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Thanks to the silent majority for your patience with me on the
Psychology included in this topic.
Right at the moment I can't see myself raising the subject again,
not in this forum anyway.
My next series of posts is all hardcore trades and code; I promise.
I have started testing the bearMonday Calender Affect and I will
post the results as a training project.
If there is a valid trade in there I am likely to publish it, but
don't hold your breath.
While, as a project it has some interesting features, I don't see
anything to get excited about so far.
The results will be posted in a new topic: *Calender Effect*; maybe
next week.
********************************************************************
Trading Psychology follows.
Includes material suitable for advanced students only.
I need to redress the omission of an important point and I will also
offer a short explanation to help with practical application.
Referring to the visual mnemonic.
The universal energy (white space)is the same within and without
except that which is within the area bounded by the mnemonic is that
portion commanded by the individual.
Great men perform great acts in the world by way of the amount of
energy at their disposal.
The visual image implies that this is brought about by an act of
dedicated focus based on supreme will power.
Energy is a matter related to the heart.
If you don't have enough that is where to start looking.
The symbology contained in many popular books is often incorrect or
of academic interest only.
The true symbology for Erebus is the circular *Snake that swallows
its own tail*; an ancient Cosmological symbol.
Symbols can have several meanings, depending on their use, rather
like signs in some Asian languages.
In this case it refers to perpetual circular motion.
Practical examples:
1. Should the goals set be achievable goals?
Your goals should match your dreams and beyond.
Hitch your wagon to a star.
If you reach for the stars and fall short you may still grab hold of
the moon on the way down.
2. How can we ever expect to reach *pie in the sky* goals?
Assess with total honesty where you are now in comparison to where
you intend to be.
What resources do you command? mentally list the pluses and minuses.
Then start with a step by step plan to reach the first attainable
stage that you can see up ahead in the distance.
Work to build on your strengths and eliminate your weaknesses.
Don't look beyond the first stage; the gulf between you and your
goals will act to deter you if you do.
Only look (plan) one stage ahead at a time.
Hold on to your dream (goal) the way a drowning man or woman
clutches at a lifebuoy.
Don't let go no matter how rough the weather.
3. Won't it be psychologically damaging if I set an impossible dream
and then fail?
Not at all.
Not if you gave it your best shot.
I have never meet one single person who isn't happy with that.
It is common for people to hitch their wagon to the wrong star.
Once this becomes apparent it is better to accept this and change
stars.
Life also changes; relationships, health, family, work and many
other issues can force us to abandon or postpone a dream.
If this is the case accept your destiny with humility, not rancour.
Trading itself has no more or less intrinsic value than thousands of
other things we could do with our lives.
The true value lies in the character it builds and the habits of
success that it engenders.
They are portable and will serve us well anywhere.
*Great Honour* to the venerable Confucius, LaoTze; *The Way of the
Tao*.
Fritjof Capra?
BrianB2.
--- In amibroker@xxxxxxxxxxxxxxx, "brian.z123" <brian.z123@xxx>
wrote:
>
> Thanks to the forum for allowing me some *room to move* to discuss
> Trading Philosophy and Psychology.
> I'll try not to abuse the privilige.
>
> We can't be one person outside the trading room and someone else
> inside.
> First-class traders are almost certainly first-class people in
life,
> albeit in their own way.
>
>
********************************************************************
>
> For Dimitris, the *Maestro of Generosity*; you shamed me into a
> generous act.
> For every other generous contributor to the AmiBroker community;
> past and present.
> For all who posted in this topic; you gave of yourselves.
> For Tomasz who started it all and sustains it by his breath; *a
> creative bubble in the Universal Flux*.
>
> For the forum.
>
>
********************************************************************
>
> Bill,
>
> An insightful question.
>
> You asked for it!
>
> I'll reverse the order this post and provide the *waffle* first.
> Hard-nosed rationalists just scroll down; your bits either at the
> bottom or coming in another post.
> (I'm starting to get bored with myself so the Psychology of
Trading
> series will end in this session).
>
> My wife is a piano teacher and sometimes we discuss the philosophy
> of teaching.
> I provided her with a visual mnemonic to help her focus on the
> essential pedagogical path.
> I call it the *Triangle of Success*.
