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Post by sd on Oct 7, 2011 15:27:32 GMT -5
I should have sold AAPL as it weakened further today, tech was weak . Caught the late afternoon mkt, and went long SKF,TWM,EPV,DZZ, as the market turned going towards the close. I also added to the SKF position as it gained momentum into the close A lot will depend on whether confidence is built over the weekend in Europe. Mkt put in 3up days this week, and almost made it 4Pundits are saying this week's price action suggests we will go higher- Critics say this is a political/news driven market, and we are still under the influence of European concerns. SD
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ira85
New Member
Posts: 837
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Post by ira85 on Oct 7, 2011 19:09:54 GMT -5
sd, I've been influenced by your posts to try shorter holding periods and moving quickly when there's a change in direction. I held SDS and SDD for only about 3 market days. That explosive rise in the last hour Tues wiped out most of my gains and I sold for a small net gain Wednesday. But it saved me from losing more. Today I bought SDS again but at a lower price.
I came up on the conventional wisdom that frequent trading just ran up costs and didn't produce real benefit. The emphasis was on picking real out-performers and holding them, ala Peter Lynch. Rapid fire trading was considered speculation and real investors held for months or years. I don't have the trading knowledge to implement your statistically driven buy and sell strategies. But I think I get the basic principles. Getting out quickly to minimize losses seems to be a central principle. The fact that I bought a broad market short etf today suggests I'm thinking at least somewhat along the same lines. Thanks for the introduction to a new strategy. So far so good. -ira
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Post by bankedout on Oct 7, 2011 19:25:01 GMT -5
I came up on the conventional wisdom that frequent trading just ran up costs and didn't produce real benefit. The emphasis was on picking real out-performers and holding them, ala Peter Lynch. Rapid fire trading was considered speculation and real investors held for months or years. -ira In my opinion it is far too difficult to figure out which company/stock will be a long term out-performer. In my opinion, if you are going to try and be a long term trader, you should read 'The Intelligent Investor' by Benjamin Graham. He offers very easy to follow techniques to select companies where price and value have massively diverged. I did use his techniques for a while, years ago and had some success. However I discovered that my preferred holding time is shorter, so it was not a good fit for my personality. I'm currently watching a small basket of ETFs and don't follow any individual stocks. I wasted too much time searching for things to trade in the past. Now I just wait for the charts to look right in a small select group, and then make the trade based purely on technical analysis. I took a bunch of time off from trading because I didn't feel in tune with the market, and I didn't have the time to devote to actively managing positions. Now I feel ready to go again, and excited to make a good number of trades in the near future. I enjoy following sd's dealings in the market also.
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Post by sd on Oct 8, 2011 10:31:03 GMT -5
Thanks for posting IRA!I've been influenced by your posts to try shorter holding periods and moving quickly when there's a change in direction. I held SDS and SDD for only about 3 market days. That explosive rise in the last hour Tues wiped out most of my gains and I sold for a small net gain Wednesday. But it saved me from losing more. Today I bought SDS again but at a lower price.
That's the way it's been in this market- It's truly a roller coaster up and down .Driven by news and politics. Not fundamentals. And there is opportunity to do as you did, take some profits and then repurchase again when it looks right. I came up on the conventional wisdom that frequent trading just ran up costs and didn't produce real benefit. The emphasis was on picking real out-performers and holding them, ala Peter Lynch. Rapid fire trading was considered speculation and real investors held for months or years. I don't have the trading knowledge to implement your statistically driven buy and sell strategies. But I think I get the basic principles. Getting out quickly to minimize losses seems to be a central principle. The fact that I bought a broad market short etf today suggests I'm thinking at least somewhat along the same lines. Thanks for the introduction to a new strategy. So far so good. -ira
Frequent trading does indeed run up costs- commissions- and it's important to not disregard that. Ideally you are trading with a low commission broker. I use Interactive Brokers, costs are $1/100 , and I think the 2x leveraged etfs $2/100 . and I think $3 for the 3x. But $1 in and $1 out of most trades - $2 for a round trip-and I think the monthly fee is $10 still for "infrequent traders" which I am. However, , even with the fee and just 1 trade/month the cost is still less than most other brokers . One does not have to trade in 100 share lots-BTW- and so the low commission allows one to take smaller, experimental trades.
