Dump it Here

[Skate]

On the flip side
"Position Size" is important & the methodology you use to determine it is also important. Trading small amounts over a short period using a "percentage-based" position sizing beats a fixed dollar position size hands down. But when you start to trade larger amounts over a longer period, it becomes very hard to move those amounts into the markets without a large amount of increased slippage. All I would like to say is the system I use works for me.

Most fail to realise pyramiding works both ways
Pyramiding position sizing works for me as all my available funds are constantly in the markets. Most fail to realise pyramiding works both ways. When trading is not going well, position sizing decreased because of the compounded losses, even a string of losses is reflected. But, when the times are good why shouldn't I take advantage of these conditions & increase my bet sizes? It's the "make hay while the sun shines" theory.

Skate.

 

[Skate]

The issue with making so many posts
At times, I start to sound like a broken record. Also, when members check in to catch up with this thread finding that there is a large number of posts to read becomes a turn-off as it's exhausting. For me, there is a bright side as it gives me a platform to "have my say".

Back to pyramiding (summary)
There are 2 options for pyramiding taking advantage of deploying 100% of your trading funds which can be used in conjunction or in isolation with each other.

1. Increase/decrease the bet size.
2. Increase/decrease the number of positions in a portfolio.

Skate.

 

[Gringotts Bank]

It's weird how trailing stops always seem to degrade backtest performance. When you eyeball a chart, they look great. Whether a system is trend following or mean reverting, we're usually entering a position when it's most volatile. Maybe having the trailer turn on n bars after entry (or after volatility has settled) would work. Anyone experimeted with this?

 

[Gringotts Bank]

Or maybe a better idea would be to identify the entry signal, but wait until volatility has settled before actually entering. Wouldn't work for MR, but would it for trend following?

 

[Skate]

"Duc's Quote of the Day"
I've cherry-picked a passage from @ducati916's article today that resonated with me.



Skate.

 

[ducati916]

What works?
I get my share private messages & they revolve around trying to find a system that works. They are especially concerned about entries. They want to hit the entry as close to the turning point of a trend as possible. The reality is, it really doesn't matter much what you are using for entry conditions as long as you are entering in the direction of the trend. When you tell them this fact, it dampens their enthusiasm because they have this notion that there is a magical solution waiting to be discovered, which there isn't.

A few simple trend indicators are all you need to see when to enter a trade
Entries during trends are a no-brainer. Once you have an entry, the problem becomes one of having an exit strategy combined with money management. It all sounds simple but putting it into practice is where the difficulty starts.

Skate.

@Skate

I'm sure in all of these most recent posts it is included somewhere.

If you are a systems trader, trading bull trends, then it's not rocket science:



Which 1 of these sectors looks the most promising to be long?

Energy: what a shocker!

Why even look?

Because in a rally, as we had last week, all manner of shite will start to rally. They will be short term and dangerous. If they prove themselves otherwise, fine, add them in.

A 'marginal' chart:



This sector, you would either set a tight stop or wait for proof.

While I'm a buyer (on the fundamentals) a system trader would avoid for the moment:



So you are simply using a sector's trend to include or exclude individual stocks, you don't need to trade the sector per se.

jog on
duc

 

[Skate]

If you are a systems trader, trading bull trends, then it's not rocket science: So you are simply using a sector's trend to include or exclude individual stocks, you don't need to trade the sector per se.

How to stay on the right side of the markets
The markets are changing, driven by world events, interest rates & inflation. They are also driven by emotions of emotions. Basically, what I'm saying, is it's the emotions overlayed on top of other emotions. So what do I use to keep me safe when trading while markets are erratic, trying to find a solid level?

Using a lot of protection, that's how
In these trading conditions parameters, filters & settings all make up a set of stringent rules for my buy condition. It has never been more critical than today to be more selective in generating buy signals. The exit has to act quicker than it has ever done before in being more responsive to any slightly deviate from what is expected.

Skate.

 

[ducati916]

How to stay on the right side of the markets
The markets are changing, driven by world events, interest rates & inflation. They are also driven by emotions of emotions. Basically, what I'm saying, is it's the emotions overlayed on top of other emotions. So what do I use to keep me safe when trading while markets are erratic, trying to find a solid level?

Using a lot of protection, that's how
In these trading conditions parameters, filters & settings all make up a set of stringent rules for my buy condition. It has never been more critical than today to be more selective in generating buy signals. The exit has to act quicker than it has ever done before in being more responsive to any slightly deviate from what is expected.

