Trading Strategy/System for Beginner

[Paul36]

Hi Everyone.

This is I think my first post and it is gonna be a bit long but I thought it important to give enough information so that others can give advice. Sorry about that in advance.

Basically I need some advice on where to go from here with my trading strategy.

A bit of history…
I started what I thought was investing (but now realize was gambling) in stocks in about 2006 with a first trade of about $2000. As I gained more confidence and a fair bit of success, I increased my activity. I had no such thing as stop losses in place, I didn’t even know what they were. I had no strategy. I had disproportionate amounts of funds invested in certain stocks. Because I was making money, it was all too easy so I just kept buying things I thought sounded good. I had 95% of all my funds in mining stocks on the ASX. No money management rules in place. I just pumped money into the market as I got paid each month. No charting, or real technical analysis. I would just read or hear about a stock and then look at the chart. If it looked like price had retreated then I would buy on the hope that it was a short term dip. I bought penny stocks and didn’t even really care/understand about the importance of volume. Writing this now makes me cringe, but at the same time it is a learning experience.

Well the funny thing is I made quite a bit of money from 2006 until mid 2008, and I had at least doubled if not tripled my money. So a bull market and blind luck probably did their best to confirm all the bad habits I had. I remember getting a scare in August 2007 when my stocks dropped a fair bit, but then they shot straight back up in a matter of a couple of weeks, so on with the show I thought.

Well things of course turned to the schidt in September/ October 2008. At the time I was on holiday in the US and was getting internet connection every 3-4 days as I was travelling around a lot. I remember logging on and realising my portfolio value was down $50k. Holy F$%# I thought, then “Oh well, it’ll come back”….another 3 or 4 days later I log on and it’s down $100k. At that point I thought that I was down so much already I may as well just hold and wait… So I managed to turn abount $400k into I think $85k at the low point…nice work, I’m sure you’ll agree.

Well since then, I have done a fair bit of reading on all my bad habits, working out where I went wrong and how things could have been different. I drew a line in the sand and have basically started afresh. But really that has only meant a few (but significant) changes:

1. I have stop losses now on any new trades and on existing positions
2. I have sold out of stocks I was too heavy in and tried to diversify into different sectors.
3. I changed brokerage firms to IB so I can do automatic stop losses. I am now also trading US stocks.
4. I have half my portfolio in cash right now.

My stocks have come back a bit and I have had some more success to the point that I am now down about 50% from my portfolio all time high, and I am down 35% on the total money I have invested.

So my problem is where do I go from here???

I have been trawling the internet looking for information on how to trade, but any newcomer will understand how mind boggling all this information is. There are so many punters out there who are willing to take my money and offer all these great systems etc, that it is too hard to sort out the BS from anything that may be of value.

So I end up just thinking everyone is full of BS. It’s like watching the financial channels and the so called economic experts. One minute the market is falling and all the economists are going on about how we will be in for new lows. The next minute the markets are moving on up, and now they are telling us we are in a bull market again..blah blah blah. If those guys who are so called experts have such differing opinions, then how the hell is an ignoramus like me meant to make any sense of it?

I see a few posts on forums and the like about how all the subscription services are a waste of time and that you can get all the information for free. Well that may be true, but the problem for a novice like me is that just as with the paid services, all the free information is so varied. There are so many different ideas around that it’s hard to make sense of it.

I ended up subscribing to a particular newsletter for stock market tips and I have had very good success. But while I am making money out of their tips, I don’t like the fact that I am reliant on someone else to tell me what/how to trade.

So reading through more forum posts etc, a lot of people say you need to know what type of investor you are and what timeframe you are trading etc.

What I DO know is this:

• I want to trade for 1 reason only – to accumulate wealth. I am not trading for income, just capital growth.
• I don’t pay CGT as I am not a tax resident of Australia.
• I am not interested in looking at a computer screen all day and being a day trader. Far too much stress and work, plus I have a day job.
• I do have a pretty high tolerance of risk (as I’m sure you will get from my previous experience).
• I am interested in some type of momentum or trend trading methodology, going with the flow and with stop losses always in place.
• I want to be able to make money in down markets as well (eg shorting stocks), but I have never done this before.
• I don’t really want to trade on margin, but if I could have a sound trading system in place and I understood the mechanics of it better, I would consider it
• I want consistent achievable returns. What do I consider achievable? Is 20 – 30% per year realistic? I think so.
• I am interested in trading forex, but again know nothing about it. I am getting the feeling that it is all very complicated and too hard, but another part of me thinks it is really just like a stock, with support and resistance levels etc, so is it really THAT complicated?
• Every person you speak to or read about has such differing opinions about what matters and how to time markets (eg what indicators to use), that it just gets totally confusing.

