My First System: Initial Thoughts, Ideas and Questions?

[fiftyeight]

Hi all,

I have been reading through this forum for a while now and I have decided its time to start thinking more specifically about how I want play this game.

I have read many times that I need plan/system, so I am starting this thread to hopefully get some advise. This is really just a bit of a brain dump as I am so new I dont really know where to start.

I have not traded before and dont know what kind of trading psychology I have, but this is my best guess so I might as well start here. When ever I gamble on sports (I know the 2 are different but I need a start somewhere) I always try and find an outside chance that I think is paying above the odds. Or to put it another way "I think I can outsmart everyone else". So applying this to trading, the idea of picking a stock that has taken a dive recently due to some news or event and trying to figure out when it will "bounce" back appeals to me. Or everyone else over sold and I correctly picked an entry point and outsmarted everyone else. No I am not a successful sports gambler, but I also do not take it very serious.

I read the thread where Tech/A and Ducati had an excellent discussion on Ducati's FA approach with no stops, so I would like to try and expand this idea further and apply some TA and money management to this style.

If there are any books out there that people think will help specifically to this kind of strategy that would be a great help?

Also I need some help in learning how to explore and test my own ideas. I am thinking the best place to start will be by looking at how often when a stock price dives does it bounce back and how long it takes to bounce back.

So maybe there is a program out there that will scan past data and I can ask, "how many times in the last 5 years has a stock had a 10% loss below the 25 day moving average in a single day and recovered the next day or week. And how much did it recover by?". Obviously I want to explore each of these parameters to find a particular combo that does give me a statistical advantage. If one exists.

I have a feeling that whether it is a bear or bull market might make a difference and also how that sector is travelling at the time, and a few other things I want to explore.

In paper trading backwards and forwards I think it will also be a good idea if I can identify what kind of news or event is likely to produce an over sell, if it exists.

Ducati's FA had to be highly accurate because he was prepared to hold indefinitely and accept very large losses where as I am not. I do think a good understanding of the FA will help me decide which trades I should enter and might add to my "edge". But I think I will more trading on the mood of the market?

Thanks for reading to the end. I am sorry for asking so many questions but if you can help with only one that will be great. I am sure I have asked questions that already have an answer on ASF and link will be greatly appreciated.

Looking forward to other people thoughts on my FIRST attempt at creating a system.

Fiftyeight

 

[chops_a_must]

Get a charting package like amibroker, and data such as premium data.

Learn how to code, and Howard Bandy's work is really helpful for this.

Start searching and scanning until your heart is content.

 

[CanOz]

Get a charting package like amibroker, and data such as premium data.

Learn how to code, and Howard Bandy's work is really helpful for this.

Start searching and scanning until your heart is content.

Agree 100%, there is no better way for someone to learn about the markets....and have a hell of allot of fun too

I just wish i could program better...

CanOz

 

[Superboot]

My 2c is you need a bit of both - conjure a plan/strategy and start small, get you hands dirty. You learn a bucket load more once you are in the market.

Both amibroker and premium data have worked well for me.

Don't underestimate the learning curve!

Good luck

 

[So_Cynical]

Looking forward to other people thoughts on my FIRST attempt at creating a system.

First up a system (other people can probably explain this better) is rule driven and by back testing your looking to find mechanical triggers to enter etc and all that's fine but your also wanting to take into account sentiment and use stops, and that makes it all look like a bit of a mish mash.

Great that your planning and all and looking for an edge... that's important...you prob need to sort out what's really important and what's fluff, one certainty is that you have to be comfortable with what your doing.

Good luck

 

[fiftyeight]

Thanks for the advice ppl. Bandys work is the next thing ill look at when I have some free time.

Cynical, that was the kind of advice I was chasing.

I agree its a mish mash, but are you implying that sentiment and stops are fluff? Or that what I am doing is more a plan than a system? Can the 2 approaches be combined?

I guess one of my concerns is that I know enough about programming to know I know nothing about it and will probably spend as much time learning to program as I will looking at markets over the next few months. Also to include all the parameters I want to try and include, that would be a pretty fancy piece of programming.

Dont people get paid millions of dollars to develop these kinds of systems/programs?

