PositiveDev's trading journey

[Perishabull]

Steve Jobs talks about life and death

[drbubb]

What do you think about this LT chart?

 

Possible forecast for FTSE, showing cyclical low point about 2020 (post #65:BigBearMkt?)

 

[Perishabull]

I now have my indicator working on Multicharts using pure futures tick data, previously on ThinkorSwim I was forced to use some ETF data, not ideal since ETFs suffer from tracking error, and don't always more in the same manner as futures.

 

DBDT (Double Bottom Double Top) indicator working on E-Mini NASDAQ futures yesterday;

 

 

Equivalent points E-Mini NASDAQ;

 

 

I'm using my indicator on 1 min time timeframe here whereas previously I'd only used 5 minute since it seemed to create a lot of noise on ThinkorSwim. I'll need to study this approach, and go back and look at how the indicator performs using only futures data, before I start trading again. I also need to figure out the execution; whether I'll use Multicharts or perhaps something else for that.

[romans holiday]

I just reinvested 25% of my silver profits into Gold bullion, a no-brainer for me really. I have a lot of dollars in a trading account so it's a nice hedge for that, I am not convinced of the view that there will be hyperinflation at some point, nor that gold will ever be part of a monetary unit. However, I realise I could easily be wrong and want to hedge against that. If there is one thing you can count on, it's for politicians to repeatedly make bad decisions. I am quite sure that if gold were to be considered as part of a monetary unit, it will be the very last option available on the table, and by that time things could be a real mess. I've done very well indeed with silver, but it's far less well rounded as a hedge than gold is.

 

Yes, this is a pivotal point in a volatile and uncertain market, and something that many of the goldbugs/ silverbugs missed.... with their desire to "leverage" gold [with silver or gold stocks] and maximize profits [greed]. What is leveraged with silver is not profit but volatility, and then this can be effectively used as a hedge against a long term core of gold. Silver should be traded against dollars in order to accumulate dollars not silver. Of course, it doesn't hurt if you do have a bit of core silver, but it should just be treated as bullion in general.

 

I doubt there is much rush needed to re-enter the silver market here. Silver looks due first for a good bottoming process before going onto new heights in the next couple of years or so. I'll consider buying heavily at around 27/ 28.... a bold trade using a double leveraged ETF and a fair portion of the pot.

[Perishabull]

I'm very impressed with the Multicharts platform so far, it seems very stable, each time I chart my indicator it's the same every time. That certainly wasn't the case with ThinkorSwim. In theory it's possible to program Multicharts so that it recognises a trade set up and initiates a trade based on your pre-set parameters, so your strategy can be fully automated. Realistically, this isn't an option for me since I don't have a programming background and it would probably take an inordinate amount of time to learn how to program it, and then test it to make sure it was working as directed.

 

I picked out some signals today on ES (E-Mini S&P) whilst getting my new workstation set-up.

 

DBDT indicator chart

 

For anyone new to my journal, previously I've taken signals on my indicator working on various indices as trade signals for the E-Mini NASDAQ

 

Equivalent points on NQ (E-Mini NASDAQ) today;

Green = buy signal time/price

Red = sell signal time/price

 

Some directionally good signals there.

[Perishabull]

I just took part in a webinar organised by my broker, Mirus Futures - "How to Design Your Own Unique Theory of Trading", by Jeff Quinto. During the webinar he held a competition for a free hour's mentoring with the fastest to answer three questions winning the prize.

 

I won.

 

 

From the CME website;

 

"Jeff Quinto is a 37-year veteran futures trader and a world-class trading coach. He has trained hundreds of electronic traders, including traders from Hong Kong, France, Slovenia, England, Australia, the US and Canada.

 

Jeff’s entire career has been spent in the futures business, first as a commodity specialist with Shearson and, later, as a trader on the Kansas City Board of Trade floor where he traded wheat and stock index futures. His company, Jeffrey S. Quinto and Company was a clearing member of the Kansas City Board of Trade and a member of the Chicago Board of Trade. In the nineties, Jeff served as President of Rand Financial Services, a large Chicago-based futures clearing firm.

 

From 2000 to 2005, Jeff was responsible for training traders at an all-electronic proprietary trading firm located in Chicago and Vienna, Austria in which he was a partner.