What I DON’T know:

• How to do any technical analysis other than very rudimentary stuff.
• What software should I be using for scanning stocks, what indicators to assist in identifying trends, and what rules to use for entry/exit

Is there a one stop shop so to speak where I can get all this information and try and design a trading strategy that suits my needs? What would others recommend?

While I hate the idea of being ripped off by some internet company that teaches you how to do this or that and then delivering nothing, the one appeal that such companies do have is that they are one source of information for a newbie, so it takes a lot of the problems of conflicting/alternative advice away. As well as saving time by trying to work out what information to read etc. The problem is there are so many charlatans around that how do you choose?

I have even flirted with the idea of paying someone for stock mentoring advice, but again how do you find someone reputable? Someone who is actually making money and not just regurgitating theoretical BS?

I understand that there are many ways to skin a cat and that there are different strategies that suit different people, different markets etc. But all I want to know is ONE way of skinning the cat!!! A reliable, consistent way…. I’m not looking for a magic box system that tells me what to do as I don’t believe they exist, but to try and understand how I can get the returns I am after by using some sort of rules based trading strategy.

Some posts suggest that to get a good understanding takes years and years or research and practice. Is that really true, or is it only true for people who want to day trade? Remember I am not after unrealistic returns or being a day trader.

So how much time would it take to put me in a position where I could independently search for opportunities and place trades and have an expectancy of making the 20 – 30% returns I am after? Weeks, months or years? I know it depends on everyone’s intelligent levels and the effort you put in, so let’s assume I am of average intelligence (although my trading history would suggest otherwise ha ha), and am prepared to put in 10 – 15 hours per week in research/study.

So to recap, what I would really like advice on is:

1. How to go about finding a trading system to achieve my targeted returns (20-30%). Either a fee paying or free service that will educate me and give me the understanding to design and trade a system with positive expectancy of making profits. A system with defined entry and exit rules that is simple and works. Does such a thing exist? Preferably one source of information rather than someone just telling me "search the internet, it's all there". That advice is not exactly helpful

2. Expected time frame to learn and implemet #1

And before anyone gets too critical, please remember we all have to start somewhere. I tried to find similar posts like this on this forum but didn't really see anything, so apologies if all my queries have been answered elsewhere (and if they have, can you please show me where the answers are?).

Anyway, sorry for the length of the post, just thought I would try and provide as much information as possible. Thanks a lot for reading.

I would really appreciate constructive advice/suggestions as to where I should go from here….

 

[Trembling Hand]

You are about to get a heap of replies but as you now know they will just be variations on the same old trading/investing cliches.

Do yourself a favour and go here,

https://www.aussiestockforums.com/forums/showthread.php?t=6588

And here,

http://www.thechartist.com.au/

Ignore all other "advice".

:

 

[Paul36]

Thanks for your reply, TH

Re your second link, that looks of interest to me. I can't find any details of his historical performance though. Do you know offhand? Better results on the US or ASX markets?

Re the first link - all I can say is that it must be good, because everyone is congratulating him on his efforts. But in all honesty, it seems a bit above my level. He mentions something about a book - has that guy written a book and if so, would a novice get much out of it or is it designed for more advanced traders?

 

[Trembling Hand]

Thanks for your reply, TH

Re your second link, that looks of interest to me. I can't find any details of his historical performance though. Do you know offhand? Better results on the US or ASX markets?

Re the first link - all I can say is that it must be good, because everyone is congratulating him on his efforts. But in all honesty, it seems a bit above my level. He mentions something about a book - has that guy written a book and if so, would a novice get much out of it or is it designed for more advanced traders?

Paul drop Nick an email and ask the above questions directly. You will get a quick reply.

As for Franks work the reason I recommend that is although at first it looks complicated it is actually the only "system" that I have seen that teaches understanding of price action in a simple and repeatable process.

 

[Paul36]

Copy that. Thanks TH

 

[macca]

Hi Paul,

I support what TH said

 

[Frank D]

TH,

Thanks for the support.

After 525 posts you would begin to see the merits in using a multi-timeframe model that helps define trends, support, and resistance.

Peter,

It seems complicated but it makes logical sense.

As a trader you simply trade the timeframe that suits you, or
diversify your trading in within the same multi-timeframe model via
day-trading derivatives, swing-trading Stocks and/or using Thrust patterns,
and lastly investing & accumulation for wealth creation, which are
all covered.


However, as an author I might over complicate the methodology, and
my latest book might be slightly advance for some especially if just
starting out or don’t have the same tools.


I’ve gone back and started rewriting my first book once again, and it
could take another 6 months before I’m finished.

There is a lot of information from my first book that’s not covered in
the latest book, but the first book could have been written far better.

People don’t really want to know about standard deviation techniques or can’t
use spiral point trading because they don’t have the tools.