And regarding having real money in the game, again I will be using past experience as a guide. When I learnt to play poker online I read, played free games and then micro stakes. But everything changed once a substantial amount of money (to me anyway) was on the line. I played heaps better at each an individual game and also became much more focused in my poker education.

So I will probably make a real trade using my system/plan or what ever it becomes a bit sooner than some would recommend but hopefully after enough thought, planning and testing to avoid to much abuse from ASF. At the moment I am hoping to be very open about my thoughts and ideas in the lead up to my first trade and beyond.

Keep the comments coming.

 

[CanOz]

Patience and preparation will be rewarded. If your anxious to trade now, work on that.

The best systems are incredibly simple for End of Day equities. No need to include all the things you want, been there done that too.

Hopefully Tech will chime in here to give you some more perspective....

Where's he been lately anyway?


CanOz

 

[So_Cynical]

I agree its a mish mash, but are you implying that sentiment and stops are fluff? Or that what I am doing is more a plan than a system? Can the 2 approaches be combined?

Sound like more of a plan but really what ever works for you...i imagine in Poker that one of the edges a player has is knowing the statistics of holding a certain hand, the probably of a certain outcome, we all sort of do that in the stock market too its just that there are more variables and more methods of calculating the probability of outcomes.

Certainly we get a lot more time to think about it...if your not day trading anyway...a lot of my success i put down to what i learnt over many years of race punting and casino gambling, stock market gambling is a much easier way to make money.

STOPS: I don't use stops and consider that to be a part of my edge and an advantage over other market participants that do, and for others its the opposite with stops being a part of their edge and a major reason why they are able to participate in the market profitably.

SENTIMENT: I learnt the hard way during the GFC about sentiment, its all powerful, its the crazy element of the market, and yet for the TA guys probably a little irrelevant. :dunno:

FLUFF: Is stuff that's not relevant to what your doing.

 

[waza1960]

Get a charting package like amibroker, and data such as premium data.

Learn how to code, and Howard Bandy's work is really helpful for this.

Start searching and scanning until your heart is content.

I'm afraid I don't agree.............
So the OP wants to learn where/what his edge is, what type of trading is he psychologically suited to.

Why go to the cost of Amibroker straight away (more suited to advanced/intermediate traders IMO)
Why get bogged down learning to code when there are alternatives.

Here's my recommendations.....

Experiment to see if you want to be a systems trader or discretionary

Systems Trader Pathway: As Tech has stated in other posts it is hard to beat systems trading as a starting point as you quickly learn through backtesting how many indicators/methods are not profitable. Also by studying Backtest results you can see which metrics are important in trading. Trade and Money management very important /entries not so.

Download Ninja Trader and construct some strategies using their strategy wizard which is quite good . Costs = zero .
Alternatively use the MT4 or MT5 platform (FX) and experiment with the thousands of strategies that are available on the net and when the time is right you can get strategies coded by others at minimal cost.

Discretionary Trader Pathway:

Open a live and demo account with a MT4 nano Broker trade on demo for a few weeks to get the feel for and learn about the platform.Then do some live trading on your nano account at minimal cost 1cent/pip.

IMO the best way to learn..

 

[CanOz]

Yup, great point Waza, that is a more comprehensive start to the whole process that cost virtually nothing but a little time. Perhaps we should have a couple of sticky threads that we can all add to for newbies on the subject...

CanOz

 

[tech/a]

We often hear that we need to follow a plan and stick to it.

All well and good if the plan is profitable.
Disaster if its doomed to ruin.
The question is --as it is here--what do I need in my plan.

The answer is---in my opinion---SIMPLICITY.

Personally I think we need a number of plans.
We are not going to know with certainty when a plan "type" is likely to out perform until well into the conditions the plan "type" is designed for.

The first thing I believe we should strive to learn is
Identifying the stage in which the market we are trading is in.

Those instruments will be either in.
(1) Accumulation
OR
(2) Distribution
OR
(3) Trending--up or down.

Whether your designing a method to trade a singular entity or a portfolio.

You should have methods suited to all 3 and its
highly unlikely one method or plan will suit ALL THREE
At times one will out perform others.
You'll also find that you can design "switches" which turn one on or off or
indicate further positions should not be taken or systems should be cranked up .