 

Today, Jeff coaches electronic futures traders from around the world in his Electronic Trader Mentoring Program and in his Upgrading Your Trading Course. "

 

 

Some notes from the webinar;

 

Jeff Quinto's Theory of Trading

 

"1)

I believe the market has inertia

Markets in motion tend to stay in motion. I believe that the most money is made trading the direction of the energy, not trading against the energy. Most money is made following the energy.

 

2)

I believe that the market is continually retracing.

So, if the most money is made in trading in the direction of the energy and the market is continually retracing, it hold that the highest probability trades are done in the direction of the energy on retracements.

 

3)

I always trade smaller than I can.

The road to long term success in trading is based on trading consistently. Trading small takes the heat off.

 

4)

Never add to a loser

 

5)

I am slow to get into trades and fast to get out of trades that don't reward me."

 

 

He was talking about a time earlier in his career when he was working at the Kansas City Board of Trade; it was 1982 when they introduced Value Line Futures, making Kansas City Board of Trade the first exchange to offer a stock index futures contract. Average trade size was 10 to 20 contracts and he took an order from Paul Tudor Jones for 1000 contracts at 50 points higher than the market. At the time the order was equal to 50% of the daily volume in the market and he had to try and fill it. The market rallied sharply, passing the order price before he could get it all on. That must have been pretty early on in Paul Tudor Jones' career.

 

 

He's looking to get something set up for next week. It'll be real interesting getting some guidance from a futures trading veteran.

 

 

 

There was a discussion about him over at the Trade2Win website, one of the comments was;

 

"I am head trader for a hedge fund and have been using Jeff Quinto's coaching for over 3 years. He saved my career once when I got into a hole and I intend to continue using his service. Its certainly not cheap, but you get what you pay for in this business and 99% of the people who offer such services aren't worth paying a single cent for. Take him seriously is my advice."

[chazza]

Id be interested to hear how that goes, well done!

[Perishabull]

[jsr]

Hi PosDev.

 

I will be interested to know how you first fell into trend following, what systems you are using, and which books have influenced your style?

 

Warm regards

[Perishabull]

Hi PosDev.

 

I will be interested to know how you first fell into trend following, what systems you are using, and which books have influenced your style?

 

Warm regards

 

Hi there, I'm interested to know why you think I'm into trend following?

 

In terms of systems, I've just started using Multicharts.

 

In terms of style of approach, the main one has been The Alchemy of Finance by George Soros. Chapter 3 page 74; he starts explaining how he created a model to try and understand currency movements. He took variables eg

 

nominal exchange rate = e

nominal interest rate = i

Trade balance = T

 

and then used those (and others) to build a model.

 

Something interesting he said was;

 

"Two general observations can be made. One is that relationships tend to be circular; that is, variables can serve as both cause and effect in relation to other variables".

 

What I took that to mean was, in any system where you have interacting variables, how much can you learn by say, only selecting two of them, and looking at how they relate to each other?

Or, how much can you learn by selecting one variable and then taking a derivative of that and using it as an indicator?

 

That seems to me to be an approach only using one 1 dimension.

 

An analogy is, if you take a patient who is showing symptoms typical of a brain tumor, and put them through a CAT scan where you can see only 1 2D "slice" of the brain at a time, and you choose to look at only one of perhaps 300 slices, what sort of conclusion could you reach by only looking at 1 slice? Probably not a very sound one.

 

So to enable me to look at relationships of groups of variables (stocks, currencies, bonds and commodities - since they all influence each other), I created my own model, and then charted it. It's my DBDT indicator. Essentially I use many variables in it but include the stock, ETF or future that I want to analyse, before I chart it. When I first did this, I saw that double tops on it made good sell points, and double bottoms were good for buy signals. So that has influenced my style of trading turning points.

