Mental Ceilings ...Lessons from Jack

[Scientist]

Dear bubba,

I find this one a very interesting post indeed - amongst many others posted by you.

The more and more I read your posts, the more and more I realize that you're really amongst the few who are on the "other side" of traders - at least amongst those frequenting ET.

While I constantly have to deal with disturbances like DT-waw, this post simply made me realize that it is a waste of time to even contemplate reaction.

The reason he and other ET people are so sceptical of these things, and particularly mental ceilings and trading performance is simply because they don't understand. It is not within their concepts of reasoning. It is another level. To ask them to understand is like asking a fish to fly. It's not going to happen unless they're prepared to completely redesign their trading concepts.

Personally, I consider myself as "over" edge trading concepts for quite a while now. While I still spend time developing tradings systems - this is just a fun thing I do. I also use some very good systems to give me trade signals which I basically just use as a "warning" to consider against putting on a discretionary trade. They beep, and I have a look. Consider, and then maybe trade or not trade. That's all it does for me now.

Trading systems can NEVER deliver what serious continuous "discretionary" trading can deliver. If you force yourself to trade continuously, then you have to also force yourself to find ways to read the market on a continuous basis. The key is to be in the market whenever you can, rather than depending on singular kinds of setups, which you define as "edge trading" here. Setup trading is definitely an inferior market approach - No matter how many setups you know. And never will you be able to exceed even 2pts per day on the ES, I am quite confident about that. I also believe that edge trading will eventually die, or just few will be left. This is just a theory, but looking at the declining performance of systems, I take a bold bet on this. It's only a matter of time.

I believe that with the evolution to continuous trading, one can become one with the market over time, to surf every wave and to see every sector. To scrutinize all timeframes and to see all the fractals and the opportunities they offer. This is the next level of trading. With this style of trading, limitless profit opportunities open themselves to the trader who is prepared to listen and not usurp the market's language. The market is a living organism, it is exuberant at times, and sometimes it is sick. To perform surgery on it in an effort to take out a piece, the way edge traders do, is not going to be the right approach for superior performance. Rather, to become somebody who lives through and with the market's movements, would be the way to go, thus a continuous, flowing trading approach.

While I know - looking at my current returns - that I'm already ahead of the this edge crowd, I am clearly inclined to even become much better than I am now. I am evolving everyday, and the pace of developments is enormous at this stage.

Also I'd like to say that while I was somewhat sceptical of your posts for quite a while - I now realize that they're amongst the most valuable to be found in the trading world. The problem is that your language is hard to learn. Most people cannot overcome this handicap, fail, and end up blaming you.

However, I have read through a lot of your posts - not only on ET, but also on your MSN threads, cameron's website and many more - If you're Jack Hershey, that is. I don't know why you took on the alias bubba7 if you were already registered as J.H. A brief explanation would be great. But all I can say is that I greatly appreciate some of the value to be found in your works, as well as your many enlightening contributions and contrary opinions on almost anything. It's a lot of hard work to get through, but there are some great gems to be found by anyone who is prepared to do some mining work.

You're one of the greatest contrarians around. I like contrarians, since they tend to be right. The crowd is never right.

Congratulations on your many elaborate works of art. Keep it coming, bubba.


My Compliments,
~The Scientist

 

[bubba7]

Quote from bdixon619:

Since today is a free day for me I wanted to sound you out on a few things if you have some time.

"Think hard. Every part of a commodities market can be divided into an assortment of operating points. Believe it. That is a definition of how people find edges to play. I naturally deal with matrices to classify these operating points."

Are your operating points ever-changing or are they static?

Please view the ES market as a matrix. There are some key aspects to consider when constructing these things. To just keep it normal, imagine the y axis as divided into rows that are described by the fractals we all set up for charting purposes. The other axis can be divided into parts that represent key aspects of making money. You get cells.

Back off and look at it as a stock market situation. That as if it were set up using key Stcok Market Fundamental Analysis horizontal sets of descriptors that would allow a corporation to be defined quite well.