Then we need to know how to balance our portfolios and IMPORTANTLY when to shift more funds
from one method to the other to maximize our return and minimize our losses/risk.

Eventually you will need the tools and if inclined go through the learning curve if your going to become a developer of systems/methods/or plans. You can also pay experts to test and code your ideas. Not a bad way to go if your time poor some of these guys are amazing and very helpful.

As many have stated your learning curve will go exponential!

You'll soon understand why a plan is likely to fail or succeed. Ideas like trending systems /swing systems / Mean reversion systems / scalps / short term / position and the like will all bring on a new and more informed meaning.

You'll be armed with a set of numbers which will give you confidence in your plan.
A BLUEPRINT of strings of win and losses, draw downs and recovery times
profits and returns on $s invested Multiple system entry tests (Montecarlo testing) which will give you a range of results deviating from the mean expected return of your plan..
Armed with these you'll be able to trade your plan and compare against your blueprints. If the plan deviates out side of them then you'll know your trading in conditions likely to be different to those in which your selected data base resided. You know ---NOT TO STICK TO THE PLAN and STOP

Another thing will occur---you'll learn why and how your discretionary can be profitable.
You'll learn how to NOT GUESS when trading you'll learn money management/trade Management and possibly Portfolio Management. You'll feel confident in leverage and compounding.

I have 3 recommendations---for people on your position.

(1) Invest some $$s with Nick Radge and join "The Chartist" if you invest in his top membership---around a grand you'll be able to watch his trade setups live you'll be able to read his trade reasoning and trade management in real time over 3 different portfolios and excellent analysis and commentary on a number of Indexes and Commodities. Following a seasoned pro daily is INVALUABLE.

(2) Buy and read "The Universal Principals of Successful Trading" By Brent Penfold.

(3) Buy and Read "Un Holy Grails by Nick Radge.

Then I agree you'll be in the position to investigate software and Howard Bandy's works.

Its worth the journey--be sure you take it.

 

[merlinnn]

I am in a similar situation and have already taken Techs advice and decided to learn from Radge for 12 months. My logic after much research was to find someone to give me direction and attempt to learn as much as possible whilst still making money in a rules based environment.

I have already have had two light bulb moments, understanding positive expectancy and risk vs reward.
Hopefully after 12-24 months I will be on the correct learning curve!

 

[fiftyeight]

Wow so much new information to digest. I dont really know where to start.

Cynical. Obviously you will exit a losing trade at some stage, how do you decide when that it is? And would that not be your stop?

FLUFF, is there anything I have mentioned yet you consider fluff? I get the feeling you mean sentiment? But I was reading your weekly income thread. You mentioned a while ago it was time to dip the toes into mining again? I assumed you were making an assessment on the sentiment on the market and it was about to change regarding mining stocks?

Also, your SDL buy is EXACTLY what I am looking at doing to start off with. (I know ill need more than one system/plan but this will be my first). I have been following SDL for a while but am not ready to pull the trigger. "analysis is simple, Sundance looks cheap so ill buy it, the project is still a goer, the ore body is substantial as are the obstacles." What makes you think its cheap on over sold more specifically?

CanOz. Not anxious at all, but excited. As I said above SDL was exactly what I looking at doing but I have not done nearly enough research so have just been looking at it.

Waza. Cheers yeah I think ill head down your direction first and play around with free tools for now as money is very tight. Great way to get my feet wet for free. Outsourcing my coding aye, never thought about that.

Tech/a. Im still reading and digesting your post and will reply once I have pondered everything in it.

 

[tech/a]

your SDL buy is EXACTLY what I am looking at doing to start off with.

Oh my!!!

I've wasted an hr of my life.
Replying.

How silly of me.

So Cynical

I don't use stops and consider that to be a part of my edge and an advantage over other market participants that do

Frankly I don't see an edge at all.
Particularly with your exercise.
Do you KNOW its an edge with reliable back test data
or is this an hypothesis? If so the You need to read my post more than most!

14 weeks the index has risen 10% your down 1%
In your exercise.
(well you were a week or so ago)

 

[fiftyeight]

Bit harsh Tech, skc posted "Exactly. Good range and move today for a trade. But God knows what's going to happen in 40 weeks." surely my idea was not that bad haha.

