Am I on the right track?

[NoDoji]

Quote from lost dilettante:

My trades were not short term plays, but mid-term predictions based on economic and political data. Exactly what I predicted would happened did happened and for the reasons I predicted, however, until the news filtered down the market went in the opposite direction and I got stopped out.

The chart I posted was an intraday chart, but the patterns apply to any time frame.

My largest loss this year was the for the same reason. I knew what would happen to a stock price based on the fundamental reason behind its large climb. However, I entered a swing trade too early and instead of getting out quickly, I held on because I knew I was right in the eventual direction. My small account eventually could not tolerate the additional irrational exuberance of the price action that occurred before the reversal and I too was stopped out. A few weeks later the reversal was astounding with the stock losing 50% off its high, and the reason for the reversal was the exact fundamental reason that got me into the trade. This was a strong lesson in the importance of using technicals and tight stops for timing a trade despite knowing where fundamentals will eventually drive price and despite knowing that price is currently ridiculous. (Price can easily go from ridiculous to insanely ridiculous before reversing.)

Quote from lost dilettante:

The reasons were fairly obvious in hindsight - excessive leverage (10 to 1) and buying in too early.

Yes that's a killer. Wiped out a very successful and experienced trader I know. Totally. Lost everything including his custom home.

 

[lost dilettante]

Quote from NoDoji:

The chart I posted was an intraday chart, but the patterns apply to any time frame.

My largest loss this year was the for the same reason. I knew what would happen to a stock price based on the fundamental reason behind its large climb. However, I entered a swing trade too early and instead of getting out quickly, I held on because I knew I was right in the eventual direction. My small account eventually could not tolerate the additional irrational exuberance of the price action that occurred before the reversal and I too was stopped out. A few weeks later the reversal was astounding with the stock losing 50% off its high, and the reason for the reversal was the exact fundamental reason that got me into the trade. This was a strong lesson in the importance of using technicals and tight stops for timing a trade despite knowing where fundamentals will eventually drive price and despite knowing that price is currently ridiculous. (Price can easily go from ridiculous to insanely ridiculous before reversing.)

Yes that's a killer. Wiped out a very successful and experienced trader I know. Totally. Lost everything including his custom home.

Ouch! I only lost a bit of money from my stupidity (about a 1/4 of my play capital) - my natural caution saved me from making too big a mistake.

I still think that fundamental trading is a good idea, but as already mentioned in this thread it requires a large amount of capital and no leverage. Given that i don't have a large capital base I am interested in exploring other options.

I did finish reading the 51 page acrary thread. Quite a bit of interesting information in there along with the usual noise. The thing that worries me with acrary's approach is he is data mining out strategies from past data. I can't see how this can possible work unless the data is not noisy. He says in another post of his that the market is high regular and predictable, but only for a limited time periods. If this is true (I don't know) then you are faced with the problem of not being able to back test over very long periods - either way the risk of picking a false strategy seems very high.

The other thing that he is very keen on is choosing multiple strategies that are uncorrelated to minimise risk. Someone pointed out this is all fine until all markets start acting the same and the correlation becomes 1. I wonder how alcrary faired over the last 12 months.

 

[TraderZones]

Quote from lost dilettante:

Ouch! I only lost a bit of money from my stupidity (about a 1/4 of my play capital) - my natural caution saved me from making too big a mistake.

I still think that fundamental trading is a good idea, but as already mentioned in this thread it requires a large amount of capital and no leverage. Given that i don't have a large capital base I am interested in exploring other options.

I did finish reading the 51 page acrary thread. Quite a bit of interesting information in there along with the usual noise. The thing that worries me with acrary's approach is he is data mining out strategies from past data. I can't see how this can possible work unless the data is not noisy. He says in another post of his that the market is high regular and predictable, but only for a limited time periods. If this is true (I don't know) then you are faced with the problem of not being able to back test over very long periods - either way the risk of picking a false strategy seems very high.

