# Set up and trigger accuracy



## It's Snake Pliskin (14 July 2006)

How important is setting up a trade and pulling the trigger for you? How much emphasis is placed on accuracy?

There will be some that state managing the trade and exits are important, but...

Realist will say that buying cheap and cheaper is best, so I expect no comment from him. (thanks)  

For those mechanical boys and girls, how accurate is mechanical trading? Are your buys forcing you to sell? Can it match discretionary entries? What filters help at the entry stage?

Analysing the market is not an exact science, so I contend that discretionary entries make trading work well, providing all elements of a trade are managed without bias over the other elements, particularly exits. 

I`m interested in your thoughts.  Also the discretionary gang as well.


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## tech/a (14 July 2006)

Snake.

For me its purely numbers.
I know that when I have the funds I can take ANY entry signalled by the method and I will have on average a 35% win rate.
My return is 8 times risk on average.
My average Hold will be a year
I could have up to 9 straight losses (4 is the most in 4 yrs)

I have 2 eyeball filters (Montecarlo analysis tells me that the Deviation from best to worst portfolio result is quite a bit.(Over 50000 portfolio tests there was not 1 losing portfolio over the 8 yr test period.))

(1) The trade must be in an obvious up trend 
OR obviously breaking a longterm dowmtrend.
(2) The trade must be in a stock which isnt longterm ranging unless the trigger is a breakout from that resistance.

Accuracy I cannot judge at the time of entry so it would only become an issue if I had 9 straight losses.




> For those mechanical boys and girls, how accurate is mechanical trading?




If your talking accuracy of each component---this is the wrong way to veiw mechanical trading.

If you veiw it from the *Blueprint* Of trading numbers about the methodology which we can tabulate then for the 3 mechanical methods I use in the last 4 yrs its proven to be 100% accurate.
All are designed to trade long and all do very well in bull markets.

There is good arguement and initial testing seems to cionfirm that a switch to turn the method off during less bullish times could be benificial to the methods. That switch could be an index or an equity curve or advancers/decliners--- Testing is still being carried out and when I get back I'm employing Kaveman to help using Amibroker. Testing thoroughly takes a great deal of time and I just dont have it.



> Analysing the market is not an exact science, so I contend that discretionary entries make trading work well, providing all elements of a trade are managed without bias over the other elements, particularly exits.




The problem is that all discretionary trades are a singular entity.
You simply dont know the numbers.You dont know winners v losers,nor maximum run of losers,nor average win to average loss. With discretionary trading there is no blueprint.

Ypou could trade it for x trades or X months or years and record these results but the disadvantage is that it will take x time to get the numbers and if the discretionary element is mostly different each trade will mean nothing.

Snake I'm off for 5 weeks as of Midday so sorry I cant discuss further.
See you then.


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## It's Snake Pliskin (14 July 2006)

tech/a said:
			
		

> Snake.
> 
> For me its purely numbers.
> I know that when I have the funds I can take ANY entry signalled by the method and I will have on average a 35% win rate.
> ...




Thanks Tech/a.

So a run of more than 9 losses may constitue a failing of the numbers/system.

Enjoy the trip!


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## Bobby (14 July 2006)

Snake Pliskin said:
			
		

> Analysing the market is not an exact science, so I contend that discretionary entries make trading work well, providing all elements of a trade are managed without bias over the other elements, particularly exits.
> 
> I`m interested in your thoughts.  Also the discretionary gang as well.




Hullo Snake,
As every trade has a trilateral possibility of direction, the discretionary entry may well do better then the spoon fed rabbits approach  : 

I'm working on the evaluation of a discretionary entry based on ebbs & flows of just pure sentiment.
I've found it possible to draw a primitive formula to measure this.
In doing so by specifying values, a hypotheses of repeatable serendipity of feel is identifiable.

The expectation of such could be tainted by ones own hyperbole?

Have Fun
Bob.


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## It's Snake Pliskin (14 July 2006)

> By Bobby
> Hullo Snake,
> As every trade has a trilateral possibility of direction, the discretionary entry may well do better then the spoon fed rabbits approach  :




An interesting way of putting it.   



> I'm working on the evaluation of a discretionary entry based on ebbs & flows of just pure sentiment.




Interesting stuff. 



> I've found it possible to draw a primitive formula to measure this.
> In doing so by specifying values, a hypotheses of repeatable serendipity of feel is identifiable.




Sounds like Thomas Edison versus Bill Gates.  
Sounds good. 



> The expectation of such could be tainted by ones own hyperbole?




Yes.

Care to elaborate Bob? Pretty please with sugar on top


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## mit (14 July 2006)

Snake,

I trade mechanically mostly. My system gives me a buy signal but I don't take it as buying tomorrow but just here is a list of buys.  

So for the actual entry I like to finese the entry as every penny counts. I did a short study at intraday buying/selling and found that it is usually best to buy just before 4 so I tend to hold of to buy until then. If it is a market big up day I'll tend not to buy. If it is a market down day. I might buy if one of my signals is actually up or flat. I trade around 100 stocks a year so having a good entry can make an excellent contribution to the bottom line.


I'll also try not to buy more than one stock in a day.


MIT


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## It's Snake Pliskin (14 July 2006)

mit said:
			
		

> Snake,
> 
> I trade mechanically mostly. My system gives me a buy signal but I don't take it as buying tomorrow but just here is a list of buys.
> 
> ...




Hey Mit,

Thanks for your info.

So you might have a time lag between system confirmation and actual buying. Does that mean your buying from that point is discretionary in order to be as accurate as possible? 

If that is the case do you percieve human judgement to be more accurate than system fed information, or numbers as Tech says?


