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>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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