SEYKOTA's method?
- Thread starter billpritjr
- Start date
Quote from FishSauce:
You make it seems so simple.
Identifying the trend is the hard part. If you could do so on a consistent basis (+decent risk management) you would be rich (filthy rich).
Looking backward, it is easy to discern a trend, but projecting into the future is something else...
fishsauce you are correct, trends occur ~15% of the time, so if you are using this strategy, you must have alot of confidence and cannot be suffering from any emotional problems, b/c you will get alot of stops. one of the dangers is that if you aren't disciplined, you will not play the strategy consistently, even through these small stop outs....and then you miss the big move.
Quote from FishSauce:
You make it seems so simple.
Identifying the trend is the hard part. If you could do so on a consistent basis (+decent risk management) you would be rich (filthy rich).
No, it's not any harder than identifying a reversal. You can do it by trial and error keeping your losses small and running your profits. It's more about money management than anything else.
If you lose 3 times in a row but the fourth attempt makes you ten times you lost each time then you made about 3 times what you risked.
the flaw in this reasoning lies in the risk staying constant. it doesn't. in a shorter time frame, your risk is smaller... i.e., a more precise example would be: you might run a $100 stop 3 times a day to earn a thousand, but you'd run a $300 stop hold the trade for three weeks and make 2 thousand.
however, in the shorter time frame you can continue to compound your $$$. this more than compensates for the transaction/profit costs being smaller in the short-term, that seykota talks about.
"other factors" include everything that might not make the risk/reward non-optimal. this strategy is BASED on risk management, not any uber-indicator or secret entry/exit technique. it is a great strategy to teach you how much $$$ you can make simply by practicing good risk management and a very simple edge.
You can improve your entry by entering earlier utilizing price action techniques, then once you hit 34EMA you can ride it for a while until you see that the trend is about to change. Trends do not change that abruptly contrary to what some people may think and I believe that this is what Ed Seykota really exploits, that is the stronger the trend the harder it changes.
funky...can you explain a little more about what you mean when you say risk management. Are you talking about the number of contracts only, or are there other things?
Thx
I think Seykota reasons that daytrading/very short term trades are riskier exactly because of the reasons you give. There are more trades the shorter term trader takes, and there's a risk with every trade, so there's naturally overall more risk.
Also, short-term traders have to find the next trade every day/ every moment because they're not committed in longer term trends. More work!
Every penny of profit is more critical when you're in for a short term, as opposed to a much longer term, especially given that you can reach a BE point and have a reduced risk trade you can ride the rest of the however long the trend goes. Less pressure.
And while the argument for the effects of short term compounding sounds as if it would be a benefit, compounding does work both ways, for you and against you, and short term losses can compound and erode that much faster in short term trades. I guess that falls under "more risk" as well.
Someone else wrote about Seykota having a knack for predicting tops/bottoms. I don't see where he does that. He writes about being reactive and not predictive, and further, he writes about putting on trades knowing already at what price point he'll stop out if the trade goes wrong, which seems to indicate that there is no attempt on his part to "call a top". Just to "call a broker" if he needs to get out.
I think his "secrets", if you want to call them secrets, is that, simpler is better; the old methods have stood up through time, the markets do not change (as regards trends); long term trends reward well, don't chase after the last eighth; you need not be emotional if you can trust your system, manage risk and the profits will follow.
>>Someone else wrote about Seykota having a knack for predicting tops/bottoms. I don't see where he does that. He writes about being reactive and not predictive, and further, he writes about putting on trades knowing already at what price point he'll stop out if the trade goes wrong, which seems to indicate that there is no attempt on his part to "call a top". Just to "call a broker" if he needs to get out.<<
Gms, there is nothing contradictory between projecting tops and following trends.
Certain patterns give a pretty good enough indication that a top (or bottom) is likely to be in place. For example, four closes all within the range of the fifth last bar indicate a possible end of the present trend.
Also, a projected top (via cycle analysis) coinciding with a down bar may be a good enough signal to exit.
BTW, I suggest to have a look at the work Gyro has done on the WealthLab site.
freealways
Gms, there is nothing contradictory between projecting tops and following trends.
Certain patterns give a pretty good enough indication that a top (or bottom) is likely to be in place. For example, four closes all within the range of the fifth last bar indicate a possible end of the present trend.
Also, a projected top (via cycle analysis) coinciding with a down bar may be a good enough signal to exit.
BTW, I suggest to have a look at the work Gyro has done on the WealthLab site.
freealways