How NOT to trade a speculative miner

[MichaelD]

I would argue that systematic trading of a spectulative miner is one way NOT TO.

I'll be sure and let my backtested, paper traded and traded with real money positive expectancy system know that it actually doesn't work. :

 

[tech/a]

I'll be sure and let my backtested, paper traded and traded with real money positive expectancy system know that it actually doesn't work. :

Michael

Actually upon reflection you make a good point.
You have something that you KNOW has a positive expectancy.So you know within the data presented that if you stick with the blueprint you'll make a profit.Unlike those of us who believe we can out perform it without a blueprint (well a complete blueprint,mines a work in progress) of performance.

Wether knowingly or subconciously,most find small caps a facsinating lure.
The moves which bring 50/100% and beyond in a few days is a temptation which few resist.

On a personal level my fascination is here.
My funds---in volume---are else where.

In my on going research and challenge with these little goldmines,its been my experience that

systematic trading of a spectulative miner is possibly not the most profitable way to go.

So I'll re phrase the statement.

 

[ducati916]

tech/a

An interesting dichotomy.
You advocate a systematic methodology for risk management in one timeframe, and a discretionary methodology to manage risk in a different timeframe.

To what variables do you ascribe the lack of correlation?

jog on
d998

 

[tech/a]

tech/a

An interesting dichotomy.
You advocate a systematic methodology for risk management in one timeframe, and a discretionary methodology to manage risk in a different timeframe.

To what variables do you ascribe the lack of correlation?

jog on
d998

Ducster.

Cant see where Ive mentioned risk?

Let me put it this way.

System trading simply has a set of entry exit and stop rules when applied return X positive expectancy if traded. The X will vary from portfolio to portfolio but will not (In my experience) deviste too much from the mean average of expectancy.--It wont swing widley from 5% to 50% as an example.

Again in my experience finding a system which does as Michaels does ------
100% profitable over 1000s of portfolio tests is in itself extremely difficult.
I havent found one with a meaningful return myself yet. It is of course possible as Michael seems to have one.


By nature systems tend to give back a lot at the point of exit due to the speed in which exits trigger.The balance of time Holding winning trades (To gain a higher R/R ) and price exiting losing trades quickly (Keeping it tight to decrease loss) is very difficult.

Again in my experience---it is pretty easy in a discretionary sence to identify a small cap whos crowd is swelling with anticipation-- reasonably early at least early enough to join in. Knowing crowd behaviour its also pretty easy to see when the new members no longer wish to participate and leave as fast as they come. Something Ive not been able to replicate in a trading system.

So MY VEIW is that its more profitable to trade these in a discretionary way.
Michael may well have a method which returns excellent profit. If I had one which returned 80% a year or 10-15 x R Id use it.---I dont---and I dont know what Michaels returns.

 

[It's Snake Pliskin]

Ducster.

Cant see where Ive mentioned risk?

Let me put it this way.

System trading simply has a set of entry exit and stop rules when applied return X positive expectancy if traded. The X will vary from portfolio to portfolio but will not (In my experience) deviste too much from the mean average of expectancy.--It wont swing widley from 5% to 50% as an example.

Again in my experience finding a system which does as Michaels does ------
100% profitable over 1000s of portfolio tests is in itself extremely difficult.
I havent found one with a meaningful return myself yet. It is of course possible as Michael seems to have one.


By nature systems tend to give back a lot at the point of exit due to the speed in which exits trigger.The balance of time Holding winning trades (To gain a higher R/R ) and price exiting losing trades quickly (Keeping it tight to decrease loss) is very difficult.

Again in my experience---it is pretty easy in a discretionary sence to identify a small cap whos crowd is swelling with anticipation-- reasonably early at least early enough to join in. Knowing crowd behaviour its also pretty easy to see when the new members no longer wish to participate and leave as fast as they come. Something Ive not been able to replicate in a trading system.

So MY VEIW is that its more profitable to trade these in a discretionary way.
Michael may well have a method which returns excellent profit. If I had one which returned 80% a year or 10-15 x R Id use it.---I dont---and I dont know what Michaels returns.

