2 months of trading I'm up some 3% of base equity which I judge, considering recent market performance, to be pretty robust. Max drawdown is in the 3.5% region, also a figure I can live with without losing sleep. Since I'm still evaluating the strategy I only trade one contract per shot. That''ll change at the end of the year, once pyramiding is in place I'll be able to evaluate the strategy's true profit potential. For the moment I'm still working on how to do that, there's an awful lot of positive correlation out there at the moment. Big kudos to OT for starting this thread, and a big thanks to SIUYA, Ingot, PWP, russel and all you guys that make this thread a mine of information for newbie traders. Keep them posts coming!

We're all young and healthy. The world is our oyster. So quite naturally none of us like to think about the inevitable. I for one plan to outlive y'all but -- just for the sake of argument -- let's suppose you drive off a cliff in that new Maserati you bought with last week's proceeds. :helloooo: What happens to your trading account? Your open positions won't close themselves magically, how do you handle this? My broker doesn't permit physical delivery so I guess my positions will get auto-closed once the contracts start expiring. But how do stock people manage this eventuality? How do you make sure your spouse and/or kids have access to your funds after you start pushing up daisies? Will your trading account be handled like any other bank account? I guess I should talk to my broker about these things. But I thought it couldn't hurt to throw the question at you guys first. So, any thoughts?

I humbly disagree. Profitability of a trading system is defined by your ability to press winners and to run fast in the face of adversity. Mathematicians (or any scholar, for that matter) make for terrible traders. Most think they have to be right in order to win, hence they fail to bail if the trade turns bad. Yep, wide generalizations FTW :rofl: But we disgress...

It is empirically impossible to prove that something is behaving in a "random" way. For something to be perfectly random it has to lack inherent order - so trying to prove market randomness equals trying to prove that it lacks underlying order. Proving such a negative proposition is impossible - it's like trying to prove that there are no cakes in space. While this might be highly probable, providing mathematical proof of said proposition is a different pair of shoes. I remember reading a passage in some book (I think it was Schwager) that a trainee was sitting next to his boss in some firm, looking at commodity quotes. After a couple of hours the trainee asked his boss how he managed to make so much money out of random price movements. The boss picked up the phone, told his trading floor to short the commodity pretty heavily - 30 seconds later prices printed lower. "If one man with a telephone", the boss answered his trainee, "can move the markets with a single phone call, how can it be random?" (I think this was Dennis, not sure tho...) In any case. As always SIUYA has the right of it, randomness or not: it's trade management that makes or breaks your account. To answer your question would I trade a truly random stream of data? Sure, I would. Would I recommend investing in such an instrument? Hell no.

Hey SIUYA, good to hear from you You mention two concepts in your post which I feel need clarification. 1) Context. You repeatedly said that the "default mode" of a trader should be to follow his system's signals except when the current context indicates otherwise. Overriding my system in such a way presupposes that I know what context my system is supposed to work in - for OT's strategy that would be an ongoing long-term trend where this ongoing trend must have a realistic chance to continue. The last part of this definition tells us to override the system (i.e. not take an entry) if our trade would need to violate obvious support or resistance zones in order to be profitable. My question here is, what other considerations should we take into account in order to decide whether context is not right? What about flatlining EMA65s? What about low (or high?) volatility? What about crisscrossing EMAs that switch from long to short every other week? Not that I'd be fishing for a pre-fabricated recipe but I've got a feeling that this concept is quite important stuff. Do I need more experience in reading prices? 2) Pyramiding. The general concept of it seems easy... at first. But doing it right is a different pair of shoes: if I want to have a realistic chance of being able to add to a position I need to work with a pretty wide stop. I tend to trail my stops at approximately 2 to 4 ATRs, and upon closer inspection I can see that this is way too close - I will always be stopped out by the pullback towards the next (possible) add point. Conclusion: I need to widen my stop. But now greed kicks in - in the form of fear of losing too much paper profit. So I start asking myself when I should start to tighten my stop in order to get out? How do I see that I sucked the trend dry and that it's ripe for a reversal? I know I can't. But I still want to! Do I need more experience? What are you guys' thoughts on all this? A

Just got slapped in the face by Canadian $, 1.5k loss. Both entry and exit at the worst possible moment. How's that for timing the market :applaud:

Man that's harsh :cinema: Trade update, I got stopped out of Sept GBP for a $900 profit the day before yesterday. No open position left. I have standing orders to short Cocoa, Soybean Oil and the CAD. None of these have been filled yet, we'll see how it goes. I've attached the (sept) CAD chart for your perusal. A

Very true. This ambiguity is precisely why I decided I would only enter trades where price effectively touches one of the EMAs. Under this hypothesis a valid (long) entry would have been triggered some 3 or 4 bars ago. That trade would be in negative territory by now (if I would have gotten the fill which I'm not sure of). But I would have taken it nonetheless. If I don't follow my rules, why have them in the first place?