The other thing that he is very keen on is choosing multiple strategies that are uncorrelated to minimise risk. Someone pointed out this is all fine until all markets start acting the same and the correlation becomes 1. I wonder how alcrary faired over the last 12 months.

trading on fundamentals can work, but there is no way you can predict WHEN the market will move according to that data. Fundamentals does not lend itself to day or very short term trading. You have to be patient, and be willing to be wrong or unrewarded a lot.

 

[Maverickz]

Quote from lost dilettante:

I have gone back to tried to work out why I lost money (one of the reasons I ended up here). The reasons were fairly obvious in hindsight - excessive leverage (10 to 1) and buying in too early. My trades were not short term plays, but mid-term predictions based on economic and political data. Exactly what I predicted would happened did happened and for the reasons I predicted, however, until the news filtered down the market went in the opposite direction and I got stopped out.

Have you considered options? If you think XYZ stock is going to go up in the next 2-3 months you can purchase a call option 4-6 months out and limit your risk to the purchase price of the option without having to worry about getting stopped out.

 

[Topper]

Quote from lost dilettante:

The base player is providing the signal. If the drummer starts following the lead guitar then things won't sound too good.

Heh heh...

Dude, you haven't heard me jam yet!


Please consider what I said about watching a stock. It is extremely time consuming and more than a full time job but the knowledge is a starting point to future development.

Consider a large cap with a bias. 'Bias' meaning it's undervalued and maybe sitting on 10 billion cash. (DELL)

Also, use comparison charts like for example, put up a chart of say DELL, with the NASDAQ on the same chart. This will give an excellent example how the stock moves and reacts to the index. ***SECRET*** many times on many stocks, the index will move first, and then the stock will follow shortly after (an edge?).

Draw trendlines on the stock from years, decades, months weeks (quarterly)etc.. Learn it.

Watch it intraday on a 30 or 60 minute.

Not saying to stick with one stock, but use the knowledge with other things in your bag of tricks. Many traders only trade a select list of stocks they know very well. BUT, learn about things like wash sales and taxes and...and... and...

ok, I gotta go cook dinner now because I'm getting pressured by THE....

 

[lost dilettante]

Quote from Maverickz:

Have you considered options? If you think XYZ stock is going to go up in the next 2-3 months you can purchase a call option 4-6 months out and limit your risk to the purchase price of the option without having to worry about getting stopped out.

I am considering everything at the moment

 

[lynx]

You're overthinking this. You're handicapped when it comes to the market because you're too smart. Try being dumb for a little while.

Notice that in general, most of the traders making lots of dough are regular guys, while all the wall street programmers and mathematicians are on salary.

Certain super-smart rock star traders do exist; but it's never wise to depend on becoming a rock star.

It's great that you have these long term fundamental biases. Now you just need a good entry, which you get by pretending to be a short term trader. Look at the daily charts and ask yourself, if I go long now, where would I place my stop? If it's too far away then wait until you're closer to an esatablished support level (assuming you want to go long).

Also, for technical trading, as an amateur you'll never be able to find an original edge, but that doesn't matter. With so many people trading so many different ideas, there's always opportunity and inefficiency.

 

[NoDoji]

Quote from Maverickz:

Have you considered options? If you think XYZ stock is going to go up in the next 2-3 months you can purchase a call option 4-6 months out and limit your risk to the purchase price of the option without having to worry about getting stopped out.

If buying options, even back month options, you need to not only pick the right direction, you need to time it correctly. I believe stops are still quite important in this situation, so you avoid throwing money away. There's no reason to lose any money beyond the price at which a trade becomes invalidated. Just because you have options 4-6 months out and have some time initially for the trade to "work", why stay in a trade that violates its setup?

As an example, suppose in late March you decided to purchase AZO AUG $160 calls when price pulled back to the rising 20-day moving average. You have a strong uptrending stock, pulling back to its 20 EMA on 3/23 and rapidly finding support that day, leaving a nice hammer off the EMA. Perfect continuation long setup for trend followers. The next day when price moves above the previous day's close, you buy the calls. Over the next 2 days your position becomes nicely profitable.

You can take profits and call it a fine trade.

