Category: Trading 101
Technical Trading
Food for thought:
“Technical trading is not glamorous. It will rarely tell that you bought at the lows and sold at the highs. But trading should be a business, and a systematic program is a plan to profit over time, rather then from a single trade. High expectations are essential to success, but unrealistic ones just waste time. Computers do not tell the user how to make profits in the market; they can only verify our own ideas. We consider using a computer to develop trading programs to be a sensible, conservative approach.”
Cognitrend GMBH
Trading System Consistency
Food for thought:
“What kind of risk are you willing to take to get this profitability? Consider whether you are willing to suffer the occasional large loss in return for consistent small profits. For example, risk arbitrage as a trading strategy has lots of small profitable trades but the size of the average winning trade is overshadowed by the size of the losing trade. Do you need to make modest profits but take little risk? Do you need to make huge profits but can afford to take sizable risks? I usually start interviews with potential clients by asking them how much risk they are willing to take. Can you afford a loss of 5%? How about 50%? Defining the amount of risk usually defines the type of system that is required. Don’t forget that it is very easy to acquire risk. One of the keys of profitable trading is controlling and managing the risk that is acquired. One of the key risk elements to look at is the risk of catastrophe. For example, it may be that two systems have identical returns but one has a higher risk of catastrophe. I remember in the early days of system trading how moving average crossover systems were all the rage. The basic concept is to buy the instrument when the, say, 10-day moving average of price crossed over the 40-day moving average of price, and short when the reverse occurs. In fact, this is a profitable system. But one of the problems is that moving averages are, by definition, behind the market. It is quite possible for an instrument to lose 90% of its value before the sell signal is triggered! Of course, it won’t happen very often, but the mere potential of this risk must be considered in the system selection process.”
Courtney Smith
Chairman, Courtney Smith & Co.
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.
Ed Seykota on Short Term
Ed Seykota was recently asked in his forum:
“I am new to trend following and wish to ask you what your favorite chart is for determining a given market’s trend? Daily, Weekly, Yearly, Hourly?”
Ed responded:
“Hmmm…your list seems to lack scaling options for minute, second, and millisecond. If you want to go for the really high frequency stuff, you might try trading visible light, in the range of one cycle per 10-15 seconds. Trading gamma rays, at around one cycle per 10-20 seconds, requires a lot of expensive instrumentation, whereas you can trade visible light “by eye.” I don’t know of even one short-term trader, however, who claims to show a profit at these frequencies. In general, higher frequency trading succumbs to declining profit potential against non-declining transaction costs. You might consider trading a chart with a long enough time scale that transaction costs are a minor factor – something like a daily price chart, going back a year or two.”
I agree with Ed’s pithy wisdom, but he is not saying short term is impossible.
There do exist shorter term systematic traders who have done quite well (Toby Crabel (open range breakout), Jim Simons). They would agree with Ed that their style is hard. The shorter you go the more you need great execution, fantastic data and multiple systems. To be a great shorter term mechanical trader is a different animal than trend following, but it is a style that a select few have mastered.
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.
The Zurich Axioms
Max Gunther set forth basic trading principles called The Zurich Axioms:
On Risk:
– Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
– Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
– Resist the allure of diversification.
On Greed:
– Always take your profit too soon.
– Decide in advance what gain you want from a venture, and when you get it, get out.
On Hope:
– When the ship starts sinking, don’t pray. Jump.
– Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.
On Forecasts:
– Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.
On Patterns:
– Chaos is not dangerous until it starts to look orderly.
– Beware the historian’s trap – it is based on the age-old but entirely unwarranted belief that the orderly repetition of history allows for accurate forecasting in certain situations.
– Beware the chartist’s illusion – it is characteristic of human minds to perceive links of cause and effect where none exist.
– Beware the gambler’s fallacy – there’s no such thing as “Today’s my lucky day” or “I’m hot tonight”.
On Mobility:
– Avoid putting down roots. They impede motion.
– Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
– Never hesitate to abandon a venture if something more attractive comes into view.
On Intuition:
– A hunch can be trusted if it can be explained.
– Never confuse a hunch with a hope.
On the Occult:
– If astrology worked, all astrologers would be rich.
– A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.
On Optimism & Pessimism:
– Optimism means expecting the best, but confidence mean knowing how you will handle the worst. Never make a move if you are merely optimistic.
On Consensus:
– Disregard the majority opinion. It is probably wrong.
– Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.
On Stubbornness:
– If it doesn’t pay off the first time, forget it.
– Never try to save a bad investment by “averaging down”.
On Planning:
– Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans or other people’s seriously. In essence these axioms point to the benefit of having an investment strategy and sticking to it, regardless of what other investors say or do. If you don’t have an investment strategy, you could do worse than adopt these principles. However, don’t be afraid to add or subtract ones according to what works for you.
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.
Judge Milton Pollack on Zero Sum Thinking
Milton Pollack, who was appointed a federal judge by President Lyndon Johnson in 1967 and oversaw many notable corporate corruption cases, has died in Manhattan. He was 97. I used a great quote of his in my book:
“Seeking to lay the blame for the enormous Internet Bubble solely at the feet of a single actor, Merrill Lynch, plaintiffs would have this Court conclude that the federal securities laws were meant to underwrite, subsidize, and encourage their rash speculation in joining a freewheeling casino that lured thousands obsessed with the fantasy of Olympian riches, but which delivered such riches to only a scant handful of lucky winners. Those few lucky winners, who are not before the Court, now hold the monies that the unlucky plaintiffs have lost, fair and square, and they will never return those monies to plaintiffs. Had plaintiffs themselves won the game instead of losing, they would have owed not a single penny of their winnings to those they left to hold the bag (or to defendants).”
Yes, the Judge wasn’t much for whiners.
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.