Looks Can Kill You: RAMOUTAR REPORT VOLUME 11
- Thread starter RAMOUTAR
- Start date
It all depends how you "papertrade". If you use a proper simulator and you account for realistic fills / slippage then this can prepare you to a certain degree (even a very realistic level depending on how you are doing it).
Peace.
Quote from harrytrader:
This imply to be able to determine the target or exit, that is to say to make a prediction (even if it is a prob curve it stays a prediction and the prob curve can be completely false as it is not obvious - if it was obvious ...). Also this implies that there is an implicit probability attached to it (even if you can't determine it, its existence is unescapable as its origin is your complete or partial ignorance of the outcome). If you use a stop - which is practically obligatory in futures trading or you would get killed almost surely - then this probability is not even obliged to be equal to 50% it can be much lower so that the edge can turn negative (prob * gain or loss).
So for me the mantra above corresponds to a SPECIFICATION, I mean it corresponds to what you WANT (I don't mean you personnaly it's a generic you), and not necessarily to what you CAN. By this I want to refer to the CONCEPT of TOLERANCE of a SYSTEM and the danger of OVERESTIMATING its CAPABILITY which will conduct to LOSS which could follow for example the TAGUCHI loss function (which is used in quality/risk control in classical industry I won't affirm that it is exactly this curve in trading but on principle the LOSS should be somehow also QUADRATIC that is to say accelerate when the tolerance is far from spec)
http://www.elitetrader.com/vb/showthread.php?s=&postid=394133#post394133
<IMG SRC=http://www.maaw.info/ArtSum5.gif>
You may also want to study Feigenbaum, Total Quality Control. I prefer him above both Deming and Juran. But do not forget the fat tail outlier of the bell curve that happens in trading (and not very often in manufacturing).
Peace
Quote from bali_survivor:
You may also want to study Feigenbaum, Total Quality Control. I prefer him above both Deming and Juran. But do not forget the fat tail outlier of the bell curve that happens in trading (and not very often in manufacturing).
Peace
Of course I don't forget
since I posted this :http://www.elitetrader.com/vb/showthread.php?s=&threadid=25943&highlight=Shewart
"Normal distributions are not the norm."
Non-Normal Distributions in the Real World
It is not only in trading. I've worked in industry and that's the first thing I am aware about. I am happy to have entered quality control directly through a friend of Deming who is himself the spiritual son of Walter Shewart (the statistician and engineer at ATT who founded the field of statistical process control). And if you read Walter Shewart directly that's even THE FUNDAMENTAL problem he tackles with. As the other Guy I quoted in the link above said :
"the early quality pioneers (such as Walter A. Shewhart) were fully aware of the scarcity of normally distributed data. "
People also forgot that there is not even an obligation of existence of a probability law at all as once again Shewart reminded in his book (his book on statistical process control is originally in english but I translate badly from french version ) :
"Theorically it is possible to find a solution to make prediction for any kind of [statistical] universe with the statistical theory of distribution. But ... when the distribution is known but abnormal, the mean, the standard deviation and the size of the sample cannot make prediction, in particular prediction of Student type interval and tolerance interval with the same degree of validity than when the distribution is normal."
When the functional form of the Universe is unknown - which should be usual case in market - he explains that of course the picture worsens.
So it is rather the "modern" gurus that have totally forgotten the foundation and forget to transmit essentials and/or the poor probability education that many people receive even at engineering level. I know it since I've been in two engineering schools one in food industry, the other in petroleum (both having in common the chemical engineering process of course). In engineering school you learn highly sophisticated calculation methods in multiple dimensions matrix for example principal component analysis (PCA) which allows to project a set of points onto axis... well they just forget to pinpoint that it is just DESCRIPTIVE STATISTICS and not INFERENTIAL STATISTICS, only INFERENTIAL STATISTICS allows you to really PREDICT SCIENTIFICALLY and that implies the knowledge of probability law that is not even sure to exist in real life. So behind the sophistication of "modern" education there is in fact a big lack about epistemology. Many times I prefered to learn engineering in old books because they deal more with the fundation and not only with calculation recipes ! And If I haven't had the chance to re-learn probability through my first profession as Statistical Process Control & software engineer I would have stayed with the misconceptions that most people have about applying probability in real world. That's why also some people don't understand why I am so harsh about the looseness of backtest because they are not even aware of the difference between descriptive and inferential statistics and the underlying assumptions they implicitely made and that can be hugely wrong. That's why I'm so long with my own statistics because I am very prudent to check everything thorougly and not publish rubbish stats.
Going back to the basics is exactly what I have done. In the case of trading that translated into interpreting from the charts how the "mob" (or in Wall Street terminology: the "goats" - just tongue in cheek) are likely to react to the situation at hand. Then I take my position accordingly. (the "average Joe public" is almost invariably wrong - Humphrey B Neill - The Art of Contrary Thinking). (After assesing the risk - reward)
I threw out the Neural Networks (my speciality in the computer industry) and 100% automated mechanical systems. Just look at where increasingly complex mathematical projections of the financial world brought Long Term Capital Management.
In essence all that drives the markets is greed, fear and manipulation. Charts will help you to anticipate the likely next manipulative move and the simpler the charts the easier it is to see. The more complex you make it the more you distantiate yourself from the fear and greed of the public.
