What analysis do you use for trading?

[tech/a]

JAMES

Hi Tech/a



I think most of the profits I have made have been by riding trends, (and by listening to/reading thoughts of more experienced traders than myself about whether they are bullish or bearish on the general direction of the overall market). But because I am not a system trader, (more discretionary), there are always factors other than trend influencing my decision, so I certainly don't have enough data to prove that pure trend following is consistently profitable for me. In some cases I have profited without following a trend, e.g. when a company director leaves a company and liquidates their holdings, and the share price appears severely oversold as a result, I might take a punt and buy in, hoping for a bounce back in the short term, which is not exactly following a trend.

I see.

I suppose I'm splitting hairs here about the definition of EXPECTATION. Of course I "expect" to make a profit when I put money on a trade, otherwise why would I put money on it? But sometimes I find it difficult to accept that it can be proven by backtesting that the trade will have a positive expectation (mathematically speaking), because I would need a lot of data based on the same or very similar market conditions and similar reasons for entry (which are partly discretionary) to be convinced that the effectiveness of this particular entry can be predicted in advance.

You wont ever be able to predict simply anticipate.
Advanced Get have an in built trading method called XTL trading (Expert trend locator) its aim is to get you int an early stage of a wave 3 in a trend be that long or short. They "Claim" a higher than 50% win rate around 60ish if I remember---No I havent seen exhaustive testing and have had mixed but worthwhile results using it.

I think it would be hard to argue that trend trading or more to the point getting on a trend forms the basis for profit for the vast majority of those trading in profit.Likewise for those failing dismally (holding losses far to long---trend in the opposite direction). You can after extensively testing a method have an idea of expectancy---you will be presented with a "Blueprint" which your live trading should follow (it has in all my experiences) until the market alters appreciably from the market data in which it was tested.

Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)

Which can only be calculated after a sequence of trades.

What I am questioning is how accurately you can estimate the Probability of Win vs Loss. Obviously it is easier if you are system trader (rather than discretionary) and if you believe that the market conditions have not changed significantly since you gathered enough backtesting data to assess its statistical distribution accurately.

You cant you can only work from know results---we both concur on backtesting.

No, that's not what I am personally trying to achieve. I mentioned the framing risk/reward stuff after reading point 3 of Trembling Hand's Post #2 in the "Technical Analysis: Useless" thread, which makes sense to me after the trade has begun. If I make an entry because I think a stock is on an uptrend, then it reverses immediately, I am happy for my stop-loss to be hit which suggests that I may have been wrong about the stock being on a continuing up-trend. But if this happens 3 times in a row, how do I know whether my entry method is flawed or whether I was just unlucky?

Only a large data set or large closed trades will supply an answer.

I think the only way I can be 100% confident in my entry method is if I become a system trader (which I don't particularly want to do), and if I believe that the market conditions have remained the same (or close enough) for long enough to accumulate enough backtesting data to form a statistical distribution from which meaningful hypotheses can be made.

Cheers,
James

So then when the entry is not seen or known to be the most important part of a trade the dilema pales.
Discover how to trade with as best as we can anticipate entries and skew our losers to be as small as possible and our winners to be as large as we can and Profit will be assured.

 

[>Apocalypto<]

Focus on a system via charting.

Simple approach with retracements to moving averages entering inline with the direction, with volatility confirmed by the ATR.

Good Trading............

 

[wayneL]

For option trades:

Standard deviation (in the option sense, not the indicator in metacrock amibroke etc), seasonality for commods, plus a bit of crude statistics.

 

[MRC & Co]

seasonality for commods

Interesting, I've seen a great analyst/trader use seasonality a lot with commods. Thx. Will look further into it. These are the tiny comments by real seasoned traders why I still come back here.

 

[Mr J]

The entry may well be the most important to you in your mind.

It's most important to me full stop. My theory that the entry is the most important comes down to the fact that the entry is the first action, and it sets the risk and potential range of the trade. I feel my entries give me a significant advantage. Not like a good jump off the blocks for a swimmer, but like getting a 2 second head start.

So on the point of entry what is in your mind a perfect entry---the thing you aim for---other than the trade to be executed and the trade played out to the exit or trailing stop.

Isn't that (the trade to be executed and the trade played out to the exit or trailing stop.) the only definition of a perfect entry?

I'm not sure what you mean. Are you saying the perfect entry is just one that allows you to get into the trade?