> At each point of the triangle either of the words, THEORY,
PRACTISE
> OR PERFORMANCE is inscribed (outside the triangle so that the
peaks
> point at the words).
> Performance is at the apex.
> In the centre a circle that touches each side of the triangle once
> is drawn and it has a single arrow head pointing anti-clockwise to
> indicate circular motion (progress).
> The arrow head is in the bottom left section.
> Symbologists would recognise the circle as Erebus; eternity or
> perpetuality.
> The white space within and without the shape isnot(Null).
> It is the *co-joined twins* (a triplicity in truth) or the *dual
> zeros*; the special case of zero signed in maths as infinity.
> In its primal form whitespace (the quantum state?) is energy and
> chaos.
>
> In modern culture, especially business culture, we would recognise
> the concept that the mnemonic encapsulates as continuous
improvement.
> Continuous improvement is achieved by the repetitive cycle of
> theory, followed by practise followed by performance, which is the
> *testing ground*, also known in my school as the *burning ground*.
> The testing ground is the place where the inflated ego is sloughed
> off under the onslaught of reality (trading) and back to the
drawing
> boards we go.
>
> For specific applications a small cross is inscribed in the centre
> of the circle to stand for any specific objective (trading goal?).
> This represents the fact that we progress by binding theory,
> practise and performance to a specific and particular goal.
> The cross symbolizes that unbounded chaos is drawn from the four
> quarters and focused at the central (objective) point.
>
> Unlike academic study, progress on *The Path of Success* is not
> linear or consistent.
> Development is a circular procession around the goal
> (circuambulation).
> Often quantum leaps in progress are experienced, usually at the
> least expected point in time.
>
> Of course the specific goal is not written within the circle, it
is
> emblazoned within our SELF.
>
> How do we use this?
>
> Anyone who can't see the uses for it doesn't need it.
>
> Admonition!
>
> Money is not wealth.
> Money is a tool.
> Use it to help yourself, your family and loved ones, friends,
> neighbours, community, the nation and the world.
> Then right will be on your side and *right is might*.
>
> Be generous with what, as traders, we earn so easily; don't cast
> your pearls before swine though.
> That is the price we pay for having so much fun while most other
> people have to work for a living.
>
> Anyone who is interested in following up on the topic should
> maintain a reading list from amongst the plethora of personal
> development material available.
> Anything from Tony Robbins to the spiritual texts or religious
> scriptures is of inestimable benefit in attaining self-knowledge
and
> hence self-discipline.
>
> Two of my favourites are the late great novelist Carlos Casteneda
> and also the late Psychologist Carl Jung; one of the greatest
human
> beings of the last 100 years in my book.
>
> They are definitely not everyones cup of tea and people should
> choose their own favourites.
>
> Beware of fakirs though.
> The foothills surrounding *Mt Olympus* abound with them.
>
> ****************************************************************
>
> The *calender effect* and general comments.
>
>
> The calender effect is old hat.
> I assumed every trader in the forum who was interested in
exploiting
> it had already done so or abandoned it as not profitable.
> It hasn't been near the top of my lists so I haven't had a go at
it
> before, but, any specific market behaviour that is significant
with
> 99.9% confidence levels is worth investigating in my book.
> Of course it is only viable as a trade if large enough movement is
> also there.
>
> I realise the older hands are only interested in a winning system,
> if at all, although my work nearly always contains a sprinkling of
> original material or old material presented in new ways.
> I have provided some commentary for the benefit of newcomers that
is
> mainly straight out of the textbooks.
>
> Perhaps we can manage to squeeze a new tune from an old fiddle.
>
> Keep in mind that a lot of tested hypotheses don't get a pass
mark,
> so the odds are against finding a winning system on any single
> *project*.
>
> I should also acknowledge the work of Arthur A Merrill once again;
> his efforts were an outstanding achievement at the time that he
> wrote.
> I'm drawing from his work, which is readily available in print,
> although I had already formed an opinion on calender cycles long
> before receiving confirmation from other analysts.
>
> General theories on market behaviour act as a creative stimulus to
> our trading and are a good starting point.
> Technically speaking, as Fred says, the why is not as important as
> the when and the what.
> However, as Sebastian has pointed out, starting with a why is a
more
> fruitful approach than blindly crunching numbers, although the
> Freddites might find ways to climb all over me on that one.