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## mit (14 July 2006)

Yes there is a lag although I trade pretty quickly if I have cash and a signal. Again I trade over 100 times a year. I hold for a maximum of 49 days (dividend system). I use volatility based position sizing and  if I could in theory get an extra 1/2 ATR on every entry it would make a huge difference to the bottom line. Over time I think you get a feeling for the ebb and flow of the day to know when or whether to buy (I'm actually a frustrated day-trader   )

I think Linda Raschke had a similar comment that she puts her outperformance on managing the entry day and exit day.

MIT


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## Bobby (14 July 2006)

Snake Pliskin said:
			
		

> Interesting stuff. Care to elaborate Bob? Pretty please with sugar on top





Ok Snake you got me with the sugar  

Its early days but what I'm trying to do is segment sentiment from feelings to generate a distribtion of design functions so as to form a theorem that can be tested.
This being only useful in short time intervals.

Bob.


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## MichaelD (14 July 2006)

Snake Pliskin said:
			
		

> For those mechanical boys and girls, how accurate is mechanical trading? Are your buys forcing you to sell? Can it match discretionary entries? What filters help at the entry stage?



My current answer to this is as follows;

Currently I believe that almost all discretionary entry techniques harm system performance and that near random entry generally does better. It is my contention that inherent in discretionary entry is the fallacy that you are able to predict future price outperformance based on past price outperformance.

I have to date tested and traded the following "popular" entry techniques;

1. Buying outperforming stocks in outperforming sectors.
2. Price/volume breakouts.
3. Buying shares only in long term uptrend (12 months)

All of these methodologies performed profitably, but worse than my current entry strategy which is to buy with the following filters only;

(ASX300 universe)
a. Close above long term moving average
b. Close>Open
c. A bullish 3 candlestick formation of higher highs

This system has several interesting characteristics which would surprise some TAs;
1. It will happily buy all the way down a bear market/crash (just different stocks - the ones resisting the downtrend is where the money eventually ends up).
2. It is fully invested all the time


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## mit (14 July 2006)

Michael,

Interesting, what are your exits? Is it a long or short term system?

MIT


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## MichaelD (14 July 2006)

mit said:
			
		

> Interesting, what are your exits? Is it a long or short term system?



The exit is simply a 6.5 ATR trailing stop. It is a long term system (as you'd expect from the wide exit). Average winning trade hold time is about 300 days.


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## happytrader (16 July 2006)

Although I rely on a fairly mechanical system more often than not I have  received insights when things don't look right and to get out. I used to find it really annoying because here I was trying to go with the signals. I have since learnt this is likely to be the reticular activation system at work and not to ignore it. After all we all take in information consciously and unconsciously and for good reason. 

Cheers
Happytrader


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## blinkybill (16 July 2006)

mit said:
			
		

> Yes there is a lag although I trade pretty quickly if I have cash and a signal. Again I trade over 100 times a year. I hold for a maximum of 49 days (dividend system). I use volatility based position sizing and  if I could in theory get an extra 1/2 ATR on every entry it would make a huge difference to the bottom line. Over time I think you get a feeling for the ebb and flow of the day to know when or whether to buy (I'm actually a frustrated day-trader   )
> 
> I think Linda Raschke had a similar comment that she puts her outperformance on managing the entry day and exit day.
> 
> MIT




mit

i assume you realise the 45 day rule for divs only comes into play if you buy within 45 days before an ex-div date and you want to receive the next div. otherwise the 45 day rule has no affect on how long you should hold a parcel of shares.


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## BSD (16 July 2006)

mit said:
			
		

> I use volatility based position sizing
> 
> MIT




MIT, a couple of questions. 

Where possible (ie an ETO market exists), do you use implied volatility or simply stick to historic? Have you tested this?

Do you adjust annualised vol numbers to reflect your shorter average hold?

Has the recent large uptick in vol seen your positions reduced somewhat? To what extent (rough guess) would you say you lines have been reduced?

How prescriptive are you in this? Do you have a 'wiggle factor' ? 


I trade a lot of small-midcaps and without some faith (which I have), using your strategy would have been forced to seriously reduce buy sizes and holdings in the face of the immense increase in trailing short term volatility. 


From my position, I strongly agree with discretionary entry of positions, in most stocks ex-Top 50.

In my view, the success of this entry will depend on the liquidity of the stock in question, your parcel size and the amount of time you have available to monitor the trading and working on getting your line set.


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## It's Snake Pliskin (16 July 2006)

Bobby said:
			
		

> Ok Snake you got me with the sugar
> 
> Its early days but what I'm trying to do is segment sentiment from feelings to generate a distribtion of design functions so as to form a theorem that can be tested.
> This being only useful in short time intervals.
> ...




Bobby,

...sentiment from feelings? :guitar:


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## Bobby (16 July 2006)

Snake Pliskin said:
			
		

> Bobby,
> 
> ...sentiment from feelings? :guitar:




Yep it sounds funny, could say .... segment sentiment from the more commonly used generating functions being (1) Gamma & beta (2) Binomial coefficients & hypergeometric (3) Indicator ....... to generate............. 

  :nuts: 

Bob.


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## mit (17 July 2006)

BSD said:
			
		

> MIT, a couple of questions.
> 
> Where possible (ie an ETO market exists), do you use implied volatility or simply stick to historic? Have you tested this?
> 
> ...




Sorry I meant volatility in a general sense rather than the technical version of volatility. All this means is that I put my stop a certain number of ATRs behind the buy point so that the loss to stop is always 2% of my capital. This is opposed to those who buy a standard dollar amount for a share. (ATR is just the moving average of the "True Range" which is the amount the share moves in a day). Nothing to do with ETOs. When I have time to do some paper trading I'll start looking at these. For now I'm a boring old share trader.

