My First System: Initial Thoughts, Ideas and Questions?

[Gringotts Bank]

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

Regarding gut feel. The trick is to develop the skill where you can honestly assess your gutfeel. This is definitely a skill. Feelings come from the subconscious, but it is very easy for the conscious mind to override and confuse the signal.

Here's a good example. Your gf/wife is upset at you for something. You ask "what's wrong"? Her answer - "nothing....I'm fine", but you know this is incorrect. Her gutfeel is saying "I'm not happy with you", but her conscious mind doesn't want you to know that you have this power over her ( a bit like the way you don't like admitting the market is more powerful than you are). So her conscious mind, in order to protect itself says "I'm fine, nothing is wrong". If you push the issue "something's wrong...what is it?" you can break through the "nothing's wrong" barrier and get to a second level of conscious interference. Now she will say "well you didn't put the bins out last night", but you know this isn't the real issue either because putting the bins out has never been an issue before. So you keep pushing "what's wrong?" and after a bunch of false reasons, you eventually get to the real issue that is creating her gutfeel of unhappiness, but without any false conscious overlay to confuse the issue. If she had been able to be honest with her feelings from the start, the facts would have been readily accessible.

Can you see how this is exactly the same as a trader buying SDL, going to bed and knowing that he has made a bad decision, but refusing to allow himself to feel that feeling. The feeling is very, very clear and very easy to read, but you can also override it very easily with a whole host of ego-defense mechanisms. So don't wait until those mechanisms get blasted away by sheer price action, telling you you made a bad decision. It comes down to knowing yourself.

What you did with SDL is what most people do when they talk about how gutfeel has led them astray. Gutfeel is the most honest and accurate system of trading I know, by a mile. I have developed 2 profitable mechanical systems, one of them very profitable ever year over a 13 year stretch. I no longer use them. Currently, my skill level is about what I'd call 'moderate' for assessing my real gut feelings, but improving the more I practice. You have to be incredibly honest with yourself.

 

[Trembling Hand]

I have developed 2 profitable mechanical systems, one of them very profitable ever year over a 13 year stretch. I no longer use them. Currently, my skill level is about what I'd call 'moderate' for assessing my real gut feelings, but improving the more I practice. You have to be incredibly honest with yourself.

Brilliant!

 

[CanOz]

Here's a good example. Your gf/wife is upset at you for something. You ask "what's wrong"? Her answer - "nothing....I'm fine", but you know this is incorrect. Her gutfeel is saying "I'm not happy with you", but her conscious mind doesn't want you to know that you have this power over her ( a bit like the way you don't like admitting the market is more powerful than you are). So her conscious mind, in order to protect itself says "I'm fine, nothing is wrong". If you push the issue "something's wrong...what is it?" you can break through the "nothing's wrong" barrier and get to a second level of conscious interference. Now she will say "well you didn't put the bins out last night", but you know this isn't the real issue either because putting the bins out has never been an issue before. So you keep pushing "what's wrong?" and after a bunch of false reasons, you eventually get to the real issue that is creating her gutfeel of unhappiness, but without any false conscious overlay to confuse the issue. If she had been able to be honest with her feelings from the start, the facts would have been readily accessible.

GB, you really have this wrong...

First of all "nothing" means something...secondly, by not revealing the true issue they're challenging you to be sensitive enough to a.) figure it out and b.) show enough attention and sensitivity to demonstrate that you actually care about what is upsetting them.

If your understanding of the market psychology is as lacking as your understanding of the opposite sex then you're in for trouble mate.


CanOz

 

[fiftyeight]

So much more information again, thanks everyone. This is good stuff. I am going for a ride to think it about it all and will reply soon.

 

[springhill]

GB, you really have this wrong...

First of all "nothing" means something...secondly, by not revealing the true issue they're challenging you to be sensitive enough to a.) figure it out and b.) show enough attention and sensitivity to demonstrate that you actually care about what is upsetting them.

If your understanding of the market psychology is as lacking as your understanding of the opposite sex then you're in for trouble mate.


CanOz

Not necessarily mate, sometimes 'nothing, I'm fine' means 'I'm not ready to talk about it yet'.

By not telling you they could be saying 'Give me space until I am ready to talk' or 'Leave me the f*** alone'.

You are lumping psychology into one neat little compartment where there are only a finite number of option to what something means.
Just as there are not finite ways to interpret and trade/invest the market.

If you saw the way I engaged the market you would probably throw yourself off a building and if I tried to understand yours the top of my skull would blow off.

There is always more than one way to skin a cat, just as there is more than one way to assess any given situation in life.

 

[CanOz]

Not necessarily mate, sometimes 'nothing, I'm fine' means 'I'm not ready to talk about it yet'.

By not telling you they could be saying 'Give me space until I am ready to talk' or 'Leave me the f*** alone'.

You are lumping psychology into one neat little compartment where there are only a finite number of option to what something means.
Just as there are not finite ways to interpret and trade/invest the market.

If you saw the way I engaged the market you would probably throw yourself off a building and if I tried to understand yours the top of my skull would blow off.