>
> We can hold many general theories of market behaviour.
> They are not absolutes; only relatives.
> They need not be true and any or all arguments they contain need
not
> be true.
> We can in fact hold contrary market theories all at the same time.
> The proof of the pudding is in the eating.
> Different theories evolve different trading systems that
> collectively comprise different trading styles.
> Trading different systems and/or different markets is the
freelance
> traders equivalent of diversification (once applied with
> sophistication).
> A master trader can move between styles with aplomb.
>
>
>
*********************************************************************
>
> Discussion of a possible *Calender Effect* (CE) trading system.
>
> 1. Approximate *textbook* process flow:
>
> General theory of the market > specific theory (model) of the
> market > hypothesis > test the hypothesis > list all possible
> trading systems derivable from the hypothesis (still allow
creative
> thinking at this stage) > test all possible systems (objective
> process commences) > optimise all or only the most promising
systems
> > statistically evaluate top model(s) (100% objective filter) >
out
> of sample testing of top model(s)> trade system > evaluate
intitial
> trading performance > add system to a balanced portfolio
(freelance
> style portfolio).
>
> It's a near certainty that I will only walk CE through the
initial
> steps.
>
> 2. General theory of the markets No1 (includes additional points
to
> my previous post).
>
> The behaviour of markets in the major western cultures is similar
> (USA, Australia, UK & others?)
> ( I don't comment on other markets because I haven't lived in those
> countries and don't understand the psyche the way I understand the
> psyche of the above group. That doesn't place any relative value
> judgement on other cultures).
>
> The markets are moved by institutional investors who control the
> major portion of the money.
> Institutional behaviour has characteristics that can be utilised by
> freelance traders.
> Institutional investors are people and will exhibit some behaviours
> typical of people in general.
> Based on personal observation of institutions, people and people in
> institutions I expect markets to exhibit some of the following
> behaviours to some extent:
>
> Institutions have budget and report cycles (weekly, monthly,
> quarterly, yearly?)
> Institutions are bound by rules of governance and obligations.
> It is not in the interests of institutional players to stick their
> heads up out of the trench.
> Institutions set employees targets which are benchmarked against
> industry norms.
> People have short memories.
> People *work* from Mon ? Fri, 9-5.
> People get Mondayitis and Fridayitis.
>
> American markets have high levels of insitutional participation.
> American equities have high liquidity (frequency) so they readily
> approach statistical validity for the institutional rule.
> The headline market indices are logically invalid but emotionally
> meaningful to investors (they are on prime TV every night of the
> week).
>
> There are many more similar observations.
> I have only provided a few as examples.
>
> 3. A specific market theory.
>
> (a) For American equities, with high liquidity, a calender effect
> will be readily observable and consistent .
>
> (b) The daily bar is the primary and natural time cycle of the
> American equity market(s).
> Intraday and weekly bars are the natural micro and macro cycles.
>
> 3. Hypotheses
>
> NORTH AMERICAN EQUITY MARKETS WILL HAVE A SIGNIFICANT BEARISH BIAS
> FROM THE CLOSE ON FRIDAYS TO THE CLOSE ON MONDAYS.
>
> NORTH AMERICAN EQUITY MARKETS WILL HAVE A SIGNIFICANT BULLISH BIAS
> FROM THE CLOSE OF TRADING ON MONDAY TO THE CLOSE OF TRADING ON
> FRIDAY.
>
> (At this stage there is no need to over state the hypothesis as
> there is plenty of scope during design and optimisation to test as
> many alternatives as we can think of and have
> the patience for. No attempt is made to formalise the process
> according to mathematical norms. It also provides me with an easy
> escape route from a probably well deserved pummelling from the
> mathematicians).
>
> 4. Test the hypothesis.
>
> From the work of Merrill and Colby and others:
>
> Mondays are bearish with statistical significance.
> Fridays are bullish with statistical significance.
> Intraday trends measured on a half-hourly basis have a bias with
the
> open more likely to be bullish than the close.
> The Monday close is the most bearish close of the week.
>
> The caveat is that IT may have changed the nature of the markets
and
> the calender effect may not survive. The data set available ex the
> IT revolution, say 1995, approaches the limits of statistical
> validity for Mondayitis i.e. 12 years x 50 Mondays = = approx 600.
