Consistently Losing

[daytrade999 10]

It is usually a balancing act in your method. The higher the RR, the lower the win% will be. There will be a point within any method where the higher the RR lowers the win% too much that it is not profitable anymore. Also a high RR needs to be realistic and not just set as high because you need it high if you know what I mean. What does you trade log say - How would you trades that you have taken be if you set your targets at N*risk? How would they be if instead you set them at an ATR multiple?

 

In my personal testing of every trading method I have explored over the last 9 years of full-time trading, taking 1/2 off at 1:1 and leaving the rest at BE is a bad idea. It sounds good, it feels good, and it produces worse results than if I had just taken the whole thing off at 1:1. The only exception to this was very short-term scalping in high volatility conditions. Your mileage may vary and that is what your trade log is for - test out the scenario against your real, but historical results.

 

With kind regards,

MK

 

So what would be a good exit plan to employ if the 1:1 method is not going to work in the long run? Should I use a trailing stop or just let it jot the profit target and get out of the whole position ? What do you do?

 

Cheers !

[MightyMouse 12]

I will bet that if you were to look closely at your results, you would find that you are at worst a break even trader but you get cut to death by commissions and spreads.

[MidKnight 12]

What I do is examine my trade log and test out various scenarios to find what is best with the compromise of what I can live with What is best may not be easy psychologically to deal with so you need to know yourself. I highly recommend at least 50'ish trades from the trade log or a couple months of data (whichever spans longest time) before starting to run the scenarios.

 

Its important to use your real-time trade data only rather than backtesting with hindsight bias. Your mind will play evil tricks on you if you do not.

 

This is the best advice I can give - sorry it is not easy to do. An in depth walk forward analysis is a crucial part of my trading, maybe it is helpful to you too.

 

With kind regards,

MK

[BlueHorseshoe 10]

Wow thank you to the part on correlations .

 

In its simplest form, the idea would be something like:

 

1) Overall market trend SPX is up.

2) Stock A gives a signal for long entry.

3) Stock B gives a signal for long entry.

4) You decide that a position in Stock A is a better option than a position in Stock B because you know that A is more closely correlated with SPX than B. If SPX continues to rise then A is more likely to follow it than B, which often behaves contrary to SPX.

 

I like to focus on small caps but I'm not sure if the spx is the right one or should I use the Russell ?

 

I can't answer that for you. You will need to find a methodical way to test various possibilities. For smallcaps, you've always got IWC - but is this really a useful filter, as it can't really be considered to represent the broader market?

If you can provide me with a way to learn more about the counter trend trade part in the above paragraph I would be really grateful for that.

 

It's really just extending your own idea of using the SPX as a trend filter. If the broader market is trending up, and so is the sector , and so is the stock in that sector that you want to buy, then a good time to buy the stock is often following a brief sell-off. The sell-off is counter to the broad market trend, the sector trend, and the stock's own trend - there is therefore generally a higher probability that the stock's counter trend reaction will be short-lived, and the prior uptrend will resume.

 

This is known as "buying a pullback" (and can work in reverse, shorting brief rallies in falling markets).

 

It is entirely plausible that any stock will have 3 consecutive down days without there being any real significance attached to this. It is less plausible that a stock will have 6 consecutive down days unless there is some serious weakness.

 

Now, suppose a stock is trending up, and you decide to buy it. You decide you will exit for a loss if the stock suffers 3 consecutive down days.

 

The stock sells off for 3 consecutive days, and you now take a loss . . .

 

I also want to buy the stock (its long term trend is up), but I have waited until it has suffered 3 consecutive down days. I now enter long, and like you I decide to exit if the stock suffers 3 consecutive down days.

 

The stock sells off for a further 3 days, and I exit for a loss.

 

Can you see the difference? At the point you exited, there may have been no real weakness in the stock (3 consecutive down days are fairly inconsequential); by the point that I exited, the stock had suffered 6 consecutive down days, suggesting more significant weakness.

