james_gsx

You'd be surprised how many garbage hedge funds are out there. Something has to make up all those fund of funds...

Oh absolutely I agree with you, but they claimed to be using options in which case it is more complicated then losing X amount. They claimed their options "hedge" didn't work as well as planned - which tells me they probably didn't really understand what they were doing to begin with - or they did but they ignored the potential implosion. I don't know how big this trade was or what they were tied up in, but someone obviously missed something.

I think it goes to show how complicated risk management really is. It's not, "I will only lose X per position." Simply because there are so many other factors at play, and chances are they were playing around with various and futures contracts and something hit them hard. Also, from the sounds of their last paragraphs it seems they take large bets that feel more 2008 then 2010. They almost sound stuck between that, what we think markets should do and what they really are doing. But it's hard to tell from just a brochure.

I agree about the ethics piece, Harvard Business Review wrote about it a few years ago if I remember correctly. But here's a problem, if it's accepted as "ethical" in the industry to do fancy accounting would you do it? You could say it's unethical, but if everyone is doing it but you refuse, chances are you'll lose your position. Is that good? Well, it depends on who you talk to I guess. If Sarbanes Oxley doesn't deem the practice ethical (I'm not accountant so don't take my word for it) then how do you tell your board it's unethical and keep your job over a sustained time frame? Ethics seems to be a fuzzy area. I can't speak for all the big accounting firms, but I do know first hand that Price Waterhouse Coopers required their employees to take regular ethics courses. That's not to say there weren't a slew of unethical behaviors abundant in the business. I mean, look how easy it was for the credit agencies to take a bunch of subprime loans and dub them AA or AAA debt. Then you even had some data plugged into the models that didn't include an entire business cycle, so the assumption housing prices would never fall seemed more like a fact. They took one of the safest credit products and turned them into the exotic flavor of the decade.

I actually agree with most of your post, except the first part I quoted. I don't think quants have forgotten what the source of the data is, maybe in the journey of finding a more sophisticated edge to move large amounts of money it is easy to lose sight of said "source". I wouldn't know, I don't trade billions of dollars a year and I don't design those complicated models. But they also know retail traders (assuming of course, they even care about retail traders which they probably don't) look at the potential supply and demand. In fact, this is quite obvious in many "quant" strategies. I'm sure you know of them and how they work, and they are most definitely in tune with the idea of supply and demand. I wanted to touch on the last part of your post, as it was something I left out but was in the back of my head. As we've all seen over the years styles come and go, trends (not price trends) change. Once it was merger arbitrage, then it was level 2 quotes, tape reading, we can name all of them. But they all change as the market becomes more complex, and that's exactly what we are seeing now - change. Of course price action will always remain relevant, but some traders will adapt and some won't. The ones who don't adapt (not saying they must become quants) will lose, just as in the past. But I will make one more comment. I do find it interesting when I read quant forums there is never any talk of technical analysis, rather mostly mathematical (well, sometimes) models and programming. But when I visit a site with predominately retail traders (not this site, as this is the probably the third quant related thread I've seen here), the "flaws" of the quants are quickly shown and they revert back to their comfortable strategies. This is not a good or bad thing, just an observation that I find interesting and displays the evolution of trading. But I am glad this is one of the more intelligent forums where we can have civil conversations about this without people getting offended. At the end of the day, no one is really right or wrong. It's all a means to an end, in this case profit.

Sorry guys, I should have been more specific, my mistake. I guess it's sort of difficult to clarify. You could view it the same way we view fundamentals, it's not really relevant (well, that's how most of us seem to think) when it comes to making trades. Let's take a long term view of this. Right now, we can find various technical patterns - be a specific pattern like H&S or VSA - and historically they probably work. But the way major institutions (the ones we try to ride the tail for bigger profits) no longer use those same patterns. Essentially, since a firm can buy and sell within a second, that changes the game completely. My theoretical question is this, will those same technical patterns we all learned to love still be relevant in the future? Much the same as finding an edge using fundamentals in a company - the chances of you finding one will be slim - but some still do. I hope that clarifies my point. Some will adapt and find new technical advantages, and some will continue to use old practices that no longer work - just like many people try to find "value" in large cap companies like IBM. Essentially those people will be oblivious to the market changes. I should also clarify my meaning of technical analysis - when I look at a shooting star, that is technical analysis. Today, trades can be done in the middle of a shooting star, or WRB, and I won't even see it on my chart. Since the trades are so fast and well managed, I probably would never pick up on the trade fast enough to make a discretionary trade. That doesn't even bring into account HFT (well maybe it sort of does). I will post examples with my own charts (that can most likely be found on this site).