> Divided in two for design/optimisation plus out of sample testing
> this is not sufficient data for my liking so some older data
will
> have to be accepted into the set.
>
> 5. List all possible trading systems that can be derived from the
> hypothesis.
>
> In this case study I will only provide two, at least for the
moment
> anyway.
>
> SELL A MARKET (INDEX) AT THE CLOSE ON FRIDAY AND COVER AT THE
CLOSE
> ON MONDAY.
>
> BUY A MARKET (INDEX) AT THE CLOSE ON MONDAY AND SELL AT THE CLOSE
ON
> FRIDAY
>
> This suggests that the combined trade, bearish on an index over
the
> weekend and bullish on an index Tues-Fri could make an effective
> trade.
> In the combined trade the traders capital would be invested 100%
of
> the time rather than being idle on weekends i.e. 2/7 of the time.
>
> Colby, in fact, proposes and *tests* the Mon ? Fri bullish trade,
> using MetaStock software.
> The stock selected by Colby as the vehicle for this trade is the
> DJIA.
> Colby's results indicate his system *beats the market*.
>
>
*********************************************************************
>
> Commentary on the proposed trades.
>
> The weekend bearish trade would have less movement than the Mon-
Fri
> bullish trade.
> Depending on the commission paid by individual traders it is
likely
> to be susceptible to *profits* being eaten up by transaction costs.
>
> Both trades are liesurely trades, as they buy and sell the close.
> For that reason slippage is likely to have minimum or little
effect
> on outcomes.
> Trading the indexes provides good liquidity, consistency and ease
of
> processing e.g. data is readily available and there are no null
data
> values to deal with.
> Membership survival of index data that travels back into the
distant
> past is an issue however.
>
> If initial testing justifies further effort other potential trades
> can be considered:
>
> Do individual stocks piggy back the CE trends?
> If so can a determining factor be isolated for the group of stocks
> that out perform the CE of the index to which they belong?
> What effect will leverage have on profitability?
> Will indexes with high institutional participation perform
> differently to others?
> Is the CE effect, as defined in the hypotheses, biased further by
> the preceeding weekly/daily/intraday trends?
>
> Opportunities for optimisation can also be considered at a later
> stage:
>
> Will finessing the entry and exit times improve performance?
> Will indexes with higher volatility perform better?
>
> *************************************************************
>
> Initial testing (provisional draft ? subject to change).
>
> Step1. Test the hypotheses.
>
> Attempt to duplicate the results of Merrill and Corby in various
> indexes, including obtaining some preliminary metrics e.g.
>
> Typical % gain/loss and number of rises/falls for weekly periods.
> Typical % gain/loss and number of rises/falls for weekend and Mon ?
> Fri periods.
>
> The aim is to obtain sufficient data to estimate Chi-squared
> significance for both hypothetical patterns in a range of markets
> and also the likely range of profit or loss for a trade based on
the
> fundamental hypothetical trade(s).
>
>
********************************************************************
>
> Anyone who wants to join in publically or privately feel free.
>
> Use at your own risk, it may contain errors.
>
> Likely to be continued.
>
>
> BrianB2......=8-)
>
>
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, "brian.z123" <brian.z123@>
> wrote:
> >
> > Hypothesis for Bill.
> > I promised Bill *The Wave Mechanic* that I would provide the
forum
> > with something more substantial than the *candy floss* of
> philosophy
> > and psychology.
> > Honouring my promise here is my attempt.
> >
> > It is an example of proceeding from a subjective view of the
> markets
> > (theory, intuition, guess, hunch etc) to an objectively verified
> > hypothesis that could form the basis of a trading plan.
> > It is intended as an introductory topic to trading.
> >
> > I dedicate this post to all mathematicians past and present.
> > God knows why he/she didn't include me in that group; it appears
> > he/she had other plans for me.
> >
> >
> >
*******************************************************************
> > General Theory (of market relativity) No1.
> >
> > The behaviour of markets in the major western cultures is
similar
> > (USA, Australia, UK & others?)
> > The markets are moved by institutional investors who control the
> > major portion of the money.
> > Institutional behaviour has characteristics that can be utilised
> by
> > freelance traders.
> > Institutional investors are people and will exhibit some
> behaviours
> > typical of people in general.