" Real Investors Hold for months/years-" Lynch, - Warren Buffett- His Berkshire Hathaway BRKB exemplifies that approach, and over the long term he is considered to be one of the most successful investors of all time. Look at a monthly chart for BRKB, and clearly there were times that getting out of the fund and reentering lower was the prudent thing to do.
FULL DISCLOSURE! My trading account is not my investing account- and I think one should perhaps have both. My trading account is set up in a Roth IRA, no tax consequences, and is also non-essential to my retirement. As I try to modify my trading to adapt to changing market influences, I am periodically successful with moments of nailing good entry and exits, and then I have losing trades that go against me-closing up but overnight "stuff happens" and the trade gaps down and opens well below my stops- much faster than they go up. And I'm not immune to taking "impulse" trades- which is not part of a disciplined approach. Presently, my account is still down some 16% from last year's high, $11,000 - -I was down close to 20% at one point and I am trying to recover and "adapt" to these short term trends within the market. Holding onto one's gains can be difficult, particularly when one's approach is based on a 'trending market' In this short term approach, I perhaps would do better by being present during the trading day, and perhaps not.
My retirement account with my employer is a Simple IRA through Edward Jones with some 2 dozen funds to choose from- I swung most of those monies into bond funds and the very conservative 2010, 2015 target date funds. and still in some money mkt with a portion. I view these on a weekly & monthly chart.- My present focus there is conservative and capital preservation-and I will transfer back into the more aggressive growth funds when it appears that the market has stabilized- What history has taught us, is that one cannot blindly "invest" and expect everything to work out over the long term.
Since I had some "influence" in you trying a new strategy, I also wanted to Disclose the context in which I apply this approach, and that I am still trying to be "successful" with it. I congratulate you for trying to adapt your trading in recognition of a market that just can't determine which way it wants to go. Opportunity is there to take advantage of the volatility for the nimble.
I'd be glad to discuss any aspects of trying to apply a shorter term swing trading approach with you- and thanks again for your post. I will write down some follow up thoughts -in another post- SD
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Post by sd on Oct 8, 2011 12:07:31 GMT -5
I agree with Bankedout-and I look forward to his future trades! I also don't have a lot of free time, and so I have narrowed my investing field to primarily ETF's-and I should do more thought into making that list more finite.
I think having a narrowed group of etf's to select from is definitely the way to go. and also the inverse of those ETF's so one could be long or short. With the leveraged ETF's it is possible to get both sides of the sword- both gains and losses. Nice to be on the winning side if leveraged, but 2x or 3x more pain on the losing side. Understanding the larger RISK of leveraged ETF's is very important.
While speaking of RISK- Proper position sizing in any trade is important- While developing a new trading strategy, until a number of trades have occurred and the trader has a sense of what he can expect from his method, it is even more important that proper position sizing be applied as one is "trying out" the approach. It's more about "learning" and tweaking one's trading than it is about rushing out and making money. Let's go with this choppy market- The market can turn on it's heel and reverse course it seems every 3 or 4 days. So I try to apply a faster time frame chart to get earlier signals. The 60 minute chart gives faster signals than the daily. The 30 minute chart faster signals than the 60 etc, The 15 minute, 10 minute, 5 minute, and 1 minute charts can give faster and conflicting signals than the next time frame- Knowing where Price & trend is on the higher time frame chart, can often suggest whether a signal on the next faster time frame is worth taking. If I trade on signals from the 60 minute chart, I want to look at the daily as well. The advantage of a faster time frame chart is that stop-losses are usually justified at a much closer level than perhaps the daily would call for. You are capturing smaller moves within larger ones,. and if the move fails, you see it quicker on the faster time frame. To backtest the entry and exit signal we think we will use on a particular trade, we can go back over time on the chart and see how we would have traded it based on strict "signals" given on the chart. In Looking backwards, we "know" what occurred and it's important to be honest and realistic about how we would have actually done the trade. As we do post-mortems on completed trades, we develop some insights as to whether it was a good trade, should have been cut-off sooner, or should have been left to run. Since the market is often changing, we may find that what was a good trade signal on several occaisions, doesn't perform as well or we get whipsawed. Our analysis of what came before does not guarantee that the future will necessarily mimic the past results- but that is the basis for technical analysis- that the future often does repeat past events. Charts- I try to simplify what I see on a chart- and therefore, I use moving averages with an eye to whether price is above, below or sideways in relation to the moving averages. I try to not use many other indicators or oscillators, and keep it as clean as possible. Indicators generally lag price action. Price itself is the #1 indicator, and you can tell alot by it's action with a couple of moving averages as a reference. The one other indicator I partially use is Parabolic SAR- it is a momentum based indicator progressively getting closer to the price action. I use it more as a point of entry that price needs to overcome. As I apply what I think is my trading approach, I gradually try to make it better- For example, I found that I was trading my stops "too close" and was getting hit, but that if price had an hourly bar close below the fast ema, this was often the place to move my stops up to. Following this, I gradually started to experiment with splitting the stops on the position- Sometimes setting a part of the position with stops directly under the price action, with a portion, and trailing at a fast ema or Sar with the other. Also, I realized I needed to be prepared to take a reentry -based on my tight stops- if price moved ahead. I think I've proved to myself that having wide stops is just simply a technical level where HOPE fails, and despair begins.