There is always more than one way to skin a cat, just as there is more than one way to assess any given situation in life.

Yeah yeah sure, my point was that its not that she was not being honest with herself...

 

[Gringotts Bank]

GB, you really have this wrong...

First of all "nothing" means something...secondly, by not revealing the true issue they're challenging you to be sensitive enough to a.) figure it out and b.) show enough attention and sensitivity to demonstrate that you actually care about what is upsetting them.

If your understanding of the market psychology is as lacking as your understanding of the opposite sex then you're in for trouble mate.
CanOz

"Nothing" means *something* is exactly what I said - you just repeated it and gave an alternative explanation for the mechanism. Some women are aware of the underlying process, some would not be. To the degree that they are aware, I agree it becomes a challenge to their mate to "find out" by questioning themselves (not her). To the degree that they are not aware, there's the perceptual blindness that we see in trading. The degree of awareness mirrors exactly her feeling of security in a relationship. It has to be this way because ego defense mechanisms only get triggered when the ego is under threat. Same happens in trading. If you feel secure in your approach, defense mechanisms will not pop up to blind you to the reality of what needs to be done next. The fact that you haven't seen this, doesn't mean it doesn't exist.


Here is an example of "perceptual blindness" which is totally unrelated to relationships, but it demonstrates the point that if you are focused on one thing to the exclusion of all else, objectivity disappears.

http://www.youtube.com/watch?v=MFBrCM_WYXw

 

[Gringotts Bank]

The white players represent you watching a pennant form in your favourite instrument, waiting for it to break to the upside, because it always has in the past. You backtested it, after all.

The black bear represents the fact that "things are different this time". Maybe the volume set up is slightly different (but subtle enough that a system can't 'see' it), maybe the general market sentiment, maybe the news out of China...whatever it is. You just didn't see what was in plain sight. A coincidence that it's a bear?


One way of gaining the security needed to have clear objective awareness is to incorporate an element of system into your trading. I have done this and I have observed directly how it affords security, and how I tend to see the market more clearly within that secure framework. The other way is to create the security de novo and not use the system as a security 'crutch'.

 

[waza1960]

GB with all due respect? its better to leave a thread such as this (new trader looking for insights) to the traders with runs on the board instead of your confusing pscho babble just saying

Also if you can't handle a little honest appraisal from TH and Tech you will have no chance in the market.
The market is much tougher than them lol

 

[peter2]

Fiftyeight: Your strategy to buy a bargain from a "garage sale" requires you to know the companies better than the corporate analysts. These analysts are in regular contact with the CEO's and their CFOs. They have frequent trips to the site and understand the local dynamics (geology, government regulations/laws, politics, etc). A bold task and I wish you all the best. I would recommend you review the value investing threads here at ASF but most value investors look for good businesses not busted ones.

If you want to test your own ideas then learning software like Amibroker is a must. This is also a reasonable educational task that will take time and effort. The reward is finding an edge that you can profit from and you will have the skills to find another edge when your first edge fades.

If you want to be profitable then you will need to know your win rate and the average size of your winners and losers. You will need a strategy before you can research its edge.

Beaten up stocks need time to recover (if they do recover). You will need a money management strategy that will reduce the impact of those stocks that never recover and benefit from those that do (diversification).

The vague idea of buying a bargain requires a lot of work. It's too much work for me and that's why I look for an established price trend and join in for the remainder of the move.

 

[fiftyeight]

FTW and CanOz. Yeah I have a fair idea of what I want. The end game would be to have a group of portfolios that either generate enough to live off to or form a substantial part of my income in the future. I enjoy watching the markets but don’t want to be tied to the computer all day every day. Ideally (this is likely to change as I am still learning so much at the moment) I would like to have something like a long term growth portfolio, a system/s based portfolio/s and a speculative portfolio to satisfy the gambler inside of me.

So now I need to answer the question that you have put up Can Oz. I can rule out multiple strategies for now as I do not have a capital. So the question becomes which strategy do I start with that will allow me to have multiple strategies in the future?

Springhill. Must not use sarcasim when typing, I was deinately not offended by what tech wrote. I enjoy his banter and look forward to learning enough I can have a comeback of my own.

Qldfrog. Good stuff you have probably identified a few things that will save me money and time in the future. If I got lucky the first time with a punt it might have cost me years.

To the conversation regarding gut feel, looks like I will have to do some serious self reflection. Although as soon as real money is in play it will probably blow all the nice little theories that I have out of the water.

Peter you make some very good points and it sure seems my initial approach was wrong, or at best wrong for someone with experience and bankroll.

TH and tech, I actually find your banter pretty entertaining so I take it all with a grain of salt, especially there are some nuggets of gold in there. Plus hopefully ill get to stage where I can reply with something equally as witty/smart assy.

I have read many many of your posts and will continue to do so. I don’t think you will answer some of my question anyway but I am sure my answers will be in there somewhere.

I would a reply to this one. If trading is a zero some game and if its not id love and explanation to how it is not. I would think it is more like 99.5% are losers?

