Discretionary Trading
Now Reading
Market Weather Basics
2014-03-28_weather
4770 20 95

Market Weather Basics

by The MoleMarch 28, 2014

In the past few years I have spent quite a bit of effort categorizing distinct market phases as they clearly can affect both discretionary as well as automated system trading. I often also refer to it as ‘market weather’ and my first treatise on the subject was two years ago in a pertinent post. It mostly focuses on the psychological aspects of how market gyrations affect trading behavior and distorts perceptions among market participants. In combination with a trader’s respective cognitive biases various market conditions will affect one’s daily activities. Whereas a swing trader may be perfectly happy and successful playing the swings in a volatile sideways market a trend or system trader may run into draw down periods, thus affecting discipline due to recency bias.

Of course there are various technical approaches of how to categorize market periods and among my favorites are Van Tharp’s SQN based approach or the StretchStat and VolStat indicators developed by Ken Long. Scott recently covered those in his posts, so if you want more meat on your sandwich then I suggest you point your browser here.

In today’s post however I want to go back to the basics as you don’t really need any fancy indicators in order to develop a pretty good ‘feel’ (if I may use that word) for categorizing various market periods on a chart. The human mind is actually pretty damn good at pattern matching – and with a bit of practice it’ll quickly become second nature. So let’s cover a few core markets of recent past, starting with the bonds.

This is actually a wonderful example as the difference in the two prevalent phases couldn’t be more salient. Starting in early January until the end of the month bonds pushed up significantly in what I would call a low to mid volatility trending phase. If you recall Scott’s treatise on the subject – that is a very common period and one I would categorize as easy to slightly challenging for the average trader. Of course your mileage will vary greatly – again for a trend trader this can be fun, for a swing trader this is more challenging as reversals/corrections are shallow.

The inverse speaks true to what followed – a high volatile sideways market which I consider the most difficult for most retail traders. The reasons for that are plenty and have been rather prolific on this subject and prefer to not repeat myself in this post. Suffice to say that anyone with a directional opinion or expecting resolution will be taken the woodshed all the way through Sunday.

Here is another example – the spoos on which I highlighted three distinct phases. The sell off in January was rather directional but with some volatility in the middle. What followed was a low volatility trending phase. Of course any indicators won’t tell you that until you’re halfway in but the human mind can easily pick up the fact that we have very few overlapping candles and most importantly 10 consecutive higher highs in a row.

Since about mid February things however got a bit more dicey and I would categorize the recent month as a volatile sideways period – once more the most difficult to trade for most participants. Psychologically also rather taxing and it has been taking its toll right here in the comment section (which has been rather quiet in the past two weeks). I always try to warn you guys when I see storm clouds on the horizon but often get the impression that very few are listening. Perhaps educational posts like these will serve to instill a bit more sensitivity as to when trading can be easy and when it can feel like helping Sisyphus push a rock up a steep hill.

Another example gold – I think one of the reasons why we have been rather successful in trading the shiny metal is that gold has the habit of switching between volatile sideways and trending phase with a mix of volatility, usually medium to heavy. You probably remember our gold entry in early February at which point I was expecting gold to continue trending higher. What I did not anticipate is that it would make a sudden u-turn but what’s interesting is that the market phase has barely changed – we are still trending and volatility is probably identical to what it was on the way up. So clearly we must differentiate between direction and market phase. For the seasoned trader direction may be insignificant but retail traders often get married to a particular direction, with the expected results.

And then there are charts which are almost impossible to categorize – I usually stay away from those unless I see then knocking on very pronounced inflection points (a subject for a different day). But when you look at a chart just like this – what do you see? What I see is acceleration followed by slower periods. In terms of volatility that creates a strange mix – the tape looks pretty directional but it’s rather volatile. But clearly this is NOT any easy chart to trade, would you agree?

Here is another example that may be even more pronounced – the fabled natgas contract Just look at how different these market phases are and I haven’t even bothered trying to categorize them. An accumulation of slow/sideways tape followed by quick spikes, long wicks, and sudden reversals. I also see a lot of gapping action and for a futures contract that is very rough to trade. Once again, stay away unless you really know what you are doing.

