The Documents by Jack Hershey

Time Allocation Between Position Trading and SCT

So the trading plan is a two part effort and during trading hours proportional amounts of time
are spent with each effort. The commodities trading is more demanding because of the
market pace and the leveraging of capital. On the other hand position trading of stocks can
be done using a daily routine. What this means is that the routine for stocks can be done in
off hours and the commodities trading can be handled primarily during trading hours. There
are, however, some considerations that lead to overlap. The overlap becomes more and
more significant as the knowledge, skills and experience of the trader are acquired. Initially
there is no overlap.

To understand these factors, in general, it is only necessary to look at the respective data
sets of the two trading approaches. Trading commodities is done using the five minute and
two minute charts and DOM. On the other hand, position trading stocks utilizes the EOD
and 30 minute charts.

For each, other charts are also under consideration. These ancillary charts provide the
“context” for the trading charts. Seven levels of charts are involved; they include quarterly,
monthly, weekly, and the four previously mentioned (daily, 30 min, 5 min, 2 min). With
regard to the 30 minute chart sometimes the 15 minute chart is used as an alternative. The
separation of periodicity of the charts is roughly a multiple that ranges between three and
five. By going across the spectrum, and using a common multiple it is possible to use this
facet as a fundamental testing factor for the efficacy of any application of monitoring,
analysis, decision making and taking timely action.

The behavior of markets can be characterized using fundamental concepts that have broad
application. This set of fundamental concepts needs to be complete and holistic. The
premise of this paper is that the potential of the market can be extracted through the
iterative refinement of methods that provide the most effective and efficient performance.
Therefore, the best approach is to use pragmatic universal fundamental concepts of the
market as a foundation.

Therefore, it is incumbent on the practitioner to have an
understanding of how these concepts may be tested to determine their universality. The
test of universality is that the concept applies with the same effectiveness and efficiency to
each and every fractal, where the fractals are spaced in the spectrum in a common manner.
 
Key Market Characteristics

At this point, two additional characteristics of the market deserve consideration. Dealing
with these characteristics amplifies the context of how the trading approaches work. These
include: the migration of the market operating point and prediction as a strategy in making
money.
Consideration of the operating point of the market is extremely important. The risk
map is in actuality a derivative of the market operating point map. Because all markets are
large, at all times the operating point must be considered a synthesis of all active trader
viewpoints. The viewpoints are weighted according to the size of the player and the level of
activity. The caveat in this is that the control of the market lies with the minority viewpoint.

This is not a paradox, but it leads to the precept that on any map of the market operating
point, the operating point moves from one cellular location to only another adjacent possible
cell. The market does not jump from one cell to another. There is a lot to soak up with
regard to this consideration. Maps can be drawn in two dimensions to create a plane or
surface or they can be drawn with additional dimensions to create three or more
dimensional surfaces. Sets of two dimensional surfaces are also possible.
For practical purposes it is common to use a single two dimensional matrix.

With consideration to any operating point there are 8 possible adjacent cells. Visualize a tictac-
toe game layout. Assume that the market operating point is the center cell. The eight
cells surrounding the center cell may be divided into two groups to illustrate the extent of
difficulty a change in the operating point when involved. A single degree of difficulty is
required to move up, down or sideways. On the other hand to move diagonally two degrees
of difficulty are encountered. Most of the time operating point movement occurs in the
simpler vein. Often a diagonal move is accomplished in two serial steps each involving a
single degree of difficulty. Understanding this mode of movement is very important.
One of the drills that can be used to best understand this is to annotate pathways on the matrix over
and over to get a picture of the common ways in which the market operates. By putting a
collection of lines on the matrix it becomes easier and easier to anticipate possible future
pathways. They need not be predicted. But, once it is known where the cellular operating
point is, it becomes much easier to anticipate the next likely operating point.
 
Prediction’s Alternative

The other consideration is how prediction may or may not be used as a market strategy. It
turns out that prediction is not necessary, so it is not used even for the purposes of collateral
reinforcement. Most investing or trading can be divided into two basic categories. One
involves prediction, the other does not. Each category can be considered as a separate
paradigm. The paradigm involving prediction is often compared to betting paradigms.

