Now Reading
Arisen!
72

Arisen!

by ScottMarch 9, 2014

This weekend I’ve got a very special treat for you. A good friend and colleague of mine Scott ‘the Convict’ Phillips is making a rare appearance here on Evil Speculator. Truth be told he has graciously agreed to cover for me for one week while I am fleeing the rambunctious madness of the Las Fallas festivities down here in beautiful Valencia, Spain. And not only that – it gets better. He has decided to start from scratch and teach all of you step by step how to get your game to the next level.

Now, IF you have been consistently banking coin for the past three/four years without major draw downs then move right along. Most likely you will not learn anything new this week. For the remaining 95% of you I strongly suggest you sharpen your pencils and pay attention all week. For the Mole will be back on the 17th and there will be tests! 😉

This is Scott. I’m not back, I’m taking over from Mole for a week so he can take a break. The poor bastard does so much stuff for me, it is the least I can do. Since I decided to stop contributing here at Evilspeculator Mole and I have been working hard on our systems and my own trading, and I’ve been making huge leaps in performance, having glimpses of the kind of super performance which is possible. Last year I had the opportunity to meet several traders who I regard as genuinely expert, in different trading fields – I was able to observe and model the commonality between them and realized that I was personally some way short of the minimum level I would regard as acceptable in terms of trading competence.

Yes you heard that right. I realized I was WAY behind the level I needed to be to achieve my goals in all areas, and decided to start again, from a beginners mind perspective and work hard in a systematic fashion to get my trading to the next level. Nobody (yes nobody at all) here was doing the things I now believe are necessary for long term superperformance so my participation here on the blog became not only a waste of time, but a counterproductive sop to my ego.

Anyway, it seems that most of you are at least heading in the direction of

  • Losing the directional bias
  • Using setups consistently
  • Using consistent money management, and campaign management (for example the Protect-R Ivan invented which Mole sometimes uses)

And I know most of you have made all the usual mistakes. Joining a team (the bear team or the bull team) ,  not using stops, listening to gurus (I actually subscribed to Prechter at one point), being stuck in a trade, being attracted to counter trend trades, letting a trade become an investment, revenge trading, trading options when you can’t trade stocks well, reading opinions which reinforce your own so you don’t have to face emotional pain…. it’s good you’ve got those all out of the way (I know I have).

This is good. This is enough to stem the worst of the bleeding in your account. However, sadly, it is not enough to prosper long term or achieve the kind of performance you should be aspiring to. Simply not being bear-biased like our friends at that other blog is nowhere near enough to survive and a long way from prospering. I know you are all patting yourselves on the back that you aren’t beartards anymore (but wouldn’t you just LOVE to see Bernanke burnt at the stake and it all come crashing down, go on – admit it) but that is truthfully just the start.

This week, instead of me telling you where the spoos are going (the odds favor a low volatility melt up as exciting as watching paint dry) I’d like to teach you something useful, and have you work through some stuff in the comment section with the aim of you all starting to build a trading system which suits you for a specific market type. I’m going to run through the whole process, start to finish. Edges, entry techniques, the pros and cons of different exit algos, campaign management optimization – the whole enchilada. Then we are going to finish it off with a framework for actual trading and measuring your performance, setting structure around what is adequate performance and what is bad performance, and how you should respond when your performance dips. I’m going to get you to practice your trading in a STRUCTURED PRACTICE framework with the aim of (what a radical concept) getting BETTER AT TRADING.

It might take 10,000 hours to achieve mastery, but a taxi driver with 10,000 hours will never be Schumacher. Most of you are wasting your time working at stuff you either cannot control or which will not improve your trading, rather than taking the opportunity to get better, a little every day.

This week, I’d like to go through the actual process of designing a high quality trading system that suits your personality, and I’d like to work through the preliminary stages of building a system around Mole’s 25/100 Bollingers, by way of example. I have been mentoring BobbyLow (who used to post here) for 6 months now, and I have observed him build an outstanding system using this framework, and practice trading it to the point of adequate performance, then put all the rest of his business plan together with his trading plan and he is banking some serious coin now. I would be astounded if he does not bank 200% in this coming year without a > 15% drawdown.

You can do that. And I’d like to start by saying that I don’t think any single person posting in the comments section now, doing what you are doing, will survive in the markets. That’s right, I don’t think ANY of you, unless you step it up, will survive. You are probably reading this thinking that I’m talking about all those other guys, but I’m not – I’m talking about you. Only the top 2% of traders will survive, and most of you are content to be “better than most” which is not nearly enough.

 “Successful trading is 40% risk control and 60% self-control. In turn, the risk control portion is one half money management and one half market analysis? Thus, market analysis is only about 20% of successful trading. Yet most traders emphasize market analysis while avoiding self-control and de-emphasizing risk control. To become successful, traders need to invert their priorities. ” Van Tharp and Henry Pruden from the Ten Tasks of Top Trading.

Here at Evilspeculator we spend MOST of the time on market analysis. That’s the blogging game, and I know that Mole is looking to change that over time. Having had the opportunity to observe genuinely expert traders banking > 100% returns year after year I was able to notice something. In every case I was a better tape reader/analyst than them. So is Mole, and arguably a few of the senior participants on the comment section are as well. Tim Knight is a WAY better chartist than any of the traders I have met earning > 1 million/year. In fact, ALL of the traders I aspired to be like could read the tape, but it was like something that they learned when they were starting out, and that doesn’t have nearly as much importance, the better they got. Like a price of admittance to the game of trading, learning to read and analyze the tape is something to learn, absorb, then STOP THINKING ABOUT AND IN SOME CASES DISCARD.

This is a huge mistake, and the endgame of that mistake is being like the guys at that other blog. Better and better at chart reading and worse and worse at trading. In comparison to trading analysis is easy, comfortable, and you delude yourself into thinking you are way better than you are. I know I did. This path is a dead end, and I’d encourage you not to go all the way down there before reversing up. Chart reading and tape reading is kindergarten – and you just gotta grow up at some point.

LETS START FROM THE BEGINNING – I’m going to go through all of these, in detail, over the next week. 

These are the components of a successful long term trading business. If you don’t do ALL of these you should take up cocaine and hookers instead of trading, you will at least have some fun getting to where you are currently going.

1) A lens for viewing the markets. Mole has a lens for viewing the markets, a GREAT LENS which provides all the context he needs to make trading decisions, the 25/100 Bollingers and daily/60 min timeframes.

This is a perfectly good example of a lens that gives him context for what he is seeing, and I know many of you have adopted it. It is quite arbitrary, however… I’ve never in my life seen another trader use the 100 period bollinger. However THAT DOESN’T MATTER. Essentially what Mole is doing is interpreting how price reacts to the elements of his framework, and using that to simplify the decision process. There is nothing magical about the 25 period SMA, and we could argue for hours about whether SMA or EMA is better, but none of that matters. He has a lens to view the markets and that lens is consistent. BOOM! Job done!

Do you really think that price “respects the 25 SMA”? No it doesn’t and it can’t, given that only a minority of market participants have ever heard of it. This equally applies to the MA’s I currently use equally. However that matters NOT ONE LITTLE BIT. We trade our BELIEFS about the market not the actual market, and if you believe that a squiggly line on a chart inspired an investor to invest at a certain price go ahead.

