Dump it Here

[Skate]

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

15. Snap judgements
We may improve our decision-making and raise our chances of market success by being conscious of the possible traps of our “intuitive mind” quickly making decisions rather than using our “deliberative mind” to make informed decisions.

We frequently fall back on our standard method of problem-solving, which is to act upon the first idea that enters our head. Making quick snap decisions is “unsuitable” when it comes to trading.

Even though our intuitive mind is rapid and effective, it can be particularly bad at calculating probabilities, which is a crucial trading skill. Consequently, adopting a thorough approach can aid in lowering the likelihood of making rash decisions.

Our intuitive mind, often known as "System 1 thinking" or our "lizard brain," frequently leads us to make snap judgements without fully considering all of the potential outcomes. When it comes to trading, this type of faulty thinking can be harmful.

Whereas our deliberate mind, sometimes referred to as "System 2 thinking" or our "evolved brain," processes information more slowly and methodically, making it the best mind for trading. Before making a decision, it is important to use your evolved brain to carefully assesses and analyses all the available facts.

Understanding the two-part structure of our minds, the intuitive "System 1" and the deliberate "System 2" and how they interact is essential for successful trading. The ability to calculate probabilities, a critical trade skill, might be particularly difficult for the intuitive mind, despite its speed and effectiveness.

Both the intuitive and deliberate modes of thinking have advantages, but the mind tends to use the intuitive mind more often due to its energy efficiency, saving the deliberate modes for situations that call for greater mental effort. Nevertheless, using the deliberate "System 2" side of the mind can help avoid making expensive trading mistakes.

Therefore, by exercising our deliberative mind rather than drawing hasty conclusions, we may improve our ability to compute probabilities. Deliberate thinking is hard, and it requires more mental effort, but it is necessary for successful trading.

Skate.

 

[Skate]

Agree. Your 'edge' is 55% with a R/R of what is approximately 1:2.7. Those numbers work in part due to your 'stop' strategy. If for whatever reason, failure in discipline or a market event that pushes the correlation to 1.0, then those numbers will change. Your 'risk' management taken as a portfolio, is for me far too risky. You are 100% long in a single strategy. Stocks: long. In an outright bull market, this is of course the correct overall position.

Snapshot of the result of the 200kay Strategy
As we were able to obtain $200,000 by selling the motorhome we lived in for 12 months in our front yard while our home was undergoing repairs I decided to run the strategy as a stand-alone system. As the 200kay strategy was a "new idea" I decided to trade it rather than incorporate the strategy into my stable of systems. 6 months in and its performance is as expected and is currently sitting in cash. The strategy is mimicking backtesting, which is always a good sign.

(a) Your 'risk' management taken as a portfolio, is for me far too risky. You are 100% long in a single strategy. Stocks: long. In an outright bull market, this is of course the correct overall position. (b) I'm guessing that your 'stale stop' has become far shorter in time than it may have been previously.

(a) I'm surprised by those comments as my risk strategy is the heart of every strategy I code.
(b) Yes, the "time and lack of momentum" StaleStop shortens if momentum isn't moving in the desired direction.

Skate.

 

[Skate]

(a) Long only strategies should be scaled back in this scenario (possibly you have already done this). Portfolio management, or risk management or capital allocation, should now be sitting at strategies designed for a sideways market with small(er) allocations to bull and bear strategies. (b) Only the strongest/weakest stocks in the strongest/weakest sectors should be taken as directional trades.

@ducati916, I believe all that you mention is executed within the filters and parameters that drive the strategy.

In relation to your comments
(a) Auto scaling is driven by the "time frame" or "lack of momentum" part of the StaleStop exit strategy.
(b) Using the value-weighted moving average (VWMA) indicator as part of my entry condition ensures that price with volume only selects the strongest stocks within the index being traded.

Market Timing
Market timing is one of the elements that affect profitability which can be improved by including the "PercentageUp Filter" indicator in the buy condition. As it represents the percentage increase in the market, this indicator is essential in identifying whether the market is bullish or bearish. The "PercentageUp Filter" will provide buy signals when it is above 50%, which denotes a bullish market. The method will time the exits of existing positions when the filter, on the other hand, falls below 25%, which implies a bearish market. The "PercentageUp Filter" is a useful tool that, in the end, enables the strategy to adapt to shifting market conditions.

