Quote from OddTrader:
Say developing a trading holy grail is your goal.
So what exactly is a holy grail for trading, in terms of its characteristics/ features?
Many would say a holy grail doesn't mean it wins every trade for all trades.
Then how do you define your holy grail? Thanks.
Probably the best thing to do to make the determinations that you correctly scope and bound is to take a look around.
I view all traders as people who have knowledge, skills and experience to some extent. It comes from their learning informally and formally.
I use five concentric shells going outward from the center where the traders lives. Going outward, in contemporary times there a five rings that are important:
software
data
economics
authority
trading and exchanges.
As a crutch I'll use some books to make the point. Respectively:
Echelis of Equis which produces Metastock
Meyers of Worden Bros
Samuelson of academia
Magee as an authority
Harris on tradrs and exchanges.
By reading through each in order, you can make up a list of subjects found in each. They overlap topically speaking but if you just added to the list new subjects as you read the books in order the results would look like this:
software 190
data 210
economics 105
authority 80
T&M 99
for a total subject list of about 700.
You could then take a selection of 100 books or so and sort them out to see what the commonalities were and where there were some outstanding things to consider.
One thing that is very clear is that there is a conventional orthodox foundation for investing and trading.
Looking at some of the groups of books that have common characteristics, there are interesting publications that have sold a lot of copies. This is where the conventional stuff comes from and how it is being perpetuated.
Lets look at these groups on five levels:
The garbage: fools, dummies and Cramer.
the Macro folks: randon walk, chaos, and Nobels at LTCM
Old timers who set the records long ago (before PC's for the younger readers here): Darvas, Taylor, Henry.
The more modern movers and shakers: Bogle, Bloomberg and O'neil.
Now we can look at the publishers who all have stables of authors who produce a plethora of bad stuff and some of the stars that shine as exceptions. (See my list from the past posts)
Some books had tons of grants and funding for research. These books get the job done on the conventional, orthodox foundation all you people are using.
Two examples: Harris and Covell. What did they turn up?
Page 199 of Harris shows 32 boxes of types of all traders. You can fill in what the average ROI of each is simple by going through a few books written for each type of trader. You can rank this performance. Look at Covell and the foreword by Hite who speaks of Henry. Henry was an oldtimer who knew something (20 years to figure it out); Hite copycated him and finally got it straight in 32 years; Covell on grants, etc. spent 8 years writing it up. Hite on xii says its good for 20 % a year.
Check out the wizards writers: Schwager, Kazanjian, and Nikki Ross. Bios and historical stuff is great You can make a list of annual ROI's for each as well. Also you can add subjects to your list started above.
The Bogle on Vanguard book makes a makes a nice point on page 295. Vanguard stock over 10 years compounded 65% a year while Vanguard mutuals did 2% less than the S&P @ about 13% per annum.
Do the review thing and get Cisco's Safari (full blown one) and check out hundreds of other books. Oh, an ET fav is use free libraries (but even interlibrary loan is a tough slow route.)
So now we know Darvas has it down, Taylor does too (read from pg 251 in George Angell to nail that method). Born the same year (1933) was WJ Oneil and he created a newspaper (IBD) and has written several books about CANSLIM and C&H's and rally attempt analysis ( See pages 75 through 80 of 24 Essential Lessons for.....)
Check out those academics who work the turf of people who are great authorities on top pickers. They come from Wharton (Wolfers), Haas (Zitzwitz) and Duke (Kyle). They all write for NBER and have cell phones..lol.
Amost everything stated above follows the conventions. The exceptions (the big money makers before PC's) didn't. One group predicts and bets on it; the other group doesn't.
The Holy Grail doesn't use prediction.
Looking at the top performers and where they sit in the spectrum, it comes down to four things:
A.
B.
C.
D.
See attachment, I want to keep track of viewers. As you read what these performers wrote, keeping these items in mind, you can simply take notes to get the tools you need and then convert them to using them with a computer (these peope didn't have computers in their way at the time).
And the tools needed to perform. Today there are new tools and the old tools can be replaced by the new tools.
What created the new tools was two things: electronic global communications and the continuous availability of real time data.
This also increased the amount of money that could be made in a unit of time for two reasons: new markets (and new rules) and a broader base of uninformed traders who provide the profits to informed traders in what is thought to be a zero sum game conventionally.
So the Holy Grail comes down to a shift from the conventional orthodox foundation (paradigm). The components are:
1. electronic global communications (you have to be connected to the net)
2. real time data (you have to get all the degrees of freedom of data offered in real time from the markets you trade)
3. you need to be in the box on the chart that works best (it is the combo of the three boxes under the Order Anticipators: Front runners, Sentiment-oriented Technical traders, and Squeesers). Order anticipators is a subset of Parasitic traders and this is where the "rub" is for most people who want to be traders (successful ones).
As Maria incorrectly assumed a while back parasitic is not a negative word. What parasitic means is this: YOU HAVE TO KNOW THE
HOST DOWN COLD. Just to restate this in another way: YOU HAVE TO KNOW EVERYTHING ABOUT EVERY SUBJECT THAT THE HOST KNOWS AND USES. There is a way around this, however.
4. You need a tool box to operate as an order anticipator. The collection of tools fall into four parts. You have to see the market. You need a set of beliefs that relate to what you see. You need to have the five possible trading decisions linked to the beliefs so that there is always "a correspondence". You need to have the capability to transmit your decisions to the market in a timely manner. This stuff in a redundant form, in terms of PC memory space is about 75 megs (without illustrations) for up to the intermediate level. As a human, this is a simple level for the mind to handle. Experience just takes you the rest of the way.
You can see that the conventional orthodox way of doing things doesn't lead to a Holy Grail. It is very easy to see and understand why. Mostly likely, things like dictionary definitions get in the way, since the definitions included the word "prediction" which is not really part of order anticipation. What is part of anticipation is three measurables: measuring being in front of the herd; knowing the measurable sentiment; and measuring the squeese and stretch of the markets as determined by the relative positions of the herd (cash) and the smart money (commodities used as financial insurance).
