See to me, this makes sense. It also sounds a lot like what I do, which is basically trading relative strength. To me, that is what you are defining. Whether this is how you think of it is another matter altogether. So maybe sometimes difference are really only in the semantics. RS7 (really finished now )
Actually, I dont use point and figure since its very visually distorting for me. I still use regular 5, 15, 30 min charts. But time or bar-based indicators are not used. But the approach could be classified along the same lines as point and figure. I'm not pushing one idea over another. Just that I don't see any edge using the majority of canned indicators. And most indexes that are traded on exchanges have a price structure that is so chaotic that very few (none?) indicators can consistently be useful over a period longer than 2-3 mos. Liquidity is good BUT it also has a cost. It means more players and a smaller profit. A couple of years ago some of the newer ETF's were arriving on the scene. They had no volume. Many people were afraid of trading them. I made serious money trading those things. I kept wishing they came up with more ETF's. They did. More people started trading them. And of course the edge went away My point is that products are not traded on exchanges for the benefit of speculators. Today EVERYONE has computers with funny-looking charts and squiggly lines so there cannot be any edge. You most likely need something that pushes the envelope. IndexTrader
You're closer to the magic bullet than you think. You recognize "there ain't one". As for MA's, they've always worked to a degree when the market spent most of its time trending. I don't use them in ST trading... in fact rather don't like them. But for other tools, it's all a matter of "what's workin' now". Look for ways to measure that and correlate your trades with indicators that match up with how the market's behaving NOW. Sounds simplistic, I know. But after 20 years in front of a real-time screen, the best I can say is, "Trading = Take a Guess, Use a Stop". The art of course, is that one needs to learn WHAT TO GUESS AT... and it's not the same all the time. Personally, I like to view the market as moody. It's either negative, positive/euphoric, or indecisive. I start with getting a measure on indecisive. Then when it gets more positive or negative, I shift my trading paramaters accordingly. While computers allow us all to track gobs of data and indicators, I believe their real value is in organizing the data and filtering out some of the noise. I'm a firm believer in working to make things simple. I wouldn't like to use a system for trading which contained more than "price + 2 indicators"... find the 2 you like best and execute well.
I guess we agree on just about everything. Maybe it is because we have both been doing this long enough to know that, as you say, "filtering out the noise" is what it is about. It seems that you just develop a feel for the market. You recognize what is working, and use that while it works. When it stops working, you look for what IS working. It is all about adapting, and keeping it as simple as possible. It isn't an exact science, and like you said, it is about making educated guesses. That is the real key to success. Knowing what to do and why. Of course there are no "magic bullets". If there were, they would be overused, and then wouldn't work anyway. Sounds like you and I trade very similarly. I always look for trends...as you said, negative, positive, or indecisive. For example, I will generally avoid divergent markets. I don't mean the market is up and a few sectors are weak. I mean the major averages should be in the same direction. I avoid a market that is up with weak internals. Or a down market with strong internals. Etc, etc. Just common sense stuff to me. This is why I look at the Dow last. 30 stocks? I always look at the NDX and the SPX first. Then the less important averages. Then the subgroups to see where the real relative strength and weakness are. I guess you could say my style is to evaluate the market from the top down. Thanks for the post. One of the best so far in this thread (though I may be a little prejudiced, since you seem to agree with me). Also, I find it interesting that between the two of us, we probably have the combined experience (in years of trading) that meets or exceeds the cumulative experience of most of those that have posted. Maybe there is no substitute for experience. Good luck and good trading, RS7
Found a good one? Glowing "quarterly results" press release from the company Thursday 8:00am. Revenue up 35% in the quarter, earnings up 33%, etc., but not a whole lot of detail. The stock, which has been trending down for three months, gaps up 15% to bounce off of resistance trendline for the fourth time in two months and then sells ALL the way back down over the next three hours on very high volume then pops almost all the way back over the course of about 15 minutes on relatively small volume and climbs the rest of the way to the top in the afternoon on light to moderate volume. Friday it climbs slightly barely violating Thursdays HOD, heavy volume came in a few times as it appeared to "break up" and squelched the the move. Then at 2:00 it is downgraded by analysts from a "strong buy" to "underperform" and countertrends(goes down slowly on moderate volume) the afternoon rally on the NAS until the close. It looks to me like the press release was crafted to allow people in the know to get rid of their shares before the downgrade came out on Friday. Maybe I'm all wet, fist time I've "identified" one like this. It will be interesting to see what happens. I think it's going down and I'm going to look for a short opportunity.