You can place a stop to lock in profits and get stopped out at a smaller profit at some point over the next couple days.

You can place a stop at b/e and you'll get stopped out b/e in about a week.

Or you can hold for the bigger profits to come. You get a couple more chances to exit with a profit, but if you're greedy and hold, once the position breaks down the now-falling 20 EMA in May, your chances are over. The setup has been invalidated and you either take the loss (the first loss is the best loss) or keep holding and hoping until your investment is eaten by Theta.

I've learned the very hard way there's no reason to let a winner become a loser , or to stay in a trade whose technical setup has been invalidated even though you're certain you'll be right eventually.

Imagine shorting DDRX @ 7.00 on 4/28 after it gained 400% in 5 days and finally retraced almost the entire previous day's gain. Did you move your stop to break even when it dipped for a moment on 4/29 or did you hang on for the bigger profit?

 

[lost dilettante]

Quote from NoDoji:

If buying options, even back month options, you need to not only pick the right direction, you need to time it correctly. I believe stops are still quite important in this situation, so you avoid throwing money away. There's no reason to lose any money beyond the price at which a trade becomes invalidated. Just because you have options 4-6 months out and have some time initially for the trade to "work", why stay in a trade that violates its setup?

As an example, suppose in late March you decided to purchase AZO AUG $160 calls when price pulled back to the rising 20-day moving average. You have a strong uptrending stock, pulling back to its 20 EMA on 3/23 and rapidly finding support that day, leaving a nice hammer off the EMA. Perfect continuation long setup for trend followers. The next day when price moves above the previous day's close, you buy the calls. Over the next 2 days your position becomes nicely profitable.

You can take profits and call it a fine trade.

You can place a stop to lock in profits and get stopped out at a smaller profit at some point over the next couple days.

You can place a stop at b/e and you'll get stopped out b/e in about a week.

Or you can hold for the bigger profits to come. You get a couple more chances to exit with a profit, but if you're greedy and hold, once the position breaks down the now-falling 20 EMA in May, your chances are over. The setup has been invalidated and you either take the loss (the first loss is the best loss) or keep holding and hoping until your investment is eaten by Theta.

I've learned the very hard way there's no reason to let a winner become a loser , or to stay in a trade whose technical setup has been invalidated even though you're certain you'll be right eventually.

Imagine shorting DDRX @ 7.00 on 4/28 after it gained 400% in 5 days and finally retraced almost the entire previous day's gain. Did you move your stop to break even when it dipped for a moment on 4/29 or did you hang on for the bigger profit?

My understanding on options is they are equivalent to a leveraged long or short position with a guaranteed stop loss position. Apart from being able to avoid gaps, what other benefit do they offer? Don't they also have higher trading costs?

 

[lost dilettante]

Quote from lynx:

You're overthinking this. You're handicapped when it comes to the market because you're too smart. Try being dumb for a little while.

Notice that in general, most of the traders making lots of dough are regular guys, while all the wall street programmers and mathematicians are on salary.

Certain super-smart rock star traders do exist; but it's never wise to depend on becoming a rock star.

It's great that you have these long term fundamental biases. Now you just need a good entry, which you get by pretending to be a short term trader. Look at the daily charts and ask yourself, if I go long now, where would I place my stop? If it's too far away then wait until you're closer to an esatablished support level (assuming you want to go long).

Also, for technical trading, as an amateur you'll never be able to find an original edge, but that doesn't matter. With so many people trading so many different ideas, there's always opportunity and inefficiency.

It is possible that I am overthinking, but it is hard to do much about this as this is my nature. There is about as much point telling a smart person to not think as there is to telling a dumb person to think Given my strengths and weakness I need to find strategies that suits my personality and I strongly suspect a "gut feel" approach will not work for me.

In regards the possibility of finding an original edge well that is the key question. Unless I can find an original edge I would not trade. The more I explore and read, the more I think it is possible to find an original edge, but that it will require a lot of hard work. I don't mind hard work and I don't mind taking a risk, but I don't like to gamble. I only get pleasure from taking a risk if I know the odds are stacked in my favour