The first book might suit you, as I’m going to focus on high
probability patterns, swing trading, and momentum ‘Thrust’ trading in
higher timeframes, and use the 5-day patterns to find high probability
set-ups.

But that's 6 months away.

cheers
Frank

 

[nomore4s]

Thanks for your reply, TH

Re your second link, that looks of interest to me. I can't find any details of his historical performance though. Do you know offhand? Better results on the US or ASX markets?

Re the first link - all I can say is that it must be good, because everyone is congratulating him on his efforts. But in all honesty, it seems a bit above my level. He mentions something about a book - has that guy written a book and if so, would a novice get much out of it or is it designed for more advanced traders?

Paul,

I can highly recommend the chartist in regards to seeing how a very good trader goes about trading in a consistant manner and both Nick & Trish will answer any questions and they provide a very good service.

I also recommend buying Franks book. Franks system isn't anywhere near as complicated as it first appears once you understand the basic principles.

Frank I look forward to the rewritten version of the first book.

 

[Trembling Hand]

Frank it use to surprise me that more don't jump on your wagon but I've come to accept that. People just want to know enough so they can fool themselves into justifying their bets. They don't want to actually know the probabilities of the patterns they are trading or develop an understanding of price movements. Just know that other fools have used the approach before. (whats that about doing the same and expecting a different approach?? )

Have a look at the Head & Shoulder patterns thread - Its running at 80% FALURE rate on the calls!!!!.

For F sake

 

[nomore4s]

Frank it use to surprise me that more don't jump on your wagon but I've come to accept that. People just want to know enough so they can fool themselves into justifying their bets. They don't want to actually know the probabilities of the patterns they are trading or develop an understanding of price movements. Just know that other fools have used the approach before. (whats that about doing the same and expecting a different approach?? )

Have a look at the Head & Shoulder patterns thread - Its running at 80% FALURE rate on the calls!!!!.

For F sake

lol, I agree. The more research I do with Franks system the more I'm understanding just how good it is.

I've also found it is a very powerful tool for defining trends especially the strength of a trend, just got to work on applying it and capturing more of these trends now , lol.

 

[Frank D]

Frank it use to surprise me that more don't jump on your wagon but I've come to accept that. They don't want to actually know the probabilities of the patterns they are trading or develop an understanding of price movements.

TH,

It’s probably because my methodology is still a
discretionary model/methodology and that traders have to think
for themselves.

Most traders that don’t want to think for themselves develop
hardcoded systems with positive expectancy, which is a correct thing to
do. The system then has an edge, defines Risk/Reward based on
historical evidence, and hopefully makes the trader money and not
lose money.

However, hardcoded systems often fail and move into draw-downs
periods. Most hardcoded systems don’t know when those draw-down
periods will occur or how long they will last for.


Using my model can often help traders who use hardcoded
systems, because it helps optimize the systems as it clearly
establishes trends, the direction of trends, and likely areas of reversal
of trends within multi-timeframes.

My model doesn't use ‘hardcode expectancy’ , but employs statistical expectancy using hardcoded levels with a random outcome.

We have just seen the previous 3 months have precise tops in the
market, from a precise low in March.

For example:- having an expectancy that around the March lows and
‘support’ might provide a potential 30% UP swing in the 2nd Quarter: - random outcome until complete.

Or a 3rd Quarter Thrust pattern once lesser timeframes confirmed the
UP move.

Example:- why short a rising stock in Australia if the S&P has closed
above the 5-day highs. There is a high probability pattern that the next
day will gap up.

Not every trade will be a winner, and not every higher timeframe support
or resistance will hold, they often break, but it’s the filtering of those
higher timeframes using lesser timeframes that the trader uses:-
5-day patterns or Weekly ‘open’ patterns:- support/resistance

I’m not the one who coined the term the ‘adaptive trader’, but that’s
what the trader has to be, ‘adaptive’ and be aware on what’s going on in
the higher timeframes.

I’m completely bias, but that’s what my model and
methodology provides.What makes a good methodology is one that gives
an individual trader a good grasp and understanding of what the risk
and rewards are along with providing high probability set-ups with
the lowest ‘risk’. Another trader looking at the same model and
methodology should have the exact same understanding.

It’s there for all to see. It’s objective. There are rules and principles
to formulate your own trading strategy based on your own limitations or
the timeframe you choose to trade.

It doesn’t mean all traders will end up with the same results, because it
is still a discretionary ‘method’.

SPI Weekly and 5-day pattern (chart Below)

I pointed out the July highs, and if anyone who is shorting around these
highs there are certain patterns to focus on….

Short resistance:- 5-day highs 4130 along with a higher Weekly open

The reversal pattern won’t be confirmed until price is below the 5-day
50% level.