Let’s look at some other lenses – This one is from Ken Long (genuinely a trading genius) who doesn’t even have price on his charts! His idea is that a 2 period bollinger of price represents price better than the actual price! He is looking for how the market behaves at his inflection points (when price leaves the bollinger, when the regression lines cross over, and when price crosses the SMA and VWAP. See how this approach is identical to Mole’s, with different ingredients to the cake? (FYI you can youtube Ken Long for video’s on his systems, they are excellent)

This is an old lens of mine which I used to use for my daily e-mini systems.

.

And this is my current lens – which won’t make any sense to you at all unless you know my systems.

Ivan has a lens also, without indicators – and I used this successfully for a long time. Your lens could have elements of fundamentals in it (Most market professionals utilize fundamentals in some way, though I personally do not. It is childish to dismiss the methods of others because you prefer your own)

See where this is going? Work out how you want your charts and put up the minimum information you need to make the decisions you need to make. Stick to it. Don’t worry if it has stuff on it that someone else doesn’t believe in (personally I don’t think that MACD and RSI are an edge, but BobbyLow has designed a system using RSI which I think is great) If you believe in stuff which is twaddle then tomorrow we are going to go through a “belief examination paradigm” to examine your beliefs and discard the unhelpful ones.

2) A trading system with an edge for a specific market type – formulated specifically to achieve YOUR goals. No system will perform well in all markets – that is a fallacy (my current systems are about isolating trending markets on multiple timeframes and trading those markets only) If you are trading Crazy Ivan or Heisenberg you will most likely have to modify the number of trades or the exit methodology or the max drawdown/week or the maximum R per week (stop after making 2R for example) to suit your psychology. Otherwise trading someone else’s system will be emotionally intolerable. Don’t worry, we will get to exactly how you do that in a little bit. I’m also going to show you how to design your own entry techniques and measure if an edge is real.

3) A Business plan for trading that treats your trading as one component in the business of trading. You need to have business goals, like any business. You need to have set in stone plans around things like: Your broker going broke; A 2008 style bear porn event (when markets change character I guarantee your system will stop working); What do to if you reach x% drawdown (it’s no use having a system which is designed to have no more than 15% drawdown if you keep trading it when it is past that); What to do if you have personal trauma like divorce or serious illness or death in your family; What events trigger a compulsory holiday (for some people prolonged periods of success cause them to give it all back to the market because they don’t believe they deserve it); How many weeks/months a year you will trade (any system with any discretion at all is impossible to trade all the time without emotional fatigue. Beginning professional traders will by necessity need to take more time away from the market to be kinder to themselves emotionally); How you withdraw profits from the trading business to live on; What is your maximum daily/weekly/monthly drawdown before you stop trading; Structures in place preventing you from taking trades if you are in anything but the optimal emotional state (if you trade while angry or fearful you will attract bad trades like shit attracts flies)

4) Performance Monitoring and Mistake Monitoring. This is time set aside at the end of the week and end of the month for reviewing your trading performance and individual trades for mistakes and places you could improve. In my opinion this is the MOST IMPORTANT PART OF IMPROVING AS A TRADER. I know most of you don’t do this. Having a trading spreadsheet is good, but it is not enough. To actually improve you need to take the time every week to go through every trade and critique it honestly and openly. “I don’t have time” – you cry! Well make time! If you scalp 5 times a day then do this at the end of each day instead of the end of each week. Log your mistakes (a mistake is anything outside your rules –  a missed trade, a suboptimal exit, an entry that was really stretching your definition of a good trade). All the really good traders I know talk about drawdowns happening when they get slack with these “top tasks of trading”. Also – printed out broker statements are NOT a trading log. A blog is NOT a trading log unless you revisit all the trades after they close and post the results. I’ve never seen anyone on this blog do that with the losing trades (myself included). A spreadsheet by itself is not a trading log. You need to be able to go through every trade while they are fresh in your mind for things you learned and things you could improve. These need to go in a separate journal. Make no mistake – you will have emotional resistance to doing this over the long term. It’s not fun to face your poor decisions, but it is cathartic, and it stops bad trading from becoming a habit. If there is one thing you take from this post this is it.

Let me say it very clearly: You will NEVER be a long term successful trader unless you set aside regular (at least every week) time for monitoring your own performance. If you aren’t doing this now, then you are NOT a profitable trader, and you aren’t fooling anyone. This is a total deal breaker.

When we get to this step, I will lead the way, going through in detail, my recent trading mistakes and what I have learned from them. I hope to illustrate how much improvement there is to be had from this.

5) Daily routine. Everyone knows that psychology is important to trading. Van Tharp talks about a type of guy who says “Oh yeah trading psychology is super important. Its lucky I have awesome psychology after making all those beginner mistakes”. Trading psychology is NOT something you learn and then it’s done. It is a one-day-at-a-time proposition. I’ll say this again very clearly.

If you aren’t doing something to alter and monitor your emotional well being every time you trade then your trading psychology sucks. A 40 year veteran like Ivan is just as capable as the newest newb of becoming biased or deluded, without a strong framework for monitoring this stuff (and Ivan does have a strong framework for this)  You might think that you will just either automate or generate a full mechanical trading system with absolutely zero discretion, or trade someone else’s system (lie mine for example) I’ve done all of these to try and minimize psychology issues, but trading 100% mechanical systems changes the impact of psychology rather than lessens it and the emotional hammer blows remain, you just don’t have trading as an outlet (which is good) In a technical competence sense the best trader to come out of evilspeculator was Dudeplunger, who spent 2 years with Ivan and built his own systems which he is able to trade with truly remarkable levels of efficiency (much better than me). Ignoring the psychological aspect took a tremendous toll on him and he has stopped trading and switched careers. I will show you my routine for getting in an acceptable trading state, and how I monitor if I am ready to trade on any given day, and what to do when you are not in the zone.

6) A spiritual program for self-improvement. Trading is a hard game, and a metaphor for life. You improve your trading by improving yourself, and there are many ways to do this. You need to pick one or more of the following type of things: Psychotherapy (highly recommended); 12 Step programs like gambler’s anonymous or alcoholics anonymous (Alexander Elder first mentioned this and it is excellent); Buddhist meditation or serious yoga practice; Joining and being involved with a church (sounds weird and it’s not for me, but I have personally observed that being more God-centered and less self centered is a miracle cure for trading problems); New age self help stuff like “A course in miracles”, “the power of now”, “the sedona method”; Community service and altruistic motive efforts which Ivan and I both believe help reverse the self centeredness inherent in the pursuit of wealth. I know this stuff sounds weird and to some extent it is, but our trading is generally a reflection of our internal world and the less chaotic and unmanageable we can make our internal lives, the easier trading will be. Ignore this at your peril.

 

Let’s take a quick look at the market at the monthly chart level. I’ve put up the VolStat indicator, which is ATR (one measure of volatility) reduced to a percentage of price and plotted with a 100 period SMA and 100 period Bollingers. Using this measure we can say in an objective, historical statistics based sense how high or low the volatility is. Volatility is IMPORTANT . Market methods that work in low volatility times fall apart reliably during high volatility times. One of the key components of low volatility markets is that counter trend setups that usually have decent odds have a very low chance of working. Also, an increase in volatility from a low extreme is a canary in the coal-mine for a change of market direction – this is true on all timeframes.

What we can see is that the recent pullback only lasted one bar, and the shorts who got positioned at a short setup with a reasonable chance of working have all been stopped out. I know bears will be hanging their hat on a double top or a failed breakout, but these are very low probability outcomes. We have a market moving up with low volatility without the EXTREME low that would signify caution. The odds favor small ranges and new highs. How much longer could it go? We are nowhere near the extremes of 2007, but you can see that the uptick back then was the canary in the coal-mine for the change of market type. When markets change from Bull Quiet to something else – the something else is nearly always BEAR VOLATILE. The odds are high that the next stock market phase will be 2008ish, but we are nowhere near the extreme levels which would indicate overwhelming caution.