Peace
Quote from bali_survivor:
Well stated.
Personally, I have never been interested in complicated mathematical formulas and indicators. I have been quoted, "there is a very fine line between an analyst and an ANAL-YST". I am "no way" discrediting the benefits of such studies, I have just found that by getting that in-depth, its very easy to try and predict what is happening "after" its happened. Mr. Neill hit the nail on the head. When I look at charts (specifically candlesticks) I see each segment of price action as a cluster of emotions, I try and imagine what the "average joe/ lemming" would do if they owned a stock at $20 for one year, and it's now trading at $18 after a sharp rally from $5.
One of the trading "guru's" says that "we trade people". This statement makes sense to some degree. I personally trade emotions: fear, greed and uncertainty.
There is no "holy grail" to trading, there is no "one book, video or seminar" that will make you truly embrace this. I am self-taught (schooled by the market), and it took me a long time to understand and accept this idealogy. Only the right education by the market and a mentor will get you there.
Technical analysis is not a "holy grail" its a "self-fulfilling prophecy". This history and patterns "repeat themselves" over 1and over again. Many have gone on to make millions by rebranding "chart patterns" and their effect on the "Average Joe's" emotions.
Support and resistance penetrations trigger the fear and greed in every trader (i.e short squeezes). Just as an example, I have taught the two gentlemen (Cases 1 & 2 in this report), how to switch gears: covering a short after it has broken through resistance (the stop) and going long (if the setup is there), regardless of what the outcome was on the previous trade.
It can be paralyzing to cover a short and then go long, we can think with both sides of our brain, its using both sides of our ego that many us have the problem with (including me).
It may seem very pretentious to say that successful traders that are able to control their weaknesses and reactions to emotions stand a greater chance of profiting from the majority that cannot. To me, the only way we stand a chance at mastering the markets, is mastering ourselves and trying to get a handle on what emotions will be awaiting the price action.
You may find the last statement irritating, but if you want achieve greater success in trading...there is really no other way to think.
Well stated.
Personally, I have never been interested in complicated mathematical formulas and indicators. I have been quoted, "there is a very fine line between an analyst and an ANAL-YST". I am "no way" discrediting the benefits of such studies, I have just found that by getting that in-depth, its very easy to try and predict what is happening "after" its happened. Mr. Neill hit the nail on the head. When I look at charts (specifically candlesticks) I see each segment of price action as a cluster of emotions, I try and imagine what the "average joe/ lemming" would do if they owned a stock at $20 for one year, and it's now trading at $18 after a sharp rally from $5.
One of the trading "guru's" says that "we trade people". This statement makes sense to some degree. I personally trade emotions: fear, greed and uncertainty.
There is no "holy grail" to trading, there is no "one book, video or seminar" that will make you truly embrace this. I am self-taught (schooled by the market), and it took me a long time to understand and accept this idealogy. Only the right education by the market and a mentor will get you there.
Technical analysis is not a "holy grail" its a "self-fulfilling prophecy". This history and patterns "repeat themselves" over 1and over again. Many have gone on to make millions by rebranding "chart patterns" and their effect on the "Average Joe's" emotions.
Support and resistance penetrations trigger the fear and greed in every trader (i.e short squeezes). Just as an example, I have taught the two gentlemen (Cases 1 & 2 in this report), how to switch gears: covering a short after it has broken through resistance (the stop) and going long (if the setup is there), regardless of what the outcome was on the previous trade.
It can be paralyzing to cover a short and then go long, we can think with both sides of our brain, its using both sides of our ego that many us have the problem with (including me).
It may seem very pretentious to say that successful traders that are able to control their weaknesses and reactions to emotions stand a greater chance of profiting from the majority that cannot. To me, the only way we stand a chance at mastering the markets, is mastering ourselves and trying to get a handle on what emotions will be awaiting the price action.
You may find the last statement irritating, but if you want achieve greater success in trading...there is really no other way to think.
Just as I was looking for more snakeoilers...someone PMd your bio link on tradingscienec.
I see that you added your CRD# for public view, and I commend you for that (were you thinking of me when you did that?:eek: ), and recorded a "welcome" statement, the bass in your voice stressed my speakers.
I look forward to your follow up on this report.
I see that you added your CRD# for public view, and I commend you for that (were you thinking of me when you did that?:eek: ), and recorded a "welcome" statement, the bass in your voice stressed my speakers.
I look forward to your follow up on this report.
Nice that you put the CRD# up there, not too many people have the balls to do that.
Pretty cool voice intro..."Please do both of us a favor and leave this site immediately." LOL!!!!! Thats awesome.
Good job.
By the way, would you be willing to share a list of the stocks you trade, and why? I know you trade NDX stocks, Thanks.
Pretty cool voice intro..."Please do both of us a favor and leave this site immediately." LOL!!!!! Thats awesome.
Good job.
By the way, would you be willing to share a list of the stocks you trade, and why? I know you trade NDX stocks, Thanks.
Thanks. Full-disclosure there, nothing to hide. Glad you enjoyed.
"Please do both of us a favor and leave this site immediately." I meant every word in that excerpt.
I'll have a list of my stable here in a little bit. Doing recon from today's trades, following up on Cases 1 & 2. I will post that list when I'm done with EOD scans.