Trade Management, psychology, sentiments

Been in contacts with clients, friends, been asking me to teach them a little about TA blah blah..

thinking through, I guess I will touch on a topic more unique as above.
for TA wise, I guess i leave to my friends. Cheers

It's coming

One of the best posts

By Brett Steenbarger

2) No One Strategy Always Wins - Go back to the idealized chart of cyclical price change from the prior post. During the market moves between price lows and momentum highs and between price highs and momentum lows, trend following strategies will tend to work. During periods between momentum highs and price highs and between momentum lows and price lows, we will tend to see countertrend (reversal) strategies working. During the period between price highs and momentum lows, we'll tend to see volatility expand; during the period between momentum highs and price highs, we'll tend to see volatility dry up. Using the same strategy across all phases of market cycles will result in periods of uneven performance.

Reading mkt - Brett Steenbarger

Think about reading a market like reading a person: you'll listen for the communications of the market--what it's doing--but also for the metacommunications: how it's expressing itself. Let's take yesterday's market as an example. *

How did markets in Asia and then Europe open? How might a trader have picked up on overnight underperformance by U.S. stock index futures and weak performance by individual stocks in their pre-opening trade to anticipate weakness during the regular trading day?*

What news came out early in the morning trade? How did stocks respond to the housing news? How could the failure of stocks to rally on the news have helped a trader anticipate a retest of the prior day's low price?*

How did sentiment unfold during the morning trade? How could traders note that institutional participants in the market were dominantly hitting bids across the universe of stocks (negative NYSE TICK) and hitting bids in the S&P 500 futures (negative Market Delta) to identify a weak trading day?*

How was volume behaving during the day? How could traders have noted the increase in volume on downward moves early in the day relative to bounces? What does that tell a trader about the participation of large traders and institutions?*

What were support and resistance areas from the overnight session? The previous day? How did the market behave as it approached these? How can traders anticipate that the failure to break one end of a trading range will lead to efforts to test the other end? How can traders distinguish valid breakouts from such a range from unsuccessful retests by noting sentiment and volume at those price levels?* What were interest rates doing during the day? How were leading stock sectors, such as financial stocks and consumer cyclicals, behaving? How might that have been linked to the housing news earlier in the day? How could a trader have noted risk-aversion evolving over the day's session from such themes?*

What were market indicators, such as the new highs/lows noted in my indicator review and the money flows noted in my recent post, noting about longer-term market strength? How might a look at such measures help a trader anticipate weakness from day to day?

It's not about imposing your views of what markets *should* be doing; it's about reading what they *are* doing by placing price action into a broader context and reading how that price action is evolving. These are performance skills that are developed over time; they're like the expertise of a physician who learns to piece together signs to arrive at diagnoses. The skill is in the ability to connect new, unfolding information with the information you've already gathered to constantly update your views of market activity. That skill serves you well over any time frame..Note: The topic of market communications and metacommunications is a major theme of my first book, The Psychology of Trading. I personally find it interesting that traders who lack social skills--who don't read people well--also seem to struggle with markets. I listen carefully to the market views of defensive, abrasive, or socially inept people; they're uncommonly wrong, which makes their opinions useful in unintended ways.

Money Managment

The Expectancy Formula :
(Avg$Win x Win Rate) - (Avg $Loss x Loss Rate) = Expectancy

Been thinking about discretionary accounts with 100k,

• Average Dollar Win
• Win Rate
• Average Dollar Loss
• Loss Rate
• Maximum Drawdown
• Maximum Positive Return
• Maximum Consecutive Wins
• Maximum Consecutive Losses
• Average Number of Consecutive Wins
• Average Number of Consecutive Losses
• Standard Deviation of Monthly Returns.
• Average annual return

So taking Ray Barros principle,

I accept a 3% as my maximum risk. If my avg number of consecutive losses is 3 and the average loss is 1%. I can now estimate that the objective maximum percentage loss.
I multiply my maximum number of consecutive losses by 3. So now the number is 9. So my possible worst case drawdown on average would be a 9 x 1% = 9%. I then multiply the standard deviation of monthly returns by 3. Let’s say that comes out at 27%. I now have the boundaries for my worst case scenario: 9% to 27%.

