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Misses Mean Reversion 2015 Runner Ups
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Misses Mean Reversion 2015 Runner Ups

by The MoleNovember 18, 2015

A few years back I wrote a post [1] in which I profiled one of the main deadly sins of retail trader ignominy – the ubiquitous and often almost fanatic anticipation of mean reversion. I am not going to regurgitate my point; if you are a culprit (and you know you are) then I strongly recommend you read my old post and perhaps also one of my more recent ones [2]. If you’re a noob here then you may also want to point your browser toward our all time favorites page [3]. The holidays are nigh and tis the season to debug your brain and start the new year fresh.

2015-11-18_gold_oversold_is_a_myth

However book knowledge is one thing – seeing things play out in reality is quite another. Let me present to you Ms. Gold, our first runner up for our ‘Misses Mean Reversion 2015’ contest. She’s quite a tease, enjoys frustrating gold bugs for months in sideways ranges for months on end, only to finally slam them with a relentless sell off which counts eight consecutive lower lows (CLLs) followed by 7 CLLs.

2015-11-18_copper_oversold_is_a_myth

Not to be outdone here’s Ms. Copper – she’s been popular since the bronze age, thrives in industrial production, but is particular fond of electric circuits. She managed to paint 11 consecutive lower lows this year and she doesn’t look she’s breaking a sweat just yet.

2015-11-18_silver_oversold_is_a_myth

Last but not least here here’s Ms. Silver – she’s got a special shine and is particularly interested in jewelry and fancy cutlery. Most recently she managed to paint 15 consecutive lower lows and thus far is our official winner of the Misses Mean Reversion 2015 contest. Congratulations!!

keep-calm-and-just-say-no

Moral of the story – whatever you have been told about mean reversion is a lie and will fail you when you most expect it. This spells true in particular when it comes to trading the futures as well as forex. So next time someone suggests mean reversion to you – keep calm and just say no.

2015-11-18_spoos

On the equities side we seem to be building a base on top of the 100-hour SMA after the initial short squeeze higher. So far so good…

2015-11-18_NQ

I really like the context on the daily NQ futures which I have highlighted above.

2015-11-18_EURCHF_update

EUR/CHF update – that was quite a ride in the past few days but it seems it’s finally ready to bust higher. Putting my stop below the current Net-Line Sell Level.

2015-11-18_soybeans_update

Soybeans update – that was one of yesterday’s setups. Moving my stop to break/even here.

More goodies below the fold…

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2015-11-18_events

A bit of even risk later today when get the FOMC minutes, so I don’t expect too much activity before 2:00pm Eastern.

Cheers,


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.
  • Anthony Morrow

    zero needs a nudge i think thanks

  • http://evilspeculator.com molecool

    Done!

  • ridingwaves

    no volume melt up by the looks of it…or maybe not, must be news at 7…

  • ridingwaves

    trying a scalp L on GPRO, see if they reverse and hurt late to cover shorts…stop at todays low.. nam myo renge kyo

  • tradingmom

    Great zero signals today.

  • BobbyLow

    Mornin all.

    Another day of same – o same – o and another day in the hood. :)

    Currently down about – .4 R on Long Crude and up about +.5 R on Long Dollar so I have a wash going on at the moment.

  • Huey

    Lots of resistance here above yesterday’s high. Will take reversal short on 15 min if the TICK can’t sustain a strong positive level. Intraday target is the open and if we get a close on the low I’ll hold for a restest of the daily low ~ SPX 2020

  • evilasevildoes


    Moral of the story – whatever you have been told about mean reversion
    is a lie and will fail you when you most expect it. This spells true in
    particular when it comes to trading the futures as well as forex. So next time someone suggests mean reversion to you – keep calm and just say no.’ excellent

  • mugabe

    Mole has a crusade here and I don’t really know why. Lots of respected practitioners in the field trade/develop mean reversion systems e.g.

    http://www.amazon.com/Reversion-Trading-Systems-Howard-Bandy/dp/0979183847/ref=cm_cr_pr_product_top?ie=UTF8

    Like any system, it will have better and worse periods.

  • Huey

    The idea that mean reversion doesn’t work is simply not accurate. It’s just a different style that is high probability but low reward-to-risk. If the trader can realize when the strategy is breaking down (market type changes) they can avoid the big losing periods by being out of the market. I’ve traded for a very large futures fund and currently speak to many large prop traders out of Chicago and many of them use mean-reversion strategies. There are many companies that only focus on mean reversion strategies. That said, I personally have been focusing on developing trend and momentum strategies as they offer the most upside long term.

  • Huey

    Ha! You beat me to it by a second!

  • mugabe

    Edit: Actually, I think I do know why: lots of beginner traders are obsessed with picking tops and bottoms rather than, say, trend following.
    OK, fair enough, but that doesn’t signify that mean reversion systems don’t work period.

  • mugabe

    no . you beat me!

  • BKXtoZERO

    Perhaps DF question but perhaps people choose the wrong mean? Perhaps Gold at 900-1000$ is reverting to the mean?

  • Huey

    It’s more like reverting to “fair value” rather than an arithmetic mean, although moving averages are used by plenty of successful traders.