In summary – market phases are much neglected but integral part of trading and one you should come intimately familiar with. System developers often thrive to write systems that offer a lot of opportunity by being in the market all the time. That’s understandable but it is largely based on an unrealistic assumption that the same entry and campaign rules will work in all market conditions. Instead you will find that some systems promising only a very small or no edge may suddenly work extremely well if used only in the context of certain market conditions. To that end it is important that you sit down and document the characteristics and beliefs of your trading activities and then correlate them with the various market conditions you will encounter. Again, that in itself deserves its own post and I think Scott has definitely pointed the way.

My own work is strongly influenced by market categorization and without padding my own shoulder many here would agree that it has kept us out of various traps in the past. This morning’s spike higher for instance could not have been predicted but it had pretty good odds given what we saw on the Zero as well as in the context of the tape we experienced in recent weeks. Which is why I happily exited my TF trade yesterday according to the rules.

In essence what you always want to ask yourself is this: Does the current market phase impair or support my trading activities? In either case you can either change your current approach or just sit on the sidelines until you see better weather on the horizon. Unlike fund managers or professional traders you are only responsible for yourself and your personal assets, thus you are afforded the luxury of flexibility and the ability to be nimble. Once you are pushing a few hundreds of millions of Dollars around the dynamics of trading become quite different. It’s like the difference between driving a speedboat and an oil tanker. Say what you will – the speedboat is a lot more fun and if you’re lucky you’ll enjoy attractive company in sexy bathing suits.

 

 


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • http://dartht.blogspot.com/ Gold_Gerb

    *lunch break* {huff, puff, huff}
    out for 0.9 R band-to-band 84 to 88 roughly.

    [GLL]
    http://stockcharts.com/h-sc/ui?s=GLL&p=D&yr=0&mn=3&dy=0&id=p24484669782

    Cheers!

  • Billabong

    Mole,

    These are great weeks to either study, add a new trading tool or sleep in (yawn). This week I’ve worked on R, next week I’m looking at adding a stock volatility measure. Do you or any other rat have a suggestion for a usable/reliable stock volatility measure?

    I liked the afternoon discussion on “climate change” in the markets and knowing where it’s currently going. Scott also did a nice section in his piece on the same subject. Hasn’t Ivan addressed this also? This tells me that the successful players have this subject under their belt … and a simple Simon like me needs to get on-board. I have started asking the questions on where is the sector and general market going before I take a trade.

    Thanks

  • ridingwaves

    ridingwaves • 21 days ago
    March is not a big delivery month at comex for precious and the silver mare, April is different story, big boys will hit it and should be sideways action thru march…geopolitical events could tweak that theory
    April is a big delivery month…Mole requested some setups, So I will bring a couple to plate over weekend…Bio sector trend plays

  • DollarChaser

    I love these educational type posts mole. I read them over and over again. Then I go away and practice what I (think I) have learnt then come back and read them again. Thanks!

  • phylum

    Hindsight is a wonderful thing:)

  • phylum

    You won’t know until you get there … dusting off crystal ball….. for later use!

  • phylum

    Practice makes perfect, however, the outcome depends if you’re practicing correctly….

  • phylum

    Interesting quest offered by Ivan, you enter long on the break of the previous bar close……

    “…. As Timing is the key (in life and trading) … a great starting point to test an idea is … 1) use no ISL … 2) Exit on Close of Period # 1 … that is as raw / real as it can be … entry achieved and either profit or loss at the Close of the bar of entry … if the end result is negative and the strike rate is less than 50% then the idea is dubious at best.

    EDIT: That does not mean that the idea is thrown away … it simply goes down in terms of priority in the large list of ideas to work with.”

    Choose your timeframe, do your stats

    ps report back to the forum

  • mugabe

    Looking at some charts, nickel looks interesting. Has broken out of a 9-month base. In fact, it broke out about a month and a half ago (extended short term? who knows?) but has just come on my radar. Apparently, the fundamental driver is an Indonesian ban on nickel- which everyone obviously knows about.

  • mugabe

    ‘Whereas a swing trader may be perfectly happy and successful playing the
    swings in a volatile sideways market a trend or system trader may run
    into draw down periods, thus affecting discipline due to recency bias.’

