Beginner here...

[sandrandave]

hi I am new to the shares thing and my husbands and my plan is to trade shares for cash flow. At the moment we have 4 IP and we need more servicability to get more properties, and shares seems a good way to go about it.

I have been trying to read thses forums and I have bought an investor magazine, but I cant for the life of me understand most of what they are talking about or the definitions they use! :confused: I am a beginner beginner, like, right at the start.

Does it all just come to you over a matter of time and reading?

I have gathered that research is the key. And then some more research. I understand this may take a while and that is ok.

So is there a trading shares book for dummies or somehting along that line, website etc etc. I have searched on this forum for a list of definitions but I cant find anything.

Thanks in advance

Sandra

[ducati916]

sandrandave

As regards an investment "dictionary" so to speak, you can try this link;

http://www.investopedia.com/


Does it all just come to you over a matter of time and reading?

It can very much depend on what you read.
There are three distinct philosophies;
Technical Analysis
Fundamental Analysis
Quantitative Analysis

All three have their supporters and detractors, but your first step will be to decide which philosophy agrees with your psychology, and then define the methodology within your choice.
The financial markets are far more complicated than the property market, as you will no doubt find out for yourself.


I understand this may take a while and that is ok.

Your first goal is to survive the first two years.
Then, look at starting to become profitable, this may take another year.
Then it's all gravy.

best of luck, although luck has nothing to do with it.
jog on
d998

[Prospector]

Hello newbie :)

Funny you should ask about a share book for dummies - there is one, and it really us very helpful in giving you the basics. I bought it maybe two years ago and have since loaned it to lots of people. It is the yellow/black style dummy book and I bought mine from Borders.

I would suggest you read that book first and go from there

Good luck

[bullmarket]

Hi sandrandave and welcome :)

The ASX site www.asx.com.au is a gold mine of information imo for newbies and also for those that have been around for a while.

If you come across a term you don't understand maybe try the Glossary of Terms page (http://www.asx.com.au/webmcq/servlet/com.webmcq.glossary.Glossary?cid=0&alt=1) on the ASX site.

The ASX site also has heaps of info on how the market works in general and it also has some good FREE online courses you can do if you like.

Maybe as a starting point just have a surf around the ASX site.

As far as reading material goes, I think "Trading With a Plan" by Compton and Kendall is a very good read for both traders and investors.

If you are interested in charting/technical analysis then a good starting point imo is "Trading on the Australian Stock Market: A Beginner's Guide" by Thorton is a good starting point and then books from any reputable authors like Bedford, Tate, Guppy etc are all good reads.

I find this a pretty good site as well. If you have any more queries or need a second opinion on anything, just post away and someone usually resplonds pretty quickly.

cheers

bullmarket :)

[zzkazu]

Sandra you have to make a decision if want to be a short term (trader) or long term (investor).

Short term requires more work, and in my opinion provides better return and more consistent cash flow.

I was in your position Oct last year and read and read and then natural found that I preferred technical analysis; although it took me a while not to be an emotive trader.

I use a LOC to leverage the equity in my properties..

To me its all about risk management, which is the core of my day job. So I found a natural affiliation with this approach.

So I would suggest reading some books on trading “Business of Share Trading” by Leon Wilson or “Share Trading” Daryl Guppy I found very good.

Then ask lots of questions;

Invest in good software packages (I use Ozzie products Bullcharts (charting), Tradesim (backtesting), Stator(System and postion mngt) and Quicken (financial mngt)). With Tradesim you can backtest a system to ascertain how it would have performed..

Paper trade a bit, to refine a system and don’t over do the analysis bit.

:goodnight
zzkazu

[nizar]

i recommend u read "One up on Wall st" by peter lynch..

he explains alot of terms there, its written in basic language and easy-to-understand...

and he knows his stuff...

all the best

[bullmarket]

sandrandave

I forgot to give the web address to the ASX free online courses (http://www.asx.com.au/investor/education/classes/online.htm#getting_started_in_shares) earlier.

Good luck :)

[sandrandave]

Have Just been on the ASX page for the free online courses.

And have just ordered Guppys book from ebay.

Also for the glossery of terms.. that is what I need!

zzkazu- our plan is to be a share trader, because I am a stay at home mum (and most likely wont be going back to work) , my job at home will be share trading to supplement hubbys income. Well that is the plan anyway. It sounds good in theory. I dont think that will be able to contemplate buying anything for about 6 months, so I have time on my hands.

Hubby is going the Peter Spann way of property investing and now he has heard that he has a shares book coming out (perhaps July/Aug) and he cant wait for his book, :rolleyes: but in the meantime I will be finding out all I can about trading.

Now I have a bit more info thanks to you guys I can search around and find some answers. But if I cant find anything I will be asking!

Thanks for the head start!

Sandra

[GreatPig]

Sandra,

If you take to technical analysis, at some stage you'll probably want to read Edwards & Magee's "The Technical Analysis of Stock Trends". It's something of a bible on chart patterns, although makes for rather dry and unexciting reading and I think is still quite expensive to buy.

I also found the Leon Wilson book pretty good as an overview of modern technical analysis and share trading as a business. Guppy's books are quite good, but I find them a little repetitive. He probably could have compressed all his books down into one moderate-sized volume if he'd cut out all the repetition - although why sell one book for $50 when you can sell five for $20 each :rolleyes:

As Ducati said, survival is your first objective. If you see or get the Leon Wilson book, take a good read of his first couple of chapters, where he goes to some length to point out the chances of you not succeeding :D

I'll be interested to see the focus of Peter Spann's book. He said at a talk one time that he used options a lot, so I'm wondering if his book will be more about shares or options.

Cheers,
GP

[dutchie]

Hi Sandra

Welcome to the Forum

You might like to try this thread: http://www.aussiestockforums.com/forums/showthread.php?t=2369

Learning how to trade – an alternative to paper trading

[son of baglimit]

BOOKS, WEBSITES, ONLINE LEARNING blah blah blah.

whatever happened to the taxi driver, office cleaner, overheard conversation on the train. all very good ways to learn what stocks are hot at the moment.
its a sure fire way to improve your cash flow - just ensure it flows your way, not the other way.

and the ramping within this forum can be interesting at times too.....hmmmmm!

[It's Snake Pliskin]

I have been trying to read thses forums and I have bought an investor magazine, but I cant for the life of me understand most of what they are talking about or the definitions they use! :confused: I am a beginner beginner, like, right at the start.

Does it all just come to you over a matter of time and reading?

I have gathered that research is the key. And then some more research. I understand this may take a while and that is ok.

So is there a trading shares book for dummies or somehting along that line, website etc etc. I have searched on this forum for a list of definitions but I cant find anything.

Thanks in advance

Sandra

Hi Sandra,

There is a plethora of information and misinformation going around. Your job is to research like a frugal fruit bat and determine what is appropriate for you and your personal circumstances.

Hint: start posting questions on this forum in the beginners forum and we will answer you. Some answers may lead you astray but others will lead you in the right direction. "Just follow the money"....(those of you who have seen All the President`s men will know what that line means. It may also apply to the market, depending on your interpretation) :)

So come on and fire away with those questions.

Snake

[emma]

Sandra,

An inexpensive intro to charting is available through incredible charts, yahoo finance, or fcharts - I started off with fundamentals but am a convert to technical analysis and these days use FChart Pro and TechA's formula and method and basically have a very good mechanical system that takes 90% of the angst out of trading.

Thank you, thank you Tech/A.

Mind you that never really is quite enough - thinking about options now.

Good luck but be warned the stock market can be addictive!

Emma

[sandrandave]

I see there a few tech analasysts here, what style is everyone else? Just curious that is all.

[bullmarket]

Hi sandrandave


I see there a few tech analasysts here, what style is everyone else? Just curious that is all.

I'm retired and I am an investor whose number 1 priority is income nowadays.

I use fundamental analysis to determine whether a company (restricted to ASX200 companies) is worth following and I then use technical analysis to help determine buy/sell points

cheers

bullmarket :)

[sandrandave]

Perhaps we can make the thread that dutchie started a stickie? It has some good info for beginners on there.

[ducati916]

emma

Just an aside on TechTrader, it is in essence a tweak on the old Turtle system. Now in a bullmarket, it works well.(Unleveraged returns @ 9% compounded over 3yrs)

Whether it will work in a Bear market, is currently debateable. The Turtle system most certainly did not, eventually being abandoned with horrifying losses.

If you had difficulty trading the common, what suggests to you that you can trade a leveraged derivative, with potential (in market dislocates) spreads that will kill you. Options are very specialised securities. Not only must you juggle derivative pricing, but price time in addition

Why did you give up on the fundamentals?

jog on
d998

[tech/a]

emma

Just an aside on TechTrader, it is in essence a tweak on the old Turtle system. Now in a bullmarket, it works well.(Unleveraged returns @ 9% compounded over 3yrs)

jog on
d998

Its is?
Lets see Unleveraged 9% compounding.

Starting capital $30000
Year 1 = $32700
Year 2 = $35643
Year 3 = $38850

Hmm

Lets try Leveraged 2.5:1 (Approx) or $100K
Year 1 = $109000
Year 2 = $118810
Year 3 = $129502


Hmm again

Current balance around $300K.

I fully expect the method to perform well in a bullmarket its designed to trade long.
I expect it to perform poorly in a bear market as thats not what its designed to trade.
Its never been presented as "The mother of all methods" and if anyone cares to read the Summary of the method You'll see the sole reason for the works to be published.

I've actually been to seminars where I once saw 16 people shell out $14000 each for a blackbox(undisclosed)options trading method which promised returns worse than those achieved by this simple method.
Yet its success(Techtrader) is seen as a curiosity,with 100s I'm sure sitting patiently on the side for a collapse.
Those of us that have traded what we have seen will even after a collapse still be happily profitable,while many continue to postulate and search for the "Holy Grail".

[ducati916]

tech/a

The current value of TechTrader is circa $300K
That is Open value, not closed therefore, in a severe market break that paper profit could reduce quite substantially, as the exit criteria is a 180ema.

Leverage cuts both ways.

The true measure of any methodology is in the unleveraged returns.
If you have a methodology that returns 50% compounded unleveraged, then it can be leveraged for an increase in absolute dollar terms.

Talking in dollar terms, while far more exciting, tends to obscure the true profitability or lack thereof.
The two important variables are;
The % of winning trades
Unleveraged % return


I fully expect the method to perform well in a bullmarket its designed to trade long. I expect it to perform poorly in a bear market as thats not what its designed to trade.

Thats fair enough, and I know you have always been upfront about this.
The problem arises in that "new traders" sometimes do not perform due diligence, and adopt methodologies without a comprehensive understanding, and really have difficulty in differentiating a Bull market from a Bear market at turning points.


I've actually been to seminars where I once saw 16 people shell out $14000 each for a blackbox(undisclosed)options trading method which promised returns worse than those achieved by this simple method.

Agreed, the nonsense promulgated is endless.

jog on
d998

[tech/a]

Duc.

If I closed today then there would be NOW $300K If next week its $200k or $400K then that will be realised profit NOW.

If I bought a home in 1997 for $100K and Today its valued at $300K yet I dont have it its open equity then why do banks allow me to use that equity to buy more realestate and my Margin lender allows me more or larger positions?

Its a valid figure.

As for % winners--this can be argued as a way of increasing profit,techtrader is designed around reward to risk so with less winners it has much bigger winners than losers as the average hold of winning trades is about a year.
Again the benifit of over 1000 posts on the topic from yourself and others gives beginners the grounding they should seek.
All the "Number" are there for those interested to learn,pour over,digest,and use in their own circumstances if they wish.

run Duc run.

[ducati916]

tech/a


If I closed today then there would be NOW $300K If next week its $200k or $400K then that will be realised profit NOW.

Of course, but you are then breaking the rules of your methodology. The whole advantage of a mechanical system resides only in shielding you from the emotional trauma of trading, and making poor decisions under pressure.