 

If the stock rallied after your exit, you may rightly have thought that you merely got stopped out by a normal adverse excursion or "market noise". If the market rallied after my exit, I would be less likely to feel so - 6 consecutive down days seem like something other than just noise, whatever happens subsequently.

 

This is only one approach, with simplified and imaginary examples, however, and you shouldn't allow other people's thinking to overly influence your own methods . . .

If I am wrong in my timeframe selection please correct me.

 

You cannot be wrong on your timeframe selection - this is something for you to decide.

 

Best wishes,

 

BlueHorseshoe

[daytrade999 10]

I will bet that if you were to look closely at your results, you would find that you are at worst a break even trader but you get cut to death by commissions and spreads.

 

 

Haha.i do get eaten up by commissions and I m trying to limit that by not getting in and out so often and trying to widen my stops. But I'm not even sure if this is even a right method to do so. But you're right . Thanks for that .

[daytrade999 10]

Wow thank you to the part on correlations .

 

In its simplest form, the idea would be something like:

 

1) Overall market trend SPX is up.

2) Stock A gives a signal for long entry.

3) Stock B gives a signal for long entry.

4) You decide that a position in Stock A is a better option than a position in Stock B because you know that A is more closely correlated with SPX than B. If SPX continues to rise then A is more likely to follow it than B, which often behaves contrary to SPX.

 

I like to focus on small caps but I'm not sure if the spx is the right one or should I use the Russell ?

 

I can't answer that for you. You will need to find a methodical way to test various possibilities. For smallcaps, you've always got IWC - but is this really a useful filter, as it can't really be considered to represent the broader market?

If you can provide me with a way to learn more about the counter trend trade part in the above paragraph I would be really grateful for that.

 

It's really just extending your own idea of using the SPX as a trend filter. If the broader market is trending up, and so is the sector , and so is the stock in that sector that you want to buy, then a good time to buy the stock is often following a brief sell-off. The sell-off is counter to the broad market trend, the sector trend, and the stock's own trend - there is therefore generally a higher probability that the stock's counter trend reaction will be short-lived, and the prior uptrend will resume.

 

This is known as "buying a pullback" (and can work in reverse, shorting brief rallies in falling markets).

 

It is entirely plausible that any stock will have 3 consecutive down days without there being any real significance attached to this. It is less plausible that a stock will have 6 consecutive down days unless there is some serious weakness.

 

Now, suppose a stock is trending up, and you decide to buy it. You decide you will exit for a loss if the stock suffers 3 consecutive down days.

 

The stock sells off for 3 consecutive days, and you now take a loss . . .

 

I also want to buy the stock (its long term trend is up), but I have waited until it has suffered 3 consecutive down days. I now enter long, and like you I decide to exit if the stock suffers 3 consecutive down days.

 

The stock sells off for a further 3 days, and I exit for a loss.

 

Can you see the difference? At the point you exited, there may have been no real weakness in the stock (3 consecutive down days are fairly inconsequential); by the point that I exited, the stock had suffered 6 consecutive down days, suggesting more significant weakness.

 

If the stock rallied after your exit, you may rightly have thought that you merely got stopped out by a normal adverse excursion or "market noise". If the market rallied after my exit, I would be less likely to feel so - 6 consecutive down days seem like something other than just noise, whatever happens subsequently.

 

This is only one approach, with simplified and imaginary examples, however, and you shouldn't allow other people's thinking to overly influence your own methods . . .

If I am wrong in my timeframe selection please correct me.

 

You cannot be wrong on your timeframe selection - this is something for you to decide.

 

Best wishes,

 

BlueHorseshoe

 

 

Thank you for the concise explanations . I'm taking all these information for consideration and putting them l in my plan .

 

I know this is not the right question to ask, but is what I'm doing using the spx as a filter and all th right thing to trade stocks? I just want to get some insights how professionals do it and retail traders do it while making consistent profit. I just want to now if what I am doing is the right path.

 

Thanks again.

 

Cheers !!

[karoshiman 10]

 

...

In its simplest form, the idea would be something like:

 

1) Overall market trend SPX is up.

2) Stock A gives a signal for long entry.