My initial post was regarding looking for some bad news and then trying to buy when a stock is oversold. And I am trying to figure something out around that possibly using TA to develop a system. It does appear that my use of these words is a bit loose.

Like I said I am still reading and thinking about your post point by point.

I have a tiny tiny budget at the moment and this will not be changing in the foreseeable future. (Very low hour commercial pilot = little money) Even an experienced trader and programmer could not trade on my account. Your advice as excellent as usual and I will be using it to develop a purely trading system.

Maybe I should of been more specific of my situation before seeking advice, but I can assure you your time was not wasted on me, and I am sure many many other people will find it useful.

Tech, a few quick questions if I can. Do you see any merit at all in how I want to start entering the market or am I completely barking up the wrong tree? What would be an absolute minimum you start TA trading with (Im not trying to make a living off it...yet)? and what system would that be?

Keep the comments coming

 

[ftw129]

fiftyeight,

I hated this question when I first started because my answers were always YES to all, however I realise now just how important this question is when first starting out.

Besides making money, what are you trying to achieve from entering this business?

Your answer should be something along the lines of;

I want to invest my money into "quality" assets for growth over the next 5, 10 or 25 years time...

Or

I'd like to generate income and I need it to be X amount of dollars

(or a combination of both)

The reason for this cringe worthy exercise is that so many people coming into this business simply fail, become dis-heartened or take far too long because they are applying the wrong strategy in the quest to achieve their goals (if they have any).

So, can you take the time to specify your goals and what it is you're trying to achieve? (IMPORTANT; Don't worry about the "how" here. Just focus on the "why")

Then, if you can,

Explain how your system is designed to achieve this.

I think you'll get a lot of benefit from this one simple exercise

 

[CanOz]

Great points FTW!

When i started out seriously in this i read the book "Trading as a Business", and it helped me organize my thoughts before i decided how to proceed.

A plan is a way to organize your goals into a set of actions in order to attempt to reach your goals.

That's the place to start.

What do you want to achieve?

How will you acheive it, what strategy or strategies will you employ?

Who will manage all of this? Do you have the time to manage this full-time, or will you start out part time?

How much capital will you allocate to each strategy?

You get the idea.


CanOz

 

[springhill]

Oh my!!!

I've wasted an hr of my life.
Replying.

How silly of me.

Maybe not wasted an hour of your life, people pick things up at different rates.

I know you are asked the same questions a million times over and it can be jading, but in all fairness fiftyeight could be the tech/a of ASF in 20 years, a valuable source of advice helping out thousands of new members himself.

Don't discourage the new guys, it is daunting coming in here and conversing with those that new members have probably watched from the sidelines for a while, an have admiration and respect for.

Bit harsh Tech

Not really, he has dealt out worse than that.

Try not to take things too personally on here. The intention of 99.9% of posters is to assist.

We all have different writing styles, you will pick them up in no time.

Wow so much new information to digest. I dont really know where to start.

You have all the time in the world, the markets aren't going anywhere and the Aussie market isn't heading towards 7000 anytime soon.

Also, your SDL buy is EXACTLY what I am looking at doing to start off with. (I know ill need more than one system/plan but this will be my first). I have been following SDL for a while but am not ready to pull the trigger. "analysis is simple, Sundance looks cheap so ill buy it, the project is still a goer, the ore body is substantial as are the obstacles." What makes you think its cheap on over sold more specifically?

In my opinion, it is exactly what you should not be doing. :headshake

I am not saying there is not money to be made on short term movements, but you have admitted your inexperience yourself.

SDL is on the nose, the only thing that will save it is a low ball offer. Is the project really a goer? Where is the money to make it so? Until then it is a pile of dirt in the jungle.

If the obstacles are more substantial than the ore body then what?

If you have time, read the entire thread and you will see the ebbs and flows, the highs and lows, the money made and the crushed dreams.

Do you have the experience to intepret and take advantage of all that?

My initial post was regarding looking for some bad news and then trying to buy when a stock is oversold. And I am trying to figure something out around that possibly using TA to develop a system. It does appear that my use of these words is a bit loose.

Instead of risking your money on catching a falling knife, why not look for companies with positive news on the horizon and try to pre-empt that before the market catches on?

