11 The inside of my head is a busy place CEOTradingCustSvcR&DPrototypeAcctingBenchmarkChiefofStaffStaff CallProductionSystemASystemB1SystemB2SystemB3SystemB4SystemB4
12 CFA Institute's Top 12 Investor Mistakes The ProblemsCFA Institute's Top 12 Investor MistakesInvesting without a strategy (time, risk, amount, goals)Individual stocks rather than a diversified portfolioInvesting in stocks rather than companiesBuy highSell lowChurning their investmentsAct on "tips" and "sound bites"Too much in fees and commissionsMake decisions based on tax avoidanceUnrealistic expectationsNeglectRisk tolerance
15 The Trading System & Plan Executive summaryBusiness descriptionIndustry overviewCompetitionSelf KnowledgeTrading StrategyBeliefs, alliances, coachingTrading edgesFinancial InfoContingency planningTrading SystemsMarket filterSetup conditionsEntry signalProtective StopRe-entry strategyExit strategyPosition sizing algorithm
16 Beliefs about Systems A group of components organized to seek a goal in an environment InputProcessOutputPurpose (Objectives)Whole > Sum of partsInput-Process-OutputInteractive, Integrative, IterativeFeedback loops and learning: RelationshipsReinforcing and counterbalancingBoundaries and durations: ScopeNon-linear, dynamic relationshipsModeling and describing is learningHard, Soft, Evolutionary systemsThe Map is not the territory, but it can help
17 Be careful what you ask for ObjectivesBe careful what you ask forBeat the marketHighest return within risk toleranceAchieve required return at the lowest riskUnit of return vs unit of riskLongevity vs shortest time to achieve goalBe small when wrong, large when rightFeel professional (BE PROFESSIONAL)
18 Monthly review questions What worked for my trading this past month? What did not work?What do the metrics tell me - in what instruments did I make money? In which did I lose? Is there a pattern?Did I keep to my exercise and meditation schedules?Was there a correlation between my trading and how I felt for that day?Did I monitor the Ebb & Flow position sizing or did I persist with too large or too small a size even after market conditions changed?What were my greatest challenges/lessons?Of what am I most proud? What do I most regret?What attitudes and actions will I take with me into the new month? What lessons have I learned this month?What limiting beliefs did I shift? What negative emotions did I shift?How did I grow, improve, and expand myself?
22 What’s the nature of the market? DescriptionDynamic?ProcessStrategyValueDifferent situations need different responses, strategies, approachesBoundaries, indicators, volatility?What about the market?Closed, linearStaticInstinctTrainingAnalysisSpeed, precisionClosed, linearStaticRationalEngineeringAnalysisControl(Closed), networkDynamicSystemsAdaptiveModelingLearningOpen, (network)DynamicMorphingMetaphoricalBalanceSense-makingProbabilisticUncertainStatisticalAnalyticalCalibrationDisciplineSimpleRandomChaoticComplexComplicated
25 Market classification strategy Notes:SPY = mkt13 years, daily dataBull vs Sideways vs BearVolatile vs Normal vs QuietExamine each axisCombine into 3x3 matrixExamine slope of 50d MA tooVery interesting resultsquietnormalvolatile
34 Stormy Weather Results Losing Streaks Experts Advertising Media Self-doubtEmotionsSuccessGuiltEquitiesBeliefsReal EstateBusinessDiversity:Assets in all 4 areasProtection against changing market conditionsEach domain has its own rules, cycles, dynamicsEquity InvestingNot much upfront moneyVery liquid marketIndividuals have advantagesMoments of extreme volatilityMinimum time requirementGreat place to startBusinessA lot of money up frontSpecialized knowledge requiredMust have an edgeFranchises can be effective startpointNot a liquid marketReal EstateLabor intensiveInefficient marketSlow appreciation
41 Example of Green & Yellow Zone Standard frameProfit target for the swing tradeI want to be long in the swing trade positionGreen zoneMechanical entry for the swing tradeI can try to front run a green zone trade if I can see to the one inside yesterdays rangeYellow zoneInitial stop for the swing tradeI am out of the swing trade or I am going short, because it’s failingRed zoneWhen the swing trade pattern fired