These are absolute cells for the stock market. The objective is to have acomprehensive matrix.

Turning to the futures matrix, you see that there are similar sets of descriptors for defining cells. You can print the matrix out and frame it. It is a comprehensive set of cells that cover the waterfront. Static.

Lets say it is 10:30 on Wednesday. By looking at the futures ES market, you are able to pick out a cell that most resembles what is going on. At 12:45 the cell you would choose is a different one. The market moves from one cell to another. Dynamic.

I think this gives you a picture.

The matrix is a finite group of cells. You choose how finely you want the cells defined. If you are general, you have few cells if you are precise and differentiating, you have many cells.

the above paragraph makes it possible to see a cell as an area that has some variation within it. That is why a cell can be addressed as a "zone". Zones , therefore, have "wiggle room"; a term given to me by those I participate with.


Elsewhere, I have posted on a unique characterisitcs of markets that affords a person a deeply founded basis for really making money. The basic idea is that the market moves from where it is to an adjacent cell. This idea is like the first domino in a step by step thinking process. If the market jumped around randomly (which is the primary alternative) a person would have to use very different techniques to extract money from the market.

"The market of ES is filled with absolute FA descriptors of how the market works at each of these points. We have Case A of pt in hand. What is case B. case B is making money in the referent (relatavistic) potential on any day that the market gives us. SCT allows you to play all operating points. "edges' if they show up allow a person to play other wise they have draw downs by playing when they shouldn't and lost opportunities costs if they stay sidelined."

I'm guessing that FA stands for 'fundamental analysis' and that might be right or not. Can you spell out what SCT means?

Yes FA is conventionally used to describe Fundamental Analysis.

SCT stands for Seamless Continuous Trading. Roughly speaking, a person can realize the potential of the market more fully by trading it continually. The transitions from one market operating point to another, just invoke a set of strategies for that purpose. It turns out that staying in a given market operating point as long as you can to make money is prima facia. The transition to another opportunity often can include taking profits (locking in capital).

There are no "absolute" limits on any cell in the matrix. For this reason the concept of "targets' and "stops" become trivial in dealing with the opportunity at any cellular location. Fundamental Analysis in the more familar stock market is defined by analytical processes to which the stock is subjected. Most often a ranking of quality, FA wise, results from processing batches of stocks.

Targets and stops relate to limiting making money rather than optimizing making money while in a cell. TA is what is useful for making money. This is case B stuff from PT where relatavisitc considerations come into play.


Also, I have lost my link to your description of matrices, that is why I am asking these questions. So, this isn't a trap. However, I'd like, if possible, for you to tell me as directly as possible what I'm asking. Thanks in advance.

Bruce

 

[Scientist]

Quote from bubba7:
SCT stands for Seamless Continuous Trading. Roughly speaking, a person can realize the potential of the market more fully by trading it continually. The transitions from one market operating point to another, just invoke a set of strategies for that purpose. It turns out that staying in a given market operating point as long as you can to make money is prima facia. The transition to another opportunity often can include taking profits (locking in capital).

It seems you are way ahead of me in that aspect. Continuous trading, yes - but seamless? I mean, can you be in the market at ALL times? No matter what is happening?

This doesn't seem realistic, although I might be limited in my thinking. Do you have a set of strategies to approach any kind of market continuation? What kind of market situation would jeopardize your trading approach? How would you react to spikes, for example? They probably would be outside your matrix and continuation approach, right?

What do you consider to be the weaknesses of your approach to the markets? If you are confident, knowledgeable and honest about your approach, you will clearly know the strengths and weaknesses of it. I would appreciate your elaboration.