  • mugabe

    mean reversion in trading is normally taken to mean a short term swing trade (days rather than weeks) where an instrument has become extremely oversold (yes, I know it can become more oversold)

  • Billabong

    His selection of gold and silver is correct but it’s also the worst selection for anyone looking for a mean reversion. Gold is the whipping boy for the Federal Reserve. It is the most manipulated commodity out there because of market size. The only one laughing all the way to the bank is China…

  • BobbyLow

    But isn’t it really all about not what you use but how you use it? Also shouldn’t a business plan have realistic goals based on individual needs?

    I’m going to go off on a tangent here and say it’s kind of like our brief discussion the other day about being in the market at all times on certain instruments. I would ask what the difference might be between coming to work every day and hunting down opportunities to grab a few points on the E-Minis and coming to work everyday and looking for and managing a couple of positions that lasts few days? Both are being in the market everyday no?

    Over the years, one major change in attitude for me is the acceptence that I’m never going to become rich in this business. Oh, I’ve come up with plans that were going to carry me to the promise land over and over again only to continuously go back to the drawing board.

    I’m going to borrow a stat from Scott in which I believe he said only 1% of beginning traders ever make it to the big show. So let’s exclude Scott and Mole as already being one percenters. Now let’s assume 100 other players read this. If the 1% is true that means only 1 of you are going to CONSISTENTLY hit it big.

    I don’t want to come off as Bobby Downer here but what I’m trying to say is that we might be better off having realistic expectations with whatever system we use. I also now believe that any goals that I have must be obtainable.

    Realistic but not too easy goals for me are a 25 to 30% annualized return. Am I going to get rich quickly doing this? Hell no! It could take between 2 to 3 years to double an account and that’s a lifetime in dream land. :)

  • Huey

    Very good points and I totally agree the trader needs to do what is best for them. That is why I don’t really like bashing other peoples’ trading styles. I actually know people that have had long careers in this business and made enormous amounts of money doing things I’ve seen called stupid on this blog. And to your point about maybe Scott and Mole being in the big leagues, they are even a long way from that. Scott posts his stats regularly and some include dollar amounts and admits he has only been a “professional” for a couple of years. He is way ahead of me but the guys really making money in this business are making 8+ figures year after year, and I am with you that I will never be on that level, they are a different type of person to whom the stuff we all debate about everyday comes naturally.

  • Huey

    Intraday gold can exhibit very profitable mean reversion tenancies.

  • mugabe

    To be honest, showing two or three charts to make a general point doesn’t really cut it.

  • mugabe

    I completely agree with you about being realistic about your returns. I think 25 to 30% would be superb. Compound that over 10 years and you’re talking.

  • BKXtoZERO

    I am the one. I feel like a lucky punk……..

  • whatstreet?

    Bobby Downer! Love it. I think a lot about that 1% thing, and agree that Barry Bonds is a neat goal(10Billion fund under management), but can see so many way to aim for Walt Weiss production(50K a year income[25% of 200K]).
    The 1% aim probably kills more prospective traders than anything else. Emotions, must-win attitude, realizing that you’ll never be Barry Bonds… etc.

  • mugabe

    the problem is most of us start probably thinking/wishing conciously or unconsciously that we’ll be among the one per cent, without having a shred of a notion of how hard and unlikely that is.

  • BobbyLow

    :)

  • mugabe

    got any hot tips?

  • whatstreet?

    Yeah. Setting up for failure is probably the norm

  • http://evilspeculator.com molecool

    I have been in this racket a long time and I have seen many people come and go. What I can assure you is that as soon as retail traders forget about mean reversion they start placing trades more objectively. I never said that mean reversion does not exist and never happens. What I am saying is that there is a myth of compulsory mean reversion – perhaps I should be more clear however I thought my charts speak for themselves.

  • http://evilspeculator.com molecool

    Should I have posted 15 or more? Come on – we have been through this exercise many times in the past few years.

  • http://evilspeculator.com molecool

    The myth of mean reversion hits traders particularly hard on the way down. Even in stocks – how many times have I seen people attempt catching a falling sword… without any technical evidence. Just because the tape had been falling a lot the assumption was made that it’ll bounce back.

    Mean reversion is mostly present in sideways high volatility periods – which very few retail traders engage in (except for manic swing traders). During trend phases in particular (and especially on the way down) all MR bets are off.

  • http://evilspeculator.com molecool

    You will thank me later – period.

  • http://evilspeculator.com molecool

    “I’ve traded for a very large futures fund and currently speak to many large prop traders out of Chicago and many of them use mean-reversion strategies.”

    Know they audience! Those guys are pros and know when to apply MR rules and when not. The average retail trader is better off forgetting about it and instead take advantage of technical evidence instead.

  • Huey

    I get your point but a trader that doesn’t have rules or some type of real edge will not make it in this business regardless if it’s overnight (no risk control) or death by a thousand cuts (tight stops and overtrading). My point is just that people should approach trading in a way that fits their personality and beliefs about themselves and markets, even if it’s a mean-reversion approach.

  • BKXtoZERO

    watching NUGT for when metals give up last leg here. GLD/SLV and leveraged forms have a higher tax rate but I don’t think NUGT does. It should be epic whenever the final bottom is in. I’ve been waiting for gold at 1000 area. I am one of the lucky (or good) few that has a metals bias long term but has not let it destroy me. To the contrary I have remained disciplined and followed price. I turned off all of those gold conspiracy bloggers crying all the time. I believe but I wait like Linus in the pumpkin patch. I am actually up on my endeavors into USLV/NUGT so far. I have been good about spotting short term bottoms and knowing a shit bounce when I see one. I take shit off and don’t marry anything, therefore I am well up when most of those tards have been crushed

  • BobbyLow

    I’ve said this a hundred times, :) but I’ve had the fortunate/unfortunate experience of beginning to trade right at the beginning of the Tech Bubble. I rode that thing up and became a legend in my own mind.

