I have the Holy Grail and I simply refuse to sell it!!! I do however print out a FORECAST MATRIX everyday "FREE" to ET users! The funny thing is that people really arent interested in extracting money from the markets consistantly. I believe that the majority of motives out there is to figure the market out themselves so they can sell it to the public and make a fortune without having to trade. How did you come to that conclusion? Because my (DayTrade) FORECAST MATRIX for the NQ has not had a losing day in several weeks!!! yet no one seems to care. Even though I give it away for FREE! If most people knew that would it not make sense that they would download it and trade it???? Ofcourse but that is not there purpose. They want to figure it out on thier own. Why have I done this? To prove that even if you give it away no one really wants it!!
Okay, perhaps I'm missing something big here. I have the uneasy sense that I am. My system appears to be pathetically simple, and I'd really like to know if I'm being a dunce. Here's how I trade, and I'd like to know what others think. If it's a damnfool idea, and I'm heading straight for an ice berg, please tell me so I can at least try to turn the ship (or close the watertight doors): I look for stocks whose 50 day MA has recently crossed its 200 day to the upside, and both MAs are currently moving up. Recent closes are above the 200 MA. Daily average volume > 1 million shares. I use a daily smoothed slow stochastic to get my buy point, and sell when the price either reaches overbought territory or hits a trailing stop. I try to risk no more than 1-2% of my at-risk capital in each position, and take positions whose projected win/loss is at least 3:1. I defined this by looking back on my own winning trades and by asking myself 'what sort of setups do you think give high-probability trades and provide a good risk-reward'? Is this too simple? It seems to me the simplest systems are probably the most useful across a broad range of securites. This one CAN blow out, but loss is limited (I diversify my holdings across several positions at any given time). Interestingly, this mechanical system realizes MORE profit on a daily scale than on a 60, 30, or 5 minute timeframe. Critiques?
TERRIFIC!!! This is the skeleton of every great system! Without this frame work I would beg to differ if anyones claims to have a winning system. CONGRATUALATIONS!!! ...........you got it!
I second T-Rex' enthusiasm. You are basically trading a trend within a trend within a trend, all in the same direction. Nice work. And, it took one paragraph to explain. Any chance you might be willing to share the settiings of your stochastic? And how long do your trades usually last? No problem if you don't want to say on either question. The method you have described is a nice gift as it is. Thanks.
Thanks, guys. I've been investing for years, and have dabbled in swing trading for the last two or so--and in that time I've probably made most of the dumb mistakes the books tell you not to do. I've managed to ignore risk and money management rules, when I first started, being totally ignorant of what they were. I went the 'guru' route, and found that most of their picks were worthless. I went the 'scalp' route, and found it didn't suit my temperament, Ergo, I'd lose on those, too. I tried various combinations of indicators, but didn't backtest them. Only in the last year have I learned, by rueful experience, that a dispassionate system is the way to go. And decided to apply the same mindset I use in IT analysis to trading. So, this is what I use: I use daily charts for my entry/exits, and week/month to look for even longer term trends and support/resistance points. If I find a nicely trending stock (eg, KLAC these last few months) I'm very happy. All MAs are 'simple'. I use a 50 and 200 daily MA. Both must be greater than or equal to their values of the day prior to the buy (ie, 'both are rising', in essence). I like to find stocks which have shown a positive 50/200 cross in the last week or two, and put them on my watchlist. I also look to see where nearby overhead resistance might be, and note that too. I use a slow stochastic, %K length of 14, %D of 3 ('days' in both cases) smoothing value of 3. My oversold line is set at '20', and overbought at '80'--I believe this tends to catch ONLY the truly oversold/overbought moves, but that's just my personal 'comfort level'. One could get more frequent trades by adjusting this. I buy when the StocD crosses the 20 line downward (this may need refining, but on a smoothed stochastic it does tend to get me in right at the bottom). I look for highly liquid stocks (> 1M/day) and stick to those trading above $10 share. My intent is to avoid super-volatile BBs or OTC stuff. I don't trade it if it has more than four letters in the symbol My initial sell-stop is the value returned by a 14 day 2-standard deviation (below the close of the day I buy). This implies that I won't get stopped out by 95% of the daily ordinary movement of the stock, and that if I AM stopped out, it's because of a signifcant downside move. Once I know the actual dollar amount I'll lose if that stop is triggered, I can calculate number of shares to buy, based on the rule of no more than 2% of at risk-capital 'at risk' in any one position. EX: If my 2% is $1000.00, my buy price is $20/share, and my two-standard deviation initial stop is down at $18.00, my per share risk is $2.00. Divided into $1000.00 means I can buy up to 500 shares and sleep at night. Once the stock moves up I use a trailing stop, and monitor it. If it reaches overbought territory I don't sell, but do begin to tighten my stop, especially if a range begins to form. If a range forms and is not broken within five days of its start, I sell, take my profit, and look for new opportunities. Any one stock will give fairly FEW buys each year, so I monitor a large stable to get new buys every couple of days, and I stay diversified among 5-8 uncorrelated stocks. For an example of recent repeated good 'buys', take a look at KLAC for the last few months. If you can backtest, you'll see that this system generates steady profit--you may not become a Bill Gates right away, but for me it does provide a steady, unexciting living (I don't like excitement in my trades--at a football game, yes, but not where my money is concerned). Does all this make sense?
Perfect sense. And I especially appreciate the order of presentation. Method then process. Very nice work VT. Succinct, clearly written, logical, and based on sound market principles. As a position trader, this is one I will study.
I agree. Steady and unexciting may be boring, but chaotic and exciting doesn't make the mortgage payment.
madf, What is optimal is not dependent on the whims of the investor. You are interjecting your emotions in to equations that do not have room for them. The shortest distance between two points is a straight line, regardless of how you feel about it. I did allow for investor whims when I said some people willing perform at less than optimal levels. You use the word "optimal" like you are talking about how pretty your wife is, who is undoubtedly the most "optimal" woman for you. Calling me self-damning, arrogant, ignorant, "stoopid", and "having a bad day" does not help your argument, though it does give a better picture of your inner nature. I will expect more emotional outbursts from you, though I will be less likely to reward you by reading or responding to them. You may have to seek titillation elsewhere. I mentioned twice that there are profitable traders who are not trading optimally, you either missed or ignored this. Because optimal trading is a TSP, most traders fall in to this category. The real question is whether they know this or not, you clearly do not. Steve.
Hi Grob, You are correct that there is not always a way to make money safely in a market. People that don't know that are at risk, and they usually do not even know they are at risk. The optimal behavior during such a time is usually not to participate. Large traders, who are paid to participate, do not have that option. Standing on the sidelines during such a time is the priveledge of "the little guys". The different kinds of traders have different strengths and weaknesses, few know what these are. Anyone not knowing the other participants strengths and weaknesses is not going to perform well. Diversifying accross the harmonics of a complex wave is a valid way to trade uncorrelated streams. In my earlier post I was talking about optimizing a single stream, as I consider this a prereqruisite skill. Money is made through time, so making money fastest equates to trading the minimum time intervals possible. Bigger time segments are inherently less optimal. The time to trade them is when you have to - because your position sizes are adversely effecting the market. Steve.
It would be nice, and fun as well, if we can see a dialogue using plain and simple English between Jack and Grob in the same thread!