3) Stock B gives a signal for long entry.

 

…

 

 

 

Now, the question is: What makes SPX go up?

[tradingwizzard 10]

Now, the question is: What makes SPX go up?

 

same like what it makes it go up

[raul 10]

I would like to add my two cents.

 

Trading e-mini futures like the ES and Russell (or Nasdaq and Dow) is simpler than following many stocks, and I believe in the end the commissions are lower. One problem is the minimum account balance necessary for swing trading, the daily margins are usually $500 USD (intraday trading) but the margin for an overnight contract is near $5K. An option would be to trade micro Gold (MGC) with a maintenance margin of $800.

 

Another option would be to trade Nadex weekly binary options which do not require a large account.

 

That takes care of what to trade.

 

In regards to technical analysis, support and resistance, volume, candle patterns (specially reversal patterns). an oscillator and a trend follower indicator. Understand Upthrusts and Springs (Wyckoff).

 

As some have mentioned, BEFORE you enter a trade, know why you are entering a trade and know what to do if things work out or don't, don't even go in if the reward is not larger than the risk, the larger the reward, the larger the stop loss has to be to give it room to work out (the chart will tell you, look at the previous low or high). Don't enter a trade if the stop loss is larger than what your account can handle, some say 1-3% of your account. Some say to not even move the stop loss until you are in profit.

[tradingwizzard 10]

I would like to add my two cents.

 

Trading e-mini futures like the ES and Russell (or Nasdaq and Dow) is simpler than following many stocks, and I believe in the end the commissions are lower. One problem is the minimum account balance necessary for swing trading, the daily margins are usually $500 USD (intraday trading) but the margin for an overnight contract is near $5K. An option would be to trade micro Gold (MGC) with a maintenance margin of $800.

 

Another option would be to trade Nadex weekly binary options which do not require a large account.

 

That takes care of what to trade.

 

In regards to technical analysis, support and resistance, volume, candle patterns (specially reversal patterns). an oscillator and a trend follower indicator. Understand Upthrusts and Springs (Wyckoff).

 

As some have mentioned, BEFORE you enter a trade, know why you are entering a trade and know what to do if things work out or don't, don't even go in if the reward is not larger than the risk, the larger the reward, the larger the stop loss has to be to give it room to work out (the chart will tell you, look at the previous low or high). Don't enter a trade if the stop loss is larger than what your account can handle, some say 1-3% of your account. Some say to not even move the stop loss until you are in profit.

 

hi Raul,

 

I always like when I see usefull posts and you have one big like from me for this one. I do have two questions if you don't mind:

 

1. Why trading indices (more than one?);

2. If you can share some reading material about Upthrusts and Springs that would be awesome.

 

TW

[BlueHorseshoe 10]

Thank you for the concise explanations . I'm taking all these information for consideration and putting them l in my plan .

 

I know this is not the right question to ask, but is what I'm doing using the spx as a filter and all th right thing to trade stocks? I just want to get some insights how professionals do it and retail traders do it while making consistent profit. I just want to now if what I am doing is the right path.

 

Thanks again.

 

Cheers !!

 

Hi Daytrade999,

 

I have never traded individual stocks (this is a minor lie - I briefly held BP as it began to recover from the deepwater horizon spillage), so I can't provide you with specific advice like this.

 

The general spirit of what I am trying to do, however, is to encourage you to generate lots of ideas and then methodically test them to see what works.

 

In principle, the idea of using SPX as a filter for the broader market trend seems sound. But it all depends on what you're doing and what you want to achieve.

 

Here is an example . . . I have taken a strategy that buys a pullback in the IWC microcap ETF when IWC is in an uptrend (defined as closing above its 100 period moving average). This is the first equity curve attached below.

 

Then I have prescribed that the strategy buys a pullback in the IWC microcap only when both IWC is in an uptrend AND the Spider ETF (broader market) is in an uptrend. This is the second equity curve below.

 

Applying the overall market trend filter in this instance improved the profit factor from 5.61 to 6.73.

