The Stochastic Indicator

Maverick1 · May 6, 2003

Quote from jack hershey:

What we are beginning here at this point is to look at the market participants more closely and we are also beginning the process of separating the "smart money" from the "other money".

There are a few creative practioners who have gotten to the essential babis for making money and they are complemented by a class of analysts who have made it their business to translate certain crucial parts of the investment process into very excellent signals.

The entity traded is most ably characterised by value discrimination; the human element of the market is most closely interpreted by volume considerations. To link the two is the place where optimization begins. As you look at the history of market study and such, you can see the slow evolutionary progress being made.

I watch MA's as an indication of the public progress. First their were long term MA's for price, then shorter ones showed up. IBD at some point introduced volume MA's for the DJ average. To make money you have to work to realize the potential of the market. At some point you become part of a smaller group who are doing quite well by the standards perceived among experts. That group distinguishes itself by a KISS orientation to the essential defining market character.

The A/D aspect of the human element is a factor, when understood, characterized and monitored, puts you in a place that is ahead of the "smart money".

The market is different than most things. I go by plateaux to articulate what is what. You will see comments by 4 out of 5 people who do not share my views. The primary reason is that they are simply in places that do not allow for a breadth of consideration that may be required.

The land of opposites is "the mine field" of investing. Opposites do not apply to the upper reaches of the plateaux of investing.

I introduced the time pair related to trends and change of trend. You can see how people go through this stuff. First some see nothing. Then it appears that there are up and down trends (This is the Bull and Bear levelcof living). Advertising and brokerage folk operate here and avoid understanding more by the tangential stuff called asset allocation and long term this and that. Some where lateral trends become part of the consciousness. Occassionally a person can see the sequence of congestion, convergence and centering. But usually the people go through having a congnicense of "patterns" and formations for specific "end effects of trends that fit into S/R factors or market "off to on" functions (pennants).

It is hard to get to understanding there are three trends (up, down, and lateral) and also and just as important there are time intervals in the market process that are defined by "change". It is almost paradoxical to talk about trends as "continuation"; most people are simply stuck at a level where a trend is change (it is, of course, but in only one aspect of the market called price).

To get to seeing stategically how to use market tools is a long gruelling trip for some. On the other hand for others it is an exciting segment of making money that is super enabling.

The big chunk of information here is that you use reversal strategies during "change" periods and you use "optimization" strategies during "continuation" periods.

To detect the time when you change strategies is best done using signals and indicators related to volume. (Actually a combo of price and volume is what the most accomplished analysts would use. Three of them are the P, V relation inventor, the RSI inventor and the BOP inventor.

The combo of indicators that is best for illustrating the sequence in equities is a fast MAV 5, RSI (See Pring values that he adopted recently), and a slow MAV's (30). The two MAV's relate to an MACD for this. The signal sequence (minimums for an end of a down) is in that order. I have a limited paradigm for equities. This means that I cannot deploy more than a given amount of capital. No one can really and when they do they they limit making money. to normalize, I use shares as the capitalization determinent. My rule is: 100,000 shares max (think 30 dollars a share); never entering or exiting in blocks larger than T&S immediate average; never having cummulative amount of traded shares be over 10% day's volume. The ratio of blocks in to blocks out is 20:30. A prior stipulation is that ,at present I use the IBD recommended min/max float range (5:30MM)and a universe of 150 nominal as determined by adjusting the EPS and RS to highest values possible or 90/90 whichever comes firt.

We are going to use this stuff for the ES mini. I will have to go through a few clarifications as the days go by. Markets don't always give you examples right off of situations you want to use. The nuances we will look for are those where we can be in fundamental trends but, because they are so slow, we will regard them more as tipped S/R ranges.

Right now the most fundamental market driving phenomena is the general malaise of commission driven financial industry people trying to get money back into the market. because the NAZ is up 35% and the DJ over 15%, they types of people are getting to a point of steady commission income flow and it is acting as a narcotic it looks like.

What I am going to do is use the indicators we have on hand and just presume that people have been making money and enough of it for a while. This is a condition where we can get to a KISS orientation and not have any significant "fear" type garbage driving performance.

I think it is safe to assume that a person can make more per day than the H/L range. This is past the plateaux related to all the back testing and "edge" stuff and W/L ratios, etc.

We want to, just understand market operation, and use a combo of strategies to optimize trends and also during "change" pahases learn to stay on the "right" side of the market.

This lets you be in the market a relatively high percentage of the time and also sets up a continual accumulation of $.

I equities today I am holding 5 items, I buy in multiples of 500 shares. It is a mixed market and the current daily profit I have on these 5 ranges from 4.15 min to 6.28 max. The maximum # of accounts where these multiples reside (under POA's in many cases) is 11.

My point is that I do not care what the market is doing; it is simply my practice to continually grind away at making money.

We need to get ourselves calibrated so we can "see" what is going on. The set up we have for ES has actually allowed for much of this to be out of the way.

We need to pull down more than 3 to 5 points a day per contract. We had a real seige of folks here who say that they can't make any money. Now they are going to have to give up this orientation.
More...

Vorzo,

Good luck with the above, lol.

ges · May 6, 2003

Quote from Maverick1:

Vorzo,

Good luck with the above, lol.
More...

Maverik1,

Skepticism is always called for in this business, but I must say that Jack has improved my e-mini trading...without a doubt. His writing style my be confusing and maybe his profit claims are overly optomistic, but he does have valuable information.

It's helping me trade better.

gs

brich · May 6, 2003

I agree, ges.

Doosht · May 6, 2003

I only wished i knew what Jack was going on about!
And thats not me trying to be "funny!" i really do.

Doosht

Maverick1 · May 6, 2003

Quote from ges:

Maverik1,

Skepticism is always called for in this business, but I must say that Jack has improved my e-mini trading...without a doubt. His writing style my be confusing and maybe his profit claims are overly optomistic, but he does have valuable information.

It's helping me trade better.

gs
More...

Ges,

That's great, maybe Vorzo and others will find valuable information in Jack's posts.

Doosht · May 6, 2003

Is there a simplified posting of his method anywhere?

Doosht

nkhoi · May 6, 2003

Quote from Doosht:

Is there a simplified posting of his method anywhere?

Doosht
More...

no, the reason is it just lead to more confusion.

Doosht · May 6, 2003

LOL! Thought as much!

Do you use stochastics/indicators or patterns/candles etc?

Doosht

nkhoi · May 6, 2003

all of above

edit: for question below,
it wasn't mine, she is a natural born trader I think.

Doosht · May 6, 2003

I noticed your posting of an IB screen p&l the other week over on the MSN message board (short term stock trading) if that was for real then it was amazing!

Doosht