How to trade and/or invest profitably --- without the Bullsh*t

[tech/a]

Supply and Demand in the Market Depth

Will be a topic as in how I use it (The Ladder) with Very fast volatile stocks.
Other than that The real action takes place at market I rarely take any notice of Depth.

 

[tech/a]

On Inside days.

It is very common for Wide range days with high volume to be followed by an inside day.
Th wider the range of the bar (Inside) and the lower it closes the more likely Price action will
slow and NOT take out the high anytime soon. Smaller inside bars within the top quartile of the wide range bar can be very strong continuation indicators.

Note this is OFTEN the case with Wide range bars with average volume as well.



Here are some examples of continuations and reversals in Bar analysis.
Of course like all forms of analysis they INDICATE strength or weakness.

 

[barney]

Will be a topic as in how I use it (The Ladder) with Very fast volatile stocks.
Other than that The real action takes place at market I rarely take any notice of Depth.

Yep, absolutely. At market is where the bulk of the "intention" is being displayed.

Deciphering the intention on the fly is not always easy of course

Consistent short term Traders are a rare breed in my experience. Personally I'm pretty average ST although getting better.

I went back to "slow motion" trading about 3-4 years ago for that reason. (Very good decision)

As Dirty Harry said, "A man needs to know his limitations", lol.

The Thread is a nice "give back" of your own personal experience Tech. Cheers for that

 

[tech/a]

I have another for you Barney

“ We all rise to our level of incompetence “

 

[barney]

I have another for you Barney

“ We all rise to our level of incompetence “

Indeed Tech, lol. It is a wonderfully inciteful and humbling principle.

Personally I am still no where near as incompetent as I think I can/could be.?

ps when I said above ... Supply and Demand within the Market Depth

I meant/should have said S + D within the Order Flow .... big difference of course!

 

[vharik831]

Hi Tech,

Hope you don't mind commenting on the charts I post. Please let me know if you want me to take this to another thread.
Am I on the right track with the two - GLL and NRX based on your posts above on range and momentum?




Thanks,
Hari

 

[tech/a]

Hari (I started typing this 1 hr ago).

I've actually Spoken to Joe about the flow of the thread.
Currently have decided to leave things as they are but once I've finished
Will clean up the Thread so that the Message isn't lost for those in the future
who use it.

To the charts

GLL is on a watchlist which triggered a buy yesterday which I didn't take.
GLL is testing the high so will be interesting Id expect a retreat but if it powers through.
Off to the races. (As I type its doing as expected).

NRX
Pretty clear that there was and is Supply finishing off its highs. So again a pull back or
blast through ---This is not a set up I would consider by the way but a good exercise
in Range Volume and Pattern ---As I checked just now it is also behaving as expected.

Good questions and charts!

 

[ducati916]

I'm not sure that Duc and Tech are disagreeing except in the use of the word 'Supply' and what it reffers to.

This is my understanding of what each is referring to when they use the word 'Supply'.

1. It appears Duc is referring to the overall shares available to be traded in a company. He is correct in saying this does not increase or decrease outside of additional shares being issued as in a cap raise

2. Conversly, Tech's use of the work Supply is referring to the amount of shares being offered for sale by willing sellers at any given time. Which will fluctuate all the time.

As an example;
Company XYZ may have 1,000,000 share that are able to be traded. This is the overall supply Duc is referring to and wont change.
Of those 1mil shares, many will be tied up in escrow, institutions, long term holders, directors and the like that generally are not offering them for sale. These shares will often be held through thick and thin regardless of what the share price does.

So from the 1mil shares available to be tradedin XYZ, lets say 400k maybe tied as mentioned above up and not generally offerd to the market.

The other $600k are the shares that are treaded from time to time by all sorts of holders. This is the suppply that Tech is reffering to when he talks about the amount of supply. The 600k that will get traded from time to time. The fluctuating supply he is referring to is how much of that 600k is curently being offered for sale at the current price, and as the price decreases or increases.

I welcome Duc or Tech to correct me if my assumption is wrong.

1. Correct.

2. Again, correct.

The issue is that if at the margin the volume (supply) of shares varies and is subject to change, what causes that change in supply?