    Then that bubble burst, trading became extemely difficult and I busted along with it. I blamed everything on the market and the carnival barkers on CNBC. Then the Housing Bubble began and I rode that Bubble up and back down again. That failure was because the market was crooked.

    Then I became a Bitter Perma Bear. This phase came withing one nail of becoming the final nail in my trading coffin.

    I finally realized that I really didn’t know my ass from my elbow in this business, had absolutely no disipline and my emotions were a serious detriment to even surviving in this business never mind being successful in it.

    The only requirments that I have now are having a technical edge that I believe has an overall higher probability of success than failure, and a simple set of my own rules that I MUST apply and follow for every entry, exit and campaign management of said technical edge.

    And that’s all I know now. :)

  • mugabe

    NUGT currently 99.89% down from all time highs ………

  • Huey

    Then it can only go up from here!

  • BKXtoZERO

    I only had one trade in it and I am up which is what matters.

  • mugabe

    if I was long from the top, I probably wouldn’t sell now

  • mugabe

    mean reversion:)

  • BobbyLow

    OK. I’m going to throw something out that might be better off being discussed while stoned (and no I don’t smoke it no more) :)

    I don’t use mean reversion. I also don’t use support/resistance per se. However, can’t all of this shit lead us to similar conclusions. I mean whether it’s mean reversion, oversold, overbought, average true range, moving averages and just about everything else that is basically the same stuff but with differences in proclivity and understanding as individuals view and see what he or she needs to see?

  • Billabong

    You definitely picked a topic that has the “rats” interest … interesting comments and positions. I suspect a little bias in some of the thoughts. DCB should have a TA bases or good bye $$$. Trending is a tough one to stay with….

  • Billabong

    LOL … I was was going to mention I’ve used every TA thing under the sun … except mean reversion or was it mean reversion?

  • BobbyLow

    Me too! LMAO

  • mugabe

    I seem to have tried everything except the Holy Grail but think I’ve found it now

    https://www.youtube.com/watch?v=rOm5gIiIPg4

  • RoastBeeph

    I’ve been out of town but using ZL to set trades in the morning, been killing it this week so far.

  • BKXtoZERO

    Mole, great entry for you riding the Turkey Express Train. Good food at your house for the holidays no doubt! I’ve just been watching and I enjoy watching you guys. (notice I didn’t say “call”)

  • Huey

    Totally

  • hellbent

    Yep – it aint gotta, or gonna, do anything. Dumb down any edge, system, method, strategy a little too much and it will kill your account. The brain wants a ‘green light go’ but that’s just lazy. We need to know the nuts and bolts of our edge, system, method, strategy to get it to work over time.

    MR exists but has nuts and bolts like everything else.

  • tradingmom

    The gap from Nov 12th around SPX 2073 got filled today.

  • http://evilspeculator.com molecool

    This was a very profitable trade – moving my trailing stop higher and continue to ride this beast until I get thrown off.

  • http://evilspeculator.com molecool

    Strangely I’m getting a lot of flack on my posts here recently, which is curious as I basically have been keeping this crew ahead of the tape during one of the most challenging trading years in recent history. Has ANYONE out there done a better job than I? How many traps have I pointed out in the past few weeks alone?

    IF you think you can do better than please by all means – I invite you to post daily charts and plot the way for us. Actually I’m serious – a guest poster or two would be welcome. It is extremely tough to keep things interesting on a daily basis given all my other commitments. There may come the day when I’m running out of juice – seven years plus and I’m starting to feel the burn a little.

  • http://evilspeculator.com molecool

    What are you saying? How has the regular failure of mean reversion have anything to do with that? Do you trade mean reversion? Do YOU have a Mr system that has produced results in the past year? I mean – by all accounts this would have been the perfect year for that type of strategy. How did your fund contacts fare this year?

  • http://evilspeculator.com molecool

    Zero snapshot today – very solid signal. I hope you guys held into the close.

    .

  • tradingmom

    This isn’t the greatest chart, but finviz is what I’ve got for continuous ES. It shows a megaphone on the ES hourly. I’d watch that for possible exit cues.

  • tradingmom
  • BKXtoZERO

    I agree. Totally fantastic. You have been a huge help for me and kept me from hanging myself for 2 years now. Even when Skynard was pounding the table to go BIG short, this is it etc…. you were a voice of reason. The prior shake out, you were all over that one too. You are welcome at our house for Thanksgiving in Seattle if you can make it and no cat food this year! (thanks to YOU).
    edit: you know, sometimes I don’t complement too much as psychologically (again thanks to you) I realize that we are all human and I don’t want to distort anyone’s head, even the impervious Mole. I complemented Skynard more than a few times and perhaps that is what drove him over the edge? we’ll never know but besides keeping my own head together, honestly, I’ve thought about this, I want to keep yours and others together too, but YOU FUCKING ROCK! (print that out and frame it) you made a difference in my life.