    If you are a trend trader (or a swing trader or a breakout trader or a whatever trader), as Mole has said a lot recently, you have to pick markets that are showing characteristics where your trading style has some sort of edge. Scott’s simple line drawings show that it’s not rocket science to know what stage a market is in at a particular moment (although there’s never any guarantee that it will continue to be in that mode for much longer). For me, screeners help to try and track down these markets. For example, I’m a medium-term trend trader, so at Finviz I call up all the ETFs whose 50 day ma is above its 200 day and that are up at least 10% over the last 6 months. That gives a good starting point for eyeballing charts. Obviously, you have to be careful about not trading highly correlated markets / ETFs in order to diversify risk and reduce the possibility of lockstep drawdown..

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

    As the saying goes … there are many roads to Rome … rather than matching the market phase to your desires … match your RBT to the various phases that a market evolves through … in other words have one RBT that takes performs in trending phases … and another RBT that shines in other than trending phases.

    One aspect of this approach is that the issue of correlation is reduced, or even totally eliminated … by focusing on milking just one market … as opposed to scanning scores or hundreds of markets.

    Regarding trading in stocks … it is significant to note that one is accepting 2 risks … the specific risk of buying the ‘wrong’ stock … and the general risk of buy the ‘right’ stock at the ‘wrong’ time … food for thought!

    EDIT: I showed an example of the efficiency of my multiple RBT approach last week.

  • mugabe

    ‘As the saying goes … there are many roads to Rome … rather than
    matching the market phase to your desires … match your RBT to the
    various phases that a market evolves through … in other words have one
    RBT that takes performs in trending phases … and another RBT that
    shines in other than trending phases.’

    Thanks for the reply, which I doubly appreciate as you an expert in this (unlike me!). I personally can’t see anything wrong with matching the market phase to your desires or, rather, to the situation that your system is designed to exploit. For example, if you’re a trend trader, you’re always going to find some markets that are demonstrating an up or down trend, whether gradual or precipitous.Isn’t this what Mole in effect does- offer his subs set-ups in markets that demonstrate chart configurations that respond to the triggers in his system? I.e. he scans for markets with favourable conditions?

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

    I am no ‘expert’ .. nor do I profess to be one … I am simply a person who has survived the markets.

    When you re-read my offering … I did not say ‘wrong’ … I simply suggested another possible road … one that has been very kind to me.

    One reason why adopting a strict, non-wordfest RBT road is challenging is that it means that 1) It involves clarity of ideas (ie black and white) … 2) daring to be shown by said ‘work’ that the idea is not accurate or real.

    By having a number of RBT’s (such as my TDR or AA) … both phases of market activity are catered for … and opportunities for risk taking come my way … as opposed to looking for them.

    Again it depends on the brief regarding spending one’s 86,400 and $ as well … there are many roads.

    PS Markets trend less than 1/2 the time … yet the quest seems to be to find that needle in the haystack!

  • mugabe

    ‘When you re-read my offering … I did not say ‘wrong’ … I simply
    suggested another possible road … one that has been very kind to me.’
    Fair enough.

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

    This is not a contest … the other ideas have merit .. perhaps!

  • mugabe

    Absolutely- I didn’t look on this dialogue as a contest at all ie. what ‘you’ say versus what ‘I’ say. If I’ve learnt anything, it’s that ego has no place in trading (and possibly in most things). This was just a discussion of contrasting approaches / philosophies. Anyway, thanks for your time, and have a good day!

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

    Wow … in my world the quest of life (and trading is a very small part of it) is to achieve my personal best every day .. in every way … a major part of that is engagement.

    BTW .. I choose to live in Vanuatu and it is dark-time here.

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

    I always challenge anyone who comes across my path to verbalise and write down their goals and more … as anyone who visits my legacy website knows … that process is very insightful … and works a treat imo.

  • mugabe

    Hmm… I can’t honestly say that ‘ in my world the quest of life is to achieve my personal best every day .. in every way.’ When i do something, i want to do it acceptably well, but I don’t set the bar as high as you. This is probably the difference between high achievers (in any field, trading included) and moderate ones. I would also be pushed to write down my goals (in life). But I don’t feel bad about that.

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

    “Acceptably well” empowers someone else to judge you … what if they their yardstick is not acceptable to you ?

