2. SCT Trading Commodities (ES) The sequence one follows to learn how to, and then make money in the commodities futures index intraday trading (e-minis) is very important. Fundamentally, the path followed starts at a point where there is little or no knowledge and then it leads, successively, to being able to do Seamless Continuous Trading (SCT). This rationale is not immediately understandable. Consider that there is a broad spectrum of possibilities for making money; these possibilities start with the simplest and least complex reasoned approaches, and then lead along a path that goes to a summit. The path has many branch points that lead to other, lesser, heights that are mostly determined by the internal structures of the given methodology and, by the presence of irrational causes. This irrationality comes from a lack of understanding of the marketâs true nature. The Initial Consideration The initial primary issue is risk. The limiting consideration is to participate in the market at a real and defined minimum application of capital. Secondarily, it is possible to determine just when and only when to be participating by considering the full range of risks that occur in the various periods of market operation. For beginners or novices, this is not easily done or determined. There is a substitute for skills and experience in this matter, however.
Trading and Investing There is a definite contrast between how markets operate and how financial investments are made. On the chart below, the red line depicts how capital is invested and how it is done with regard to the risk involved. Generally the higher the risk, the greater the returns are on making capital loans to those who require capital for doing business. In real estate development and construction, the diligence most closely relates to the potential for success. Long Term Value (LTV) is a common calculation that is done under a very broad variety of circumstances. Measures of risk are compared to measures of rewards. For intraday trading in markets, there is another path that is possible. The black curve roughs out this path. For learning to trade, the path moves from upper left to lower right. It is worth taking the time to understand why this is the route, above all, to follow. The market displays a broad variety of operating points that turn out to be arrayed all over the chart. Because these operating points are there, the trader may choose them for use. This is in stark contrast to investing capital to make money with investments where there is a direct relationship between risk and reward. Learning to trade is a serial process for all practical purposes. Therefore, focusing on low risk, high reward opportunities, is the most practical place to choose to start. See the red ellipse area on the chart. Generally, people decide how they are going to approach trading based upon their personal character, nature, knowledge and environment. An alternative is to focus on logic and reasoning. The most prevalent approach is to deal with a combination of considerations that center on the statistical analysis of possible market occurrences. The general scope and bounds of this effort is called âtrading edgesâ. The chart above can be considered a map of these edges with regard to the profits that they may make and the risk involved in making them. At one website, elite trader (ET), there are about 80 frequently mentioned such locations on the chart above. But where they are on the chart is not often a consideration. What seem to be the prime considerations are their defined advent and definitely not the end of their run. They come and go as the market operates, and their appearance is the most prevalent decision making consideration. So, by being able to characterize most all short-term independent market operating sequences, one may be able to consider how to plan and how to use strategies. The logical and reasonable matter is to trade within your specific skills from the onset, and to continue to advance those skills through experience until all market conditions fit into your trading plan and strategy. Commonly, this approach is not done. Alternatives include turning off the summit path at some point and just working in the realm that is created on that particular branch path. This is the common approach. All of the above, scopes and bounds the opportunities that the market represents. But there are other considerations beside the general market opportunities. The transition from novice to expert Knowing little and having no experience is a dictator. Knowing everything and having excellent experience is the summit goal. It turns out that the goal dictates the path. There are four considerations: knowledge of the market; monitoring the market; emotional development and trading skills. All of these enable a person to conduct, frequently, a repetitive process which includes: monitoring; analysis; decision making; and taking timely actions.