 

But it is important to realise that this is just one example and should be treated as such.

 

Hope that helps - go experiment - and do so in an objective and structured fashion!

 

BlueHorseshoe

[raul 10]

Thanks TW.

 

I have a chart of the ES but I trade the Russell, it usually has a larger range and thus more profits, I have read some articles that show the Russell trends better, less whipsaw, as with everything it's not 100%. On the ES one can see the major turning points and I believe the Russell follows the ES because of the larger volume. Today was very choppy and that is why I like having a chart of Crude Oil and Copper on another screen. While watching paint dry on the indices, crude oil took off and did well over $1k per contract.

 

Unrelated to this thread, copper trends very well on Sunday afternoon (Pacific time) for reasons I don't understand (Asian markets?) so that's a trade to get a jump start on the week.

 

Regarding upthrusts and springs, they are retests of a low or high with partial penetration (higher high or low but not a close) on the second attempt and then a full reversal, I think the same patterns go by other names like 123 patterns, failed or fake breakouts (thus a reversal). The mechanics of why these patterns are repeated have been explained as price manipulation by the professionals, they will buy at the bottom or near the bottom and then start a campaign to push prices higher, with some large orders injected here and there to get it going until the crowds finally join in, the professionals will then sell off partially at the top, prices come down, more retail (amateur) trades join in not wanting to miss out on the bull run, prices go up again but there is no follow up from the professionals (where large volume and money comes in), then the professionals sell off their remaining holdings and the trend reverses to repeat the cycle going down (to trap and milk the retail traders).

 

Recognizing candles showing exhaustion selling or buying is key to identifying reversals - they have very large volume and large effort but poor results - candles with long wicks and small bodies with little progress in price gain - such as a shooting star or hammer. These candles are usually a few candles after a CCI peak (200 level) and well ahead of a MACD crossover. Better probability of a reversal if CCI and MACD are on the same extreme side of the scale (top or bottom). I should mention understanding CCI and MACD divergence also.

Nothing works 100% of the time though, and tops and bottoms are not always easy to pick so wait for confirmation of a reversal or be willing to try again if wrong (use stop loss), one time it took me 3 tries before I got it, so while MACD is the slowest confirmation, it may be the most conservative and safest.

 

I should note that there are large time periods (lunch hour) where trades should be avoided as the indicators are also not accurate due to low volume.

 

Springs and Upthrusts

 

I cannot recommend any books on Upthrusts and Springs as I have read many and it comes down to what I wrote. I purchased David Weis' book Trades About to Happen which explains Wyckoff in a more modern way. There is enough info on the web that it is not necessary to buy a book about these patterns.

Edited September 6, 2013 by raul
Mispelled last name of author

[tradingwizzard 10]

Thanks TW.

 

Unrelated to this thread, copper trends very well on Sunday afternoon (Pacific time) for reasons I don't understand (Asian markets?) so that's a trade to get a jump start on the week.

 

 

and there you go I did something I don't usually do......I gave your anwer another like as the info in your post I find it to be extremely useful.......now, I don't want to sound too picky or obvious, but I appreciate your answers and, most important, I appreciate your knowledge

 

Unrelated to this thread.........as you mentioned above.......will you make a thread regarding what you posted above?......I have a coupel of reasons for that:

 

1. I personally find it interesting, as I am a trader (Bob knows what it feels like :doh:....please bear with me here Bob... old sport).........

2. I would like to know if we can find an explanation for that........why it is happening?

 

TW

[daytrade999 10]

Hi Daytrade999,

 

I have never traded individual stocks (this is a minor lie - I briefly held BP as it began to recover from the deepwater horizon spillage), so I can't provide you with specific advice like this.

 

The general spirit of what I am trying to do, however, is to encourage you to generate lots of ideas and then methodically test them to see what works.

 

In principle, the idea of using SPX as a filter for the broader market trend seems sound. But it all depends on what you're doing and what you want to achieve.

 

Here is an example . . . I have taken a strategy that buys a pullback in the IWC microcap ETF when IWC is in an uptrend (defined as closing above its 100 period moving average). This is the first equity curve attached below.