  • mugabe

    I mean acceptable to me. In a situation that involves others, if their defintion of acceptable is not the same as mine, we have a conflict that can be resolved in one of two ways: finding middle ground or parting company.

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

    Acceptable or otherwise … is relative to one experiences and expectations … given we do not live in a vacuum it is relative to outside influences … from where I sit.

    Regarding conflict resolution … a middle ground solution, by definition, satisfies neither party … hence a sub-optimal solution … compromise is a bandaid that allows the sore to fester.

    EDIT: The same way as anger management does not address the source of the anger in the first place … nor does AA.

  • mugabe

    I think part of the problem,but this is a whole new can of worms, is thinking that our perception is somehow THE perception and is objectively correct, whereas it never is. Our mental maps shape of perception of reality.
    To take what you say, sometimes sub-optimal solutions are the best ones available. For example, in certain family situations (eg getting along with parents in law), compromise may be a better solution than rupture.

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

    Back to point (B2p) …trading … given the fact that the markets trend less than 1/2 the time (and hence of my 12 setups only 3 are trend following with 8 being reversals) … I am at loss why the mantra of ‘the trend is your friend’ is still espoused … perhaps the reality is ‘the trend is your friend except when it is not’

  • mugabe

    I think the trend is your friend as long as it continues to exist. A lot depends here on your time frame. Where a short-term trader sees a chop fest and high volatility, a long term trader of the same instrument sees some small squiggles of no concern. SPY is an example of this at the moment. I mean, it hasn’t even broken the 50 day ma yet.
    I also think that trend following probably psychologically appeals to a certain type of person. a gradualist, who thinks that lives moves in waves.

    (For an extreme trend following example, I read a paper in the Journal of Finance on ma cross-overs (not very short term), which said that statistically (over many decades) once the trend starts, you should set your sell signal at the next positive (not negative) crossover. I haven’t got the stomach for that.)

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

    You are very good at quoting others … dare to do the work yourself … and then back yourself….

    EDIT: Less wordfest and more stats … create a simple hypothesis for both entry and exit … and see what comes out … once you have a working process to assess any idea … you are on the road to real progress!

  • mugabe

    I am backing myself with new systems for the past three months. So far, one down 0.4%, the other 0.7% in the first quarter (with very low volatlity). One based on trend- following / breakout, the other purely on momentum and volatlity- both with strict risk control and diversification.

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

    The end result is of the least significant … I am happy to include a RBT into my mix of RBT’s even if it is not producing a positive R result overall.

  • mugabe

    To be honest, three months is nothing, and the results so far do not lead me to question the validity of either of the systems.

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

    Hmmm … perhaps you would benefit from Scott’s offer to create a RBT with him … seems your 86,400 are slipping away … else you could go to the source.

  • mugabe

    Appreciate the advice but, as I said, I do not see any cause for concern. I will obviously monitor the situation and will bear what you say in mind.

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

    I am not talking about ‘concern’ … I am talking about the efficiency of your utilising your irreplaceable 86,400.

  • mugabe

    OK, fair enough, concern is an emotional word. This may go back to what we talked about before. You are aiming for an 100% optimal /efficient system or combination thereof (e.g. 45R in 3 months so far- amazing), I am happy with a system that is sub-optimal but profitable. This is psychologically where I am at the moment.

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

    Optimal is a dream … securing what (or as much as possible) is on offer is real … perhaps you are where you choose to be … that is a constant … progress only comes from moving on from a place of discomfort.

  • mugabe

    OK, probably best to wrap up. Appreciate the dialogue and your informed input. Has given me stuff to think about. Cheers!

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

    Make it Count!

  • Sean

    If you look at the full quote (I prefer Ritholtz’s version), “The trend is your friend — until that nasty bend at the end,” it is actually a warning about risk management… but people who happen to be positioned with the trend (or are getting in near the middle or top) like to use just the first half to rationalize large positions that are actually too risky because, hey “the trend is your friend”… and the reason it sticks around even though just referencing the first half is mostly wrong, is that most humans are supremely maladapted for survival in the jungle of the markets.

  • http://evilspeculator.com molecool

    “I am no ‘expert’ .. nor do I profess to be one … I am simply a person who has survived the markets.”