It is possible to study to learn almost all the knowledge required. Attaining excellence through experience is difficult and the key consideration is learning to know when you have a concept, a procedure, or an idea wrong. Learning to know when you know, is not nearly as important. You must be able to determine when you are learning something incorrectly. The transition to learning correctly most often involves changing the context or the focus and approaching the problem from a differing vantage point. Thus knowledge and skills are scoped and bounded as above. These are mental in nature and they pertain to the markets. There are additional considerations, besides these mental market considerations. Since the markets deal in dynamic flows of money, it is extremely important to deal with the participatory aspects of markets. The additional variable that this introduces is not primarily that of knowledge and skills. It is, strictly speaking, a consideration of bodily functions. The combination of: 1. the senses and 2. how the physical body provides self-protection, is the consideration. The spectrum of possible operating techniques shows how some methods minimize this function while other methods capitalize on this function. What is at hand is the proposition that all sensing has, as an adjunct, the creation of emotion. Sensing and emotion are a pair. The deep underlying causal factor in this is selfpreservation. Some human responses are almost automatic and permanently engrained as a consequence of heredity. How does self-preservation as a consideration change as a person goes from novice to expert? If the expertise goal is to trade seamlessly and continually in the market, then the sensing of the market under any conditions is primarily a matter of understanding what has happened, what is going on NOW, and what are the possibilities for the future, near term. In other words there is kind of symmetry about NOW regarding the senses and the associated self-protection involved. As a comprehensive view is attained the requirement for selfpreservation diminishes accordingly. Thus, and strangely, there is a personal and not a market risk consideration in the final analysis. Most often, most traders make specific efforts to take emotional considerations off the table. This is achieved by participating in the market under specific conditions only. These eligible conditions are largely related to âif / thenâ arrangements. Groups of possible market conditions are selected. Then the market is played using probabilities for these sets of market conditions. The result is a degree of success over time as long as the market continues such behavior. Commonly, risk minimization is achieved by following the method to the letter of the law and by continually re-evaluating the probabilities of the contemporary market behavior. This maintenance keeps the trader oriented and expectant and in control, emotionally. This precludes becoming an expert, but it does guarantee a self-limiting level of market success. So most people are not going to head for the summit; they are going to turn from the summit path at some point as a self-preservation strategy to protect themselves from what they have not learned. This puts us in a place where many market sequences do not have an edge from the viewpoint of edge trading analysts and practitioners. But, on the other hand, for Seamless Continuous Trading, there are few situations that can cause an SCT trader to leave the market and sideline. WHY? The difference is how trading is done. Trading is done using a very wide range of practices. One of the most definitive lines that may be drawn through the wide range of practices is the one that delineates whether or not a person links trades to one another. Usually if a person uses a collection of edges (each having a set of criteria), that person does not make any connection of one set of criteria to another. In deep contrast, a person who trades seamlessly and continually always uses a strategy that interconnects the sequences of profit taking.
Working from novice to expert The principal guide for this transition is to come to be knowledgeable and to understand the market. At the same time, one must trade to gain experience. The convergence of these two efforts, takes a person along a path to SCT under the minimum of influences of selfpreservation emotions that come as a consequence of oneâs heredity. Thus, as shown on the first chart, the sequence is to trade in the red ellipse, then trade in the red and blue ellipse combination and finally, add the pink ellipse for trading purposes. The green ellipse is the âset it and forget itâ novice / intermediate limited trading zone. It is a natural fourth area that falls into place somewhere along the way. The remaining part of the chart is the upper right where high risk gives high rewards. As such it is the last area to trade in when climbing to the summit. Thus the summit is the normal achievement of being able to trade throughout the whole map and it is where the full potential of the market is reached. All alternatives are simply branch points off the main path where a person winds up using just a portion of the marketâs full potential.
Common pitfalls 1. The most common pitfall is learning laziness. Not following the whole day, day after day, is quite common. People forego learning how a market day works. This failure is the most common source of the occurrence of the overpowering self-preservation emotion. 2. People often choose to trade market turns that are either common or easy to sense. They, especially, focus on the entry only when it is the less important of the two decisions regarding a turn. And they are really extremely handicapped because they do not know how the market behaves throughout the day. They fail to understand that knowing the timing of the exit far exceeds the skill of perceiving what they believe to be a âsetupâ (Which they often describe in terms of entry criteria only). They enter trades and most often encounter unknown territory and fail to sideline. 3. Not being comprehensive in developing a plan or a strategy or both. 4. Not recognizing that it is necessary to sideline when you do not know what is going on. 5. Not recognizing the permanent irreversible physiological effects of repeated failure. There are many other lesser pitfalls but one or more of these are the sufficiency for repeated failure.
