# Tipping competition/buying indicators



## beaul (9 February 2010)

I am new here and am trying to understand the various strategies traders use.

Recently I came across the 2009 tipping competition for ASF and thought i would analyse at what stage you guys bought in and why.

I tried a number of different indicators on all those stocks at the approx buying position and found that two indicators really stood out. 
Bollinger bands and RSI.
Nearly ALL buying in all stocks was done just after the BB tightened.
It has been commented that BB is "late" information, so what instigated buying at that point.
The RSI was a little better at preceding buys but no other indicator even came close to matching those two.
Any comments,


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## explod (9 February 2010)

*Re: tipping comp/buying indicators*



beaul said:


> I am new here and am trying to understand the various strategies traders use.
> 
> Recently I came across the 2009 tipping competition for ASF and thought i would analyse at what stage you guys bought in and why.
> 
> ...




Indicatros are just that and are fallable, as we are too.   Indicators can show momentum well but there is no substitude for experience whihc unfortunately takes a long time.   

It seems that most new to trading believe that the right computer driven gizmo will be the answer it is not.

In trend following for example one needs to see a firm 10% rise (or should I say change) from a period of say six months sideways consolidation.  This is  a simplistic example but to paint the picture.   

No indicator will tell you exactly the right time to buy a stock.


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## beaul (9 February 2010)

Thats not what I am referring too.

90% of the winning trades in the competition had a contraction of the BB just before the shares were bought.
That is not a coincidence 
and I am not saying that the BB initiated those trades. 
But what did.? 
remember 90% of those very sucessfull trades?
I would like someone to explain it to me.
I am not looking for the magic bullet,I am trying to understand how those sucessfull trades were initiated, if it wasn't the BB (which generally only records after the fact).?


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## explod (9 February 2010)

Bollinger bands in my understanding are built on trailing averages.    A single trailing average will cut up the middle of them.

You may well have hit on a trigger that could also be explained by looking at swivel points, breaks in trend or resistance lines etc.  Have you checked other indicators ?


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## skyQuake (9 February 2010)

beaul said:


> Thats not what I am referring too.
> 
> 90% of the winning trades in the competition had a contraction of the BB just before the shares were bought.
> That is not a coincidence
> ...




Lucky guesses 

But by definition, those big moves must always be accompanied by constriction in BBs? The expansion is relative to the dead quiet stock before the move usually.


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## Wysiwyg (9 February 2010)

beaul said:


> Recently I came across the 2009 tipping competition for ASF and thought i would analyse at what stage you guys bought in and why.
> 
> Any comments,




I'm fairly sure the buy day was the same for every stock and doubt BB's would have been used in selection. No prize for winning so a stab in the dark would have been likely selection method.


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## beaul (9 February 2010)

"lucky guesses"
You must be joking.
The "buy" was not always followed by  big moves at all. Some trades took six months to mature.
I tried a number of other indicators such as MACD and volume + and they did not sure any reliable pattern at all. 
But RSI and Bollinger Bands were consistant in nearly all the sucessfull trades, as a buying indicator. (8 out of 9 if I remember correctly)
Another interesting point was that the trades that came out negative did NOT show any corellation with the BB at purchase.
Come on guys, I am sure there is a simple explanation and I would like to get a handle on it.


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## beaul (9 February 2010)

The buy days were months apart.
Most of the trades were very profitable so I doubt the "stab in the dark" 
Is it That easy??
I agree that BB would not have been used so what I am asking is why the correlation. (8 out of 9 stocks)


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## Wysiwyg (9 February 2010)

Must be a different competition if the buy days are months apart. Usually start at the start of year. End at end of year.


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## explod (9 February 2010)

I have watch lists of small spec stocks that I have researched who I think have potential and with some developmental news likely.    I watch these watch lists, some weekly some daily if I see a bit of movement.   My ideal will be a stock that has not been doing anything for up to 6 or 12 months, say it has been trading between 9 and 10 cents,  If I see a move to 11 or 12 cents with an increse in volume then I check it closer, if the buying looks stronger than seller lots and a number of other things I will put a small amount on, if it falls back by 5% with decreased volume from the 10% rise I am out, if it holds and breaks to 13 cents or more and amintains the liquidity/volume I increase my position.    Now this is just an ideal scenario bit of my modelling, there are many variations based on gut.