    Only a true expert would say that 😉

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

    And the practical application of the above ?

  • http://evilspeculator.com molecool

    Ivan may come across as a bit preachy and ‘guru-ish’ here and there but he does not have a bloated ego – otherwise he would not survive the markets this long. I think you may have misread him – he’s at the same a very humble trader, it’s when he teaches that his complex personality (older gent living at the beach in Vanuatu – go figure – hehe) may some rub the wrong way. Intelligent people are often very complex – you need to take the good with the bad. In Ivan’s case most definitely ‘lo vale la pena’.

  • http://evilspeculator.com molecool

    Don’t worry Ivan – we love you visiting here – I myself can be an ‘acquired taste’ – hehe..

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

    One accurate rendition of the many trend quotes is: ‘The Trend is your friend unless it is your greatest enemy’ … it is worthy of remark aka remarkable that the degree of trend is rarely mentioned.

  • mugabe

    sin problema. He reminds me a bit of a stern but fair sports master. Or a pyschoanalyst who challenges you.

  • Sean

    Simple, have a literal definition of “trend” and risk management rules and trade accordingly.

  • http://evilspeculator.com molecool

    PERFECT – this is the exact issue Scott and I have been running into and it is KEY to monitor the ‘stage’ of a particular phase. Early and late phases are actually similar – the mid part is the tricky part. At least based on the way we are measuring it.

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

    Care to share ?

  • http://evilspeculator.com molecool

    “The trend is your friend — until that nasty bend at the end”

    The problem is that retails keeps focusing on identifying the nasty bend at the end. Go over to the Slope for five years of hands on experience on the topic.

  • http://evilspeculator.com molecool

    For me I simply don’t worry about the nasty bend – especially on a large scale you will get enough evidence to get positioned. Simply trade the ‘easy direction’ as long as you can – once you keep getting stopped out beyond your usual distribution of w/l then you know that something’s afoot.

  • http://evilspeculator.com molecool

    We are all ears…. :-)

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

    Rest assured that this not the sole domain of the ‘retail’ sector!

  • http://evilspeculator.com molecool

    There is a lot of talk in the markets – legacy of ‘smart sounding’ quotes with little real application. Why? Because most retail traders really don’t care about banking coin deep inside – they care about being proven right.

  • http://evilspeculator.com molecool

    Three consecutive months give you enough statistical data (assuming more than 100 trades) that your system has an edge (or not) in this particular market phase. If you have a radical change of market phases and your system continues on track then you may be on to something very good. So again, this is a blanket statement many would adopt as face value but it’s really not true.

    The true final test is forward testing after identifying what worked in one particular past. Then it WILL break – I promise you that – and then you get to figure out WHY it breaks. And then you figure out if that edge is form fitted and if it survives future similar market periods. Again, it’s a big subject and it cannot all be conveyed via conversation. At some point you have to step into the ring and get punched. Meaning you have to just build a system and go through the motions – which is why I love Ivan’s suggestions to constantly go out and challenge everything – do your own math. You mature a lot by doing that as it will teach you a critical mind and self sufficiency.

  • http://evilspeculator.com molecool

    45R in three months are outstanding – let me know if you repeated that twice by December. It takes at least one year of hands on trading (after development and proving of edge) for a system to pass the threshold of being experimental. EVEN if others have traded it successfully in the past.

  • http://evilspeculator.com molecool

    Yes, he may piss you off but he does you leave you thinking – and that’s half the battle.

  • Sean

    Just because I know how you should go about doing something, it does not mean I have already done it, trend trading is not currently in my repertoire, so I have nothing specific to offer… but if you are interested in building a trend following system that suits you I can recommend a great set of posts to get you started 😉

  • http://evilspeculator.com molecool

    Agree but not necessarily with period 1 – it’s possible that some strategies take two or three periods to get out of the gate. But otherwise a great way to avoid premature optimization. I think this gives me a great idea for parts of the book Scott and I will write at some point (perhaps five few years from now when we have a solid track record with our current systems).