 

[So_Cynical]

This thread is turning into a mish mash, probably already past that point.

fiftyeight you are perhaps by this time a little surprised at the direction this thread is taking, 10 different personality's offering their thoughts, all participating in the market and yet all doing it their way, a different way, there is no one size fits all approach.

There are people posting in this thread that have a very narrow and unwavering view on how to make money in the market, these people just cannot accept that there's any other way to do it..their way works for them so it will work for you to...and perhaps it will?

Also when you quote me or anyone else its proper to use the quote tags and link to the quote or source...like so.

Yep its a pure contrarian buy, i think Sundance is over sold and this system was always going to have a few pure speck stocks in it and i figured it was about time to add one...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.

 

[fiftyeight]

Yeah mish mash seems an appropriate description, but I am still finding it useful.

Yeah I didnt realise how narrowly focused some people would be. I assumed there are many different people making money many different ways. But no matter what way you are doing it they are obviously one of the select few who can make money using that particular approach.

Sorry for that ill make sure I quote properly in future

 

[Trembling Hand]

Haven't you two guys found that a "my way or the highway" approach gets you into a lot of trouble when dealing with other people...

fiftyeight just to be clear as everyone wants to be an expert in what I am thinking and doing.

I HAVE NEVER TRASHED ANYONES APPROACH THAT WORKS........ Ever. I always recommend having a play to see and learn as many different approaches that is practically possible. But here is my only other bit of advise. Do not waste your time following rubbish from fools who have never turned a profit and who never will. Unfortunately they are hard to spot at first. They are like experts at footy. Can talk the talk but cannot kick a ball in a straight line to save themselves.

They will lead you down the road of mystical psychophysical dribble and explain every action as manipulation and "big boys" always winning. Spend your time learning as much broad knowledge about markets as you can so you can talk crap like the rest of us and by then you will be able to develop your own way.

 

[Rider]

Hey fiftyeight

I am in a similar position to yourself and am looking at what strategies to use as an 'edge'. however I have just finished reading Trading in the Zone by Mark Douglas , the book describes what is a good mind-set for trading and how you can overcome psychological barriers. It highlights that no mater what edge you have to pick your stocks, they have an equal chance to go in the opposite way that your edge indicated.. once this is realised then a sound risk management plan is essential. I am by far no expert on the subject but this was an enlightening book for me.

As far as what has been discussed in this thread, I would love to know why gringotts bank stopped using his mechanical system that worked profitably for 13 years? did you enhance the system with subjectivity? did you find a better system?..... I don't understand why gringotts and tech/a are getting attacked so harshly.

Also tech/a your system's must be pretty sound from what I have read... but from all the name calling i don't really know who to apply the buls%$t filter too.

rider

 

[Trembling Hand]

As far as what has been discussed in this thread, I would love to know why gringotts bank stopped using his mechanical system that worked profitably for 13 years? did you enhance the system with subjectivity? did you find a better system?.....

Cuz it was just a back test, if anything, knowing past history. These things break down the moment you forward test them.

 

[fiftyeight]

Well this thread has served its purpose. I am back to square 1, lets call it 1.1 as I know now one thing I wont be doing. Unless I get a really strong gut feel after a stock tanks. Jokes.

So here is my new thought process trying to encapsulate everything that has been discussed previously and I hope it generates the same amount of lets call it, robust enthusiastic debate.

I am going to try and develop my own system. I dont know if I what I am thinking is achievable but even if its not it will still achieve a few things, like programming, a better understanding of TA, money mangaement, how to back test and forward test etc etc.

I have done 2nd and 3rd maths and stats at uni as part of my uncompleted physics degree so it will be good to see what comes rushing back as I start to look at the maths behind some of the theory's. Its all so hazy at this stage I know we used monetcarlo for error/uncertainty analysis but could def not use it at the moment haha

Basic ideas at the moment.
It will use $5k bankroll
Must only require looking at the comp before and after work
No gut feel required
Must find if there is any specific info out there regarding tiny bankrolls and money management
Must find/if what market will allow such tiny positions
Education must be costs must be kept down (sorry tech as much as I would love to watch someone trade in real time, 1k is out of this budget. Unless some kind ASFer from Darwin wants to help out and let me watch ??)
Read books tech recommended
Must decide to jump in the deep end with amibroker or find something free
Decide if I try and come up with one system (Im only learning) or a number of systems to take advantage how the market is trading

A lot of other things ran though my head at work but they escape me for the moment but this is the general gist.

I was also trying to think of a more specific idea as a place to start and thought of this. I have done no research as I have just got home but, I wonder if there are any lead or lag times or something between different stocks/futures/commodities/fx and the S&P 200 due to the way its weighted to different stocks???

Anyway just my thoughts again, and if I am completely off the mark again I look forward to hearing the comments? I expect there to be many revisions.

Keep the comments coming

 

[Trembling Hand]

For that kind of capital you are pretty much stuck with FX micro accounts but thats fine. You are looking to gain experience and find out How and What makes a system work. Enjoy the journey. Hope you can stay on the path,