A higher probability pattern would reverse down from these highs and
gap lower below the 5-day 50% level and continue down. However
Monday hit 4130 (sycom) but didn’t gap open below Tuesday’s 50% level.

Tuesday’ hasn’t opened below the 5-day 50% level, but price
is still coming down from the 5-day highs. Therefore the trader is still in
a winning position but he or she needs to be adaptive, because
July’s resistance levels won’t last long, and with a couple of days to go
until July’s resistance level shift, short trading around 4130 in August ends
up being higher risk than in July.

Even though one trader might still think the market is heading down into the weekly 50% level, that same person needs to optimize the market
based on Market dynamics.

Another trader might want to trade shorts at 4130, but add more once below 5-day 50% level.

Another trader might short around 4130 but use a partial exit strategy
21 points down from the high and focus on the R42-44 range and exit:- day trading

Both the Day trader and Swing ‘short’ trader are trading the same
patterns, but managing the trade differently. That's what makes a good methodology, they understand the pattern and trade accordingly.

Short trading around 4130 was valid for Monday, but now there is a shift
in market dynamics that could see the SPI move towards 4150 on Tuesday.

So why would the trader short on Tuesday then?

Because there is another high probability intra-day pattern:- spiral point and a 5-day filter that has a pattern of moving away 21-42 points.

Both traders trade accordingly.

Therefore short trading 4130 had more probability of reversing down on Monday than what Tuesday has, because of the change in market dynamics but doesn't mean traders can't short trade a spiral 'top' pattern.

A trader ‘short’ trading around these highs today understands that there is a larger Primary cycle that’s trying to move towards 4400,
therefore the best they can hope for is a move down into the Weekly
50% level and then adapt to the price action around that level.

Exit and then re-enter using the 5-day patterns once again if the Weekly
50% level holds or fails.

A stock trader trading the 3rd Quarter 'Thrust' pattern can sit back and ride a 2-month wave pattern upwards with a primary target of 4400,
which may or may not get there:- random pattern.


It’s all about support, resistance, trends using hardcoded or
statistical expectancy and optimization based on market dynamics and
price patterns.

 

[Paul36]

Well just to let you know I am a new subscriber to The Chartist.

And Frank, I would really like to understand your system so I guess I will just wait for the new book to come out.

 

[beamstas]

So much good info right here.
I'd reccomend radge's book, or even better, dvd.

Brad

 

[brianwh]

Is there anyone out there operating a SMSF who uses the Chartist? I note that he advertises that as a specific part of his service but I'm wondering if people here have experience with this aspect.

 

[tech/a]

My model doesn't use ‘hardcode expectancy’ , but employs statistical expectancy using hardcoded levels with a random outcome

Frank you continue to claim statistical expectancy yet when asked to supply this it just isn't available?
How can you claim this without any evidence?

Particularly when you use this in the same sentence?

using hardcoded levels with a random outcome

I'm amused that you can claim a statistical expectancy from Random Outcomes.
From What I can gather this is a first in Statistics.

 

[Frank D]

Frank you continue to claim statistical expectancy yet when asked to supply this it just isn't available?
How can you claim this without any evidence?

I'm amused that you can claim a statistical expectancy from Random Outcomes.

Not you again.

Go to the chapter titled 5-day pattern and standard deviation trading.

That’s all the statistical evidence I need.

And what ever you trade will always have a random outcome regardless
on how much statistical evidence is available, whether it’s hardcoded or
an 'observe phenomena'

I’m amused that people take you seriously.

 

[tech/a]

Not you again.

Go to the chapter titled 5-day pattern and standard deviation trading.

That’s all the statistical evidence I need.

Maybe all YOU need but for anyone evaluating a method it has NO statistical significance.
method doesnt equal significance.

And what ever you trade will always have a random outcome regardless
on how much statistical evidence is available, whether it’s hardcoded or
an 'observe phenomena'

Hmm you are arguing contary to your claims.

I’m amused that people take you seriously.

Yes an error in judgement some have made.

 

[Frank D]

Maybe all YOU need but for anyone evaluating a method it has NO statistical significance.
method doesnt equal significance.

So there is no statistical evidence that Index markets ‘invert’ 63-72% of
the time?

So that there is no statistical or observed phenomena, that markets
will invert from 5-day highs or 5-day lows?

I know one thing for sure.

There is ‘observed phenomena’ that you get up peoples noses more
than anyone else in ASF.

Statistically, you are the most annoying person in this forum.

I won't even bother replying to your next comment

 

[tech/a]

Just point me/us to the study so I/we can evaluate the Statistical evidence.

What no study??

Oh and thanks for the compliment.
Unlike many I'm not in aw.

I won't even bother replying to your next comment

Totally predictable response.

Thanks for your clarification once again.

 

[nunthewiser]

unreal