You can see on a weekly basis we have had upticks in volatility from a low base that represented potential turning points which were not powerful enough to change the overall trend. This indicator is, by definition slightly lagging so it is perhaps only useful for longer term thinking. 

We are at upper bollinger resistance, so we should expect a choppy mess in equities this week. The bulls are firmly in control but expect sideways choppy, hard to trade markets with lots of doji candles. Expect pattern based entries (Inside Bars, retests, fakeouts) with the exception of hammers to have lower than usual odds of success this week.

Which is fortunate for those who must trade because we do have a setup, a Hammer candle which I would be long on a break of the highs in market hours only. This, it must be said, is a less than ideal setup but given the weakness of the bears (having all just been stopped out) in context I believe it has betting odds.

 

One setup I really like is the weekly retest long setup on USDCAD. This has everything going for it and is a far more interesting market that equities this week. 

Anyway, you have me for a week, and before I disappear again (I’m not coming back) I would like to make some real improvements for those who are willing.

You have HOMEWORK! Post in the comment section below a list of your beliefs about the market. These could be as esoteric as “I believe sunspots have an influence on market behavior” (I don’t believe this) or as practical as “I believe a rising 200 SMA is a good simple measure of market trend” or “I believe that RSI is a useful indicator with an edge”. I will lead the way with my own list of beliefs.

Trust me, this is an important step in developing your own trading method. Once you articulate your beliefs, you can work out which ones you want to keep, and then start thinking about your system goals.

If nobody is interested, however, I’lll just post a few setups.

Scott ‘The Convict’ Phillips

 


About The Author
Scott
  • Scott Phillips

    I’ll start.

    My beliefs about markets

    I believe patterns repeat over time
    I believe fundamentals are fully reflected in the price
    I believe news does not matter, it can only affect price if the market is ready to move
    I believe Indicators which are a derivative of price are limited in use
    I believe that every bar of price action provides additional information
    I believe that when some participants are caught the wrong way the price action can be anticipated (not with certainty)
    I believe that Krastins setups work very well in some market types and not at all in others.
    I believe that markets are Fractal in nature
    I believe that you can never get a “certain” trade, that the best odds you get is 65/35% in the real world.
    I believe that market distributions are not normal – ie experience kurtosis or fat tails.
    I believe the market is not efficient
    I believe that exits are more important than entries to trader performance
    I believe that to trade successfully I need to work on myself
    I believe that markets are mean reverting.
    I believe that after a period of markets being easy to trade, they become hard to trade.
    I believe that bollinger bands have validity
    I believe that my daily reprieve from bad trading is a function of my spiritual condition
    I believe that I alone are responsible for my trading results.
    After a period of low volatility, volatility tends to increase. This often happens with a fakeout move.
    I prefer clean charts to cluttered charts
    I believe the validity of a setup is in large part due to market phase as opposed to the type of setup
    I believe that markets are very difficult to trade in sideways low volatility markets – the Sideways Quiet Zone
    I can trade best by staying alive to possibilities in the NOW MOMENT.
    I believe in chaos theory – the markets are more predictable closer to the present time
    I believe that the lower the timeframe the more noise and less signal
    My ideal length of time for holding a trade is 1-3 days
    Low probability outcomes lead to outsized moves.
    I believe directional bias is poison to a trader.
    I believe the markets provide a constant stream of opportunities
    I maximize my profits by losing small
    I am not my trade. Losing a trade does not make me a loser.
    The markets are not out to get me.
    Everything does not have to be perfect for me to get into a trade.
    I don’t think that a winning trade means I am skillful and a losing trade means I am unlucky.
    Good trading is avoiding making mistakes.

  • Roger

    Great List. I agree with all of them.
    I believe Trade Exits are as important if not more important than the trade entry.
    I believe in risk management (Van Tharp’s position sizing).
    I believe in 1-2% risk per trade.
    I believe in keeping it simple.
    I believe in lots of singles as opposed to a few home runs and many strike outs.
    I believe to be successful you need to have your own (good) trading system.
    I believe you need at least one good trading system for each market type.

    I believe you don’t have to win more than 40% of the time to be successful as long as you lose small (manage risk).
    I believe in using probability and statistics.
    I believe in practicing with small money and when successful ramp up to risk levels.
    I believe in having a business plan and reviewing it on a regular basis

    Scott, I look forward to reviewing and incorporating the information from your posts this week into my trading.

  • Scott Phillips

    This is great Roger, well done. However you don’t really need a system for every market type unless. For example low volatility bear markets are typically short in duration (as opposed to low volatility bull markets which go on for long periods) and tend to happen at the end of Bear Volatile periods. It is easy enough just to stand aside. Also, unless you are a stock only trader you can simply trade only the market phases that you are interested in, and scan different markets until you find one that suits. Right now my production systems work in low and high volatility trending markets, I just scan through all the currency pairs each day until I find the most likely trending pairs. You could do the same thing looking for sideways rangebound markets.

  • mugabe

    I don’t know where the market is going.
    I have no psychological investment in where the market is going.
    l kept it simple and trade exclusively a universe of 13 ETFs covering a broad range of asset classes and geographical areas: SPY, IEV, AAXJ, EWJ, ILF, IBND, BWX, VGIT, VCIT, FXC, FXY, FXS, GLD and GSG.
    System 1: Performance over the last 5 months (Rate of Change) can statistically be used as the basis of being on the right side performance going forward.
    System 2: Moving average crossovers can be used to determine entry points .
    That said, I believe that exits are more important than entries to trader performance (same as previous two posters)
    Cutting losses is essential and easy for me to do (e.g. using ATR, a moving average, etc.)
    I have no psycholgical problem in cutting losses and then going back into the position if the asset shows renewed strength.
    Letting profits run is far more difficult (both systems-wise and psychologically), but is essential if you want to see good returns.
    I have no predetermined timeframe for how long trades might last.
    I make trading decisions on a weekly basis.
    I make no use of technical chart reading whatsoever (with the exception of MA crossover as an entry point for one of my systems).

  • mugabe

    As a general point, your system MUST be in line with your personality. If it isn’t, you won’t follow it and will suffer emotional and financial burn-out. This is one of the reasons why it’s often not a good idea to follow someone else’s system. As Ed Seykota says in market Wizards, there is no perfect car but perhaps there is a perfect car for you.

  • Scott Phillips

    Also great. Please read what I write later in the week on optimizing campaign management and exit algos.

  • newbfxtrader

    Better to create your own system that works or follow one from someone who trades for a living. I still try to guess where the market is going. I still have trouble taking losses. I am better this year than last. I was better last year than the year before. Following a system makes me accountable.
    I believe trend is your friend. (take a look at SPY for example). If you have set of rules that work for trend trading and stand aside when the market is consolidating (or choose another market that is trending) you can make reasonable profits.

  • http://evilspeculator.com molecool

    Smashing post mate and I’m very much looking forward to following it all from the other side this week :-)

  • mugabe

    I particularly look forward to that part of your coverage. I am tempted to say, but I’m not sure if it’s true, that you could blindly pick stocks and still be profitable with successful campaign management ie the only part of your system that really matters is what you do when you’ve started a trade. This is probably pushing it too far… or is it?
    Btw, I really appreciate your doing all this… for free.

