Analysis Techniques Discussion Thread - How it's used, why it works or why it doesn't

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

tech/a said:

Can
Isn't that directional--once decided---for the session.
Or
Your saying they let the market dictate direction and if right hit it

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Well actually, I'm not saying that these guys are not directional, just that directional guys are actually not the norm, bill spreaders are the norm. Directional equity index futures traders only, are a rare breed. Directional equity traders are fairly common though, from what I've seen and heard.

My point was that the few directional prop guys that exist, would be using a method similar to what i described...although their method of developing context could differ greatly between individuals.

Just my guess.

CanOz

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

CanOz said:

Well actually, I'm not saying that these guys are not directional, just that directional guys are actually not the norm, bill spreaders are the norm. Directional equity index futures traders only, are a rare breed. Directional equity traders are fairly common though, from what I've seen and heard.

My point was that the few directional prop guys that exist, would be using a method similar to what i described...although their method of developing context could differ greatly between individuals.

Just my guess.

CanOz

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Noticed a long discussion on another forum while I searched for what a bill spread was!

You've traded spreads Can.
Can you go into them a bit more as far as futures goes and the whys and where fores?
Also the guys who trade stock spreads.

Never looked at them.

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

tech/a said:

Noticed a long discussion on another forum while I searched for what a bill spread was!

You've traded spreads Can.
Can you go into them a bit more as far as futures goes and the whys and where fores?
Also the guys who trade stock spreads.

Never looked at them.

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Well i traded calendar spreads in agricultural commodities, some energy...it was a good learning experience but nothing note worthy. These prop guys are trading hundreds of contracts at a time in two or more instruments, such as bunds versus bonds, T-Bills versus T-Bonds, Heating oil versus crude oil, trying to scalp out a few ticks. They wait for a period of time when a pair get out of normal correlation, such as an open, or a news event and then take advantage of the arbitrage opportunity.

Its tedious, boring trading and many a directional wanna be has been totally turned off by it as they are disappointed that its something totally different than directional bets. Nonetheless, for the patient its extremely rewarding.

I know one guy that's set for life, he's in his early thirties. His trading account alone is 3m. Sometimes it takes him half a day to leg into a position. He once flew a long haul flight and when he boarded he was 70k EUR in the red on a Euribor spread trade, what a way to get ulcers....

CanOz

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

CanOz said:

I don't think there are too many directional index traders at Prop shops, I could be wrong but I think those like TH are few and far between. My guess, based on who and what I know is that the successful ones do not use the charts for patterns, trend lines etc...what I think they do is they develop the context around the time and the market they're trading. Then they develop a few scenarios on how the day could play out. When the market opens they're watching orders flow, bids and asks. They wait to see who is winning and then they find an opportunity to jump in with a small core position and take some points. If the market stalls they may get out and try again later. If the market starts to trend then my bet is they get real aggressive and work to get up to full size before scaling out into the end of a move....or at least a good part, scaling out back to their core position....

Any prop guys care to let me know if I'm close to the mark here...?

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Sounds like what FT71 does (or at least purports to do).

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Here is an example of how a trader can trade around a core position. This is from another forum and it is only an example of the theory, its a hindsight explanation. The context is built around a VWAP but that's not the point, any thing can be used, order flow levels in the DOM, support and resistance, Prior open, close, weekly levels etc.. The point is, trading around a core position, scaling in and out and building up to maximum package...

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

tech/a said:

Thanks V/C
Couple of questions from a techie

(1) For a stock to qualify what sort of difference in price are you looking for.10/30/50+ %??
.

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That depends on how confident you are in the business, a company operating in a monopoly with guaranteed earnings you would be happy with a smaller discount, a company with fluctuating earnings would require a larger discount.

(2) Time is of no concern---I believe---- this being the case

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I don't invest in companies that I think will run out of steam in 12months, So as long as the company is operating within my expectations generating earnings and building value I want to hold it as long as possible.

(3) Do you have any concern or plan if after say 6 mth price is below your buy price

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Only if the reason for this is something negative happening at the company level, market fluctuations don't bother me, eg as long as the farm is producing the returns I want, I am not worried about price of farms in the short term.

I generally take long term positions.