 

[goldorak]

It's most important to me full stop. My theory that the entry is the most important comes down to the fact that the entry is the first action, and it sets the risk and potential range of the trade. I feel my entries give me a significant advantage. Not like a good jump off the blocks for a swimmer, but like getting a 2 second head start.

I agree but even when you are able to spot perfect entries, it doesn't mean that you will be profitable if you don't know how to manage properly a winning trade.

 

[Frank D]

It’s quiet interesting that some believe that the trend is more important
than the entry.

Framing your risk reward on trend can’t be calculated because a trend
can’t be measured. A trend is subjective.

The point of successful trading is to remove as much subjective material
as possible and rely on objective & probability based strategies.

Either using hardcoded systems or observed phenomena:- The ENTRY
which doesn’t need a trend initially to be successful, but will need a trend
to be profitable.

 

[tech/a]

It's most important to me full stop. My theory that the entry is the most important comes down to the fact that the entry is the first action, and it sets the risk and potential range of the trade. I feel my entries give me a significant advantage. Not like a good jump off the blocks for a swimmer, but like getting a 2 second head start.



I'm not sure what you mean. Are you saying the perfect entry is just one that allows you to get into the trade?

It’s quiet interesting that some believe that the trend is more important
than the entry.

Framing your risk reward on trend can’t be calculated because a trend
can’t be measured. A trend is subjective.

The point of successful trading is to remove as much subjective material
as possible and rely on objective & probability based strategies.

Either using hardcoded systems or observed phenomena:- The ENTRY
which doesn’t need a trend initially to be successful, but will need a trend
to be profitable.

Some excellent stuff for discussion.
Will comment further over the next couple of days have a bugga of a week in front!

 

[tech/a]

It's most important to me full stop. My theory that the entry is the most important comes down to the fact that the entry is the first action, and it sets the risk and potential range of the trade. I feel my entries give me a significant advantage. Not like a good jump off the blocks for a swimmer, but like getting a 2 second head start.

I hear you but again I cant see how you can be so sure that EVERY entry will be a home run.

I'm not sure what you mean. Are you saying the perfect entry is just one that allows you to get into the trade?

Yes your entry which is designed to be as good as it can be would do exactly that and no more.

It’s quiet interesting that some believe that the trend is more important
than the entry.

Getting on one is a must for profit --- you can have an excellent potential entry only to see it fail.

Framing your risk reward on trend can’t be calculated because a trend
can’t be measured. A trend is subjective.

Ive never heard of anyone doing this.

The point of successful trading is to remove as much subjective material
as possible and rely on objective & probability based strategies.

A systems trader would agree a discretionary trader would I would have thought be constantly working on a higher Reward for risk.

Either using hardcoded systems or observed phenomena:- The ENTRY
which doesn’t need a trend initially to be successful, but will need a trend
to be profitable.

How can an entry be successful initially??---without a follow through---trend.

I have found the best way to increase my Reward to risk is better trade management of BOTH the failures and the winners.
Rarely does a trade lose its full initial stop or risk.

My initial risk doesnt remotely resemble my actual risk on closed trades.
I may start with 1-3% risk but my resultant Risk to reward is .72% at the moment. I can get that lower and is a work in progress.

 

[Synergy]

It's most important to me full stop. My theory that the entry is the most important comes down to the fact that the entry is the first action, and it sets the risk and potential range of the trade. I feel my entries give me a significant advantage. Not like a good jump off the blocks for a swimmer, but like getting a 2 second head start.

This is exactly how i feel.

It’s quiet interesting that some believe that the trend is more important
than the entry.

Perhaps there has been too much of a shift towards things other than entries? it's seen as a bit untrendy to be talking about entries in this day and age...

For me, my system would struggle severly using a random entry. It would probably survive, but it would not be worth trading. For me the entry itself is not so important, but the timing is critical. I dont want to be wasting time in trades that aren't doing anything.

I see my entry as a springboard onto a trade. Sometimes the board breaks, but there isn't far to fall.

 

[professor_frink]

It is interesting to me what kind of analysis you use to make a trading decision. If it's technical methods, tell us what exactly, like Bill Williams methods, candlesticks, classic methods or Elliott Wave Principle, etc.

I use technical analysis to make my trading decisions for me. The chart should explain it all

 

[Mr J]

I hear you but again I cant see how you can be so sure that EVERY entry will be a home run.

If I was, I'd be a fool or a billionaire by year's end. I don't believe that every or any trade will be perfect, I make the trade knowing that on average, my entry will be pretty good.

Yes your entry which is designed to be as good as it can be would do exactly that and no more.