Good news moves will always trump a dead cat bounce.

I have a tiny tiny budget at the moment and this will not be changing in the foreseeable future.

It could change for the worse if you mess around with stocks like SDL which are in turmoil. Look for stability.


I operate a lot differently to most on here, so take my advice with a grain of salt. What I do may not suit you, nor what you do suit me but we can still all learn something from each other.

I take a similar outlook to you in terms of the share market being like betting.

I see it as a casino, the odds are naturally stacked against you. It is for you to develop a way to swing the odds in your favour by whatever means possible, FA or TA, via honest means or deceptive, or a combination of all.

Best of luck and remember, the only stupid question is the one left unasked.

 

[qldfrog]

Hi
my advice for what it is worth after I would say 2 years serious trading (sop still a newbie):
I have multiple portfolios:
One is a "system" :not doing great but not loosing money, under development with known and controlled risk and adjustment as i benefit from my mistakes a learning process

and a speculative one where i usually use my "gutfeel"
it usually works like that on the gufeel one and you will recognised where SDL stands:
this share has fallen so much it is ridiculous,
I see a (medium/short term) up market and the long term should be good,
basic valuation is not repulsing,
it has just reached new lows
This is a sure winner so i buy!
and guess what, it is in a huge majority of case of lost money
gain if any are minimal in %, and loss are substantial when I finally get out
It is a never ending loosing stream

It is very hard to control the urge when it sounds so obviously undervalued..yet...
so my advice, clearly separate these gutfeel buys from the rest so that the $ figures will be clear and you learnt from your mistakes,
if you have limited $, do not even think about it: the worst which might happen is that you might actually have a lucky win in the first go, get cocky and then spend 5 years loosing money: this can be a gambling like addiction.
Anyone else experienced the same path?

I view the market as a gambling place where you can, if managed properly:
increase your odds, and can control your losses (stop loss /options/etc)
as a result in a 50-50 bet you should be able to make some $ (but then taxes, brokerage, etc enters in play)
I also like the fact that the ATO while sharing my profit also share my losses so this can allow you to be a bit more daring in cases.

hope it helps

 

[springhill]

Hi
my advice for what it is worth after I would say 2 years serious trading (sop still a newbie):
I have multiple portfolios:
One is a "system" :not doing great but not loosing money, under development with known and controlled risk and adjustment as i benefit from my mistakes a learning process

and a speculative one where i usually use my "gutfeel"
it usually works like that on the gufeel one and you will recognised where SDL stands:
this share has fallen so much it is ridiculous,
I see a (medium/short term) up market and the long term should be good,
basic valuation is not repulsing,
it has just reached new lows
This is a sure winner so i buy!
and guess what, it is in a huge majority of case of lost money
gain if any are minimal in %, and loss are substantial when I finally get out
It is a never ending loosing stream

It is very hard to control the urge when it sounds so obviously undervalued..yet...
so my advice, clearly separate these gutfeel buys from the rest so that the $ figures will be clear and you learnt from your mistakes,
if you have limited $, do not even think about it: the worst which might happen is that you might actually have a lucky win in the first go, get cocky and then spend 5 years loosing money: this can be a gambling like addiction.
Anyone else experienced the same path?

Well posted, instinct is a funny thing. As it generally takes you in one direction or the other it is either completely right or completely wrong.
Sometimes it is hard to admit that your instinct investments are the losing ones, to yourself and to others.
I have up to 10 watch lists and I have to say, the ones where that I construct using variations of my strategy, ignoring key elements of it or my instinct lists are usually the ones stinking the place up.

The only instinct you should ever trust in the markets is one of caution. You may lose a winning trade or 2 but as qldfrog has suggested you will lose more than you win.


Take a look at the 5 year chart, a slump followed by a recovery into the teens, followed by a massive surge.
Where is the impetus for that pattern to be repeated? I could imagine a recovery into the teens could be plausible, but there will be no 50c offers for SDL anytime soon, that is a certainty, if ever again.

My point being this is the second serious shock for SDL in 5 years, each time it happens it affects the psychology of the buyers/sellers, instos/traders/mum and dad buyers.
Holders of all persuasions will be lining up to dump them in the teens.