It can only be that the volume of buyers (demand) at the margin increases. We saw exactly this issue play out it GME recently. GME had X supply of shares. Price kept moving higher and higher as buyers (demand) exceeded the marginal supply, until we ran out of demand. Demand was driven significantly by short sales exceeding total supply of shares. So we did have in addition, a true supply issue.

Supply was a constant in total. It varied at the margin.

Whereas in the futures markets for commodities, we have almost the opposite. Demand for commodities in the aggregate is fairly stable. Demand may/will increase over time as economies grow, but this is usually gradual. Supply is harder to predict, particularly in foodstuffs/grains/etc. Planting/weather/prices may all impact supply in the short term, in the face of a fairly predictable demand. This will then drive an increase in price.

Returning to stocks and market depth, which is the balance of supply/demand at the margin. The following 2 indicators are useful in determining the balance between the 2 variables:



When day trading, you buy/sell the extremes. They can be adapted for swing trading.

In summary, the issue between us is likely only a semantics issue. As such, the reading/interpretation of volume is an area that I know very little as I do not use volume at all.

jog on
duc

 

[vharik831]

Thanks for your analysis on my previous charts. Based on yesterday exploration, had a couple of questions on the below -

RAC - Yesterdays bar made a new high on volume. However, it did not close above the previous high. Do you see this as a valid setup to take the trade on a trade above the yesterdays high?

KGL - There is a pattern. Breakout and pullback to the breakout, before making another high. Do you see the probability of patterns repeating on the same charts? However, this was a strong close at the high of the bar.

Appreciate your comments.



Thanks!
Hari

 

[tech/a]

Hari

Needs a little more time to reply than I have right now.
Will get to it this week.

 

[vharik831]

No problem!

Looks like this approach also keeps you out of market on days like this. I could only get a couple of symbols in the scan, as against a whole bunch yesterday and day before.

Most of the breakouts since the past couple of days, that I was following retraced and closed inside the range or below the previous highs.

 

[tech/a]

Hope to get a bit of time soon.

Carrying on from an intro into Finding Momentum'
Yet to come More ways of anticipating Momentum
--then spotting slowing or reversal of Momentum
After these----

Next

(1) Portfolio Trading or fewer stocks?
(2) Discretionary or Systematic?

Then

(1) Building and managing a watch list.
(2) Some ways to manage trades.
(3) Maximizing bang for Buck--regardless of
capital base encompassing RISK and The continual
battle with your R/R.

 

[tech/a]

What caught my eye was: you need to accept volatility. Well yes you can or you can directly trade vol. That is what I do. I am indifferent to market direction. I trade vol. and price. Price in either direction, but what I seek primarily is high vol. and crazy moves. So vol. is an opportunity to build a trading strategy, rather than something to be accepted or endured.

As such, the reading/interpretation of volume is an area that I know very little as I do not use volume at all.

errrr huh???

 

[ducati916]

errrr huh???

Vol(atility).

jog on
duc

 

[tech/a]

Vol(atility).

jog on
duc

Ohh IC

Duc

Can you define for me

(1) Is the volatility you look for over a period?
(2) How do you determine when enough is enough (volatility)?
(3) How do you know when the volatility has ceased to a point you cannot benefit?
(4) Is this (your approach) Systematic or Discretionary ?
(5) Can you define (or how would you)-- edges to volatility extremes?
(6) Limited to Stocks or Commodities/Indexes where you can trade long and short?

I note Volatility tends to be contagious. Would you agree.

 

[ducati916]

Ohh IC

Duc

Can you define for me

(1) Is the volatility you look for over a period?
(2) How do you determine when enough is enough (volatility)?
(3) How do you know when the volatility has ceased to a point you cannot benefit?
(4) Is this (your approach) Systematic or Discretionary ?
(5) Can you define (or how would you)-- edges to volatility extremes?
(6) Limited to Stocks or Commodities/Indexes where you can trade long and short?

I note Volatility tends to be contagious. Would you agree.

1. Yes, I prefer longer periods to shorter periods, but that is a personal thing, it is not required.
2. There can never be too much vol. There can definitely be too little. This is the risk. Flat, zero movement.
3. When everything is flat (no movement) and/or a tight prolonged trading range that falls within your (profitable) rebalance.
4. Both. You can use a model to rebalance (BS as an example) or you can override your model and use your experience/best guess.
5. The VIX gives a pretty good model to follow re. extremes.
6. Yes.