That the trade is just a starting point and no more, that the result is decided after the entry, not by the entry? I partly agree, but it feels like we're debating whether a glass is half full or half empty. Different perspectives, each to suit ourselves?

I agree but even when you are able to spot perfect entries, it doesn't mean that you will be profitable if you don't know how to manage properly a winning trade.

I never said entry was the only important part of trading, just the most important. Anyway, I think the vast majority of people who can spot great entries should be able to adequately manage the trades.

 

[tech/a]

Anyway, I think the vast majority of people who can spot great entries should be able to adequately manage the trades.

Would you be kind enough to post a few of these Great entries as close to realtime as possible to demonstrate your point?

 

[Frank D]

A probability-based entry doesn’t need a trend to begin with, you don’t
have to be on a trend to begin with, and it doesn’t have to be successful
at the start, otherwise everyone would be running 1-point stops.

If you rounded up every trader and placed them in a basket and labeled
them as trend traders using momentum type strategies then everyone
would be using ‘trend-type’ entries based on probability associated with
a known pattern.

If I go to bed a place short trades at a dynamic 5-day or Weekly highs
or any other level that has observed phenomena associated with
it, then I’m placing my trades against the initial trends, I’m
not concerned about the initial trend of the market, all I’m concerned
is finding levels in the market that provide probability, that
will eventual lead to a reversal pattern based on markets being
linear regressive.

Trends don’t move in straight lines they zig-zag and are
completely subjective, as there isn’t a known end of a trend unless it’s being
optimized with Price based rules or time based rules i.e. I’m holding this
trade until X price is reached or until the end of the day, week, and so
on

Trend identification is extremely important, but I don’t think there are
many successful ‘traders’ that enter randomly simply because of the trend.

In my opinion this is a silly discussion until someone actually defines what
an 'objective' trend is.

And I’m not interested in text book answers of 'higher highs and higher lows' etc.

You can place that answer in the locked thread of useless analysis

 

[Whiskers]

A probability-based entry doesn’t need a trend to begin with...

I tend to agree there. My style is more invest or trade over a few days more so than day trade with the exception of a bit of forex and the odd stock that is on a runner... but for me I make most of my entries on probability, ie often bottom or top picking based on FA, some TA such as divergance and ocassionally EW. They don't always work out but with appropriate stops you can maxamise the number of those famous outlears to get onto.

In my opinion this is a silly discussion until someone actually defines what
an 'objective' trend is.

And I’m not interested in text book answers of 'higher highs and higher lows' etc.

You can place that answer in the locked thread of useless analysis

...er, um, not sure about that... I'm thinking...

For me a trading trend can be defined by those 'higher highs and higher lows' an EW count that narrows the possibilities/probalities and also the Market Depth.

Say with shares, once you've made a decision about theorised trend and made an entry, isn't the best actual trading 'trend' indicator the Market Depth and Course of Sales?

 

[Trembling Hand]

Say with shares, once you've made a decision about theorised trend and made an entry, isn't the best actual trading 'trend' indicator the Market Depth and Course of Sales?

Please explain?

 

[Whiskers]

Please explain?

Short answer... say long, trend strength determined by narrow spread and or larger bid volumes as compared to the ask side... typically trend ends (so exit) when bid side volume fades and or spread increases.

PS: Gees, I wasn't planning to give away trade secrets, but isn't that something like how you trade the SPI, TH?

 

[Trembling Hand]

Short answer... say long, trend strength determined by narrow spread and or larger bid volumes as compared to the ask side... typically trend ends (so exit) when bid side volume fades and or spread increases.

Would luv you to clear this up once and for all. Many a deluded punter states the same, that an order book stuffed on one side leads to it moving in the opposite direction.

I say BS, Size attracts size.

Care to show us say 10 examples?

 

[Whiskers]

Would luv you to clear this up once and for all. Many a deluded punter states the same, that an order book stuffed on one side leads to it moving in the opposite direction.

I didn't say that... I said when the balance changes (as it invariably does) as in reducing ones chance to exit on ones own terms. Obviously, it maybe a matter of minutes if trading an open, to a day or three if a seriously strong run.

 

[Trembling Hand]

isn't that something like how you trade the SPI, TH?

Absolutely NOT.

I didn't say that... I said when the balance changes (as it invariably does) as in reducing ones chance to exit on ones own terms. Obviously, it maybe a matter of minutes if trading an open, to a day or three if a seriously strong run.

So you get shaken out by order book games?