 

This is it working on GDX. GDX is in blue, my indicator in black;

 

I've shown points 1 to 6, each of which are signals, either a double bottom for a buy signal or a double top for a sell signal;

 

Points 1 - 6

 

1) Buy 28th April 2010

2) Buy 30th July 2010

3) Sell 3rd January 2011

4) Buy 26th January 2011

5) Buy 12th July 2011

6) Sell 19th July 2011

 

Points 1 - 6 on a more standard type of chart;

 

 

 

 

Also, the first chart zoomed out to show a longer timeframe;

 

GDX is in blue, my indicator in black - May 2008 to present;

 

What's interesting on this one is a significant buy signal on 5th October this year. It's significant because where the double bottom has formed over a much larger timeframe, it has previously meant a more accurate signal. Since GDX moves largely similar to Gold, and therefore signals on my DBDT indicator working on GDX can be translated into being a signal for gold, I bought gold that day.

 

It will be interesting to see in the future if that signal marks a significant low in gold and GDX.

 

 

Going back to looking at relationships between groups of variables, I've been thinking about a new way to chart these, and will try to do that at some point, to see if anything interesting results from that.

 

 

Regards books Victor Niederhoffer's, Education of a Speculator and Practical Speculation are great. I took something away from those also.

 

 

-------------------------------------------------

 

Regards my Skype meeting with Jeff Quinto, our availability doesn't match up for next week, so has been set for 26th October.

[Perishabull]

This is a currency divergence chart showing E-Mini NASDAQ, AUD/JPY, AUD/USD, EUR/USD taken before the close on October 17th;

 

It betrayed further downside, and that's exactly what happened.

 

E-Mini NASDAQ with October 17th marked;

 

 

 

 

 

I've been looking back to my trading results from March 1st until August 8th when I had to stop as ThinkorSwim ceased operations in the UK.

 

 

Some charts follow showing different aspects of my trading, and the system I use;

 

 

This shows the the potential amount of points available to gain/lose for each signal on my system from 1st March to August 8th. An even spread with an upswing towards the end, potentially as a result of switching my indicator to futures based data.

 

 

 

This next one shows, from those signals generated, the actual trades I took;

 

I missed some of the good ones during times when I was unavailable to trade, and sometimes as a result of taking breaks from the screen.

 

 

 

This next one shows all of the actual signals generated, but in the context of the time in the trading day when they were generated, and the potential gain available per signal;

 

 

 

Clearly the best times to trade are the first two hours of the trading session and the meat of the afternoon session, prior to the close. Fewer signals during the quieter lunchtime period.

 

Although signals generated in the first two hours of trade generally led to potentially higher gains than the later session, signals were more likely to be stopped out, so trades in the latter half of the trading day had a higher probability of success and a lower probability of a large gain.

 

Next is the actual trades taken by time of day initiated and points gained;

 

There is a cluster of trades stopped out in the first hour. Trades initiated after the first hour were, relatively speaking, more likely to succeed.

 

 

 

This next one shows length of time in trades, put together as a result of a suggestion from a Jeff Quinto video. The longest was 4 hours 48 minutes;

 

 

 

Next is time in trades by points gained;

 

Clearly if a trade isn't working after a lengthy period, it's better to close it, rather than leave it running.

 

 

I'm still ongoing with an analysis of my indicator created within Multicharts. In theory it should be improved, since the data is more reliable and I have it exactly as it should be, using both futures and currency data. I had thought that an ideal scenario would be one where I have some code written (or purchased) that will auto detect the type of chart patterns I like to trade. That said, it's unlikely to be as good as the brain at detection. There's some clear evidence of this in a project Miss PositiveDeviant is taking part in called PlanetHunters http://www.planethunters.org/. Essentially what NASA have done is provide a lot of potential planet transit data online, for "community scientists" to search through in order to look for patterns that are typical of a planet transit in front of a star. The reason they did this is because they recognise that the human mind is better at pattern detection than computers are. Miss Positive Deviant actually found a new planet and this was confirmed by the project team, she was then interviewed by some of the people involved in the project at MIT, Yale and Oxford and her name is actually listed in the scientific journal and some other articles online. Unsurprisingly, she doesn't get to name it.

 

 

 

The next chart is, on the left, my performance, and on the right, the performance of the system, that is the results had all of the signals been traded;

 

This really shows exactly what happens if you take a system and only trade some of the signals. The performance is dramatically different. Although I made a profit over the period, it's nothing compared to the potential that is there. I guess X% of new futures traders are down at the six month point, not up as I am. But I take little comfort in that since I want to be much closer to the right, than the left. It is somewhat curious that some of the trades I missed were big ones, and since the system takes most of the profits from a few big trades, that really hurts the profitability.