  • http://evilspeculator.com molecool

    Yes, you could flip a coin picking and you would still be able to eek out an edge via proper campaign management. Obviously however we want to minimize risk and optimize gain – thus we seek intelligent entries near inflection points and then manage that risk via campaign management rules.

  • mugabe

    Last comment from me: don’t want to hog. Of all the pearls of wisdom in the absolutely must-read Ed Seykota interview in market wizards, this is possibly my favourite:
    Trying to understand the markets is a bit futiIe. I don’t think it makes any more sense trying to understand the stock market than trying to understand music. A lot of people would rather understand the market than make money.’

  • DollarChaser

    great post Scott, im looking forward the coming week! i happen to have the week off work so im able to get stuck right in.

    ok reporting in with homework…

    I believe in probability from candle patterns and price action.
    I believe the power of compounding is key to growing an account, it does something magic to the equation.
    I believe getting out of a trade is the important part, getting in is easy.
    I believe trading is all about timing, there’s only two things to do, buy and sell. it just matters when.
    I believe in keeping it simple, have as little on your chart and in your system as possible.
    I believe SMAs are useful for identifying inflection points and support / resistance.
    I believe SMAs are most ‘respected’ when they are close to a 45 degree angle on the chart. too flat or too steep and the tape seems to bust through them effortlessly.
    I believe candlesticks are telling a story, not gospel but at least hints.
    I believe there are times a system or setup will work and times when it just wont, ‘market weather’ if you like.
    I believe i can trade profitably using just technical analysis. (which is great because i love numbers, and words hate me)
    I believe my own natural laziness (not my greed or fear or bias view) is the greatest threat to my trading account.
    I believe i have a shit load more to learn about trading the markets.
    But most importantly i believe, i mean really believe that with enough effort i can and will become a successful career trader.

  • http://evilspeculator.com molecool

    1+ for mentioning Ed Seykota – crazy dude who hosts rather unorthodox seminars near Lake Tahoe. Awesome trend trader and he was a big inspiration for me.

  • http://ibergamot.blogspot.com/ i Bergamot

    Dear Scott!
    Thank you for writing this. you cannot imagine how timely it is for me.

    Especially part #4 about monitoring. I need an efficient way to do it, Tried it on my blog, but it way way too time consuming. Tried it in paper notepad, but it was too cumbersome and confusing.
    May be you will be able too show an example of your own, like a screen-shot or a scan, but I would totally understand if you don’t.

  • http://ibergamot.blogspot.com/ i Bergamot

    Homework submitted.

    Pretty much everything I do these days is based on a concept of Dow Paradox.
    Its my own idea, and a philosophical basis for my believes and actions in markets.
    I wrote it in September 2013

    This is an essence of Dow Paradox:

    What is a point of doing long term technical analysis on a price chart
    of $INDU or DIA, or SPX, or many other so called ‘indexes’ ,when
    composition changes so much – its not the same index, not even close.
    Companies dropped from major index suffer massive outflows, sometimes
    for years, and often even go bankrupt (remember Kodak). The purposeful
    manipulation of index components is designed to produce positive
    outcome, thus creating an upward equity slope – an illusion of
    increasing wealth and prosperity – The Dow Paradox!

    This Ponzi Scheme is meant to be gamed by buy-and-hold approach,
    especially so by buying the dip. The bigger the dip, the more you buy,
    and then hold. Selling is really not necessary if time horizon is 10
    years or more – your favorite index will be rebalanced by then, and off
    we go. Its been working just like this for over 100 years, and may work
    for a 100 more, or may break down tomorrow. There is no way to know for
    the outsider, besides very few people are asking any questions. Such is
    the nature of Dow Paradox.

    Dow Paradox is thoroughly exploited by Scammers – Wall Street’ers, money
    managers, brokers, pension funds, insurance companies etc. For as long
    as Ponzi Scheme is running, there are fees to be collected, salaries and
    bonuses to be made – good life – money for nothing. Its beautiful! All
    paid for by willing Victims – sheep led to slaughter. There are millions
    of them, all unaware of Dow Paradox, ignorant to mathematical
    impossibility of pyramid scheme. Don’t be sad. Its meant to be this way.
    Reality

    The Wonder of Dow Paradox is ME! There are not alot of people like me,
    may be few thousand in the whole round blue World. I know about Dow
    Paradox, I use it fully realizing pitfalls and challenges, trying to
    fleece the Victims and rip-off the Scammers. Using money to make money
    on a money. Moving and shaking. The ultimate cog in a machine – The
    SUCKER !!!

  • http://dartht.blogspot.com/ Gold_Gerb

    This post is platinum. Time to ease up on my analysis and get some systems that fit my style. I know for certain 30%drawdown is my limit. Just the other week I caught myself committing to a 3% trade. Discipline, discipline.

  • HokieJCH

    Great post Scott!

  • Sean

    Amazing! This is exactly what I’ve been looking for and need! … I’m currently not working (by choice), and gave myself six months to come up with a workable trading business plan before I need to go back to the corporate world, but I have been flailing on my own, so this is perfect timing! By the looks of the topics you plan to cover if I don’t know if I can trade for a living by the end of this week, then I probably can’t…

    I believe that fundamentals/economics matter over the long run
    I believe that the Common Knowledge Game and human psychology matter over the medium term
    I believe that I have no idea what price will do over the short run
    I believe that you can beat the market over the long run with proper understanding of medium and long term variables, but you can only make a living at this if you manage other people’s money
    I believe that trading is the only way for one person to make a living in the markets on their own
    I believe in the difference between trading and investing and that both have their place
    I believe that human psychology and evolutionary biology work against me as a trader, but that I can overcome them
    I believe CNBC is useful as a means to understand the Common Knowledge Game
    I believe that CNBC is completely useless for actual analysis
    I believe the markets can be modeled and predicted, we just don’t know how yet, and nobody is really on the right path
    I believe the markets are fractal
    I believe options are very powerful and a deep understanding of them will be an edge
    I believe in the 25/50/100/200 sma’s
    I believe you can have a deeper understanding of the markets by looking at VIX/TRIN/TICK/Adv-Dec data, and that is useful in adjusting risk exposure
    I believe in mean reversion… eventually
    I believe that “stretched” conditions can last a lot longer than anyone believes and end unexpectedly
    I believe that I must workout hard nearly every day to have a clear head
    I believe that I must meditate every day to have a clear head
    I believe that the best way to trade lower time frames (sub 4 hours) is with an auto-executed system
    I believe that campaign management and consistency are the only things that really matter
    I believe almost anything can work if it is executed consistently
    I believe that an edge start from within
    I believe I need a system that unchains me from my desk
    I believe in Mole’s setups
    I believe in the CrazyIvan setups

    Edit: As I re-read my beliefs, it seems that few of them can actually be used as a foundation for a trading system. Most seem to be more philosophical than anything else, so not really useful in trading… assuming I can put aside the ones superfluous to trading, is this a good thing since it will narrow my focus on my few beliefs that are trading focused and help me as a novice create a simple and manageable system? And is having few beliefs just a function of my relative lack of experience and as I grow as a trader my beliefs will also grow/change? Also, should I read into my beliefs and think that maybe trading is not my passion, but more of an interesting (but potentially profitable) hobby, and my real passion lies somewhere else?

  • aiki

    Incredible opportunity, thank you Mole and Scott!