Backtesting shows that it makes a large difference to the system drawdown and thus the shape of the equity curve. 

Although you do have a point. When I actually size my trade I look at the ATR line for the last six months or so and may reduce position size if I think the current volatility looks like it has just hit a temporary low, I'll never do the opposite, as I'm leveraged, I'll always trade profit for a smaller drawdown.

MIT


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## It's Snake Pliskin (17 August 2006)

> Currently I believe that almost all discretionary entry techniques harm system performance and that near random entry generally does better. It is my contention that inherent in discretionary entry is the fallacy that you are able to predict future price outperformance based on past price outperformance.




Michael,

I have pondered your post and find the following curious:

What is near random  in your interpretation?
Why does near random generally do better?
Is prediction the only part of the fallacy?


Some thoughts by  D. R. Barton, Jr. Van Tharp Institute



> Is your entry technique consistent with your strategy’s market concept?  When I speak of your system’s “market concept,” I’m talking about the beliefs upon which your strategy is built.






> Do you have to get in now?  This is a great question for folks who follow long-term newsletter recommendations and those who take trades based on fundamental data.  For those trading on a shorter time frame or following a technical system, in most cases, you should take entries as they occur.




Cheers
Snake


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## Freeballinginawetsuit (17 August 2006)

Thought I might add my two bits worth to this thread, I am a new member to this site so probably not up to speed with you guys.
 Over the last few months I have been adjusting my trading rules to the current market situation.

Previously I had a bullish bias and would enter stocks I had charted focusing on MACD, set my trigger just above volume confirmation and move up my stop/loss to my pre-determined POR. 

In the current market I have been closely watching the stocks that have strong initial breakout after a market turndown, or even breakout on mildly bad market days.I then chart their POR and enter only in a bad market, ride them through the channel and above their last spike. Even when momentum is positive I exit at this point. The next time I enter this stock is when the SP falls just above the point of resistance of the prevoius channel and I repeat the process.

I have done this on 4 occassions with KZL in the last 3 months, 6 occassions with PDN, 6 occasions with ZFX, 4 occasions with SMY, 3 occasions with BSG 
2 occasions with BPT and 3 occasions with ROC. Average return has been approx 15% per trade. I only do this with sound fundamentals stock.

In the current unpredictable volitile market this is the only entry/exit strategy that I feel confident in and free's up cash for the envitable next down spike. Its crude, basic and not all that technical but its low risk and has certainly worked since May.


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## Bobby (17 August 2006)

Freeballinginawetsuit said:
			
		

> Thought I might add my two bits worth to this thread, I am a new member to this site so probably not up to speed with you guys.
> Over the last few months I have been adjusting my trading rules to the current market situation.
> 
> Previously I had a bullish bias and would enter stocks I had charted focusing on MACD, set my trigger just above volume confirmation and move up my stop/loss to my pre-determined POR.
> ...



 Interesting stuff !

I like freeballing in the summer with just shorts   

Bob.


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## It's Snake Pliskin (17 August 2006)

Bobby said:
			
		

> Interesting stuff !
> 
> I like freeballing in the summer with just shorts
> 
> Bob.




I`m freeballing now as I sit on my chair.


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## MichaelD (17 August 2006)

Snake Pliskin said:
			
		

> Michael,
> 
> I have pondered your post and find the following curious:
> 
> ...



When I started backtesting systems, the initial entry condition was quite complex. I found, however, that as I bolted on more and more entry conditions in an attempt to improve things, system performance in fact decreased (worse drawdown and expectancy).

Just for kicks one day, I replaced the complex entry condition with random entry (Entry Trigger = 1). System performance suddenly improved dramatically.

Even since then, my "gold standard" for comparison of any system is random entry. If a condition can improve results over random entry, it is worthwhile. So far, I have only found 3 conditions on entry improve performance over random; CLOSE>Long Term Moving Average, enter on a white candle, and a three candle continuation pattern. Basically - price going up both long term and short term = BUY.


Pondering on this brings me to the following conclusions;
1. Indicators are a waste of time because they are all merely abstractions of PRICE and thus provide no additional information above and beyond that inherent in PRICE.
2. PRICE is all that matters.
3. The exit makes the money by biasing the system towards overperformers.
4. A price which is going up is more likely to go up than one going down. That is the only prediction which has testable validity.


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## It's Snake Pliskin (17 August 2006)

MichaelD said:
			
		

> Pondering on this brings me to the following conclusions;
> 1. Indicators are a waste of time because they are all merely abstractions of PRICE and thus provide no additional information above and beyond that inherent in PRICE.
> 2. PRICE is all that matters.
> 3. The exit makes the money by biasing the system towards overperformers.
> 4. A price which is going up is more likely to go up than one going down. That is the only prediction which has testable validity.




4. Momentum.


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## Freeballinginawetsuit (18 August 2006)

MichaelD said:
			
		

> When I started backtesting systems, the initial entry condition was quite complex. I found, however, that as I bolted on more and more entry conditions in an attempt to improve things, system performance in fact decreased (worse drawdown and expectancy).
> 
> Just for kicks one day, I replaced the complex entry condition with random entry (Entry Trigger = 1). System performance suddenly improved dramatically.
> 
> ...




I disagree, A price going up in the current market conditions is not likely to keep going up past previous resistance,the SP will mildly pass it and fall midway to the next channel, 'guaranteed within the week'.