  • Ronebadger

    Why you would catch flak on your posts, I have no idea? All kinds of free stuff for the taking here, plus lots of opinions, insights and some downright SMARTS posted here. I wouldn’t change anything. You have a pretty thick skin, don’t let the detractors get to you…keep up the good work…thanks!

  • Scott Phillips

    I think Mole and others are arguing at cross purposes. Mean reversion is a totally valid idea for system building and there are many valid SYSTEMS based upon this.

    What I believe Mole is against is the idea that “its gone down so far it has to turn around” – which has been the ruin of many a poor boy

  • hellbent

    Hell yes

  • Scott Phillips

    Neither Mole or I are in the big leagues. Professional traders make a million dollars a year minimum and NEITHER Mole nor I do that.

    In fact, as recently as January 2013 I really wasn’t any good at all. I remember Mole and I talking about system trading ideas with me to start our automation project and the best we could come up with was tweaking Ivan’s ideas, which was all I’d ever done in my career. We have both come a long way since then, mostly by stealing every good idea that we came across.

    If you are looking to idolise either of us, you are doing the wrong thing. I am trading at an acceptable professional level now, very happy with things, and expect that if I follow my process the results will flow over time.

    Sorry, but if we were really that good we’d be making the same money as the really good people. I hope to get there in the next few years, but hoping and wishing isn’t going to do it for me 😉

    This is the danger I keep reinforcing to Mole. Being the one eyed man in the kingdom of the blind. Mole basically works for you for McDonalds wages, and I always tell him to shut this place down, the time could be much more productively spent.

  • TheRooster

    “I’ve been waiting for gold at 1000 area”
    the magic number

  • Huey

    I’m just saying that most traders don’t fail because of their trading methodology but because they don’t trade a specific plan that fits their personality and goals. I traded a MR system on daily FX charts for 3 years with some success (~30% avg annual gain) but found that the small wins and large losses were detrimental to my psyche and didn’t keep me hungry in the long run. Mark Cook is a famous trader that is well known for his strategy of fading extreme TICK readings. He just knows which trades to pass on and has an extremely high win rate. I don’t know many outright index traders but MR strategies have been mixed in FX and performed well in interest rates this year. I’m not knocking what you do and VERY MUCH appreciate the effort you put into this blog. I just thought we were having a discussion and shared my experience regarding the post and following comments.

  • Scott Phillips

    I think Mole is referring to something different here. From a tape reading perspective expecting mean reversion is categorically wrong, Mole is correct.

    However from a systems building perspective you can build highly effective mean reversion systems (I’m learning one now, Ken Long’s RLCO is effectively a mean reversion scalper)

    For example, Ernie Chan runs a reasonably large quant fund doing exclusively mean reversion auto strategies, and these are his returns

    http://snag.gy/jPcnu.jpg

  • JackSparow

    Mole, I read you daily. This is a 1% blog, great posts and good commentary, cheerful crowd. Like RB said “You have a pretty thick skin, don’t let the detractors get to you…keep up the good work” Thank you!

  • BKXtoZERO

    you know they inflict pain on metals as a matter of policy. Big round number of 1000 means a lot psychologically I think. It’s come this far and is this close, you can’t see the headlines now? probably lower.

  • TheRooster

    There have been a lot of emotional reactions about the posts on mean reversion – it’s always worth exploring these feelings when they come up as they might be clues to psychological blind spots.

    I have been meditating on why I had such a strong gut reaction to the backtesting discussions of the last few weeks, some of which really unsettled me.

  • TheRooster

    i dunno what will happen mate

    i do know that my friends who are rank amateurs are always saying crap like ‘gold is a buy at $1,000’ without anything to back it up other than anchoring to recent prices which makes $1000 look like ‘value’

    i have seen enough to know that something probably will happen at $1000 because so many people will have orders in that area so i dont dispute your thoughts at all

    Personally, if one of my setups appear i will take it and if not, it wont register for me if/ when it gets there.

  • Huey

    Great suggestion, thanks.

  • tradingmom

    http://peterlbrandt.com/afraid-to-short-sps-because-it-is-oversold/

    Another blog w/ similar comments re: mean reversion/ trader expectancy/ recency bias

  • phylum

    THE point with mean reversion IS that price is the dictator. By definition, price will always cross MA’s as MA’s are a function of price.

    MA’s, like BB’s etc are like a GPS that gives you a pic of where you (price) have been, not where it’s going.

    However, assuming price will ALWAYS (eventually) cross (an MA, BB etc), may lead to conviction of your setups.

  • phylum

    Chart below

  • Scott Phillips

    Very good point, strong emotional reactions are usually something in US not them :)

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

    I have mentioned the 4D cube that we all battle regarding the markets … the 3 sets of DNA need to match up as illustrated in the screengrab below from a recent live CyberTutorial … it can be a real mind-bender!

  • mugabe

    As far as I am concerned, the backtesting dicussion is far more important than mean reversion. In the end, mean reversion is just one approach that you can choose to use or not use. For me, the limits of backtesting has far wider implications.

  • TheRooster

    yes mate, backtesting is the elephant in the room for alot of traders isnt it?

    i think i have a good handle on what my backtests are useful for (hint: not useful for predicting the future), but i felt the need internally to defend it as a process which concerns me

    just speaking personally here obviously

    are you based in europe fella?