Skate.

 

[Skate]

Pretty much sideways with some volatility day-to-day.

@peter2 remarked that we're trading in an interesting time
Going on to say "Trend traders would replace "interesting with frustrating" since the ASX market has been stuck in a range for two years". Admittedly It's been tough trading this financial year but if you are losing money this fiscal year when trading Australian markets you have to question yourself why. To be profitable, traders must have a clearly defined trading strategy timing entry and exit signals, which are crucial for profitable trading.

@Captain_Chaza would say, trading hasn't been "smooth sailing" this fiscal year
Because financial markets are dynamic and susceptible to rapid change, trading is not a linear activity. Numerous variables, such as economic statistics, geopolitical developments, and market sentiment, among others, affect the prices of financial assets. The prices of financial assets fluctuate because of these ever-changing causes.

Skate.

 

[Skate]

Trading is a non-linear activity as a result of uncertainties
Greed, fear, and emotions have an impact on trading that induce traders to make irrational decisions. The influence of psychological variables, trading is not a linear activity. To consistently generate profits, traders must be able to adjust to shifting market conditions, manage uncertainty, and restrain their emotions.

As an exercise
The two graphs below indicate my actual trading results from my combined stable of strategies this financial year (2022-2023). With a month and a bit to go until the end of the year the linear result looks respectable but the "Equity Curve" shows the real drama in getting there.



Skate.

 

[Skate]

Skate.

 

[Captain_Chaza]

Ahoy there my beloved Sea-Cadet Skatie
I hope you don't mind me having a good Dump here?

I think it was Benjamin Franklin who first said there were 3 Kinds of Lies

"Lies, damned lies, and statistics" is a phrase describing the persuasive power of statistics to bolster weak arguments
"one of the best, and best-known" critiques of applied statistics.[2]
It is also sometimes colloquially used to doubt statistics used to prove an opponent's point".


Although we both Agree that Fundamental Analysis is a Complete Waste of Time and can be quite dangerous on the Global Exchange
I Don't think Statistics can Help you much at Sea on the Global Exchange either
Not with all the infinite variables of the Seas and Weather conditions let alone all the Known and Unknown Black Swan Events

Seamanship is nothing like the tossing of coins or throwing darts

Salute and Gods' speed

 

[ducati916]

Snapshot of the result of the 200kay Strategy
As we were able to obtain $200,000 by selling the motorhome we lived in for 12 months in our front yard while our home was undergoing repairs I decided to run the strategy as a stand-alone system. As the 200kay strategy was a "new idea" I decided to trade it rather than incorporate the strategy into my stable of systems. 6 months in and its performance is as expected and is currently sitting in cash. The strategy is mimicking backtesting, which is always a good sign.

View attachment 157184



(a) I'm surprised by those comments as my risk strategy is the heart of every strategy I code.
(b) Yes, the "time and lack of momentum" StaleStop shortens if momentum isn't moving in the desired direction.

Skate.

Mr Skate your trade management is excellent (hard stops, stale stops, etc).

Risk management is capital allocation. Unless I am mistaken, all of your systems are: (i) stocks, (ii) long, (iii) ASX 200 listed. That is a very singular, un-diversified strategy.

When the market goes bad, I am guessing all strategies start to exit at the same time. If that is the case, then the losses will mount because you have no offsetting positions (short positions or FX or other) to generate profits while stocks sell-off.

jog on
duc

 

[Captain_Chaza]

I have tried that strategy a long time ago

EG :: Buy GLD and Sell GLL "Safety is Paramount"
I can't lose!
It does not work IMO
It reminds me of Little old ladies shopping at Myers, David Jones and Georges on credit cards for their Specials
My wife was one of them
It is also like Betting on Carlton to beat Collingwood and at the same time
having a bet on Collingwood to beat Carlton
It does not work IMO

Just Face It
Courage to Buy and Sell Shares is Not Given to Everyone

Salute and Gods' speed

 

[Skate]

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

16. Heck, we all lose sometimes
The trading game can be exciting and terrifying at the same time. The exhilaration of executing a successful trade is frequently offset by the dread of losing money. Unfortunately, regardless of your degree of experience, losses are an unavoidable aspect of trading. No trading strategy, regardless of how knowledgeable or skilled a trader may be, can guarantee that every trade will end in a victory. There is always a chance that some trades will end up being losers, even while some may be winners.

