Quote from makosgu:
TR, ignore the masses who will condemn you for they cannot logically tell you where you have a fallacy. The bull market comment made to you earlier is irrelevant. On occasion, for giggles and what have you, I run a slight slant on what you are now beginning to realize. You and I are talking about the entire market of stocks available to trade (ie. thousands and thousands). But do you know why this is working? The "most active" part is telling you something in that it is identifying those that have an unusual amount of volume. If you check the charts, you will see it. However, you can get into a very interesting paradigm shift by just using price as a percentage. By using relative pricing, you can alot the same amount of capital to each asset. 100K, 20K per asset (ie. top 5 gainers), and then manage your swapping as you watch them run. NOW, here's the slant. If you realtime stream the top gainers much like the nasdaq heat map, you can explicitly see when names swap in and out of this leader board. Invariably, the question arises as to when do you take action? My action is when a new asset's gain surpasses the #5 gainer to simultaneously become the NEW #5 gainer, hence relative price charting. As an illustration, it is like watching the leader board at your favorite nascar race. The leader board at a race changes/shifts periodically. A car (ie. asset) makes its way through the pack all the while having a position (ie. relative price or percent gain/loss) that is monitorable. When a car passes a higher ranking car on the leader board, it simultaneously assumes the new higher rank/position. Conversely, if it is passed by a lower rank car, it loses it's rank.
With any given tradeable market with a significant number of assets, we can do the same exact thing. Every asset is a car that is fighting for position and ultimately YOUR capital. It only makes common sense to be investing your capital in vehicles that are performing which incidently, will be the top ranked cars at all times. As a result, my only job is to be CONTINUALLY monitoring the assets, and swaping out asset vehicles as their rank moves them in and out of the leader board. For me, the starting line is the opening bell (ie. all assets have 0% change in price). This way, I do away with gaps and other phenomenons. As the market unfolds some go negative some go positive. Essentially, it is the gun firing for all assets to make a full out sprint. Unlike in horse racing where you can't change the horse you have chosen to win, I have shifted the paradigm so that I choose the horse that is currently leading the race. At any point in time along the race, should there be a change of leaders, then I swap horses for the newly leading horse.
What it all boils down to is that out of thousands of stock, there is going to be at least one top gun on every single day. Whether you look at the top 1 or the top 5 or the top 10, the point is that all will have performed. With this paradigm, there is no guesswork nor betting. You are just riding shotgun with the leaders. When they stop leading the pack, you stop riding shotgun with them and swap into the new leading vehicle at the exact moment that the change occurs. Nothing in trading prevents us from changing our pick. So why not exercise this. As a result, you are keeping on the tail right side of the winners... Think about this. I'm pretty sure you'll "get it". One day, one of those hedgies will figure it out. No mathematical quant model will tell them this because it has nothing to do with betting or edges. If they took a stochastic interest rate model and graphed a few thousand simulated paths, I would then ask them which one of those paths would they get the highest return? Comparatively, every asset is a realtime simulation path. Choosing the winning path is easy. Most second guess the change for all the usual psychological trading issues. Perhaps this all sounds like fluff. Just tack this post on the wall for later...
Regards,
MAK