I pointed out my entry points on this thread yesterday. Yesterday I purchased ROC at a channel bottom and stuck with it today as it finished the day mid channel. BSG I didn't purchase yesterday as it was mid channel, Today it spiked early (its a strong breakout stock and the market was good). I posted my buy at mid present channel predicting it would end the day mid next channel. Shortly after some silly punter dumped his stock on short profit and swallowed me up at SP $2.16, the SP then turned bullish all the way to $2.45. I dumped at $ 2.42 a point which was the same as its previous POR. Bottom channel purchases today were SBM (very nice) & PNA. Holds till tommorow were KZL & ROC ( ROC channel was a welcome suprise and I dumped 70k into it on Wednesday). 

If you stick to the crude basics, stick with the same stocks and enter only at the bottom POR on a bad market (not early) and exit at the top of the channel (don't get tempted to stay in). You end up trading the same stocks, multiple times for at least a 20% gain each month for minimal risk. The only problem is that you might be locked out if the market goes on a run. Tomorrow might be the day this happens, hopefully.


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## hardmoney (18 August 2006)

I agree with Michael.Price and volume are the key.Trends do work.
Here is an example of one of the long term (weekly charts) trend following mechanical systems that I trade.51% CAGR and 8% drawdown.
To answer Snakes original question, yeah I say that mechanical trading works, it does for me anyhow.

TradeSim random run over ten years of data to present -:

Trade Parameters
(System VolP Realtive Buy )

Trade Parameters
Initial Capital:                                            $50,000.00
Portfolio Limit:                                               100.00%
Maximum number of open positions:                                  100
Position Size Model:                                Fixed Percent Risk
Percentage of capital risked per trade:                          1.50%
Position size limit:                                            15.00%
Portfolio Heat:                                                100.00%
Pyramid profits:                                                   Yes
Transaction cost (Trade Entry):                                  $0.00
Transaction cost (Trade Exit):                                   $0.00
Margin Requirement:                                            100.00%


Detailed Report
(System VolP Realtive Buy )

Simulation Summary
Simulation Date:                                             8/18/2006
Simulation Time:                                            9:50:27 AM
Simulation Duration:                                      1.10 seconds

Trade Summary
Earliest Entry Date in the Trade Database:                   1/10/1997
Latest Entry Date in the Trade Database:                      7/7/2006
Earliest Exit Date in the Trade Database:                    1/24/1997
Latest Exit Date in the Trade Database:                      8/11/2006

Start Trade Entry Date:                                      1/10/1997
Stop Trade Entry Date:                                        7/7/2006
First Entry Date:                                            1/10/1997
Last Entry Date:                                              7/7/2006
First Exit Date:                                             1/24/1997
Last Exit Date:                                              8/11/2006

Total Trading duration:                                      3500 days

Profit Summary
Profit Status:                                              PROFITABLE
Starting Capital:                                           $50,000.00
Finishing Capital:                                       $2,625,632.19
Maximum Equity/(Date):                       $2,625,688.69 (7/28/2006)
Minimum Equity/(Date):                          ($3,416.19) (5/9/1997)
Gross Trade Profit:                           $3,131,230.97 (6262.46%)
Gross Trade Loss:                            ($555,598.78) (-1111.20%)
Total Net Profit:                             $2,575,632.19 (5151.26%)
Average Profit per Trade:                                   $13,484.99
Profit Factor:                                                  5.6358
Profit Index:                                                   82.26%
Total Transaction Cost:                                          $0.00
Total Slippage:                                                  $0.00
Daily Compound Interest Rate:                                  0.1132%
*Annualized Compound Interest Rate:                            51.1468%*

Trade Statistics
Trades Processed:                                                  736
Trades Taken:                                                      191
Partial Trades Taken:                                                0
Trades Rejected:                                                   545
Winning Trades:                                            92 (48.17%)
Losing Trades:                                             99 (51.83%)
Breakeven Trades:                                            0 (0.00%)

Normal Exit Trades:                                      191 (100.00%)
Delayed Normal Exit Trades:                                  0 (0.00%)
Open Trades:                                                 0 (0.00%)
Protective Stop Exit Trades:                                 0 (0.00%)
Time Stop Exit Trades:                                       0 (0.00%)
Profit Stop Exit Trades:                                     0 (0.00%)

Largest Winning Trade/(Date):                 $236,869.34 (11/12/2004)
Largest Losing Trade/(Date):                 ($43,882.75) (12/10/2004)
Average Winning Trade:                                      $34,035.12
Average Losing Trade:                                      ($5,612.11)
*Average Win/Average Loss:                                       6.0646*

Trade Duration Statistics
(All Trades)
Maximum Trade Duration:                                    1246 (days)
Minimum Trade Duration:                                       7 (days)
Average Trade Duration:                                     155 (days)
(Winning Trades)
Maximum Trade Duration:                                    1246 (days)
Minimum Trade Duration:                                      56 (days)
Average Trade Duration:                                     247 (days)
(Losing Trades)
Maximum Trade Duration:                                     336 (days)
Minimum Trade Duration:                                       7 (days)
Average Trade Duration:                                      68 (days)

Consecutive Trade Statistics
Maximum consecutive winning trades:                                  6
Maximum consecutive losing trades:                                   9
Average consecutive winning trades:                               2.14
Average consecutive losing trades:                                2.25

Trade Expectation Statistics
Normalized Expectation per dollar risked:                      $4.9000
Maximum Reward/Risk ratio:                                      303.36
Minimum Reward/Risk ratio:                                       -2.97
Average Positive Reward/Risk ratio:                              10.88
Average Negative Reward/Risk ratio:                              -0.75