Every trader needs to develop the ability to accept losses. There will always be unpredictable factors that can cause losses, regardless of how much time and effort a trader invests into building a strategy. Due to the volatility and irrationality of the market, even the most successful traders experience unforeseen losses.

It is important to tackle losses consciously, systematically, and logically. The causes of the loss must be thoroughly identified, doing so can give an indication if your trading process needs to be adjusted in any way. The main priority should always be making thoughtful decisions based on logic and analysis before letting emotions dictate what needs to be done.

Since no trading strategy is totally immune, trading will always result in losses. As a result, traders need to learn risk management techniques as well as how to accept losses as a normal part of the trading process. One of the essential elements of successful trading is the capacity to successfully manage losses as opposed to completely avoiding them. Traders must develop the ability to exit trades when they are not performing as expected without delay and move on to the next one.

Risk management and precisely defined exits as well as having profit targets are essential for minimising the negative effects of losses. Traders can improve their chances of success in the market by maintaining a long-term view as trading involves a high degree of uncertainty.

In conclusion, losses are an inevitable component of trading. This does not imply, however, that traders should lose heart or stop trading altogether when losses occur. Instead, it acts as a reminder to take a realistic approach to trading. Every trader can improve their skills and increase their long-term success in the market by accepting losses as a regular part of the process and learning from them.

Skate.

 

[Skate]

There was a thought-provoking question raised in @ducati916 daily post today
There is normally a correlation between when the US Dollar is down, the stock market goes up. But recently stock market has been rallying with the bounce in the US dollar which is rare.

The question was raised "What is going on"?
I've ponded the same question many times trying to garner a timing edge using this information. if I could only pinpoint the exact reason it may result in a tradable strategy. But, I have to admit I'm no further advanced.

But what I do know is this
The value of the US dollar and the stock market have a complicated relationship that is influenced by numerous variables, some I can’t even get my head around. Generally speaking, I do know when the dollar falls it makes products more affordable and alluring to international consumers, whether here in Australia or in the US. It's worth remembering that increased sales have a correlation with raising stock prices.

The stock market is complicated
It's important to keep in mind that the correlation between the US dollar and the US stock market is not always a good predictor of how our market will react. In the end, the stock market is affected by a variety of influences. Although there are numerous other factors that can affect the stock market the link is not always clear-cut to us mere mortals.



Skate.

 

[ducati916]

There was a thought-provoking question raised in @ducati916 daily post today
There is normally a correlation between when the US Dollar is down, the stock market goes up. But recently stock market has been rallying with the bounce in the US dollar which is rare.

The question was raised "What is going on"?
I've ponded the same question many times trying to garner a timing edge using this information. if I could only pinpoint the exact reason it may result in a tradable strategy. But, I have to admit I'm no further advanced.

But what I do know is this
The value of the US dollar and the stock market have a complicated relationship that is influenced by numerous variables, some I can’t even get my head around. Generally speaking, I do know when the dollar falls it makes products more affordable and alluring to international consumers, whether here in Australia or in the US. It's worth remembering that increased sales have a correlation with raising stock prices.

The stock market is complicated
It's important to keep in mind that the correlation between the US dollar and the US stock market is not always a good predictor of how our market will react. In the end, the stock market is affected by a variety of influences. Although there are numerous other factors that can affect the stock market the link is not always clear-cut to us mere mortals.

View attachment 157229

Skate.

Mr Skate:


The deteriorating fiscal position of the US government will require increased Treasury auctions and sales of UST to fund the government. To sell these UST higher rates will be required, unless the Fed buys them capping rates at X which is YCC.


Higher rates means that the US government is crowding out the market, which, will drive USD higher.


A consequence of higher bond yields is that after TINA and stock market flows, that this will reverse sending stocks lower. Examples are Insurance companies with long dated liabilities.


Lower stock market = lower tax receipts = higher Treasury issue = repeat above scenario.


Higher nominal rates = higher (real) rates and the possibility of foreign flows into UST. Foreign flows into UST = higher demand for USD pushing it higher.