 

Then I have prescribed that the strategy buys a pullback in the IWC microcap only when both IWC is in an uptrend AND the Spider ETF (broader market) is in an uptrend. This is the second equity curve below.

 

Applying the overall market trend filter in this instance improved the profit factor from 5.61 to 6.73.

 

But it is important to realise that this is just one example and should be treated as such.

 

Hope that helps - go experiment - and do so in an objective and structured fashion!

 

BlueHorseshoe

 

 

Thanks again for these wonderful advices,

 

I want to also know if you or any pros in here put trades on Fridays? Especially during times like this Friday with the news on air strikes and employment numbers and fed meeting comig up. With events like these do you guys lower your risk level and trade smaller or still trade the same as you usually do with say 1-2% of your capital range?

 

Thanks )

[steve46 12]

Now, the question is: What makes SPX go up?

 

Not a bad question....do you wonder why no one offer to answer?

 

First the technical answer....cash indices (like the SPX) are composed of stocks....the technical reason the SPX goes up or down is straightforward....during the trading day the current price of the SPX is the "weighted" (SPX is "market value" weighted) sum of the last prices of the individual stocks.

 

What you really want to know (I think) is what makes those stocks (the "market") move and there the answer is less straightforward.....it depends on the day....for example...ask yourself what made the market move on Friday.....earnings (nope)....economic reports (nope)....concerns over Russia declaring that it would defend Syria if the US or NATO decides to attack (bingo!!!)

 

Of course later in the day....after the dust has settled, look what happens, as "participants" say to themselves "oh...maybe the world isn't coming to an end, and I notice the stock I used to own is now cheaper....I'll buy it back at a discount"

 

So my answer to your question (to the real question you ask) is on a given day, if you want to know where the market is likely to go....you have to look at the big picture and ask yourself what factor or factors are likely to be pivotal or to have the most significant impact on participants...will it be news, economic reports, or earnings or some other factor....if you can figure that out prior to the open....you have a "real" edge over those who simply show up and watch moving averages wiggle....lol

Edited September 8, 2013 by steve46

[tradingwizzard 10]

For once I would like to see a thread called consistently winning

[MidKnight 12]

For once I would like to see a thread called consistently winning

 

....only if you want to see the largest and most deadly mass descent of haters in your thread ever :hmmmm: :fight:

[karoshiman 10]

Not a bad question....do you wonder why no one offer to answer?

 

First the technical answer....cash indices (like the SPX) are composed of stocks....the technical reason the SPX goes up or down is straightforward....during the trading day the current price of the SPX is the "weighted" (SPX is "market value" weighted) sum of the last prices of the individual stocks.

 

What you really want to know (I think) is what makes those stocks (the "market") move and there the answer is less straightforward.....it depends on the day....for example...ask yourself what made the market move on Friday.....earnings (nope)....economic reports (nope)....concerns over Russia declaring that it would defend Syria if the US or NATO decides to attack (bingo!!!)

 

Of course later in the day....after the dust has settled, look what happens, as "participants" say to themselves "oh...maybe the world isn't coming to an end, and I notice the stock I used to own is now cheaper....I'll buy it back at a discount"

 

So my answer to your question (to the real question you ask) is on a given day, if you want to know where the market is likely to go....you have to look at the big picture and ask yourself what factor or factors are likely to be pivotal or to have the most significant impact on participants...will it be news, economic reports, or earnings or some other factor....if you can figure that out prior to the open....you have a "real" edge over those who simply show up and watch moving averages wiggle....lol

 

 

Thank you, Steve!

 

I had the feeling no one understood my question the way it was meant.

 

I would have even been happy with the technical answer you gave as I was focusing on the "method" BlueHorseshoe suggested:

 

 

 

...

 

1) Overall market trend SPX is up.

2) Stock A gives a signal for long entry.

3) Stock B gives a signal for long entry.

 

...

 

 

The technical answer to my question has some implications for the 3 points quoted above...