 

An analogy of futures trading is a Formula 1 racing team;

 

The car has to be well designed

The car has to be well set up for the track

The car has to be reliable

The car has to be consistent

The mechanics need to be experts in their field

The team needs strong leadership for motivation

The driver needs to be fit

The driver needs to be motivated

The driver needs to know the track well

The driver needs to be very competitive

 

If any one of these aspects falters then it strongly impacts the result.

[Perishabull]

Back on 5th October I posted a buy signal I had on GDX, I ended up buying gold that day, and more some days later. Well yesterday I re-bought the positions I had to sell in GDX and GDXJ before ThinkorSwim closed my account with them.

 

The buy signal I had on GDX on 5th October was also matched by a buy signal on GDXJ, although I didn't check that at the time.

 

DBDT indicator working on GDXJ;

 

So on the 5th October a double bottom formed on my indicator working on GDXJ, a huge one with no lower points on the chart. It will be interesting to see in the future if this turns out to be a significant low in the Gold complex.

 

I also bought some UXG (United States Gold), there was also a buy signal on that back on 5th October;

 

DBDT indicator working on UXG;

 

Here's the same two points on a standard chart of UXG;

 

 

I plan to keep these positions for a long time.

[Perishabull]

I've been spending some time on Multicharts trying to find or create an indicator that I can layer on top of my DBDT indicator that will automatically highlight double tops and double bottoms. The one on the following chart of my indicator working on E-Mini NASDAQ futures is one I drew in manually. The ideal scenario would be to automate that part of the process;

 

 

It's not as simple as it sounds however, I found an indicator that can highlight these points but it can only do so on a chart of data for an underlying (eg S&P500 or NASDAQ futures) not an indicator plot such as mine above. If I were able to do this it would be the first step to be able to systematically analyse trade set-ups using my indicator, rather than doing it manually. If I could do that I'm sure it could provide some interesting insights into where I should be directing my energy however it's beyond my ability to do at the moment since I'm not conversant with Easy Language (the programming language you can use to create indicators/strategies on Multicharts).

 

 

My indicator in black with the E-Mini NASDAQ in grey

[Perishabull]

 

Skype meeting with Jeff Quinto:

 

Well, Jeff's a really affable character, it was an interesting hour talking trading with him. Even though my futures trading has only produced small profits he thought I was doing well since I'm new to trading futures and the markets have been, and are in, a difficult phase to trade well.

 

He explained that trading is really business of ensuring the balance is right between winning and losing trades and making sure that the gains clearly outweigh the losses. The focus is not, and should not, be on increasing the accuracy of winners (high win rate) but ensuring that the strategy maximises the profits from the winning trades and minimises losses from losing trades. We talked about how my signals are typically 50% winners, 50% losers and that I need to create more of an advantage by getting rid of trades that aren't working more quickly, by reducing my initial stop size. He advised that a trade should work "immediately and profoundly" otherwise it's a waste of time to wait around while the market does nothing, and in that time, another opportunity could be missed. We talked about some of the statistics of my performance. One I mentioned was that I kept records of the amount of points the market went against winning trades before they went the my way, and that the average stop required for the winning trades was 1.29 Nasdaq points. I had reduced my stop from 4 points to 3.25 and will now look at reducing this down to 2.5 or 2.

 

In discussing my trailing stop he advised that it makes sense to take this approach since you shouldn't restrict the amount the market is willing to pay you. You want to be available for those times the market is willing to reward you and by using a runner you can do that. However what he did say was that I should add more value to my trading by moving my trailing stop manually, rather than let a platform do it, and it's size should be adjusted to account for current market conditions / volatility. Trailing stops need to be dynamic depending on the type of market conditions present, it's not a one size fits all scenario. I'll need to do some research on that aspect of my strategy.

 

My strategy is in some ways at odds to his Theory of Trading (being that positions should only be taken in the direction of the inertia), since I am counter trend trading, and really do not consider the current bias of the market in my trading decisions, I just take all the buy or sell signals, so I could look at - only taking set-ups that are in line with some form of defined trend (?). His theory is to enter in the direction of the trend on retracements. What I could do is incorporate that in my strategy by adding a position to a winning position, on retracements. That would dovetail with his advice that you should press your advantage.