In this way the correlation of lower stocks and higher USD is reimposed.


The second way that this relationship can be driven is by an increase in commodity prices, priced and sold in USD. Oil being the big issue. Japan, who hold $1.2T in UST with rising oil prices have a greater demand for USD. The shortfall is made up by selling UST to obtain USD. Rates are pushed higher as UST sales for USD are transacted. Stock holdings can also be sold to obtain USD. Foreign holders of US stocks are significant. Stocks are considered risk assets. UST are (LOL) a 'risk free asset'.

Now the US government via the Treasury (Yellen) cannot allow a stock market collapse as stock market gains (requiring ongoing new highs) drive tax receipts, which this year due to 2022's market collapse have come in really weak, driving along with the debt ceiling fiasco massive pressure on the Treasury.

In October last year Yellen orchestrated behind the scenes a 'weak dollar' policy to keep the stock market strong(er). That policy remains in place. There are any number of examples of these deals, the Plaza Accord being one.

Of course a weak USD drives higher US inflation, which the Fed is fighting (LOL). So the Fed and Treasury are at odds, but working together. The Fed does not want to monetise (unless there is no choice) thereby weakening USD but driving inflation higher but foreign buying of UST drives USD higher which weakens stock market...and it just keeps going round and round.

Ultimately there will be a weak USD as the Fed will monetise. UST interest payments on the $31T are just a tad below $1T. Add in the true cost (Medicare/Medicaid/Social Security = $200T) and that interest bill = 110% of US tax receipts.

jog on
duc

 

[Skate]

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

17. Loss aversion
Trading is a stressful endeavour that's emotionally charged. Therefore, it is essential for traders to develop self-control and emotional restraint. The likelihood of trading success can be greatly increased by being conscious of emotions and minimising their influence on decision-making.

Losses are an inevitable part of trading's probabilistic nature, but traders must get beyond a major psychological hurdle called loss aversion. Loss aversion is the tendency to experience the agony of losses more keenly than the pleasure of profits, which can result in poor trading.

It is crucial to approach trading with a disciplined and analytical mindset if you want to get past the effects of loss aversion. We may effectively manage risk and reduce the influence of emotions on our decision-making by establishing a precise exit strategy and profit targets and strictly adhering to them.

Successful trading requires a combination of knowledge, skill, discipline, and emotional intelligence. Traders can enhance their performance and reach their trading potential by being conscious of how loss aversion affects decision-making and actively striving to overcome it through risk management, and emotional control.

Every trading plan should be reviewed and updated on a regular basis to keep traders disciplined and concentrated on their long-term goals. A disciplined and analytical mindset, as well as an emphasis on risk management and goal setting, are necessary for overcoming psychological hurdles like loss aversion.

In conclusion, trading is a highly emotional activity that calls for self-control, emotional restraint, and a strategic mindset. Traders with awareness can regulate their emotions and trade better by being aware of how emotions affect their decision-making process.

Skate.

 

[DaveTrade]

Regarding post #8633;

It is crucial to approach trading with a disciplined and analytical mindset if you want to get past the effects of loss aversion.

Every trading plan should be reviewed and updated on a regular basis to keep traders disciplined and concentrated on their long-term goals. A disciplined and analytical mindset, as well as an emphasis on risk management and goal setting, are necessary for overcoming psychological hurdles like loss aversion.

Skate has mentioned long-term goals in the above post and from my experience what helped my mindset is to keep long-term present in my mind right through the process of entering, managing and exiting trades. Just a bit of feedback from my personal experience. Read the whole post above.

 

[Captain_Chaza]

Ahoy there my Beloved Sea-Cadet Skatie
I think you might appreciate this

My father once said to me
"Don't think Chaz, You are No Good at it!"

What he meant was that knowing Half of anything is Half Smart and that it was Very Dangerous!:"

Most of you here may agree with him but all I ask you is
How Smart Are You if you only know say One Quarter of the Facts Necessary or even only 10%

In my own case I would say I would be lucky to have 1% of the Knowledge necessary to make a wise decision on Fundamental Analysis ( Affectionally known to me as FA or Fork All"

I mention this here because you asked above
" What's going on
Why is this happening ? What is the cause?
Have the Markets gone crazy,
etc etc etc"

Sorry Skatsie but hopefully you may have someone here in your flock with > 2% of all the facts
The Snake Oil salesmen used to say "It will work in the Long Term"
Then Sell you a few more to attack the problem from all directions to make a certainty of the cure

NB: " IMHO I think You Can Think Yourself Into Anything You Think!"