Does it strike a cord for you


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## beaul (9 February 2010)

thank you explod, I appreciate your help.

wysiwyg.
It was the annual sock picking competition 2009. ORE won, Bau second


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## skyQuake (9 February 2010)

beaul said:


> "lucky guesses"
> You must be joking.
> The "buy" was not always followed by  big moves at all. Some trades took six months to mature.
> I tried a number of other indicators such as MACD and volume + and they did not sure any reliable pattern at all.
> ...



 8 out of 9? Not statistically significant at all...

The main thing is probably the bounce from the March lows. Most speccie stocks were 10 baggers because they fell 95%+ from their old values, and were simply retracing part of their fall.
Interest that the neg trades didnt follow the BB pattern though


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## beaul (9 February 2010)

skyquake.
Not good enough try harder.
8 out of 9 is significant and other than RSI no other indicator came even close.
Look I don't know why this is showing up like it does. Trade buys were months apart, some matured quickly some took months.
I will do some more testing and see what I can find.


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## Wysiwyg (9 February 2010)

beaul said:


> I will do some more testing and see what I can find.



Pick five or so stocks now that match whatever you are seeing and make some gammon trades. Won't cost a cent and you will know for sure.


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## skyQuake (9 February 2010)

beaul said:


> skyquake.
> Not good enough try harder.
> 8 out of 9 is significant and other than RSI no other indicator came even close.
> Look I don't know why this is showing up like it does. Trade buys were months apart, some matured quickly some took months.
> I will do some more testing and see what I can find.




Tongue in cheek about the stat part, but seriously would you base any real strategy on a sample size of 9?
Maybe 900?
9000?
Try looking at before 2009 too, the results are a bit different.


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## Trembling Hand (9 February 2010)

Survivorship Bias. 

The RSI went nuts because the share price went nuts. The BB expanded because the Price range expanded. BB are a based on standard deviation, so as the price increases so to does the range and therefore the stand deviation represented by the BB.

It not hard to imagine that the RSI was low after 08 in most stocks. What you need to look for is how many other stocks out of the odd 2400 on the exchange had the same condition and failed.

You cannot reverse engineer a system looking at success without taking into account the failures.


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## beaul (10 February 2010)

Trembling Hand your explanation does not support the evidence available.

Of the 31 stock submitted in the 2009  competition, some traders bought in January 2009 and some in October 2009.  
26 traders made positive gains, 5 made losses. 
When I reverse engineered and  tested all 31 stocks using  7 different indicators, all 26 (who showed positive gains) bought their shares when the BB were "squeezed" ALL of them.
However the  5 losers did not.

I am sure you will agree that it is unlikely that all 26 positive traders used the BB as their trading signal, so what did they use.

I also found the RSI fitted into the same parameters (maybe both indicators are showing the same thing, lack of volatility.?

Or maybe they all made positive trades because they happened to buy when the volatility was low?

I don't accept your timing explanation, it does not fit. 
I believe there is more to it than that and I would like to know.

Look, I am only trying to learn.
I am not trying to "blow my own trumpet" or say this is new (which it is not)
There is plenty of references to BB and RSI predicting breakouts in the literature.
I would just like an  explanation, why you think in this case it appears to fit the evidence 100%.


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## Trembling Hand (10 February 2010)

beaul you are actually way off what I was talking about.

What I said to do is find ALL the stocks listed on the ASX that had the same conditions at the time and yet failed to register such gains only then will you know the failure rate of such patterns. What you are doing is in effect looking at the winners - that is survivorship bias. Which will always show indicators going nuts- in hindsight.

Secondly you need to then look under what conditions this pattern was successful. You could look at a simple 50 MA for the top 20 stocks from 2002 to 2007. at a guess, and clearly in hindsight, that would of been the only indicator you needed. But is that going to be applicable for 2010 to 2015??

There's your real problem. Its what I said in the other thread, context is what counts, are funds risk seeking or risk adverse?


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## beaul (10 February 2010)

Thank you, Trembling Hand.
I appreciate your comments, it all helps me to understand.
I mean that, I am not being a smart ****.


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## tech/a (10 February 2010)

T/h has nailed it
if you look back on any winning trade you'll notice indicator patterns.
The exact same patterns occur proud to a stock failing to be a winner.
To make it clear
Take 10stocks with exactly the same chart as the winning chart but 2 days before it appears to take off
What you'll find is perhsp a couple will end up home runs with charts that look easy to pick and others will just look crap.

Chrts are only as clear as crystal after a move.
Once you've looked at as many charts as we have you'll know what we mean


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## Boggo (11 February 2010)

As far as indicators are concerned, which came first, the chicken or the egg ??

Indicators show you where a stock is in relation to where it has been in a previous period in time.
Is it over sold, over bought or in a position that it has been in before with the possibility that it may do the same as it did the last time.