 

We also spoke of indicators and he agreed with me that too many people focus on that aspect of trading rather than the more important aspects such as setting and sticking to a strict rules based method of trading.

 

Overall it was a useful hour, I liked his approach which is very much encouragement to look at certain areas and think about what fits into your own trading style, whilst keeping in mind the basic principles of profitable trading. Once I've slept on it I may have more to add.

 

In finishing he advised he was looking forward to getting an email from me in the future, telling him about my successful trading.

 

I'm looking forward to that too.

[Perishabull]

It's late now but tomorrow I'll write about Ray Dalio, Bubb posted some material about him on the main board. I'd kept a link about Ray and his approach from last week, I'll need to look that up again. Ray strikes me as a very interesting guy with a very interesting approach.

Meantime, here's a link to a New Yorker article about him.

[Perishabull]

It's late now but tomorrow at the weekend I'll write about Ray Dalio,

 

The Truth

http://www.youtube.com/watch?v=DL7tz03v8wc

[drbubb]

It's late now but tomorrow I'll write about Ray Dalio, Bubb posted some material about him on the main board. I'd kept a link about Ray and his approach from last week, I'll need to look that up again. Ray strikes me as a very interesting guy with a very interesting approach.

Meantime, here's a link to a New Yorker article about him.

Be sure and post an excerpt on the Trading thread.

 

Now that Pixel has packed his bags (for a while), we might turn that thread into something more than diatribes against Traders, and those of us who struggle to make a living competing with the big boys

[Perishabull]

Ray Dalio -

New Yorker article about him here

 

 

This is based on Ray Dalio's principles. These are found on his Bridgewater Associates website.

 

What I've written about here are some elements of his principles document and since it is quite lengthy I've only chosen what I find to be the most meaningful parts of that, so it's not likely to be an accurate reflection of it, only my interpretation of the important points.

 

 

Who is Ray Dalio and what are his principles?

 

From Wikipedia;

 

"Ray Dalio (born in 1949 in Jackson Heights, Queens, New York, United States^[1]) is an American businessman and founder of Bridgewater Associates.

The son of a jazz musician, Dalio began investing at age 12 when he bought shares of Northeast Airlines for $300 and tripled his money when the airlines went through a merger.^[2]

 

Dalio received a BA from Long Island University and an MBA from Harvard Business School.

After completing his education, Dalio worked on the floor of the New York Stock Exchange and began investing in commodity futures.^[2] He was a Director of Commodities at Dominick & Dominick LLC ^[3] In 1974, he spent a year trading futures as a Shearson Hayden Stone broker. ^[2] In 1975, he founded the investment management firm, Bridgewater Associates, and his investment advisory service began to attract pension funds worth millions of dollars. ^[2]

 

Dalio is a practitioner of the Transcendental Meditation technique and resides with his wife in Greenwich, CT.^[4][5][2]According to The New Yorker he is the 55th richest businessman in the world, with a net worth of US$6 billion as of 2011.^[6] "

 

 

 

 

His most fundamental principle;

"Truth —more precisely, an accurate understanding of reality— is the essential foundation for producing good outcomes."

 

and others;

 

"I believe that evolution, which is the natural movement toward better adaptation, is the greatest single force in the universe, and that it is good."

 

"I believe that the desire to evolve, i.e., to get better, is probably humanity's most pervasive driving force."

 

 

 

For me, this one is the most interesting;

 

 

 

"I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one's strengths and weaknesses are."

 

More here;

"Most of us are born with attributes that both help us and hurt us, depending on their applications, and the more extreme the attribute, the more extreme the potential good and bad outcomes these attributes are likely to produce. For example, highly creative, goal-­oriented people who are good at imagining the big picture often can easily get tripped up on the details of daily life, while highly pragmatic, task-­oriented people who are great with the details might not be creative. That is because the ways their minds work make it difficult for them to see both ways of thinking. In nature everything was made for a purpose, and so too were these different ways of thinking. They just have different purposes. It is extremely important to one's happiness and success to know oneself—most importantly to understand one's own values and abilities—and then to find the right fits. We all have things that we value that we want and we all have strengths and weaknesses that affect our paths for getting them. The most important quality that differentiates successful people from unsuccessful people is our capacity to learn and adapt to these things.