  • http://evilspeculator.com molecool

    Peter Brand – meh, what does he know… 😉

  • http://evilspeculator.com molecool

    Thanks mate – I work hard to not trip over my own ego.

  • http://evilspeculator.com molecool

    My point is that Mark is one of the 0.1% who are able to identify extremes where MR has good odds. He also has the capital and trading skills to employ such a strategy. IF you read my 2013 post then you realize that my point is not binary – it is one of expectations. Retail constantly sees platykurtic distribution whilst trading against strongly trending (i.e. leptokurtic) markets.

    How many retail rats have we seen come and go here who did exactly that? There was one the other week who had lost $150k on one bad trade. His capital was $800k. He should have just wired me the money because just like his money he quickly disappeared.

  • mugabe

    yep, based in spain. you?
    For the sake of transparency/disclosure, I should make it clear that I trade (very) different systems that have all backtested well, two of which are subscription (one of them is Mole’s), and two of my own creation. However, I have NOT done the in-depth backtesting myself on any of them. So I can’t claim to be ‘in the trenches’ re backtesting as you, Bobby and others here are.
    Even so, I am still placing reliance on systems based on backtesting and historical robustness, and in three of the four cases I’m the one actively monitoring performance. (Mole does that v well for his.)

  • mugabe

    yep, 40 years riding his luck :)

  • saltwaterdog

    A painful lesson in single stock stop losses yesterday
    EDIT: as it turns out he didn’t have a stop. But if he did, I don’t believe it would have mattered or helped in the after hours mkt.

    https://www.gofundme.com/jwctrek

  • strider

    There are other stocks out there like this one ….fraud and price manipulation. I’m sure he’s not the only one burned by KBIO.

  • mugabe

    looks like a scam to me. nothing massive happened around the price at $16, which he mentions

  • http://evilspeculator.com molecool

    There are people out there who invest their entire capital into one stock symbol. Meanwhile we are splitting hairs over mean reversion….

  • randomuser6789

    Mole, you are peeling back layers of the onion in us retail rats who have strongly held dysfunctions. It should come as no surprise that many will react as you show them that their thinking and strategy is not grounded in a statistical edge that can really work. As long as there is respect in the discussions, I think it is great. Getting “flak” just shows that you have touched on something that really needed to be touched.
    Your work here is second to none. I will miss evilspeculator whenever you close up shop as Scott recommends. But until then, thank you for leading us forward, pushing us to unlearn ego and all the misinformed ideas we held when we arrived at this site.

  • captainboom

    Homer said it best…

    https://vimeo.com/13983590

  • Billabong

    If you haven’t read Ivan’s piece below, it’s worth the time scrolling down….

  • ridingwaves

    that symbol will be under 10 today or drift even lower…..they are years away from FDA decision, it might even do a split or offering to make it thru….

    I have a worse story, I was terminated yesterday because I fought the VP Finance, VP of Sales over a bonus that they offered and I of course hit the goal but at the end of the year they didn’t want to pay it.. it was a nice gig too… new VP with no history of revenue production like myself used a reason of an “OEM doesn’t want to work with you in your territory” without notice or warning….250K a yr gig too..I had 90% penetration for signed account for all OEMs, so really no revenue drain would have occurred and I was 3rd leading revenue producer in company history….made them millions of recurring revenue, In corporate america, they don’t want you to fight for your rights, what you earned….

    thus I will be coming by ES every once in a while from here on out as I need to find a new gig, will not be trading for a couple months while I search…

    Happy holiday to all and keep on killing it with your trades….

  • captainboom

    I hate politics like that. Got screwed a few times in the navy over similar bullshit. Good luck. I look forward to your return.

  • Huey

    Sorry to hear that. Best of luck on your next opportunity!

  • wandering196

    Hate to hear that, keep posting when you can. Good luck.

  • ridingwaves

    Thanks, probably best in long run as I lost confidence in management..if you can’t pay someone what they earned then I’m usually a bull dog…I see a big difference between earned and asking for something you haven’t…

    thickheaded old man is probably why they let me go….they want sheeple….

  • Billabong

    Sorry to hear the news … more time for the water? Good luck with the job hunt … your reputation will proceed you and head hunters / recruiters will be glad to hear you’re available.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • ridingwaves

    had a friend sell his house 3 years ago and put all his equity into American Airlines, I have no idea why or if he had a clue it was going north, oil blowout helped him greatly….made 3 million holding it for 30 mos…now retired…

    mi cajones paquito

  • BobbyLow

    Sorry to see this happen RW.

    My son had a substancial job like yours and got wacked about 3 years ago. He was fortunate enough to get 6 months severence. He took a few weeks off and then began seeking other opportunities. Over the next year, he had a few offers but they were at much less money than he was making before. After he was out a couple of months beyond his severence, I asked him why he wouldn’t take one of the lessor paying offers until something better comes along. He told me that once he did that he was screwed. Well it took him slightly over a year and he was able to find a slot comparable to his previous position. It took a lot of balls for him to do that and fortunately he had the staying power to do that. I hope it doesn’t happen but at some point he might have to go through this again.

    Unfortunately, at these levels the sharks are extemely savvy and the game very difficult because the stakes are so high. I wish you the very best.

    I wonder if it would ever be possible for you to consider trading full time and say fuck em all?

  • Ronebadger

    > GOLD GERB…you’re back?!?!