Many Thanks,
~The Scientist

 

[bdixon619]

Thanks Jack, for the explanation. I have a matrix expression for the market that works off of the daily close and the projected close the following day. For the Nasdaq I have also included a gap analysis and how the different sized gaps are good for estimating the close either up or down. Additionally, I can form an estimate for the daily range based on the day of the week it is in the month. This is as fine a granulation as I have achieved. As to further refining the process to say an hourly basis or less I find I have been well-served by a suggestion to use candlesticks and trade off them using volume as a confirmation for price movement.

The reason, I said, I was asking was because, if I recall, you had coded your cells to achieve a score that could then be used for judging how best to play a segment of market time. It has been a year or more since I looked at it and my memory of it is not good. That was what I was seeking as far as elaboration goes.

Bruce

 

[bubba7]

Quote from bdixon619:

Thanks Jack, for the explanation. I have a matrix expression for the market that works off of the daily close and the projected close the following day. For the Nasdaq I have also included a gap analysis and how the different sized gaps are good for estimating the close either up or down. Additionally, I can form an estimate for the daily range based on the day of the week it is in the month. This is as fine a granulation as I have achieved. As to further refining the process to say an hourly basis or less I find I have been well-served by a suggestion to use candlesticks and trade off them using volume as a confirmation for price movement.

The reason, I said, I was asking was because, if I recall, you had coded your cells to achieve a score that could then be used for judging how best to play a segment of market time. It has been a year or more since I looked at it and my memory of it is not good. That was what I was seeking as far as elaboration goes.

Bruce

I can appreciate your specialization to the extent that you do and how both dimensions of what you do are extendable as you suggest. One swift aspect of where you are operating is two pronged: you can treat cells as independant and therefore use a "portfolio" of independant concurrent or staggered rotation through turns. You, additionally, can scale on each element of the "portfolio" elements.

I am working steadily to flesh out where I began after nhkoi invited me to visit. What you want, I will really get to fairly soon. The key that you see: in a micro sense, is operating point migration through cells, this is the key to anticipation with concurrent "portfolio" applications in zones.

in effect you wrap the market by your choice of focus on end effects of dicontinuous market operation. Frankly, it is most fruitful as defined by margin risk requirements. The choice to not play illiquidity and arb is more than offset by considering gaps and short term market range variation as drivers.

Okay to get down to it. I will set you up with what you need. It is excellent and unrealized by the number crunchers who went west as the man said. You will also see some London School of econ coming in here from a couple of others. Keep in mind until I catch up with you this one thing. we will deal in the probabilities of operating point migration vis a vis adjancecy and not any jumping about regardless of gap and volatility theory. The market marginally eliminates alternatives. In another way of looking, there are paths that tend to stay uncomplex and least resisted. We can, and it is done occassionally, use direct market variables that define propensities. Long ago in the period you referenced, in conjunction with a market analysis crew at Harvard, we used variables to define A/D in fractal ranges where we had to do great time duration shift from normal A/D applications. Today you notice the advent of an A/D variable in qcharts.

I did analytical processes at the Jung institute in the late 60's; the focus was how paths are bounded by obstacles. We will stuff to determine blockers in adjacent cells not chosen by the migration of the market operating point. Your chosen portion of the market matrix is absolutely terrific because it is untouched but can be scored as you suggest.

I look forward to this. the way markets are changing in information flow and executions is going to play to your hand for sure.

 

[candletrader]

Quote from bubba7:



Candle, yourself, others have gone through a reasoned process to develop "a good trading system". Votes are tallied to indicate what is what. For me, I did not vote. The spectrum chosen did not apply to SCT trading. It applied to "good trading systems" only apparently.

These systems allow traders to gain occassional opportunities dailywhen the edge arrives if it does and doesn't fail to process to a conclusion. Traders net results as a consequence of tasks peformed. Your system has requirements that you express above: quickness to react; management of money; taking losses quickly, and now, reversing to get to a better place.

I do not see how anyone could do this poorly and you are verysuspicious that 1 person in 100,000 can.

There is a royal screw up going on here. a 1, 2, 3, 4, 5, point variation a day is absolutely guaranteed. Picking off a point a day is impossible not to just fall into. There is continual stuff here about people losing many points or less a day. Notice that someone is opposite hem.