(4) How often do you re value each stock in your portfolio

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Every 12 months I do a full revaluation and update my notes, but I track company performance quarterly

I presume you trade without stops

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correct

(5) Do you ever sell a stock other than to take profit

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I would sell a stock if there were changes negative changes at the company level or if I realised I was wrong about my long term outlook for the comapny

(6) Do you have a universe you trade from?

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Yes, companies I understand.

(7) How many stocks form your portfolio?

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Seven owned stocks, and options positions on 3 others

In your experience why do valuations differ from person to person.
Everyone has the same information?

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Lots of reasons, some build in more conservative figures than others, some exclude whole divisions of businesses from their valuation.

If I had a black box, that produced 100% guaranteed $100K each year, if I auctioned it, people would value it at different amounts, you might want a 10% return and offer me $1M another guy might want only 5% and offer me $2M

Same if there was a pizza shop that owned it's premises and earned between $100K and $150K each year, you and I could have different valuations, you might value the building different to me, I might put a big discount on earnings as a safety margin, and Pav might think pizza is going out of fashion and property is a bad investment.

Do you ever cull your portfolio and under what conditions.

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yes I would, but not based on share price performance, it would be based on me being wrong about the business or negative changes at the company level

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Thanks V/C
Appreciated.

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Hi Alter Ego,

I've been looking at the backtest statistics of your trading system. It's impressive but I'm puzzled about the 82.9% trade drawdown (Ouch!). This must be one stock that gapped down massively during the test period, maybe July/Aug 2011 or Aug 2012, looking at the equity chart. It would surely not have occurred in real-life trading. Or is it bad data, maybe an un-adjusted stock split? I've looked at the ASX 200 stocks in my Yahoo data for the stock responsible but without success. Do you know what happened? I'm just curious, simply an academic interest.

Another question, if I may, is about using limit orders. How do you do that with exits? You enter the order before the market opens and you go to work. How do you know what price to enter? And what if your system says sell at $10.00 and the stock opens at $10.50 and goes up all day? Conversely, you need to exit but the best available is $9.99 and it's all downhill from there?

If this is a trade secret, I understand, it's just my curiosity.

Cheers,

Haba

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Habakkuk said:

Hi Alter Ego,

I've been looking at the backtest statistics of your trading system. It's impressive but I'm puzzled about the 82.9% trade drawdown (Ouch!). This must be one stock that gapped down massively during the test period, maybe July/Aug 2011 or Aug 2012, looking at the equity chart. It would surely not have occurred in real-life trading. Or is it bad data, maybe an un-adjusted stock split? I've looked at the ASX 200 stocks in my Yahoo data for the stock responsible but without success. Do you know what happened? I'm just curious, simply an academic interest.

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Hi Haba,

Looks like it was PBT, that gapped down a huge amount after an announcement, 28/03/2014 - 1/04/2014. So yeah, it can happen in real trading, although would be a fairly rare occurrence. But you don’t put your entire equity on a single trade. So even though the drawdown of the individual trade is large, it doesn’t have too large an impact on the overall system equity. So if for example, you put 10% of your equity on each trade, then an 80% drop in one of them only has an 8% impact on the total equity.

Habakkuk said:

Another question, if I may, is about using limit orders. How do you do that with exits? You enter the order before the market opens and you go to work. How do you know what price to enter? And what if your system says sell at $10.00 and the stock opens at $10.50 and goes up all day? Conversely, you need to exit but the best available is $9.99 and it's all downhill from there?

If this is a trade secret, I understand, it's just my curiosity.

Cheers,

Haba

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Well I place a limit sell order above the current market price. My system tells me what price to set it at.

If as in your example, I have a limit sell order at $10, and the stock opens at $10.50, then I will be filled at $10.50 and gain an extra 50c. If it only gets to $9.99 and heads down, well, bad luck, I missed out on selling that day. Next day my limit sell may be at, say, $9.80, and perhaps I do get a fill on this day. So the target sell price is adjusted each day depending on what the market price is doing. Basicly it's like a trailing stop, but in reverse. Eventually it will hit my price and exit, although if many days have past it may be at a loss. But as you can see on my report, most trades would be exited within 5 days and most trades exit at a profit.

regards,
AlterEgo

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

AlterEgo said:

If as in your example, I have a limit sell order at $10, and the stock opens at $10.50, then I will be filled at $10.50 and gain an extra 50c.