  • mugabe

    If there’s any chance of working freelance, you might find it liberating compared to being on the inside.

  • ridingwaves

    in some ways I’ve been doing just that, as I have worked from home with frequent travel thru-out western US for almost 20 years now…

  • mugabe

    I see. With your track record, competitors should be very interested in you.

  • mugabe

    good result, process leaves something to be desired:)

  • ridingwaves

    BL,
    Not right now, I like working.. I own about 45 URL’s that I might build out and I have a lot of connections in the auto vertical…but I’m thinking of changing verticals…any SAAS company would give me a hard look due to revenue numbers I produce…but now leaning towards a Tesla or Solar like company…time for me to stop being a pollution generator and help mother earth no matter if it’s less money…

    I don’t take on debt…it sleeps with the devil, so I’m solid…cheers and happy holidays to you and your family….

  • ridingwaves

    lucky he caught oil going down with that symbol…he had no idea that was coming…

  • BobbyLow

    Glad to hear about having little or no debt. Debt can be an absolute killer.

    Sounds like you have a good handle on things and will be just fine.

  • BKXtoZERO

    so NUGT was the tits after all and I didn’t enter yesterday. That was it for “hot tips”. If i was in I’d be moving my stops up right now.

  • BKXtoZERO

    Dang. I am sorry to hear that. Best wishes in your search.

  • http://evilspeculator.com molecool

    Really sorry hearing about this, RW – sounds like they royally screwed you. Brings me back to the dotcom boom/bust – they were promising us the sky back in those days and when things fell apart they couldn’t get rid of us quick enough. I realized back then that working for other people – no matter how well paid – was never going to get me anywhere in life. The very reason I decided to make the leap and become the best trader I could be. Now I am enjoying my own work hours and relative location independence. I wouldn’t go back to being a worker bee for any money.

    My advise to you would be to cut down on your expenses – MASSIVELY. Sell all the shit you don’t need – perhaps move into a smaller house. Rid yourself of all the ballast that is dragging you down and then plan the path ahead of you, what you are going to do with the rest of your life. When I was in L.A. and decided to move to Spain we got rid of EVERYTHING. The only stuff that’s left is in some storage place and we don’t miss any of it. I take it you have some savings – use those wisely and enjoy a few months of freedom to clear your head. Then make a plan in written and act decisively.

  • SirDagonet

    Beautiful chart, with a **29 month** drawdown recovery period… talk about something that would try one’s patience…

  • http://evilspeculator.com molecool

    NO DEBT – EVER. Indenture is tantamount to slavery.

  • ridingwaves

    Thanks Mole, I was pissed to start as I was one of 20 original employees that brought a 25m startup loser into being sold for 380M, this coupled with timing of wife having surgery last week and before holidays had me at lawyer yesterday afternoon. This guy said I could really do well in court but I decided the headache is not worth it. I wish I could do as you but my wife is nearly blind because and has had multiple retina detachments, can’t drive and thus I’m uber for her, dog, work etc…City helps her get around…so limited on leaving

    but a 2 month stay in Costa Rica, running a backtest and paper trade while surfing and not feeling achy old bones sounds good… Happy holidays over there and stay safe….your blog rocks and I hope you don’t lose faith, you have some good people here….ES is a best place to land while surfing the web for investment blogs…your tireless efforts are not without admirers for sure…

  • ridingwaves

    debt sleeps with the devil…

    freedom does feel good…

    adios amigos/amigas…

    crazy world we live in-see below

    Genetically modified salmon gets FDA approval for consumption

  • http://evilspeculator.com molecool

    Better wishing to be in a trade than wishing to be out of one. Stop thinking like a retail mouse – embrace your inner steelrat. Up your game – place the trades you CAN.

  • RoastBeeph

    At least you weren’t short NUGT like a lot of people were. That move up today was so fast that people short NUGT were screwed.

  • kudra

    That’d be me. caught holding DUST overnight. GDX to 13.61 – test old resistance, now support.

  • RoastBeeph

    It’s coming back down. Despite today’s move up, gold is still in a down trend on daily.

  • http://evilspeculator.com molecool

    Yeah, you know – mean reversion!

  • Billabong

    LOL … I tell my daughter that all the time …. debt = slavery.

  • wandering196

    Just an idea, I shorted this last night and watching the 25dma.
    Just thought I would throw this out there on a slow day….
    There is a lot of Canadian data tomorrow morning though so check that out.

  • BKXtoZERO

    is that an individual stock? I can’t even read name on chart. If so I stopped shorting individual names long ago as you can get killed rather easily like when Oprah wants to buy etc.

  • wandering196

    I didn’t realize the quality is so poor, sorry. It is CAD/JPY

  • mugabe

    interesting … low vola and banging against resistance.

  • Ronebadger
  • TheRooster

    originally from the UK, currently living in Australia.

    i spent 18mths developing and backtesting but as soon as i put a system live i found so many flaws that I had to start again with new assumptions – nowadays manual walk throughs of the chart and then entering trades is a step in my system dev process because some things are just too hard to see when back testing

  • Scott Phillips

    Sorry to hear this mate :) Chin up!

  • Scott Phillips

    Solid advice. I also sold my multimillion dollar pimp pad, and without all that “stuff” I thought I needed I’m much happier

  • Scott Phillips

    Trend following is even worse. Standard trend following models are 4 of last 5 years in drawdown

  • SirDagonet

    what’s the solution to that problem?

    cutting down the r values per trade like Mole did when your drawdown gets to a certain point? That should cut down the depth of the draw, but I’m not sure it would necessarily reduce the duration…

    multiple systems?

