Trend Following-Trend Commandments

Quote from Rodney King:

Meaning that in real life IB (or whoever) would have liquidated him at a big loss? I'm not an expert on C2.
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They do not sell entire positions irresponsibly. You have 20 minutes to comply, or they only sell what is required. I don't remember the last time I didn't get a margin call on the trade, though. LOL!
 
Quote from Rodney King:

Taking a quick look at your c2 page, couple of questions -- It looks like you trade NQ on a 24 hour basis, right? I see entry times such as "16:32" and "22:55"... Also, I assume you don't use stops (or use very wide ones)? For instance this trade: "5/23/11 10:25 BUY 52 @NQM1 2305.90" was down 25 handles or so by the next evening, before being closed out later for a small profit.
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On QID and QLD, stops are either 4.6% or 4.8%. This is 1.046^0.5-1=0.02274 or two and a quarter percent on the index.

At 3:1 leverage , the 0.02274% I use on covestor means I actually could be down 1.02274%^3=6.979% or what is synthetically 6.979%^0.5=.0343= 3.43% on QID while actual on the index compared to a small losing position and a stop out is proportionally equivalent to 1.0343/1.02274-1=.01131=1.131% or one hundred and thirteen basis points. 113 basis points to the index can be gained by eventual declines and rises in value, but, sometimes, especially when going short, can really lag the market for extended period. This especially is one of those times where +5% is not the same if the real return is -8%. I max win ratio on QLD of 15.95%=1.1595^3/2-1=24.855% on a triple leveraged instrument. The ratio I am seeing right now is 7.39% off on sqqq which is equivalent to a loss on the index of 1.0739^(1/3)=2.405% versus a maximum profit of 1.24855%^(1/3)=7.68%. This tradeoff I feel is worth the extra risk when faced with a maximum win of 7.68%, and loss of 2.405%, a ratio one multiple in between is still decent. I'd be very surprised though if I actually get vindicated on my trade.

Whatever the ratios I think getting 24.855/7.68=3.23:1 versus a max loss of 7.39/2.405=3.07277 is appropriately 3:1 risk without being excessive. Were it excessive the risk reward trade off would not be approximately symmetrical since the value is still close to 3. If it were beyond any further than 3.5, I think I'm taking the same positions with less risk than investing any buy and hold strategy in these securities. History has already proven me out on this, as I have traded through a solid 90% decline in both QID and QLD, and I don't see the negative compounding effects going away anytime soon.

I'm not going to act like there isn't anything that's going to happen to our debt ceiling but raising it. It seems we've already defaulted in some cases, and I hope the treasury can manage to lighten some of the Fed's balance sheets loaded with many mbs and cds products bought at 95% margin, or 20:1 leverage, paying 5%, or an instant doubling of your money equivalent to a return of 100% ROE.

Nothing to do with what faces the q's as rimm gets marginalized, but a factor none the less..

As far as points the rations are 0.024*2355=56.5 and 0.0768*2355=181 points and a typical loss of 2%=2355*0.02=47.1, who'll give me a half tick? Triple leveraged I have to only buy 1 more contract to double or triple my leverage if I so chose.

I guess what was asked was the risk reward ratio, and I did it all in percents, but was asked about points.

Here are points. 181/56.5=3.2. Leverage on the index using a 3x leveraged instrument like tqqq and sqqq can get more compounded returns with the stock than with the future, and does not have to be too concerned with roll, which could be a factor in other systems.

Yeah, I'm not trying to blow the account, but even with triple leverage there is still 40% drawdown. Pretty sick when I think about what could happen if the next trade isn't quite so friendly, but my bet is we'll see more problems in the financial markets.
 
Quote from bwolinsky:

On QID and QLD, stops are either 4.6% or 4.8%. This is 1.046^0.5-1=0.02274 or two and a quarter percent on the index
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You lost me in the second graf, but I think I get it -- your stops would be around 50 handles wide (2.25%) in NQ, or 30 handles in ES. Thanks.
 
Quote from Rodney King:

Sadly, I can't buy past decades' performance --only the here & now...
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All we have is the here and now, but for trend following skeptics three decades plus of those performance numbers should give pause for reflection.
 
Covel, you wrote something like in your fear mongering, "if you invested in the market the last 10 years you're down or flat." Well, this is true if you made a single investment in Dunn about 10 years ago too.

So, I'm not sure how we are even better off.

invest in the market and 10 years later you could be down or flat
invest in a trend follower and 10 years later you could be down or flat

As others pointed out, you don't seem interested in answering questions and engaging this discussion on any meaningful level. So, I will not be returning to this thread. I will start a new one ifI think of anything worthwhile. I am not getting enough value on this thread.

Actually, I read on marketwatch that a lot of the people who were invested before the crash are now net positive. And, you are still harping on "broke". Guess what wise guy? We've always, us normal Americans, have always been broke. Its nothing new! Get a clue. My parents grew up without an indoor bathroom. Meanwhile the Biltmore house had indoor plumbing and electricity 100 years before.