Therefore, if you take a discretionary exit today, you might as well junk TT and return to a discretionary methodology. As that I doubt will happen, you are mandated to exit at the fall through the 180ema on a close. That represents a % fall, that due to the leverage represents X amount of dollars.


If I bought a home in 1997 for $100K and Today its valued at $300K yet I dont have it its open equity then why do banks allow me to use that equity to buy more realestate and my Margin lender allows me more or larger positions?

Come on tech/a margin lending is the safest form of lending to a bank that there is, they control the assets, and if they fall below the LVR, they issue a margin call, if not acted upon, they sell you out. they have the best of both worlds, good interest return, complete safety........they love it.


Again the benifit of over 1000 posts on the topic from yourself and others gives beginners the grounding they should seek.
All the "Number" are there for those interested to learn,pour over,digest,and use in their own circumstances if they wish.

If they actually read through it all. Unfortunately the stock market is considered easy money, work from home, just this thread reiterates that the Bull market is attracting novices who are attracted to the seemingly easy returns...........too late, they missed the boat, it left three years ago on the ASX, conditions will become more difficult as volatility starts to ratchet up a few notches.


run Duc run.

Nah, fat bastards like me need to go steady,
jog on
d998

[It's Snake Pliskin]

Welcome back Tech. :)

Tech what is your rationale for using a 180 day m/a?

And, have you tried it with CFD`s yet?

[Happy]

If 180 EMA is used as an exit, I think that ‘crash exit value’ could be calculated using 180 EMA exit.

Of course more calculations and even this one will not prevent total loss of all capital if all of the sudden stock market is suspended indefinitely.

But, just a suggestion.

Maybe there is need to think of panic selling exit.
What I mean is ,if for example 25% of all stocks hit stop all of the sudden, all positions are closed or something of this nature, kind of contingency exit to maximise retained profit.

[tech/a]

Duc.

Basically we are on the same page and I agree with some of what you say.

I could however sell today to do something else with my funds other than continue with trading the ASX,I maybe so blown away with results on another bourse that I move the method there.
I certaintly agree re the psychology and has proved more that profitable on many occasion when the head said sell---although last April in reallife the head won as I was going to be O/S without the portfolio under my control,in the end it cost me a packet---due mainly to capital gains tax.

However back on track again.

Banks always have the control margin or house loan,dont make the payments and you'll lose a house!---but still retain surplus funds if any!

Snake.
For this method a 180 day EMA of the low returned the best numbers,I tried many ATR,Bollinger,Various exotic forula's including Allan Hulls but the 180 remained the best exit with best numbers,i know others have adopted other ideas,I myself am currently looking at an exit based upon the XAO,that is the XAO will trigger the sell not the stock,I'm also in need of some additions to Tradesim which will help test the method as currently it cannot sell a whole portfolio on an outside influence and then re buy it when positive conditions are again met.

CFD's well thats a topic on itself---not CFD's but the best use of leverage,most people dont understand how and most of all how to calculate best leverage practice.Many see it as a very dirty topic and sure used blindly by the undercapitalised and you could face ruin very quickly.
T/T used to be labelled a trading Snail until compounding and leverage took hold.
Not withstanding Duc's comments $30K to $300K aint all that bad.

Happy.

Good comments and yes there are a million ways to tinker with a method.
wether your ideas come up with better numbers I dont know.I havent and probably never will try or even think of all the various possibilities let alone implement them.
Incedently the best method I have is a weekly one which has a better return/and numbers than the "snail".

Duc somehow a Fat Duc on a Ducati just doesnt match my mental picture of you---pity we missed dinner when over there last year.

[emma]

Duc

Firstly good to see an engaged discussion with you and Tech A.

Why did I give up on fundamentals? - because I became seduced by the argument that "it's all in the charts anyway" and I felt that if it wasn't - it probably wasn't easy to find in the figures unless you have financial skills beyond mine.

Are you suggesting that if one uses a mechanical system - this is the sign of an incompetent trader?

I don't for one moment think that I can trade options but think it would be interesting to try to learn that language, paper trade and then see.

Its all about what one is trading for, isn't it?

Why am I trading? It's not really about money - I'm retired and comfortable but the stock market engages me in way that provides me with a world view that I do not get elsewhere and the successes and failures spur me on. I don't ever think I'll be massively successful because I'm ambivalent about wealth - so it really doesn't matter enough

[Bobby]

Hullo Tech,

Pleased to have you back mate. :)
Always enjoyed your comments ( entertaining & interesting ) plus educational too.

Regards Bob.

[ducati916]

tech/a


Duc somehow a Fat Duc on a Ducati just doesnt match my mental picture of you---pity we missed dinner when over there last year.

Me & the Missus will be over to Australia during the winter, too hot in the summer, maybe we can catch you later in the year, especially as ZZ said you picked up the bill.............just as well for your wallet I wasn't there!

emma


Why did I give up on fundamentals? - because I became seduced by the argument that "it's all in the charts anyway" and I felt that if it wasn't - it probably wasn't easy to find in the figures unless you have financial skills beyond mine.

Sure, thought it was something like that.
Charts are complete nonsense, they are a 50/50 proposition, additionally, stoplosses are designed to lose you money, which they succeed in very well I might add.

Regarding financial skills, they are harder to aquire, and take longer and greater effort, which is why so many are attracted to TA, it can be learnt in an afternoon. However, as the old saying goes...........you get what you pay for.


Are you suggesting that if one uses a mechanical system - this is the sign of an incompetent trader?

Incompetent is probably a bit strong, but in essence an emotionally weak trader is more accurate.


I don't for one moment think that I can trade options but think it would be interesting to try to learn that language, paper trade and then see.

Paper trading is a very misleading undertaking.
Don't misunderstand here, I am not recommending you not to, just that paper trading results bear very little relation to actualised and realized results.


Why am I trading? It's not really about money - I'm retired and comfortable but the stock market engages me in way that provides me with a world view that I do not get elsewhere and the successes and failures spur me on. I don't ever think I'll be massively successful because I'm ambivalent about wealth - so it really doesn't matter enough

Oh dear.
Blessed are those who expecteth nothing, for they shall receive it in abundance.

Actually I'm only joking.
This may prove to be a blessing, as it is the psychological issues around money that put paid to the majority of failed and failing traders/investors.
If you are "divorced" from this emotional component, you may very well do extremely well as whether the trade is $100, or $1M, you will react the same way............that is an extremely difficult mindset to achieve.

jog on
d998

[tasmanian]

Gday ducati,

I notice you mentioned you dont use stop/losses.I have often wondered about this.

Basically it comes down to backing yourself on a stock.if it drops in the short term ride it out.Whats generally your time frame for holding or how do you judge your exit from a trade?I always use stop losses on trades i do in speculative stocks which are usually in a short term time frame usually 3 months or less.long term holds i generally just hold.

interested in hearing your trading style if you dont mind explaining it.

cheers








b

[bullmarket]

Hi ducati916

I disagree with a couple of points you make below. I've put my :2twocents worth in red below them.


emma

Sure, thought it was something like that.
Charts are complete nonsense, they are a 50/50 proposition, additionally, stoplosses are designed to lose you money, which they succeed in very well I might add.

I'm not sure what you're point you are trying to make when you first say charts are nonsense and then say they are a 50/50 proposition. I'm an investor who uses fundamentals to evaluate if a company is worth following and I then look at company charts to help time buy/sell points.

My view of charts is that they show what has happened in the past re support/resistance levels and trends and hence one can use that historical data to predict what might happen in the future. Obviously there are no guarantees with charts and those that correctly interpret what might happen in the future more often than not should do ok.

I'm a believer of using stop losses, especially for short term traders. Sure, they will sometimes stop you out early and hopefully it will only be in a minority of occasions but that is just part of trading . Imo if they are set correctly then in the long run stop losses will save you very much more by preserving your capital and getting you out of bad trades early than the small amount you lose by buying back a few ticks higher if the share price rallies again soon after your stop loss is hit.....You can always buy back in if you've been stopped out early.

Paper trading is a very misleading undertaking.
Don't misunderstand here, I am not recommending you not to, just that paper trading results bear very little relation to actualised and realized results.

I think paper trading is very good idea especially if someone is about to start trading for the 1st time. Sure, you're not under the same 'emotional stress' when placing paper buy/sell orders but since imo the purpose of paper trading is to test your trading plan then the results you get in paper trading should be very close to what you will get in 'real time' trading using real funds. The ASX Share Market Game that starts next week is a good way to paper trade, although you are limited to 100 stocks to choose from for trading.



cheers

bullmarket :)

[tech/a]

Duc


Me & the Missus will be over to Australia during the winter, too hot in the summer, maybe we can catch you later in the year, especially as ZZ said you picked up the bill.............just as well for your wallet I wasn't there!

If in Adelaide let me know I'll put you up in one of our apartments at a cleaning cost,just private mail me---I'll start saving for dinner!



Sure, thought it was something like that.
Charts are complete nonsense, they are a 50/50 proposition, additionally, stoplosses are designed to lose you money, which they succeed in very well I might add.

Regarding financial skills, they are harder to aquire, and take longer and greater effort, which is why so many are attracted to TA, it can be learnt in an afternoon. However, as the old saying goes...........you get what you pay for!

This has been discussed at length on Reef.
Charts.----Anomalies,strong changes in sentiment are what a chartist is looking for---so to do fundamentalists the difference being that Fundumentalists find prospects with potential and Chartists find prospects which are currently showing that its happening.While sentiment may/maynot be on going market perception may afflict both chartist and fundamentalist alike.---but as I have said many times its NOT the analysis which will make you the profit.All it does wether fundamental and or technical is give a possible start point and a possible end point.

Stoplosses----- With longerterm trading methodologies it is possible to be profitable without a stop loss in some cases.However when trading short term where the win rate is to be much higher than 50% and reward to risk ratios less than 2,trading without stops will lead to ruin fairly quickly.Traders mindset is constantly optamistic that the loss will turn to profit tommorow.During extensive testing I have found that the ideal stop length is no more than 10% of purchase price for stocks.A wider 20% stop while it will decrease the number of trades your not stopped out of it has no impact on profit.---What happens is that you find yourself stuck longer in trades wallowing between your stop and initial purchase price---this no mans land of non profit and lost opportunity to be trading something profitable.


Incompetent is probably a bit strong, but in essence an emotionally weak trader is more accurate.


Emotional weakness is one of my strong points.
Thats why I trade mechanically.
I have a trading methodology/s that I know work---although tested upon historical data the 3 I use have traded to the higher end of Montecarlo simulations. PLUS I have a blueprint to follow which alerts me to a breakdown in my trading methodology.Many traders have elaborate trading plans and ideas---their biggest problem is that they have no idea wether these elaborate plans will infact make a sustained longterm consistent profit when they implement them---further they have no idea wether that last loss making it 5 in a row is within the parameters of a profitable method--they DONT HAVE A BLUEPRINT. Nothing to compare or draw from---most plans are simply theory---albeit well thought out and logical----the market has a habit of turning logic into chaos.


Paper trading is a very misleading undertaking.
Don't misunderstand here, I am not recommending you not to, just that paper trading results bear very little relation to actualised and realized results.
.

I agree with Duc to a point.However testing theories in public paper trading is a great learning experience.
(1) Hundreds of people wont let you fudge the figures.
(2) There are 100s of experts ready and willing to help.
(3) You can learn much from being completely transparent in your thinking.

tech

[ducati916]

tasmanian


I notice you mentioned you dont use stop/losses.I have often wondered about this.

Basically it comes down to backing yourself on a stock.if it drops in the short term ride it out.Whats generally your time frame for holding or how do you judge your exit from a trade?I always use stop losses on trades i do in speculative stocks which are usually in a short term time frame usually 3 months or less.long term holds i generally just hold.

interested in hearing your trading style if you dont mind explaining it.