  • SirDagonet

    would you be willing to share the other subscription system you’re trading? I’ll give you my email if so to keep that kind of discussion off the forum…

  • mugabe

    sure, put up an email and I’ll give you the details so you can see what you think.

  • SirDagonet

    alvinmcp at gmail

  • SirDagonet

    got it? if so I’ll delete it…

  • mugabe

    test

  • Scott Phillips

    That’s a nice place to frame a trade with a good risk/reward. I like it because right now it looks like a range trade (for the last few months) but if volatility expands and it starts trending you will have time enough to recognize and hold.

    Also if it is a range you are buying at the top of the range and not near the lows. Always a lower risk idea. Good one!

  • mugabe

    as a matter of interest, on that chart would you go long or short? (obviously you could flip if proved wrong)

  • Scott Phillips

    Leaving aside what you *think* will happen next, which is largely irrelevant.

    We have 3 possibilities.

    1) Breakout
    2) Range continues
    3) Breakdown, downtrend continues

    The highest probability is around 40% to range continuing. let’s call the others 30% and 30% (maybe its higher one way, maybe the other). My point is that even if you think an upside breakout is way more likely (twice as likely even) than a downside breakout it would still only change the odds to 1) 40% 2) 40% 3) 20%

    So if you are framing a trade here. If you are short it works as a range trade AND a breakdown, so worst case scenario it has 60% odds. If you are trading a breakout BEST case scenario it has 40% odds. You have to have a reward commensurate with the risk.

    So not caring which direction it breaks in, short is the way to bet here, because you can frame a trade which works in a range and breakdown with a tight stop, going for a multiple R winner

  • BKXtoZERO

    Scott, while you are schooling us, I have a fight question. I bet you know all about this. I vaguely followed Ronda Rousey. I am not a boxing/fight guy. Was she a straight boxer and this holm girl was mixed martial arts anything goes? I saw the knock out but was surprised that when Rousey was already on the ground that Holm punched her in the face and bashed her lip open on purpose. Is that cool? isn’t enough enough? I saw no mention of that act anywhere. Most boxing I see, people stop and most seem to respect each other and they don’t inflict more harm than they have to. Please enlighten me on that one? Thanks.

  • Scott Phillips

    The past will vary from the future, most of the time (95%) within 2 standard deviations assuming a normal distribution (which of course markets do NOT have, but it is merely a question of using more sophisticated maths to adjust your models)

    You can determine a statistical confidence interval given your sample size and the margin for error, significant digits etc. http://stattrek.com/estimation/estimation-in-statistics.aspx

    None of this is a matter of debate, it is simple maths. Arguably you shouldn’t even be DOING backtesting until you understand statistics.

    Let’s say you have a backtest showing a .2 expectancy with a .1 standard deviation with a confidence interval of 95%. It is going to be quite NORMAL for that system to perform negatively, for long periods of a time.

    That does NOT mean the backtest is useless, as some here think.

    It means that your understanding of statistics is lacking.

    Just like when Denali comes here and says “8 out of the last 9 events were blah”… you do a proper analysis of that and it comes out as an extremely low confidence interval. Because each given result could vary by a lot, on a small sample size of even 50 or 100 you could vary a hell of a lot. Taken together your result means precisely nothing. That can be a difficult pill to swallow, but reality has a way of crushing dreams 😉

    When backtesting Ivan’s setups I used to get very excited about certain setups, I tested a whole year at .25 expectancy on 360m charts once over 300+ setups. That same setup tested over 3000 entries the results were barely enough to pay for brokerage.

    Then you have the additional elephant in the room. Some edges stay around forever. Some disappear. Markets change. The game is the game and a big cause of death is trading fixed methods in dynamic markets.

  • wandering196

    Your analysis is much better, I waffled between a long, which was my first reaction, to no, a short makes more sense (under the 25dma and 100) but you have such a Better way of explaining it.

  • Scott Phillips

    Rousey is a world class judoka and a high level jiu jitsu fighter with a specialty in finishing the armbar. She has rudimentary at best boxing skills. The sort of boxing skills that look good on pads, but fall apart against a live opponent.

    She won against her other opponents because there is a technical deficiency most arts have against judo, in that the boxing clinch/cover up is a good way to get grabbed and thrown by someone who knows judo. Essentially Rousey’s game plan is rush them with aggressive punching, when they cover up grab them, throw them, then go for the armbar. Her skill in finishing that one submission, the armbar, is truly superb. In that particular miniature part of grappling she could be the best in the world. She could literally tear your arm completely off.

    Holm didn’t play her game, just hit and danced out of range. Rousey had never been hit before (she won most of her fights in round 1 by armbar), no matter how tough you think you are, when your face is hurt to the point you need surgery, and millions of people are watching you get brutalized, you must start to doubt yourself. She fell apart emotionally.

    Her poor sportsmanship and arrogance cost her the fight, she was done mentally from when she refused to touch gloves. Unprepared for defeat. Like Mike Tyson said “everybody has a plan until they get punched in the face”

    As for punching her on the ground, the fight goes until its stopped, those weren’t serious punches, just enough of a flurry to get the ref to step in. She was throwing them 1/4 power while she was unconscious, forcing the ref to stop the fight.