Skate.

But if we are talking 'trending stocks' (going up) then why would you trade stocks in a sector that is going down. You only trade stocks in a bull sector, in this case energy and possibly commodities.

Why fight the market?

While 'emotions' certainly come into play, it is the fundamentals driving this market.

jog on
duc

 

[Skate]

Because in a rally, as we had last week, all manner of shite will start to rally. They will be short term and dangerous. If they prove themselves otherwise, fine, add them in.

Being selective with buy signals
@ducati916 is absolutely correct when he said "short term [rallies] are dangerous". These are the rallies to avoid at all costs, they always end in heartbreak. Incorporating a few filters to keep you out of the markets when they are not trending is vitally important because these short-term rallies are false breakouts setting you up for failure.

Breakouts need to be confirmed in strength & quality
Otherwise, you'll buy one week only to dump them the next. I was going to make a post about how I go about keeping myself on the right side of trading but I've previously made a series of posts on the subject.

Skate.

 

[Skate]

But if we are talking 'trending stocks' (going up) then why would you trade stocks in a sector that is going down. You only trade stocks in a bull sector, in this case energy and possibly commodities.

Why fight the market?

While 'emotions' certainly come into play, it is the fundamentals driving this market.

jog on
duc

@ducati916 that is a great post. "No", it's better than great, it's an excellent post.

Why fight the market, you ask?
The simple answer is if you do, you're boarding on being a stupid trader. If you trade when the general market is going up & the index you elect to trade is in an uptrend, it's time to go "hell for leather". If you trade at any other time, get ready to be burnt.

But how do you know when the market & Index are both up?
Let me step you through what I do to make sure both are confirmed before a buy signal is generated. To keep myself on the right side of the market I first use a "percentage filter" of the index being traded as part of the buy condition. Using the percentage method to enter & exit positions IMHO is far superior to using an (SMA) Index Filter in isolation.

Skate.

 

[Skate]

While 'emotions' certainly come into play, it is the fundamentals driving this market.

Sure that's a fair enough assessment of the markets
I believe emotions drive the markets in the short term & fundaments over the longer term.

What I see looking at charts
I don't believe the same stocks that are gyrating daily are being driven by the fundamentals. I accept what I believe means "diddly squat" when it comes to the markets but I need to code a strategy to handle my way of thinking, that is (a) when should I enter a trade & (b) why would I exit that position?

Not having a trading background
I'm not restrained by doing what all the books tend to suggest. Trading their way may work for them, but when my money is on the line, there is no one who has a higher interest than me to make sure my trading is profitable. Blind Freddy can see how the markets are reacting, so it's my job to code a strategy to take advantage of the fact.

Skate.

 

[Skate]

@ducati916 said: "Don't fight the markets"
To be a profitable trader the first thing you need to learn is "why markets trend" the way they do. Trading is complex but with the right tools, the job or seeking out a profit is much easier than the alternative. Trading on tips, media reports, hunches, or gut feelings, even though they sometimes work in the short term they tend not to work in the long term.

Indicators
They are called indicators because they indicate what's happening at a certain point in time. There are many ready-made indicators that you can elect to use or you can simply make one to display the information that you believe will give you an edge. One such indicator that I find useful is my "Advancing stock percentage indicator". The concept is simple but it's really tricky to code as it needs to make the calculations bar-by-bar. Doing so, the results accurately display the number of advancing stocks of the "All Ordinaries" in my case, compared to the number of declining stocks as a percentage.

Skate.

 

[Skate]

Twisting the strategy
Instead of using a "simple moving average" (SMA) to determine when a buy signal is generated, I use the "Percentage of the index Filter" in conjunction with an "Index Filter" before a buy signal can be generated. Meaning, both signals need to be "on" as a way to be more selective with buy signals. The indicator uses the 50% ratio of advancing stocks compared to the number of declining stocks to generate the buy signal.

Now here is the twist
The sell signal is generated when this ratio falls below 25%. This is an additional "exit condition" annexed to the "Stale Stop" exit strategy. This "Percentage Filter" parameter forms part of the "Stale Stop" exit strategy that ensures the open position is sold when the percentage of the index is below a certain percentage value of 25%. Using this method concentrates on capital preservation & it's perfect for those that "feel twitchy" or "nervous" when deciding to have a punt.

Skate.

 

[Skate]

Trading & Gambling
It's only fitting that I post something about the differences between "Trading & Gambling" on Melbourne Cup Day. Nontraders, those who don't trade will muddle the words using "gambling" to express their feelings when it comes to trading. In @ducati916's article today he supplied a hyperlink to this week’s Lund Loop Podcast that goes on to explain in a light entertaining way the nuances between the two.