No I don't use stoplosses. I don't use technical analysis, I don't use charts.
My timeframe for holding is a maximum of three years, or when my exit criteria his fulfilled, and this is different for the variety of strategies that I employ. They are;

Arbitrage
Bankruptcies
Generals.

I am trying to expand into LBO's, but this is a year or two off into the future.

bullmarket


I'm not sure what you're point you are trying to make when you first say charts are nonsense and then say they are a 50/50 proposition. I'm an investor who uses fundamentals to evaluate if a company is worth following and I then look at company charts to help time buy/sell points.

Exactly that, charts are a 50/50 proposition. If you look at tech/a results (closed trades) you will see almost exactly a 50/50 distribution.
If you look at the 50+ live trades I posted on reef when I daytraded, almost exactly 50/50, and I could go on and on, but you need to research it yourself.

Therefore, if it is a 50/50 coin flip, charts have no probability attached to them at all.............technical trading is about money management, or in tech's terms......expectancy which really is just mechanised money management, which is just the methodology that was adopted from professional gambling.


My view of charts is that they show what has happened in the past re support/resistance levels and trends and hence one can use that historical data to predict what might happen in the future. Obviously there are no guarantees with charts and those that correctly interpret what might happen in the future more often than not should do ok.

If support and resistance levels ALWAYS held, then I would agree. Unfortunately this is just not the case.
The reason for this is that true support levels are dictated by the value investors, who are not influenced by volatility and value levels change with the financial results of the business. Last years support, may not hold due to a deterioration within the fundamentals, and the value guys do not support the stock at that valuation..........the technicals look at the support line and plan an entry, but, its broken, and all the stops are triggered, end of support level.


I'm a believer of using stop losses, especially for short term traders. Sure, they will sometimes stop you out early and hopefully it will only be in a minority of occasions but that is just part of trading . Imo if they are set correctly then in the long run stop losses will save you very much more by preserving your capital and getting you out of bad trades early than the small amount you lose by buying back a few ticks higher if the share price rallies again soon after your stop loss is hit.....You can always buy back in if you've been stopped out early

For Technical traders they are mandatory as you are clueless as to what is really happening, and you are operating a momentum methodology, often highly leveraged, and you will without a shadow of a doubt blow up your account without a stoploss


I think paper trading is very good idea especially if someone is about to start trading for the 1st time. Sure, you're not under the same 'emotional stress' when placing paper buy/sell orders but since imo the purpose of paper trading is to test your trading plan then the results you get in paper trading should be very close to what you will get in 'real time' trading using real funds. The ASX Share Market Game that starts next week is a good way to paper trade, although you are limited to 100 stocks to choose from for trading.

With the plethora of "backtesting" software available, I'm not sure that paper trading is the most efficient way of building a strategy.
Where paper trading fails miserably, is in the cruciable of psychological torment.

tech/a

If we get to Adelaide, and there is no reason that we wouldn't, then we will definitely stop by and say hello. You'll need a bridging loan for dinner!!

I
agree with Duc to a point.However testing theories in public paper trading is a great learning experience.
(1) Hundreds of people wont let you fudge the figures.
(2) There are 100s of experts ready and willing to help.
(3) You can learn much from being completely transparent in your thinking.

tech

Agreed, posting live trades consistently, as paper trades is certainly a way to reproduce a little of the angst that the market will impose, and is why those of us that have, and do, used it in the first place..........you must put yourself in the spotlight with nowhere to run and hide (jog in my case) and you will gradually become reasonably disciplined.......its still different with real money, but cash is cash.

jog on
d998

[bullmarket]

ok no problem ducati :)

It looks like we agree in general but maybe disagree on subtleties.

I still believe that although charts cannot give guarantees, historical price action (support/resistance, trends) can give a probability of future price action - for the short term at least. I guess it just boils down to how well one interprets the data on a chart and it's a matter of each to their own on that one.

Some reputable trading authors have suggested that one should aim for a long term average of 2 winning trades out of 3....ie.....most likely overall, successful traders will experience many small winning trades cancelling out many small losing trades (assuming one is using efficient stop losses to preserve capital) with the occasional 3rd trade out of the 3 going for a reasonable run. The tricky bit is finding this 3rd trade opportunity. But all of this of course also depends on position sizing and other risk management strategies. Some traders will be better at it than others and hence more successful.

Bottom Line: I've met traders/chartists who have averaged 2 out of 3 winning trades over the long term, but they are few. Anecdotal evidence says that less than 10% of traders will be profitable (at least to any significant extent) in the long run, so imo using stop losses and other risk management strategies to preserve capital in losing trades is critical, especially for short term traders.

cheers

bullmarket :)

[happytrader]

Hi Ducati and Bullmarket

In case you haven't noticed we have a very successful couple of technical analysists daytrading the spi every week. From my observations they do a lot better than 50/50 or 2 out of 3.

Cheers
Happytrader.

[bullmarket]

no problem happytrader :)

then as long as they're not suffering losses elsewhere that aren't disclosed as well, they should be in the 10% that do ok in the long run.

That 2 out of 3 I mentioned is just one target that a trader could use. It's by no means a limit.

I'm not into derivatives, so good luck to them :)

cheers

bullmarket :)

[It's Snake Pliskin]

For this method a 180 day EMA of the low returned the best numbers,I tried many ATR,Bollinger,Various exotic forula's including Allan Hulls but the 180 remained the best exit with best numbers,i know others have adopted other ideas,I myself am currently looking at an exit based upon the XAO,that is the XAO will trigger the sell not the stock,I'm also in need of some additions to Tradesim which will help test the method as currently it cannot sell a whole portfolio on an outside influence and then re buy it when positive conditions are again met.

Tech,

So, using the XAO advance and decline as a basis for stopping out your portfolio? Is this what you mean?

Sounds like some interesting testing ahead regardless.

[It's Snake Pliskin]

But all of this of course also depends on position sizing and other risk management strategies. Some traders will be better at it than others and hence more successful.

I would say more professional!
It`s a business. :)

[ducati916]

happytrader


Hi Ducati and Bullmarket

In case you haven't noticed we have a very successful couple of technical analysists daytrading the spi every week. From my observations they do a lot better than 50/50 or 2 out of 3.

Well without wanting to throw water on your fire, I have a couple of objections;
1....birthday wishes to the SPI is not a qualifiable trade, however correct it may be
2...Posting hindsight trades is unacceptable

Therefore, until demonstrated in real time, I shall continue to maintain that any form of technical analysis will over the longer time period, return approximately a 50/50 outcome.

Profitability, will remain firmly in the purview of robust money management execution.

jog on
d998

[wayneL]

Looking on with amusement, not in a condescending way at all, but just realising the fun Duc is having here.

There are a number of points I would love to wade in on, but I've become a concientious objector. As you guys have seen, Duc is relentless, and never concedes a point; that would take all the fun out of it.:pesok:

I havn't got the energy LOL

[happytrader]

happytrader



Well without wanting to throw water on your fire, I have a couple of objections;
1....birthday wishes to the SPI is not a qualifiable trade, however correct it may be
2...Posting hindsight trades is unacceptable

Therefore, until demonstrated in real time, I shall continue to maintain that any form of technical analysis will over the longer time period, return approximately a 50/50 outcome.

Profitability, will remain firmly in the purview of robust money management execution.

jog on
d998

So be it Ducati!

I am very happy for you to maintain and live up to your 50/50 outcome.

Cheers
Happytrader

[tech/a]

Tech,

So, using the XAO advance and decline as a basis for stopping out your portfolio? Is this what you mean?

Sounds like some interesting testing ahead regardless.


Certaintly thats one consideration and as you know there are a number of indicators that can reference the A/D chart and form a basis of exit,
From price to formulas based upon price.
COLBY mentions and uses to great success A/D exits in his book "Encyclopedia of Technical Indicators"

This will get you thinking-----
To gain an edge these days I think we have to look out of the square and technically we can do that.
I'm currently working on composite charting techniques all based around better exits(Thats where the money is the exit end of the trade---most look at the other end---(the 50/50 arguement))

As an example.
I can make a composite out of my portfolio (Ie one chart representing performance just like a bar chart---open,close,high,low.(dont need volume))
I can make one of my universe of stocks Im trading from.
I can compare each to each and analyse each against each or against an index or an A/D chart etc etc.

Early days but results are suprising.

Wayne----Duc's no dummy as you know.
We both agree to disagree often and I like Duc's style particularly when he gets annoyed---his frustration is taken out by swallowing the nearest dictionary.
But his tenacity in arguement brings out some good points from both sides.

[bullmarket]

Hi Ducati


happytrader



Well without wanting to throw water on your fire, I have a couple of objections;
1....birthday wishes to the SPI is not a qualifiable trade, however correct it may be
2...Posting hindsight trades is unacceptable

Therefore, until demonstrated in real time, I shall continue to maintain that any form of technical analysis will over the longer time period, return approximately a 50/50 outcome.

Profitability, will remain firmly in the purview of robust money management execution.

jog on
d998

no problem :)

As I said in an earlier post, we seem to agree there are no guarantees in technical analysis/charting and we just disagree on the subtleties on what can be achieved from it.

From what I have seen I still believe that a 2 out of 3 long term winning trades ratio is achievable and maybe even higher if one is really skillful and has a successful trading plan.

If you want to believe otherwise for whatever reasons, that is fine. I don't have a problem with that.

So we'll just have to agree to disagree on the subtleties and move on. :)

Good luck with your trading/investing.

bullmarket :)

[It's Snake Pliskin]

Gday ducati,

I notice you mentioned you dont use stop/losses.I have often wondered about this.

Basically it comes down to backing yourself on a stock.if it drops in the short term ride it out.Whats generally your time frame for holding or how do you judge your exit from a trade?I always use stop losses on trades i do in speculative stocks which are usually in a short term time frame usually 3 months or less.long term holds i generally just hold.

interested in hearing your trading style if you dont mind explaining it.

cheers

b

Hi Tasmanian,

One`s time frame for a hold is dictated by the market`s and stocks` characteristics. Risk to reward, stop losses and position sizing are factors that will be different for different stocks, unless you are equally positioning your holdings based on equal dollar amounts - and even that doesn`t determine your holding time. Here is a paradox: exiting a trade is known before you enter it. :confused: Hint: don`t look at a dollar figure.

What do you mean by backing yourself on a stock? Hoping?

Cheers
Snake

[It's Snake Pliskin]

Looking on with amusement, not in a condescending way at all, but just realising the fun Duc is having here.

There are a number of points I would love to wade in on, but I've become a concientious objector. As you guys have seen, Duc is relentless, and never concedes a point; that would take all the fun out of it.:pesok:

I havn't got the energy LOL

Wayne,

I`m interested in what you have to say about the 50/50 thing.

Snake

[It's Snake Pliskin]

Certaintly thats one consideration and as you know there are a number of indicators that can reference the A/D chart and form a basis of exit,
From price to formulas based upon price.
COLBY mentions and uses to great success A/D exits in his book "Encyclopedia of Technical Indicators"

This will get you thinking-----
To gain an edge these days I think we have to look out of the square and technically we can do that.
I'm currently working on composite charting techniques all based around better exits(Thats where the money is the exit end of the trade---most look at the other end---(the 50/50 arguement))

As an example.
I can make a composite out of my portfolio (Ie one chart representing performance just like a bar chart---open,close,high,low.(dont need volume))
I can make one of my universe of stocks Im trading from.
I can compare each to each and analyse each against each or against an index or an A/D chart etc etc.

Early days but results are suprising.



You could make a chart of the most popular stocks being shorted list to meld in there as well. Surely that needs to be taken into account to gauge real sentiment. If the interest in shorting is high as in a real bear market then that is to be expected, but in a bull trend what is this shorting interest doing? CFD`s are now here and changing the market as more and more get on. I think Macquarie has the largest list...not sure though.

