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Schwager's Technical Analysis text contains a summarized list of the kinds
of principles/rules you've summarized. It also contains other gems.
Steven Buss
Walnut Creek, CA
sbuss@xxxxxxxxxxx
-----Original Message-----
From: Jack Velte <jackv@xxxxxxxxxxx>
To: metastock-list@xxxxxxxxxxxxx <metastock-list@xxxxxxxxxxxxx>
Date: Thursday, October 23, 1997 8:06 PM
Subject: Trading w/ the New Market Wizards
>
>>I'm sure that I will never make a bigger contribution to this thread (and
>to
>>this list) than to strongly recommend the following books by Jack
Schwager:
>>
>>- The Market Wizards
>>
>>- The New Market Wizards
>
>i read the "New Market Wizards." it inspired me to try trading. i stunk
>and gave up after several months. i was flat, which was good, but not so
>good for hard daily work. i did Not use meta-stock, and one of the lessons
>of the book was winners had some kind of mechanical system they followed
and
>tried not to second guess.
>
>i liked the book so much that i wrote up a synopsis of important 'facts'
>gleaned from the book. if there are multiple asterisks (**), then more
than
>one trader gave this identical advice. i hope you enjoy this....
>
>TECHNICAL
>price movements are statistically significant, e.g., median extent
>for an intermediate swing in dow during bull market is 20%. if up
>20% in 107 days, this is medium historical magnitude and duration of
>an upmove.
>when there is a tax proposal or other legislative uncertainty, get
>flat immediately.
>with big trades, cut position immediately if not making money right
>away.
>trade big when winning, small when losing.
>identifying trends:
> 1: wait for uptrend line to be broken. (draw line from lowest low
>to highest low immediately preceding the highest high.)
> 2: then look for unsuccessful test of recent high. if previous high
>is penetrated before it falls back, this is often the absolute high &
>reliable.
> 3: third sign of trend change is downside penetration of most recent
>relative low.
> ... these trends are because of the ways stops are placed by traders
>on the floor, setting them at recent relative highs/lows.
>don't protect profits as much as losses. once a trade is winning, let it
>ride
>to maximize profits.
>be flexible enough to switch to markets that provide the best trading
>opportunities.
>human judgement in a system is "unbelievably detrimental."
>deep out-of-the-money options can be a good investment for takeover
targets.
>covered calls are stupid -- equivalent to selling a put, except with two
>commissions. "a guaranteed inferior strategy."
>options trading: oex raes (remote automatic execution system) forces
>traders to take other side of option contracts [10 contracts or
>less]. in volatile markets, small buyer can beat the market selling
>into this system.
>each trade should be about 1% of total equity. always trade at a level
that
>seems too small.
>200 day moving average is good indicator. (returns 18% over last 50
years.)
>predetermine your exit point before doing the trade.
>if you find yourself praying about a position, liquidate it immediately!
>a good trader sticks with his own ideas and doesn't ask for advice.
>markets are critically influenced by what stage in the market they're
>in: early, middle, late bull/bear.
>bottom of market: volume on low is light & strong bearish feeling but
>little downward movement on bearish news.
>107 days is historical medium of up trend without a decline of 15
>days or more.
>if market is up 25% in one trend, 87% chance it'll come down an equal
>amount.
>trade less in highly volatile markets to limit losses.
>most trades can't be predicted more than 10 days out.
>get out based on price action, not magnitude.
>getting a good entry price gives time to see how the market is going.
>with volatile issues, 2-4 days of increasing/decreasing price signal
>relative high/low.
>don't try to make a profit on a bad trade, just try to get a good
>price getting out.
>smallest positions tend to be neglected and cause big losses.
>indicators should be weighted 0 or 1. if they are good enough to be
>included then they should be equally weighted.
>four indicators is a good number. too many results in 'over-fitting' of
the
>data.
>only buy a stock when there is stability in price action (from chart).
>stocks that have large one day move tend to keep moving in that
>direction: buy on very good news, even if stock is at new high. sell
>on very bad news, if the news fundamentally changes outlook for
>company.
>stock's relative strength should be in top 10-20% of market.
>the more the market covers a stock, the less opportunity.
>price follows growth -- pick stocks with the best growth potential.
>it's marginally profitable to buy a market with high bullish consensus.
>people like stops right above the high and below the low of the previous
>day.
>put your stops 10 points higher or lower than the market.
>moving averages work. **
>do not work: fibonacci retracements, gann angles, rsi, stochastics.
>stocks: bank stocks - key fundamental factor: earnings
>stocks: chemical stocks - key fundamental factor: capacity
> buy when capacity has left industry and factors will increase demand.
> sell when lots of plant construction started.
>weak market:
> fed tight.
> dividend yield (2.6 % is low).
> price/book ratio high.
> if market strength mostly in high cap stocks.
> if dollar is weak -- fed tightens money supply.
>stock market accelerates on downside when upward parabolic curve is
>broken. (1929, 1987, 1997?)
>time market with liquidity considerations (fed)
>MONEY MANAGEMENT
>trade sizes: ease in and out of the market. when you are very
>convinced, take a large position.
>danger level: SP futures levels? people buying on margin?
>--------------------------------------------------------
>missing an important trade is a more serious error than making a
>wrong trade. ??
>don't buy on localized weakness -- if the trade is good, buy now.
>commodity: sharp downturn (2 weeks) followed by (1 week) sideways =>
another
>sharp price decline.
>currency: sharp upturn on news (of price holding at a certain price)
>and then sideways resistance at that price. ...i.e., virtual locked
>limit up ==> sharp price rise through resistance level.
>analyze your past trades to find out what works and what doesn't.
>stop loss: 1.5 % loss -- out of trade. 4% down in a day, exit and
>quit for the day. 10% loss in a month, exit and quit for the month.
>at beginning of month, determine the maximum position size willing to
>take.
>round numbers are critical price points. they 'attract' buying or selling.
>judge if the market is going through the 'round number' by "listening to
>noise on the floor." [is live web feed available? (for $.)]
>study charts of history as far back as possible. charts should be
>interpreted with current economic cycle position factored in.
>use limit orders to not pay the bid/ask price. [this works.]
>"the public always likes to be long." [yup.]
>trading: watch how the market reacts to fundamental information.
>be in the trade during the main move -- don't catch highs and lows.
>foreign exchange is about relationships:
> * ability to find good liquidity.
> * ability to be plugged into information flow.
> ... talking to bankers around the world.
>currency: take G7 meetings seriously.
>currency: be on the opposite side of central bank intervention.
>risk control:
> * diversify
> * understand the risk/reward ratio of the trade NOW, not where it was
> when you started.
>don't jump out of a [generally fundamentally correct] trade because
>of *transient* negative news.
>
>
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