  • http://evilspeculator.com molecool

    FYI – some real data on the subject:

  • http://evilspeculator.com molecool

    more…

  • http://evilspeculator.com molecool

    even more…

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

    It is always fascinating and insightful to observe the verbal dance between ‘you’ and ‘I’ … that skill has mega dividends in both social intercourse … as well as business negotiations … thank you for illustrating the point yet again.

  • http://evilspeculator.com molecool

    @ridingwaves – see my charts at the end of this thread…

  • mugabe

    WE agree

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

    Three non-consecutive months provide a greater insight … depending on the number of events / setups in each month.

  • Sean

    Through what lens is it interesting? Are you referring to a trend following lens? If so, how are you defining “break-out,” new high (what time-frame and length?) or just stopped testing the base (how do you measure that)? And what time-frame are you looking at, daily? Weekly? And what do you mean by “extended short term”? If you use those words then you should have a definition for them and therefore YOU should know whether or not it is “extended” (that’s who). And what are the parameters of your radar? Trend strengh? Breakout? Read about it on a blog? … as for the “fundamental” drivers, take a guess as to where that 1.5 month ramp came from, and unless you have billions of dollars and are related to the prime minister of Indonesia (Goldman is probably having dinner with him as we speak) then WGAF?

    Not trying to be rude, just trying to point out that nearly every word in your comment has some underlying assumption that nobody but you really understands, and I’m not sure you totally understand them either… maybe you could detail your lens in a comment so others can engage, because without understanding your lens your comments are meaningless…

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

    I trust you are saying that Mugabe’s comments lack meaning to you … perhaps others, myself included, did gain something from them.

  • mugabe

    Scroll down the link for five year chart of nickel at: http://www.kitcometals.com/charts/nickel_historical_large.html

    After a long down trend (here we’re taking a downtrend of 3 and a bit years), nickel has formed a 9-month base which it’s broken out of. I don’t think you have to look at the chart long to see this. As to whether it is extended and will retrace, I just threw this out. You don’t know whether it is extended until after the event. Traders here who like to play breakouts from extended bases might want to look at the chart and apply their own rules. If they don’t trade this way, then fine.
    The parameters for my radar was the Finviz stock screener which thew this up. I was actually screening for trend continuations but came upon this ‘by accident’.

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

    If timing is the key then a position ‘should’ be in profit on the period of entry … 101 … else the hand grenade effect … the same concept applies to placing an ISL … it goes at the point where the reason for being in a campaign is no longer valid … as opposed to a mathematically derived best fit … aka … some proportion of an ATR … the ATR idea introduces 2 variables … both of which invariably lead to curve-fitting … also known as optimisation.

  • Sean

    What do you think about the idea of dynamically adjusting R according to system performance? What I mean is, if you know your system should give you a 40/60 W/L split over the long run, but the last x number of trades has fallen to 20/80, you would reduce you position size to 1/4R… then, if you are running 3 systems (assuming all are usually 40/60 over the long run) you could dynamically balance R size per system according to recent performance and have the 20/80 system trade 1/4R, the 40/60 system trade 1R and the 50/50 system trade 2R. You have mentioned that you reduce R size when you sense that something is afoot, but I don’t have a spidey sense so it would be nice to automate that decision process somehow… also, as a note, I am nowhere near needing to worry about this, I am just an undergrad student asking the professor a question about his research.

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

    From an historical perspective … ‘most’ discoveries of value are made by accident … alas this is not part of a structured RBT approach to risk taking.

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

    To answer your own question simply run ‘dependency’ analysis of your own RBT … the answer is, and must be, RBT specific.

  • Sean

    Of course, I cannot speak for anyone else… but if you did gain something from the comment maybe I am doing something wrong… what use did you pull from that comment? (I assume by “included” you meant you gained something)

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

    I cannot help buy wonder how many ran a simple back app of my ‘fade the paper’ concept of a few weeks ago … either on a piece of paper or digitally … hmm!

  • mugabe

    I suppose it depends on your definition of ‘a structured RBT approach to risk taking’. For example, someone like Peter Brandt who is a classic chartist with strict risk management, probaby would trade on something like this. But his approach probably wouldn’t fall into a purely mechanical systems approach which has been the subject of dialogue here for the last couple of weeks.