Various games are often used as collateral examples of prediction. The basic prediction
paradigm consists of analysis, making a prediction, acting, adding protection and acting on
the targeted results if and when they are achieved. This sequence of events will either
work, fail, or remains in limbo. The trivial case, limbo, is usually resolved by using a set time
out duration. Success is achieved when the target is reached and the trade is completed.
Failure occurs when the protection is exercised to prevent further losses. Whether an
approach is successful or not is determined by the mathematical probabilities associated
with comparing the successes against the failures. In general a successful approach is
deemed to be an “edge” in market parlance. It turns out that prediction is not necessary and
this is best determined by considering the non-prediction paradigm.

The general alternative to prediction comes about from the consideration of effectiveness
and efficiency with respect to the potential of the market. Because money making is wholly
dependent upon price change, the optimum approach involves being in the market at all
times and continuing at all times to be on the right side of the market. The two strategies of
this paradigm are to hold a position on the right side of the market throughout the entire run
of that price change. The second strategy is to change from one side of the market to the
other at the same time the market direction changes. In market parlance, the two strategies
are referred to “hold” and “reverse”. The designation of the commodities index futures
trading, Seamless Continuous Trading (SCT) is a designation designed to convey the
alternative processes of holding and reversing as a way of staying on the right side of the
market and taking profits at the end of each profit cycle. Thus it may be seen that it is
possible to carryout a four part routine (monitoring, analysis, decision making and timely
action) and prediction is not included in this process. Therefore, it is not necessary to use
prediction as part of the money making process.

Predicting or not predicting is an issue. Where does this issue originate? It is probably the
result of reasoning processes used by beginning traders to achieve a money making basis
upon casual observations of the market as they become more engrossed in the potential of
making money by trading in markets.

At the other end of the spectrum, presently, there are
significant activities going on in the scientific and technical parts of the financial industry
which advance the notion that edges are the focal point and that the nature of the market is
continually changing. The combination of the existence of a dynamic market character and
that it is possible to obtain edges through testing, analysis and strategic trading methods
precipitates an orientation that advocates for continual modification of professional market
trading. All of this has, as a component, prediction. Prediction is embedded in all edge
trading approaches across the spectrum of the trader’s knowledge, skills and experience.
 
Path to Expertise by Sharing Responsibilities with the Market


This paper focuses on following a path to expertise that excludes prediction as a basis or a
compliment for making money. The approach recommended is based upon achieving
greater effectiveness and efficiency as a consequence of iterative refinement where the goal
is to extract the potential of the market that continuing price change offers. This goal is
achieved by continuing to be on the right side of the market and to change sides of the
market coincidentally with the markets change of direction. This requires a partnership with
the market where there is an understanding of the mutual responsibilities.

It is difficult to deal with the concept that the market has responsibilities. The point that is
being made, however, is that it is inappropriate for the trader to take on efforts and activities
that can be provided to the trader by the market. Basically it is a division of responsibility for
determining where information comes from that is used to make money. This paper
presents the idea that the market provides sufficient information at all times for the trader to
be able to monitor, analyze, and make decision in a timely manner. There are several
inherent considerations with respect to this viewpoint.

The basic fundamental consideration is that markets have definable character. As a
consequence, there is a set of truths about the market that can be formalized as a body of
knowledge that may be used for operational purposes. Obtaining this body of knowledge in
a manner that gives it utility, is a key consideration. The pathway to achieving this turns out
to be a process that involves building the mind, primarily. To be able to build the mind
effectively and efficiently it is necessary to understand how the brain works and to have the
methods and mechanisms available to convey this body of knowledge from the market
where it resides to the brain where it can be stored then used, with utility, by the mind.
There are many collateral support systems that can be engaged in this process. What is at
hand here is developing a paradigm that can be used seamlessly and continuously to
monitor, analyze, make decisions and take timely action. The body of knowledge is used to
determine what to monitor, to provide a basis of comparison when analysis is done, to
provide the correct answer for decision making questions, and to provide the appropriate
support for making timely decisions. For the most part these four sets of information are
independent but highly correlated. Each of the four processes involve separate and unique
reasoning strategies and processes.

By looking at the sequence of learning, to gain knowledge and skills, the strategy for gaining
experience becomes evident. In effect, by gaining experience effectively and efficiently a
time compression can be achieved in following the pathway to expertise. By mapping
knowledge, skills and experience against the map of risk (which is derived from the matrix of
the operating points) it is possible to create this compressed routing pathway to becoming
expert.