Unlike any other species, man is capable of reflecting on himself and the things around him to learn and adapt in order to improve. He has this capability because, in the evolution of species man's brain developed a part that no other species has—the prefrontal cortex. It is the part of the human brain that gives us the ability to reflect and conduct other cognitive thinking. Because of this, people who can objectively reflect on themselves and others —most importantly on their weaknesses are—can figure out how to get around these weaknesses, can evolve fastest and come closer to realizing their potentials than those who can't. However, typically defensive, emotional reactions—i.e., ego barriers—stand in the way of this progress. These reactions take place in the part of the brain called the amygdala. As a result of them, most people don't like reflecting on their weaknesses even though recognizing them is an essential step toward preventing them from causing them problems. Most people especially dislike others exploring their weaknesses because it makes them feel attacked, which produces fight or flight reactions;; however, having others help one find one's weaknesses is essential because it's very difficult to identify one's own. Most people don't like helping others explore their weaknesses, even though they are willing to talk about them behind their backs. For these reasons most people don't do a good job of understanding themselves and adapting in order to get what they want most out of life. In my opinion, that is the biggest single problem of mankind because it, more than anything else, impedes people's abilities to address all other problems and it is probably the greatest source of pain for most people. Some people get over the ego barrier and others don't. Which path they choose, more than anything else, determines how good their outcomes are. Aristotle defined tragedy as a bad outcome for a person because of a fatal flaw that he can't get around. So it is tragic when people let ego barriers lead them to experience bad outcomes. "

 

 

So an important part in personal evolution is the realisation that our ego can often get in front of an objective conclusion. Our ego is a barrier towards finding the truth.

 

 

 

"Be radically transparent. Provide people with as much exposure as possible to what's going

on around them. Allowing people direct access lets them form their own views and greatly enhances accuracy and the pursuit of truth. Winston Churchill said, "There is no worse course in leadership than to hold out false hopes soon to be swept away." The candid question-­and-­answer process allows people to probe your thinking. You can then modify your thinking to get at the best possible answer, reinforcing your confidence that you're on the best possible path. "

 

 

 

This is about more in depth questioning taking place where the underlying factors and beliefs that lead to one's viewpoint or conclusion are looked at in more detail. Are they true?

Ray on weaknesses;

 

"I met a number of great people and learned that none of them were born great—they all made lots of mistakes and had lots weaknesses—and that great people become great by looking at their mistakes and weaknesses and figuring out how to get around them. So I learned that the people who make the most of the process of encountering reality, especially the painful obstacles, learn the most and get what they want faster than people who do not. I learned that they are the great ones—the ones I wanted to have around me.

In short, I learned that being totally truthful, especially about mistakes and weaknesses, led to a rapid rate of improvement and movement toward what I wanted. "

 

The thread to discuss this on GEI is found by clicking here.

[Perishabull]

Google trends can often come up with some interesting data;

 

"GDX" searches on Google

 

Over the last 3 years there has been a very steady increase in news reference volume for GDX

 

 

Also "Gold miners" searches on Google;

 

A similar picture with gold miners.

 

More news reference volume clearly leads to more public awareness. In some ways I think the performance of the miners compared to gold itself is perhaps related to the public still not believing in gold as it rises higher and higher, really typical of bull markets. The majority aren't on board. Perhaps a trigger point is needed, that may be a sustained rise above $2000.

[Perishabull]

I'm now set up on an internet connection that is more than twice the speed it was before with a much faster ping - much better for trading obviously. I now get 124 ms to Chicago, an improvement on the 168 ms I had before. That small amount should result in improved fills - the faster the better.

 

I'm pulling together a number of different elements before I restart trading. That's another ticked off the list.