Major selldown from 1998 onwards

The below is by counting, so don't quote me if wrong:

9323- HIGH - 30days (1998)
7544 - LOW - 19%
1st rebound - 21days
========================================
11720 - HIGH - 40days (2000)
9800 - LOW - 16%
1st rebound - 9days, 2nd - 20th days, 3rd rebound- 28days
recovery: 11420 (14%) - 15days

2427 - High - 45days (18Jan00)
2020 - Low - 17% (25Feb00)
recovery: 221 (9%) - 7days
========================================
STI sell in between these 2 selldowns
==================================
11223 - HIGH - 26days (2000)
9974 - LOW -11.1%
1st rebound - 6days, 2nd - 21st days
recovery: 10928 (9%) - 9days

2190 - High - 26days (05Sep00)
1800 - Low - 18% (18Oct00)
recovery: 2068 (13%) - 12days
========================================
10860 - HIGH - 10days (2001)
9397 - LOW - 13.5%

1910 - High - 29days (09Mar00)
1562 - Low - 18% (19Apr00)
========================================
10361 - HIGH - 41days (2002) - 55 days - retest and lower
7688 - LOW - 25.8%
1st rebound - 28days recovery: 9086 - 12% (20days)

9059 - HIGH - 33days (2002)
7290 -LOW - 19.5%
1st rebound - 10days, 2nd - 22th days

1724 - High - 96 days (22May02)
1340 - Low - 22% (14Oct02)
1st rebound - 27days
========================================

Intermediate Selldown

As per previous reviews, a more severe selldown is probably taking place.

We stil have around 2- 10% to go and 4 - 6 days before a reasonable rebound happen. But I notice the % seem to defer to the previous cases for STI compares to the US.

Our percentage down seem to be closer maybe due the fact we did not have a chance to work off our oversold conditions.
1460 - High 22th Feb - 14days 1363 - Low 14th Mar 0.07% low
1557 - High 20th Jul - 20days 1371 - Low 16th Aug 0.12% low
1550 - High 31st Oct - 17days 1404 - Low 26th Nov 0.09%
1404 - High 5th Jun - 10days till now 1334 - low 19thJun 0.05%

Major selldown - 18days 1500 - High 26Dec 1268 - low 23th Jan 0.15%

STI 3316 - High 2920 -Low 0.12%
3687 - High 2977 - Low 0.19%
3843 - High 3311 - low 0.15%
3216 - high 2999- low 0.07%

Trading for a Living - Alexandra Elder

Starting with Psychology which is pretty unique as a trading book but very powerful analysis on psychology

Psychology:
A successful trader must identify his fantasies and get rid of them. A loser is not undercapitalized - his mind is underdeveloped.

Undercapitalization myth
A loser can destory a big account almost as quickly as a small one. He overtrades, and his money management is sloppy. Your trades must be based on clearly defined rules. You have to analyse your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game


The mental baggage from childhood can prevent from succeeding in the markets. You have to find your weakness in order to change. Keep a trading diary - write down your reason for entering and exiting every trade. Look for repetive patterns of success and failures.

Trading Psychology
There is a stark parallel between an alocholic and a trader whose account is being demolished by losses. He keeps changing trading tactics, acting like an alocholic who tries to solve his problem by switching from hard liquor to beer. A loser denies that he has lost control over his course in the market.

1. When you admit that you have a personal problem that causes you to lose, you can begin building a new trading life. You can start developing the discipline of a winner.

2. Your trading records must show the date and price of every entry and exit, slippage, commissions, stops, all adjustments of stops, reasons for entering, objectives for exiting, maxi paper profit, max paper loss after a stop was hit and other necessary data

3. If you let the market make you feel high or low, you will lose money. Ultimately, the one thing you can control is yourself.

To make money trading, you do not need to forcast the future. You have to extract information from the market and find out whether bulls or bears are in control. You need to measure the strength of the dominant market group and decide how likely the current trend is to continue. You need to practice conservative money management aimed at long-term survival and profit accumulation. You must observe how your mind works and avoid slipping into fear or greed. A trader who does all of this will succeed more than any forecaster.

Chart Analysis:
Trendlines:
1. Longer the timeframe, the more important the trendline
2. Longer the trendline, the more valid it is
3. The more contacts between prices and trendline, the more valid that line.

