Traders' Most Commonly Asked Questions

[AskSlim]

Quote from WDGann:

Cyclical Analysis...

Can you be more specific?

What kind of tests do you go through?

Just an elementary / empirical time period? Optimized using some backtesting software? Some statistical edge? Fourier? Gann - Elliott like relative time algorithm?

I recommed the book, "the Profit Magic of Stock Transation timing", by Hurst

Cyclical analysis is much more an art than a science. There is no backtesting. Cycle theory is based on empirical or idealized time periods. It's how the markets differ from these ideal cycles where the messages come from.

Slim

 

[rickty]

Quote from AskSlim:



I recommed the book, "the Profit Magic of Stock Transation timing", by Hurst

Cyclical analysis is much more an art than a science. There is no backtesting. Cycle theory is based on empirical or idealized time periods. It's how the markets differ from these ideal cycles where the messages come from.

Slim

Slim,

Any comments concerning the cycle work of John Ehlers? Is it useful? Ehlers doesn't much care for Fourier analysis, which I understand Hurst uses.

Richard

 

[dnaj65000]

Quote from AskSlim:

For those of you that don't know me, I am Steve Miller. I write the "Ask Slim" column in "SFO" magazine, focusing on the psychologic and technical aspects of trading in the stock, option and futures markets.

Steve Miller (Slim)

Hi Slim,

Could you please profile a winning trader with respect to:
1) Psychology
2) Account characteristics

I know this is a pretty broad question because I'd like to hear what aspect you key in on as important information. However, I'd like to draw you towards a few specific things I'd like you to elaborate on.

1) Psyc- did the majority of winning traders play a competitive sport when they were young? are they optimistic? do they have a big social support group or are they lone wolves (indicating introversion).

2) Acct- % of winning trades, average win $ amount/average loss $ amount. This gives a real life account risk:reward ratio. It's one thing to say "have a 4:1 risk/reward" and actually having that ratio in their account statement.

Thanks
DNAJ65000

 

[rickty]

Quote from Sam Mcgee:

My most commonly asked questions about trading (as a beginner):

1. Which trading method is profitible and how can I learn it? (still haven't found this yet)
2. There are many sites and firms that are offering to sell you an education about trading. Which of all these could I join and actually learn how to be profitible? If the person selling an education actually knew how to make money trading, why would they bother to try and make money teaching. Wouldn't it be a lot easier just to trade. (still haven't found this yet)

Quote from dbphoenix:


This ought to be linked to the "What do you wish you knew" thread in Trading. What I wish I had known is that these are the wrong questions. Practically any trading method is profitable. The problem is the trader. Could have saved myself years.

Slim,

dbphoenix and I have had this discussion before, just wondering where you stand. When db says "Practically any trading method is profitable. The problem is the trader." I couldn't disagree more.
I have done much backtesting of stock trading strategies and it's very clear to me that their performance differs widely. I certainly would prefer to use one of the better strategies. Once I choose a strategy to trade then the onus is on me is to trade it like I have backtested it.

Therefore, for me when I was a newbie, the most fundamental question was (I have since found a profitable strategy for stock trading) what Sam Mcgee asked above: "Which trading method is profitible and how can I learn it?" I believe most other questions are secondary to this one for a newbie.

Richard

 

[AskSlim]

Multiple trading accounts is an interesting way to track trading different methodologies. My question is why would you want to do this? I seriously doubt that a trader can be succesfull trading different styles that all use different tools and time parameters. Talk about chaos!

I say find the one the works best for you and stay with it.

slm

 

[AskSlim]

Quote from rickty:



Slim,

Any comments concerning the cycle work of John Ehlers? Is it useful? Ehlers doesn't much care for Fourier analysis, which I understand Hurst uses.

Richard

The brilliance of John Ehlers can hardly be denied. I have tried MESA software and find it way to abstract. And Fourier analyisis goes way beyond the level of mathmatical compilation that I want to have in my trading.