 

This break in trading was, at least initially, forced on me by ThinkorSwim ceasing operations in the UK. It's really turned into a blessing, allowing me to re-asses different aspects: broker, internet connection, trading plan etc

 

I've been spending some time thinking about some of the guidance Jeff Quinto gave me and I'm still working on what the conclusion to that it is, and how I then integrate that into my trading plan. It makes sense to cut costs in my trading business, and one way I can do that is by reducing stop size. One of his statements;

 

"A trade should work immediately and profoundly"

 

For each winning trade I had previously I looked at the number of points the trade went against my postion before going in a favourable direction and turning into a winning trade. From those statistics, I found the average stop requirement for winning trades was rather low - 1.29 points. The average is of course just that, some went 3 points against me before working, others just immediately worked and therefore bear out what Jeff is saying, the best trades work straight away. I's quite tempting to simply reduce my stop size to 2 points (from 3.25), this would mean, more stopped out trades, but it would also mean no hanging around waiting for a trade to work. If a trade doesn't work within 2 points of forebearance then I will be quickly taken out of the trades that aren't winners, and left to focus on how I manage those that work immediately and profoundly, as they still have room to flourish.

 

This also follows the logic of the "Phantom of the Pits", writings by a former floor trader. His rule 1 is that you wait for the market to prove you are correct rather then wait for the market to prove you wrong. Many traders put a position on with a stop. Their view of the position is that if the stop is hit, their position has proved to be wrong, and therefore they have exited the market. There is a subtle but interesting difference between waiting for the market to prove you correct and waiting for it to prove you wrong. Waiting for a position to be proved wrong is a focus on the negative whereas waiting for a position to be proved correct is a focus on the positive. You can only be waiting for the market to prove a position to be correct if you decide that you are only interested in positions that work imediately. And if you decide you are only interested in positions that work immediately then you absolutely must either - reduce your stop size, or - exit postions very quickly if they don't work straight away.

 

Of course that is only one approach, another method would be to take a more different approach to trade entry. Previously my rules for trade entry were very simple.

 

1. Signal on my indicator - check

2. Market having moved in the direction of the signal for at least one point during the last one minute bar - check

3. Trade order sent.

 

That was it. The positive from that was that there is never any question or doubt about getting into a trade, I only needed to check 2 points. The simpler it is, the easier it is to execute efficiently. However, by waiting for the market to move 1 point in my favour, that means I'm losing ground of at least 1 point on a lot of the trades before I even get in.

 

Another approach may be so look at the average "noise" produced by the market on any given day. The market always has an element of 3 steps forward, 2 steps back, and what I will look at doing is taking advantage of that, perhaps by looking at Keltner channels on a very small timeframe. That way, I could enter postions when the price is at least in the opposing half of the Keltner channel, before initiating a trade, that way I may be able to pick up on that 1 point, previously lost on many trades but still capitalise on the "trades should work immediately and profoundly" aspect. It may allow me to enter the same positions, with 38% less equity risked for a similar outcome trade. It may also lead to some missed trades also though, so I need to study that further.

 

 

Ive also been looking at the approach I'm taking with my DBDT indicator, I've tried layering it on top of a chart of the E-Mini NASDAQ (NQ) but it looks quite difficult to read. I've had a persistent interest in why double tops or bottoms tend be a good signals on my indicator. What I mean here is that I tend to get a double top on my indicator where there is no double top on NQ, so what is actually happening there? I've speculated previously on what might be causing that to happen yet hadn't felt close to an answer. Today, I feel much closer. It's divergence. If my indicator produces a double top when the NQ is showing a higher high, then my indicator is diverging in a direction opposing the trend in NQ, hence being classified as a sell signal.

 

The picture becomes far clearer when I place my DBDT indicator chart side by side with the NQ chart.

 

 

So, the top half of the chart is the E-Mini NASDAQ futures (NQ), the bottom half of the chart is my DBDT indicator. For anyone new to my blog here, just look at my indicator as my personal re-valuation of the NASDAQ.

 

Now this is an interesting chart. What I've shown here is that by looking at my indicator where lows or highs meet, there are occasions where these diverge from NQ in the direction the NQ is about to travel.

 

Point 1, it's clearly seen that this is a higher low on my DBDT indicator but a lower low on NQ. Shortly after the production of the low, the market then travels in the direction of the DBDT divergence - up.

 

Point 2, my DBDT indicator is flat whereas as NQ is higher, DBDT diverges away from the direction of the trend, and NQ follows thereafter.

 

Point 3, a lower low in NQ with a higher low in DBDT, again the market travels in the direction of divergence on DBDT.