[ducati916]

tech/a


This will get you thinking-----
To gain an edge these days I think we have to look out of the square and technically we can do that.
I'm currently working on composite charting techniques all based around better exits(Thats where the money is the exit end of the trade---most look at the other end---(the 50/50 arguement))

I understand that you are approaching the analysis from a technical perspective, and that through extensive backtesting you have found that a technical entry provides an aggregate 50/50 outcome and therefore, have decided to examine the elements involved within the exit criteria.

Your existing methodology, as far as I am aware currently relies upon one or two trades returning a huge %, which leveraged provides a very satisfactory dollar return, while numerous small winners, offset numerous small losses.

Some of the smaller % winners, were larger % winners, but due to the exit criteria of the 180ema give back profit.

Two points.
Entries are an important criteria, and cannot be ignored.
In the current methodology of TT, entries have been marginalized, and thus cannot provide juice to the "numbers". To get the juice, you need to re-examine the whole issue of entries.

By tweeking the exits in TT, you run the risk of reducing the % return of the money trades. Will a "generalized exit" compensate you for this reduction in performance?

I suspect TT will have to redesigned in its entirety. That currently it does what it does about as efficiently as it can do.

enzo

Sorry, just can't adapt to Wayne;


There are a number of points I would love to wade in on, but I've become a concientious objector. As you guys have seen, Duc is relentless, and never concedes a point; that would take all the fun out of it.

Although we "might" cover some old ground, then again, we might not.
My thinking is constantly evolving, as I am sure is your own, thus, they may evolve new twists on old problems.

bullmarket


From what I have seen I still believe that a 2 out of 3 long term winning trades ratio is achievable and maybe even higher if one is really skillful and has a successful trading plan.

From a purely technical point of view, yes it is possible for certain gifted individuals, however, in aggregate you will never escape 50/50.

Now if you are talking about fundamentals, then I agree, 8/10 is the upper end of the performance curve, arbitrage is 10/10, so why waste your time with technicals, unless you are one of the statistical few.

jog on
d998

[tech/a]

tech/a


I understand that you are approaching the analysis from a technical perspective, and that through extensive backtesting you have found that a technical entry provides an aggregate 50/50 outcome and therefore, have decided to examine the elements involved within the exit criteria.

Well not "Exactly correct". I have found that entries are "Right" for different periods of time and also that they are "Right or have influence" over a finite period of time. So if I have a trading method which holds for 30 days how important at that 30 days will my entry be? If my average exit time is 365 days at that point the entry has little impact.
Beyond entry the ONLY thing you can do to determine profit is EXIT. The very day you enter entry becomes meaningless.(See next block)


Your existing methodology, as far as I am aware currently relies upon one or two trades returning a huge %, which leveraged provides a very satisfactory dollar return, while numerous small winners, offset numerous small losses.

What we ---all of us---constantly try to do is make an entry that will place us in a position MORE OFTEN which will give us the OPPORTUNITY to find more trades that run longer and double in value more often.
So in essence you are correct Duc frankly I'm suprised at how many T/T has ridden over 100%---think its 8 and 4 over 400% but at the time of entry no one could have with accuracy said that the peaks of those stocks would be x or y.
All exits will give back some profit see below.


Some of the smaller % winners, were larger % winners, but due to the exit criteria of the 180ema give back profit.

Every single exit was a higher % winner at one time other than those stopped. Just as traders get hung up on being "Right" on entries they also get hung up on being "Right" on exit. The hardest thing for a trader to come to terms with is you'll very rarely be "Right" in the context of picking an exact entry or exit.
But you'll NEVER get a 100% or 400% winner taking small profits whether your fundamental or technical you simply have to have an exit which allows the trade the space to get to those heights--tight exits just wont do it. Most fundamentalists can turn a profit simply by adopting a buy and hold mentality.
No 100%+ winners have crashed to small winners due to the 180 day EMA incidently.
So the important part of any trade is the portion between entry and exit the wider the two points are the more profitable the trade.


Two points.
Entries are an important criteria, and cannot be ignored.
In the current methodology of TT, entries have been marginalized, and thus cannot provide juice to the "numbers". To get the juice, you need to re-examine the whole issue of entries.

They sure are you cant get off the ground unless you have one.
As for being marginalised I think you would be disappointed that as a tech analysts I would not answer with---
It is our view that price holds all that we need to know about the company its performance is reflected in price.If it continues to rise then the company is seen not only by the tech analyst as a sound investment but also by the fundamentalist. The more of us that agree and the longer that we agree then the more profitable the trade. You and I can sail on the same ship Duc the way we got to the ship and boarded it is of little consequence,when we get off the ship will determine distance travelled.



By tweeking the exits in TT, you run the risk of reducing the % return of the money trades. Will a "generalized exit" compensate you for this reduction in performance?

Well when it does then that tweek gets discarded. All traders need to work at increasing the number of winners and increasing the time in those winners that keep climbing. There are important issues not even touched here like opportunity cost--being stuck in trades which while the rise and keep above an exit do pretty much nothing. Others that dont get stopped but dont make a move into profit. Both cost the trader as that money cant be traded on other trades that could be performing better.
A generalised exit may not be as general as you might think. It is specifically correlated to either Market events or portfolio events. Does it improve performance significantly.There are signs that it may well, particularly in a prolonged down turn--where the method is not designed to perform---nor is any long method by the way.


I suspect TT will have to redesigned in its entirety. That currently it does what it does about as efficiently as it can do.

Well that would be a new method.I have 2 other both do better than T/T,neither have I been trading as long as T/T but will continue to trade T/T because leverage and compounding return have kicked in.More importantly I know how it operates better than my car, so my "blueprint" gives me the comfort I need when trading.

Finally.
I came to the realisation about a year ago,through the T/T exercise.
I'm never going to be able to pick every top and every bottom as hard and as long as I spend attempting to do that.I can and will consistantly trade middle bits (those between entry and exit). I reckon at best I'll be able to consistantly return 20-50% a year FLAT.
By using leverage ( I believe I know how best to use it in my trading) and compounding I will be able to consistantly return (For me at least) stellar returns.
There is far more to profitable trading and getting consistant return than ENTRY.But this is where pretty well every trader gets hung up!!

[bullmarket]

Hi ducati

re your comments below:


bullmarket


Quote:
From what I have seen I still believe that a 2 out of 3 long term winning trades ratio is achievable and maybe even higher if one is really skillful and has a successful trading plan.



From a purely technical point of view, yes it is possible for certain gifted individuals, however, in aggregate you will never escape 50/50.

Now if you are talking about fundamentals, then I agree, 8/10 is the upper end of the performance curve, arbitrage is 10/10, so why waste your time with technicals, unless you are one of the statistical few.

no problem, but I think we are just going round in circles now and repeating ourselves :D .

I acknowledged your view "in aggregate you will never escape 50/50." in earlier posts and I have disagreed by saying that there are successful and wealthy traders/investors out there who aggregate a win/loss ratio from charting which is much higher than 50% but they are few.

I don't accept that you can never aggregate more than 50% winning trades from charting as per your view.

I am in investor who uses fundamentals to determine whether a company is worth following and I then look at company price charts to help time buy/sell points. This strategy works for me and I'm happy to continue doing what I always have been doing. Whether someone uses just charting, fundamental analysis or a combiantion of both is a matter of horses for courses, personal preference and what works best for any individual given their aptitiude and ability to work with technical and/or fundamental analysis.

So rather than us making ourselves sound like a broken record in an endless loop, let's agree to disagree and move on :)

cheers

bullmarket :)

[tech/a]

Hi ducati

re your comments below:



no problem, but I think we are just going round in circles now and repeating ourselves :D .

I acknowledged your view "in aggregate you will never escape 50/50." in earlier posts and I have disagreed by saying that there are successful and wealthy traders/investors out there who aggregate a win/loss ratio from charting which is much higher than 50% but they are few.

I don't accept that you can never aggregate more than 50% winning trades from charting as per your view.

I am in investor who uses fundamentals to determine whether a company is worth following and I then look at company price charts to help time buy/sell points. This strategy works for me and I'm happy to continue doing what I always have been doing. Whether someone uses just charting, fundamental analysis or a combiantion of both is a matter of horses for courses, personal preference and what works best for any individual given their aptitiude and ability to work with technical and/or fundamental analysis.

So rather than us making ourselves sound like a broken record in an endless loop, let's agree to disagree and move on :)

cheers

bullmarket :)



Hahaha.

One down ducster!

[bullmarket]

Hi tech/a :)

I'm not sure what point you are trying to make.

I don't see either ducati or I being down.

Ducati obviously believes that you can never achieve more than a 50% aggregate in the long run and he's entitled to his view....I don't have a problem with that at all :)

I replied to his post saying I disagreed as traders have achieved a long term aggregate of much more than 50%, albeit they are few.

So I don't see any issue here....ducati and I both earlier agreed there are no certainties in charting as we simply disagree on what the long term possible achievements are :)....seems quite simple to me and we are now both just repeating ourselves.

cheers

bullmarket :)

[tech/a]

Repetion shows its head when no new material is being added to a discussion.
In your discussion with Duc there is no new material coming.
Pity as I would and so would many others here I'm sure like to know some opinion on the following.

(1) Why is it that a "few" traders can achieve better than 50% entry success.(technically)
(2) Is successful trading dependant on achieving better than 50% success.
(3) At what point do you define an entry as successful.Next day,week,month.
(4) How long is an entry valid and when is it deemed invalid, in the 50% failure?
(5) If a trade went for 6 mths and reached 50% profit and then fell to a 20% loss is it the entry that failed?Is that trade deemed as one of the 50% failure and why?
(6) Does technical competence have a determinance on probability of a "Successful entry"?
(7) Fundamentally when is an entry deemed to have failed (Ie the 20% of Ducs 80%)

As discussion continues particularly with participants like Duc who has strong and in some cases researched views---new questions arise.

Agreeing to disagree simply denies the opportunity of both parties to gain better understanding of each parties view.
While I dont agree with much of your view and some of Duc's-----discussions like this give a great platform to enter my view as an alternative or even in some cases a correlated collaborator in the world of trading.

True many dont enter/continue discussions as they have little to add, this maybe so in your case.

[bullmarket]

Hi tech/a :)

I didn't bother reading all of your long post earlier in the thread but I thought you answered at least most of those questions yourself.

Also, I have never ever claimed to be a trader. I am retired now and have always been an investor and income and not capital gains is my #1 priority nowadays (but any cap gains are welcomed with open arms if they occur :) )
In the 04/05 financial year I bought/sold on 23 occasions only and so far this finacial year I have bought/sold shares on only 9 occasions and am not currently expecting to place anymore orders before end of June - barring any exceptional circumstances.

I primarily use fundamentals (of which I have discussed earlier in other threads for anyone interested) to determine whether a company is worth following for me and if so then I look at its chart to help time buy points.

In my dsicussions with ducati we both agreed that charts obviously give no guarantees and we simply disagreed on the extent of possible achievements from charting. I gave my views based on what I have seen from friends and aquaitances and obviously I cannot give other peoples' personal details in a forum like this. So feel free to either believe or not believe anything I say. At the end of the day what you believe or think of my posts is of no consequence to me whatsoever.

If you need more info on any of your previous questions then maybe ask someone who is a true trader and not an investor as in my case.

Good luck in your endeavours :)

bullmarket

[ducati916]

bullmarket


Ducati obviously believes that you can never achieve more than a 50% aggregate in the long run and he's entitled to his view....I don't have a problem with that at all

Pure charting, unmodified by anything other than "technical studies", viz. fundamentals, or quants, have a 50/50 outcome as regards the aggregate data. That you may know of an outlier, or three is fairly irrelevant, as I am sure I can find some outliers that managed a 90% failure rate on charts.

The point of a statistical figure being promulgated is that for the average, new trader, who is most unlikely (though not impossible) to emulate the outlier statistic of a 66% success rate.