Key understandings that lead to excellence 1. All excellent knowledge, skills, and strategies work on all fractals. The contra-positive, used as a test of efficacy, is just as significant. (novice) 2. Each of the seven fractals operates within the next slower fractal. Use a constant ratio to define the relative fractal durations. (novice) 3. The market migrates from operating point to operating point; it does not jump around. Use matrix theory for this. (expert) 4. The path of the market is primarily determined by the least resistance. That is, the market goes to places that are not closed off to it. The last open pathway is usually where the market goes after all alternatives have been closed off. The most likely paths closed off involve two dimensional changes as opposed to one a dimensional change. (expert) 5. Trend trading turns are not done on trend line (TL) breakouts (BO); all trends overlap and, therefore, entries occur in the prior trend and exits occur before the TL BO. The channel line opposite the trend line is the better timing indicator of the two channel lines. All channel lines are established and extended at the point where the minimum data (three points) occurs. All trading turns in trends should be accomplished using the extreme diagonal rather than the minimal diagonal. (novice) 6. There is no possibility that the market can go to extremes on trading fractals; there is no edge that the market will ever fall off of. The market, in fact, strives to return to neutrality from extremes on all concurrent fractal levels (intermediate). 7. The P, V relation provides the answer to the three most important questions a trader deals with: Where have I come from? Where am I now? What is coming next (anticipation)? (novice) 8. Prediction is not necessary. (novice) This is the fallacy of edge trading. 9. The dynamic nature of the market, following the P, V relation, is asymmetric and not symmetric. Half of the relationship describes trends and half of the relationship describes changes of trends. The descriptions are orthogonal and not opposites. (expert) 10. Neither support (S) nor resistance (R), when achieved, will be penetrated on lower volume when retested. Lateral trends on S/R are a mode rather than anything else. (expert) 11. All reversals are preceded by retraces. (intermediate) 12. The volatility of trends is dictated by the Gaussian sequences of volume. The end of trends occurs when the Gaussian reverses at the END of the prior Gaussian. (intermediate)
How to go about improving (or beginning) your performance It is very necessary to always go through the process of evaluating any input you avail yourself to. Use your standard for determining whether or not you are learning something correctly. There are three possibilities for this: 1. The subject that you are learning, in itself, is incorrect, 2. you are learning incorrectly, or 3. you are learning correctly. Always make this determination. For cases 1 and 2, you also get to learn; but it is not about the subject. You are learning about learning instead. You use logic and reasoning to carry out the above. You have to begin somewhere and this is the key. For making money you use the market itself.
B. Health Well Being and Maintenance Health, physiology and psychology, are important for making money. This paper presents the basics, the reasons, for giving consideration to various aspects of your physiological and psychological makeup. A personâs psychological makeup affects their trading. As a person grows, the mind (located in the physical brain and other remote locations) also âgrowsâ. The brain is basically a huge compartmentalized storage site and it is complimented by a bio chemical manufacturing factory. The outer part, grey matter, is where the mind and memory are located. Underneath this outer surface resides the bulk of the mass of the brain that generates in excess of one hundred different bio chemicals. These bio chemicals come into existence on a demand basis, are delivered for use, and then last for varying amounts of time. Think of them as being similar to radioactive materials that have half lives. Which ones, when and how they are summoned up, and where they are used is our major consideration in terms of successful trading. All of this may seem more physiological than psychological if it werenât for the fact that the system is driven psychologically. Since the system works automatically it is better to approach making it effective from a behavioral viewpoint rather than by giving the system instructions based on a thinking process. This is the difference between using emotions and trying to âcontrolâ emotions. Getting this concept straight from the beginning is very important. This paper will develop the behavioral approach that will be used for trading and as this behavioral approach improves, the main thrust of making money will become more effective and efficient. The physiological aspects of trading focus primarily on remediation of constraining conditions and circumstances. These arrive as a consequence of unwanted bio chemical production which is a consequence of unwanted behaviors. These unwanted behaviors are those which have been engendered through earlier life experiences. To establish the context of successful trading it is important to understand how past experiences and memories influence what is going on. The most extreme case can serve as the key example. In literature it is often referred to as âlizard memoryâ. This is a reference to the âfight or flightâ survival mechanism all humans have as a consequence of their long and successful effort to survive on the planet. It is a basic consideration for any human to know when to fight or when to flee; survival depends upon it. In trading, repeated failure, summons up the fight or flight syndrome. This is a very logical and rational response to the deeply unsettling phenomenon of continually screwing up. In life, humans continually learn. When a person is subjecting themselves to repeated failure they are acquiring knowledge, skills and experience in that repeated failure. All the while the mind is building an orderly reservoir of all the aspects of repeated failure. This assemblage is established in the mind permanently and is continually available as a resource largely founded upon experience which is translated into the corresponding skills and knowledge. It is very important to forgo this process of building ârepeated failureâ. The best alternative to repeated failure is to have a strategic plan and approach that assures repeated success at every level of the process. Fight or flight is the cardinal survival mechanism of most flora and fauna in existence. Anything with a brain, or a brainiac living style, exhibits this survival characteristic. This âinsuranceâ seems to be a required necessity. Therefore, it is very logical to conclude that every animal and plant has in its brain a substantial collection of memories or equivalents that contribute to survival under a broad spectrum of situations, conditions and circumstances. Not having to tap this reservoir is an important consideration. The iterative refinement section in The Micro part of this paper delves into the strategy for avoiding this reservoir. When, upon occasion, trading gets to a place where uncertainty predominates there will be a production of unwanted long half life bio chemicals. These bio chemicals tend to constrain the effectiveness and efficiency of the mind. They are there to assure survival and the principal mechanism of their operation is to interrupt or disable the normal pathways that are used. The general approach and strategy that will be used in this paper is to stop trading (at the very least, because of the high level of uncertainty) and to remediate the situation by providing for the consumption of these long lived bio chemicals. The best alternative for this is to get some high energy consuming activity. Exercise works very effectively. Simply close down your trading operation and go out and jog for 15 to 30 minutes. Thus, time passes and your body consumes the bio chemicals. The bio chemicals are replaced by a new set and this will allow you to return to your trading activity. Obviously, as stated above, the best thing to do is to not get into the causal situation in the first place. Regarding health, well being and maintenance, this paper advocates maintaining the healthiest lifestyle possible. A holistic approach is required. By carrying out an optimum lifestyle a person puts themselves in a position to be able to focus on making money at the most effective and efficient levels possible.