Re. this chart or any other chart posted above - If the system qualifies an entry I take it, no questions asked. I don't second guess. I've taken plenty of trades which didn't feel right at the time of entry which turned out winners. I also took a ton of trades which seemed perfect at the time, only to watch them turn into the mother of all losers. The lesson there: I don't know what's gonna happen. I don't need to, I trust my system. Edith says: If you truly think that your system is missing a crucial element (in this case, the relationship / closeness of the EMAs to each other, their slope, past price action, whatever) then stop trading it, go back to the drawing board and integrate those thoughts into your trading plan. Flesh them out, formulate them in a way that's easily understandable even in the heat of action. Write them down. Test them, then go live again. But never, EVER, change the rules of a live strategy just because you don't like the looks of a chart. Today it's the EMA's slope, tomorrow it's the day's volatility. The day after tomorrow, it's something else. That's not a systematic approach to trading, it's emotional trading. And that is a recipe for disaster. Some of you might disagree, but I find this concept one of the hardest aspects of trading. It's got nothing to do with tech speak and our general understanding of the markets, it's all in our heads. And that's why this thread is in the Psychology subforum of TL (and rightly so). A

I've been on hols last week so my access to TL was (deliberately ) restricted. I usually don't linger in front of my laptop any longer than necessary while we're away hence I decided that I wouldn't enter any new trades during the week. All I would do was peek at the markets for half an hour in the evenings, adjust my stops and be done with it. Free time is free time eh. Anyhow. I got stopped out of soybean oil for a $783 profit, British pound is still on and is showing a $1.5k paper profit. Protective stop has been moved past the break even point. Livermore. If you don't mind ponying up the cash I strongly recommend you get yourself a copy of Markman's annotated edition of Reminiscences. His comments and annotations add a lot of background info about the 1900s economy and its notable players that would have been completely lost on me if I hadn't had them. Not that these notes add anything to Livermore's core message but I liked them nonetheless. A

Trade update: I went long on GBP today @1.6249, stop loss 1.6036 (risk $1,3k) Soybean Oil is still short, stop loss 55.56 (no risk, stop > break even) Got stopped out of my oats "experiment" yesterday, see above. A

Indeed. And the reverse is true too: I've just been stopped out of Oats, $600 loss ($200 slippage). Ca-ching! Avarice's stupidity log - Trade a security with abysmal volume and get raped in the process? Check! :doh:

It's been said over and over again that, in order to make a dime in the markets, you need to stick with your system. Pretty easy, innit. Well, this mantra is hard enough to follow during winning streaks, and anyone who's had real money on the line knows the gut wrenching feelings of helplessness, disgust and despair that show their ugly faces when your supposedly good system generates loss after loss, day after day. These feelings - this fear of further losses - ultimately make you lose faith in the viability of your system, you start tweaking around, you change things. This is the turning point: this is where your system becomes worthless and you become a loser. It's a self-fulfilling prophecy - trust me, been there, done that. The ONLY thing that keeps you from falling into this trap is utmost discipline and trust in your system. And in order to trust your system you need to know its inherent risk. So let's talk about risk. (There's some math ahead. I know this is a downer for some but bear with me, it's not overly complicated and pretty straightforward once you get your head around the general concepts.) The first thing you need to know about your system is its probability of producing winning trades. If you've been trading it for a while this is easy to calculate: count your winners, then divide this by the total amount of trades. If you're implementing a new system you'll need to backtest it (or papertrade, whatever) until you've got a significant amount of trades (so don't stop counting after 5 trades eh). Let's call this p (probability of winning): p will be between 0 (0% winners) and 1 (100% winners). And once we know p, we can calculate the probability of producing losing trades: that'll be 1-p. The second thing you need to quantify is your willingness to lose it all. Yup, that's right; you need to know at what level of risk your trading is going to keep you awake at night. We'll call this piece of info s (for sleeping point) and we'll express it as a number: are you comfortable with a possibility of 1/100000 of going broke? s equals 0,00001 for you then. 1/10000? s = 0,0001. What about 1/100? s = 0,01. This is where your personality and your risk tolerance comes in and only you can pick the number that's right for you. What we need to do next is calculate the probability that our system does indeed generate enough subsequent losers in order to wipe out our account. This is not complicated: remember 1-p, the probability of producing a loss? For the sake of simplicity, let's say p equals 0,5 (50% winners, 50% losers). So here goes: Probability of 1 loss: 0,5 (50 %) Probability of 2 consecutive losers: 0,5 * 0,5 = 0,25 (25 %) Probability of 3 consecutive losers: 0,5 * 0,5 * 0,5 = 0,125 (12,5 %) ... Let's generalize: the probability of n consecutive losers for a system that has a winning ratio of p is: (1-p) ^ n. Let's call this r for (probability of) ruin, it's a serious event so let's use a serious name. By the way, notice how r becomes smaller over time? What we want to do now is find the number of consecutive losers it takes until the probability of ruin equals our sleeping point. After all, this is the whole point of this exercise. Remember that r = (1-p) ^ n; I'll save you the mumbo jumbo, trust me when I say that n = ln(s) / ln(1-p). This is it. You now KNOW FOR A FACT that you can stomach NO MORE than ln(s)/ln(1-p) losses - one more and you're broke! Example? Sure. Let's stay with p = 0,5; I'd say an s at a healthy 0,0001 (0,01 % risk of ruin) would be a probability I could live with. So, this gives us n = ln(0,0001)/ln(1-0,5) = 13 losers in a row (rounded). Is it probable to have a streak of 13 losers in a row? Not really. Is it possible? Of course! Has it happened to guys with good systems? I'd bet my arse it has. Notice how none of our calculations here took our total equity into account? We didn't need to - what we did was, we calculated the maximum length of a losing streak that we are comfortable with. Is 13 not enough for you to sleep at night? Your sleeping ratio needs to be lower then. Reconsider it! So where to go from here? Well, the first thing you could calculate is the ABSOLUTE MAXIMUM amount you can risk per trade. It's your account equity divided by n. If you risk more you're taking on too much risk in regard to your strategy's performance and your risk tolerance (sleeping level). Next thing you could do is calculate the minimum payoff you need your winners to generate in order to break even. (Hint: breakeven(in $) = (1-p) * maxRiskPerTrade(in $) / p. Divide this by maxRiskPerTrade(in$) to get the R/R payoff you need to break even.) Do these calculations help you minimize risk? No, of course not, risk cannot be mathed away. Last time they tried AIG needed to order red pens by the truckload. Neither do they prevent you from doing stupid mistakes like betting against the trend or placing your stops too close. Or overextending yourself (someone asked about silver this morning. Before you enter that trade I sincerely hope you thought about all this, leverage is huge there and so is risk.) But they do further the understanding of the behavior of your system and thus help you trust it more. Which is, after all, key on the journey from loser to trader. Oh, one last thing. PLEASE don't trust me on this - do your own calculations. NEVER take anything you read for real unless you've tested it out by yourself, even if you got it off the TL forums Best of luck all, A

Ha my parents were right, it's better to kick your own brains into gear than ask someone else to do your job for you :embarassed: It's called risk of ruin, found this article, read it, fiddled in Excel and learned something to boot. So never mind the quoted question A

I suppose this chart of the CHF is as good an example as any of how one can pyramid. You'd simply add to your position on each new entry signal in accordance to your trading plan. If the general trend remains strong (as it has in this example) you stay in for the ride, happily adding whenever the flag (or triangle ) shows up. A

Sorry if this has been asked before, but could you explain how you came up with these numbers? A

Update : I'm still short Soybean Oil and Oats, they're both showing a healthy (paper) profit for now and I'm -- up to now, at least -- able to stay put and watch the trade play out. No new trades were signalled for me over the weekend (at least none I could afford ) so all I have to do now is sit on my hands and do nothing. Concerning stops. Fact: OT's system follows trends. Our entries are tied to the concept of an eventual pullback of prices and the ensuing continuation of that trend. It is by no means guaranteed that there will be another entry point after we've been stopped out prematurely by a protective stop that was placed too close. Consequence: We must stay in the trade for as long as we can by carefully placing our stops in such a way that they do not impede the normal breathing process of prices. The question then becomes: what is the "normal breathing process" of a security and how can we measure it? In my humble opinion any stop placement method that takes recent volatility into account should do the trick IF (and only if) you manage to apply the correct multiplier to it. Exception: I think it was SIUYA who pointed out that you should always look for "obvious" levels where you could place your stops (i.e. clearly defined support or resistance zones) and that these should take precedence over automatically placed stops IF such zones are there. Sure, placing wider stops will lower your R/R ratio, but remember that this is a trend following system and for it to work you absolutely NEED that big trend trade to come through. But it just won't if your stops are too close. NeoTrader for what it's worth, that was indeed a kick to the pants. I can't see anything wrong with your stop placement, I guess you can file this one under "you cant win'em all"... But on a general note (this is strictly me speaking) I'm not sure 1.5 times the ATR is enough in the current environment, especially in Forex and debts. It's Armageddon out there, remember that standing on the sidelines when the going gets tough is a viable option for us retailers. A