This has nothing at all to do with the ultimate profitability of the trader in question, as there are methodologies that run 40% and lower of %winning trades, and yet still are profitable.

tech/a does not subscribe, or lend much weight to "entries" as a general trading parametre. I assign a weight of 50/50 to a chart based entry.
However I weight a fundamentally based entry much higher....circa 80%+

tech.........baby

I'll play.


(1) Why is it that a "few" traders can achieve better than 50% entry success.(technically) 2) Is successful trading dependant on achieving better than 50% success.


Technical trading, is really trading sentiment, psychology, momentum, call it what you wish. The results are thus generated not by the methodology of technical analysis, but from the methodology of capitalizing on momentum, or money management by any other name


(3) At what point do you define an entry as successful.Next day,week,month

At the exit when an actualised return has been banked.


(4) How long is an entry valid and when is it deemed invalid, in the 50% failure?

When you exit with an actualized loss. The timeframe is, or should be predetermined.


(5) If a trade went for 6 mths and reached 50% profit and then fell to a 20% loss is it the entry that failed?Is that trade deemed as one of the 50% failure and why?
(6) Does technical competence,have a determenance on probability of a "Successful entry"?

Assuming you exit and realize the loss, yes, the entry is a failure.
If you remain in the trade, and it returns to a 50% profit, and you realize the profit, it becomes a successful entry.


(6) Does technical competence,have a determenance on probability of a "Successful entry"?

No. Technicals are a complete nonsense.


(7) Fundamentally when is an entry deemed to have failed (Ie the 20% of Ducs 80%)

See all of the above, same as same as.

jog on
d998

[tech/a]

Duc.
Unfortunately my other life is calling.
Ive been told a few friends are waiting for us at lunch.

Are there any others out there who trade who would like to add to our discussion?

What by the way constitutes a trader?
Id have thought 23 trades a year would mean your making a decision both in entry and exit 2wice a month.Seems you would be in control or attempting control.

From your replies Duc much to add from the "Ducks end".

[bullmarket]

tech/a


Duc.
Unfortunately my other life is calling.
Ive been told a few friends are waiting for us at lunch.

Are there any others out there who trade who would like to add to our discussion?

What by the way constitutes a trader?
Id have thought 23 trades a year would mean your making a decision both in entry and exit 2wice a month.Seems you would be in control or attempting control.

From your replies Duc much to add from the "Ducks end".

Most of my 23 trades last financial year were around may/june last year and were due to me going more defensive by re-arranging my portfolio to include only LPT's and infrastructure/energy trusts for their high yields and hence boost the income from my portfolio to above our minimun yearly requirements.

My 9 buy/sell orders so far this financial year were solely a bit of fine tuning, again to increase the average yield of my portfolio. I'm averaging less that 1 buy/sell order per month if I don't place any more orders as I expressed earlier.

I certainly don't think the above quantities and reasons for my transactions entitles me to call myself a trader at all. But if you think it does then fine - it doesn't matter to me at all :)

cheers

bullmarket :)

[dutchie]

G’day all

I am of the opinion that the success or failure of an entry is a function of the general movement of the market.

If one assumes that the general trend is up, then the chances of succeeding with a bull entry (i.e. we want the share price to go up) is greater than the chances of bear entry.

For example assume that the market is such that on average it moves up 6 points for every 4 points down (i.e. over a long period it will move up).
NOTE: This 6 to 4 ratio is only assumed and has no resemblance to the actual ratio.

Lets assume we enter a bull trade at the end of day 0, the next day (day 1) there is a 60% chance it will go up and a 40% chance that it will go down.
Day 2 the chance that it will go up is 60% and 40% that it will go down.

Therefore the chances after 2 days:

1) that it has gone up on both days is: (0.6)^2 (0.6 x 0.6) = 0.36 (36%)

2) that it has gone down both days is: (0.4)^2 = 0.16 (16%)

3) that it has gone up one day and down the other : 2 x (0.4 x 0.6) = 0.48 (48%)

Therefore the chances after 3 days:

1) that it has gone up on three days is: (0.6)^3 (0.6 x 0.6 x 0.6) = 0.216 (21.6%)

2) that it has gone down on three days is: (0.4)^3 = 0.064 (6.4%)

3) that it has gone up one day and down two: 3 x (0.6 x 0.4 x 0.4) = 0.288 (28.8%)

4) that it has gone up two days and down one: 3 x (0.6 x 0.6 x 0.4) = 0.432 (43.2%)

(We could continue in this vane for x days when exiting from the trade.)

So after 3 days the chances of a winning trade is a minimum of 21.6% and the chances of a losing trade is a minimum of 6.4%.

What then of the other successes or failures:

We could end up with a winning trade even if we had one up day and two down days so long as the up day was bigger than the sum of the two down days. And the same applies for two up days with one down day so long as the sum of the two up days was bigger than the down day.

This is where the skill of the trader using T.A./ F.A./ dart board/ monkey etc will determine whether it is a win or loss but on average the long term success rate would probably be around 60% (in this particular scenario)

The long term average to short the market would be 40% (in this particular scenario)
But overall - depending on the ratio of the ups to the downs of the market.

NB. The chances of success in a bull market are greater than shorting in bear market.

I think …….

[happytrader]

Hi Dutchie

Your post is actually simplistic, obvious and very, very good. Well done.

Cheers
Happytrader

[ducati916]

dutchie


I am of the opinion that the success or failure of an entry is a function of the general movement of the market.

A common belief, but unfortunately not supported by the data;
In 50+ years;

Up days....................53.5%
Down days................46.5%

Decades......1950's......60's........70's......... 80's.......90's......2000
Up days......56.9%......54.2........51.3........53.0. ......53.7.....50.1
Down days..43.1%......45.8........48.7........47.0..... ..46.3.....49.9

Secular ...................Bear 1966-1982...........................Bull 1983-1999
Up days.......................51.1%.................. .........................54.0%
Down days...................48.9%...................... .....................46.0%

Recent.........1999...........2000......2001...... ...2002..........2003.......2004
Up%..............51.2...........47.6.....48.2..... .....44.2..........54.8........55.6
Down%..........48.8...........52.4.....51.8....... ...55.8..........45.2........44.4

Unfortunately, individual stockpicking is still the requirement if outperformance as measured by actualized returns is a requirement. If measured by relative returns, guess what, you still need to be a stockpicker.

Only if you wish to reproduce the market return, will you require the above.

happytrader


Your post is actually simplistic, obvious and very, very good.

Strike two baby...........one more and you're out.
Looks a bit like 50/50 to me, what do you think?

jog on
d998

[It's Snake Pliskin]

G’day all

NB. The chances of success in a bull market are greater than shorting in bear market.

I think …….

G`day Dutchie,

Shorting is a whole different ball game for people with large kahuna`s and and an understanding of RISK. Your potential for loss is unlimited. It is risky in the sense you can not adequately determine from a chart at what speed a stock will drop. Volume can play a minimal role, unlike going long, and when it does.....$$$

Shorting in a bear market makes sense, but the stage you do it in is more important. One can fundamentally short or technically short and be profitable.

Cheers
Snake

[happytrader]

Hi again Ducati

I actually based my reply on the only stock I trade. Your figures look most interesting and very work intensive however, they bare no semblance or meaning for the stock I trade. Out of interest, where do they come from? I certainly wouldn't trade that one.

Cheers
Happytrader

[It's Snake Pliskin]

(1) Why is it that a "few" traders can achieve better than 50% entry success.(technically)
(2) Is successful trading dependant on achieving better than 50% success.
(3) At what point do you define an entry as successful.Next day,week,month.
(4) How long is an entry valid and when is it deemed invalid, in the 50% failure?
(5) If a trade went for 6 mths and reached 50% profit and then fell to a 20% loss is it the entry that failed?Is that trade deemed as one of the 50% failure and why?
(6) Does technical competence have a determinance on probability of a "Successful entry"?
(7) Fundamentally when is an entry deemed to have failed (Ie the 20% of Ducs 80%)



I`ll give my views here and maybe someone can validate them :)

1. The balance of probabilities allows this to happen, luck, or other factors have been mitigated to determine the risks associated with an entry. For example: most people study a stock but it only represents a small proportion of the risk. Mitigate the other risks and maybe those entires will be successful more often.

2. No. Your positive expectancy will determine this.

3. Once the stock moves higher with your trailing stop following. Is this the sole factor determining your positive expectancy? No. It gives you more time to manage the holding period. One is still not successful at this point.

4. Refer to point 3 above.

5. No. It`s a failure of managing the trade - no exit strategy!

6. No.

7. ?

Snake

[123enen]

If there are just as many up days as there are down days then the chart lines, for the indices at least, while sawtooth in pattern ie. up down up down, would be pretty flat along a very narrow range.

Most, if not all indices, do not reflect this, they in fact show an strong upward trend over the last 50 years.

Perhaps the points gained in up days are greater over time than points lost in down days. So, does that give credence to entry / exit strategies?

[dutchie]

G'day Duc

Thanks for those statistics - very interesting - especially the first lot.

Are you able to determine the size of the rises and falls for that period?

Cheers

Dutchie

[bullmarket]

Below is a monthly XAO chart back to 1982.

From it you can see graphically that there have obviously been more up days than down days historically which is consistant with ducati's numbers although I'm not sure what index or criteria his numbers represent or what his source of data is.

Eye-balling values of 1200 and 4700 for XAO in 1991 and 2005, XAO has grown 9.5%pa (compound) for the 15 years between 1991-2005 inclusive.

I suppose a really skillful technical analyst who traded most of the market rallies and either shorted the dips or stayed out alltogether could reasonably have expected to average a win/loss trading ratio of 2 wins out of 3 or even higher in the long term over that period.

But please don't anyone, especially newbies, think that being a successful trader is as easy as the XAO chart suggests it might be. Remember that less that 10% of traders are successful in the long run and the few traders that I have met who have achieved long term win/loss ratios of around 66% have put a lot of time and effort into what they do, certainly a lot more time than I would have available or would even want to spend trading. But the chart shows that the widely suggested aim of 2 winning trades out of 3 is achievable if one puts in the time and effort.

Also, maybe look at it another way. If being successful at trading was easy then everybody would be doing it.

Food for thought :)

bullmarket

[tech/a]

"But the chart shows that the widely suggested aim of 2 winning trades out of 3 is achievable if one puts in the time and effort."


Suggested aim-----by whom?

If I only achieve 30% winners and 70% losers are you saying I cant be profitable?

Back later to answer Duc's posts and other comments.

By the way it is as easy as the chart suggests in my veiw its only traders that make trading more complicated than it need be.

[bullmarket]

Hi tech/a :)

The authors I have read are Thornton, McPhee, Guppy, Obrien, Compton and Kendall, so it was in at least one of those. I'm not going to flick through all the pages to find out exactly where for you, so feel free to believe or not believe me - it's of no consequence to me either way :D

re your question "If I only achieve 30% winners and 70% losers are you saying I cant be profitable?" - if you can't work out the answer to that one for yourself after all you have posted about stop losses, exit strategies etc etc then maybe go back and reread your posts and you'll find the answer :)

cheers

bullmarket :)

[It's Snake Pliskin]

Hi tech/a :)

The authors I have read are Thornton, McPhee, Guppy, Obrien, Compton and Kendall, so it was in at least one of those. I'm not going to flick through all the pages to find out exactly where for you, so feel free to believe or not believe me - it's of no consequence to me either way :D

re your question "If I only achieve 30% winners and 70% losers are you saying I cant be profitable?" - if you can't work out the answer to that one for yourself after all you have posted about stop losses, exit strategies etc etc then maybe go back and reread your posts and you'll find the answer :)

cheers

bullmarket :)

Wow!

I`ve read an investment text by Gitman and Joehnk, and trading/investing books by Guppy, Gilham, Thomsett, O`neil, Cunningham, Bedford, Huntley, Lally, Tharp, McCafferty, Link, Darvas, Alexander, Weinstein, Radge, Damodaran, Beelaerts and Forde, Dolan, Bennetts, Elder on CD, Davey. Oh yes I can`t forget this one: Sammon :eek: Not to mention the many printed and filed articles off the internet, including this forum.