42 Green zone & Yellow zone trading Green Zone Trading:mechanical trading once Price moves above yesterday’s rangeUse scans & systems to find high probability/high payoff swing trade candidatesAny of the Tortoise swing trade systems, patterns, preferencesFrame the trades that meet 2:1 reward:risk ratios on a re-test of the 10day HighEnter the trades when price > yesterday’s high +.05Initial risk: .05 below yesterday’s low (or 1x ATR if you prefer)Once in the trade, use a trailing stop of the initial risk or adjust to .05 below yesterday’s lowThink of the Green Zone as the Core position with overnight/Swing trade levels of risk
43 Green zone & Yellow zone trading intraday opportunity trading on a mechanical trade, with tactical momentumStart with any Green Zone trade frame that gives 2:1Look for opportunities when you can see 2:1 reward:risk, using the mechanical entry as your profit targetTighten up your stop and prepare to take profits if it stalls near the mechanical entryConsider adding another position at the mechanical entry, or simply accept the current trade as your mechanical Green Zone trade, but with an improved entry, and let it become your swing tradeIf you have a successful Yellow Zone trade AND a Green Zone trade, take the Yellow Zone trade off before the close, so you only carry the swing trade risk overnight, then seek to get back in the following day with another Yellow Zone tradeThink of the Yellow Zone as the “Turbo” position with intraday trade levels of risk
44 Green zone & Yellow zone trading How to think about trading the “Gap fail”tHODRangestattLODAny swing pattern can get us here162345
47 Indexing comparing a range of performance comparing apples and oranges "normalizes" data, helps trendspotting(x-min)100 *(max-min)3- (-5)100*= 4015- (-5)3- (-12)100*= 758- (-12)
48 ETF 2.0 summary Top Down analysis Calculations Reports Goals Market ConditionETFsRegionsCalculationsStrengthConsistencyQualityAsset allocationGoalsConsistencyDisciplineRoutineSimplicityReportsBenchmarkingETF "stars"RegionsETF swing trading
49 ETF 2.0 = Strength Average Quality Consistency + Strength: calculate RS (blended 3 & 6 month performance) STRConsistency: indexed, 10 week weighted average of Relative Strength CONQuality: indexed, 40 week “Quality rating” (Avg%Gain) / (StDev) QUALAverage: the average of STR + CON + QUAL AVG
50 ETF 2.0 assessment (2005-2007) Ruleset observations Outperforms SPY buy and holdOutperforms SPY timed buy & sellTiming adds valueSelection adds valuedB finds every trend, long and short, supports opportunity trading as well as weekly positioningExits10% stops are good for starting, but could be tightened on winners and in Bear marketsStrong argument for 3-4R winner as a Good Win to protectStronger argument for 5R winners as Exceptional winAvg loss: 5%1R = 5%
51 ETF 2.0 assessment (adds 2008-2010) Avg loss: 5%1R = 5%Ruleset observationsOutperforms SPY buy and hold, timed buy and sellTiming, selection adds valuedB finds every trend, long and short, supports opportunity trading as well as weekly positioningReplace Tortoise Index with 6 month RS (easier)Max drawdown -8% in 2 bear markets (SPY -43%)Exits10% stops are good for starting, but could be tightened on winners and in Bear marketsStrong argument for 3-4R winner as a Good Win to protectStronger argument for 5R winners as Exceptional win
53 Index Overreaction Strategy: Main indexes only Trade only with the long term trendSignificant short term move away from the trend.Short term trade to capture the snap backKey Concepts:ATR % defines significant move200d MA = long term trend10d MA = short term trendVolatile move away from the short term trendSnap back to short term trend usually "over-corrects"
54 Index overreaction Profitable every year from 1994 to 2004 SPY, QQQQ, MDY, IWM, SMHMade money in both bull and bear marketsSimple to trade and easy to learnmechanical systemConsistent money maker on long & short sideOutperformed buy and holdA few simple rules, 5 minutes a day or less to implementStatistics based entry, based on volatility (dynamic)Concept: the market corrects after a significant overreaction away from the trend
55 Overreaction: Buys # Rule Comment 1 2 3 4 5 6 Today's close >200d SMATrade with dominant LT trend2Today's High < 10d SMAPullback from main trend3Today's Close 1x ATR%< 10d SMAStrong move beyond normal volatility levels4Buy at the close (or tomorrow's opening)Close is preferred5Buy another unit if setup conditions repeat while you are in the trade6Exit at today's close when yesterday's close is > 10d SMACatches the overreaction snapbackATR%(14) = a measure of short term volatility