Let's look at a chart- next post
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Post by sd on Oct 8, 2011 13:52:52 GMT -5
Attached is a weekly chart of SDS- Note the big gain possible back in 2009, and the subsequent sell-off. The purpose of posting this weekly chart is to ask yourself, what would have been the best approach to taking a long entry in SDS based on the weekly chart? How would one have exited? on what signal? The weekly chart shows us that the downtrend may have stopped, and we are trading sideways in a range- If we consider only taking long entries in SDS on the ema cross, there are only a couple of entry and exit signals. and it's doubtful that the long side trade would make money. supposing though, once we got a Sell signal in SDS, we flipped and had gone short or had bought the inverse? That would mean we would be fully active in either a long or short position, trying to take advantage of directional swings. Let's "backtest" something as uncomplicated as a long/short position with a 7ema cross of the 20 ema. on a weekly chart. starting with this as a basic entry/exit trade system, will this backtest over time? What would be the results of being in the market 100% of the time on this simplistic entry/exit criteria- could this be refined for better results ? a "faster" or slower entry signal? Here's the SDS chart -for the past few years. I'll try to follow through with a comparisom chart of being fully invested -swinging long or short- While this is a weekly chart we are starting off with, we can also apply this type of study to daily, hourly charts and 'test' our methods. Must do this over a long enough period to be representative of the different market conditions.
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Post by sd on Oct 8, 2011 16:40:13 GMT -5
I wanted to illustrate how one could backtest his/her system . Simplest way was to demonstrate a simple moving average crossover signal - this is what I look at with my retirement account .essentially trading with the trend and changing positions on a breakdown of the trend. I'm long-winded, but I'll eventually get to the point. We are likely wired by our life experience to want to make trades based on how well those trades suit our perception of what the market is doing- or should be doing in our opinion. Suppose we remove the attitude completely of what we think the market will do -or should do- and just trade the chart presented to us? Suppose we not only go Long a position, but go short as well? And if we do that on only a few positions-Where will that take us? This is likely easier to do on a weekly chart than an hourly In doing that, we acknowledge that we don't "know" where the market is heading- We trade the signals we see -but unless we have taken the time to backtest those signals and developed a trading approach that has analyzed the approach over a period of different market conditions, we don't necessarily have "proof" that we have a trading system that works- We have 'Hope", we have our intuition, and we likely have some confirming trades that give us encouragement we have the right approach. Did we 'backtest' that method? Do we even have a defined method? The actual definition of a system is likely that one has a well defined entry and exit criteria that one applies at every opportunity- and is not to be influenced by one's perception or bias. Or so I've read. Some trading programs can backtest a defined system and give statistical evidence and expected "drawdown" - Stocks and Commodities magazine often has articles on analyzing such a system. Such a mechanical entry/exit system takes the intuitive factor out of the trade. Perhaps we trade for different personal reasons- as Bankedout mentioned-one needs to have a trading approach that suits their personality. Does our personality get in the way of us winning more trades? I'm going in circles here; Getting back to the point - backtesting a trading method just means that we take the extra step to see how our intended approach has worked historically- Backtesting "proves" whether our approach will be ultimately profitable over time as long as we take each and every signal . Since many of us do not have a robust trading program that will automate a backtest, we should do so as best we can in the defined stocks/etfs that we think we will consider for trading. We ideally will keep our personalities out and respond only to the chart. Finally-! Backtesting SDS- I started off using a weekly chart -with a very simple long/short entry based on the 7 ema crossing the 20 ema- Go short when the cross is down heading, and go long when the fast ema crosses up. Over the 4 years of the weekly