Tech,

It is a bit like crossing roads in perfect theory. In reality there are flies bussing around distracting you and sounds, the wind, rain etc. How do our senses react to these pests? We deal with them in a natural sense picking the easiest way to achieve. That is the essence of the discretionary way.

Acceptance of our risk is paramount. Knowing this allows you to know the lie of the land or what it has for you.

"I'm heading for a $200 loss. What can I do to reverse that"?

Discretionary in the short term makes sense.

 

[BBand]

Hi Michael,
This is my first post, so -----
Excellent topic, and very relevant at this stage of market activity.

WMT was very volatile at the time of your trades and I know the "excitement" that I would have experienced if I had been making your decisions.

When we become involved in fast moving markets it has been my experience that the probability of over-riding our trading plan is more likely as we watch the bid/ask line fluctuate wildely, as the stock is plummeting.

Just as we are about to hit the sell button - missed! and again.

The buy side is OK, we enter on the pre market auction - but how do you handle the sell? to get the best price.

We are all human, and most of us will continue to make the odd (hopefully) trading error.

Forever the amateur.
Peter

Patience is a virtue.

 

[ducati916]

Ducster.

Cant see where Ive mentioned risk?

Let me put it this way.

System trading simply has a set of entry exit and stop rules when applied return X positive expectancy if traded. The X will vary from portfolio to portfolio but will not (In my experience) deviste too much from the mean average of expectancy.--It wont swing widley from 5% to 50% as an example.

Again in my experience finding a system which does as Michaels does ------
100% profitable over 1000s of portfolio tests is in itself extremely difficult.
I havent found one with a meaningful return myself yet. It is of course possible as Michael seems to have one.


By nature systems tend to give back a lot at the point of exit due to the speed in which exits trigger.The balance of time Holding winning trades (To gain a higher R/R ) and price exiting losing trades quickly (Keeping it tight to decrease loss) is very difficult.

Again in my experience---it is pretty easy in a discretionary sence to identify a small cap whos crowd is swelling with anticipation-- reasonably early at least early enough to join in. Knowing crowd behaviour its also pretty easy to see when the new members no longer wish to participate and leave as fast as they come. Something Ive not been able to replicate in a trading system.

So MY VEIW is that its more profitable to trade these in a discretionary way.
Michael may well have a method which returns excellent profit. If I had one which returned 80% a year or 10-15 x R Id use it.---I dont---and I dont know what Michaels returns.

Your referral to risk was on the risk thread, where you eulogised on the merits of a mechanical measure of risk;

So then to quantify RISK is in every single case subjective so to over come the problem allocate RISK.

This then places a bottom on the RISK that we take on any one trade.
We have control of that risk.
Its called an INITIAL STOP

In itself this is not sufficient enough to Manage Risk

What we dont have control of is the number of times our stop will be taken out in any period.---So to equate the effectiveness of our setting of a stop and its effectiveness as a money management tool we need 3 more pieces of information.

(1) Over X period (The longer the better) what was the greatest string of consecutive losses?
(2) Average consecutive losing trade.
(3) Whats is our average win to our average loss.

Without these three important pieces of information setting of a stop could be simply like filling a bucket with a hole in it.

Therefore in essence your *discretionary* methodology would seem to be violating your *risk management*.

The reason foe this violation would seemingly be;

So MY VEIW is that its more profitable to trade these in a discretionary way.
Michael may well have a method which returns excellent profit. If I had one which returned 80% a year or 10-15 x R Id use it.---I dont---and I dont know what Michaels returns

Viz. You do not have a profitable mechanical methodology; but, you are getting greedy watching these big 100%+ daily moves in the speccies and want some of the action.

Again;

Again in my experience---it is pretty easy in a discretionary sence to identify a small cap whos crowd is swelling with anticipation-- reasonably early at least early enough to join in. Knowing crowd behaviour its also pretty easy to see when the new members no longer wish to participate and leave as fast as they come. Something Ive not been able to replicate in a trading system.