56 Overreaction System Rules: Sells #RuleComment1Today's close <200d SMATrade with dominant LT trend2Today's High >10d SMAPullback from main trend3Today's Close is at least 1x ATR% >10d SMAStrong move beyond normal volatility levels4Sell at the close (or tomorrow's opening)Close is preferred5Sell another unit if setup conditions repeat while you are in the trade6Exit at today's close when yesterday's close is < 10d SMACatches the overreaction snapback
57 Index Overreaction System summary CommentsDon’t need to monitor all dayTakes advantage of long and short sidesCash is not tied upCan calmly enter the market in the currect direction in emotionally challenging marketsMechanical signals don't require discretionary judgementHigh percentage of winning tradesApplicationTrade a basket of ETFsKeep it simple and emotion free: apply the rulesPaper trade until you are comfortableTrade small position sizes
59 Channeling: Buys # Rule Comment 1 2 3 4 5 Today's close >200d SMATrade with dominant LT trend2Today's Close < -80 Williams%R (10)Pullback from main trend3Buy at the close (or tomorrow's opening)Close is preferred4Buy another unit if setup conditions repeat while you are in the trade5Exit at today's close when today's close is > -30 Williams%RCatches the overreaction snapbackWilliams%R (10) = a measure of short term overbought/oversold
60 Overreaction/Channelling Stops Considerations:3% trailing stop for broad US indices5% trailing stop for IGW + international broad indices
65 “551w”…where do ideas come from? Mastermind effectDay 2, morning break…Ken & Leo Willert(in between talking about drumming)Component analysis:5 weeks up is favorable…5 days down is favorable…1 day up is favorable …Universal Entry (consistency, risk mgt)Williams %R <-50 (profitable swing)
66 Use the “framing” structure “551w”Draw a concept diagramUse the “framing” structure
70 Washout Pattern What if everything you knew was wrong? “It’s not what you don’t know,it’s what you know that ain’t so”-Harry Truman
71 You trade your beliefs What would this look like? What If? Avoid the trendWeakest sectorsWeakest stocksPick bottomsBuy them when no one caresBe afraid of your convictionsFocus on large capsConventional WisdomRide the trendStrongest sectorsStrongest stocksYou can’t pick bottomsBuy them when they hate themHave the courage of your convictionsSmall caps outperformWhat would this look like?
72 Assertions Buy large cap, weak stocks when nobody cares When everyone who was going to sell has soldWhen there is price evidence of short term improvementBuy them when the market is going upBuy them when they are going up and the market is going downPlan for the recent swing highMaintain 2:1 reward:risk ratioCut at the first sign of hesitationWatch for signs of institutional interest
73 Operationalize the beliefs OEX stocks (S&P 100)(institutional $, risk mgt)Oversold on an annual basis (W%R(260) <-80)Long term sellers have soldOversold on a short term basis (W%R(10) <-80)Short term sellers have sold-20-50-80-100
74 Price patterns Setup day 1 (S1) Higher low Close > open The Big SellSetup day 1 (S1)Higher lowClose > openClose > yesterday’s highEntryEntry dayOn Price > S1 (High)EntryDayExitSetup DayThe swing low
76 Slightly lower reliability Lower average R win, SQNMore opportunities per weekStill tight risk controlled
77 variation on Dr Alexander Elder's system Triple Screen SystemTriple Screen Systemvariation on Dr Alexander Elder's system
78 Triple Screen Overview Trading For A Living, by Dr Alexander Eldercombines 3 time frames to remove disadvantages of eachcombines the use of trend-following and oscillating indicatorsEach time frame relates to the next by a factor of 5 (per Elder)You can round off the time periodsExample: if the middle time period is daily, the short term period can be hourly, not 1hr and 12 min (6 market hours divided by 5)Screen 1 uses the longest time frame, Screen 3 the shortestScreen 1Screen 2Screen 3Market MovementLong termIntermediateShort termType trendStrong trendCounter trendBreakoutTimeframe exampleMonthlyWeeklyWeeklyDailyDailyHourlyIndicator exampleADX > (25) orMACD Hist uptick20 dMA orWilliams %RCandlestick breakout
79 Triple Screen Concept Screen 2: Intermediate Movement Screen 1: Major MovementScreen 3: TimingFind strong trendsApply an oscillator to daily chartUse daily declines suring weekly uptrends to find buying opportunitiesUse daily rallies during weekly downtrends to find shorting opportunities
81 Triple Screen ConceptThought experiment: if the pullback to the 20dMA = 10%,and Buffet suggests 5% per year in equities is good,then a 50% retracement = a 5% move in a few days,Is that enough? for a short term system?0%100%50%