[BlueHorseshoe 10]

Thanks again for these wonderful advices,

 

I want to also know if you or any pros in here put trades on Fridays? Especially during times like this Friday with the news on air strikes and employment numbers and fed meeting comig up. With events like these do you guys lower your risk level and trade smaller or still trade the same as you usually do with say 1-2% of your capital range?

 

Thanks )

 

I am not a "pro" - just a retail trader like yourself who treats trading a small account like an enjoyable and stimulating hobby.

 

I make no distinction between Friday and any other day of the week, but then I'm holding positions for longer than a day. It is totally up to you what special day-of-week considerations you may have - but you should make sure you have some quantitative research to support them - how have employment numbers or air strikes typically impacted upon your strategy's performance in the past?

 

The "2% of capital" rule comes from managed futures, and if you're trading un-leveraged stocks it's not entirely relevant. Do you think that Buffet only invests 2% and leaves the rest in cash? *

 

Say you use all your available capital tomorrow to buy shares of GLD. Now, is 100% of your account really at risk? Is the value of gold actually going to fall to zero at any time soon? The only scenarios in which this might happen are "end of the world" type scenarios in which the value of your shares will be the least of your worries.

 

Kind regards,

 

BlueHorseshoe

 

* I believe this is one of the reasons fund managers often use leveraged products - they have a fraction of their capital funding a postion but still get the same bang for their buck as with an un-leveraged asset, and meanwhile the rest sits in t-bills etc bolstering their returns by a few extra percent each year.

Edited September 8, 2013 by BlueHorseshoe

[BlueHorseshoe 10]

Thank you, Steve!

 

I had the feeling no one understood my question the way it was meant.

 

I would have even been happy with the technical answer you gave as I was focusing on the "method" BlueHorseshoe suggested:

 

 

The technical answer to my question has some implications for the 3 points quoted above...

 

If you wanted to get really smart (referring to my original example), rather than use SPX, you'd use 'KaroshimansSPX' - a bespoke index calculated by netting the price changes of A and B off the SPX.

 

Otherwise . . . Suppose A and SPX exhibit strong positive correlation at all times. A certain amount of the reason why SPX behaves as A behaves is because A is a component of SPX. Though it may be true, the information you have is therefore part tautology, and so not very useful!

 

You'd also want to know exactly how the index is weighted. What happens if you take the APPL component out of QQQ, for example?

 

If you want to discuss any of the other implications you have in mind, please go ahead.

 

Best wishes,

 

BlueHorseshoe

[daytrade999 10]

I am not a "pro" - just a retail trader like yourself who treats trading a small account like an enjoyable and stimulating hobby.

 

I make no distinction between Friday and any other day of the week, but then I'm holding positions for longer than a day. It is totally up to you what special day-of-week considerations you may have - but you should make sure you have some quantitative research to support them - how have employment numbers or air strikes typically impacted upon your strategy's performance in the past?

 

The "2% of capital" rule comes from managed futures, and if you're trading un-leveraged stocks it's not entirely relevant. Do you think that Buffet only invests 2% and leaves the rest in cash? *

 

Say you use all your available capital tomorrow to buy shares of GLD. Now, is 100% of your account really at risk? Is the value of gold actually going to fall to zero at any time soon? The only scenarios in which this might happen are "end of the world" type scenarios in which the value of your shares will be the least of your worries.

 

Kind regards,

 

BlueHorseshoe

 

* I believe this is one of the reasons fund managers often use leveraged products - they have a fraction of their capital funding a postion but still get the same bang for their buck as with an un-leveraged asset, and meanwhile the rest sits in t-bills etc bolstering their returns by a few extra percent each year.

 

Thanks for the reply,

 

If you don'tjnd can you explain to me about the leverage part in more detail or link me up so I can learn more about that specific topic? Because I'm really interested now that you brought that out . I want to know and understand how fund managers do their job and how they use other people's money to invest .

 

Thanks for your help .