*Experience. A very subjective position.
*Knowing crowd behaviour; again subjective
*Not able to replicate; does this not suggest that it is not quantitative, but subjective [based on your ability]?

It would seem based on the above evidence that the Bullmarket has worked it's magic on you, distorting, and diminishing your risk management, taking you away from what made you profitable, into the dangerous ground of flying by the seat of your pants mode.

jog on
d998

 

[tech/a]

Your referral to risk was on the risk thread, where you eulogised on the merits of a mechanical measure of risk.

Therefore in essence your *discretionary* methodology would seem to be violating your *risk management*.

The reason foe this violation would seemingly be;
viz. You do not have a profitable mechanical methodology; but, you are getting greedy watching these big 100%+ daily moves in the speccies and want some of the action..

Most Risk principals can be employed when trading in a dsicretionary manner.
Didnt and dont see it as a problem

Again;

*Experience. A very subjective position.

Duscster I hope you never need the services of a specialist. Your stress on finding an "experienced on would be detrimental to your health!

*Knowing crowd behaviour; again subjective.

No its predicatable,and with the help of the power of computers can be measured and implemented into trading.Mechanical/Systems traders can also measure its performance and some of us have that performance on the nett.
Infact so do you Duc on your thread.

*Not able to replicate; does this not suggest that it is not quantitative, but subjective [based on your ability]?

No its based on my poor ability to be able to code it!!!!

It would seem based on the above evidence that the Bullmarket has worked it's magic on you, distorting, and diminishing your risk management, taking you away from what made you profitable, into the dangerous ground of flying by the seat of your pants mode.

No its simply an area which fascinates me and I wish to investigate further.


jog on
d998[/QUOTE]

 

[BBand]

Personally, I do not see why a small cap cannot be traded systematically, it may mean that you cannot use your normal trade size due to possible liquidity or volatility concerns, but if it has been properly tested, which Michael's appears to have been - then I do not see a problem

Most of us probably do not have deep enough pockets to consider system trading anyway, (supposing we wanted to).

Discretionary methods work - how else did our system traders build their trading capital?

In any case discretional trading is much more interesting and you do not have to be a zombie to trade successfully

Just my belief

Peter

 

[nizar]

Personally, I do not see why a small cap cannot be traded systematically, it may mean that you cannot use your normal trade size due to possible liquidity or volatility concerns, but if it has been properly tested, which Michael's appears to have been - then I do not see a problem

Most of us probably do not have deep enough pockets to consider system trading anyway, (supposing we wanted to).

Discretionary methods work - how else did our system traders build their trading capital?

In any case discretional trading is much more interesting and you do not have to be a zombie to trade successfully

Just my belief

Peter

Hi Peter,

Iv been thinking about systems trading and backtesting for the last few days, and my conclusion is, its the best way to trade. Its not by all means the only way to trade profitably in the markets, but its the only way you can trade confidently in my opinion, and ill explain why.

For new traders like myself, the last 2-3 have been a dream. We all have a trading plan, and we think our plan works, but every fool and his dog has been making money the last few years, and some bullmarket champions like to think its because of their fundamental research, or because they can read charts, or because of their method. But when you have 80% of the mining sector going up, its not really that hard to make money. Throwing darts, ini-mini-miney-mo, whatever you did the last 3 years, it probably worked.

The only way to know if your method ie. your plan, is profitable over the long term, if to backtest it and especially to backtest it through previous less than ideal conditions. And you can only backtest trading systems that are systematic.

Discretionary backtesting yes you can do it but it will introduce alot of biases into your results - because you can see the right hand side of the chart.

So once you have backtested your systematic plan over a certain universe going back through bear markets, and sideways markets as well as bearmarkets, and its profitable with acceptable drawdowns and standard deviations (and montecarlo analysis gives 100%), and has a positive expectancy that you are happy with, you can trade with confidence knowing that if you stick to the blue print, you will succeed.

Also Michael - getting a bit off topic here but do you use a time stop or profit taking stop, and if not why?

Thanks.