82 Triple Screen Concept Pullback to 20d MA or <-80 on Wlliams%R ADX > 25, +DI > -DI orMACD-Hist uptickBreakout higher highon hourly candlestickMin 2:1 risk/rewardStop: low of entry day or previous day's low, whichever is lowerRatchet the trailing stop to breakeven as soon as possiblePreserve 70% of profits of a 3R winneror, manage exits with candlesticks
88 Supertrader Summit Insights Chatroom Mastermind effectFeed the bulldog every dayWhere do beliefs come from?Connectivism & The Market MosaicTrader Quality NumberYour system is what you doDouble loop learning & learning styles, auditory learning“That coal won’t shovel itself”Tell the UniverseAll your preparation is for…Phase transitions and critical statesZeno stopTrade framingSnapping turtle551w“.25R improvement on every trade”Zero stateReady - Fire - AimYou are ALWAYS trading
90 The LeBeau Stop Quality Index From the Systems seminar 1996:Time in trade = tFind best price in time = 2tYour exit / Best Possible exitA number between 0 and 1.5 is really goodMy refinement: consider time value of moneySpreadsheet implementation with XLQ
91 Trade Index Analysis Best Possible Exit Exit Entry Time (t) Procedure: Calculate the length of your trade (t)Find the best possible exit during time period (2t)Divide Actual/Best Possible to find Exit EfficiencyScale: 0 <-> 1.0EntryTime (t)ExitActual Gain (g)Best Possible ExitBest Possible Gain (b)Lebeau Exit Efficiency = Actual Gain / Best Possible GainNotes:Can only examine Wins vs winsMust do separate calc for comparing efficiency of Losing tradesDoes not consider time value of money (gain/time)
92 Trade Index Analysis Notes: EntryTime (t)ExitActual Gain (g)Best Possible Exit #1Best Possible Gain (b)Lebeau Exit Efficiency = Actual Gain / Best Possible GainBest Possible Exit #2Notes:By inspection you can see that the actual exit is very good compared to Best Possible Exit #1Best Possible Exit #2, though is best of all because you get maximum gain AND your money available quickly for the next opportunityGain/Time may matter if you have a system with relatively short holding periods and many opportunities
93 A complex adaptive system Trade Index AnalysisThought experiment:Think of your ruleset for filters, screens and entries as a lens that waits to see the market in a certain condition that you have determined is favorable for a trading systemSuppose you have developed an exit strategy that results in a positive expectancy system, and that through a combination of backtesting, prototyping with small position size, and finally trading with normal risk, you are satisfied that the system is robustHow can you determine if your rule set is “in tune” with the market condition? How will you make sure you are not missing other, easier opportunities?Note: this is hard to do especially if your system has a positive expectancy!MarketA complex adaptive systemrulesetentryexitstalkingtradestalking
94 Trade Index Analysis Procedure: For each trade, calculate the time in the trade as (t)Find the Highest High and Lowest Low in time period 2tIndex the distance between Highest High and Lowest Low on a scale of 0-100For each trade, calculate and Entry Index, Exit Index, and Trade IndexCalculate an Average for the Entry Index, Exit Index and Trade IndexIf the Average Entry Index >70, the Average easier, larger opportunity is to the short side (even though you may have a positive expectancy system going long)100100Highest HighexittradeTrade Indexentry1RLowest LowTime period (t)Time period (t)
95 Trade Index Analysis Procedure: For each trade, calculate the time in the trade as (t)Find the Highest High and Lowest Low in time period 2tIndex the distance between Highest High and Lowest Low on a scale of 0-100For each trade, calculate and Entry Index, Exit Index, and Trade IndexCalculate an Average for the Entry Index, Exit Index and Trade IndexIf the Average Entry Index >70, the Average easier, larger opportunity is to the short side (even though you may have a positive expectancy system going long)100100Highest HighexitAverage tradeTrade Indexentry1ROpportunity!?Lowest LowTime period (t)Time period (t)
96 Trade Index Analysis Procedure: For each trade, calculate the time in the trade as (t)Find the Highest High and Lowest Low in time period 2tIndex the distance between Highest High and Lowest Low on a scale of 0-100For each trade, calculate and Entry Index, Exit Index, and Trade IndexCalculate an Average for the Entry Index, Exit Index and Trade IndexIf the Average Entry Index >70, the Average easier, larger opportunity is to the short side (even though you may have a positive expectancy system going long)100100Highest High70Washout54485DD44Lowest LowTime period (t)Time period (t)
