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Sometimes it feels good to age.
AlexAtreides.
--- superfragalist <jackolso@xxxxxxxxxxx> wrote:
>
> Someone asked about a system recently and said it
> seemed to work well
> when the markets were trending upward, but not so
> good when they
> weren't.
>
> No surprise there. Most newbie's don't understand
> how the
> trend really works, and how it impacts systems, both
> for trading and
> for development, so I thought I would share a little
> experience and
> opinion.
>
> I'm very sure there are some of you who won't
> believe what I
> write, and that's fine. You're free to do things
> anyway you
> want. After all it's your money.
>
> I don't want to write a book in order to educate the
> one or two
> people who will read this so I'm going to be as
> brief as I can
> and then you'll have to figure out the rest based on
> what I say in
> here. Also, I'm not going to put any lace on what I
> have to say. I
> usually don't anyway, but from now on I'm going to
> post a disclaimer
> saying you need to pay attention to information and
> not the style. If
> you are easily irritated by the style stop reading
> now, and don't
> waste your time (or mine ) with posts or emails
> about being
> politically correct. So here we go.
>
> Newbie's are very concerned about finding a system
> that works
> across a long time frame, etc. They are especially
> concerned about
> entries. They want to hit the entry as close to the
> turning point of
> a trend as possible. Both of those issues are a
> complete waste of
> time. The reality of it is when a market is trending
> either up or
> down, it really doesn't matter much what you are
> using for
> entries as long as you are entering in the direction
> of the trend.
> (Yes, this is true. Later I'll give you some more
> facts you can
> research on this.)
>
> A few simple trend indicators are all you need to
> see when to enter a
> trade. Entries during trends require almost no brain
> cells. You can
> see this from the nineties when everybody was a
> wizard trader, and
> then got wiped out in 2000 on. They just didn't pay
> attention to
> what I'm explaining to you in this post.
>
> Once we have our entry, the problem becomes one of
> exit strategy and
> money management.
>
> You should develop an exit strategy that works
> separately
> from the entry indicator. If you don't know how to
> do this, you
> can read many good systems development books by
> Chande, LeBeau and
> Kaufman. They discuss exits in great detail. They
> will also educate
> you on money management.
>
> Exit strategies are too numerous to discuss in a
> post.
> However, there is not such thing as the BEST exit.
> There are exits
> that work for your style of trading.
>
> To start the process of systems development, throw a
> few
> trend indicators on template and look at some
> charts. The do a few
> tests WHEN THE MARKET IS IN AN UPTREND. Most
> newbie's test
> everything across a broad range of all kinds of
> market conditions.
> That's doing things the hard way. They've heard this
> is a good way to
> test systems. Wrong! The only people who need to
> test a system that
> way are the people who are trying to get you to pay
> $3000 to $10,000
> for one. They want it work at least a little when
> the market is not
> cooperating so they don't have hear a lot of
> complaints. (If you
> want to read an interesting history of trading
> systems and the people
> who sold them, Bruce Babcock has a history section
> in his book The
> (Dow Jones) Irwin Guide to Trading Systems. After
> you read that you
> want ever consider buying one. It's got all your old
> favorites in
> there Gann, Wilder, etc)
>
> Since you're an individual trader and you've studied
> the
> systems development books I've recommended, educated
> your mind
> and finally understand how trading actually works,
> you can change
> what you are doing according to market conditions.
> When that's the
> case, there is an easier and more profitable way.
>
> First figure out the trend. There are several ways
> to do this
> and they're all easy. On a weekly chart you can use
> a 10 and 40
> week moving average. When the index of choice is
> above the 10 week
> moving average the market is in an uptrend. When the
> index is in
> between the 10 and 40 week moving average, it's
> whipping around,
> consolidating, and screwing you out of money. That's
> what it's doing
> in there. When it's below the 40 week moving average
> it's in a down
> trend. That's the easiest way to define things.
>
> You can also look at some set of moving averages on
> a daily
> basis, like the 4, 9, and 18 triple MA or something
> else close like a
> 5 and 20 EMA or SMA. It doesn't matter that much.
> Pick one.
>
> The dailies will tell you when a correction is
> taking place
> in an up trend or down trend market. If the long
> term market bias is
> up, but there's a correction going on, you will want
> to take
> shorts only and expect to hold them for a very
> limited period of
> time. This means use tight stops and don't let
> things run just to see
> where they're going to go. You only do that when the
> daily trend
> agrees with the long term trend.
>
> Okay, now we know how to determine the trend, what
> comes
> next? As I said, stick a couple of trend indicators
> on a
> chart—your choice of which ones—they all work about
> the same. There's
> no BEST one.
>
> See how they look on a chart with a few
> symbols---during a
> period of time WHEN THE MARKET IS IN A DEFINITIVE UP
> TREND. Then put
> them in your systems tester and test them on a bunch
> of stocks like
> the S&P 500. Use the same trend indicator formula
> for entries and
> exits—reverse the entry please—don't worry about
> exits at
> first. If the trend indicator returns a reasonable
> amount of money,
> has a rational number of trades, etc then you're in
> business.
>
> Next develop your exits. Exits need to fit your
> personality
> more than entries. What I mean by that is too many
> people look at
> what makes the most money and then they can't trade
> it because
> the draw downs, trade frequency or other problems
> cause them hysteria
> in the knickers. Pick exit strategies that you are
> comfortable with.
> Look at them on a chart. If you feel good about what
> you are seeing,
> put them in the tester. If the tester gives you
> reasonable results---
> even if they're less profitable than some other set
> of
>
=== message truncated ===
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