The podcast is worthy of a listen
If you want to skip the light-hearted introduction you can pick up the "nitty gritty" from the 10:20 minute mark, but I would suggest you listen to the whole podcast. I wholeheartedly recommend this podcast as Brian Lund has been an active trader for over 35 years, using mostly technical analysis.

Ep. 29: Managing Your Trading Bankroll

Listen now | A look at the "stop and sweep" method for cash management.

www.thelundloop.com

Skate.

 

[Skate]

Logical Thinking
We often hear something & quickly dismiss it as we believe it has no value. In this lecture-style Youtube presentation, John Cleese claims that creativity is not a special talent. People are either in an ‘open’ or ‘closed’ state of mind.

A "closed mind" versus an "open mind"
A closed mind enables people to apply themselves to tasks with vigour & concentration whereas having an open mind is more relaxed & conducive to creative thinking. Creative thinking is how we stay ahead of the markets.

Skate.

 

[qldfrog]

If i understand well, Mr @ducati916 mentioned doing trend following but only in up trending sectors.
I agree indeed, sadly the asx and the data i use, are not very supportive, the sector definition being limited.
One of my current strategy qfsec (for sector) tries to implement this, not a great result so far and backtest so so, but this is a strategy which allows me to invest earlier than other general index exit/invest stops.
It was initially designed using wrong misleading data and has been twisted after a review for proper data.
But it might be worthwhile redeveloping that concept from scratch, with proper data.
The idea of being sector dependent is that there are more likelihood of finding niche trending sectors even in general market down or going nowhere, and so keep being invested more often
Hope it helps

 

[Skate]

Systematic trading helps you handle the pain of decision making
Trading systematically removes the guesswork & the decision-making process from trading. Trading systematically helps you avoid (a) closing a losing trade too soon, (b) closing a winning trade too soon & (c) it also avoids you from holding a winning trade too long.

Being at the mercy of your emotions
You’ll be destined to make repeatable mistakes. At times your emotions will cause you to make the wrong decision or no decision at all, even though you should.

Skate.

 

[Skate]

(a) Why do we close a losing trade too soon?
For one simple reason, of being “fearful”. At times we all get the feeling, of “knowing” a position will keep falling only to hit our stop loss eventually. Exiting early, & cutting the losses seems to be the best course of action "at the time" because doing so will save you money & end the anguish of being fearful. But the real pain begins when after selling the position the price reverses, proceeding higher & higher, turning a losing trade into a profitable trade. Ouch, this one really hurts.

(b) Why do we close a winning trade too soon?
For one simple reason, to lock in profits, being fearful that you'll lose them. You mistakenly “believe” there is a chance it will reverse at any moment. There is nothing "more painful" than exiting a position only to see it continue higher, & higher. This is the precise time when your emotions quickly turn to anger.

(c) Why do we hold a winning position too long?
For one simple reason “greed’. Believing the price will go higher you simply want more. But here's the kicker, when the price reverses you’ll continue to hold & hold. There's nothing worse than turning a profitable trade into a loser, a feeling "that you can't do anything right" is one of the worst feelings you can possibly have. Holding a loss & hoping for a rebound is a trait we all seem to have.

Skate.

 

[Skate]

You can't control what happens in the market
But you can control everything else. What to buy & when to exit. You even get to control your initial position size, & any information you desire to drive your system/strategy/portfolio.

“Cut your losses short, & let your profits run"
The commonly repeated mantra for trend traders is attributed to David Ricardo from the early 19th century. This maxim forms the very basis for why trend trading is very profitable. It simply means if a position is losing money, exit. But when a position is making money, let it run. The problem, we aren't wired this way. Human nature is the driving force behind our "compulsion to act" as in the 3 examples I mentioned above.

Skate.

 

[Skate]

Why didn't I think of that
“Buy low & sell high” like anything that might seem obvious, no one ever tells you how to go about doing it as it's much harder than it sounds. It's like telling someone the best way to lose weight is to eat less & exercise more. Thanks, I didn't think of that.

A trading plan
Having a plan means you have a trading methodology, & a solid foundation for trading. A sound foundation gives your confidence. Confidence knowing if you do everything right, you’ll never lose more money than you can afford or an amount you are comfortable losing. A trading plan also helps to develop some perspective about what you’re doing & what trading is all about.

Skate.