I think the term "bailed out" is slightly over used. In reality, almost every bank in the country was bailed out whether they needed the money or not. A lot of Goldman's potential landmines were CDS with AIG. Overall, from the slight (meaning don't take my word 100%) they did a much better job managing their toxic debt before everything blew up. But nonetheless, Goldman continues to make money from their trading floor. Bailed out or not, they are obviously doing something right. And let's be honest, would you think twice if GS offered you a job and told you their trading was made up of VSA, candlestick analysis, and market profile? You'd probably walk out laughing too. Eventually, technical analysis will probably (if it already hasn't) become a thing of the past - much like pretending to gain a fundamental edge by reading the WSJ every morning. People still do that, which tells me retail traders will be studying technical analysis for many years to come and trying to find their edge (some definitely will find an edge). As far as UB being condescending, I think that's just part of the business. It's not nice, but this business isn't nice. Let's face reality, in games like poker your objective is to win, and you do so by taking your opponents money - same thing with trading. With all that said, I'm glad this is a civil forum and we can have meaningful conversations regardless of how different ones opinion may be. There are some very intelligent traders who have gained their edge through wyckoff, VSA, etc, and I hope they continue to share their knowledge with others. But at the same time, we should all face the reality that this game is rapidly changing (already has), and the more aware you are, the better prepared you will be regardless of your style of trading.

:beer: I completely agree, it took a few years for me to realize this (well, more so the last 6 months).

Well I'm glad you pointed out other alternatives to the approach. If I read O'Neil last month, would that make a difference? Or maybe since I've devoted my life towards this business I learned other methods that pulled me away from O'Neil? I've always felt canslim is a great gimmick to sell books and other services. But if the strategy makes you consistent money then I'm happy for you. Good to know some people can make money with it.

I apologize, I thought this was a thread about buy and hold - not my personal critiquing of O'Neils books. If you would like, I can list out why I left his camp several years ago.

I will check out the article in FT. We get the paper, so I will just ask my boss for his copy (that's if he doesn't leave it on my desk). Thanks for the heads up. I think you hit the nail on the head with "how long is the long term and how to deal with the drawdowns." Certainly, if you hold everything during the drawdown, on the rise back up you will most likely have very good results. Even better, if you get out at the top and back in at the bottom like so many pundits claim is possible using their historical data then you will do even better. But it all changes over time, and that leaves out so many holes it's nearly impossible to implement in real time. I guess you could ask yourself, "Do I want to own this for 3 years?" In which case, why not just own everything and buy beaten down assets? But of course, you have to expect some stuff to suck for longer than 3 years, and expect big drawdowns. You could always own the best performing assets, but chances are when those turn around you'll be holding a bag of junk. It's much easier to adapt to those changes on a few portfolios, but if you are an asset manager with $100m it's not quite so simple unless every portfolio holds the exact same thing. But then you also have to deal with taxes at the end of the year... and most clients HATE paying taxes so short term trades are typically frowned upon (which I will admit, is unfortunate)

I have read all his books, back in high school. It worked great during the bull market. But even during the bear market they got chopped around between "buy" and "sell" - I remember looking at their paper and laughing since they couldn't make up their mind. I'm sure it's a great philosophy for a small IRA if you have the time to adjust accordingly. But flip the tables to an asset manager with $100m under management, it's not such a great strategy. The idea also leaves out risk, and this might sound shocking, but most people don't want to take that kind of risk of holding 20 mid cap stocks and rotating every few months.

