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I agree whole heartedly with Kent regarding have a stop in place and a clear
idea of when the market would prove you wrong before you enter a trade.
Cash tends to give one perspective on a stock that is not available when you
have a position in it. My major errors with the recent decline came from
loosing sight of the big picture and trading in and out without a clear
analysis of what I was trying to accomplish. I based a number of trades on
fear, greed and an inflated view of my competence rather than dispassionate
analysis.
In terms of systematic trading, one of the major lessons from the Three Mile
Island Nuclear accident was "believe your indications". In other words, if
the meters and dials tell you that your power plant is melting down, act
like it is and put it in a safe configuration. Likewise, if you have a
statistically valid trading system and it tells you the market is melting
down, act accordingly and place your account in a safe configuration. Don't
rationalize why the system is wrong this time. Even if its wrong, you won't
loose money if you get out and the market will be there tommorow.
At the risk of beating a dead horse, statistically valid trading systems are
dificult to develop with Metastock because it cannot test systems against
multiple securities. Don't get me wrong though, it is excellent for over
optimizing and fitting a system to historical data for a single security.
I tend to use patterns and prices rather than indicators and systems to
guide my trading. Trendlines are a powerful tool for identifying trend
reversals on a variety of time scales. I look for the price to form a
characteristic "W" pattern when a trendline is violated. First, the price
moves through the trendline, then it makes a recovery back towards the
trendline and then it resumes its decline (or rise)in the direction of the
trendline violation. I enter once it is pretty clear that the decline (or
rise) has resumed. An example of this pattern is forming as I type. A
downtrend line for QQQ drawn from its recent all time high was violated a
few days ago. Yesterday and the day before, it retraced back towards the
trendline forming what may be the second point on the "W". If this second
point holds, it could indicate a trend reversal. The book "Trader Vic;
Methods of a Wall Street Master" introduced me to this technique. It is
available for 15 or 20 bucks which is cheap for a trading book.
Dan
>From: "Kent Rollins" <kentr@xxxxxxxxxxxxxx>
>Reply-To: metastock@xxxxxxxxxxxxx
>To: <metastock@xxxxxxxxxxxxx>
>Subject: Re: Lessons Learned From Market Downturn
>Date: Thu, 4 May 2000 13:38:51 -0400
>
>"Yes, the markets really tanked. I'm just fortunate I followed my trusted
>rule of **always** selling when the _____price of the stock_____ indicator
>went below
>_____stop that I entered when I bought the stock_____ level."
>
>"Frankly, I don't plan on re-entering those particular securities until
>the
>_____lump in my throat_____ indicator drops below _____knot in my
>stomach_____ again!"
>
>You can't trade the markets mechanically like you're asking unless you have
>a system that is a winner and if you had such a system, it would have told
>you when to sell and when to buy back in. Frankly, I think the bulk of the
>selling is done. If you listen to CNBC, you will hear that many fund
>managers are totally confused on the markets or have large cash positions.
>This is a good sign. In addition, cash is still coming into the markets in
>the form of savings. This means continued upward pressure. But probably
>not like it was during the last 6 months. I'm currently 115% long. Of
>course, historically that is a bad sign.
>
>Kent
>
>
>-----Original Message-----
>From: Nicholas Kormanik <nkormanik@xxxxxxxxxx>
>To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
>Date: Thursday, May 04, 2000 1:16 PM
>Subject: Lessons Learned From Market Downturn
>
>
>
>It's likely that over the past couple of months many here have had some
>important lessons reinforced.
>
>I'm hoping that some of you 'senior' members wouldn't mind filling in the
>following blank lines....
>
>"Yes, the markets really tanked. I'm just fortunate I followed my trusted
>rule of **always** selling when the _____A_____ indicator went below
>_____B_____ level."
>
>"Frankly, I don't plan on re-entering those particular securities until
>the
>_____C_____ indicator rises above _____D_____ again!"
>
>Thanks in advance for sharing your ideas. I hope some interesting and
>helpful discussion is generated from your input.
>
>I personally am still a 'freshman,' and continue to look for these answers.
>
>Nicholas
>
>
>
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