Relative Drawdown
Maximum Dollar Drawdown/(Date):                 $79,367.92 (5/26/2006)
Maximum Percentage Drawdown/(Date):                 8.1650% (5/7/1999)

Absolute (Peak-to-Valley) Dollar Drawdown
Maximum Dollar Drawdown:                          $79,367.92 (3.5610%)
Capital Peak/(Date):                         $2,229,071.51 (5/26/2006)
Capital Valley/(Date):                       $2,149,703.59 (5/26/2006)

Absolute (Peak-to-Valley) Percent Drawdown
*Maximum Percentage Drawdown:                       8.1650% ($4,904.72)*
Capital Peak/(Date):                            $60,068.65 (6/26/1998)
Capital Valley/(Date):                           $55,163.93 (5/7/1999)


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## MichaelD (18 August 2006)

Freeballinginawetsuit said:
			
		

> I disagree, A price going up in the current market conditions is not likely to keep going up past previous resistance,the SP will mildly pass it and fall midway to the next channel, 'guaranteed within the week'.



My current real portfolio begs to differ with this assertion. 9 out of 19 have made highs well beyond their May 2006 peaks within the last week or two. The other 10 are range trading. There are still sustained trends in the market, just less of them than there were a few months ago.

NB: There is NOTHING in the above post that should be construed as criticism of your trading methodology.


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## Freeballinginawetsuit (18 August 2006)

Which stocks are range trading?. A more important questions is what stocks are at highs, what daily volume do they trade (I wouldnt hold greater than 5% of daily turnover), their market cap and are they a speccie. Finally, are they in the materials sector, thats the only sector I trade.

Cheers,
Mark


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## MichaelD (19 August 2006)

Freeballinginawetsuit said:
			
		

> Which stocks are range trading?. A more important questions is what stocks are at highs, what daily volume do they trade (I wouldnt hold greater than 5% of daily turnover), their market cap and are they a speccie. Finally, are they in the materials sector, thats the only sector I trade.



My universe is the ASX300, so volumes are generally orders of magnitude above my position sizes and none are speccies.

The Licensed Property Trusts in my portfolio are pulling well above their weight at present whereas Consumer Discretionary are ranging. The two oilers in there are looking good as is one Materials stock.

However, I don't enter using top down analysis - what's in the portfolio at the moment is there simply because the stop loss has selected for them.


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## nizar (19 August 2006)

hardmoney said:
			
		

> I agree with Michael.Price and volume are the key.Trends do work.
> Here is an example of one of the long term (weekly charts) trend following mechanical systems that I trade.51% CAGR and 8% drawdown.
> To answer Snakes original question, yeah I say that mechanical trading works, it does for me anyhow.
> 
> ...




Hardmoney thats a really good effort !!

U should hold like seminars or something...   

Everybody should post like that so we can really know whos the king of this forum and who really dominates the markets

The stats speak for themselves..



> Starting Capital: $50,000.00
> Finishing Capital: $2,625,632.19




What is interesting is this...



> Winning Trades:                                            92 (48.17%)
> Losing Trades:                                             99 (51.83%)




But the key is this...



> Average Win/Average Loss: 6.0646




If u dont mind me asking; what books have u read that u rate ?

Thanks


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## hardmoney (20 August 2006)

Hi Nizar,

Ive read dozens of trading books and my favourites would be -:

Reminiscences of a Stock operator
Darvas 2 million dollar book
both Market Wizards books
Stan Weinstien Secrects to Profits in Bull and Bear Markets
Tharps Trade you Way to Financial Freedom, cheezy title but a fabulous book

Keep in mind that the above posting was a sample run on TradeSim and it appears as though I forgot to include brokerage, however Monte Carlo analysis and real time results over the past few years shows that this is a fairly typical result.Trends work.

Rgds,

HM


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## stink (1 September 2006)

Freeballinginawetsuit said:
			
		

> Which stocks are range trading?. A more important questions is what stocks are at highs, what daily volume do they trade (I wouldnt hold greater than 5% of daily turnover), their market cap and are they a speccie. Finally, are they in the materials sector, thats the only sector I trade.
> 
> Cheers,
> Mark





Hi FBIAW,

Quite interested to know why you chose the sector and stocks that you trade? Your entry criteria seems similar to what i am putting together i am trying to keep it as simple as possible.

My biggest problem is my small cap base at the moment, i will only have 10k when i start trading so if i only use 5k position sizes 15% is not very good for me as tax and brokerage doesnt leave me with much in my pocket, kindly pointed out by fellow ASF members. Risk = Reward is not there!

So i am starting to look for a few stocks that i could trade consistently to get my equity moving asap. At the moment i scan the whole market looking for whatever indicators i feel like and am starting to think this is counter productive because i obviously find different ones every day and end up with these huge watchlists that are quite frankly unmanageable. So your comment about only using a certain sector peeked my interest as i havent considered restricting my searches to a certain area.

Regards Stink


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## Freeballinginawetsuit (1 September 2006)

stink said:
			
		

> Hi FBIAW,
> 
> Quite interested to know why you chose the sector and stocks that you trade? Your entry criteria seems similar to what i am putting together i am trying to keep it as simple as possible.
> 
> ...






			
				stink said:
			
		

> Not sure if most on this thread would agree,then again how much have they made in the last 6 months?. I only trade in the material section and predominately Zinc,Nickle and Oil, I think their future is sound
> 
> Unlike your small equity, I trade quite a large amount on each stock depending on there SP, predominately decided by charting but moreso price volume over defined periods and enter/exit on this. I only trade about 9 stocks on this methodology and have spent significant time on their fundamentals and coin on Phat Prophets doing some of the leg work.
> 
> ...