NYSE Advance-Decline Issues

How I Made 2,000,000 in the Stock Market - Nicolas Darvas

Trading Lessons From Nicolas Darvas:
1. There are no good or bad stocks. There are only stocks that rise in price and stocks that decline in price, and that price is based on the laws of supply and demand in the marketplace
2. “You can never go broke taking a profit” is bad advice that will result in overtrading and cutting winners short. Selling winners and holding losers is to be avoided at all times
3. There is a “follow-the-leader” style in the market. You will find success by selecting the most active and strongest industry group and trading its top leader
4. The combination of price and increased volume is key to stock selection. Focus your time on new leaders emerging with a new market cycle
5. It is the anticipation of growth rather than the growth itself that leads to great profits in growth stocks. “You have to find out what the public wants and go along with it. You can’t fight the tape, or the public.”
6. One of the quickest ways to lose money in the market is to listen to others and all of their so-called expert opinions. To succeed, you must ignore all outside opinions and predictions. Follow your own strategy!
7. Losses are tuition on Wall Street. Learn from them.
8. You should expect to be wrong half of the time. Your goal is to lose as little as possible when you are. “I have no ego in the stock market. If I make a mistake I admit it immediately and get out fast. If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?”
9. Most of your big failures will come from three things: 1) when you abandon your rules, 2) you become overconfident, and 3) trade in despair when unsuccessful
10. The best speculators search only for the very best opportunities. To be truly successful, you must wait for the right opportunities to present themselves and this often means doing nothing for long periods of time
11. The market behaves the way it does due to participants behaving the way they do. No one knows what they will do until they actually do it
12. Long-term investors are the real gamblers in the market due to their eternal hope that losing stocks will come back in price
13. It is difficult to be profitable on the short side of the market versus the long side - trading in rising or bull markets will give you the best chance for success
Most, if not all stocks, will follow the general trend of the market
14. To train your emotions, write down the reasons for making every trade. When you lose, write down what you thought contributed to the loss. Then study and set new rules to avoid making those same mistakes
15. Concentrate your trades. At the peak of his success, Darvas would hold only 5 to 8 stocks at one time which was in contrast to his earlier days when he was overtrading and would hold up to 30 stocks at a time
16. Avoid fallen leaders. Overhead resistance will keep upside potential limited due to supply from previous buyers who had not cut short their losses. 17. According to Darvas, the only sound reason for a stock is one that is rising in price. If that is not happening, then there is “no other reason worth considering.”
17 .Darvas used his “box theory” to trade using boxes to time his entries (on breaking out to a new higher box) and exits (breaking below the current trading box).
18. For new trades, Darvas used “pilot buys” which basically were starter positions in stocks he liked. Only if the stock continued to move higher would he then pyramid and increase his position. He learned never to buy more of a losing position
19. He thought many unsuccessful investors made the mistake of looking at the same familiar names that might have worked well for them in the past instead of focusing on the next stock with the right elements for the new market cycle. “I am only in infant industries where earnings could double or triple. The biggest factor in stock prices is the lure of future earnings. The dream of the future is what excites people, not the reality.”
20. Perfection has no role in successful trading. No one can buy at the absolute lowest price and sell at the highest price. No time or effort should be devoted to that goal. “I never bought a stock at the low or sold one at the high in my life. I am satisfied to be along for most of the ride.”
21. Trade only when the environment is in your favor. Darvas’ strategy kept him out of poor and bear markets because he wouldn’t trade stocks that didn’t fit his requirements which were only found in raging bull markets
22. Be aggressive when warranted. Darvas believed in making aggressive trades when his system pointed to a great trade. In fact, sometimes 50% of his capital was devoted to just one stock
23. While his trading approach was very technical, after studying the market’s winners he understood the relevance of finding stocks also with good fundamentals. Namely, Darvas thought that earnings and the future estimate of increased earnings were very important

Calendar Effects and others..

This is an excellent site:



Trading Calendar

http://www.cxoadvisory.com/calendar/



http://www.cxoadvisory.com/blog/internal/blog8-09-06/



A friend mention about BDI related to marine stks, a comeback?



http://investmenttools.com/futures/bdi_baltic_dry_index.htm