The trading business plan includes a sequence for developing knowledge, skills and
experience. Along the way, the daily trading plan continues to make more and more money
as measured by the money velocity of the capitalization equity curve. If any characterization
of the business trading plan were made, the best one would be “on the job training.” The
primary strategic effort that is to be made is based upon preservation of capital. Two sets of
risks actually exist. Market risks are known and may be characterized completely. The
other risks are the risk set embodied in the trader’s lack of knowledge, skills and experience.
The trader may only operate when they know what they are doing; at all other times, they
may not trade. As time passes it is possible to measure the percent of total market time,
daily, that the trader participates in the market. Going from novice to expert involves many
stages or plateaus. The main guide for the extent of participation is the risk map. On the
other hand, the equity curve performance can be measured as a series of eight doublings of
money velocity. These do not occur as discrete steps but, rather they accumulate as they
are assimilated part by part.

The business trading plan builds an initial framework in the mind of the trader. By stages
this framework is reinforced and made more and more comprehensive. This risk based
approach for gaining knowledge, skills and experience achieves another very unusual
concurrent goal: it minimizes failure continually. A horizontal line segment may be drawn
and one point may be used along the line to divide it into two parts: Progress and problem
solving are the two parts. Failure fits into the problem solving part of the line as a major
cause for having to solve problems. Failures that enter the framework of the mind are
residual and do not go away. They must be “surrounded” by solutions for those failures.

No matter what part of the line is under consideration, it takes time to carry out the process
of establishing good results. The primary goal is to continually achieve successes and
cover more and more area of the risk map. This is either done by direct progress or by, as a
consequence of failure, problem solving.

Anyone who takes on a self learning process without a business trading plan will encounter
problems. The most devastating problem of all is the category of repeated failure. With the
advent of repeated failure the dividing point on the line almost eliminates the portion of the
segment devoted to progress. Past life experience is part of this picture and when such a
devastating condition and circumstance exists, the mind survival mechanisms come into
play.
This is the phenomenon called “the lizard” brain function as has been mentioned
above. It is where the fight or flight syndrome prevails. It is well known that traders,
especially in the commodities markets, have a failure rate that far exceeds those who are
successful. It can come from the baggage of past life experience. The mean time to failure
for those who fail by exhausting their capital is a rather short duration, most often less than a
year. It is possible for such failing traders to assemble new capital and to begin again.
Often they do not understand that they have built for themselves, in their mind, a set of
knowledge, skills and experience, all of which have trained them for repeated failure. To try
again is much more difficult than to take on the initial mind building experience. The trading
plan is what is required to integrate all of the facets of going from novice to expert. This
paper presents how to go about getting the job done.
 
B. Mental Growth and Body Language


Mental growth occurs as a consequence of utilizing a routine and assuring that the utilization
is disciplined by carrying out pre and post exercises relative to the main routine. It is a case
of considering, what am I going to do, doing it, and debriefing on what has been done. This
is an aspect of iterative refinement as mentioned in the micro part of this paper.

Growing the mind is the primary objective in the acquisition of knowledge, skills and
experience. The memory is where the results of the strategic acquisitions are kept. This
paper presents the concept that the partnership between the market and the trader is made
operational by the truths that are acquired from the market. The truths with respect to
knowledge and skills are maintained and added to in the mind, as parallels of related truths.
The organization of all of this is left to the subconscious because that is the job of the
subconscious while the mind is at rest during sleeping. The well known phenomenon of
waking up and recognizing a solution to a pressing problem at hand, demonstrates that this
subconscious effort has been at work.

All of this is an ongoing process. There are many alternatives for obtaining knowledge and
skills. This paper presents the view that the critical path for obtaining this knowledge and
these skills is through experiencing the real market in a defined partnership involving mutual
responsibilities. To fast track this process, it is possible to use transference from an expert
trader to a beginning trader. The singular most important set of truths that can be
transferred is what is used as the basis of the trading business plan. By repeating the basic
trading routine to double the initial capital in a no risk context provides the initial web and
framework of basic truths in the mind. The essential step accomplished by this process is to
go from little knowledge, skills or experience to an initial comprehensive but basic
knowledge and skill set. This is the seed that is required to initiate all growth.