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## stink (1 September 2006)

Thanks for your reply mate,

Sounds like a valid strategy for someone with that type of money, obviously your results speak for themselves.

I dont take tips but i will have a look at the shares you mentioned.

Regards Stink


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## lindsayf (5 February 2009)

By Michael ID some time ago

""When I started backtesting systems, the initial entry condition was quite complex. I found, however, that as I bolted on more and more entry conditions in an attempt to improve things, system performance in fact decreased (worse drawdown and expectancy).

Just for kicks one day, I replaced the complex entry condition with random entry (Entry Trigger = 1). System performance suddenly improved dramatically.

Even since then, my "gold standard" for comparison of any system is random entry. If a condition can improve results over random entry, it is worthwhile. So far, I have only found 3 conditions on entry improve performance over random; CLOSE>Long Term Moving Average, enter on a white candle, and a three candle continuation pattern. Basically - price going up both long term and short term = BUY.


Pondering on this brings me to the following conclusions;
1. Indicators are a waste of time because they are all merely abstractions of PRICE and thus provide no additional information above and beyond that inherent in PRICE.
2. PRICE is all that matters.
3. The exit makes the money by biasing the system towards overperformers.
4. A price which is going up is more likely to go up than one going down. That is the only prediction which has testable validity.******""
*******
""

I am fascinated to find this just now in a search.  I have been demo-ing on intraday futures indices for a few months now and have been looking for a high accuracy system to start my live trading with.  What have I found?  I have trialled several systems, some of my own creation, one I even paid $$ for some indicators......I test these with an even bracket methodology ie stop loss same dist from entry as profit target( in a range that is usually met within a minute or 3)....I have not yet found a system  that will give me significantly above 50% over 50 consecutive trades.  So I am now thinking I have been on the wrong track..just this morning I thought I should try simply entering (long or short, doesnt matter) 60 seconds following the close of the previous trade and see how it goes.  The moral of the story for me, supported by Michaels views (above) too, is that I will now choose a simple  entry system .....stop the search for high accuracy ......and focus almost entirely on trade management!


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## Cartman (5 February 2009)

lindsayf said:


> The moral of the story for me, supported by Michaels views (above) too, is that I will now choose a simple  entry system .....stop the search for high accuracy ......and focus almost entirely on trade management!




gidday Lindsay ---- nothing wrong with simple, but random entries simply wont work if u r trying to trade short time frames  ---- u will get cut to bitz (unless u r using a scaling entry system to iron out the bumps)  ----- 

MM is very important of course, but good MM will not save yr account if yr entries are bad -------- random might work for a while, but not in the long term ----


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## lindsayf (5 February 2009)

gday Cartman
I would be interested to hear if Michael ID has moved away from his opinion of a year or 2 back.......I am not proposing a random entry...but am stopping the search for a system that provides a *super* high W%..and moving my focus to trade/money management.... 

Cartman..I suspect you have been down this road....most have I guess

You know it is amazing to see the claims out there...I have recieved a promo email from a mob in the US that claim an over 80% accuracy rate with their system... but wouldnt respond to my request for some data to support their claims...


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## Nick Radge (5 February 2009)

The high % win rate appeals because we are brought up as being told right is better than wrong, a high grade at school is better than a low grade. Our culture dictates that those that who are right more often are the rewarded ones when we go to work. Do your homework, get high grades, you'll go to uni, get good marks, you'll get a great job, get a great career etc etc. 

This is why the promo's advocate high % win rates - because they are trying to appeal to how we have been brought up.

Trading doesn't operate like that. You can have a 90% win rate and still be a losing trader. This is where so many people fall over. They spend days, weeks, months, years and lifetimes trying to find the perfect winning system and they simply don't understand *WHY* profits are made in the markets. They buy countless books, go to numerous seminars and eventually resort to ridiculously priced seminars thinking that the Holy Grail exists just around the corner. The *WHY* has nothing to do with the win rate. The *WHY* is the basic maths behind expectancy. The Holy Grail of trading is partly understanding that concept. The other parts of success relate to the JOURNEY of trading, protecting one's capital and a few other features. 

People carry on about all soughts of things; 50% retracements, weekly pivot highs, monthly lows, out of sample, in sample, backtesting, forward testing, Elliott Waves, Fib levels, RSI, MAE, blah blah blah. But once you truly understand how profits are made and how they come about, the less you need to backtest, the less you need to read, the less you need to do a lot of things. You have turned the corner. You can get on with the job of creating a positive expectancy that suits *YOU* and in turn makes some profits.

I would say lindsayf that you have taken a very significant step in your trading career with this realization, and one that many don't ever get.


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## Cartman (5 February 2009)

lindsayf said:


> gday Cartman
> I would be interested to hear if Michael ID has moved away from his opinion of a year or 2 back.......




i suspect that Michael would have adapted his system to suit cause he is pretty switched on, but the parameters of his 'bull market' system would need to be modified with regard to time frames (holding period) in the current choppy market




lindsayf said:


> Cartman..I suspect you have been down this road....most have I guess




lol -----  i have been down 'trading roads' that u would not believe  ----- and most were one way streets --- haha ---- 



lindsayf said:


> You know it is amazing to see the claims out there...I have recieved a promo email from a mob in the US that claim an over 80% accuracy rate with their system... but wouldnt respond to my request for some data to support their claims...




yeah --- these guys are a bit of a joke ---------- anyone can have a system giving 80% ---------- hell ive got one !!! ----- is it worth selling ??? ----- haha --- (maybe it is ) ---- 80% means bugger all unless it performs over a *long period of time* and is relative to the risk and capital required for the individual ------


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## MRC & Co (5 February 2009)

Nick Radge said:


> the less you need to backtest, the less you need to read, the less you need to do a lot of things. You have turned the corner. You can get on with the job of creating a positive expectancy that suits *YOU* and in turn makes some profits.




lol, yes, took me about 2 years to truly understand this.

