The Contents of a Bar

[ducati916]

I have only been trading the last 3 years and prior to that spent 3 years completing courses to understand the markets and how to trade them so can only follow the process that I have learnt and been shown.

As I have not completed, nor know anything about the course, apart from the odd snippet that you have disclosed, I really can't comment on the course. You alluded to a 'top down' approach, not for me for the stated reasons.

and in the leveraged portfolios over the last

The leverage used, or claimed, seems inconsistent. It is not really an issue to me, suffice to say, the higher the leverage utilised, the higher the risk of a blow-up. It is that simple.

1st year 6 trades 6 wins 250% increase
2nd year 21 trades 18 wins 165% increase
3rd year 26 trades 21 wins 135% increase
Can it continue only time will tell...

I understand that with this track record to date anything that I, as a random chap on a chat forum will have zero impact on your trading. Possibly rightly so. However, I simply can't resist.

Those returns are high. Therefore:

(a) I suspect that you are using quite high leverage, whether that be CFDs, Futures, Options, Margin or other
(b) the higher the leverage, the bigger the mess, if it goes wrong

(c) over the 3 years, the number of trades has increased; and
(d) the returns have fallen; and
(e) the % of winning trades has also fallen (100%, 85%, 80%)

(f) the last 6 years of trading (particularly in the US) has been unidirectional in the overall market;
(g) buying the dips has been a very successful strategy in the general market (US); and
(h) stocks in their index (US) have been reasonably correlated to that index (to date); but
(i) the correlations are starting to weaken (in the US);
(j) the ASX may not have any of the same qualities.

So my questions (which feel free to ignore) would be:

(a) does the strategy taught to you allow flexibility in market conditions (long/short/range); and
(b) if so, how much; and
(c) have you arbitrarily increased the number of trades taken, to include some marginal trades; and
(d) if not;
(e) how do you account for the diminishing efficacy of the trades to date.

jog on
duc

 

[tech/a]

Don't think he has a problem
500% return
If he loses all of his capital he will
Still be 400 % up.

You CAN and should trade with leverage and take on no
More risk than if trading without it.

It's pretty simple to do.

 

[minwa]

Don't think he has a problem
500% return
If he loses all of his capital he will
Still be 400 % up.

Don't see how going to 0 will still be up 400%.

But great results nevertheless

 

[ducati916]

Don't think he has a problem
500% return
If he loses all of his capital he will
Still be 400 % up.

tech/a

This is a classic error that is normally expressed as the 'market's money'.

The issue with leverage is that you can lose multiples of initial capital and losses like wins, are compressed and accelerated. Good when positive, bad [very] when negative. Leverage, usually reduces the individual's control over their trading strategy.

jog on
duc

 

[ducati916]

You CAN and should trade with leverage and take on no
More risk than if trading without it.

I would disagree with the accuracy of this statement broadly speaking. It is true if buying options, but not at any other time.

That of course does not preclude using leverage to juice returns, but you cannot use leverage and reduce your exposure [save with options] or risk.

jog on
duc

 

[ducati916]

It's pretty simple to do.

Buying a call/put option, yes, agreed, that is simple and low risk. The risk is low because your loss is limited to the purchase price, viz. 100% loss.

Other forms of leverage, margin, futures, and other derivative based contracts are not so limited and the losses can be multiples of the initial capital risked.

jog on
duc

 

[tech/a]

Duc
Seriously I'm now in Quants court.

Trading capital $100k
Up 500 %
$500k + trading capital $100k

Lose 100 %
$100 k

Have better things to do.

 

[ducati916]

Trading capital $100k
Up 500 %
$500k + trading capital $100k

Lose 100 %
$100 k

Well actually, a 100% loss = $0.00

But simple arithmetic apart, assuming you remove your $100K from the trading account leaving your profit, then:

(a) you open a position utilising x 10 leverage;
(b) using only $10K capital;
(c) then you control $100K of stock long at $10/share
(d) the stock gaps lower 10% on unanticipated news, CEO resigns, blah, blah

Do you still maintain that your risk is reduced?

The question is rhetorical I suppose as you are otherwise more profitably occupied.

jog on
duc

 

[tech/a]

Again you use Leverage properly and you don't take on any more risk than any other trade.

For you and the un initiated.

You have a 100000K account and have 3 trades already going taking up $75K
You want to buy WTC at $8.00 your risk is $1500 on a trade and your stop is 15c from your buy so you can buy 10000 you now use leverage for that purchase.
of $80K. (OR insert any Ticker of choice).

Your not taking on any more risk.

And yes I am.

 

[minwa]

Duc
Seriously I'm now in Quants court.

Trading capital $100k
Up 500 %
$500k + trading capital $100k

Lose 100 %
$100 k

Have better things to do.

LMAO

 

[craft]

Again you use Leverage properly and you don't take on any more risk than any other trade.

For you and the un initiated.

You have a 100000K account and have 3 trades already going taking up $75K
You want to buy WTC at $8.00 your risk is $1500 on a trade and your stop is 15c from your buy so you can buy 10000 you now use leverage for that purchase.
of $80K. (OR insert any Ticker of choice).

Your not taking on any more risk.

And yes I am.

Gap Risk



So first gap example that jumps to mind and imagine a strategy that gets somewhere near Tech’s risk numbers. [Up trend – breakout of consolidation – trail stop on daily low.]


Buy SRX $36.24 on 10/3/15 stop $35.46

Risk @ 1.5% of Capital = $ 1,500

Risk per share = $36.24-$35.45 = $0.79 per share

$1,500/ $0.79 = Buy 1898 shares for $68,783.


Next 3 days lift trailing stop:

$35.66

$38.01

$38.83

Whoo Hooo – In the money: stop nearly $5K above purchase price.