    First, I agree what other posters have said…

    I believe if I had found this site, my account (might) still largely be intact.
    I believe it is %100 my own fault that it is the way it is now.
    I believe that trading is absolutely a reflection of my life and my beliefs about possibilities in the world.
    I believe I am the issue in my trading – I have systems that I can’t even properly trade myself. This is the BIG issue for me…

    I believe that simple MA crossover systems have merit.
    I believe that an 8EMA (can) be a first signal in a change of trend: one close below it, possible change, two closes below it, a change is usually coming.
    I believe cycles of low to high volatility and back are the norm.
    I believe that markets are mean reverting: it’s just that it hasn’t worked as well since the FED stepped in. This one thing has probably screwed with my head more than anything else.
    I believe (for me) it is very hard to manage trades in shorter time frames, as the volume of information tends to produce cognitive overload to the point where I make stupid mistakes.
    I believe things can always go farther than you think: This has NOT kept me from trying to counter trade some of these movements to my own regret.
    I believe Fibonacci levels can have merit in targeting potential areas of support/resistance.
    I believe that multiple time frame analysis is very important.
    I believe price patterns do repeat, and on many different time frames.
    I believe the markets at this point are largely the manufacture of the FED and the banks. Not that it wasn’t ever so, but by necessity far more an issue since the 2007/2008 period. The market has been converted into a tool of public opinion, social policy and a quotable measure of economic prosperity. This is understandable, and I would do the same thing, yet it offends me (bias talking here). I even wrote a post in 2010 titled “the market goes to a million,” detailing why I thought the market would keep going up: dollar weakness, a necessity to rebuild trust with a shattered American (and World) population, a thin tape easily pushed with limited capital, and punctuated by occasional selloffs to moderate bond yields. This did not keep me from trying to short it. (enter laughs here, if you’d like…)
    I believe I am most dangerous after a string of winning trades, especially large ones.
    I believe that news is useless.
    I believe that fundamentals have a place but price action rules.
    I believe that only price pays, and that all else is secondary to what price is telling us.
    I believe I have a long way to go, and question whether I will ever get there.

  • BigMoney

    I believe that it is better to wish that I was in a trade than wish that I was not.
    I believe that slow stoch and RSI together are great tools to pick entry points
    I believe that I need help on exit points but scaling out / R targets have helped
    I believe that learning is continuous
    I believe in Bollinger compression to signal price movement
    I believe that a simple system works best for me to avoid over-thinking or over-complicating
    I believe that it is better to listen to the charts than the news

    TES (the evil speculator) has been beneficial to my education as a retail trader on the path to independence and I am looking forward to Scott’s posts this week.

  • http://evilspeculator.com molecool

    You realize that with a 30% drawdown you have to produce a 43% profit to get back to break even?

  • http://evilspeculator.com molecool

    I believe entries are the least important aspects of trading.
    I believe predicting prices has little to do with successful trading.
    I believe determining risk and managing said risk is the only valid recipe for successful trading.
    I believe in only taking trades when the odds are heavily in my favor.
    I believe that sitting and waiting for the most favored conditions increases peace of mind and odds of successful campaigns.
    I believe that I am constantly only one trade away from falling off the wagon.
    I believe that very little information is necessary for successful trading.
    I believe that financial news is not only useless but actually an impairment to trading.
    I believe that no trade should be entered without a detailed plan.
    I believe that charts are just mental constructs – supporting the lens analogy above.
    I believe that price is the ultimate denominator.
    I believe that the market does not owe me nothing.
    I believe in losses and will approach each single campaign with the expectation of losing.
    I believe that a losing trade per your rules is a good trade.

  • BobbyLow

    Good Afternoon Folks!

    I’m still on Moles’s Mailing List and was happy to see that Scott will be back for a week. I must say that I am grateful, honored and privileged to have been mentored by Scott over the past few months.

    When we first began, he mentioned that it would take a few months to get on the right path. I must say that I originally thought that a few months might have been on the long side. However, it did turn out to be 6 Months that included getting my personal act together along with constant monitoring and analyzing my trades. I altered my systems throughout and Scott never once criticized me in a negative way. He taught by asking thought provoking questions and would suggest certain readings to help clear any confusion on a given topic I might have had.

    I can not reiterate enough about the efficacy of Scott’s methods. The “Current Lens” portion of the market is worth it’s weight in gold and should be an eye opener to everyone. I don’t know how many “discussions” are made about somebody being Long and somebody being Short at the same time on the same instrument and depending on time frame both views are correct. Then regarding things on a chart, I remember looking at some posted charts that looked like a bunch of spaghetti to me but to the poster were as clear as the light of day.

    On a personal note, when I took a hiatus from ES, it wasn’t because I was mad. I couldn’t think of an easy explanation, so I just disappeared. I have to admit to taking a peak at ES every once in a while since then and laughed because I think somebody thought I might have croaked. But in reality, I had to leave for a while because, I believe that I was posting more and more to stroke my ego which probably wasn’t doing anybody any good especially me.

    Anyhow, Thank You Scott and Special Thanks to Mole for continiuing to maintain the best trading blog on the net.

  • Scott Phillips

    Bergamot – Performance monitoring is THE HARDEST PART OF TRADING. The format is not important, what is important is the structure around black and white rules for what to do when your trader efficiency (% of mistake free trades) goes down, and the time set aside for review (I do mine on a Sunday).

    Imagine you have a pretty good system, it takes 10 trades per week at .2 expectancy, giving you on average 2R / week and for the 40 weeks you think you can trade at proper efficiency this year 80R / year. It gives 55% winning trades at an average 1.1R and 45% losing trades at -,88R on average.

    You take your 10 trades for the week but take 1 trade you shouldn’t take, which is a 1R loser. The second trade you set your stop incorrectly and get stopped out, when that trade would have been a 1.5R winner.

    For the week you are now negative .5R instead of up 2R. You start to think negative thoughts “I’m a failure”, “This stupid system better start giving us some fucking winners”, etc.

    It is far better to trade a lower quality system at high levels of efficiency than a high quality system at low levels of efficiency. I’m going to show you a structured practice way to measure and monitor your performance.

  • Scott Phillips

    This is quite interesting. Mole for example has a very very low tolerance for drawdowns (having a hard life as a kid tends to make people risk averse). Are you SURE that you can really tolerate this much drawdown (I’m sure we’ve all blown up accounts before) and still trade perfectly? This may be the case. Bill Dunn is comfortable with 50% drawdown on huge numbers. Everyone is different.

  • Scott Phillips

    Bergamot – This is all very interesting and undoubtedly correct, but the perfect example of a belief which has both negative and positive aspects to trading. I’ll post about the belief examination paradigm today, and I’d like you to go through it in detail with this belief.

  • http://evilspeculator.com molecool

    Hey Bobby – good to see you again. Per your point about feeding one’s ego – I actually get a bit worried when I see someone post incessantly here. There was a fellow recently here who showed up and posted dozens of comments each day. I had a feeling he would run out of juice and just two weeks ago he apparently wiped out and disappeared. IMO it’s sufficient to simply visit, catch up on a few charts, and perhaps one or two comments. Unless of course there’s nothing to be said. Posting here to seek approval of one’s analysis or one’s general ideas just as confirmation is not productive. Consistency is key in everything – even blogging and commenting.

    The vision I always had for this place was one for sharing and comparing charts, systems, and in particular entries. It’s one thing to say – hey, I’m going long the spoos. But it’s another to say I’ll be long here with a stop there and this is how I’m going to manage it, no matter what. Obviously I have been focusing a lot on entries here but truth be told – had I not this place wouldn’t exist anymore. The average retail trader is fascinated by entries and you just have to offer that, even if it’s just to keep folks happy about paying their sub fees. The changes I am envisioning have already started in that I am placing more focus on managing a campaign after said entries. I wish I could cover every single entry that I propose but I just do not have the time on top of all the other things I do. But that does not mean you guys cannot post charts and cover it. Perhaps analyze it for what could have been done better – perhaps a different type of ISL, or different campaign management.