 

[Out Too Soon]

Michael,
--- WMT announced the BHP JV when the Indices began to fall after the China fall. -----

Having berated everyone about using stop-losses & sticking to a plan no matter what I'm surprised at you Michael.
With a little study of T/A it's obvious that T/A is very useful for guessing what the crowds going to do, all the same it's like trading with one eye closed when you don't know why the sheep are running the way they are. Of cause fundamentals bring in emotional bias & there-in lies the difference between traders & the way they trade. Personally the way I trade I very rarely use stops but I like to know why the crowd is moving, not just how many & how much. :

 

[tech/a]

The only way to know if your method ie. your plan, is profitable over the long term, if to backtest it and especially to backtest it through previous less than ideal conditions.

Almost impossible in stocks due to surviviourship.

So once you have backtested your systematic plan over a certain universe going back through bear markets, and sideways markets as well as bearmarkets

A common error. Attempting to design ONE FITS ALL.
Also see above.

and its profitable with acceptable drawdowns and standard deviations (and montecarlo analysis gives 100%), and has a positive expectancy that you are happy with, you can trade with confidence knowing that if you stick to the blue print, you will succeed.

Now where'd you get that from?

 

[nizar]

Haha, yeh from you tech, mostly you, and some from Michael.

What i plan to do, and this will take some time, is to construct a system that can trade long term trends, one for uptrends, and one for downtrends.
And then trade discretionary breakouts on the side.

By the way, did you see APG today?
Reminds me of WMT last week on the 5th.

 

[Kauri]

Now where'd you get that from?

Crowd behaviour???

 

[tech/a]

Well I guess if it talks like a duck and walks like a duck-----.

I cant talk I got a lot of the positive expectancy stuff from other sources.
Got the same comment as Nizar myself!

 

[MichaelD]

Also Michael - getting a bit off topic here but do you use a time stop or profit taking stop, and if not why?

Profit Stop: Yes for the short term system, No for the long term system.

Time Stop: Not for either system, however, once I'm up to 100 or so trades with the short term system I intend to go back and analyze if a time stop would be of benefit - the one stat which I'm a little concerned about with the system at present is that the losers seem to be being held longer than the winners. i.e. when they win they win quickly, but when they lose they linger. It may benefit the system from an opportunity cost viewpoint to cull stocks that don't immediately perform as desired.

Almost impossible in stocks due to survivorship.

Just a lot of work to construct a prior version of a universe. I've done it and found the effort well worth it.

Personally the way I trade I very rarely use stops.

Buy and hope it's only a correction if the price goes down (the 'it's a good company' strategy) is not a particularly efficient trading strategy. Sooner or later some of the corrections will turn into catastrophic losses.

 

[tech/a]

Just a lot of work to construct a prior version of a universe.

Michael.
Ive never been able to find the constituents for say the ASX 200 say 10 yrs ago---let alone the data.
Where do you get that information?

 

[BBand]

Hi Nizar,
I am a discretional trader by default - and I love it. I could never become a systems trader - they have to take every trade their system throws up, otherwise they may miss the big trade(s) that account for their having a profitable year

Backtesting - Again I am not a great believer in automated backtesting over a period covering all market conditions - and "tweaking" to optimise results.

Sure doing this will tell you if or not your system has a positive expectancy - and provide you with many opportunities to trade - the more the better, and the bigger the profit at the end of the year.

BUT included in the results is probably a lot of debris ie trades associated with exdivi dates, abnormal conditions which may never happen again etc, etc.

Being a discrectional trader, I am just interested in if my setups are working in the present market conditions.

Initially I manually backtested a cross section of my trading candidates over a three month period, I logged all trades and their individual returns. I then checked out the trades that produced the highest returns to find out what they had in common (checking against my standard chart setup).

The outcome is I have a preferred set of conditions that I look for in my setups

I only trade from the long side (approx 10years). I basically trade breakouts from stage 1, breakouts from stage 3, trend continuation following a correction and trend reversals. I do not trade trend reversals in a bull market. Even in a bear market I find plenty of the above trades to keep me satisfied

I have manually checked all setups over all market conditions - they all work, the only difference is that depending on the type of market, one particular setup becomes more dominant.

