Mechanical versus discretionary swing trading

[bighog]

Quote from Jim_Nasium:

Did you mean to post this in this thread?

Actually, it was meant as food for thought. Nodoji is the real deal, she works and gives for free what she received for free, NICE way to trade. As energetic as she is when she invites people to chat with her on Skype she injects energy to be passed on.

My point is simple: as long as she does what she does, why not set up a paid following because it is really just an extension of what her workday as a trader is anyway. Look what Linda Bradford Radske did with her hours in front of a computer, more power to her.

Nodoji has the intelligence and energy to go a lot further in the day trading world............ CL and ES chat room, sounds great for new persons. PASS IT ON !!!!

 

[dbphoenix]

Quote from Jim_Nasium:

Why did you choose a stock which had gapped? I know I took a trade in this stock but it seems you noticed the gap and decided it would be a good example for what you are showing me. Are gaps a requirement for these trades?

It was the first on your list. I can do the other if you like. Doesn't matter.

Edit: I see that TMO has been in a continuous uptrend for two years, so buying yesterday was late in any sense of the word. However, I'll be happy to plot it if you'll give me a starting date (don't have the time to do two years).

 

[game]

Quote from bighog:

Actually, it was meant as food for thought.

No it wasn't. Your observations about things appearing as ducks may be a result of confirmation bias. You think you are 'observing' reality and forming reasonable estimates of probability. But your observations arise from your belief system. It's a self fulfilling loop. Thus, in this instance, you ignore all virtue and lump all your probability mass on the mere plausibility of vice. Worse, by making such definitive statements, you leave yourself no room to amend estimates should contrary facts stare you in the face.

I have read you posts. I have read Nodoji's appreciation of your advice. I conclude that you are a good trader and more importantly, a well meaning human being. You probably understand probability when it comes to trading. Why not parlay that same wisdom into other matters?

 

[Jim_Nasium]

Quote from dbphoenix:

It was the first on your list. I can do the other if you like. Doesn't matter.

OK so the gap is coincidental, it's just that it's not the first time you have mentioned gaps.

What is important here is the change in trend after selling was exhausted, paying attention to the volume and price would have got me into the trend early.

 

[dbphoenix]

Quote from Jim_Nasium:

OK so the gap is coincidental, it's just that it's not the first time you have mentioned gaps.

What is important here is the change in trend after selling was exhausted, paying attention to the volume and price would have got me into the trend early.

I mentioned gaps because someone I've worked with here began by trading stocks with opening gaps. I haven't traded stocks since '98, with or without gaps.

And you're right about the change in trend. Whether it's important or not and, if so, how important, depends on your strategy and tactics and if you want to play it and if so how.

But about TMO. I looked at it again and there's really no trend channel that would have done you any good. This is an annoyance but not a trade-killer. Price is always either ranging or trending but it doesn't always trade in a nice, neat trading range if ranging nor does it always form a pretty channel like they show you in books if trending. Nonetheless, it can be tracked with trendlines and you can gauge the balance between demand and supply at any time in order to help you decide whether to go long or short or trade at all. This requires some insight into trader behavior, but, as with your other trade, the decision-making process can be made mechanical according to the kinds of price behavior you want to see.

For example, with TMO, if you go back two months, you can draw a trendline under 10/9 and 11/8. This line is not a figment of your imagination nor is it there because you think it looks pretty. It's there because these swing lows represent those prices at which buyers supported and reversed price. Whether they will continue to do in the same places is unknowable, but traders have been creating these swing points and the consequent trends for centuries, so they're worth paying attention to. Therefore, when buyers don't step up to support price again when it crosses that line, you've learned something about a possible shift in the balance between supply and demand, and a long at that point may not be the best possible course. If buyers pull themselves together and stage another rally, then the situation can be re-evaluated. But until then, there are dozens of other stocks that awaiting their turn.

Best of luck.

 

[bwolinsky]

Quote from Jim_Nasium:

Hi,

I have been working on a trading approach which is largely mechanical and based on price action and volume, i.e. I run a screener which returns stocks where x, y and z conditions are met and I then take positions in those stocks. Sometimes I may override the screener if something really looks wrong but largely I let the screener pick the trades and I enter the orders. I have a fixed rule on when to exit too.

I have a colleague who I recently discovered trades futures, and this morning we had a water cooler moment discussing the over-extendedness of the S&P and how he was looking to go short, I said that I thought a correction was long over due but my system keeps on throwing up long signals so I have no choice but to be long as I don't second the guess the system. If I think back to all the times I have thought "this market can't go any lower/higher" most times I have been wrong.