Basically looking at a win/loss ratio is not the answer. Looking at what that win loss ratio does to your account is important.

A great trader may have 90 winners to 10 losers. Those 10 may destroy the account! It really is that simple.

A trader may have 20 winners and 80 losers. As a result he/she may be profitable though.

So yes traders can, but a small percent don`t, really destroy themselves in a simple bull market. Just like investers detroy themselves in times of the bear.

[bullmarket]

Hi snake

Yes you are right and I agree with what you say.

But let me refer you back to an extract from an earlier post of mine in this thread to put in context where this 2 out of 3 winning trades I have been mentioning comes from and the logic behind it.


Some reputable trading authors have suggested that one should aim for a long term average of 2 winning trades out of 3....ie.....most likely overall, successful traders will experience many small winning trades cancelling out many small losing trades (assuming one is using efficient stop losses to preserve capital) with the occasional 3rd trade out of the 3 going for a reasonable run. The tricky bit is finding this 3rd trade opportunity. But all of this of course also depends on position sizing and other risk management strategies. Some traders will be better at it than others and hence more successful.

Bottom Line: I've met traders/chartists who have averaged 2 out of 3 winning trades over the long term, but they are few. Anecdotal evidence says that less than 10% of traders will be profitable (at least to any significant extent) in the long run, so imo using stop losses and other risk management strategies to preserve capital in losing trades is critical, especially for short term traders.

So yes I agree that obviously even a 10% winning ratio can theoretically be profitable in the long run (but less likely obviously) just as a 90% winning ratio can produce a loss overall if stop losses aren't used on the 10% losing trades.

That 2 out of 3 winning trades target, as I said in a subsequent post to the above extract, is by no means a hard and fast rule but it and even higher win/loss ratios are achievable and 2 out of 3 is just one of an infinite number of targets one can choose to aim for.

In addition to your post, a professional trader will also look at things like profit ratio....ie....how many $ profit he/she makes per winning trade divided by how many $ loss he/she makes per losing trade. This and all sorts of other measurements to measure trading performance/profitability are discussed in many trading books.

cheers

bullmarket :)

[tech/a]

tech/a does not subscribe, or lend much weight to "entries" as a general trading parametre. I assign a weight of 50/50 to a chart based entry.
However I weight a fundamentally based entry much higher....circa 80%+

Here in lies a basic difference.I can say with good certainty as I have tested extensively for over 8 yrs various technical entry methods,where as i believe duc has not tested as thouroughly fundamental entry analysis.While I'm sure he is very sure that in the longterm---and in some universes of stock he could be right----fundamentally he will get an 80% win rate.
But as has been noted even an 80% win rate wont guarentee success.

tech.........baby

I'll play.




Technical trading, is really trading sentiment, psychology, momentum, call it what you wish. The results are thus generated not by the methodology of technical analysis, but from the methodology of capitalizing on momentum, or money management by any other name

So how then does a trade entered fundamentally make profit if not be exactly the same forces?


At the exit when an actualised return has been banked.

Have covered this one. As I can liquidate in seconds (better than holding a house with equity) I believe a measure of entry success is when a trade is in profit to the amount of risk on that trade.To a point where a stop can be raised to break even plus brokerage.
Further it could be argued that 2x risk + brokerage is more appropriate.


When you exit with an actualized loss. The timeframe is, or should be predetermined.

Two parts to this. I have seen many arguements to this.Maybe suprisingly I dont necessarily agree with some technical opinion.Some will argue at the time of a technical point where clearly the analysis has failed---eg price breaking support which was used as an entry,or any of 1000s of entries--good arguement.So why then do we set a stop point below the entry point which most agree is proven wrong if it fails???? (Note at this point logic says that the technical reason for entry is found to be incorrect at some future time so its no longer valid).

My veiw is that technical analysis alerts us to setups which have a better chance of finding a stock which out performas than simple random selection,Particularly when stocks that are not displaying a bullish tendancy are removed,an INITIAL entry signal may not be the FINAL entry signal that sees the stock pull away from the purchase price.

Fundamental analysis alerts a trader to a value based stock which at sometime would be expected to return to a higher value.At the time of Fundamental entry my observations are that those Fundamentalists I know and have worked with have no idea "When " the stock will return the the value estimated by them or their advisors.Nor do they know if the market agrees with them on value as of now---as stocks still decrease in value despite opinion that it is undervalued.

The technical analyst for most part derives at value from price action,and sets parameters in their trading that "For them" demonstrates value (entry) or over value (exit).

Bringing us to Predetermined value,Fundamentalists attempt to determine it and tech analysts let price do that.Both get it right and wrong.
To me the worst "wrong" is an early exit as we have not let a stock run enough. To do that you cannot have tight exits,you have to understand to gain a 100% + move you may need to give back 25% to the market.




Assuming you exit and realize the loss, yes, the entry is a failure.
If you remain in the trade, and it returns to a 50% profit, and you realize the profit, it becomes a successful entry.

I personally believe all entry signals both technically and fundamentally have an expiry.Technically I feel that as soon as an entry fails to stay above its initial starting point AND a singular even of bearish price action CONFIRMS that the entry is wrong its done.The process then starts again.Minimise the loss and look for another opportunity.Lets take a fundamental buy--say an announcement where price sky rockets 20%---a price spike technically.
When is that entry deemed WRONG from a Fundamental view.

My response would be when price fails to to advance past or returns to below the price at the highest point of the spike.(you dont need to be technical to determine that) at which point it is obvious that new buyers are not as impressed with the news as expected.But like technical entry it maybe that this is a pre curser to bigger things.Unlike the fundamentalist I would have a point of "Im no longer waitin" and that should be at a point well before----bugger I cant afford to lose x$ so I'll have to hang in there!!



No. Technicals are a complete nonsense.

I wish I could find more ways of cranking a buck with pure nonsense.Its the incorrect use and more so the incorrect EXPECTATION of technical analysis which has many like Duc looking at it as if it is VOODOO.

Nick Radge in his book Adaptive Analysis put it the best way I have seen.
Analysis simply Proves--then dis proves---so it either proves a setup or point of analysis or disproves it now or a point in the future.

Now HERE is where I feel the strenght of this "Prove--disprove" comes into play for the techanalysts and not available to the Fundamentalist.

Youve all heard take small losses and let profits run.
Technically we look for setups that will get up and go---NOW.If we are wrong we train ourselves to admit this as early as we can--we have no attachment to that which we are trading--at a point we will gladly close a losing position and take another in a setup for a possible winning position.
Those like me who trade longerterm will happily take 5 or more 1% loses in a row to find ourselves eventually on a stock that keeps positive.

Exactly what happened with T/T what Duc failed to mention is that for many many months we held 10 stocks ALL very positive.THATS THE AIM---thats the reason for tight stops and taking them.
Thats alos the reason to exit stocks that are not performing (Ranging) either in profit or most definately between entry and stop!!


Fundamentals can be desighned to tell whatever story you want.Accountants are good some exceptional.


See all of the above, same as same as.


I often ask questions to gain answers from others to see at what level of understanding they are at.Helps me when offering up opinions.
Thanks for your reply Bulldust---investment is a wise move for you I agree.
But another question for you and those like you.
If your capital appreciation is non existant or at worse eroded by a fall in the
instrument your holding how then can you justify no interest in capital gain?
Ive also noticed that you advocate a trading plan often.
A trading plan by itself is of little benifit as you have no idea generally until you implement it wether your plan has a positive expectation.Often it will be months or years before you'll be proven or disproven to have designed a profitable plan. To be as certain as possible you'll need a "blueprint" of a trading methodology that you KNOW has a positive expectation.

Snake.
Spot on.

[bullmarket]

Hi tech/a :)

If you look back through my posts in various threads you will see that I often suggest paper trading a trading plan and fine tuning it until it consistantly returns a profit you are happy with.

Whether that paper trading takes 1 week, 1 month or 1 year or even longer is solely at the discretion of the trader until he/she is happy with the plan.

You will see that I also suggest reviewing the plan periodically to fine tune it, especially if expected returns are not being generated.

Now I see CSI has started :eek: so I must go. :)

See you all in the soup during the week.

take care :)

bullmarket

[Bobby]

Hi tech/a :)

If you look back through my posts in various threads you will see that I often suggest paper trading a trading plan and fine tuning it until it consistantly returns a profit you are happy with.

Whether that paper trading takes 1 week, 1 month or 1 year or even longer is solely at the discretion of the trader until he/she is happy with the plan.

You will see that I also suggest reviewing the plan periodically to fine tune it, especially if expected returns are not being generated.

Now I see CSI has started :eek: so I must go. :)

See you all in the soup during the week.






take care :)

bullmarket

Sheeze Bullm - Did you miss the point or What in Techs last post? You're out of your depth mate!
Keep your comments in track.

Bob.

[ducati916]

tech/a


Here in lies a basic difference.I can say with good certainty as I have tested extensively for over 8 yrs various technical entry methods,where as i believe duc has not tested as thouroughly fundamental entry analysis.While I'm sure he is very sure that in the longterm---and in some universes of stock he could be right----fundamentally he will get an 80% win rate.
But as has been noted even an 80% win rate wont guarentee success.

Interesting point, and blurring somewhat the important point.
Is extensive testing over 8 years a technical methodology any more or less relevant to the testing of long periods of market history?

While I have been involved in the markets just approaching five years now, I have "tested" or researched the markets (US markets only) back into the 1870's and into the present day.

Now you will not get data sets for your charting programs much before the mid 1980's, therefore, in reality, my research far exceeds anything that is technically based.

As for an 80% win rate not being a guarantee of success, no agreed it won't be a guarantee of success, however it will certainly skew the probability positively in your favour.


So how then does a trade entered fundamentally make profit if not be exactly the same forces?

And herein lies the fundamental difference when technicians debate fundamentalists, the former really do not understand the underlying difference in how risk is assessed and assumed.

The short answer is that the technician is quantifying and assuming market risk as the sole criteria, therefore they must within their risk management follow the market............or by another name, Efficient Market Theory.

Fundamentalists by way of contrast do not quantify market risk.
We quantify Business risk, and utilize the volatility of the market (as does the technician) for one aspect of return, viz. capital growth.
We do not subscribe to EMT, but rather Inefficent Market Theory.


Have covered this one. As I can liquidate in seconds (better than holding a house with equity) I believe a measure of entry success is when a trade is in profit to the amount of risk on that trade.To a point where a stop can be raised to break even plus brokerage.
Further it could be argued that 2x risk + brokerage is more appropriate.

Disagree.
You do not daytrade, and your exits are mandated on EOD.
In theory (and theory is what we are discussing) your position could gap against you, and incur a loss. In the US this is a more common occurance, as the volatility is far greater. However there have been some examples in Australia just recently, HSP was I believe an example.

http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=8;t=000410;p=3


My veiw is that technical analysis alerts us to setups which have a better chance of finding a stock which out performas than simple random selection,Particularly when stocks that are not displaying a bullish tendancy are removed,an INITIAL entry signal may not be the FINAL entry signal that sees the stock pull away from the purchase price.

Which is the entire philosophical base on which technical analysis is built.
Unfortunately the foundations are sand, the entire edifice doomed to sink back into the mire, as 50/50 is the prevailing statistic with technical analysis as practice.


Fundamental analysis alerts a trader to a value based stock which at sometime would be expected to return to a higher value.At the time of Fundamental entry my observations are that those Fundamentalists I know and have worked with have no idea "When " the stock will return the the value estimated by them or their advisors.Nor do they know if the market agrees with them on value as of now---as stocks still decrease in value despite opinion that it is undervalued.

As previously detailed, market risk is an irrelevancy to fundamental analysis.
As too "When" correct, it is no more possible to predict the "When" as to predicting any other future event.