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Thanks for your explanation. Actually, I have learnt a lot from those 3 posts. And I simply didn't know about limit sell orders. I assumed you would be filled at $10.00.

As I'm only dealing in "theory", not actually trading, these details come as a surprise.

The most intriguing feature of your system is the adjustable parameter. As a long-time Amibroker user, that's something I want to investigate. Although it's still only an academic exercise for me.

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

tech/a said:

I suggest this thread is used for examples of all types of Fundamental and Technical Analysis with supporting evidence of how it works and why and when it works.

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After spending 9+ yrs programming and back testing. Reading through large amounts of quality books written by established / successful traders. I discovered a certain condition that arises during the Auction Process that no one really explained to me before. I found it in a definitive form of Compression / Squeeze, yet I do acknowledge that W.D.Gann and Jesse Livermore also describe it in various ways.

First and foremost - The path of least resistance. Trend direction. Simply by trading in the direction of a defined trend you increase your odds to 60%+. Shares , commodities etc don't go from A to B overnight, usually they take time months even years to get there, hence the forming of an established trend.

Second - Recognizing Compression / Squeeze Zone in the bid / ask price. What I have found is when a instrument is trending higher for example, it is bought and sold stops are put above and below the market. The supply and demand struggle then the price moves into the stop zone. The sellers get their stops hit and they help propel the price higher as they cover. Some of the buyers recognize the stop run and take profit, others hold on tight. Eventually the buyers are exhausted the stops are filled at new highs and we wait for a pull back.

Gann points out that if a stock etc is trending higher it's Time & Price going up will be greater then coming down. Stops get hit, the price collapses and starts to move down with a couple of big days helped by some profit taking and new stops that have been trailed up under the lows. New short position stops accumulate above the market. The price continues to move lower then the short term long traders come to market and begin to buy. They slow down the decent but the price continues down as more shorts come to market and late profit takers / long stops get triggered etc.

Then after a few more days the medium term guys notice the price stabilizing at support so they begin to buy. Then the longer term guys see the shorter & medium term guys buying, because the time is going bye but the price is not falling. So after a short period we get compression / squeeze in the price where all 3 time frame groups are buying.

Now this does not mean the price will rise and it may fall. However I have found that if I buy in this compression zone I am with friends my odds for success can rise to 80%. The risk is the stop zone that has now formed under the market. My preferred entry is a signal bar in the compression / squeeze zone. So if I see the compression zone and I see a signal bar like a Narrow Range, MACD Divergence, Pin Bar, etc I have added to my odds because there are many other traders who also see the same signal bar and some one caused it to happen. I am entering a trade with confidence that I am with friends entering in the direction of the trend at the appropriate time.

Third - Managing the trade. Then comes the trade management. Even though the odds are on my side I also recognise the shorts have their reasons to sell. I usually aim for a double top because it has a much higher percent of success. The losing trades usually come from a trend change, so the trend is your friend till the end.

A good example of this is TLS over the last couple of years. As long as you were a buyer in the compression zone with a signal and took profit at the double top or trailed the stop you had a winning trade.
My thoughts only.
Pnut.

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

AlterEgo, I am just curious wrt your mean revert system. Is is a Hometrader inspired system?

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

The only analysis techniques that have worked for me (Simulations only as i am a poor bastard) and made profits were from utilizing TA in the short and medium range... catching the near beginning of an intermediate trend generally. Candlesticks and a few indicators together. Moving averages and RSI and/or MACD.

My first foray into all this stuff were stocks mostly but figured I'd need a fair amount of capital to get anywhere... at present I'm looking into forex as it seems great gains can potentially be made from a small startup purse which I am completely prepared to lose at it's not that much any way.

I need to watch the financial news alot more really... especially with the Greek situation. Should be interesting.

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Spongle007 said:

... catching the near beginning of an intermediate trend generally.

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Interested to know how the near beginning of an intermediate trend is identified (before it is an intermediate trend )?

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Ok I'll rephrase that... I caught the beginning of one on my first simulation. In time I figured 'oh cool I caught a good time to buy' so yeah I def didn't know it was one until after the fact haha!

Lot's for me to learn... well fun though!