Your post makes me think that you and folks like you do not know anyone making any money out there.

You suggest people, in general or 99%, do not have ability to make money. Every one who has posted in ET can pull down all the money they need. They just haven't started to walk across the bridge to success. It sure as shit does not in any way come down to originating "good trading systems" and trading them.

There is zero demand and zero requirement to do anything new different or unique to make money steadily day after day after day.

Learning how to stay on the sidelines when it is appropriate is the best training a person can get.

The single question everyone has to always have the answer to is: Do I know what the market is doing? Here in ET day by day that question is not answered over and over.

When does a person ever get the right to go in the market? It definitely is not when that person makes a personal judgement that he has completed the design and can operate a "good trading system". "good trading systems" do not ever come close to making 1 or 2 points a day on average and have a money management sysems that keeps money out of the market. Making 1 or 2 points a day in ES and having a maximum of capital in the market on that trade that is 3% of capital is just a vaccuum of thinking and performance.

"Good trading systems" exploit all market opportunitiesavailable and have the perponderance of total capital at diversified risk at all times. Whatever other alternatives that are considered "good trading systems" most also be "working" in a way that resources are applied to opportunity.

Some one here pointed out the Nobel crews worked 30 years on their stuff to get to where they got. The first minute any person gets the twinkling in their eye to make money in markets, they actually avail themselves to a construct and in place foundation that is so large it is indescribable. It is impossible to create from scratch in the global electronic network of resourses.

how long does it take to get out of a person's system that making money in a market is related to chosin a singular market phenomena as the basis. We expect bagger, etc to "pick 5". they do that for the lottery every day. We do not expect experienced people to be stuck in singularity or absoluteness only or relatavistic only. Posting that 99,999 in 100,000 miss the boat is bordering on silly.

Brother bubba7,

First off, I would appreciate it if you didn't lump me together with angrybull ("Candle, yourself, others")... we have somewhat different positions, and a third party association of myself with the comments of those with whom I am not in alignment is invalid (read some of angrybull's previous posts!!)...

OK, let's move on... we are talking long-run averages and not daily point targets (a 1pt a day long run average can be composed of many 10 pt+ days, many 3pt losing days, many flat days etc)... it can be argued (albeit with some simplifying assumptions) that a long-run daily average of even 1 point a day equates to anything from a long run average of 62% a year (conservative margining assumptions) to 250% a year (aggressive margining assumptions) [ http://www.elitetrader.com/vb/showthread.php?s=&threadid=20859 ]

It takes a brave man to suggest that even 1pt a day as a long run average is not a commendable achievement... yes, there are people doing better than this... we all hear of traders making phenomenal % returns over many years, but these are the minority and not the norm --- moreover, most of the Market Wizards detailed in Schwager's books did not make more than the % equivalent of 1pt a day as their long run average... what differentiated the market wizards from the chaff was their long run consistency in achieving excellent % returns...

To regard even a "crappy" 1pt a day long-run average as short of impressive indicates a failure to appreciate what is meant by long-run consistency through all market cycles, which includes the somewhat difficult trading conditions... yes, on an intraday basis, 1pt is nothing more than noise, so I can understand the conceptual difficulties that some have with the notion of "only averaging 1pt a day"... one way to alleviate such conceptual hang-ups is to consider the % return implications of a 1pt a day average...

I simply urge those who look down with disdain on 1pt a day as an average to work out the annual % returns implications of this average under any reasonable margining assumptions... and then take this % and consider going forward from now and averaging it year in, year out over the course of several years, through both easy and difficult trading conditions (something encapsulated by the term "long-run consistency")...

With fraternal wishes,
Candle

 

[trade4succes]

What is the object of your research?

Am I right to say that the hypothesis is that in order to maximize her returns an independant trader is best off to use the SCT approach?

Cheers, appreciate your posts!