 

 

Now let's head back to Ray Dalio - Is it true?

 

Well, it's certainly true of today. Divergence at Point 2 was the high of the session today for NQ. Divergence at point 3 was the low of the session today. So today, divergence on my indicator has pointed to a probable direction of the market in NQ.

 

Now you can well imagine that if this type of event is a regular occurence then today I have found an altogether new and very interesting direction to take my trading in. Not limiting my trading to double tops or bottoms on my indicator but expanding it to trading these types of divergence events will make sense if I can prove that this isn't simply a one-off. In fact I'm going to make a concerted effort to try and prove that this is wrong.

 

 

The market yesterday, 1st November;

 

Similar events....

 

 

31st October;

 

 

Again, similar events.

 

 

It's getting late, I'll need to look at this very closely tomorrow.

 

 

 

28th October 2011;

 

And again....

 

 

I remember some time ago, I think it was not long after I came up with my indicator, I had a dream I was talking to a world famous investor and he told me, "You need to look for the second part". I was completely flummoxed by that at the time.

 

Have I just found "the second part"?

[Perishabull]

Similar scenario again today;

 

Very encouraging.

[jerpy]

Ray Dalio talks a fair bit of sense, refreshing to find their are a few people around worth listening to.

 

P.D you mention elsewhere you expect miners may outperform gold soon. Are you tracking/trading any?

[Perishabull]

Ray Dalio talks a fair bit of sense, refreshing to find their are a few people around worth listening to.

 

P.D you mention elsewhere you expect miners may outperform gold soon. Are you tracking/trading any?

 

I own GDX, GDXJ and UXG. I bought those on 24th October and intend to hold them for a long time. My knowledge of specific gold miners is very limited, I simply don't have the time to look into them.

 

Zeal LLC's analysis is very good. Check this out http://www.zealllc.c...11/cheaphui.htm

 

They sell reports on gold miners, http://www.zealllc.com/purchase.htm.

[Perishabull]

On 2nd November I described a new way that I can use my indicator that looked quite interesting. I've been through data on the NASDAQ from 8th September onwards and highlighted all trade signals on it using this new method. It's here, if anyone's interested.

 

Essentially, when my indicator deviates from the NASDAQ, I trade in the direction of the indicator, as it can point to short term changes in trend. In light of this I've re-named my indicator the Positive Deviance indicator.

 

I've been through the signals from 8th September 2011 to 6th October 2011 and the early results look interesting.

 

37 signals

 

20 wins (54%)

 

10 losses (27%)

 

7 breakeven (19%)

 

If traded, the NASDAQ points gained on these signals would be 162.5 (net of commissions), for this one month period. This equates to 135% return on capital risked (37 X 3.25 points risked per trade).

 

 

 

This is working on the basis of using;

 

A 3.25 point stop, as before

An 8 point trailing stop, as before

And moving the fixed stop of 3.25 to breakeven if the trade moves 5 points in my favour.

 

During my period trading from 1st March 2011 until 8th August 2011, I kept statistics on trades showing whether the trade moved at least 4 points in my favour, from the point when the trade was initiated. Based on the signals that were traded, 56% of the trades reached the 4 point mark. Also the signals were 50/50, 50% would result in a loss and 50% would result in a gain.

 

So far, using this new method, 70% reached the 4 point mark, and so far the winners are 2 to 1.

 

Although it looks interesting, It's not really wise to draw any firm conclusions on the basis of such a small number of signals, once I've gone through the rest of the data tomorrow I'm looking for it to be consistent with the above. I could then also look at other markets (other than the NASDAQ) to see if similar results are seen, then I'll have a better idea if I've created a true edge.

[Perishabull]

I've now been through signals from 8th September 2011 to 31st October 2011.

 

71 signals

 

39 wins (55%)

 

20 losses (28%)

 

12 breakeven (17%)

 

 

72% of the signals reached the 4 point mark also, similar to before.

 

 

The percentage splits continue to be similar, so far this is good as it suggests consistency which is what I want, especially the 2 wins to each loss. That suggests a decent edge but I need to go through more data, and on more markets to check it properly. It's quite time consuming to make sure it's done objectively.

 

I ran a plot of the cumulative points using this new method.