Dump it Here

[Skate]

A few observations
The learning curve for understanding and developing a trading system is high for the average trader but not impossible. The very first step towards success in any occupation is to become interested in it & what you learn must be engaging & interesting otherwise learning will not take place. Reading the 'Dump it here' thread might just be the catalyst to get you excited thinking about trading in a different way.

Skate.

 

[Skate]

Question if I may please Skate. You've never been into Fundamental Analysis, always been a Tech?

100% Technicals
I've always been a Tech guy, I can associate with the principle of technical analysis, I like this style of trading.

Expanded explanation
I wish to give an expanded response for others to understand why I prefer technicals over fundamentals. (post to follow)

Skate.

 

[Skate]

Financial disputes judge
I have history of evaluating business in a previous life, I was a financial disputes judge in the NSW legal system. The books are not always accurate, sometimes misleading & deceptive. CEO's & CFO's sometimes massage the numbers, fancy accounting, pushing the boundaries, whatever you want to call it happens more often than you hear.

Crystal-ball
If you trade on financials, the fundamentals of a company (6 months out of date) records with crystal-ball financial projections & statements doesn't work for me. I've posted about 'Woolworths' a company we know well, because we buy our groceries there, but can you clearly articulate how one dollar of revenue flows through that business ?

Investment risk
The more you understand how a business operates, the more you become aware of how little you understand which further compounds the investment’s risk.

Back to your question
Fundamental analysis, has no value to me as I'm a short term trader, but if I was an investor there would be a place for the study of financials. Trading Technical's combines elements of psychology, (which I have accreditation) business, mathematics, and numerous other disciplines and sciences all principles I can relate to.

Technicals
Technical Analysis judges the mood of market participants in real time, we even get to see the buying & selling pressure, it's a pity traders don't follow logic, if they did trading would be much simpler. The market is made up of logical people making illogical decisions

Footnote
1. There are differing opinion between the word Trader/Investor, a traders is a short term investor as opposed an Investor is a long term investor. It's dependent of the time frame being discussed
2. Trading is not a even playing field when it comes to receiving valuable information. There is absolutely no way small individual traders like us has superior knowledge about a company.
3. Understanding financials is time consuming, basically a background check of how company has performed and operated in the past assuming the information passed on is accurate, evaluating a business correctly is hard work.

Skate.

 

[Skate]

Markets
Markets are highly efficient, but not perfectly so. Inefficiencies are inherent in the structure of markets & I believe these inefficiencies can be exploited through a combination of trend detection and risk management. Having a Trend Following system with a trading strategy exploits the inefficiencies over time.

Skate.

 

[Skate]

There are plenty of opportunities
At any given time, there are plenty of opportunities in the share market as there are some excellent quality companies that are growing and out performing their competitors right now & the trick is finding them but what we must do is stay away from tips, rumours & the media.

Skate.

 

[Skate]

Difficult periods
The difference between successful traders and all others is how one handles themselves during difficult periods & there is a gap between the few that succeed and the many who continue to struggle even when they have plan or a great strategy.

Skate.

 

[Skate]

Have no attachment to money
Trading requires a great deal of detachment from the money. Start off trading with a smaller balance so you can take losses without flinching. Beginners tend to gyrate from one idea to another based on what they think is going on in the market or what they read or hear, the media is not your friend, take whatever they say with a “grain of salt”

Skate.

 

[Skate]

Natural ebb and flow
Trading has natural ebb and flow market movements & it affect everyone emotionally when they persist in one way or the other, most traders want calm & servility but this is the wrong mindset to have, as traders we need chaos & volatility. When trading is not going our way it’s easy to envision a scenario in which things will never get better.

Skate.

 

[Skate]

Our approach will vary
The specifics of everyone’s approach will vary, but the broad principles of any successful trend following approaches are mostly similar in application. Traders buy when they think the price of the stock will increase, they buy at one price hoping someone will buy it off them at a higher price. (simple)

Lets not complicate trading
Trading is easy, making money trading is the difficult part. Trading consistently & successfully is even harder, which is why the majority of people who try to make money from trading fail.

Skate.

 

[Skate]

Trading is all about price movement.
Nothing works perfect in trading so the next best thing is to accept 'that sometimes it works well and other times not so well'. Those that can handle that tend to do well. I say just go with the flow. Trading success is all about just luck & you create your own luck by doing all the right things.

Skate.

 

[Skate]

A tip for new traders
Forget about the money & focus on the process of successful trading. The more you obsess about the money the more likely it will derail your as success. Slow steady and methodical trading will win the race & there is never, ever, overnight success.

Delay gratification
If you have the ability to delay gratification, stifle impulsiveness, and shake off the market’s inevitable setbacks and upsets, will make you a successful trader.

Skate.

 

[Skate]

Expected Performance and Risk
The performance and risk will be determined by the index you have chosen to trade in your portfolio, market conditions and the application of the strategy.

