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- 22 August 2008
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Ok it's time for a lesson.
Turning an Idea into Profit
Many posters on this forum will talk about a system or strategy. I want to lead those interested down the process of how you go from an idea...into actually making money from that idea. This will be a simple process or idea I'm going to take you down. This won't be new territory for many traders, but what I'm trying to show the newbs is the process. This means it will require some input from the newbs though...I'm not just going to hand over a system, I expect others to think their way through the process. You won't value what you learn if you are simply given it. So unlike most of my lessons where I just vomit up information...with this lesson I want commentary, questions, flames na-uhs and lively discussion and will be pausing every so often to seek it.
Disclaimer: This is NOT ADVICE. DYOR stands for DO YOUR OWN RESEARCH. You heard me. Don't make me break out the legalese. This is also a system I have used but currently don't have the time/inclination to operate. So I'm not ramping anything. I will not be speaking about any specific stocks, only the characteristics that a system will look for. If I mention a stock it will be for example purposes only and most likely involve past price action. Feel free amongst yourselves in the thread to comment, but any questions along the lines of what do you think of XYZ stock in the strategy should be ignored. Anybody feeling the need to respond to that kind of question please remember the forum rules about stock ramping. I want this to be clean and I DON'T want to get Joe in trouble. If I see a post that skirts the grey area I will ask a mod to remove it. Clear?
So what is a system as opposed to a strategy?
In my definition a strategy is the indictors, both technical or fundamental, that are used to identify trading targets to achieve a high probability of a successful outcome. It's easily able to be tested on a large amount of data and across multiple market conditions. Ideally it also allows the market to be scanned for opportunities.
Ok so what's a System? A system takes a strategy to the next level and through a process of preselection increases the probability associated prior to the application of indicators. To me the system is the idea, what you are going to use to preselect those high priority targets.
So lets start with an idea...
Have you ever noticed that something will tank down over a relatively long period of time and then when it seems it cannot go any further down, it explodes out of the blocks? It moves very rapidly, like a rubber band being pulled to full extension and then let go. What is happening? Why the very quick movement? That stock is a dog isn't it? Look how far down it's come? What the?
Link
If you have a look at the above link this might explain what is going on with the price action. It's from the ASIC website and is a list of declared short positions on stocks. Here in Australia you can short a stock using a synthetic instrument via an equity CFD or in limited circumstances short the stock itself if you have a friendly full service broker. The amount of shorts as a percentage of issued capital is an interesting idea, because what happens when the share price starts to rise? All those people who are short in the stock need to close out their positions (which means purchasing the stock at market price). This can cause a rapid movement of the share price as the short positions are unwound. It's like the reverse of a stock overhang. It's a defined quantity of stock that needs to be purchased. In-built demand! With a number I can measure!!
Ok so now we have the germination of an idea, we've got a potential theory to explain some market action and we've found some data.
The next step...
...is to kick the sh!te out of the idea. We're stress testing the thought process.
1) What are the Pro's and what are the Con's?
2) Rank the Pro's and Con's in order of importance
I'll be over there with a scotch and dry while you guys and girls talk it over.
Cheers
Sir O
Turning an Idea into Profit
Many posters on this forum will talk about a system or strategy. I want to lead those interested down the process of how you go from an idea...into actually making money from that idea. This will be a simple process or idea I'm going to take you down. This won't be new territory for many traders, but what I'm trying to show the newbs is the process. This means it will require some input from the newbs though...I'm not just going to hand over a system, I expect others to think their way through the process. You won't value what you learn if you are simply given it. So unlike most of my lessons where I just vomit up information...with this lesson I want commentary, questions, flames na-uhs and lively discussion and will be pausing every so often to seek it.
Disclaimer: This is NOT ADVICE. DYOR stands for DO YOUR OWN RESEARCH. You heard me. Don't make me break out the legalese. This is also a system I have used but currently don't have the time/inclination to operate. So I'm not ramping anything. I will not be speaking about any specific stocks, only the characteristics that a system will look for. If I mention a stock it will be for example purposes only and most likely involve past price action. Feel free amongst yourselves in the thread to comment, but any questions along the lines of what do you think of XYZ stock in the strategy should be ignored. Anybody feeling the need to respond to that kind of question please remember the forum rules about stock ramping. I want this to be clean and I DON'T want to get Joe in trouble. If I see a post that skirts the grey area I will ask a mod to remove it. Clear?
So what is a system as opposed to a strategy?
In my definition a strategy is the indictors, both technical or fundamental, that are used to identify trading targets to achieve a high probability of a successful outcome. It's easily able to be tested on a large amount of data and across multiple market conditions. Ideally it also allows the market to be scanned for opportunities.
Ok so what's a System? A system takes a strategy to the next level and through a process of preselection increases the probability associated prior to the application of indicators. To me the system is the idea, what you are going to use to preselect those high priority targets.
So lets start with an idea...
Have you ever noticed that something will tank down over a relatively long period of time and then when it seems it cannot go any further down, it explodes out of the blocks? It moves very rapidly, like a rubber band being pulled to full extension and then let go. What is happening? Why the very quick movement? That stock is a dog isn't it? Look how far down it's come? What the?
Link
If you have a look at the above link this might explain what is going on with the price action. It's from the ASIC website and is a list of declared short positions on stocks. Here in Australia you can short a stock using a synthetic instrument via an equity CFD or in limited circumstances short the stock itself if you have a friendly full service broker. The amount of shorts as a percentage of issued capital is an interesting idea, because what happens when the share price starts to rise? All those people who are short in the stock need to close out their positions (which means purchasing the stock at market price). This can cause a rapid movement of the share price as the short positions are unwound. It's like the reverse of a stock overhang. It's a defined quantity of stock that needs to be purchased. In-built demand! With a number I can measure!!
Ok so now we have the germination of an idea, we've got a potential theory to explain some market action and we've found some data.
The next step...
...is to kick the sh!te out of the idea. We're stress testing the thought process.
1) What are the Pro's and what are the Con's?
2) Rank the Pro's and Con's in order of importance
I'll be over there with a scotch and dry while you guys and girls talk it over.
Cheers
Sir O