  • mugabe

    I suppose it depends on your definition of ‘a structured RBT approach to risk taking’. For example, someone like Peter Brandt who is a classic chartist with strict risk management, probaby would trade on something like this. But his approach probably wouldn’t fall into a purely mechanical systems approach which has been the subject of dialogue here for the last couple of weeks.

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

    Your own words expressed a very different sentiment … ‘your comments are meaningless’ … said the judge!

    What I gained was an insight into the author.

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

    Peter’s approach is very much process driven … hence accidents are not the mainstay of what he does.

  • http://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨

    ¨°º¤ø„¸ N E W „ø¤º°¨

    ¸„ø¤º°¨ P O S T “°º¤ø„¸

    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • http://evilspeculator.com molecool

    Hear hear!

  • mugabe

    OK, that comment about accident is a very good point..
    I think PB’s system is basically looking at loads of charts and applying a classical charting lens to them. Se he could be trading 10 different instruments based on 10 different patterns. He has process, but he’s certainly not using one system – unless of course you count classical charting as a system.

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

    I keep stressing the advantage of having a multi-dimensional view / approach … this encompasses both RBT’s and timeframes … yet most / all want a simple Simon answer … in this fashion there is no such thing as needing to find the magic phase of a market … again 101.

  • Sean

    Good point… perhaps what I really meant was “I don’t understand how anyone can find meaning in that comment”… and by “meaning” I mean something that is consistent with the vision and mission of this blog… I believe we are all here to share ideas and become better traders. And while mugabe is sharing ideas I am concerned that his ideas are actually making him a worse trader, so I comment to seek out if that is true. If I am wrong, then I learned something and that is great! If he is wrong and he learns something, that is great! If he is wrong and doesn’t learn something, then I learn something and that is great!

    Care to share your insight into the author? Because what good is an insight if you keep it to yourself?

  • http://evilspeculator.com molecool

    “Good point… perhaps what I really meant was “I don’t understand how anyone can find meaning in that comment”… and by “meaning” I mean something that is consistent with the vision and mission of this blog.”

    Maybe you should have said that? It’s important to choose your words wisely, especially since we lack the benefit of personal contact (i.e. face, tone, more context) as in real life.

    And FWIW – I don’t always agree with Ivan but I never thought that his contributions were outside the scope of this blog. And when compared with the diatribe on the Slope and other comparable places it’s pure manna from heaven.

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

    Sharing is a two-way street … I have shared what I have shared of what is pertinent to success with an RBT approach … I recall throwing a bone your way regarding a concept … must be in transit from there to here still.

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

    Success in trading is all about precision … after all there is a mega difference between a good buy and a good bye!!

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

    PS. I one learned that real early when I was long a bunch of Calls … in the real S&P in 1984 … and to liquidate I bought a bunch of Puts … 30 seconds later … reality struck and I amended my ways!

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

    Not the old one hand clapping routine!

  • mugabe

    I don’t want to get involved in any comments about what my post showed about me, etc., but I thought that Mole, among other things, wanted people to post set-ups.I could be wrong here. So, for example, if I had said,’ nickel has just broken out of a 9-monh base’, would that be a useful or comment, or meaningless in terms of the blog in its present form / mission? It’s a genuine question.
    FWIW, in my opinion, it’s more useful to post chart developments than to say, ‘Just loaded up on X, full position value, tight stop at Y’ which to me is meaningless and is probably bad trading practice as sharing trades in real time doesn’t seem beneficial to me.

  • mugabe

    I don’t want to get involved in any comments about what my post showed about me, etc., but I thought that Mole, among other things, wanted people to post set-ups.I could be wrong here. So, for example, if I had said,’ nickel has just broken out of a 9-monh base’, would that be a useful or comment, or meaningless in terms of the blog in its present form / mission? It’s a genuine question.
    FWIW, in my opinion, it’s more useful to post chart developments than to say, ‘Just loaded up on X, full position value, tight stop at Y’ which to me is meaningless and is probably bad trading practice as sharing trades in real time doesn’t seem beneficial to me.

  • Sean

    Yes I should have… one of the main reasons I post is to refine how I react and communicate ideas. It’s a never-ending process and difficult and you really need to be honest and critical of yourself, but I have found it has helped in external interactions as well, so I think it is well worth the work.