Below is a pic of the indicators that are the foundation of my Metastock daily scan.
The chart is AMP, I got a heads up yesterday and another today and may get a few more if it behaves.

Should I just ignore those alerts because they are generated by indicators ?


AMP Daily


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## beaul (11 February 2010)

I am confused by the comments by Trembling Hand and Tech A who are respected members of this forum.



> Take 10stocks with exactly the same chart as the winning chart but 2 days before it appears to take off
> What you'll find is perhsp a couple will end up home runs with charts that look easy to pick and others will just look crap.




If I am to accept their opinion, wouldn't that  also mean that ALL technical indicators are crap and that ALL the books on Technical trading are also crap.

I must admit my friend who has made $3.5 million out of trading (I see him once a week) does NOT believe in Technical Indicators.(he says it's all random)


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## Trembling Hand (11 February 2010)

beaul said:


> I must admit my friend who has made $3.5 million out of trading (I see him once a week) does NOT believe in Technical Indicators.(he says it's all random)




What years did he make his 3.5 mill? let me guess, been at it for years, 2002 comes along his already got 3-10 years experience and survived with a decent bank roll still intact then makes 3.5 mil in the following 02- 07 bull market. Roughly correct?

Will he repeat it in the next period.


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## beaul (11 February 2010)

Yes T/H you are correct. 
He did show me his earnings (from Shares) for 2009. 
Using $100,000 in capital he made a profit of $185.000.

Lately, since Jan 2010 he has lost $25,000, and now he has pulled out altogether.  
He does NOT believe in Technicals. 
He trades in exploration and penny stocks, sometimes  banks. 
He trades daily and does not use stop losses.
He has been trading for 10 years.


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## Trembling Hand (11 February 2010)

beaul said:


> Yes T/H you are correct.




Hahaha. 

That is how it goes. Three things,


Very underestimated, the size of your starting capital.
Surviving long enough to know what you do well and how to reapply it consistently without being taken out of the game, see point 1
The market conditions. Every dog has his day. A bull market is the making of many dogs. Good news is there is always a bull market somewhere. Even if its a being bullish on a bear market. Which takes you back to point 2. know what makes money and when.   

TA works and then again it doesn't. As is said around here from time to time, everything works and nothing works.

But the fundamentals of the game never change. You make money by taking care of the down side while exposing yourself to the maximum upside. In effect its no different to any other biz, 

Sum of wins > sum of losses + expenses = success.

TA is very good at that when you drop the idea that its predictive and you use it to focus on a framework to mange a trade, risk & reward.

It doesn't predict anything.


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## skyQuake (11 February 2010)

beaul said:


> Yes T/H you are correct.
> He did show me his earnings (from Shares) for 2009.
> Using $100,000 in capital he made a profit of $185.000.
> 
> ...




Did you question him why he used only 100k in capital? Why not $3.5 mil to make $6.5m? 
And why did he get out of the game after losing only 25k? (0.7% of total bankroll)
He may be a very conservative trader and/or has lived and learnt enough about money management.


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## tech/a (11 February 2010)

> It doesn't predict anything.




But our friend can clearly see that in those trades he's seen it HAS predicted the outcome.

We know he's wrong.

I would argue that *ANY* analysis fundamental/technical/hot tip you name it is *ONLY* anticipatory.
At the point at which the analysis is made you have anticipation.
You place or close your trade in anticipation of the conclusion YOUR analysis provides you.

Nothing more nothing less.See Boggo's charts.
Your anticipation of/from your analysis will be either shown as correct or incorrect.

I would also argue that your friend will also report that his $3.5mill came from only 20% or less of his trades.In other words he had some spectacular wins rather than many many good winners.


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## lukeaye (11 February 2010)

beaul said:


> Yes T/H you are correct.
> He did show me his earnings (from Shares) for 2009.
> Using $100,000 in capital he made a profit of $185.000.
> 
> ...




Lol at that.

What might be a good excersice for you, as i did when i used to think there was a secret winning forumla to be found in indicators, was to trade forex on a 1 min chart using moving average crosses as an indicator. It is widely used by a lot of "teachers" and "educators" of the markets to show how to make money. Looks great for teaching newbies because on the charts (which are historical) it shows great trading set-ups, get a demo account and learn the reality. The lag of these indicators kill you. Try it with BB?

Im not saying its not possible, but im yet to find a sucessful application for BB as a predictive tool. I don't know if others have done it, but i can't. And skyquake is right, 9 is not a conclusive sample. If you picked 9 trades from march lows, you would think your system was Robust. But take 9000 trades over the last 5 years and see how your strategy fares?