Everything works, yet everything doesn't. 

I remember asking WayneL about some option strategies some time ago, and he explaining it in detail, in the end, basically explaining the advantage, but, with that, the guaranteed drawback.

If you run positions, you get a lower win %.  If you take small profits, you never get large outliers.   If you have a tight stop, you minimise risk, but get chopped out all the time.  List goes on and on and on.  

In the end, it's all down to practice practice practice and creating your own style and finding your own edge.  This constantly has to be altered and adapted to market conditions, which again, this ability to be dynamic and continuously evolve, is just part of your edge.

Personally for me, I think the most important things are pattern recognition and having some idea of when to hold and when to fold.  Along with having the mental ability to do what goes against a humans genetic makeup and that is NOT waiting for confirmation.


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## BBand (5 February 2009)

Looking forward to receiving my "Definitive Guide to Position Sizing" (Van Tharp) book.
Should have it to-morrow - The Holy Grail ?????


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## Cartman (5 February 2009)

BBand said:


> Looking forward to receiving my "Definitive Guide to Position Sizing" (Van Tharp) book.
> Should have it to-morrow - The Holy Grail ?????




actually in my humble opinion, position sizing is possibly the most important aspect of trading which traders neglect ----- size of the punt relative to the size of the bank = the size of the stress level ------------- playing within the comfort zone is v. important for longevity !!


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## Nick Radge (5 February 2009)

I agree its a significant issue Cartman that is important to success. However, I also think that tenacity and understanding the trading journey will probably be of more harm to most new traders. Without patience, tenacity and a willingness to allow positive expectancy to run its course, many will not succeed.


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## BentRod (5 February 2009)

Nick Radge said:


> I agree its a significant issue Cartman that is important to success. However, I also think that tenacity and understanding the trading journey will probably be of more harm to most new traders. Without patience, tenacity and a willingness to allow positive expectancy to run its course, many will not succeed.




Nick,
      This makes much more sense after seeing William Eckherts trading results  that you showed in the DVD. 
I found it a real eye opener that he had loosing years.


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## beerwm (5 February 2009)

regarding random entry;

say you place 1000trades, you decide to sell when the stock has made 10% gain or 10% loss.  500win/500lose.

you add an indicator

On Balance Volume, [a certain increase/ or MA crossover]

you do 1000 trades, 450 win/550 lose

you add another indicator

RSI [only oversold stocks]

you do 1000 trades with both indicators
350 win/ 650 lose.

so you have added to indicators which have made your system less profitable.

although if you choose to go short, you would of made your system much more profitable.

so aslong as your indicator/s deliver consitant results, then i cant see how a random entry could be a viable alternative.


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## lindsayf (5 February 2009)

Cartman said:


> actually in my humble opinion, position sizing is possibly the most important aspect of trading which traders neglect ----- size of the punt relative to the size of the bank = the size of the stress level ------------- playing within the comfort zone is v. important for longevity !!




your probably right..but for someone starting with a small budget and looking at futures day trading..it is a non issue...I will trade with a single contract and succeed or fail..if I succeed i will build up to a place where i can consider multiple contract trades...cross that bridge at that time...


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## Cartman (5 February 2009)

MRC & Co said:


> I think the most important things are *pattern recognition* and having some idea of when to hold and when to fold.   that is *NOT* waiting for confirmation.




at face value, these points may seem simplistic and get overlooked Mirc ----- but these issues are at the forefront of my 'studies' atm ---- and from that pov. i feel like my journey is 'on track' ---- as ive said b4 --- i hope people read what u write ----------   and u r so young !!  ---- lol ----


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## Cartman (5 February 2009)

lindsayf said:


> your probably right..but for someone starting with a small budget and looking at futures day trading..it is a non issue...I will trade with a *single contract* and succeed or fail..if I succeed i will build up to a place where i can consider multiple contract trades...cross that bridge at that time...




Lindsay -----  r u trading CFD's ?  ----- what is the value of the 'one contract' u mention? ---- 

hypothetical qu. ----- if u had three times the capital than u do atm would u increase yr position size by three times or trade the same ? ----   cheers.


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## lindsayf (6 February 2009)

Hi Cartman
No not CFD's, futures index-ES(emini).  A contract is $50 US per point and each tic (minimum increment) is $12.50.  What I am thinking atm is that, should I work out how to be profitable, that I wont trade multiple contracts until I am up at least $5000 on the single.  Then I would look at a system where I would enter with 2 contracts, exit 1 of them on a predefined PT and then run the remaining one with a TS.  ...But this is all a long way off for me at this stage...

Just re CFD's...a certain cfd MM has offered me a 'loss free' whole days trading...that is I can trade with up to 2 contracts on thier 'ASX200' and they will absorb any loss I make.  The only condiiton is I need to fund an account with them...??seems a no brainer I wonder what the catch is?


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## rub92me (6 February 2009)

lindsayf said:


> Hi Cartman
> Just re CFD's...a certain cfd MM has offered me a 'loss free' whole days trading...that is I can trade with up to 2 contracts on thier 'ASX200' and they will absorb any loss I make.  The only condiiton is I need to fund an account with them...??seems a no brainer I wonder what the catch is?



It's a bit like the free hotel rooms you used to get in Las Vegas; CFD providers love punters with no brains..


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## Nick Radge (6 February 2009)

errr...I think free credit on pokies was just banned. Surely free credit on a CFD account is within the same realms? 