I would suggest either Asus or Lenovo. You can get a lot for a good price point, so definitely check them out.

Well the IDB index certainly outperformed the S&P 500 during the market crisis - that is, if losing money is your thing. And the idea to go into cash during a bear market then start buying again in a bull market is about as fantasized as most economic theories. It sounds great, but how realistic is to implement?

I agree with the long/short portfolio with a directional bias, and I would do something like that if I had $6 mil myself. But with OPM there are a ton of obstacles you need to confront (pretty much all compliance). Once you get through that, you have to actually hope the client is smart enough to realize what you're pitching him. I like to buy assets that are out of favor, at least for a small portion of the portfolio. But when it doesn't pan out immediately the client thinks you're an idiot because their neighbor doesn't agree. I used to think companies that managed over $100mil would be smarter with their asset management. I was pretty shocked to see some of their portfolios were nothing more than a ton of mutual funds and credit arb hedge funds. The clients were basically paying them for fancy reports

I think another problem lies in how people "diversify" their portfolio. For example, buying SPY and AGG then calling it good (I have seen this). Or when shit hits the fan, they throw all their money into funds of hedge funds assuming those managers will take advantage of the volatility and provide a hedge - that doesn't work either. Or they buy a thousand separate companies and they can't possibly monitor the underlying business risk. It's actually very easy to own several indexes (large, mid, small cap value, commodities, various fixed income, etc.). But you are right, assets are highly correlated now which brings up the question of how do you hedge? Even in a $6 million portfolio, you can't really go out and buy swaps. Treasuries tend to work, but as with anything else, how long before that stops working? You could use futures and options strategies, but then the fee needs to go up dramatically - and that would have to assume the model works in real life. That also has many legal and insurance obstacles. Also, for the individual adviser, the life of his business relies on the clients he picks up. He has to be selective, and especially avoid the clients with the typical male ego. But to be completely honest, most people I have personally met with over $10mil aren't looking for 20% yearly gains - they want 5-10% (at most) with as little risk as possible. So the real key comes down to how you manage that risk.

I think that's a mistake many traders make, not necessarily a bad thing. You try to make money everyday from the markets, and thus should have higher returns then the index. But a retirement portfolio is a much different story. I have a portfolio sitting in front of me that is well diversified (70/30 split with core and satellites and it's incredibly easy to model) and it's generated $1.7M more net worth (with the same volatility 11%) compared to the S&P 500 since 1972 - which includes several major draw downs. Obviously you won't be immune to risk when everything falls (2008). I'm not saying this is the only portfolio that works, but it's a simple example. So yes, it is possible to build a portfolio and adjust it accordingly as time goes on, that will stand the test of time (I have inflation data too if you'd like). This doesn't mean it's immune to risk, but if you are able to adjust then theoretically you should be okay. I would even go as far to say it will last longer than 99% of retail trading accounts over a 30 year period. Don't worry guys, I'm not jumping on the long term bandwagon, but I will stand my ground that a long term diversified portfolio does work. That doesn't mean trading is dead, but it means there is room for both.

I think this all depends on how what you consider "buy and hold." I think it's kind of a silly idea to buy something and expect it to go up in value forever, we all know that doesn't work. But that doesn't mean a well diversified portfolio doesn't work. Obviously, it depends on how you diversify that portfolio. This means, US equities, International equities, US/Int'l FI, Alternative (hedge funds, private equity, etc), commodities, etc. If you would like, I could go into more detail on this and provide those who care with PDFs (it's not my stuff, don't worry). I think one of the biggest problems with buy and hold is the risk you are exposed to in various market events (beyond 3 standard deviations). In those cases, you typically see a decades worth of gains wiped out in about a year. Also, a lot of portfolio managers are obsessed with keeping a constant allocation, and will adjust quarterly. This can be deadly, especially in markets like 2008. I also agree with Brownsfan that most mutual funds are junk. You have to be careful since many "advisors" are looking for fee's, and will get special deals on certain bonds to rack up more fees. This is all on top of the 100bp to manage the money. You can build an efficient portfolio with ETFs and keep the expenses very low. Edit: There has also been talk of MPT being "dead", and people moving towards "tactical asset allocation". But is this a fine line with trading?

