If moderators would do their job, which is moderating, I wouldn't have to.... I always thought when dealing with assholes (just stating the obvious) the best way is to put them into their place as soon as you can, so things don't get out of hand....The desired goal has been achieved... One can be an excellent trader and still an asshole.... On the other hand, have a nice weekend....
Excellent article by Brett Steenbarger: How to Lose at Trading the Stock Market "I need to see the market making new highs to confirm an uptrend," a trader recently told me with a knowing air. "I'm not going to sell until we get confirmation of a downtrend." I haven't heard from that trader since the market began its high volatility decline. I shudder to think what would have happened had he consistently bought highs and sold lows. The reality, however, is that the stock market has never rewarded the obvious. A belt-and-suspenders approach to trading has never produced superior returns. Give me a short-to-intermediate term moving average and I'll show you the returns that will refute our trader's strategy. Today's little exercise draws upon data from Barchart.com, which has a nice "performance" feature that tracks the P/L of various stocks using various technical indicators for entries and exits. Here we'll be looking at the S&P 500 Index (SPY) and the Commodity Channel Index (CCI), an oscillator that captures market strength and weakness. We'll follow our trader's strategy by buying SPY when the 40-day CCI hits +100 (shows strength) and exiting the position when it crosses below +100. Similarly, we'll sell SPY when the CCI hits -100 and exit the position when it crosses back above -100. This strategy may produce a fair number of whipsaws, but should capture the big trends. Over the past two years of trading, this strategy has produced 49 trades, with an average holding time of 8 days. We've had 11 winning trades (including one that is presently open) and 38 losers, about a 22% win rate. The total number of SPY points lost over the two years was a bit over 23 (or 230 S&P futures points), which roughly translates to a 16% loss of capital if we assume no leverage and equal position sizing for each trade. In other words, during a distinct market uptrend, trading a strategy that buys strength and sells weakness has lost significant money. But let's look further under the hood to understand *why* such a strategy fails. If we break out the trades, we find 35 long trades and only 14 shorts. This reflects the upside bias in the market: we haven't often dipped below -100 on an intermediate-term oscillator. Of the 35 long trades, we would have had 9 winners and 26 losers. Cumulatively, those would have lost us 6.45 SPY points. The winning trades would have brought in 14.40 points, or 1.60 SPY points per trade. The losing trades would have cost us 20.85 points, or .80 point per trade. When we examine the short trades, we would have had only 2 winners and 12 losers. The winning trades would have made us 1.37 SPY points or about .69 point per trade. The losers would have cost us 18.22 points, or about 1.52 SPY points per trade. In a limited way, the strategy worked; it did catch some large moves on the long side. As a result, the average size of the winning long trade was twice as large as the average size of the loser. Even so, however, the long trades would have cost us money. Why? Because losing trades outnumbered winners by about 3:1. Stated otherwise, even in a bull market, strong moves only followed through with further strength 25% of the time. It's when we look at the short side that we see the trading system completely break down. The win rate on trades was about 15%. On top of that, the average size of losing trades was more than double the average size of the winners! Selling weakness over the last two years has been a complete and utter disaster. Now for some disclaimers: Yes, there are other ways to trade the CCI; my purpose is not to dis this particular indicator. And, yes, results would be different if you added a variety of stops and money management elements to the mix. And, of course, results would have been different had we examined the strategy at other points in market history or if we had pre-selected a wonderfully trending market over these past two years. My point is this: If we use SPY as a proxy for the stock market (as the most actively traded index ETF) and adopt a strategy of "buy confirmed strength, sell confirmed weakness", we would have lost money at an alarming pace. Even if we had employed it as a long-only strategy, it would have lost us money in a solid bull market! Trading the short side in this environment led to severe losses. In fact, I would go so far as to say that the "buy strength, sell weakness" strategy is so bad that it's promising. Simply reversing (fading) the strategy in SPY and adding a time stop (to avoid the few long uptrends) would have made a trader a chunk of change.
In fact, I would go so far as to say that the "buy strength, sell weakness" strategy is so bad that it's promising. Simply reversing (fading) the strategy in SPY and adding a time stop (to avoid the few long uptrends) would have made a trader a chunk of change. [/B][/QUOTE] Sounds familiar. I guess I am not the only one !
The real statement should be that "buying strength and selling weakness without using correct stop outs loses money." The fact is that you buy in uptrend and sell in downtrends. You do not however, just look at a chart that is in an uptrend and immediately buy. Rather, you then begin using grail signals (oscillators) to define entries and exits. I would agree though that just buying willy nilly when the market is up can lose money. For example, the market remained in a long term uptrend all throughout the 1987 crash. If we would have bought the high and held it, we would have lost and then later made money long term. Instead though it would have been better to just look for a good long entry and we would have made quite a bit more money with a better entry.
I am looking at the 60 minute chart and not sure what you are referring to when you state that it was easy from the get go. First bar/candle opens on the high and closes down near the low. Now if you are referring to the testing of that low from 8/6 then I think itâs a good buy from a risk to reward scenario. However, I am unclear what the hourly chart is showing you. When would you have bought and what exactly is your premise? If you could be more specific I would appreciate it. DMartin
The reasons that longs were a better a bet on the day include but are not limted to, the retest on the 60 minute chart of the recent hourly low. The other reasons can be found throughout this journal and other threads here as I have posted my techniques quite a bit on this site. The specific entries would be where I fellt that the short term charts of the day were retracing and showing renewed strength. In order to reap full benefits of extended gain type traing, one must develop a longer term bias and then only trade from that side. The longer term can be a monthly chart or it could be a 5 minute chart. It's up to each trader. Either way though, trades should be entered at full position without scaling in and closed at full position without scaling out. Full position is dictated by risk management. You should be able to have a much larger position on a 5 minute chart than you can have on a monthly chart. ---- This does not mean that one just buys and then holds all day.--It could mean that, but many days it does not. Good trading to all. I will speak with you tomorrow.
Sold half here -- selling the rest around 57-58. Was long from Friday Close. We could get a vicious run-up this week.