> > Based on personal observation of institutions, people and people
> in
> > institutions I expect markets to exhibit some of the following
> > behaviours to some extent:
> > ( I don't comment on other markets because I haven't lived in
> those
> > countries and don't understand the psyche the way I understand
the
> > psyche of the above group. That doesn't place any relative value
> > judgement on other cultures).
> >
> > Institutions have budget cycles (weekly, monthly, quarterly,
> yearly?)
> > Institutions are bound by rules of governance and obligations.
> > It is not in the interests of institutional players to stick
their
> > heads up out of the trench.
> > Institutions set employees targets which are benchmarked against
> > industry norms.
> > People have short memories.
> > People *work* from Mon-Fri, 9-5 .
> > People get Mondayitis and Fridayitis.
> >
> > There are many more similar observations.
> > I have only provided a few as examples.
> >
> >
>
********************************************************************
> >
> > Hypothesis derived from General Theory No1.
> >
> > The markets will behave differently on Mondays compared to
average.
> >
> >
>
********************************************************************
> >
> > Verification of the Hypothesis.
> >
> > The following is summarised from R.W Colby's *Encyclopedia of
> > Technical Market Indicators*, published by McGraw-Hill.
> > The original is from the writings of Arthur A. Merrill author of
> > *Behaviour of Prices on Wall St*.
> > It is presented for educational purposes.
> >
> > The Chi-squared test ( a statistical method) is used to tell us
> how
> > reliable an indicator is and if the patterns exhibited by data
> could
> > have been produced by chance.
> > The source of the data that the test is performed on is not
given,
> > which means that the results are not independently verifiable by
> the
> > forum.
> > On that basis it is only provided to demonstrate the principles.
> >
> > Trading from 1952 to 1983:
> >
> > the number of Mondays when the market rose was 669
> > versus Monday falls 865
> > (1534 in total).
> > Average for all trading days = = 52.1% updays.
> > Expected rises for Monday = = 52.1% x 1534 = = 799.
> > Expected downs for Mondays = = 47.9% x 1534 = = 735.
> >
> > Using the absolute of the (actual ? expected) values for up/down
> > days the Chi-squared test (with Yates correction) for
statistical
> > signifance returns the value 43.81;
> >
> > (((abs(a1-e1) ? 0.5)^2)/e1) + (((abs(a2-e2) ? 0.5)^2)/e2)
> >
> > (((abs(669-799) ? 0.5)^2)/799) + (((abs(865-735) ? 0.5)^2)/735)
=
> =
> > 43.81
> >
> > Based on the Chi-test score there is less than one chance in
1000
> > that the observed outcome for Mondays was due to chance alone.
> >
> >
>
********************************************************************
> >
> > Please note!
> >
> > I can't comment on the veracity of the Chi-squared test.
> > I will have to leave that to the mathematicians and rightly so.
> > I provided the example only to stimulate debate or interest in
> > statistics as a powerful trading tool.
> >
> > The general theory of the market is my own personal view.
> > I have not verified the above results myself nor have I
attempted
> to
> > develop a trading system based on a Monday trading cycle, or any
> > other calender cycle for that matter.
> > I have, however, successfully developed and tested a trading
> system
> > based on another hypothesis that was derived from the above
> > GeneralTheory.
> >
> >
> >
> > BrianB2......<:-)......(the last of the coneheads?).
> >
> >
> >
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "brian.z123" <brian.z123@>
> > wrote:
> > >
> > > Statistics for traders.
> > > Can anyone recommend a book on statistics written specifically
> for
> > > traders or that applies statistical methods to trading
examples?
> > > I am looking for an author who has done a good job on the
> subject.
> > > Even if it is only a section of a book that would do provided
it
> > > goes beyond a superficial treatment of the subject.
> > >
> > > For anyone interested here is a link to a very good
introduction
> > or
> > > refresher for statistics.
> > > The HTML *book* takes your from 0-50kph in approx 100 pages.
> > > Please note; the site does contain a lot of advertisements but
> it
> > is
> > > also a mini portal for stats and it does have links to free
> > > statistical stuff and free tools.
> > >
> > > Outside of writing indicators I find statistics to be one of
the
> > few
> > > maths disciplines that has a high degree of relevance to
trading.
> > >
> > > http://davidmlane.com/hyperstat/index.html
> > >
> > > BrianB2.
> > >
> >
>
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