Day 4 whoops – Gap open $15.00, 1898 shares sold on open

Loss ($36.24-$15.00) * 1898 = $40,313.52


Loss is not limited to the mathematical 1.5% prior to the trade

Actual Loss = 40% of the account.



Maybe in theoretical forum la la land gap risk doesn't matter, but in live markets it does..... eventually

 

[tech/a]

Yep it happens

So does Cancer
Plane Crashes
Companies going Bankrupt and pulling you down with them
Being Killed by a terrorist event.

You cant take the risk out of life.

But you can miss life through FEAR of RISK.

 

[craft]

But your position sizing calculation is a risk that doesn’t have to be taken. Limit Max position size, Diversify, put in place strategies to acknowledge gap risk.

I’m not advocating not living your life because of risks that can’t or are debilitating to managed.

But why needlessly take ones you don’t have too? You can get rich quickly by taking outlandish risk - but is it worth it? Where's the line? Should we just bet it all on black a few times in a row? Fear or prudence?


Ps – thoughts with you, your wife and family – Hope her MS doesn’t impact life too much.

 

[minwa]

Actual Loss = 40% of the account.

Maybe in theoretical forum la la land gap risk doesn't matter, but in live markets it does..... eventually

Well in the duck's account it would only be X% profit accumulated -40%. No big deal when it's triple digits.

 

[tech/a]

I guess for me the risk of an outlier even in pretty well all I have done in life
is something I have never tried to eradicate entirely as a risk. Its something I have
quantified and deemed rightly or wrongly as acceptable to me.

Through luck or poor management I have so far come out OK.

Thanks for your wishes Craft
The impact on life in the future is the biggest concern.
So live it while we can.

 

[skc]

Again you use Leverage properly and you don't take on any more risk than any other trade.

For you and the un initiated.

You have a 100000K account and have 3 trades already going taking up $75K
You want to buy WTC at $8.00 your risk is $1500 on a trade and your stop is 15c from your buy so you can buy 10000 you now use leverage for that purchase.
of $80K. (OR insert any Ticker of choice).

Your not taking on any more risk.

And yes I am.

I am assuming you meant 100k, not 100000K.

Placing 80% of capital in a pretty bubbly SAAS stock trading at 50x revenue is probably a bit higher risk than desirable. And I'd suggest it is not the most prudence advice to the uninitiated. ACX would be a good example of the consequence of an adverse gap.

1st year 6 trades 6 wins 250% increase
2nd year 21 trades 18 wins 165% increase
3rd year 26 trades 21 wins 135% increase
Can it continue only time will tell...

Nice stats! Continue to build on the process and improve the frequency of trades. The percent increase will come down but as long as the total $ profit goes up that's what you want.

The gap risks are real so definitely keep that in mind if you haven't already. It's like wearing seat belts when you drive - You hope it's never needed but it's prudence for any driver. Dial back the leverage as your account grows.

 

[skyQuake]

Great stuff craft. Similar story with ACO, gap risk could lead too account wipeout right after new highs...

The gap risks are real so definitely keep that in mind if you haven't already. It's like wearing seat belts when you drive - You hope it's never needed but it's prudence for any driver. Dial back the leverage as your account grows.

+1
Frequency is a decent substitute for leverage

 

[Triathlete]

So my questions (which feel free to ignore) would be:

(a) does the strategy taught to you allow flexibility in market conditions (long/short/range); and
(b) if so, how much; and
(c) have you arbitrarily increased the number of trades taken, to include some marginal trades; and
(d) if not;
(e) how do you account for the diminishing efficacy of the trades to date.

The main principles that are covered is based on Price ,Pattern and Time.

Yes we can trade in all market conditions long / short / range trading, Pairs trading and Hedging.

I have rechecked my figures as I was at work when I responded previously and was going off memory but the 3rd year should have been 29 trades 23 wins 2 open increase portfolio 163% and 85% win/loss still have 3 weeks to go.

Cheers
Triathlete

 

[Triathlete]

I will at a certain point in a 'macro' approach contradict myself, or flip sides. However when looking at a macro economic analysis, I am cognizant that 'time' remains [highly] unpredictable. Given that the 'when' is going to be random, how much can you wager on the 'if'?

There is many ways to trade the markets and I have found that using timing cycles as one form of time analysis which when cross referenceed with price and pattern will give me all the confidence required for my next trading decision.
I also use basic Elliott Wave to give me the direction of the market for longer term decisions.

However being competent with the use of cycles for short term trading seems to do.
This is based on the teachings of Walter Bressert who was a Futures trader who introduced "Timing Cycles" in the late 1960,s.

Bressert found that markets moved from low to low in measurable timeframes which he called cycles.
He discovered this was a very powerful analytical tool that added confidence to the trader's decision making process. Raymond Merriman is also a very early exponent of cycles theory "merriman on market cycles" the basics.

If we use timing cycles in our analysis that show that they repeat greater than 70% of the time at regular intervals on a chart then this gives us an idea as to were the market is likely to turn next, not on a specific date but within a specific interval of time.

For example....A timing cycle moves from low to high then back to low. So between the lows is say 12 weeks and we find that this has happened 70% of the time going back 5 periods so 1 year, then it would make sense to me that the next low is going to be somewhere between 8 - 14 weeks. So I would then confirm the low using price and pattern.

Going into the next cycle I would trade the first 3 weeks long as I would be with the momentum and the last 3 weeks short going into the next low...I leave the 6 weeks in the middle for the speculators...

 

[ducati916]

Going into the next cycle I would trade the first 3 weeks long as I would be with the momentum and the last 3 weeks short going into the next low...I leave the 6 weeks in the middle for the speculators...

Through the years I have had a number of interactions with EW enthusiasts. I have never been able to make heads nor tails of it.

jog on
duc