Volatility has a number of very useful characteristics. It has a top bound (unlike price which has no limit) although every now and then we get a slightly higher reading and a non-negative lower bound. Within that range, vol. is mean reverting. Vol. once it reaches an extreme will mean revert.

Obviously, this is a very useful characteristic for traders of vol. and of any trading endeavour.

jog on
duc

 

[tech/a]

So The No Bullsh*t

Simplistic explanation is to Find opportunities to identify Momentum
Place yourself in the position with the lowest risk to take advantage of
it and hop on for the ride. Forever on the look out to minimize risk to
your open profit.---In doing so you-ll maximize your R/R.

In My view I can see opportunity here where momentum can be seen in a great number of areas including Fridays bar.
Low risk opportunities abound on the chart. So to is a clear example of what we want to find.
APT is a freak example but there are MANY more. You dont need the complete move there were plenty of opportunities
in this chart to increase your capital in this trade by 50%.



Here is another one




For now Im hoping that there is enough to show Momentum
how you can spot it even if not at its very beginning and the
characteristics to look for when it slows or leaves us and changes
direction.
This opens up questions ones I have pondered and have changed my
longer term trading approach.


(1) Portfolio Trading or fewer stocks?
(2) Discretionary or Systematic?

 

[tech/a]

Just before I get on to Portfolio or Discretionary trading.

Remember It takes only ONE opportunity to be life changing.
Never stop looking for opportunities
Never stop taking up opportunity.

Trading/Investing/Property/Business/Personal life/Occupation

 

[tech/a]

Discretionary or Systematic Trading/Investing

Done a lot of both --- The following is my opinion and it may not be yours.

Systematic trading (to me) is a specific set of Conditions and Parameters run over a data set
in the hope of finding a repeatable correlations in the data along with Risk controls
to find a profitable,repeatable rules based trading method. This is done both Fundamentally
by some and often by the use of computer software to develop systems.

I think at some stage in every traders journey they should trade a Systematic method that
has an edge---look until you find one. Currently that edge need only be higher than bank
interest and most managed funds (5-12%). I can tell you it can be done.
If you want a free one Tech Trader is published in Radges Book "Un Holy Grails"
Page 107 from Memory.

Systematic or Mechanical Trading

Formulating a trading plan based around a set of conditions and parameters Fundamentally or
Technically with or without Risk parameters and applying it to a data set. (Our Universe)
We are looking to find repeating conditions satisfied by our parameters that give us a result that
in trading or investing shows a clear edge over random Entry/Exit.

Right now we only need to out perform Bank interest and Most Managed funds (Around 2-12%)
My experience is that very good systems return 15-50% (50% Being the best I've seen).

For me the obvious advantage is having a tested plan which when tested on past data shows
a probable similar out come on current data. You are left with a blueprint which you can compare
to your live results to see if your Over performing Under performing or BROKEN.

Most systems preform extremely well for the Market conditions they are designed for and the best
I've seen do well on very limited universes which can be traded long and short. Market conditions
DO CHANGE and systems can and do break. Long only systems work brilliantly in Bull Markets and
poorly in flat and Bear Markets.

The drawbacks for me are.
The obvious edge we want is to stay in trades which are trending in our direction. When you have
a set of conditions to satisfy often for both Entry and Exit there is often a lot of time spent in trades
which have satisfied one (Entry) and not the others (Exit or Stops,Initial or Trailing). Hence there is
a great deal of opportunity cost involved in Systematic trading while we sit in trades doing nothing.
Time stops can be designed.

Often Universes and corresponding datasets are large.
Large numbers of stock held in a portfolio will dilute risk but will also
dilute reward as not all will be running profits at the one time.

I have to wait for my trades to satisfy my inputs even though I may think (or know) it is not wise.
Blind faith.

I do trade Systematic portfolios. The best are those that identify parameters and conditions which repeat
in a number of datasets that we cant/dont see. These are edges that we do not readily identify with.
The big benefit is that Systematic trading is less time consuming. Relatively maintenance free.
and if you get it right plain BORING.