Bringing us to Predetermined value,Fundamentalists attempt to determine it and tech analysts let price do that.Both get it right and wrong.
To me the worst "wrong" is an early exit as we have not let a stock run enough. To do that you cannot have tight exits,you have to understand to gain a 100% + move you may need to give back 25% to the market.

Timing the market = Technical Analysis
Pricing the market = Fundamental Analysis

"Tightness" is a major problem that needs to be overcome.
Tight stops, will increase your losses, tight exits will decrease your %return


I personally believe all entry signals both technically and fundamentally have an expiry.Technically I feel that as soon as an entry fails to stay above its initial starting point AND a singular even of bearish price action CONFIRMS that the entry is wrong its done.The process then starts again.Minimise the loss and look for another opportunity.Lets take a fundamental buy--say an announcement where price sky rockets 20%---a price spike technically.
When is that entry deemed WRONG from a Fundamental view.

An expiry date.
Yes, fundamentally speaking, if the business, as reflected within the financial reports indicate a deterioration of a material nature within the operating results, and serious enough to effect damage to the balance sheet, a revision and exit may very well be on the cards.


Unlike the fundamentalist I would have a point of "Im no longer waitin" and that should be at a point well before----bugger I cant afford to lose x$ so I'll have to hang in there!!

Surprising opinion, especially after much of the criticism that was directed towards TT was in essence of this nature, viz. its just to slow.
Patience is one of the great attributes within the markets, and why character will win out over algorithms.


I wish I could find more ways of cranking a buck with pure nonsense.Its the incorrect use and more so the incorrect EXPECTATION of technical analysis which has many like Duc looking at it as if it is VOODOO.

That's because it is predicated on exactly the same basis as voodoo.
That is faith, belief & hope. What is required is "Canon Law" for technicians, which is precisely what TT delivers to the lost souls who cannot exercise discipline in the face of temptation from Satan, Lord of the Market.


Youve all heard take small losses and let profits run.
Technically we look for setups that will get up and go---NOW.If we are wrong we train ourselves to admit this as early as we can--we have no attachment to that which we are trading--at a point we will gladly close a losing position and take another in a setup for a possible winning position.
Those like me who trade longerterm will happily take 5 or more 1% loses in a row to find ourselves eventually on a stock that keeps positive.

And I would rather have 8/10 winning, with 2/10 losing.


Exactly what happened with T/T what Duc failed to mention is that for many many months we held 10 stocks ALL very positive.THATS THE AIM---thats the reason for tight stops and taking them.
Thats alos the reason to exit stocks that are not performing (Ranging) either in profit or most definately between entry and stop!!

Not really.
What I said was that closed trades show a 50/50 result.
If your % in closed trades rises, I shall take note of that result also.


Fundamentals can be desighned to tell whatever story you want.Accountants are good some exceptional.

No, the fundamentals are the fundamentals.
Accountants can manipulate the reported results, and attempt to mis-represent, obfuscate, or present outright fraudulent results.
It is the job of the analyst to display to the light of day the "fundamentals".


If your capital appreciation is non existant or at worse eroded by a fall in the
instrument your holding how then can you justify no interest in capital gain?

If investing for "Income" capital appreciation while always welcome, is not the primary motivation. Credit risk is.
If credit risk poses no threat, then price volatility is irrelevant.
If bought at a high yield, or good value, almost certainly at various points, capital appreciation will be available in addition.


A trading plan by itself is of little benifit as you have no idea generally until you implement it wether your plan has a positive expectation.Often it will be months or years before you'll be proven or disproven to have designed a profitable plan. To be as certain as possible you'll need a "blueprint" of a trading methodology that you KNOW has a positive expectation.

Another can of worms has just been opened.
Could you not argue that your "blueprint" should be a stipulation within the trading plan? A trading plan is more of a philosophical approach to the market.

jog on
d998

[bullmarket]

Hi Bobby :)

I have posted on numerous occasions here and elsewhere that a robust and extensive trading plan will include a 'methodology', or whatever you would like to call it, which states how you will determine entry/exit points (technically and/or fundamentally or whatever else suits the trader).

I, like many others, have also suggested to consider paper trading the plan for however long it takes and fine tuning it until you are happy with the returns before committing real funds.

And even after real funds are being committed it's probably a wise move to periodically review the trading plan and fine tune it again if necessary, especially if the expected returns are not being generated.

In my case, my plan is more of an investment plan rather than a trading plan but imo the concepts behind a plan are similar for both traders and investors.

I hope this clears up what I meant earlier :)

cheers

bullmarket :)

[wayneL]

Duc

I cannot believe you have revisited this whole fa vs ta argument once again. Have all our discussions come to nought?

You obviously view this as some sort of sport....but just to revist a selection of points:


As for an 80% win rate not being a guarantee of success, no agreed it won't be a guarantee of success, however it will certainly skew the probability positively in your favour.

Disagree, not in and of itself it doesn't. The probability skew has no relevance unless risk verses reward is included in the calculation.


The short answer is that the technician is quantifying and assuming market risk as the sole criteria, therefore they must within their risk management follow the market............or by another name, Efficient Market Theory.


Lets have a look at a definition of EMT


Efficient Market Theory
Definition

The (now largely discredited) theory that all market participants receive and act on all of the relevant information as soon as it becomes available. If this were strictly true, no investment strategy would be better than a coin toss. Proponents of the efficient market theory believe that there is perfect information in the stock market. This means that whatever information is available about a stock to one investor is available to all investors (except, of course, insider information, but insider trading is illegal). Since everyone has the same information about a stock, the price of a stock should reflect the knowledge and expectations of all investors. The bottom line is that an investor should not be able to beat the market since there is no way for him/her to know something about a stock that isn’t already reflected in the stock's price. Proponents of this theory do not try to pick stocks that are going to be winners; instead, they simply try to match the market's performance. However, there is ample evidence to dispute the basic claims of this theory, and most investors don't believe it.


As I look at the above definition, it strikes me as an anathema to what the technician is trying to achieve. The journeyman technician does try to pick winners, and he certainly believes he can beat the market...and does LOL.

This seems to be a direct contradiction of EMT, according to the above...and I have consistly maintained in our discussions on RC that this is indeed so.


Which is the entire philosophical base on which technical analysis is built.
Unfortunately the foundations are sand, the entire edifice doomed to sink back into the mire, as 50/50 is the prevailing statistic with technical analysis as practice.

Incorrect...50/50 (win/loss ratio) is not the prevailing statistic in TA, it is only half of the picture. The profitability od any TA method is certainly not predicated on the win loss ratio alone...never! One must include the risk/reward ratio also. This will give us a resultant mathematical expectancy equation expressed as thus:

Expectancy=((1 + reward/risk ratio) * win/loss ratio)-1

As you can see, win/loss ratio, by itself is not relevant. However, I like to add in a further factor into this equation, which is simple to multiply the result by the opportunity, or frequency of trades. This gives a more accurate picture of ultimate profitabilty. I like to call this equation "Ultimate Expextancy"

This would be evident in arbitrage plays (to use an example that would relate to you). If opportunities to arbitrage arised once every 12 months, the ultimate expectancy (presuming all other things equal) would be a hell of a lot less than if opportunities arised once per week.

Suddenly probability skew and statistics aquire additional imperitives...suddenly TA aquires a foundation underneath a thin layer of sand...suddenly, the illusion that TA detractors have laboured under, evaporates. Ultimately the charge that TA is only a 50/50 proposition loses relevance, because it's not....relevant.


"Tightness" is a major problem that needs to be overcome.
Tight stops, will increase your losses, tight exits will decrease your %return

Once again, the lack of all applicable vectors make this assertion pure bilge.

Tightness of stops must have context within a technical system. Tight stops will not decrease returns in the right context. The journeyman technician knows this, even if novices have not yet realised it.

A tight stop with a breakout entry will chop you out of trades all the time, however in a pullback/support entry, a tight stop will be the only logical technical stop, decreasing the trade risk and allowing a larger position size, increasing profits.

That's just a couple of points I noticed and should do to start with...although it is old territory :D

Cheers

[ducati916]

WayneL


I cannot believe you have revisited this whole fa vs ta argument once again. Have all our discussions come to nought?

I know, just can't seem to help myself, the contempt that I hold technical analysis in, just seems to have no boundaries.


Disagree, not in and of itself it doesn't. The probability skew has no relevance unless risk verses reward is included in the calculation.

And I would be forced to disagree right back at you.
Lets examine the proposition from the two extreme examples to really find the logical perspective.

If the trade success = 100% I think we could agree that this would skew the likelihood of success our way.

If trade failure = 100%, we could also agree that the skew would favour loss.

In both examples reward/risk has no application, as there exists no risk, and no reward.

Therefore, logically, the % of winning trades is independant of the reward/risk calculation. If it is independant, then an 80% skew in % winning trades, will provide a skew within the results once you start adding further components, in this case risk/reward calculations.

This leads to an interesting question;
Can adverse risk/reward reverse, or destroy a positive skew in the %winning trades........yes.
The same way that a positive risk/reward skew can improve a poor %winning trade skew.

That the software developers seem to have brainwashed the users of backtesting, monte carlo, yada, yada, does not alter the fact that two sets of calculations exist, and seeking maximum results from both is the way forward, blending them into one single outcome measurement can be hazardous to your wealth.


As I look at the above definition, it strikes me as an anathema to what the technician is trying to achieve. The journeyman technician does try to pick winners, and he certainly believes he can beat the market...and does LOL.

This seems to be a direct contradiction of EMT, according to the above...and I have consistly maintained in our discussions on RC that this is indeed so.

Incorrect.
Simply illustrated with a short example.

Technical entry based on chart support.
Stoploss placed 5% below support (the value of the stop can be whatever)
Price trades down through the stoploss.
Trader dutifully exits position, incurring 5% loss + brokerage.

Price then rises, unmitigated for 6years.


Since everyone has the same information about a stock, the price of a stock should reflect the knowledge and expectations of all investors. The bottom line is that an investor should not be able to beat the market since there is no way for him/her to know something about a stock that isn’t already reflected in the stock's price.

This example = Efficient Market Theory
Price = Efficiency
Price = the reflection of the knowledge and expectations of all investors
Price = all there is to know about a stock

That summarizes Technical analysis, and the complete nonsense that it represents........also commonly described as "Price Action" & commonly combined with that insanity of analysis...Volume.

Fundamental Analysis = Inefficient Market Theory

Fundamental entry based on valuation
No stoploss utilized
Price trades below entry price
No action taken
Price trades to fair value 8 months later, stock is sold and profit banked.


Incorrect...50/50 (win/loss ratio) is not the prevailing statistic in TA, it is only half of the picture. The profitability od any TA method is certainly not predicated on the win loss ratio alone...never! One must include the risk/reward ratio also. This will give us a resultant mathematical expectancy equation expressed as thus:

Expectancy=((1 + reward/risk ratio) * win/loss ratio)-1

Already covered this above.


As you can see, win/loss ratio, by itself is not relevant. However, I like to add in a further factor into this equation, which is simple to multiply the result by the opportunity, or frequency of trades. This gives a more accurate picture of ultimate profitabilty. I like to call this equation "Ultimate Expextancy"

This would be evident in arbitrage plays (to use an example that would relate to you). If opportunities to arbitrage arised once every 12 months, the ultimate expectancy (presuming all other things equal) would be a hell of a lot less than if opportunities arised once per week

Yes, here I agree.
And this is in point of fact what I have found.
I am able to execute an arbitrage on average once per month, on a spread of between 1%-2%. This can be leveraged to 800% of your account, as it is a risk free trade, thus you will realize an 8%-16% return in 1 day (duration of trade) annualized it looks impressive at 1760%-3520%, but in reality is still a staggeringly successful 48%-192% compounded.

This simply buries other leveraged methodologies returns, and is a direct consequence of the positive skew of the winning % trades, which lies at the heart of the entire discussion.