    For instance there was that gold trade I wanted to ride all the way up and I used CI style campaign management. Instead of that I should have used something along the lines of Heisenberg (more looser ISL and trailing stops – perhaps partial profits after 1R or 2R). So by going through these exercises we may be able to maximize our respective approaches. Also this way people see various options for campaign management that works best on their end.

    @Scott – take a look at daily gold before it busted through the 100-day SMA. I think we had an inside day entry there and then got stopped out one two days later. My idea was to ride it higher – this could be a great exercise in how different campaign management can affect SQN.

  • http://evilspeculator.com molecool

    @Scott – take a look at daily gold before it busted through the 100-day SMA. I think we had an inside day entry there and then got stopped out one two days later. My idea was to ride it higher – this could be a great exercise in how different campaign management can affect SQN.

  • Scott Phillips

    A couple of these philosophical ones are an example of beliefs which need to be examined really closely for subconscious fuckery. “I believe that you can beat the market over the long run with proper understanding of medium and long term variables, but you can only make a living at this if you manage other people’s money” FYI an expert intraday trader should be perfectly capable of making over 200% / year compounding until he runs into position sizing constraints (which happens sooner than you would think). A $50,000 account with a system capable of being traded 2% R value with an expectunity of 4R / week over 40 weeks a year is $160K income.

  • Scott Phillips

    That was a great campaign, and like we discussed over the weekend re: Heisenberg in the long run you aren’t going to squeeze extra R out of the system, long run your winners are going to average *nearly* the same. If that is not the case your entry technique is probably bogus.

    It’s rearranging deckchairs on the titanic. You catch this big winner, but 3/10 other winners you are getting to 2.8R or 3R max fav excursion and then getting stopped out for .7R or .9R. The point is what you are trying to achieve. For me I want my systems to MINIMIZE DRAWDOWNS so I can trade with 2% R values. I’m going to cover the maths for this later in the week.

  • http://evilspeculator.com molecool

    Bill Dunn is fucking crazy and I respect him for that :-)

    @Scott – yes, my max tolerance is about 15% before I get nervous and slow down my trading. But on the other hand money doesn’t mean much to me and as long as my general living expenses are covered I don’t lose much sleep. In other words – if I trade $2 Million and lose $1 Million I am going to be miffed and probably look at what has gone wrong. But I’m not going to throw in the towel or become suicidal. You guys may laugh but there are plenty of folks who become completely distraught after losing a large portion of their fortunes. Jeezz, big deal – instead of $150 Million you only got $10 left. But heck – the good news is that you still got $10 Million! It’s all a matter of perspective.

  • Scott Phillips

    Everyone is different

  • teslaman

    First of all, the quality of this post is astounding!

    Second, being a “former” smart ass (had been lucky by making some calls) which in the long term resulted… yes you’ve guessed it correctly, to blowing up my entire account in late 2010.

    After suffering much emotional pain, I came to a point where I had to take it like a man and move on. I was the only one responsible, not the FED, not the Crisis, nor any other exogenous parameter.

    Thus I have come to realize the following:

    1. I believe that the worst enemy is MYSELF. There are two entities, MYSELF and I. When these fight, disaster occurs, when these two reconcile, “miracles” happen!
    2. As of now and with my current experience in life, I deeply believe that emotional pain is far worse than any other pain I can imagine. I decided that emotional pain should never again come from “trading” but from the normal course of life events.
    3. There is no need in this world to FIGHT the market. I believe the “trend” is your friend. The basic parameter is “do decide your strategy” (short, medium or long term).
    4. I do not care what the news say, the media, or any Government agencies.
    5. I do not care where the market is heading in the following 1, 3, 5, 6 or whatever months or years.
    6. I trade what I see and what I see only, there is no room for “predictions”.
    7. I highly believe in volatility and the relevant tools that assist in getting positioned for entries/exits.
    8. I believe RSI offers little market context and trading should not be based on it.
    9. I believe it is extremely dangerous to “try” and pick tops or bottoms.
    10. And the most important of all… I “MUST” take profits. I have been in lots of instances where after a good run, I have been stopped at break even or a with small loss because the inner self was salivating with “greed”. So at least I have an indicator for myself now… the “salivating indicator”, when I start salivating, I take profits.
    11. I believe patience is a virtue!

  • Scott Phillips

    My favorite chapter in any trading book ever and a seminal influence on me

  • Scott Phillips

    Actually being accountable makes you accountable. Setting aside time for analysis of all trades, winning and losing, noting the lessons learned, keeping track of how many mistakes you make, and the expectancy and opportunity of your systems – this is the real work of trading. The rest is icing on the cake. The real work in going from talented amateur to solid pro is in step 4 above – and if you don’t do that you won’t make it

  • http://ibergamot.blogspot.com/ i Bergamot

    No need to ‘imagine’… this is very similar to problem I am dealing with.
    Specifically, I had a problem of not entering a picture perfect trades, that would be winners (or at worst a break-even), because I was simply not at computer at that time, or too preoccupied with some other methodology I am running.
    looking forward to your articles
    Thanks

  • Scott Phillips

    Oh this is an interesting problem and I’ll cover it in the daily psychology part. Bottom line, these feelings of missed opportunity change your state, and make you more likely to trade like an idiot the next day. Before you start you have to integrate the lost opportunity and trade from correct state.

  • http://evilspeculator.com molecool

    Good stuff.

  • evilasevildoes

    12.I believe that if there is a huge imbalance to one side of the boat that a savy deep pocketed well positioned arb will take the chance to squeeze the lopsided trade for their benefit, whether it entails covering their trade with a ‘glitch’ in the exchange or fake tweets or phony news after the fact when they have already set up their ambush.

  • http://www.ProfitFromPatterns.com/ Ivan K

    Success in any field of endeavour requires an eye for detail, possession aka accountability and being in the ‘now’ … in response to Scott’s request / challenge to ‘list beliefs about the MARKET’ …

    My beliefs about The Market / s (in no particular order):

    The ‘real’ dynamics of market movements are not understood.
    Market movements in one direction persist until overcome by a greater force.
    Markets do not go up because there are more buyers than sellers or vice versa.
    Markets move because of the conviction of the players.
    Market movements are uni-directional far less than 50% of the time.
    Markets are fractal in nature.
    Commodity markets are range bound most of the time.
    Stocks are not.
    The spot FX market is not a 24 hour market.
    Neither are the futures markets.
    Markets exhibit patterns.
    News / figures / announcement do not cause movements.
    Markets facilitate the flow of money from the hands of many to the hands of few.
    Markets evolve to the lowest common denominator.
    The overall character of the market has not changed over the decades.
    Patterns repeat.
    Ranges alternate.
    Movements alternate in character.
    The markets would not exist without leverage.
    The markets no longer provide real economic or social benefit.
    The markets have strayed from their original purpose.
    There is no such thing as a level playing field in the markets.
    The markets are not out to get me.
    (Being involved in) the markets provides opportunities for real growth on many levels.
    The markets (financial system) have a limited lifespan.
    The markets simply ‘are’.

    Other belief structures that are relevant for me:

    Beliefs about trading approaches.
    Beliefs about requirements of myself to achieve my goals.
    Beliefs about money and risk.
    Beliefs about life and the universe.
    Beliefs about myself in relation to the above.