chart, there were only 9 trades, 4 of them losing and 5 winning. There were several big trending periods that the system made advantage of. Being and staying in during those trending periods captured substantial gains. IN Both directions! The ability to go both long and short was critical to these results. It was a simple approach, with good results. So, the advantages of trading a weekly method is few trades, focus is on being positioned with the primary market trend. If one is trading on the daily chart, or hourly chart, one should also compare the approach historically and determine if one should go from long to short, and what factors make that determination. It can be as simple as swings in the moving average. With each quicker time frame, More numerous signals will result, and potentially more whipsaw trades, false signals. Can one develop a similar approach to swing trading a few positions using the daily/hourly chart to one's advantage over a number of trades over time? Took me all afternoon to get to this point! and I don't know that I can make it to the woods in time to do any hunting! Chart included- Something to consider ! SD
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Post by sd on Oct 9, 2011 8:15:49 GMT -5
A look back on the SDS daily chart demonstrates what appears to be 3 different Mkt stages. Strong trend, non-trending consolidation range, and a high volatility consolidation range. (present) since we don't know in advance when one stage will transition into another stage, will yesterday's approach work tomorrow? The strong trend in effect is evident on the left side of the chart- Then the trending pattern slows, some attempted revesals in price lead to a gradual consolidation range. The 3rd stage (present) is a highly volatile range. Recognizing the different stages, how does one trade effectively?
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Post by bankedout on Oct 9, 2011 15:01:53 GMT -5
I'm thinking you have to take every 'signal' your system offers you. The reason being, you never know which one will be the big one.
The other option would be to trade without a system and try to determine what conditions you are in presently, and trade according to those conditions until they change. Meaning if you are in a strong trend you follow that trend. If you are range bound, you buy low & sell high in the range. Of course this is easier said than done!
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Post by sd on Oct 9, 2011 15:37:31 GMT -5
I totally agree with you Bankedout! One needs to take every signal presented that fits his or her trading style, but that style needs to work in different market conditions. One needs to "test" his approach against different periods and different market conditions, to see if his past approach also fits the present market. The trending mkt approach gets chopped pretty seriously as the markets consolidate. If one had "normal" daily stops in place the past weeks, tough to try to hold through that range on a belief.
Only by having a defined set of rules to enter and exit can one make a statistically accurate assumption of the profitability of one's system. Many of us trade somewhat intuitively, (myself) changing the rules some as we go and try to make something work. This exercise suggest I need to narrow the trading field and "backtest" the various positions I may consider trading. And build some stronger guidelines that I can have confidence in because I "tested" them. The charts I posted prior was just using a simple crossover, and many would use something more elaborate to trade on. But the exercise is worth applying to one's potential trades, using one's own defined approach
To be quite honest, I have never bothered to go through this exercise- to this degree. I have compared Weekly/hourly/daily charts generally, but never put a specific approach to the "test" over various mkt conditions. With SDS, and in a choppy market, I believe the various faster time frame charts "prove" that a faster response to price action will be the best way to trade- following a mechanical set of trading guidelines also eliminates the emotional "HOPE" factor.
This really doesn't "prove" itself until the hourly chart is quickened to the point that price action is responded to quickly. The results of a 60 minute Sar provided the best results in that period- One could also use a faster time frame yet- 30 minutes, and get progressively quicker signals-and more whipsaws of course- And eventually, one might find it best to go to a trend following approach.
In my situation, I am unable to react to hourly signals or changes generally, but I will continue to try to apply that method.