[dom993 10]

Hi everyone,

 

I'm having problem with my trading and I want some help . I consider myself a swing trader and my method is following the trend and watching price action as confirmation for entry. My problem is I'm always losing . There are times when ny positions are in profit but I'm just not so sure when to move ny stops and then I get stopped out even when the trade was right. I try to cut losses by closing out positions that are not working the next day and Minot even sure if this is what people say cutting your losses short means. I need help people . Thanks .

 

 

And why is it that you think you should win at this game? What's your trading edge? None, as far as you have described. So you are losing on average on commissions & slippage, plus likely psychological errors.

 

If you want to win (on average, in the long run) in a trading endeavor, you have to identify a trading methodology with enough of an edge to overcome commissions, slippage, execution errors, and then some.

 

It is a long road to become profitable ... paved with hard work, and that hard work is (should be) statistical analysis & backtesting.

 

Can you glean from forums some good ideas? Yes, but you'll have to backtest each one of these ideas to find out which really work, and which don't.

 

If you don't want to do the hard work, but have risk capital for trading, then your best bet is to find a CTA, or hedge fund, to trade your risk capital.

 

I wish you the best.

[karoshiman 10]

If you wanted to get really smart (referring to my original example), rather than use SPX, you'd use 'KaroshimansSPX' - a bespoke index calculated by netting the price changes of A and B off the SPX.

 

Otherwise . . . Suppose A and SPX exhibit strong positive correlation at all times. A certain amount of the reason why SPX behaves as A behaves is because A is a component of SPX. Though it may be true, the information you have is therefore part tautology, and so not very useful!

 

You'd also want to know exactly how the index is weighted. What happens if you take the APPL component out of QQQ, for example?

 

If you want to discuss any of the other implications you have in mind, please go ahead.

 

Best wishes,

 

BlueHorseshoe

 

 

BlueHorseshoe, I'm sorry, if you were offended by my post as this was not my intention. It was a hint for daytrade999 to think about the logic for a trading approach before applying it as you just gave an outline of an idea. Maybe I should have directly gave my ideas on this and not just ask a question… my bad. The question was meant to stimulate to think about the logic...

 

If stocks A and B are part of SPX and SPX trended up, didn't A and B participate in the trend if we see a long signal in those stocks? If so, that would mean that we would buy stocks that are not considered very attractive as the market clearly favored other stocks (those that made SPX move up). Hence, the potential for A and B are probably limited (low beta).

 

If A and B participated in the trend of SPX, do we wait for a retracement of A and B (and SPX)? If we see a retracement, how are we "sure" it's a retracement and not a reversal of SPX? etc. etc. etc.

 

Although, I'm a big fan of simple approaches, the logic of any approach has to be understood before applying it. That's what you, daytrade999, have to think about when putting together a trading approach.

Edited September 9, 2013 by karoshiman

[karoshiman 10]

 

...

 

The "2% of capital" rule comes from managed futures, and if you're trading un-leveraged stocks it's not entirely relevant. Do you think that Buffet only invests 2% and leaves the rest in cash? *

 

Say you use all your available capital tomorrow to buy shares of GLD. Now, is 100% of your account really at risk? Is the value of gold actually going to fall to zero at any time soon? The only scenarios in which this might happen are "end of the world" type scenarios in which the value of your shares will be the least of your worries.

 

…

 

 

BlueHorseshoe, you have misunderstood the "2% rule". It relates to the losses that can be incurred by one trade and NOT the capital or margin "invested". It's the same for futures as it is for stocks or the GLD example you give.

[BlueHorseshoe 10]

Thanks for the reply,

 

If you don'tjnd can you explain to me about the leverage part in more detail or link me up so I can learn more about that specific topic? Because I'm really interested now that you brought that out . I want to know and understand how fund managers do their job and how they use other people's money to invest .

 

Thanks for your help .

 

Hello,

 

I'd rather not - I'm no expert on any of this. If you hang around long enough you'll pick things like this up. There are regular posters here who have managed funds of considerable size and worked "in the industry". They would be able to give you far more useful and reliable information than I would.

 

There are also books that touch on this kind of thing - anyone any good suggestion?

 

BlueHorseshoe