  • http://evilspeculator.com molecool

    So you could say the same about music and the market: Don’t try to over analyze it or understand it – just play it.

  • Billabong

    I’m a swing trader trading equities only. Thanks to this site and the philosophical discussions, my trading emotional IQ has improved substantially along with my performance. I have many of the same beliefs listed by other respondents and won’t bore you with repetition.
    1. I use very few technical tools and those I use are tied to my personality and out of mainstream thinking.
    2. Getting myself under control was a critical factor in my survival. Understanding left and right brain functions led to an unbelievable transition in both my trading and personal life.
    3. Great insight for me came from writers like Van K Tharp, Curtis Faith, mark Douglas, Alexander Elder, etc.
    Each writer offers a different perspective, all leading to the same conclusion.
    4. I believe markets don’t care what you or I think. They lack moral judgment because there is no judgment.
    5. I believe MSM is dangerous not only to one’s bank account but also to their health.
    6. I believe eating right, staying healthy and exercising is the critical first step in trading success.
    7. EVERY trade I do is analyzed for execution and then rated (10 being perfect entry/exit executions and 1 being a WTF trade). In addition, every trading mistake is assigned the cost of the mistake and given a number for the mistake’s reason (late trade, held too long, etc.). I believe I can (and have) reduce my mistakes and not enter low probability trades.
    8. I believe the trend is your friend until it isn’t.
    9. I love the 1 campaign of a 1000 or another train/bus will be pulling into the station.
    10. For me, I believe the 10,000 trades are important (and they help with the calming effect)
    11. I also believe position sizing for volatility is critical.
    12. I believe back testing before taking a position is critical. For me, I want to know how this equity responds/acts to the market and identify commodity correlations (failure to back test gets an automatic 1 under item # 7 regardless of whether or not it’s a financial winner).
    13. I believe my model’s viability depends on which equity group I’m trading and has to be adjusted accordingly.
    14. I don’t beat myself up if I have losing trades and the execution was perfect … it’s the nature of the beast.

    I could go on, but other people need to be given an opportunity to express their beliefs. Thanks very much and keep up the great work…

  • Scott Phillips

    Great stuff on his blog seykota.com about holotropic breathwork, which I have done a lot of. I can confirm that holotropic breathwork is very similar to taking LSD and useful for internal transformation in a faux shamanistic type sense

  • Scott Phillips

    The backtesting stuff is very interesting also. I come from the Ivan school, where I’ve done 5 years of backtesting for intraday systems, taking 2 months with pencil and paper to do this. I always believed it was absolutely necessary. Over time, I’ve observed others who build objectively better systems with a lot less backtesting. Heisenberg in comparison to all my other systems had NO BACKTESTING AT ALL, and is in forward test beta (and outperforming by orders of magnitude by old heavily backtested systems) What I’m going to cover on entry techniques is the idea that if you can identify a market condition which is similar on many levels and timeframes, then the outcome is going to be in the long run similar. By not trying to build one size fits all systems, and instead build sniper like systems where you have a degree of confidence that “like things will behave alike” you can start to optimize to keep your outlier wins

  • http://www.ProfitFromPatterns.com/ Ivan K

    BACKTESTING

    One of the major fringe benefits of manual backtesting is forcing oneself to focus on the task at hand (same as when trading) … another one is force-feeding the subconscious with heaps of events … this leads to a dramatic increase in one’s knowledge data base … which leads to confidence in both one’s own abilities as well as to the efficacy of ideas /setups.

  • Scott Phillips

    Your style of backtesting is effectively practice for trading, which has enormous benefit over and above the actual benefit of the backtest. From a market knowledge, trader efficiency and personal performance perspective this is incredibly useful, from a system design perspective less so. Daniel was a great example of that benefit, he would trade 100 trades without making a mistake, which is quite incredible. I believe you operate at similar or higher levels of efficiency, which in an objective sense is superhuman.

    I agree with you that there are deep benefits to be had from backtesting (especially the confidence to endure a drawdown) , but system design is not really one of them.

  • http://www.ProfitFromPatterns.com/ Ivan K

    To clarify backtesting a la Ivan is … taking a bunch of ideas and seeing how they perform … leading to modifications, additions or abandonment … back-application is applying the final RBT to out of sample data … the latter is part of ‘practice for trading’ … my concept of warmup laps (WUL) is where the real benefits come together.

  • mothwhoflysbackwards

    wow, 2 fantastic posts back 3 back! These types of posts are what sets ES above other blogs.

    I honestly don’t think I have any real beliefs about the market. It will go up till it stops?
    I do think fear makes me fast and greed makes me slow. I do think I can predict my reaction to the market- what my emotional state maybe. Of course this is only if I don’t have a trade on because if i do I never let what the market is doing convince me to ditch a stop. Always look to take trades that can (I think) give me a return of 2 times my risk. Also have kept a journal which has what I am thinking feeling when I enter and exit. I don’t mean technical shit but stuff like “worried i am going to miss out” etc. That’s how I figured out my fear fast- greed slow reaction. I also (thanks to journal) found my selling winners too soon is caused by me wanting a winner and wanting to lock it in so I can book it in the win column.

    In so far as the point in #3 about prolonged periods of success … draw downs after success (for me) happen because I take too much risk (say 4%) because I have not psychologically incorporated the new money into my account. THEN the “feel like I don’t deserve it” could be playing a roll. I almost always (from looking at journal – and wow did not notice this ’till today) try to learn new stuff after a period of success. Maybe I feel a need to pay for my past success after the fact. That’s a thinker.

  • mothwhoflysbackwards

    yeah i think that was me, nice to know you ain’t dead yet. Don’t ever do that to me and your Mole again — ah just F in with ya. Don’t know if you will stay or go so ALOHA to you. That should cover it ;-).

  • http://www.ProfitFromPatterns.com/ Ivan K

    One aspect of success in any field that I keep pushing is: If it is not written down, then it is not real!

    This is part of possession and accountability … telling someone else in great detail what you are going for is often frowned up or worse … yet … see below.

  • RUFCrazy2

    It is possible to build RBT-based models that perform quite well, robust in a wide variety of market environments, proven by out of sample walkforward testing.
    I have models I have build, tested and proven with a decade of significant annual profits with no significant drawdowns > 15%-20%; a typical yr may have a 4R max drawdown, but it is hard to do that every year.
    Models should produce outstanding returns the greater the volatility such as is in 2000, 2008 or 2011.
    It is MUCH harder to trust the models and take trades the model executes that differ from your own opinion.
    That is the hardest struggle I’ve had – by taking 100% of model trades, I would certainly have performed significantly better than I have.
    The markets are clearly manipulated. That doesn’t mean an ensemble of indicators can’t produce outstanding returns. Price is important, but need to use other non-priced based indicators/filters such as advancers/decliners, volatility, Tick, Trin)
    Short timeframes seem useless to me – my best models use 1 hour timeframes or more.
    I like the approach TES uses. It has certainly has given me perspective. Maybe I need 3 accounts, a couple to trade my models and another to take TES setups.
    I agree with many of the other commenters re: Risk mgmnt, Money mgmnt, news etc

  • Scott Phillips

    You will have beliefs.Think about things like which indicators you like, how many bars on a screen you like to see. Which timeframes you prefer (daily weekly monthly) How long you want to stay in an ideal trade. Whether you think markets are free or manipulated. Think about the market theories you like and the ones you hate. Are you more comfortable with the trend or trading against it. Do you think it is easier to trade rangebound or trending markets?