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## beaul (11 February 2010)

> Did you question him why he used only 100k in capital? Why not $3.5 mil to make $6.5m?
> And why did he get out of the game after losing only 25k? (0.7% of total bankroll)
> He may be a very conservative trader and/or has lived and learnt enough about money management.




I have known him for a while and known he was a successfull trader (not an investor) when I decided that trading from a boat while cruising was practical, I went an saw him for advise.

He is 63 years old and not in good health (stress?)
As i said, he has all the toys, including a rolls royce and he said the other day that, if ,he is not getting fun out of it, why do it, he doesn't need any more money.
He advised me NOT to trade at the moment, its too hard.

I have watched him pick trades, he uses basic information probably fundamentals (no technicals in use). 
It takes him 30 sec to decide whether a stock is worth a punt or not. 
He doesn't day trade.
He says he uses stop losses but I have noticed a couple of times he ignores them.
However he does generally get out quick if a stock turns and he does let his profits run.

He likes speckies, he says they are more fun. 
When  I asked him whether he always traded spec's or was that a recent thing, he said he has always traded spec's particularly exploratory mining stocks.
He is very open with me, he says anyone can do this. 
I am not so sure.



> I would also argue that your friend will also report that his $3.5mill came from only 20% or less of his trades.In other words he had some spectacular wins rather than many many good winners.




I am not sure about that. He always shows me his portfolio. A couple of months ago they were 90% green (up) now they are 80% red. 
However I think you are right his big wins are big wins.


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## Wysiwyg (11 February 2010)

beaul said:


> *He trades daily and does not use stop losses.*






beaul said:


> *He says he uses stop losses but I have noticed a couple of times he ignores them.*




I think you are unclear about your friends stop loss belief.


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## beaul (11 February 2010)

> I think you are unclear about your friends stop loss belief.




He really doesn't take trading all that seroiusly.
We were watching BLY one day and it was going down.
We had his son on Skype and his son said SELL dad. He turned to me and said, yes he is right I will sell BLY.
I went back a week later and he still had the BLY stock. (further down)
I said why didn't you sell BLY. He said I forgot?


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## nunthewiser (11 February 2010)

LOL i have no intelligent comment to add but sure am getting a giggle out of this thread


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## lukeaye (11 February 2010)

What did he do for a job before he retired, to accumulate his wealth?


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## beaul (11 February 2010)

He was laid off as part of a Qld Deparment restructuring. He had a salary of at best $40,000 a year. He got divorced and lived on a boat  for 8 years.
I believe he may have got a small amount from an inheratince  but he starting trading with very little to begin with.



> LOL i have no intelligent comment to add but sure am getting a giggle out of this thread.




I don't understand what there is to giggle about.
I am just explaining it, as I see it and as I have been told. 
I have seen his portfolio and his toys. 
He also owns four houses.
So what do you find to "giggle" about.


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## Naked shorts (13 February 2010)

Beau have a read of this:
http://traderfeed.blogspot.com/2009/12/lessons-for-developing-traders-what.html


> No, it's not chart formations, esoteric numerological series, or any of the multitudes of indicators that have been found to be non-correlated with future market movement.


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## jonojpsg (13 February 2010)

DOn't forget too that you are looking at 31 stocks picked by people who are looking to win a competition with them rather than necessarily putting a trade on, eg I backed OSH because I has been looking at them and knew that a year down the track closer to FID on PNG LNG would mean an improvement in SP, eg my tip was based on FA not TA.  

Also agree that the start of 09 would have been a squeeze point for many stocks would it not?


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## Knoxy (15 February 2010)

Don't know why you're busy discussing someone else, all hearsay and is either invading his privacy or he is all pride and likely to overstate. May have even used the A1 trader status to cover a lotto win, who knows? Wouldn't take anything out of it, freaks exist in any market.

I'm a much happier trader since I've realised nothing predicts what will happen next. Indicators can only show history and what is happening now. If I take a trade because the conditions look right then it turns out bad, so what? I was right to enter the trade because current action at the time was favourable, I wasn't predicting a 4th wave correction to a fib level or any other BS. 

After entry it just becomes a matter of how I manage the trade. Life becomes far less stressful when your trading isn't all about proiving yourself right then beating yourself up when not. Very 'Trading in the Zone' attitude but Douglas seems to have it right for me.

Indicators I'm happy with are those that show me what's happening now in a way that I understand. That's all they can do.


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