Is T/A based on hope?

[CanOz]

She's got you there mate! LMAO!

 

[Bobby]

Just don't know how you cope with knowing so much and being so good at everything.

Julia

Greeting Julia,

Although I do agree with your post, our realist is funny we all know He shot his load long ago !

Bob.

 

[Realist]

Wow, Realist! Now you're an expert trader as well as a devoted fundamentalist. Now if you can just turn your expertise to tax, self managed super funds, superannuation in general, managed funds etc etc......., we will all become redundant on this forum.

Just don't know how you cope with knowing so much and being so good at everything.

Julia

Sadly these are not my original ideas, they are Ben Graham's.

And yes for self managed super funds, investing, and managed funds you should use the same theory. Buy wise and hold. And by doing that you fix the final problem, tax, because there is no tax!!

I hope you held WDC Julia. It is up 14.7% including dividends in the past few months.

But then again you've stated you're not happy with such small returns, pity.

What should one do for greater returns in your opinion?

 

[swingstar]

Sadly these are not my original ideas, they are Ben Graham's.

Out of curiosity, did Graham invest during the Great Depression? If so what were his results?

 

[It's Snake Pliskin]

Out of curiosity, did Graham invest during the Great Depression? If so what were his results?

He probably bought perceived value that was, in hindsight, expensive buying.

We all know about Livermore though. :beat:

 

[hanover]

Hi Realist

Thanks for your reply.

IMHO, there's nothing wrong with the view that trading is an art that requires skill, judgement, discretion, and breaking the rules under appropriate circumstances. But as an analyst/programmer, I would argue that if a certain situation(s) require some kind of judgement, or deviation from the existing set of rules, and that it can be shown that such a variation would increase profitability in a statistically significant manner, then there is a case for the rules to be modified to accommodate it. This might necessitate complexity of definition, and coding, but it means that there is no reason why the system can't remain 100% mechanical. Going through the discipline of defining a rule clearly, and establishing that it has statistical validity, is a valuable exercise.

My view is that psychology need not become an issue in trading, but that we unnecessarily make it so. Psychology resolves itself to discipline – having the courage to "pull the trigger" when the rules deem it profitable, and the patience to stand aside likewise. If one has the confidence that, statistically, one is making the best possible decision at every point, and that deviation from the rules will theoretically result in inferior profitability, then there is no incentive to deviate. The problem with discretionary actions is that they can become gradually more subjective, to the point where hunches and guesswork take over. Rather than trading what the chart is saying, one trades how one thinks and/or feels, and will somehow find "justification" in the chart for doing so.

A second possible reason for deviation from the rules is position sizes that are too high. IMHO positions should be sized according to emotional tolerance, even if this is results in smaller positions than dictated by any "percentage of total capital" type rule. When one starts to become concerned about the dollar amount actually being won or lost, emotional detachment is being compromised.

Of course we know that the market can do anything that it wishes, and that, with price movements being driven by emotional rather than mathematical considerations, probabilities can not in reality be calculated. But if statistical confidence levels give one the confidence to trade according to one's clearly defined plan, then they are invaluable for that reason alone.

Best wishes
David

 

[It's Snake Pliskin]

Hi Realist

Thanks for your reply.

IMHO, there's nothing wrong with the view that trading is an art that requires skill, judgement, discretion, and breaking the rules under appropriate circumstances. But as an analyst/programmer, I would argue that if a certain situation(s) require some kind of judgement, or deviation from the existing set of rules, and that it can be shown that such a variation would increase profitability in a statistically significant manner, then there is a case for the rules to be modified to accommodate it. This might necessitate complexity of definition, and coding, but it means that there is no reason why the system can't remain 100% mechanical. Going through the discipline of defining a rule clearly, and establishing that it has statistical validity, is a valuable exercise.

My view is that psychology need not become an issue in trading, but that we unnecessarily make it so. Psychology resolves itself to discipline – having the courage to "pull the trigger" when the rules deem it profitable, and the patience to stand aside likewise. If one has the confidence that, statistically, one is making the best possible decision at every point, and that deviation from the rules will theoretically result in inferior profitability, then there is no incentive to deviate. The problem with discretionary actions is that they can become gradually more subjective, to the point where hunches and guesswork take over. Rather than trading what the chart is saying, one trades how one thinks and/or feels, and will somehow find "justification" in the chart for doing so.
A second possible reason for deviation from the rules is position sizes that are too high. IMHO positions should be sized according to emotional tolerance, even if this is results in smaller positions than dictated by any "percentage of total capital" type rule. When one starts to become concerned about the dollar amount actually being won or lost, emotional detachment is being compromised.

Of course we know that the market can do anything that it wishes, and that, with price movements being driven by emotional rather than mathematical considerations, probabilities can not in reality be calculated. But if statistical confidence levels give one the confidence to trade according to one's clearly defined plan, then they are invaluable for that reason alone.

Best wishes
David

Hi David,

Thanks for the comments. Have a look at the blue and red sections.

