Book Writing

I am getting very free recently, been thinking what to do with my free time. Well, the idea of writing a trading book came out. But of course with my wonderful grammar and incredible volcab, i will probably need a copy writer to put down my idea. I don't mind writing here, since I got 2 readers every week, haha...

Most trading book on the shelves of sg today are strategy, buy and sell calls. We have serious lack of psychology, sentiments, expectancy, money management. I always considered expectancy to be the most important in trading or investing.

Chapter 1

What is most important - expectancy

Trading plan - money management, expectancy, strategies

brief outline of above 3

Stages of a trader

- noob (lack of terminology)

- searching of holy grail (reading)

- transition state (give up or arrogant)

- finding your own style (zen like)

Chapter 2

Expectancy

2 ways to make money in mkt consistently

- either win more than lose

- every time u win is more than u lose

Chapter 3

Timeframe

- Intraday trader/swing trader/positions trader

- Mix up of timeframe vs personalities

Chapter 4

Find your personalities, then find your timeframe, now find your strategies fitting that timeframe

1. Shortterm stratgies - high probabilities trade

2. Swing strategies - half:half probabilities, win dollars must be more

3. Longterm - half:half probabilities, win dollars must be more

Chapter 5

Market first, sector 2nd, stocks 3rd for all 3 timeframe

Chapter 6 - Shortterm strategies

- lots size, limit order or market order

- trendday or consolidation

- extreme oversold/bought

Chapter 7 - Swing strategies

- lots size

- pullback/breakout

Chapter 8 - Positions trade

- money management

- Bull or bear market: economy swing

- sentiments swing

- Growth stock or Dividend yields

Chapter 9

Warning against mixing your timeframe with your strategies

Chapter 10

Beating the market, what should i name this book?

Failure swings - RSI

Wilder also talked about failure swings. Failure swings can be used as strong indicators of an impending reversal. Failure swings are not affected by price action. Failure swings are only concerned with the RSI for the signals, and you ignore any divergences between the RSI level and the security's price level. These failure swings are found at the overbought and oversold levels.

As an example, let's assume that the RSI reaches 77. This is clearly overbought territory. Now, in the next move the RSI pulls back to 71. This pull-back does not cross below the 70 or overbought level.

The next move finds the RSI going back up to 79. If the next move down the RSI makes does not cross 70, this is what Wilder called a failure swing above 70. Wilder said that failure swings above 70 or below 30 are strong indications of a market reversal. RSI levels can also help identify trends.

Others have taken Wilder's work and expanded on it. Andrew Cardwell has developed new interpretations of the RSI in order to determine and confirm an existing trend. Cardwell noticed that an up trend can generally be seen in the 40 and 80 level. A down trend occurred between the 60 and 20 level.

Calendar Timing

But there are all sorts of market timing techniques. Right now we’re at the beginning of one called the “mid-term election year cycle”. Over 80 years and 25 presidential elections, the stock market has followed a fairly definite course during the period surrounding the mid-term elections.

Since 1931, the 5-quarters surrounding that election (one quarter before through 4 quarters after) have always been up with an average return of 25.5% plus dividends. Had you invested $1,000 in the Dow Index only during these 4 quarters (31% of the time) it would have appreciated to $68,200 by the end of 2009. A $1,000 investment in the Dow only during all remaining trading days (69% of the time) since 1931 would have grown to just $1,800.

But there are other interesting calendar-based timing rules:

• January Effect: The hypothesis that stock market performance in January predicts its performance for the rest of the year. If the stock market rises in January, it is likely to continue to rise by the end of December. This rule of thumb has an outstanding record for predicting the general course of the market each year, with only five major errors since 1950, for a 91.5% accuracy ratio. Since 1950 this trend has been repeated 32 of a possible 39 times.
• Santa Claus Rally: a rise in stock prices in the month of December, generally over the final week of trading prior to New Year. The rally is generally attributed to anticipation of the January effect, an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons.
• Superbowl Effect: The Super Bowl Indicator says that the stock market’s performance in a given year can be predicted based on the outcome of the Super Bowl of that year. If a team from the American Football Conference (AFC) wins, then it will be a bear market (or down market), but if a team from the National Football Conference (NFC) wins, then it will be a bull market (up market). The indicator has been correct 33 out of 41 times, as measured by the Dow Jones Industrial Average – a success rate of over 80%.
• Daily: On a typical market day, volume will often look U-shaped being heaviest in the first 90 minutes of the day, again in the last 60-90 minutes and usually light in between these periods, with the lightest volume occurring during the noon hour period (Eastern).
• Weekly: It’s been said that “amateurs” trade on Mondays and Fridays while pros trade mostly during the middle of the week.
• Years:
  • Years ending with the digit “0” have been the worst year in the decennial cycle for 127 years. For the last nine decades, the market ended up on only three occasions for the years ending in “0”.
  • Another annual cycle that comes close to being constant is the four-year-cycle with the Dow Jones Industrial Average making lows in 1950, 1954, 1958 and in 1962….there are bottoms in 1966, 1970, 1974, 1978, 1982 and 1987….the market reached bottoms in 1990, 1994, 1998 and again in 2002….It appears that [the market] wants to make a bottom every four to four-and-a-half years no matter what we think should happen. Not actually declines but there was a consolidation pause in 2006 preceding an up leg…..will 2010 follow suit?
• Options Expiration: Options expiration days can be and usually are extremely volatile with unpredictable results as to whether the market winds up or down.
• The Ordeal of September and October: While September is known to be the worst month of the year, most Crashes take their biggest tolls in October, with most Black Fridays or Black Mondays occurring during those two months. Between 1939 and 2009, the S&P 500 suffered an average loss of .33% in September… the only month when the average change was negative. Had it not been for the major crashes, October would have been no different than any other month.
• Summer Doldrums (aka “Sell in May ….”): Whether due to the fact that most Americans take vacations during the summer or because of the overlap with the September/October Ordeal, statistics bear out the fact that if investors were to take their money out of the market at the end of April and reinvest six months later at the beginning of November, performance would improve appreciably. Here are some of the facts:
  • Since 1950, the DJ 30 has produced an average gain of 7.4 percent from November through April vs. 0.4 percent from May through October.
  • Investing $10,000 in the DJ 30 during the “best” six-month period and switching to bonds during the “worst” six months every year since 1950 would have posted a $527,388 return. Doing the reverse would have cost the investor $474.
  • The same approach with the S&P 500 index all the way back to 1945 shows November=April returns beating the remaining months 71 percent of the time.
  • Adhering to the practice also would have reduced risk by avoiding the stock market crashes of 1929, 1987 and 2008.
• Lunar: Finally, many adherents believe that the periods around new moons are bullish as compared with periods around full moons (see “Lunar Cycle Update“).

All these facts and statistics are interesting but I’ll rely on the market telling me when it’s time to buy or sell; I’ll stick with my market timing indicator.

http://www.thetradingreport.com/2010/10/27/calendar-based-market-timing/