100 5 day Slope of the 50d MA A trend in transition Notes: 50day MA slope SPY = mkt; 13 years, daily dataAll great bull mkts began when slope of 50d MA was flat or positiveSometimes positive slope was falseTakes 3-4 weeks after a Bear to get slope back to flatHow to measure?Very interesting results50day MA slope
101 System Quality Number application Apply the concept of System Quality number to the daily output of “black boxes” called stocks and ETFsMy implementation:10 x (AvgGain%(t))/(StDev(t))Uses:Q40 for NLNTF funds: t= 50 weeksETFs/large caps: t = 30,60,90,200 days“A way” to quantify “efficiency & effectiveness”
102 The Universal Entry1264375The Universal EntryThe Big Sell Day(s)The Swing Low DayThe Setup DayThe Entry DayThe Successful Trade Day(s)The Sell DayThe Continuation Entry DayAfter a successful trade, whose exit was triggered by selling, I look for a re-entry using the Universal Entry (UE)After the sell day which triggered the exit, buy today if:Open inside yesterday’s real bodyPrice 5 cents higher than yesterday’s highUse a stop loss of:5 cents below yesterday’s low,½ ATR, trailing (more aggressive)In a Washout Continuation pattern, this will often convert to a long term trend following trade, with an initial profit target of the 200d MA, and then beyond
104 Risk management Diversification Position sizing Portfolio heat BenchmarkingSystem tradingObjectivesRisk toleranceExpectancyMA of equity20 trade MA of expectancyFundamentalsExtreme valueAssume you are wrong until the mkt proves you rightDebriefingTrading planBusiness planAfter action reviewsSystem of systems
106 Position Sizing Profit target? Exit Set-up Entry Stalking Initial exit How do you decide?Profit preservationHow much of the portfolio?$/shareRewardSet-upStalkingEntryRisk$/shareInitial exitHow do you decide?Capital preservation
115 Which system would you trade? Long term trend following systemReturns 30% per year, 1 opportunity/yrASwing trading system60% winners, averaging 2 R40% losers, averaging -1RTrades last a week, on average3 trading opportunities per weekBAt what risk level does A = B? (bonus)
119 Intraday moves Max 12.36% +1SD 5.28% Avg 3.50% -1SD 1.71% Min 1.20% AA intraday range statsIntraday movesMax12.36%+1SD5.28%Avg3.50%-1SD1.71%Min1.20%StDev1.79%closeopen+6%+4%+2%close-2%-4%-6%Yesterday’s candle
120 AA intraday range stats closeopenNormal moves will range between 2 and 6% intraday+6%+4%+2%close-2%-4%-6%Yesterday’s candle
121 AA intraday range stats closeopenNormal moves will range between 2 and 6% intraday+6%+4%+2%close-2%-4%-6%Yesterday’s candle
122 AA intraday range stats closeopenNormal moves will range between 2 and 6%intraday+6%+4%+2%close-2%-4%-6%Yesterday’s candle
123 AA intraday range stats AA: trading at $ % = $0.25, 4% = .5, 6% = .75If you can manage a .1 iStop, the normal intraday move = 5RcloseopenNormal moves will range between 2 and 6%intraday+6%+4%+2%close-2%-4%-6%Hypothetical trade frameYesterday’s candle
124 AA intraday range stats AA: trading at $ % = $0.25, 4% = .5, 6% = .75If you can manage a .1 iStop, the normal intraday move = 5RcloseopenNormal moves will range between 2% and 6% intraday+6%+4%+2%close-2%-4%-6%Know your targetKnow the potentialKnow what’s normalControl your riskBe surprised into catastrophic successYesterday’s candle
125 Who are you?What are you trading today?Finalize your trading planBrief overview of your strategy for the dayUse your trade log, document tradesTake screen shots of frames/entries/decisions/exits (case study)1 member of the group monitor SPY//try to trade SPY (virtually)“Attention on Deck” if you see something or have an observationEvery 30 minutes we will summarize
126 Logic chaini start with SPY to assess mkt conditions from the open and during the dayi compare the vertical column above and below for intraday relative strength comparisons of indices and sectors to SPYif a sector looks very good or very bad i then go east and west to find an even better target for easy tradingto include looking all the way to the right for stocks outperforming their peers in an outperforming sector, going in the same up direcition as mktif mkt failing i find worst sector ETF and trade the double inverse "long“the stocks and ETFs on there are often the result of swing trade patterns which are favorable for the next couple days so i have extra protection when trading them intradaythe end