He looked at me like I was being extremely naive, and said "It's really more of an art than a science", and that ended the conversation as I contemplated what he meant.

Now I am not making money, but I am not losing big time either, my account is just slowly decreasing overtime but I am concerned that there is something fundamentally wrong in my approach and maybe my colleague is on to something. He has been in this game way longer than me and uses a discretionary approach, he talks the talk but I have no idea if he actually makes money over the long term.

I can see how mechanical systems can be seen as naive, if it were as easy as "if x do y" everyone would be making their living running a trade bot while they sun themselves on a Caribbean island, which is unfortunate for me because I think my mindset is very much geared towards mechanical systems.

Anybody have any thoughts on this? Any long term traders out there successfully using mechanical systems? Or to have an edge in trading do you need to bring something extra to the table?

Buying dips is only useful for stocks in highly traded indexes. Typically, the SP 500 or NASDAQ 100 are best for dip buyers.

I still have the most profitable trading system developed according to the folks at Wealth Lab Pro, so besides knowing I'm not capitalized enough to make good use out of it, it's something I'll do down the road and is years old now.

What you're doing should only be applied in stocks tied to indexes but absolutely should not be used to trade futures.

 

[Visaria]

Quote from bwolinsky:


What you're doing should only be applied in stocks tied to indexes but absolutely should not be used to trade futures.

I cant see why not.

 

[bwolinsky]

Quote from Visaria:

I cant see why not.

Stocks mean revert. Indexes do not, they trend and build momentum.

Stock index components as part of indexes do this due to the nature of market structure within the index they're a part of.

Futures and indices are not that way and dependent on other components will trend more than they revert.

If you haven't noticed this or observed through years of trading at the top of performance lists of mechanical systems that's primarily how I can identify complete beginners from people who have actually looked at the data and drawn these conclusions quantitatively.

 

[jl1575]

Quote from bighog:



LINES, trendlines, channel lines, support/resist are all indicators.

TrendLines Automatic is a built-in indicator on Tradestation platform ( There are 5 groups of Technical Analysis, the TrendLines Automaticis is in the Indicator group).
It plots trendlines in REAL TIME. Better yet:
1) there are 3 parameters you can modify/change to fit whatever you like;
2) it can give you alert in real time and at INTRA-BAR level, meaning when a bar crosses the trendline, it gives sound/visual signals at exactly the moment.

 

[galvinlee888]

Quote from Jim_Nasium:

Hi,

I have been working on a trading approach which is largely mechanical and based on price action and volume, i.e. I run a screener which returns stocks where x, y and z conditions are met and I then take positions in those stocks. Sometimes I may override the screener if something really looks wrong but largely I let the screener pick the trades and I enter the orders. I have a fixed rule on when to exit too.

I have a colleague who I recently discovered trades futures, and this morning we had a water cooler moment discussing the over-extendedness of the S&P and how he was looking to go short, I said that I thought a correction was long over due but my system keeps on throwing up long signals so I have no choice but to be long as I don't second the guess the system. If I think back to all the times I have thought "this market can't go any lower/higher" most times I have been wrong.

He looked at me like I was being extremely naive, and said "It's really more of an art than a science", and that ended the conversation as I contemplated what he meant.

Now I am not making money, but I am not losing big time either, my account is just slowly decreasing overtime but I am concerned that there is something fundamentally wrong in my approach and maybe my colleague is on to something. He has been in this game way longer than me and uses a discretionary approach, he talks the talk but I have no idea if he actually makes money over the long term.

I can see how mechanical systems can be seen as naive, if it were as easy as "if x do y" everyone would be making their living running a trade bot while they sun themselves on a Caribbean island, which is unfortunate for me because I think my mindset is very much geared towards mechanical systems.

Anybody have any thoughts on this? Any long term traders out there successfully using mechanical systems? Or to have an edge in trading do you need to bring something extra to the table?

I don't want to be rude, but this is my take on your so called mechanical system.

There is no edge in your system, e.g. It is completely random. The only rea son your account sink overtime is because of commission and slipage. In other words, you will be in break even if you no need to pay those "fees".

Market is completely random, your system will work in certain market conditions ( either sideway, trend or revert to mean). You can't find a system that will work in all conditions. The tricl is you have to know the market condition, but no one ever can predict it correctly in long term, even the "most evil" institutions in the world. Tips: the BS indicator such as MA will not help, neither do the "high probability" PA or pattern as thosw never exist (at least none of them ever pass any real statistical significant test)