I honestly don't think there should be any books on trading because most people can't trade. They don't have the money or time to make it worthwhile. I mean that no books on trading should sell enough to make them worth carrying on the bookshelves.

I'll even go on a limb and say this about my good friend Dr. Steenbarger, who is probably the man I respect the most in this field (him and Gary Smith -- another author). But my point is there shouldn't be any books on trading psychology if those books had to be applied to be sold. Of course, that would be true for books on getting rich or playing poker for a living too. Come to think of it, that would apply to my reports too. oh well..
 
Not sure what a normal American is, nor do I know people who label themselves as such, but broke is a state of mind not a fait accompli. Broke is also the name of a documentary film I directed--which in its title ("Broke: The New American Dream")--calls out those who act broke.

Note: Steenbarger on my last book.
 
Covel, my argument is that the typical American (i.e most) don't have enough money to care about whether the stock market crashes or goes up.

I don't have the references. But, I'm sure there are several studies to back this up. If I recall less then 50% of Americans have more then $5,000 in stocks total. You aren't invaluable. You aren't even relevant.

The stock market crash did not affect the average Joe. The job losses that have been happening for decades due to globalization were however devastating. The job losses preceded the market crash.

"Only 34% of U.S. households make more than $65,000 per year. What is that after taxes?"

If we break the data down further we will find that 93 percent of all financial wealth is controlled by the top 10 percent of the country.

Of investment assets 90 percent of Americans own 12.2 percent

http://www.mybudget360.com/top-1-pe...to-debt-servitude-by-promises-of-mega-wealth/
 
Quote from Lucias:

...my argument is that the typical American (i.e most) don't have enough money to care about whether the stock market crashes or goes up.
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So what is your solution? Quit life? Whine that the rich have too much? Complain about job losses? Maybe an untimely early death to end the misery is a solution? Or perhaps stop lamenting and start doing?

Quote from Bob Parsons at Godaddy:

1. Get and stay out of your comfort zone.

I believe that not much happens of any significance when we’re in our comfort zone. I hear people say, “But I’m concerned about security.” My response to that is simple: “Security is for cadavers.”

2. Never give up.

Almost nothing works the first time it’s attempted. Just because what you’re doing does not seem to be working, doesn’t mean it won’t work. It just means that it might not work the way you’re doing it. If it was easy, everyone would be doing it, and you wouldn’t have an opportunity.

3. When you’re ready to quit, you’re closer than you think.

There’s an old Chinese saying that I just love, and I believe it is so true. It goes like this: “The temptation to quit will be greatest just before you are about to succeed.”

4. With regard to whatever worries you, not only accept the worst thing that could happen, but make it a point to quantify what the worst thing could be.

Very seldom will the worst consequence be anywhere near as bad as a cloud of “undefined consequences.” My father would tell me early on, when I was struggling and losing my shirt trying to get Parsons Technology going, “Well, Robert, if it doesn’t work, they can’t eat you.”

5. Focus on what you want to have happen.

Remember that old saying, “As you think, so shall you be.”

6. Take things a day at a time.

No matter how difficult your situation is, you can get through it if you don’t look too far into the future, and focus on the present moment. You can get through anything one day at a time.

7. Always be moving forward.

Never stop investing. Never stop improving. Never stop doing something new. The moment you stop improving your organization, it starts to die. Make it your goal to be better each and every day, in some small way. Remember the Japanese concept of Kaizen. Small daily improvements eventually result in huge advantages.

8. Be quick to decide.

Remember what General George S. Patton said: “A good plan violently executed today is far and away better than a perfect plan tomorrow.”

9. Measure everything of significance.

I swear this is true. Anything that is measured and watched, improves.

10. Anything that is not managed will deteriorate.

If you want to uncover problems you don’t know about, take a few moments and look closely at the areas you haven’t examined for a while. I guarantee you problems will be there.

11. Pay attention to your competitors, but pay more attention to what you’re doing.

When you look at your competitors, remember that everything looks perfect at a distance. Even the planet Earth, if you get far enough into space, looks like a peaceful place.

12. Never let anybody push you around.

In our society, with our laws and even playing field, you have just as much right to what you’re doing as anyone else, provided that what you’re doing is legal.

13. Never expect life to be fair.

Life isn’t fair. You make your own breaks. You’ll be doing good if the only meaning fair has to you, is something that you pay when you get on a bus (i.e., fare).

14. Solve your own problems.

You’ll find that by coming up with your own solutions, you’ll develop a competitive edge. Masura Ibuka, the co-founder of SONY, said it best: “You never succeed in technology, business, or anything by following the others.” There’s also an old Asian saying that I remind myself of frequently. It goes like this: “A wise man keeps his own counsel.”

15. Don’t take yourself too seriously.

Lighten up. Often, at least half of what we accomplish is due to luck. None of us are in control as much as we like to think we are.

16. There’s always a reason to smile.

Find it. After all, you’re really lucky just to be alive. Life is short. More and more, I agree with my little brother. He always reminds me: “We’re not here for a long time, we’re here for a good time!
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Good list.
 
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