128 Multivariate world market correlation model Information:FundamentalsTechnicalSeasonalityProductivityEmploymentConsumptionPolicyBusiness cycleTheoriesResultsMemoryActors & agentsLiquidityTime horizonsRequired returnsRisk tolerancePsychologyAnalysisFeedbackStrategies%return%variationMarket competitionQuestionsWhat’s working?What was working?What’s starting to work?What’s starting to lose?What’s the context?Frequency & amplitude?Best heuristics now?Confidence?Underlying causal model“competitive themes”“hidden dynamic order”GeographicUSJapanEuropeAsiaEAFE (not US)Latin AmEmerging MktBusiness sectorUS sectors (SPDR list)Global sectors (list)StyleValueBlendGrowthIndependentMarket CapLargeMediumSmallMicroAsset classEquitiesReal estateBond/incomeCommoditiesCurrencyUSDEuroYenThemes & dimensionsNotes:The themes compete to be the dominant driver of world market returns (a mix at any moment)The dimensions compete within each theme for dominance (a mix at any moment)There is a time component for dominance that may vary by theme and dimensionThere is an “expected” duration and strength of dominance unique to each theme and dimensionSuccessful strategies could include the right mix of themes and dimensions in the portfolioMonitoring “state” and context permits “planting” and “harvesting” according to the season
129 Forecasting model committee QuestionsWhat’s working?What was working?What’s starting to work?What’s starting to lose?What’s the context?Frequency & amplitude?Best heuristics now?Confidence?Each decision cycleStatisticsMultivariatePrinciple ComponentsEbbs and FlowsDynamicModel baseTortoise 2.0Short termRS & volatility8-10 winnersSector, region limitsBusiness forecastInternal model baseData pattern drivenAlgorithm selectionCompetition winnerMonte Carlo10 year, monthly %Mean reversionPerformanceVolatilityRules basedHybrid, short termLinear regressionMarket conditionRegional focusNeural NetworkMonthly predictionWeekly prediction“Black Box”Expert architectureCARTClassificationRegression TreeNon-linearExplanatory powerMomentumFama 12 month rulesST momentumIT momentumLT momentumAnnual Rebalance10 sectorsJanuary rebalanceNo timingLong onlyBuy & HoldTotal Market IndexBaselineModel PredictionsHistoricalPerformanceAnalysisAssessmentStrategy SelectionStrategyLessons LearnedPrice basedModel-specific time frameModel forecastsModel preferencesCompare & contrastAgreement, disagreementRules for combiningRules for weighting%return & %variationOf Models & SystemEvaluate System rulesApply learningRules & decisionsModel performance
139 Example of Green & Yellow Zone Standard frameProfit target for the swing tradeI want to be long in the swing trade positionGreen zoneMechanical entry for the swing tradeI can try to front run a green zone trade if I can see to the one inside yesterdays rangeYellow zoneInitial stop for the swing tradeI am out of the swing trade or I am going short, because it’s failingRed zoneWhen the swing trade pattern fired
144 Logic chaini start with SPY to assess mkt conditions from the open and during the dayi compare the vertical column above and below for intraday relative strength comparisons of indices and sectors to SPYif a sector looks very good or very bad i then go east and west to find an even better target for easy tradingto include looking all the way to the right for stocks outperforming their peers in an outperforming sector, going in the same up direcition as mktif mkt failing i find worst sector ETF and trade the double inverse "long“the stocks and ETFs on there are often the result of swing trade patterns which are favorable for the next couple days so i have extra protection when trading them intradaythe end
146 Consider the curveWhat do you see?What questions do you ask?
147 Consider the curve What do you see? What else could it be? Is this a belief or a prediction?How else could you draw the curve?What draws the curve?Once drawn, is it static?Where are you on the curve?Where is the market?
148 Fair valueOn Average:Where are you buying?Where are you selling?
149 Slope? Slope? Time period? Normal? Trend? Duration? Frequency & amplitude?
150 Fair valueSlope?Variation?Stretch?Normal?Boundary of normal?
151 Market classification Sideways?Bull?Bear?Bear?Sideways?What are your measures?What’s the time period?How do you adapt?Is there a larger time period slope at work?Boundary conditions?