Part II The Local: Routine and Discipline The Macro viewpoint gives us the overall picture. Trading is done on a daily basis and this part of the paper explains the daily routine and the discipline required to carry out that routine. Three elements come together to form the routine. These include: Trading Plans, our physiology (Body Language) and our minds (Mental Growth). The objective is to carry out trading using a stock trading plan that centers on the natural cycle and to also day trade using the commodities futures indexes market. The natural cycle (4 to 8 days) is a position trading strategy based on technical analysis. SCT is the basis of day trading. Each day, for approximately 6 ½ hours, the markets are open and the trading routine is conducted. During this period of time there are physiological and psychological conditions to be maintained. The overall game plan was explained in the Macro part of the paper. This part explains how the routine is maintained on a daily level. Body language focuses on how maintaining an excellent physical condition supports the trading routine. In parallel with this the dynamics of daily mental activity considerations are handled as well. The objective is to carry out, repeatedly, four activities in sequence. These activities are: monitoring, analysis, decision making and acting in a timely manner. Each of these activities are independent with respect to the mental processes involved. Only one of them, monitoring, involves emotional content which is a direct consequence of sensory perception. How all of these things fit together is the key to becoming expert. Drills will be used to continually upgrade the daily routine. The drills will not be done during market hours but they will be conducted to enhance the routine activity carried out each day. A. Trading Plans This paper covers the full compliment of trading and investing. It turns out that there are limitations in the scope and bounds of any trading system. To make any trading system effective there is a requirement that the scope and bounds of the system not be exceeded, as this causes a serious deterioration in the effectiveness and the efficiency of the approach. What emerges is a requirement for more than one trading approach, simply based on the limitations of application of capital. One universal constraint prevails. Trading cannot be conducted in any market where the amount of capital applied to the market affects the operation of that market. What it boils down to is using capital in the best market available, with the best approach and then laying off surplus profits into other lesser effective and efficient applications of capital.. The viewpoint of this paper is that the best application of capital is to trade commodities future indexes with contract blocks that always allow fills to be completed as single units; that is, no partial fills trading is entertained. This means that at a certain point the transition of application of capital from the beginning, no risk trading with one contract, can only increase to a certain point. Then at that time, periodically, capital will be removed from the SCT trading account and placed in the secondary application of capital. The secondary application of capital presented in this paper is in the stock market whereby several threads of capital are used in a balanced way. Initially two threads will be used. As time passes and more profits are made the number of threads will be doubled twice and at that time the stock trading will assume its final form as a consequence of achieving the normal distribution of threads of capital.
Position Trading and SCT Capital Application Position trading will be the specific approach used in the stock market. The major characteristics of position trading include the time of the trading cycle and the amount of profits obtained per cycle. Position trading cycle timing ranges from 4 to 8 days ordinarily. In recent years the preponderance of cycle time has shifted from 8 days towards 4 days. This compression is an advent primarily caused by technical data support considerations. The number of threads trades is directly related to the duration, in days, of the position trading cycle. The long portion of the natural cycle is the basis of the 4 to 8 day hold. Optimally, the trader has the same number of threads as the average duration of a trading hold, and this condition enables the trader to focus on trading actions. What occurs is that most stocks are being held on a given day and only one or two are actionable. This provides for a balanced routine whereby most stocks are assessed as holds and there is a focus on taking profits and reapplying capital for stocks on a given day. As time passes each thread of capital grows. Because of the selection process of universal stocks that are eligible for trading, a point is reached where the capital in a given thread can no longer be increased. By this time the trader is operating at an expert level, and in effect, is able to run parallel threads of capital. The best way to begin this parallel operation is to divide the initial thread capital in half and to trade two separate stocks with that capital from that point on. The nominal capital limitation for a given thread relates primarily to the upper constraint of holding more than 100,000 shares of a given stock. There in an ancillary consideration of price per share and by the time this limitation occurs the price limitation can be handled readily.