I have the setups coded into my nightly scans - no problem

Sometimes I am quite content just to stand aside and wait for trading conditions to settle down (like now) before getting back into the action.

Trading is all about probabilities, if we can stack as many of what we interpretate as pluses on our side , so much the better - thats our so called edge.

The only problem is, when we trade, the person we trade with has exactly the opposite view to us!! who's right?

We are all individuals with our own views, thank goodness, otherwise there would be no market

Nizar, I hope the outcome of your testing proves to be profitable.

May your profits continue.

Peter

Patience is a virtue

 

[MichaelD]

Michael.
Ive never been able to find the constituents for say the ASX 200 say 10 yrs ago---let alone the data.
Where do you get that information?

The indexes aren't quite 10 years old yet, but buried within the ASX site and very hard to find with a search (or it was when I found it) is this gem;

http://www.asx.com.au/about/pdf/CompanyIndex.pdf

Of course, that's only the beginning of the hard work...

I basically trade breakouts from stage 1, breakouts from stage 3, trend continuation following a correction and trend reversals. I do not trade trend reversals in a bull market. Even in a bear market I find plenty of the above trades to keep me satisfied

These are very interesting comments considering that I pick exactly these setups as well when going through my short term trading signals and have found them to have an edge over simply taking all breakout signals.

Weinstein was obviously onto something - perhaps not many people are keen on it because it's so simple.

What do you use for an exit?

 

[tech/a]

Peter

Sorry but!! I just dont agree with much of your writings.

Hi Nizar,
I am a discretional trader by default - and I love it. I could never become a systems trader - they have to take every trade their system throws up, otherwise they may miss the big trade(s) that account for their having a profitable year

Absolute nonsense and a complete misnomer. You should learn more before you comment.

Backtesting - Again I am not a great believer in automated backtesting over a period covering all market conditions - and "tweaking" to optimise results.

Again not necessary.Niether michael or I do this with our systems---mind you trading a singular instrument could well be worth optimising---again do more research.

Sure doing this will tell you if or not your system has a positive expectancy - and provide you with many opportunities to trade - the more the better, and the bigger the profit at the end of the year.

Wow 3 in a row!!

BUT included in the results is probably a lot of debris ie trades associated with exdivi dates, abnormal conditions which may never happen again etc, etc.

All possible conditions found during a test period should be included wether you think they may not ever happen again or not.

Being a discrectional trader, I am just interested in if my setups are working in the present market conditions.

Initially I manually backtested a cross section of my trading candidates over a three month period, I logged all trades and their individual returns. I then checked out the trades that produced the highest returns to find out what they had in common (checking against my standard chart setup).

The outcome is I have a preferred set of conditions that I look for in my setups

A common error for most traders where they believe entry and "setups" are the most important factors when in fact they are the least.

I only trade from the long side (approx 10years). I basically trade breakouts from stage 1, breakouts from stage 3, trend continuation following a correction and trend reversals. I do not trade trend reversals in a bull market. Even in a bear market I find plenty of the above trades to keep me satisfied

Probably the most common of trading setup/triggers used by traders.
Works well for many---I see your a Weinstien fan.

I have manually checked all setups over all market conditions - they all work, the only difference is that depending on the type of market, one particular setup becomes more dominant.

Again a common error in manual eyeball testing.All setups will appear to work as they will ofcourse be seen in hindsite.

Trading is all about probabilities, if we can stack as many of what we interpretate as pluses on our side , so much the better - thats our so called edge.

Well no its not.I can show you how you can be right 85% of the time and still be a nett loser.
I can also show you how you can be right 35% of the time and be a huge winner.

The only problem is, when we trade, the person we trade with has exactly the opposite view to us!! who's right?

Hmm the Efficient Market theory---ever thought that the guy on the other side of the trade maybe taking a 200% profit and still agree with you by leaving stock un sold?

[/QUOTE]