Suddenly probability skew and statistics aquire additional imperitives...suddenly TA aquires a foundation underneath a thin layer of sand...suddenly, the illusion that TA detractors have laboured under, evaporates. Ultimately the charge that TA is only a 50/50 proposition loses relevance, because it's not....relevant.

Unfortunately, only in a scenario where there is only one trade available per year. So TA remains largely a losers game. Yes there are exceptions, always will be. However the "edge" does not reside in mastery of technical analysis, but in mastery of oneself.


A tight stop with a breakout entry will chop you out of trades all the time, however in a pullback/support entry, a tight stop will be the only logical technical stop, decreasing the trade risk and allowing a larger position size, increasing profits.

So in one example, you accept that a tight stop will stop you out of a potentially winning trade, so immediately I am 50% right.
See how often 50/50 crops up in technicals........uncanny

Now, tight stops in relation to a pullback entry.
My favourite daytrading technique, when I was a misguided daytrader.
I can categorically state, and I have the statistics from my trading records, tight stops will increase your number of stopped out positions.

The reason for maintaining a tight stop, is, that you never know which one will pullback and resume an upward trajectory, and those that will not, and continue further south.

As a daytrader, this is a way to a quick and certain financial death.
The lesser of two evils, is, to run tight stops, even though they increase your losses, they are not IMMEDIATELY FATAL. This is true, for many will be trading leveraged instruments, that are marked to market at close.

jog on
d998

[Knobby22]

Duc

I mainly use fundamental analysis however that does not mean I do not respect or even ignore technical analysis.

Technical analysis in my view works due to the fact that the markets
(a) are not efficient and
(b) humans are not "Vulcans".

Technical analysts see a trend, be it from insider trading, behaviour of crowds or fundamental investor behaviour and act on it. This gives an advantage of being able to trade more often with less knowledge of the stock. What's more it works! I don't personally like trading this way as I prefer more long term gains where I beleve I fully understand the company but in this world of leaks and big institutional buying there is definitely a place for people to make a profit from stock price behaviour.

[Prospector]

Technical analysts see a trend, be it from insider trading, behaviour of crowds or fundamental investor behaviour and act on it. This gives an advantage of being able to trade more often with less knowledge of the stock. What's more it works! I don't personally like trading this way as I prefer more long term gains where I beleve I fully understand the company but in this world of leaks and big institutional buying there is definitely a place for people to make a profit from stock price behaviour.


Yes, have to agree with that because that it what I do and it does work! ;)

[happytrader]

Hi Ducati

We are all suitably impressed here by your riskfree trade. No one actually minds in the least what method you use. We are however, interested in results. I've never asked our very own Son of Baglimmit what his methods are because with results like his its irrelevant. Why not share your riskfree trade with us in our monthly stock tipping comp?

Thanks in advance

Cheers
Happytrader

[wayneL]

Tsk tsk at myself....

You have introduced some rather tenuous argument which will require considerable effort to de-construct.

I just shouldn't have bothered...ne'er the 'twain shall meet.

There is one notable theme here which I will make note of:

Technicians really don't have a problem with fundies doing their thing.

Some fundies have considerable problem with techies doing their thing. Why is that? TA is mathematically undeniable.

Both camps will have considerable satisfaction in the perusal of their respective p/l statements at the end of each year.

Why must fundies attack techies, manufacturing faulty logic to support their contentions? Self justification perhaps...something only beginning techies ever indulge in LOL

Cheers

[ducati916]

Knobby22


I mainly use fundamental analysis however that does not mean I do not respect or even ignore technical analysis

Oh dear, a hybrid.
Actually I'm kidding, sort of.
I firmly believe that you should pick one or the other.


Technical analysis in my view works due to the fact that the markets
(a) are not efficient and
(b) humans are not "Vulcans".

Markets fluctuate between inefficiency and efficiency.
The key is to have the analytical ability to differentiate between the two states.

The profitable ones are however Vulcans.


Technical analysts see a trend, be it from insider trading, behaviour of crowds or fundamental investor behaviour and act on it. This gives an advantage of being able to trade more often with less knowledge of the stock.

An interesting point and one close to my heart.
Focus on the words that you have written.

"trade more often with less knowledge"

By increasing your exposure to RISK....(more trades)....
with less knowledge,

You are really setting yourself up for less than satisfactory results.
I would advocate your alternate methodology,


I prefer more long term gains where I beleve I fully understand the company

jog on
d998

[wayneL]

LOL

[tech/a]

Now, tight stops in relation to a pullback entry.
My favourite daytrading technique, when I was a misguided daytrader


Many a technical analyst or budding analysts have been disillusioned or indeed destroyed financially in the attempt to trade technically day trading.

Duc.

Does this date back to the over night US trade thread a few years ago?
You were killing the market??
This says a lot in terms of "where you're at".

Wayne glad to see you putting in your $50 bucks worth.

Have to smile though as Frustration leads to dictionary swallowing and I have to run off and find my calculus notes. There is no need for either.

Just quickly Wayne has touched on a very valid point and that of points or parts of methods in isolation.

Fundamental analysis is or should be the comparison of company performance from years to year and projected forward to gain an "insight" to true value now and possible market value in a period forward.

Technical analysis works also in numbers,or those who use it correctly do.
Rather than company figures, technicians use methodology figures to attain a positive expectancy and hence a consistant profit.

Fundamentalists have trouble divorcing company performance from technical methodology performance. They dont have to be dependant on each other,although before you start screaming duc positive performance will give a methodology the result it wishes to capture, we just dont need to know why its possible or why its even happening, simply we need to buy and sell until we find them then ride them for as long as our numbers tell us to.
Numbers themselves and their implementation to a methodolgy will determine result.

To prove this I could trade any market with a positive result given the opportunity to select universe and trade with a proven methodology.
Not because I'm the best trader in the world but because the methodology will prove its numbers.
I dont need to know the stock or even its country of origin just its chart.
Volume if liquidity was an issue.

[It's Snake Pliskin]

Markets fluctuate between inefficiency and efficiency.The key is to have the analytical ability to differentiate between the two states.


Duc,

So, playing darts sober would be efficient and playing drunk would be inefficient. No?


An interesting point and one close to my heart. Focus on the words that you have written.

"trade more often with less knowledge"

By increasing your exposure to RISK....(more trades)....
with less knowledge,

You are really setting yourself up for less than satisfactory results.
I would advocate your alternate methodology,


I fully agree here, and finally this has been touched on. Overtrading will kill your account.

What constitutes overtrading?
Your performance will tell that.

:confused: Why does this Technical vs Fundamental thing have to be an issue? It is totally irrelevant unless you know one`s goals, objectives, personality and capacity to trade or invest.

It is all about exposure to risk and how one manages that. The stock itself represents a small amount of risk, but there are other factors that must be evaluated / analysed etc, including the number 1 risk: yourself! Can technical or fundamental anlysis determine success if you are a wreck or just a plain idiot? No!

Get yourself sorted and you are there. Maybe that is why so few are good / professional at it and make money and the majority are not and don`t make money.

[tech/a]

An interesting point and one close to my heart. Focus on the words that you have written.

"trade more often with less knowledge"

By increasing your exposure to RISK....(more trades)....
with less knowledge,

You are really setting yourself up for less than satisfactory results.
I would advocate your alternate methodology

Less knowledge of what? The company you're trading? Doesnt matter if you know how you're trading method performs within the parameters you set what and when you trade will have the same or similar result regardless of those in the universe you choose to trade.

You're trading a methodology not a stock. Regardless of how you derive the method--Technical,Fundamental,Darts,tips,Investment mags.

You need to KNOW how it (The methodology) performs.
You can then trade anything-----how you trade it has no bearing on it.
To demonstrate the point If I had enough capital to trade EVERY trade using the Techtrader method the result is incredible.

If I own a business selling widgets and double widgets I dont care if the business producing the widgets is profitable only that MY business is profitable.

People need to get their head around the fact that a trading business is quite distinct from the commodity it trades.
Those who trade based upon isolated components of a method be it fundamental or technical will have results that will be spasmodic, there will not be a steady rise toward profit just as a business which didnt keep an eye on all aspects of its profit and loss statement would see that type of management of business reflected in a less than satisfactory balance sheet.

Simply its like taking care of sales and forgetting run away overheads.

Snake I think what I'm saying can be best understood if you realise that a methodology can and should be designed for whatever way you trade.
If using a newsletter a method could be designed.You wouldnt or shouldnt trade any method without knowing what the result is going to be (expectancy).
The argument of technical V fundamental is missing the point.

You need a methodology and a "blueprint" of performance to be able to implement a successful trading business even part time.
Without one you'll have at best average inconsistant results. Just like any un organised business.

[It's Snake Pliskin]

Bullmarket,

I agree with the following point.


In addition to your post, a professional trader will also look at things like profit ratio....ie....how many $ profit he/she makes per winning trade divided by how many $ loss he/she makes per losing trade. This and all sorts of other measurements to measure trading performance/profitability are discussed in many trading books.

Only to add your expectancy is the ultimate guide.

Snake

[bullmarket]

No problem snake

Looks like we, or at least I ;), might be drifting onto a sort of parallel concept - bench marking your trading performance.

Imo a trading plan should also include what benchmark(s) will be used to measure how well or poorly your trading has performed for the week/month/quarter/year or whatever time frame suits.

For example, if a trader has made a loss or made say only a few % profit for the year then he/she would have been better off putting the funds in a term deposit for example. And so in this scenario the trader obviously needs to review his/her plan and strategies or even consider whether they should be trading at all...

I used to use the ASX200 Accumulation Index as my benchmark, but it isn't appropriate now since I am solely invested in LPT's and infrastructure/energy trusts. Having income as my #1 priority atm I don't really use a traditional benchmark now. My biggest risk atm is that any of my holdings (for me they are all relatively low risk though) might lower their distributions in the future for whatever reason so I have to keep a weather eye out for any potential storm clouds. Luckily I don't see any atm.

So given that I am relatively confident that in say 10 years time my holdings should be worth more than they are today my current 'benchmark' is comparing the income generated by my portfolio against our yearly requirements. Atm the income has a buffer over the min requirements so that means mrs bullmarket is happy....and if she is happy then I am happy :)

Benchmarks can be virtually anything really - could be market indices, fixed dollar targets, percentage targets etc etc...whatever suits the trader.

In the mean time I look to see if there are opportunities to tweak my holdings to firstly spread the overall portfolio risk wider and to look for opps to increase the average yield of my portfolio without increasing the overall risk.

cheers

bullmarket

[It's Snake Pliskin]

....before you start screaming duc positive performance will give a methodology the result it wishes to capture, we just dont need to know why its possible or why its even happening, simply we need to buy and sell until we find them then ride them for as long as our numbers tell us to.
Numbers themselves and their implementation to a methodolgy will determine result.

To prove this I could trade any market with a positive result given the opportunity to select universe and trade with a proven methodology.
Not because I'm the best trader in the world but because the methodology will prove its numbers.
I dont need to know the stock or even its country of origin just its chart.
Volume if liquidity was an issue.


Snake I think what I'm saying can be best understood if you realise that a methodology can and should be designed for whatever way you trade.
If using a newsletter a method could be designed.You wouldnt or shouldnt trade any method without knowing what the result is going to be (expectancy).
The argument of technical V fundamental is missing the point.

You need a methodology and a "blueprint" of performance to be able to implement a successful trading business even part time.
Without one you'll have at best average inconsistant results. Just like any un organised business.

I agree.
Less knowledge of a company? Yes that is ok. Why? One does not want to marry an opinion of something he or she has no control over. You do have control over your system though and the operation and evaluation of it.

And you should have control over your emotions, vices, inclinations, weaknesses etc. It`s when people look for more than the system is giving them that they can overtrade and bomb out by increasing their exposure to RISK....(more trades).... More uneccessary trades! Chasing the market instead of letting the market come to them or their systems. This comes full circle into having less knowledge of yourself. :)