Snake

 

[It's Snake Pliskin]

What should one do for greater returns in your opinion?

Why not follow Graham and try some trading on the side?

Go time machine style. It is the holy grail!

 

[Bobby]

Hi David,

Thanks for the comments.
Snake

I'll second that Snake, they were excellent !
Top post David .

Bob.

 

[ducati916]

Kahneman et al showed that human psychology [in aggregate] sought minimisation of loss, over and above the seeking of profit.

Viz. the psychology registered greater pain, on a loss, than pleasure on a win.
This was also the central credo of Game Theory, that the correct *rational* strategy was one of *not losing* rather than trying to win.

When linked to probability studies, the following was calculated;

Example;
An investor who can earn a return of 15% in excess of the Treasury rate, with 10% volatility. Calculated via standard deviations;

Probability of making Money
Scale...................................Probabilit y
1yr.........................................93%
1Quarter.................................77%
1month...................................67%
1day......................................54%
1hour.....................................51.3%
1min......................................50.7%

In the short-time frames, it is a 50/50 proposition, but stretched out to the longer time frames, the probabilities rise very high.

The longer time frame, is generally associated with the *investor* rather than the trader, although that is inaccurate as longer term trend following systems such as TT will exceed that timeframe.

What does become apparent however is this;
If, loss, effects a negative psychological reaction due to the aforementioned greater pain due to a loss, you will by trading short-time frames build up a lot of psychological damage due to the lower probabilities of success.

This aversion to the psychological pain, will affect function of the decision centres within the cortex that are vital for efficient and unbiased processing of information, thus exacerbating the breakdown of optimal *rational* functioning, and the change to *emotional* decisions.

Thus, in a chart, you no longer look at it in a rational manner, you look at it in an emotional mind-set, looking to minimise further losses.
This is the path that erodes, and eventually destroys discipline

jog on
d998

 

[It's Snake Pliskin]

Good post Duc!

Why is it that most focus their psychology on losses, or, negative moves rather than positive moves or wins?

 

[Realist]

Out of curiosity, did Graham invest during the Great Depression? If so what were his results?

He went basically bankrupt.

 

[Realist]

Hanover, it seems that you are treating Trading as an exact science.

Trading is not a science, and here's why...

If there was an exact mechanical or automated trading system that made money then people would use it, infact everyone would use it.

Chartists have been around in plentiful numbers for many decades now, Ben Graham was commenting on how they affected the market in the 1940's.

The very fact that not everyone is using the same system and not everyone is making money is testament to the fact that there is no one proven system that works. And it is testament to the fact that if there was a proven system that always worked in the past then as more people use it the less success the system would bring.

Trading is an art. It requires human intervention, human interpretation, judgement and skill. There is no exact way to trade. If you are using the exact system as others then you are competing on buying and selling at exactly the same time, and that creates slippage and bidding wars that would eventually mean your method of making money no longer works.

Infact as more people use one system others use that to their advantage, I'm sure some institutions spot a good company they want to buy, then deliberately pull down the stock price to initiate stop losses then get in the stock cheap when all the traders have been stopped out and the price has plummeted. No trader will then touch the stock cause its chart looks terrible, then the investors jump in and hold happy in the knowledge they got a bargain.

Some of you traders will have been done by this trap and never even known about it? Why - cause you are all too predictable.

 

[Ageo]

Some of you traders will have been done by this trap and never even known about it? Why - cause you are all too predictable.

Stop Hunts? market manipulation at its best. And then once your stopped out you see the price boom into your direction but with no trade on.

But there are ways to overcome this.

 

[Realist]

Stop Hunts? market manipulation at its best. And then once your stopped out you see the price boom into your direction but with no trade on.

But there are ways to overcome this.

How, what can you do?

 

[Ageo]

How, what can you do?

well usually when people place there trades there stops are near key support/resistance levels. The best thing to do is try and place your stops at least 10 or so pips away (the more the better of course, but it has to comply with your position sizes) that way you usually get missed. But of course there are times where you cant help it but get in the way.

Thats what i do to avoid getting stopped out and it works most of the time.

 

[Realist]

well usually when people place there trades there stops are near key support/resistance levels. The best thing to do is try and place your stops at least 10 or so pips away (the more the better of course, but it has to comply with your position sizes) that way you usually get missed. But of course there are times where you cant help it but get in the way.

Thats what i do to avoid getting stopped out and it works most of the time.

Excellent. Smart Move.

That is an example of someone thinking about their trading. Not just doing things mechanically or according to a system!! And deliberately doing what others don't.

If you do exactly the same as everyone else, you can not succeed.

 

[swingstar]

Agreed Ageo... always a good idea to put your stops above (short) or below (long) round numbers. Even if you do get stopped out though, if the stock doesn't finish low or high in the opposite direction, you can always get back in.

 

[Ageo]

Agreed Ageo... always a good idea to put your stops above (short) or below (long) round numbers. Even if you do get stopped out though, if the stock doesn't finish low or high in the opposite direction, you can always get back in.

Thats right Swingstar,