I wonder if they'll let you keep the days gains? You'd employ TH to go loose for the day!


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## lindsayf (6 February 2009)

have a read of the CMC site...you keep the gains, they wear any losses...u out there TH?  go you 50:50...lol...............i imagine there is some fine print or a clause in the PDS that will cover them in the case of a big winning day.


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## nomore4s (6 February 2009)

I think they would let you keep the gains as you are using your own capital.

The idea behind it is by giving the average "punter" a sniff of winning or trading with no risk is afterwards CMC will get back any profits or eventually take money out of your capitial, as people will get hooked thinking its easy money, not a bad ploy really.


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## MichaelD (7 February 2009)

lindsayf said:


> I would be interested to hear if MichaelD has moved away from his opinion of a year or 2 back




This should make for an interesting revisit. Let's see.

I said this 2 years ago:

1. Indicators are a waste of time because they are all merely abstractions of PRICE and thus provide no additional information above and beyond that inherent in PRICE.
2. PRICE is all that matters.
3. The exit makes the money by biasing the system towards overperformers.
4. A price which is going up is more likely to go up than one going down. That is the only prediction which has testable validity.

What I believe now:

1. This point holds. Indicators have no positive predictive value. Some people believe in indicators. THAT has positive predictive value.

2. Basically the same.

3. The exit makes the money by cutting out fat tail losers whilst holding onto fat tail winners. That's just a different way of looking at the same thing from a more risk-aware perspective.

4. Still valid.


Nick expressed it extremely well with;
"The WHY has nothing to do with the win rate. The WHY is the basic maths behind expectancy."

MRC also expressed it well with;
"Everything works, yet everything doesn't."


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## Wysiwyg (7 February 2009)

MichaelD said:


> I said this 2 years ago:
> 
> 1. *Indicators are a waste of time* because they are all merely abstractions of PRICE and thus provide no additional information above and beyond that inherent in PRICE.
> 2. PRICE is all that matters.
> ...




Hi Michael D., so you type that  "Indicators are a waste of time" and yet you use one as entry criteria.Did you not explain that correctly? 




> What I believe now:
> 
> 1. This point holds. *Indicators have no positive predictive value*. Some people believe in indicators. THAT has positive predictive value.




An even more accurate point would be that ... indicators reveal probable/possible outcomes...Nothing to hi tech. in that explanation really.


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## MichaelD (7 February 2009)

Wysiwyg said:


> Hi Michael D., so you type that  "Indicators are a waste of time" and yet you use one as entry criteria.Did you not explain that correctly?




For my long term system, the entry contributes a trivial amount to the overall system expectancy - of the order of less than 5%. 95% of the system expectancy comes from the exit and the money management. It's fairly self-evident where the hard work is done and thus where the development effort needs to be concentrated, and it ain't the entry indicators.



Wysiwyg said:


> An even more accurate point would be that ... indicators reveal probable/possible outcomes...Nothing to hi tech. in that explanation really.




The same outcomes are revealed by a coin toss. Ergo, what are indicators actually doing except making YOU think you have some control over outcome?


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## beerwm (7 February 2009)

MichaelD said:


> 2. PRICE is all that matters.




what do u mean by price?

price at close, price over the whole day, price in respect to price 1/5/10/200 days ago? price in respect to the value of a company? movement in price? volitility of price of a day/week/month?

are you saying that the basic  OHLC chart, is the only chart that is useful?


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## Wysiwyg (7 February 2009)

MichaelD said:


> The same outcomes are revealed by a coin toss. Ergo, what are indicators actually doing except making YOU think you have some control over outcome?




I don`t think I have any control over outcome.My decision results in a profit, loss or break even and as can`t be repeated enough ... trade management is critical for continuity in this game.


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## Cartman (7 February 2009)

MichaelD said:


> For my *long term* system, the *entry contributes a trivial amount* to the overall system expectancy -- it ain't the entry indicators.




i think  *long term* is the key point here ---- eg. try running a short term system in the current market with crap entries and see how the capital balance shapes up after a few months ! ---- good entries are just as important as good exits in choppy markets unless ---

a) u have a strict 'position sizing/relative to capital' staking plan ----

i appreciate u have tested this stuff Mike, and are comfortable with your system, but these types of systems which often run with a wide ATR stop loss have the potential for serious losses unless (a) is taken into consideration ----- out of interest --- have u dropped yr position size per trade in the last 12 months? ---- i would suspect u have.


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## MichaelD (8 February 2009)

beerwm said:


> what do u mean by price?
> 
> price at close, price over the whole day, price in respect to price 1/5/10/200 days ago? price in respect to the value of a company? movement in price? volitility of price of a day/week/month?
> 
> are you saying that the basic  OHLC chart, is the only chart that is useful?




Why complicate the simple by adding unnecessary information?

Price going up - buy
Price going down - sell




Cartman said:


> i think  *long term* is the key point here ---- eg. try running a short term system in the current market with crap entries and see how the capital balance shapes up after a few months ! ---- good entries are just as important as good exits in choppy markets unless ---
> 
> a) u have a strict 'position sizing/relative to capital' staking plan ----
> 
> i appreciate u have tested this stuff Mike, and are comfortable with your system, but these types of systems which often run with a wide ATR stop loss have the potential for serious losses unless (a) is taken into consideration ----- out of interest --- have u dropped yr position size per trade in the last 12 months? ---- i would suspect u have.




My long term trend following system has dramatically decreased market exposure (as designed) - mainly by way of not giving pyramiding signals.

My short term systems are both profitable and therefore have increasing position sizes.


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