At this point, what the mind looks like is many compartments each containing segments of
the whole. The parts of the mind operate automatically in an integrated manner so that the
interrelationship of the parts continues to work consistently and effectively. The objective is
to add to the initial framework of the web to make it more comprehensive stage by stage.
The plan is to work into successively more and more riskier areas in an orderly manner.

There is an additional dimension to this as well. In this paper it is called reinforcing.
Reinforcing means putting more of the same into the local areas of the brain where the initial
web is located. In this way single or slender pathways can be reinforced with additional very
similar, but not identical, pathways. There are many choices on how to do this. All involve
processes. In the appendix entitled Drill List (This will be added later) the paper presents a
way to fast track this process. Generally, and as listed, there are many specific drills that
can be done. They are designed to appeal to one or more of the three essential
mechanisms for processing: aural, visual and or kinesthetic. People have preferences for
which of these or the combination of these they prefer. The recommendation is to use as
many ways as possible and to not take the easy way out. Thoroughness is the watchword
for fast tracking. The incentive for fast tracking is in the business plan. The sooner you get
to be rich the better.

To drive any precept home, the trader does drills under market conditions that support and
demonstrate the utility of the concepts. The process of doing drills builds the pathways of
the mind in an exponential manner. Doing 5 drills yields more than 5 times the result. The
result is exponential, where the number of times the drill is done is the exponent of the
learning base greater than one. Perhaps the Napierian base, or natural base as it is called,
would be a reliable base for this application.

That is to say it is reasonable to apply John
Napier’s work to trading as it was applied to other natural occurring phenomenon. Thus,
the benefit of doing drills varies greatly from person to person. It is primarily a function of
concentration and commitment.
 
The pages posted from Building Minds for Building Wealth by JH are completed to this section of contents listed below.
It is broken down into smaller posts to allow anyone to easily quote a section of the papers and ask Jack or anyone questions or share knowledge. The remainder of the JH paper BM for BW will continue to be posted in the same way.

CONTENTS

Summary 4

Part I The Macro: Game Plans, Incentives and Confidence 5

A. The Trading Business Plan 7

1. Position Trading Stocks 9

Initial Analysis Sheet 13

Daily Analysis Sheet 19

Possible Buys Check Sheet 23

2. SCT Trading Commodities (ES) 24

B. Health Well Being and Maintenance 35

Part II The Local: Routine and Discipline 38

A. Trading Plans 39

Position Trading and SCT Capital Application 40

Time Allocation between Position Trading and SCT 41

Key Market Characteristics 42

Prediction’s Alternative 43

Sharing Responsibilities with the Market 45

B. Mental Growth and Body Language 49
 
This is the remainder of contents to follow and will be posted over the next few days ahead . . .


Part III The Micro: Coarse, Medium and Fine 52
A. Effectiveness and Efficiency 53
1. Act to Make Money and Worry if it was Correct Later 54
2. Not Acting When You Make a Decision … 56
3. Discipline 57
B. Iterative Refinement 59
2
Conclusions 62
Appendices 64
A. Achieving an Effective Money Making Program 64
Summary 64
1. Markets 64
2. People 65
3. Just Doing it 65
4. Iterative Refinement 65
5. Be, Do, Have Results 66
B. Business Plan Outline 67
1. Introduction 67
2. Funding Requested 68
3. Organization Chart 68
4.History 69
5. Assets and Liabilities 69
6. Pro Forma 70
7. Trading Paradigms 71
8. Applications of Wealth 71
9. Effectiveness and Efficiency through Iterative Refinement 72
10. Downside Risks 72
Common Mistakes 73
IQ and EQ 76
11. Summary 77
3
C. The 8 Doublings 78
1. The PV Relationship 78
PV Relationship Synopsis 82
A Few More Looks At the PV Relationship 83
2. Channels 87
3. Market Operating Point 91
A Matrix 95
4. Sequences 96
5. Scoring 99
Scoring Variables 100
Trading Cycle 101
6. The Big 4: Monitoring, Analysis, Decision Making, and
Taking Timely Actions 103
Monitoring 103
Analysis 104
Decision Making 105
Taking Timely Actions 106
7. Physiological and Psychological Conduct 107
8. Sufficiency 108
D. SCT Synopsis 110
SWEEPS Chart 113
SCT Chart 118
 
Quote from joe4422:

Where does he teach how to go bankrupt and live off your girl friend's money?
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