    And I wasn’t trying to say that any of Ivan’s comments were outside the scope of this blog, I was just trying to elucidate what I meant by “meaning”… quite the contrary, I think Ivan posts every comment with the intent of helping the recipient/reader improve in someway. We should all strive to do that.

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

    A chart with your comments works a treat … 1) it shows what you are working with … 2) it shows what you are basing your comment on … so go for it.

    EDIT: It would also aid you in terms of being accountable.

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

    What a mixture of ‘I’ and ‘we’ and ‘you’ … there is a great book in Australia from last century titled: “I wish you would talk straight” … for example … ‘gee your hair looks great today’ … hidden meaning … it looked shOneT yesterday!

  • Sean

    Yes, I totally agree your post was several steps ahead of those who just post what they are doing (and I have given up on engaging them because they seem to just be using this blog as a trading log or to brag about their winners if they get any)… and you seem to be on your way to actually thinking about setups and sharing actionable ideas so I wanted to engage that a little more. Here are my main takeaways from your comments…

    1. You are filtering charts, but I don’t really know how or why, so I don’t understand your context, so I can’t interact without more information.
    2. You are missing some key rules in your own understanding of the context, otherwise you would know if it is overextended, or if you completely missed the boat, or if now is still a good time to jump in.
    3. You have a “radar” but my sense is that it is not well defined and/or strictly adhered to, so things pop in and out without any consistency, meaning markets are not traded with consistency.
    4. You are letting fundamentals/news influence your trading, this is probably negatively impacting your performance.
    5. Your emotions about nickle appear conflicted as opposed to balanced. Thinking it could either go up (continuation of the trend you highlight) or down (overextended?) is not the same as not caring which way it goes. A positive and a negative do not cancel each other out in this game, both must be zero. This also suggests that you do not have a system in which you are confident.

    Thoughts?

  • Sean

    I already disagree with the book… thinking there is a “hidden meaning” in what someone says is more an indication of an underlying issue with the person receiving the message than an issue with the specific words the person used to send it… When there is ambiguity about meaning I prefer to try to follow Covey’s advice and “seek first to understand, then to be understood”. Most people generally mean well, so if you behave as if they do and seek to understand what they mean then you will be much happier, and even if they don’t mean well the same advice applies. I believe negative emotions are a personal choice, not anything anyone else can “do” to you by what they say or how they act…

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

    As ‘they’ say in OZ … come in spinner Sean!

    The book is purely a comical look at people-speak!

  • mugabe

    Here are some thoughts. Answering your points is helpful to me:.
    ‘2. You are missing some key rules in your own understanding of the
    context, otherwise you would know if it is overextended, or if you
    completely missed the boat, or if now is still a good time to jump in.
    Correct. I have no thought-out strategy for trading a breakout after it has already gone some way. However, I can put in a stop that will disprove my hypothesis- either below the recent price action or back in the prior range.
    3. You have a “radar” but my sense is that it is not well defined and/or
    strictly adhered to, so things pop in and out without any consistency,
    meaning markets are not traded with consistency.
    Yes and no. I expected the screener with the set paramaters to bring up a bunch of charts with ETFs smoothly trending, but this nickel chart popped up which has the potential to be a big winner, even though it’s not the type of chart I was looking for and is not usually thrown up by the paramaters. Of course, it could fizzle out and die.
    4. You are letting fundamentals/news influence your trading, this is probably negatively impacting your performance.
    Definitely not. I was just curious so googled about nickel, but have no more psychological capital invested in this trade than any other. It’s just another one to be monitored and ground out.
    5 Your emotions about nickle appear conflicted as opposed to balanced. Thinking it could either go up (continuation of the trend you highlight)
    or down (overextended?) is not the same as not caring which way it
    goes. This also suggests that you do not have a system in which you are confident.
    Well, I think with any breakout system (or ay system) you never ‘know’ what’s going to happen next. However, it may well be true that there are additional filters that could be applied to the trade to make the chances more greater. At the moment my breakout system is to catch an instrument as it breaks out of a significant range and exit if the hypothesis is proved incorrect. This may be too crude and it hasn’t been back-tested, although it’s similar in essence to the Darvas system. However, to repeat, I don’t feel emotionally conflicted about the trade,