Good luck. You are on the right track no matter what happens. If it works, just keep looking for similar set ups. If not, go on to the next "observation". The only thing that sounds tough about this one is the complexity. But I know that is more a factor of the description, and not the actually trade. Let us know how it works out. Good luck, RS7
It is important to realize that what appears to be noise in the market to many is not noise at all. It is very important content that to them appears to be noise (static). As more and more powerful or sensitive receivers (instruments) are developed what appeared to be noise is identified as a very important message. From my post on page 10 you might realize when I first started in 1979 I thought nearly every thing in the market was static/noise. Now I am not sure there is really anything in the market that is just noise/static. I am coming to the realization that at this time my instruments are just not sensitive enough or calibrated right to bring in the message clearly. Also does anyone know anything about the above book or author? Thanks
What is the symbol on that one? If you don't want to give it out yet, I understand but if you would at least let me know later. I would like to do some backtesting with this setup. Thanks
I believe there about a half dozen ways to skin the market's cat. Not sure I could define all of them, but the one I honed in on years ago was "psychological"... money wants on the risk or off + a bit of Relative Strength. I now trade only S&Ps and mutual funds. The classic example of "what's working now" is when the market changes from making "higher highs, higher lows", to "lower highs, lower lows". Get a read on how to play that with your indicators and you can buy/sell anything in the psycho mainstream... index funds, SPs, QQQs. Between those two is "indecisive". A sideways trading range (or one with a only slight up or donwn slope), where oscillators, prices and other parameters keep holding/reversing at about the same relative value... can be viewed and traded over hours or even weeks. While I've found trading individual stocks has the potential for greater gains at times, it's also much more manic. After viewing results of mutual fund timers, individual portfolio managers, hedge funds, commodity funds, it seems that all vehicles have their promises and drawbacks. None stands out as the clear "best", as the practitioners recognized as "good at their craft", all have around the same average rate of return over many years... and that's not 1000%, but more like 30-40% average compound return on all capital (not just the 5-10% of capital delegated to trading). 30%+ over the long haul (on money big enough to change someone's lifestyle) will put you in the top 1/2 of 1% of all the players. Happy Guessing. And don't forget your stops!
After a long examination of so-called Random Walk and related theories about price action, including the inevitable encounters with opinions and positions that don't really deserve to be called "theories" at all, I've come to a similar conclusion. It seems to that there is a lot of confusion and obfuscation around these matters, partly related to the paradoxes and counterintuitive presumptions embedded in Efficient Market Theory and its Malkielian stepchild, partly related to the misuse and misunderstanding of statistical and mathematical terms and concepts. Instead of trying to sort through it all, or frame the various counter-positions, I'll summarize my own position: I believe that when traders or theorists describe price action as "random" or "chaotic," what they really mean is that their methods are unable to account for it consistently or meaningfully. For some traders, it's easier simply to dismiss as random price action that fails to fulfill their expectations or that they cannot effectively trade, but for others of us the notion that price action might be random or chaotic, or (closer IMO to the true Random Walk position) for all practical purposes random or chaotic, is troubling - troubling enough to undermine whatever chances we might otherwise have of success. My own trading improved substantially when I began to dispense with all methods and worries derived from "fear of randomness." I accept that there's much price action that I cannot trade effectively, but that has more to do with how I choose to trade (time frames, set-ups, probabilities, etc.) and with other limitations of my own, than with inherently chaotic or random aspects of the marketplace. I feel I should add one caution: Though all of my own trading is "technical"; though I might even argue, if strongly enough pressed, that all trading, in the end, is technical; and though I have no doubt that systems based on mathematically derivative indicators as combined with profit-taking and loss-limiting techniques may produce good or even excellent results over some period, my own experience and observation suggest that a poorly executed technical approach can be much worse than even a random approach. Precisely because price action is consequential, a poorly executed system or a mishandled method can become a systematic loss-producer and loss-magnifier. The "human element" may even make this result the most likely one. For this reason, common system-trading precepts - "take every trade" foremost among them - can also, in the hands of a new trader who may or may not have developed his system "correctly," be a formula for financial suicide. More generally, believing that price action can in fact be accessible to timely technical analysis and trading is much different from believing that any particular indicators, methods, or systems really are likely to work over any extended period.