Everyone
Every strategy and every trader will have periods of good performance and periods of poor performance yet beginners tend to worry about the short term ups and downs of their account. To be successful you needs to accept that losing periods are a part of the game and remain focused on the longer term outcome.

Skate.

 

[Skate]

So much to understand
It’s frustrating & time consuming trying to figuring out all this stuff, you don’t know and what you are expected to know, this leads to reading & listening to everyone, absorbing heaps of useless information that will turn out to be irrelevant in the early stages of trading.

Experience
Therefore the hardest part of trading is learning from experience or time in the market, its learning how to control your emotions and how to keep persisting even when your account suffers a few losses. It’s about being realistic and having an understanding that we are probably only an average trader at best but that’s okay.

Skate.

 

[Skate]

Lets discuss 'Strategy Development'

If I have a strategy what should I do ?
Before trading or before you make any investment decision please ‘Paper Trade’ your strategy first, making sure your strategy has a mathematical advantage. Your strategy has to have a mathematical advantage for you to make money.

The advantage is simple
Selling the losers whilst holding the winners will at first see your portfolio balance decline, it’s a stressful situation I know, but this is the very nature of how this mathematical advantage works.

Skate.

 

[Skate]

Selling the loser’s will crystallise your losses
For a trend following strategy to work you will need to endure some pain before you see your portfolio increase, if you can handle the pain of a handful of losses, the advantage of holding winners and quickly selling losers will surely kick in.

Give it time
For this strategy to work it’s mathematical advantage you need to be patient as it will take time for this to happens, sometimes it’s a slow process and it can take months for this strategy to develop into profits. That's just the nature of the beast.

Skate.

 

[Skate]

Make sure you test it
Stress test your strategy, backtest the strategy, test it with in-sample and out-of-sample data, and test it over different Indexes and over different time frames, even different markets around the world as your strategy needs to work under all conditions.

Do the work
Backtesting with in-sample and out-of-samples data is a thread in itself & goes beyond the scope of this thread to explain what I mean.

In-sample data
In-sample testing means testing your strategy against data in a sample confined data set, optimising your strategy to achieve the desired outcome. Screwing the strategy allows you to get the best out of your parameters.

Out-of-samples data
Out-of-samples data is data that your strategy hasn't seen before & out-of-samples results are the only results worth taking notice of to critique your trading system.

Strategy development
Strategy development needs In-sample data testing to get to a point where you are happy with the results. Than you can run your strategy to see how it performs outside of known data.

Skate.

 

[Skate]

I have a low level of coding skills and I'm a fiddler
I have a low level of coding skills and I'm a fiddler. I've picked up all my knowledge from reading & playing with code to see what happens if I do this or this & than decide if I can use the results or that idea in the future.

I had a comment
WOW, there is so much to read in the Amibroker manual it's so comprehensive. I went on to explain that I don't know anyone who read manuals these days, think about it, have you. Manuals (IMHO) are for a reference when you get stuck or want to understand a feature a little better.

Not a single new idea
When it comes to trading I haven't been able to come up with one single new idea of my own & that okay, I don’t have the need to reinvent the wheel. I've went overboard on my charting code as I appreciate everything sharp, crisp & colourful.

Skate.

 

[Skate]

Lets talk about Metrics
Metrics are one of the most academic topics about trading systems & there are so many of them that I find it difficult to know which one is more appropriate to evaluate a specific system, its really quite frustrating for me.

A good metric
A good metric is your trading account balance. I wanted to stress that I said 'Trading Account Balance', not your 'Bank Account Balance', they are not the same & you need to understand this very import point.

Portfolio protection
My thinking was leading me down the path of protecting my portfolio whereas I should concentrate & focus my energies on improving what I have. One peculiar thing I noted in my test results is that a good part of the gains comes from a few stocks that move a lot but that's how a trend following strategy works.

Skate.

 

[Skate]

I lost my train of thought
Moreover, running your strategy on different markets around the world could results in SIGNIFICANTLY different results for the same trading period & this is not a cause for concern. Running your strategy over different markets is only a minor indication of what your strategy is capable of achieving in different environments.

Start dates are important to the mix
Depending on the starting date of the test, this can also have a big bearing on the performance outcome of the strategy, this is the very reason why we need to mix the markets, mix the index & mix the dates when backtesting, don't shortcut this vital stage in the development of your strategy.

Skate.

 

[Skate]

Is my strategy a good one ?
It's very difficult for anyone (not just me) to say if a strategy is a good one or not for "you", since (IMHO) it all depends on the kind of trader you are & what is your maximum "pain" level when things start to go not as expected.

We are all different
I mean, what I would constitute & consider a still tradeable strategy for me may not be good for you & vice-versa since it is tightly related to our individual risk‐taking tolerance, time frames, and goals.

Skate