Discretionary Trading

Here we have the ability to apply any number of conditions and parameters on trades. I can work in a number
of time frames at once and can constantly work on my Return on Capital and Risk.

To me Discretionary trading is more about managing what we do when we are WRONG than getting it right.
I can very quickly see if my analysis for entry is WRONG
I can see quickly if there is an opportunity to load up a position for maximum return.
I can see if my Initial Stop (which determines initial risk) is likely to get hit and do something about it rather than watch it get hit!
I can see if my profit is likely to be severely eroded if I continue to hold.
I can see quickly if I need to reenter a trade that I left prematurely.
I can move to break even and sleep! or Go to a meeting.
I can do something when Im WRONG and that's A OFTEN !
I can concentrate on a few prospects and minimize opportunity cost.
I like being wrong it means I can do something about it and have another chance of getting it right.


But most of all -- I CAN INCREASE MY REWARD TO RISK.
By constantly working on my initial risk and initial loss amounts
AND
Maximizing profit by minimizing open profit loss.

Its here where the big return on risk and capital comes I know of a discretionary
trading method which is up 520% since September.
Another which is up 350% over 4 years and another 450% over a similar period.
So discretionary trading methods dont need to be over Hours or Minutes but can
be longer term.

NEXT

RISK
Initial and Capital Risk in Trades. How I work on these constantly in my discretionary trading.

 

[ducati916]

1. To me Discretionary trading is more about managing what we do when we are WRONG than getting it right.
2. I can very quickly see if my analysis for entry is WRONG
3. I can see quickly if there is an opportunity to load up a position for maximum return.
4. I can see if my Initial Stop (which determines initial risk) is likely to get hit and do something about it rather than watch it get hit!
5. I can see if my profit is likely to be severely eroded if I continue to hold.
6. I can see quickly if I need to reenter a trade that I left prematurely.
7. I can move to break even and sleep! or Go to a meeting.
8. I can do something when Im WRONG and that's A OFTEN !
9. I can concentrate on a few prospects and minimize opportunity cost.
10. I like being wrong it means I can do something about it and have another chance of getting it right.

1. Agree. And what that actually means in practice is salvaging losing trades. For example adding an Options leg or a paired trade, etc. to the trade in question to change it from what is was, to something else.

2. If you are setting some form of stop (at say a resistance/support level) or maximum dollar loss, etc. yes, you'll be provided quite quick feedback. That is not necessarily the same as 'analysis', that is simply a timing or entry issue.

3. Yes, but, it can still turn to custard. Experience in discretionary trading is the big differentiator from mechanical trading. Novices, simply by definition lack this 'skill'.

4. Again, experience. Second, it really depends on how you set your SL. A SL set re. risk, may not be the accurate placement in the market re. support/resistance etc.

5/6/. Again, experience (often a subjective assessment) will play a significant part.

7. Moving to SL to BE manages risk, but can often reduce reward. Again, that BE point should have some reference (other than your personal need) to market levels.

8. Agreed.

9. This question is undergoing some analysis on @peter2 thread currently. Ultimately, if we could all pick the number 1 return, we would all put 100% into that. Pretty much impossible on a consistent basis. Therefore the question of narrow or broad is an issue, but it is unlikely to be determinative, as there are other variables at play.

10. I hate being wrong. It is currently fashionable in the literature to 'love being wrong' as this is educational and will improve you in the long run. An analogy: athletes: how often do you hear the champions state that they love to lose? Never. To win, you have to hate or fear losing so much, that you are prepared to do whatever it takes to win. Trading is like that. If you trade and you lose, lose, lose...odds are you will stop trading. Far better you first learn how to trade. Then trade. And win. From the Reefcap days, I know tech/a, WayneL, Country Lad and Joules (there maybe a couple of others lurking) that's it. Out of 100's of members. Trading is a tough game. Discretionary is hard and mentally debilitating if you lose. I almost guarantee you, if you lose often, but limit your losses, at some point you will decline to take that small loss and you will end up with a massive loss. Not only will that hurt you financially, it will likely break you mentally and emotionally. Your trading career will be over.


jog on
duc