152 Market : Systems Sideways? Bull? Bear? Bear? Sideways? ETF2TripleScreenSideways?TripleScreenETF25DD5DDCBull?Bear?5DD5DDCWOWOCBear?ETF OTripleScreenETF OETF CSideways?5DD5DDCWOWOCWhere on the curve do your systems thrive?Do you have systems for all regions on the curve?Specialized systems vs general purpose systems?
154 Attitude The analysts are crooks. The market makers were fishing for stops.I was on the phone and it collapsed on me.My neighbor gave me a bad tip.The message boards caused this one to pump and dump.The specialists are playing games.It is my fault. I traded this position too large for my account size.It is my fault. I didn't stick to my own risk parameters.It is my fault. I allowed my emotions to dictate my trades.It is my fault. I was not disciplined in my trades.It is my fault. I knew there was a risk in holding this trade into earnings, and I didn't fully comprehend them when I took this trade.
155 Covey’s 7 Habits…for traders?! “Sharpen the saw”Be proactiveBegin with the end in mindDo first things firstThink “Win/Win”Understand, then seek to be understoodSynergizeContinuous improvement
156 What is your totem animal? What does it mean to trade like a _______?What qualities does __________?What emotions?What are the risks?Where does it come from?What does it represent?How useful?
157 Stalking Not predicting Knowing your prey Identifying the patterns Knowing the oddsSetting the conditionsTaking the shot
161 Professional feelings CalmnessRelaxationa gentle pleasant humming in the background (Bach-like fugues)crystal clarity on risk reward and my betting strategyinstant recognition of my strategy given my starting cardsan effortless ability to fold without regretsatisfaction with playing correctly when i call or raise and lose the hand based on pot odds and strength of handthere is an interesting feeling when i go all in for the right reason (based o the odds and percent portfolio risk)there is the same feeling (it feels like an octave lower, but still very satisfying) when i make the right bet and the right play but for less than all init is satisfying to have the feeling and the realization that i am in it for the long haul, and that i know i will endure by applying my rules, while acknowledging that sometimes you dont get the cards, but also knowing that risk management/position sizing will keep me in the game.
162 Let the course pick your club Master your toolsPack your bagGroove your swingKnow the courseKeep good scoreHit buckets of ballsPlay your gameBreathe deeplyEnjoy the gameLeave it on the course
166 Technical Analysis Review Average Directional Index (ADX)Average True Range (ATR)Moving Average Convergence/Divergence (MACD)Williams %R“NDX” (an improved Williams %R)Candlestick Charting200day MA “Stretch” %Slope of the 30d regression lineGap StatRange Stat
167 Getting on the bandwagon 5InnovatorsEarly adoptersEarly mass adoptersLate mass adopters“Grumpy old men”1423324150%100%50%
168 Average Directional Index (ADX) (strength of trend)Invented by Welles Wildermeasures strength of trendsimple but complex calculationsmeasured on a scale of 0 – 100low ADX value (generally less than 20) can indicate a non-trending market with low volumesa cross above 20 may indicate the start of a trend (either up or down).If the ADX is over 40 and begins to fall, it can indicate the slowdown of a current trend.Can also be used to identify non-trending markets or a deterioration of an ongoing trend.Although market direction is important in its calculation, the ADX is not a directional indicator.
