Risk management and odds

Discussion in 'Risk Management' started by NKNY, Jun 13, 2001.

  1. Zarrar



    "charts don't lie" in the sense that day trading is not useless. Meaning that the notion to completely reject day trading as a vehicle for profitability is wrong.

    I understand that there is volatility in the markets, but from a historical and retrospective viewpoint, no matter how bad the market is, it always either goes up or down, or it moves sideways. Perhaps my way of looking at the market should be explained. I use E-Signal, and look at about 10-12 1 minute interval charts with a stochastic indicator. From a long historical experience in doing this for about a year, it has been realized that the stochastic is a pretty good guideline to enter intraday positions.

    No one can predict the future, but if hindsight is a learning tool, then we can understand that the stock will move whether one is in position or not. The only way to get to this point is to look at live charts for a very long time, day in day out. Each stock has a characteristic, and over time you will know what it is.

    Determining a trend is simple when a move has run its course, and this happens all day every day in some of the most volatile stocks out there, and stochastics indicate this. VRTS, NVDA, OPWV, QCOM, are just some tradable names.

    The use of stochastics is effective when the move has begun, like a pullback would be indicated either at stochastic 20% or below. You cannot predict a trend when it hasn't begun yet, only after.

    "this should work most of the time" yes I have had a long history with this method, again, most stocks stocks swing in counter directions, and stochastics indicate this. There will be MM false set ups geared to look like perfect entry point. One way to avoid them is to not enter a long position on the first few upticks after a price fall. And not to short on the first few 'apparent' set ups where it seems like an uptrend has run its course.

    Finally, there is no one way that is the holy grail. There is logic in the stock market, but it is not rigid and does not follow esacting rules becuase there are peolple behind the numbers. And people are not machines, they are the MMs chaning their strategy with every imbalance of the buy/sell ratio. In short, trading is part science through TA, and mostly an art form where you begin to understand the behavior of the people who are behind the price movements.

    Trading is not easy, but it can be simple if your trade intraday between stochastics. I guess at some point I will bring up charts and dissections to explain this further. I am setting up an educational website in trading, it will be free, and you can send me an email if you're interested in it when it launches shortly: 950215@earthlink.net

    #51     Jun 18, 2001
  2. Zarrar



    The method that I have mentioned is simple no doubt, but it is the very foundation upon which intraday trading rests and follows. All those curves and swings are nothing more than overbought or oversold reactions. Sounds simple, but those are my findings. Please feel free to test them and post your findings.
    #52     Jun 18, 2001
  3. tymjr


    I am still not sure what it is you are doing so it will be hard to test. Forgive me, but I have very little faith in the stochastic when used in the way that you appear to be describing. The concept the equation is built on doesn't favor that kind of analysis. It’s ability to detect OB/OS levels accurately and reliably holds up quite poorly outside of some other filter.

    You said, "Trading is not easy, but it can be simple." What aspect of your plan is not easy if the methodology is? Most importantly, the whole discussion is useless without some idea of how or when one takes profits or losses once a position is in place? Undoubtedly, there is more to what you do than I can see at this point so I look forward to your website. Thanks for your response.
    #53     Jun 18, 2001
  4. Zarrar



    As much as I believe in 100% technical analysis and its ability to give your a 'dumb' answer that is absolutely correct, and will yield profits; I must say that human intervention is necessary before taking a position. You are correct, a pure TA decision will be wrong, thus relying on it and making a decision will also be wrong. The proper way to use stochastics is to find its 20% or below to enter a long position, or 80% or higher for a short position.

    Having said this, there is another filter that in conjunction with this yields the ultimate decision. This filter is based on human experience, training, and insight.
    Remember this, for example, if the stochastic is 0, and the stock has not yet moved up and is still sliding, be patient, it will move up there is no doubt, they always do. The trick to understanding this is less TA and more based on psychology, human emotions, and fear. Again, the stock will go up, but before it goes up, it will scare the daylights out of you. Why? Because the purpose of the stock and its MMs, and all is to scare you and have you sell in a loss.

    How many times have you bought something, it slips a little, and you sell in panic, only to realize that it has ultimately gone up? The key here is to find that point from where it goes up after the stochastic has reached zero, and the scaring has been done. Over time you will learn to pick this up and you will trade without fear.

    My entire point here is that the above scenario is true. TA will tell who is going up or down. MMs also know about the TA, and will create false setups to throw you off. Patience is needed in you to see and wait for the scare tactics to finish their course. Once this has been done, the stock will move. It will move because its not just you who wants it to move, but because there are others who benefit from it also. And thats the point of entry.

    I cannot tell you where this point is in this writing, but you can find it in the charts. Yes, it sounds like a spiritual journey because there is human intervention. But as of yet, there is no 'black box' that can tell you when to enter. Thats as 'in a nut shell' as i can get. Apparently this is a big topic, and will take discipline, stamina, and the overcoming of fear.

    POINT: The best decision will come from the combined effort of TA and your own interpretation, filtering the MM setup, and the fear within.
    #54     Jun 18, 2001
  5. Hoyler



    I can relate to your point of view. It sounds as if you have an intimate understanding of your tools. The black box? That is our intuition and understanding coupled with experience. Technically based, yes, I am with a big dose of discretion - I am my own black box.

    #55     Jun 19, 2001
  6. tymjr


    >>You are correct, a pure TA decision will be wrong, thus relying on it and making a decision will also be wrong.

    That was not my intention to convey that pure TA is incorrect. I must not have made myself clear enough.

    >>This filter is based on human experience, training, and insight.

    Now I understand where you are coming from a little better. I think it’s great that you have developed an understanding and/or a feel for the instruments you trade. After many years, I have found it most effective to make as much of what I do as automated as I can. That is not to say I do not exercise discretion but I find it important to limit the possible misinterpretations I may succumb to. This in no way is meant to imply that my way is the right way for anyone but me.

    I do believe it is more appropriate for new traders to create a plan that avoids discretion as much as possible so they might survive long enough to develop the sense you have. I’ve worked with a number of traders who blew out quite quickly because they felt they had a handle on the market when the market had a handle on them.

    Thanks for clarifying your ideas.
    #56     Jun 19, 2001
  7. Zarrar



    There is no one way that is correct. Its up to the individual how they want to pursue their goals. In the end, the market moves no matter what. Its like religion, there are many, but they all try to find the same thing.
    #57     Jun 19, 2001
  8. tymjr


    >>There is no one way that is correct.

    As I previously stated,"This in no way is meant to imply that my way is the right way for anyone but me."

    Are you reading my posts? I must not be clear enough.
    #58     Jun 19, 2001
  9. Zarrar



    I was agreeing with you. Reiterating what you said in probably more words than were necessary.
    #59     Jun 19, 2001
  10. tymjr


    My apologies. Well said. Thanks again.
    #60     Jun 19, 2001