 

[Scientist]

Quote from trade4succes:

What is the object of your research?

Am I right to say that the hypothesis is that to maximize her returns an independant trader is best off to use the SCT approach?

Cheers, appreciate your posts!

This is basically Jack's approach to the markets, which is supposed to clearly outperform any kind of systematic or "edge" trading.

While I have to agree (from own experience) that continuous trading is the next step of evolution that most traders never (attemp to) achieve, and I am now trading on a more and more continuous basis myself, I however do not yet fully understand how Jack attempts to be "seamless", that is in the market at all times. It might be compared to the kind of trading that specialists or liquidity providers of individual stocks pursue in order to be "in the market all day, while offering both to the ask and the bid, that is "market-making", however I'm not sure on this.

I am working on his theories and trying to extract the necessary information, and am yet unsuccessful at seriously implementing his theories. However, I maintain that there is a lot of great and very valuable information to be found in Jacks's posts to improve your overall performance - If you have the time to read them all. I think he's written several thousand altogether!

All the Best, Brother T4S,
~The Scientist

 

[bubba7]

Quote from candletrader:



Brother bubba7,

First off, I would appreciate it if you didn't lump me together with angrybull

sniplong-run averages and not daily point targets assumptions) [ snip and more snips.... [url]http://www.elitetrader.com/vb/showthread.php?s=&threadid=20859[/url] ]

It takes a brave man to suggest that even 1pt a day as a long run average is not a commendable achievement...

To regard even a "crappy" 1pt a day long-run average as short of impressive indicates a failure to appreciate what is meant by long-run consistency through all market cycles, which includes the ...

I simply urge ,
Candle

i'll probably hear from angrybull as well.

I keep a word file entitled candle where I place substantive stuff.

I keep files on people who have methods of trading that I can learn from. I am learning about ET as best I can using a collection of traders that represent the distribution here. One thing I am doing is making a matrix of all the "edge" approaches used here. I want to learn how traders iteratively refine their approaches and how they marginally improve and their rate of improvement over time.

This post seems to be directed at long run averages of points earned in ES. I am interested in that in the context of the potential ES offers. I am compiling graphs of intrady ES charts and I log them in excel and make several notations which include these columns on page two (page one gives the context of posted graph):

color=green]H/L Range 975--959

H/L Pt 16[/color] The spread was 16 points for day
spread

YTD Rank 62 This is not actual rank but all day fit into a rank list from yearsbeginning. I wish it was always the rank among the last 365 but life is not that sophisticated yet.

Rockets T5=3pts reference Trade 5

Icebergs L=6 Six linked trades

Slaloms T5=4 Thee were 4 trades within Trade 5

H/L Multiple 1.6 This is a number that is a quotient of profits divided by the daily spread.


Profit Target 25.6 this is the daily profit from rockets icebergs and slaloming netted down for overlapping trades.


Green stuff I am given by the market and data sources. The blue stuff is how the potential of the green stuff may be realized.

This warm up gets anyone to making money.


You invest up to 2% of your capital in an entry you take in the AM. You use an AM edge that is important to you for making money. Day after day you enter probably. Your worst draw down over a period of time has been 20%. Personally I do not recommend that people stay in losing trades. You do stay in because of your edge stategy which allows for draw downs to a given stop point are part of your plan. Up to that moment you feel staying in works for you because of stuff you know (probably you relied on back testing or ther people's support services to you from other reliable sources). After that point you take a loss. and start over.

On some days you stay in the market and have as much as a 10 point gain before a reason that you have prevails and you quit for the day.

Let's say I am correct or wrong about what you do. It doesn't matter. The thing that matters is your draw downs arecountered by good days. and you net out 1 point a day as a long term average.

What don't we know at this point to be able to make a different analysis. The different analysis that is important is a financial one.
Financial analysis is reallt where the "rubber meets the road" I am a "rubber meets the road" person. You are a long term point average person.