169 ADX (continued) Normal calculation: 14 day period with end of day data ADX >30 indicates there is a strong trendMomentum precedes price. When using ADX in your studies, note that when ADX forms a top and begins to turn down, you should look for a retracement that causes the price to move toward it’s 20 day moving average (SMA).In an up trending market, the technician will buy when the price falls to or near the 20 unit SMA, and in a down trending market, one should look to sell when the price rises to or near its 20 unit SMA.ADX does not function well as a trigger. Prices will always move faster than the Average Directional Index, as there is too much of a smoothing factor, which causes it to lag the price movement.If ADX goes below both DI lines, stop using trend following systems, as the market is choppyADX has been used in trading systems using +DI and -DI crossovers
170 ADX Caution“Imagine that we have a nice long base. We jump on board when ADX starts rising from a low level. We successfully carry this trade all the way up to a high ADX level, somewhere above 30, and then the market turns down. The ADX will start to decline showing an absence of trending direction, but the price does not have an absence of direction, it is moving down!”- Chuck LeBeau
171 ADX: the FormulaCalculating ADX is a two-step process. First, the difference of +DI and -DI is divided by the sum of +DI and -DI, and the quotient is multiplied by 100; the result is known as DX. Second, ADX is calculated by taking a modified moving average of DX.Formula:DX = [ ABS( (+DI) - (-DI) ) ] / ( (+DI) + (-DI) )ADX = modified moving average of DXWhere:n = number of periods+DI = current positive directional index-DI = current negative directional indexDX = current DX
172 ADX calculation +DI14 minus -DI14 +DI14 plus -DI14 DI difference +DMZero DMCCCBB-DMBVarious applications of ADX1. Trade crossovers. If +DI crosses above -DI, buy; if +DI crosses below -DI, sell.2. Take only long positions when +DI is above -DI; take only short positions when -DI is above +DI.3. A rising ADX indicates the trend - up or down - is strengthening; use a trend-following system. A declining ADX indicates a market with less direction; do not take trend-following signals.4. When ADX is below both directional lines and moves up, it suggests a new trend may be beginning - an uptrend if +DM is on top and a downtrend if -DM is the top line.5. When ADX is above both directional lines and starts to drop, it indicates the trend is beginning to fall apart and is time for a trend-following system to take profits.Rising mktOutside dayInside day+DI14 minus -DI14+DI14 plus -DI14DI differenceDI sumx 100DX =x 100ADX = Simple moving average of DX (14 = normal)
174 Average True Range (ATR) (measuring volatility) Average True Range ("ATR") is a measure of volatility.Introduced by Wilder in New Concepts in Technical Trading SystemsCommon component of many indicators and trading systems.InterpretationHigh ATR values often occur at market bottoms following a "panic" sell-off.Low Average True Range values are often found during extended sideways periods, such as those found at tops and after consolidation periods
175 ATR calculationThe True Range indicator is the greatest of the following:The distance from today's high to today's low. ABS(A-B)The distance from yesterday's close to today's high.ABS (A-C)The distance from yesterday's close to today's low. ABS (C-B)The Average True Range is a moving average (typically 14-days) of the True Ranges.AAACCCBBBinside dayRising mktoutside day
176 (Moving Average Convergence Divergence) MACD(Moving Average Convergence Divergence)The MACD ("Moving Average Convergence/Divergence") is a trend following momentum indicator that shows the relationship between two moving averages of prices. The MACD was developed by Gerald Appel, publisher of Systems and Forecasts.The MACD is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average, called the "signal" (or "trigger") line is plotted on top of the MACD to show buy/sell opportunities.The MACD proves most effective in wide-swinging trading markets.3 popular ways to use MACDCrossovers:Basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero.Overbought/Oversold ConditionsWhen the shorter moving average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely that the security price is overextending and will soon return to more realistic levels.DivergencesA indication that an end to the current trend may be near occurs when the MACD diverges from the security. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.
178 (a measure of overbought/oversold) Williams %R(a measure of overbought/oversold)Commonly performed on a 10 day periodScale: 0 to minus 100 (can ignore the minus sign)0 to 20 considered overbought80 to 100 considered oversoldMust wait for price confirmation: a better setup than triggerUncanny in its ability to anticipate turning pointsFormula:Highest High(n) - CloseHighest High(n)- Lowest Low (n)x 100
180 10 NDX vs Williams %R Williams %R 10 NDX 100 -20 80 20 -80 -100 100-208020-80-100uses previous 10 days of datareadings are intuitiveextreme moves today are highlighteduses current day data and previous 9readings are not intuitive
181 Candlesticks Quicklook Visually display much more info than bar chartsQuicker to identify important patterns than barsShould be used in conjunction with Western technicalsShould not be used on their own for entries or stand alone systemsDo not give price targetsReveal market psychologyTug of war between bulls and bearsCan signal change of trend or market pauses"Windows" or "gaps" are very powerful signalsLong shadows can identify support or resistance when taken in combinationWork in multiple time framesGenerally well suited for intermediate and short term timeperiodsPay attention to Doji
182 Candlestick example The highest price (upper shadow) The opening or closing price,whichever is greaterThe center ("real body")Candlestick BakgroundIn the 1600s, the Japanese developed a method of technical analysis to analyze the price of rice contracts. This technique is called candlestick charting. Steven Nison is credited with popularizing candlestick charting and has become recognized as the leading expert on their interpretation.Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day bar-chart, but in a manner that extenuates the relationship between the opening and closing prices. Candlestick charts are simply a new way of looking at prices, they don't involve any calculations.Each candlestick represents one period (e.g., day) of data.The opening or close, whichever is lessThe lowest price (lower shadow)
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