:rofl: Good luck, I will enjoy reading following this thread. I'm kind of interested to see how you trade around these levels.

I can't delete this post, I asked a question then answered it myself.

IMO - this documentary will be better for traders, while the movie will just piss off the public and excite aspiring "traders" (I mean really, how many traders are running through the office and flying in helicopters?) Player omroep.nl It's in Dutch, but it's fairly easy to figure out how to make it play.

The movie looks retarded, but I will see it.

Absolutely I'm not here to say traders psychology is bad, I'm playing devils advocate to the idea - mainly because I see it get abused too often.

Brain location for fear of losing money pinpointed -- the amygdala Assuming of course, that you have had some traumatic experience losing money and now this can be akin to something like death, then the whole approach of a trading coach, journal, etc, won't work the vast majority of the time. The point I was trying to get across, and it was poorly worded, was that if you are in fact one of those people, why waste the money trying to trade a discretionary strategy profitably when the odds are stacked incredibly against you? I would admire you for it, but I wouldn't understand the point of throwing that money down the drain. (not you in particular, you is meant as the subject in this case who could be anyone dealing with this problem.) I believe that is where we disagree. Most traders aren't profitable, and it's not because they can't read charts and get a feel for the market, or because they move stops or have bad entries, and it's not because of their personal emotions that occur during trading. In my opinion.... it's because they ignore how complicated the market really is. They don't really take the time to realize the forces around them and how that's impacting the markets. When I said people focus too much on the "psychological jargon" that doesn't mean that we should not know ourselves. We should do that as a daily practice, not because we trade. Absolutely you should know when you're getting disgruntled and should walk away - you'd do the same thing at a poker table. But you wouldn't sit at a poker table dissecting yourself, you'd be looking for profitable niches at the table to exploit then adapting as participants come and go. There are some exceptional discretionary traders, and some of them post on this forum. I applaud everything they do, and I enjoy reading what they have to say. But for everyone else, they need to realize the huge disadvantage they have. You will be very hard pressed to find any institutions (with legit big money, not prop shops) who have traders making any discretionary trades - especially since everything can be done in the blink of an eye with computers. They have algorithms, and understand the silly mistakes many retail traders make, and exploit those opportunities before you even know what happen - then just toss it off as another stop loss. That doesn't mean you shouldn't trade, it just means you need to understand fully what's going on. Not just acknowledge it, but really understand it. All the journals and everything else are useless if you don't know why your trading plan is designed to fail from the beginning. If you're a retail trader and you truly believe the chance of losing every penny, whether at once or consistently over a long period of time because of "risk management" (and not have any real clue what risk is) and "understanding personal psychology", then you should really ask if you know what you're doing. I said earlier that TA is really like psychology of the entire market, and I still stand by that. You should know yourself, but not because of your trading plan, just because we should all do that regardless of profession. In order to win in this business you must take risk, and that risk is very real. You could fail, and you have to accept that. In my opinion, focusing too much on how you react in various situations instead of looking at the market and being open is a very big risk. I say all of this because I see too many newbie traders (including myself) come into this forum excited to learn. They are quickly directed to the whole psychology aspect, then they read Trading in the Zone, etc, and think trading is some big zen like focus on personal emotions game. It's not that at all, and they all leave 6 months later never to be heard of again. They can't figure out why they lose so much money, after 20 hour days studying VSA, Candles, Wyckoff, etc. Then they just think it's because they can't control their emotions or they're undisciplined. The problem was because they never really took the time to understand how the markets work - and they never took full appreciation of the risk. They had "risk management" but never really accepted it.

Well like blowflish said, you should know your strengths, weaknesses - what motivates you to trade, etc. I sometimes feel that maybe people spend too much time on this idea that you need to fully understand yourself to trade. That might be if your practice is entirely discretionary, but I also feel like you may be missing the big picture in the process.