I Like what you are trying to achieve but you still have lots of hurdles to jump

Namely The GAPS on your Best and Worst Performances!!
False readings here can be Monumental
It reminds me of the Gaps in our ASF Competitions where the Cheats (which I am One) can get Friday's Closing price instead of Monday's Opening Price

Unfortunately for all of us In the Real World
This Cannot Happen!

Salute and Gods' speed

 

[Skate]

@Captain_Chaza thank you for your input and it's given me an idea for tomorrow's post. Trading is a game of probabilities and being correct most of the time is not a requirement to trade profitably. Trading is effectively buying a position in the hope of selling it to someone else at a higher price in the future. Trading entails estimating probability and finding opportunities.

Skate.

 

[Skate]

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

18. Trading is a probabilities game
Because financial markets are inherently uncertain, trading is frequently referred to as a probability game. In essence, when traders buy or sell a position, they are effectively betting on selling that position at a higher price to someone else in the future. No one, however, is able to foretell the future not even the most seasoned traders.

Successful traders understand that losses are an unavoidable part of the trading process and that being correct all of the time is not required. Instead, it is about effective risk management and the development of a solid trading strategy that has a positive expectancy.

Positive expectancy in trading is a statistical measure of a trading strategy's long-term profitability. It is computed by calculating the expected value of a trade, which includes both winning and losing trades dispersed across a large number of trades. When the expected value of a trade is positive, the trading system is likely to be profitable in the long run.

Traders who grasp the notion of positive expectancy can use it to assess the performance of various trading methods and make informed risk and portfolio management decisions. Even with a solid trading strategy, traders still need to be at ease with the knowledge that they will occasionally lose money.

By establishing a clear exit strategy that incorporates a take-profit stop, traders can steer clear of the emotional ups and downs whilst trading. To cultivate the correct mindset, traders should prioritise long-term planning and consistently execute trades to create a probabilistic mindset.

Another important element of good trading is controlling emotions in the face of market volatility. By effectively managing risk, traders can avert the emotional rollercoaster of short-term market fluctuations. Traders who can maintain composure and focus on a disciplined approach to trading can increase their chances of profiting from the markets.

Trading techniques can always be improved, and success can be steadily increased by looking at each loss and determining why. Determining the reason for each loss is an opportunity to gradually learn and improve trading overall.

In summary, trading is, without a doubt, a game of probabilities that requires a probabilistic mindset. Traders who remain calm and disciplined in the face of short-term market volatility have a better chance of success than those who don't.

Skate.

 

[DaveTrade]

Traders who remain calm and disciplined in the face of short-term market volatility have a better chance of success than those who don't.

I know this but sometimes it can harder to do than other times. My emotional state varies depending on what may be happening in my life and this may have some influence but I think the main reason why I sometimes feel a bit sick in the stomach is because I'm over-exposed (too much account risk).

 

[Skate]

My emotional state varies depending on what may be happening in my life

@DaveTrade, tomorrow I'll explain how trading is full of uncertainties as part of my daily series of posts. I believe it's critical to recognise that trading is inherently fraught with risk. No matter how confident you are in your trading strategy, or how talented you believe you are as a trader, action needs to be taken when substantial losses are accumulating.

Insanity is doing the same thing over and over and expecting different results
Continuing to trade in the same way during a losing streak not only depletes your emotional capital but also puts your entire trading account at risk. Assessing and upgrading your risk management techniques on a regular basis can help you weather downturns and safeguard your trading capital.

Skate.

 

[Captain_Chaza]

I know this but sometimes it can harder to do than other times. My emotional state varies depending on what may be happening in my life and this may have some influence but I think the main reason why I sometimes feel a bit sick in the stomach is because I'm over-exposed (too much account risk).

Ahoy there Sea- Cadet Davey
You are not alone here
Nobody is Immune to Sea-Sickness
In my experience it is usually deep seeded in "Marrying the Wrong Woman"
And /Or
"Buying the Wrong Share"

Salute and Gods' speed