  • Scott Phillips

    Agree completely

  • saltwaterdog

    I believe that fundamentals are the explanation needed after the fact and nothing more
    I believe in the cycles of “Good Cop/Bad Cop” (as Ivan has called it here) exist not only in a market, but in one’s equity curve, frame of mind, and general path
    I believe you get out what you put in
    I believe mind body and spirit are all relevant inputs
    I believe, now, that there are truths, both universal and otherwise, in market profiles that transcend both ticker and timeframe
    I believe that the power of the SubC is real and left unobserved and unchecked a powerful obstacle to success
    I believe in the power of process
    I believe I am solely responsible for the outcome of my decisions
    I believe that I still have a long way to go but that I will get there.

  • mothwhoflysbackwards

    Fair enough. I will use your comment as a template for my thinking on the subject tonight. I do know my “style” has changed and I am more breakout (as opposed to revert to mean) oriented now.

    Manipulated v free or random walk ok with them all. How long to stay in “ideal trade”? I never thought about some of this stuff. I do know I never use TA to justify staying in a losing trade that will take more then my stop (1-2% loss) and I now really try to let winners run. So my time frame for ideal trade depends on the Market. Though I do not like day trading. As to the 2d to last question my own personal make up leads me to be a contrarian but that has changed. The last question depends on what I have last had success with! Now I would say easier to trade the trend but (what was it 2011?) when we were in a nice range bound trade during the summer would have said different. Hey it must be easy if even I got it right! Like I said I will give this more thought tonight and am surprised that I have not formed any hard opinions on the subject

  • Skynard

    Hello rats!
    I believe that self-preservation is key to anything in life and for any trader.
    I believe that less is better in trading
    I believe that a trader needs to always be on top of his/her game otherwise get the fuck out.
    I believe now (very recently) that a trend is your friend. Been long /XW from 562:)
    I believe that you must follow your rules no matter what happens.
    I believe that my game has gotten better over the last 3-4 weeks since not posting so much.
    I believe this is a very good post! Chow baby:)

  • newbfxtrader

    Look who decided to show up! Hows life bro?

  • Skynard

    Most excellent, how about you?

  • http://dartht.blogspot.com/ Gold_Gerb

    I disagree. (on the sharing part)
    and have a TED talk to back it up.

    http://www.ted.com/talks/derek_sivers_keep_your_goals_to_yourself

  • Skynard

    FWIW, went long /DX fr 79.48

  • http://www.ProfitFromPatterns.com/ Ivan K

    Are you actually comparing apples with apples? My thrust is to create a detailed written plan complete with timelines and exit parameters before any sharing is done … additionally it is important to choose a person on the same wavelength … as opposed to the TED example.

  • spicestory

    Homework submitted
    Market could be manipulated
    Market though repeast but at the same time evolves
    Market participants ration (among institution, retails, and trader) dictate its behavior
    Market changes me

  • SilverEagle

    I believe it’s healthy to take a break from trading when you’re not in the right state of mind
    I believe fear of losing money is money has been my greatest weakness after an abysmal track record of “being early”
    I believe that fear grows exponentially as as I see drawdowns regardless whether that money affects me at all (i.e., I can still pay may bills and do everything I want even if it’s gone)
    I believe I can conquer that fear
    I believe odds are powerful things and despite deviations work in the long-run. Thus, sticking to your plan even when you have a drawdown will be beneficial in the long-run (e.g., always tough to hit on 16 in blackjack but I’ll do it religiously as that’s the what the book says)
    I believe trading and gambling are different but can easily morph without a plan
    I believe as with most things in life, having an internalized understanding of why an indicator or setup works is key to success
    I believe indicators are useful in hind-sight but difficult to trade real-time
    I believe I will never internalize the ZL (but i will damn sure keep asking questions about it)
    I believe markets revert to mean over long-term
    I believe markets are cyclical. I also believe humanity, civilization, weather and about a million other things that matter are cyclical.I believe I have yet to find what works for me as a trader. I believe I will.
    I believe there is some credence to fibonacci retracements and extensions both because nature is governed by this and because computers are programmed to trade these.
    I believe every word that comes out the mouth of someone on CNBC or MSM is likely disinterested and self-serving. I believe this a bias as it makes me often take counter trades or fade the headline when in fact following the headline is the proper thing to do.
    I believe markets are more discernable over longer periods that eliminate noise, but more difficult to trade given the range and size of moves that may not fit my capitalization.
    I believe I must learn how to reconcile the concepts of “let your winners run” with “never give anything back / bank your winnings”
    I believe a system that has worked well over the past five years of Fed intervention may not work well after the market decides the Fed intervention won’t matter anymore.
    I believe a system based on an understanding of human nature – fear, greed, euphoria, despondency, indecision will always be valid.
    I believe this is one of things that speaks most deeply to who I am as a person – “That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.” -Aldous Huxley

  • Scott Phillips

    The interesting thing about fear is that it is perfectly natural and not necessary to mindfuck it away at all. What is not acceptable is to abandon yourself and trade from a place of fear where we become reactive and blind to what is happening. Good psychotherapy and meditation program can solve this stuff easily.

  • Scott Phillips

    The interesting thing about fear is that it is perfectly natural and not necessary to mindfuck it away at all. What is not acceptable is to abandon yourself and trade from a place of fear where we become reactive and blind to what is happening. Good psychotherapy and meditation program can solve this stuff easily.

  • Scott Phillips

    The trend is your friend from the KING of the counter trend traders and the only one I ever saw who was any good at it!

  • Scott Phillips

    The trend is your friend from the KING of the counter trend traders and the only one I ever saw who was any good at it!

  • http://ibergamot.blogspot.com/ i Bergamot

    Glad to see you are ok

  • Dyellowflash

    Check up copper, weekly broke from a big channel after a down move last yr. Today is Day 1, probably need it to stay down below 3.06 and re-breaking of 3.02 by eod or tmr Day 2 to confirm some serious damage on the way.

  • Scott Phillips

    NEW POST!

  • fisheggs

    Thank you Scott!

    I believe that keeping it simple and clean is the best way.

    I believe that all I need to know is on the charts, I don’t need to know what the latest numbers are etc.

    I believe that price moves from order to order, but in a fractal way.

    I believe that patterns repeat over and over, some will fail, some will not.

    I believe that I am more of a reversal trader rather than a trend follower.

    I believe that the market is a zero sum game.

    I believe that I have to be at my best to get the results I desire.

    I believe that have a rule based trading plan and sticking to it is the only way to succeed.

  • FIHarri

    I’v always believed that it’s my money and my responsibility.
    I believe that I’m almost recovered from my obsession to to seek-, see- and count waves.
    I believe that wave theory makes me try to pick tops and bottoms.
    I believe that wave theory makes me try to hit home runs every time.
    I believe that wave theory gives me false confidence about future prices.
    I believe nobody knows where the market is going.
    I believe I don’t need to know where the market is going.
    I believe that wave theory only serves my ego, that I believed already tamed.
    I believe wave theory is unuseful for my trading.
    I believe that people at EWI are brilliant on what they are doing, but EW is not for me.

    I believe that “Everything should be made as simple as possible, but not simpler. (Einstein, as you know)”. Not claiming that on purpose, but I believe that Mr. Ivan K has done that to wave principle.
    I believe that all I need is low risk opportunity (and of course proper management).
    I believe that from the ashes rises phoenix.

    Kiitos Ivan, Scott & Mole.