Everyone here knows how much cash you make a day I'm sure. That is a financial analysis consideration.

You invest a portion of your capital in a trade. All of your capital is the denominator of what ever financial analysis that is done is based on.

A 3% block of capital leaves 97% in the bank. What percent of capital is 1 contract? Let's assume it is .03%. That means you trade 100 contracts and make 5,000 bucks a day. This is a normal days work for a lot of us.

3% of your capital makes 5,000 dollars every day. This is a financial performance level.

I ask my beginners to trade a maximim of one contract until they triple their money. That took 2 months here it turned out.

beginners do not have big amounts of capital and I only let them use he smallest amount possible and they only trade one "edge". The edge is fast paced trend moves. Their lagging indicators will absolutely not give them timely signals for entry. They cannot make the initial profits to market offers. They are screwed on the exit as well because they get out late.

They cannot ever trade any time there is no rocket. all these handicaps cause them to not be able to double their money in less than two months.

How frequently does a guy making 1 point a day double his money.

You divide 1 point of dollars(50) into the margin requirement(we each have our own value). If the answer is less than 45, then the guy does better than a beginner just starting out with a rocket approach.

The above excel example shows you maybe, that the beginner got 3 points on one rocket where the expert that day made 25.6 impossible to do points. Beginners only do 1 /8th as well as experts.

my edge matrix which i will post hee in 6 months fter i get educated well enough will nicely rank all this performance stuff in long range points per day.

Then we can begin to do financial analysis.

your poll on what to do with left over unused capital suggests That making 1 point a day long term average is done in a constained situation where a lot of capital remains always on the side lines as an absolute requirement vis a vis risk and money management requirements ofdealing with your "edge" construction that has 20% draw downs as a normal occurance for you.

Why do people playing rockets as beginners not have 20% draw downs? This Why and its answer is how a person gets to be an expert in 6 months and can do SCT. There are many SCT's out there. I see several varieties here. I think anyone can start with any edge and get to one veriety of SCT or another.

as I read and watch and learn I see a lot of people doing one thiong: They iteratively improve y adding stuff that works for them and they weed out the other stuff that isn't so good.

1p point a day .....2 points a day....3 poiints.....4 points.........only a piece of the story percent of capital 3%.....4%.....5%......20%.....30%.....50%.... 70%.......What is your story on this?

Once you step up to financial analysis then we are talking business.

Techniques are great but money making comes down to financial analysis

we need to fucus on money velocity forapplied capital...

shall we begin????

 

[bubba7]

Quote from damir00:



some very interesting points in there, but i fear most will not have the patience to read it all.

there are some of us here who have known about K&T's work for a long, long time. the base research itself goes back 30 years. and it's not just K&T, there is a wide multidisciplinary field ranging from Penrose to Gould to Pinker to Taleb to K&T to belive it or not the Torah that has enormous implications on how the market can be viewed.

there are many ways to describe approaches to the market. for me - i know it may sound a bit zen - approaching the market with a genuine sense of humility is an *extremely* liberating process.

No problem, 4 out of 5 people prefer to not waste their time reading my stuff. I'm the opposite of Rodney Dangerfield.

I enjoy approaching the market every morning. I live a 1000 days at a time and I have spent 15% of 1000 days looking at the ES mini lately. I will work through some stuff before Labor day to get my journal spiffed up. Then after Labor day I'm putting the "pedal to the metal". I had a 46 ford flat head V8 coupe with an engine modified to the best specs. I got about 7,000 miles on a set of tires. My recall is that I was giving a lot of consideration to where "the rubber meets the road"

Thank god they finally came up with interstates to replace back roads.

The ES market was invented recently so I don't have the reverence you have. I plan on posting ahead of the market so everyone who wants can coattail me. Since it isn't stocks, I'm not worried about creating another "insider trading" phenomena that would bring the SEC down on me again. 4 out of 5 people won't be reading my stuff and that will keep my stuff from influencing the market as is the usual.