  • Scott Phillips

    Thank you. The sooner we get away from picking market direction, the better.

    What you are trying to do as a trader is take INTELLIGENT BETS.

  • Scott Phillips

    How to make your backtests mean something instead of nothing.

    – Don’t optimise your systems too much. If you have to tweak it for bonds, then tweak it for gold, etc…. you are heading into curve fit land.

    – Don’t go for the “best parameters” – what you are looking for is a decent number in a forest of decent numbers, not one or two standouts

    – Test your stuff across different markets and timeframes. Obviously lower timeframes have more noise but you should see, up to a point, a forest of decent numbers.

  • Scott Phillips

    If I had a satisfactory solution I’d be trading it.

    Everything I’ve tried hasn’t worked!

  • Scott Phillips

    Exactly so

  • mugabe

    Do you think it’s true to say in general that if you 100% mechanically use a backtested system (including equity curve management), rather than being a discretionary trader, you probably can’t hope to make more than about 20% a year on average, best case scenario, over a period of 10+ years?

  • mugabe

    great reply. you don’t think that the fact it’s basically been in an uptrend the last few months increases the possibility of a breakout?

  • mugabe

    v. interesting. so would you say you’re gravitating towards being a discretionary-mechanical trader?
    PS I’m from the UK, too!

  • TheRooster

    more discretion in my trading is probably a long-term aspiration. Right now I am really focused on just trading my rules as mistake free as possible

  • Billabong

    Why do folks trade a heavily manipulated sector (directly impacting monetary policy) with fast moving multi X ETF’s? Where was everyone two months ago when the BPI for miners was at zero. You could have picked up best in class miners, be sitting on a nice profit and getting a dividend…

  • TheRooster

    i would say no mate – i know someone who trades mechanically with a tiny amount of discretion and has given me credible evidence that he has done 45% a year over a long period

    however, he has been in the business a long time and because of that he seems to take drawdowns that would have most of us falling apart with a pinch of salt

    on the flip side to do well as a discretionary trader (even one with a solid method and rules) you have to turn up in the right frame of mind every single f**king day. I tried it, simply couldnt do it

  • TheRooster

    whereabouts in the uk mate? i grew up in East London

  • mugabe

    right – we’re from the same part of the world: Ilford!

  • mugabe

    thanks, interesting. It seems to be a fact of life that returns will be ‘lumpy’. at the risk of a pun, you’ve got to like it or lump it.

  • mugabe

    yeah, its bit like being a barrister or a tennis player: you’re at the top of your game (and have the skills set) or you lose

  • TheRooster

    propah gangsters!

  • TheRooster

    thats quite prescient – they guy i know wont give me specific advice, only general help but he often tells me this is not a job where you get paid every month like clockwork and you have to learn to except the market pays you when it wants, not when you want

  • Scott Phillips

    A rule of thumb that serves is if you aren’t sure, it’s a range

  • http://evilspeculator.com molecool

    You know I have been teaching this very approach that Scott elaborated on here for about five years. It started with the ‘soylents’ and evolved from there in the binary inflection points I post here regularly.

    Frankly speaking I’m a bit insulted when people still ask whether they should go LONG OR SHORT when posting a chart. What even irks me more is that if I post the very same approach in my setups they are largely ignored and almost nobody actually takes them or even discussed them. It frankly makes me wonder if it makes any sense continuing with the blog at all.

  • mugabe

    no prisoners

  • http://evilspeculator.com molecool

    “n that the boxing clinch/cover up is a good way to get grabbed and thrown by someone who knows judo.”

    This is one of the five ways of attack Bruce Lee describes in JKD:

    Single Direct Attack

    Attack By Combination

    Attack by Immobilization

    Progressive Indirect Attack

    Attack by Drawing

    By charging and overwhelming the defense Rousey manages to create her opening for her famous armbar as Scott points out. Floyd Mayweather also has mastered a loophole in boxing in that he reverses holding/hitting into hitting/holding (via his forearms and wrists). He then follows up with damaging blows as he was able to shift his opponent out of his rhythm/equilibrium. Another technique employed to break open a stubborn wall in boxing is to punch down the glove of the opponent and thus create an opening.

    Which is why I enjoy very much training MA/systema as as soon an opponent clinches up I am able to get to work on his legs. I am also working on entering deeper into his attack which is something that wouldn’t work for boxers unfortunately.

    This is a brilliant video that shows some of this in spectacular detail:

    https://www.youtube.com/watch?v=oTO6abQFs14&list=PLFOLPHa6XAMhPYI8B_d1F9tLIabr_45K4&index=33

  • Scott Phillips

    Equity return per year is a function of number of trades times expectancy. To make up a word, expectunity. If you risk 1% of your account with a 50/50 win rate and your wins are 1.5x your losses you have an expectancy of .25 percent per trade. You want to make 100% a year you need to make 400 trades not including compounding. FYI compounding almost doubles the end result

  • Scott Phillips

    This is the sad fact of it, no amount of wishing makes it go away

  • BKXtoZERO

    Thanks. I knew you guys would both know.

  • BKXtoZERO

    Evil Speculator: “Trading, Martial arts, and Cheese Emporium”

  • BKXtoZERO

    lots of info here. Good stuff. Thanks.