I want to feel the markets. When I'm trying to figure out what all this advanced analysis is saying, it take me out of the trance I want to be in with my computer screens. That's how I trade, by feel. I don't want anything in the way from my hearing my intuitive inner voice when it is speaking.

Hurst, by the way, doesn't bring in sprectral analysis into this book until the appendix. I think the greatest value is in the earlier chapters which discuss in plain english the basics, values and uses of cycles in the markets.

Thanks for a great question,
Slim

 

[AskSlim]

Quote from rickty:





Slim,

dbphoenix and I have had this discussion before, just wondering where you stand. When db says "Practically any trading method is profitable. The problem is the trader." I couldn't disagree more.
I have done much backtesting of stock trading strategies and it's very clear to me that their performance differs widely. I certainly would prefer to use one of the better strategies. Once I choose a strategy to trade then the onus is on me is to trade it like I have backtested it.

Therefore, for me when I was a newbie, the most fundamental question was (I have since found a profitable strategy for stock trading) what Sam Mcgee asked above: "Which trading method is profitible and how can I learn it?" I believe most other questions are secondary to this one for a newbie.

Richard

I agree, mostly, with dbphoenix.

As I said in an earlier answer, the trading style/method has to fit the trader's personality and financial condition.

The only way that a backtested method can be executed to reflect past results is if it is traded by an auto-exectution system or by a robot. If not, the psychological factors will play a huge part. And in this respect, it IS about the trader. Also, how many market participants will trust a computer to enter and exit their trades?

The method is, of course, a factor. You have found a successfull Stock trading method. I'll bet it's momentum based. And I'll also bet that it is a method that is difficult to backtest. Momentum based systems, in my judgement, have the highest probablility of success. On the other hand, most mechanical systems are trend-following. Most traders, especially if they are early in their careers, cannot execute trend following methods. By the time the signal is in and they get the trade off, most of the move is over and they get taken out by a counter trend move (Ken Roberts). The emotional triggers are hit and the trader is lost.

So where it is up to the trader is to find a method that is comfortable and has much less chance that emotions will come into play. This comes with matching the trader/style with the proper analytical tools, risk management and disciplines.

So, outside of the event where a trader is using a method that has obvious negative risk/reward, it is really all up to the trader.

I have never experienced a method making a trader great. I have experienced a trader making a method great.

Whew,
Slim

 

[bdixon619]

Hi Slim,

Were friendships valuable in your development as a trader?

 

[downtickboy]

1. I don't know how much of your time was spent as a floor trader, but I have wondered how much standard pivot points are currently used by floor traders and the everyday effects on futures trading. Are they still considered a realiable indicator to trade off of or has it become merely a horizonital line on a chart that people trade off of without merit? If the standard pivots are still widely used does there use carry over to Bond futures or is it just Index futures? I don't really understand how these numbers came about to become the standard declared areas of support and resistance. Also if they are still widely used will that change as more trading leaves the floor (less floor traders) and becomes electronic?

2. Along the same topic, is Market Profile also a widely used indicator among floor traders for determining support and resistance areas?

 

[Grob109]

Quote from AskSlim:

Multiple trading accounts is an interesting way to track trading different methodologies. My question is why would you want to do this? I seriously doubt that a trader can be succesfull trading different styles that all use different tools and time parameters. Talk about chaos!

I say find the one the works best for you and stay with it.

slm

If possible, think of the assortment mentioned as independent components of a portfolio.

Use what you know about why people manage portfolios in the financial industry.

Contrast this with the difficulty that people have with applying their capital if they follow a "put it into one method that fits........." type thinking.

Each of the items mentioned to you have FA like performance characteristics. Most commodities strategies deal with very low % of capital at risk (you know the litany, I'm sure).

Think about his query and give it a shot. This is a topic at ET that doesn't get much experienced commentary. You may have colleagues that have worked in these boutique type settings.