Good Trading! SD
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Post by sd on Oct 9, 2011 15:47:04 GMT -5
review the action of price on a daily chart, and what improvements would one make to taking the trading signals as they are shown. Apply your improvements to different places in time. will one "improvement" work effectively the majority of the time,or does it solve one issue in one period while creating more issues in another segment? Hope I got these charts in sequence... SD
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Post by sd on Oct 9, 2011 16:01:31 GMT -5
As SDS transitioned from trending to consolidation, it became something of a rolling up and down action, and then morphed into a potential upside breakout but with a wide and volatile range. Trying to trade and hold a single direction trade through this period, would have likely seen the trade stop out- or sit through the volatility with no stops- a very dangerous policy of Hoping the mkt will agree with one's direction eventually- I didn't have the time or screen size to do the more gradual consolidation period study, but I dropped down from a daily chart to an hourly chart.. I kept the concept of using moving average crossovers as signals to close one trade and take the trade in the other direction. In the case of a 60 minute chart, while the crossover may occur on one bar, the entry is assumed to be on the open of the next bar- The sell and reverse is calculated the same. I was surprised and disappointed by the results of using the 10,30 ema cross. this is much faster than the daily ema. The net results of the trades did not see a loss, but also did not yield a gain. I really expected better results.
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Post by sd on Oct 9, 2011 16:17:30 GMT -5
One could look at the 60 minute chart with the 10/30 cross and see how it got one in and out of the trade a number of bars late. I then used a 6 ema crossing a 15 ema to see how much of an improvement could be gained. This "faster" signal both gets one into a trade closer to the crossover bar for an earlier entry, and it also gives one a sell and reverse signal to take the other direction faster as well. This trade worked better in that it provided both winning and losing trades, with the winning trades larger than the losing trades. This was more along the lines of what I expected. If one had been investing over this period, one's position would be flat, but this approach netted over 11.7 % winning trades, and 4.6 % losers for a net gain of 7%- This difference is very relevant - because the only criteria that changed is that the moving averages on the 6,15 ema entry /exit essentially just followed price action by a few bars on each side of the move. This suggests that being able to react "faster" to swings in price worked to our advantage. Note that this is also in a wide range- a more "subdued" and slower reacting range perhaps would get opposite results. Note that the OCT 5 short entry had not received a cross signal yet to close the trade- and the likely gain there has not been included. Chart:
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Post by sd on Oct 9, 2011 16:38:13 GMT -5
As a final chart in this study, I included only the 6 ema (for reference) and added Par Sar- Par Sar means Stop and Reverse- and this is the one indicator I really favor- particularly in a volatile market. In this application with Sar, each progressive dot follows each price bar, gradually closing in on price depending on the volatility. Each progressive SAR dot represents the stop on the trade, and once SAR reverses, it means to take the other direction trade. I slightly modify it's application, but I always want to know what Sar is suggesting in the price action. One can always lag or trail behind SAR one or two dots to give some "room" if the trade is heading in the right direction. This "fastest" chart of all gives remarkable results- Still 2 losing trades for a 6.5% loss but that was offset by the 33% gain (I hope my math is correct and I didn't double up) Also- not included but the reverse signal is there- to take the additional gain from the Oct 5 signal- That would have been a sizeable % .gain..
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Post by sd on Oct 9, 2011 17:12:28 GMT -5
The prior posts and charts are meant to be illustrative and informative- but not necessarily a recommended approach. My initial take away is that if we stay in a wide ranging volatile market, a faster chart is definitely the way to go in nipping profits and reducing losses, and that includes taking the "reverse" trade at the same time as closing the other. some trading programs may offer this capability. However, if we start to trend or get less volatile, this faster approach may send numerous whipsaw signals. Ideally, one can be inspired to look a bit deeper into their own trading methods, and search for ways to achieve better results. To "test" this or any other faster method, one needs to go back incrementally over the different type of markets and see how well the approach holds up. I would also suggest to keep it as simple as possible with only a very few indicators- Perhaps price and a moving average or two . For each 'indicator' one adds, it makes things more complex for analysis- And those indicators do little good if they lag behind the price action.
And a final thought- Even if one has done his homework on their approach, proper position sizing for each trade needs to be maintained. Particularly when trying out a new strategy!
Good Trading! SD
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