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Title: Message
dear
super,
everything you write; especially these days, is a masterpiece at least. i
would sign whatever these posts say without any doubt.
in
order to support the timing and training costs you say, i have tested the same
axioms in an other, smaller financial market, besides where the market would
definitely lack free market and invisible hand concepts, the values match one to
one.
it is
just like the three sgima rule that we all learned in our stats classes, these
results can be said to be independent of an individual independent of the
conditions.
if i
had these views or if someone would kindly well communicate these to me as you
are doing right now, i would hardly get into trading but invest in a very well
masters degree maybe, which i would again continue with a
PhD.
all
the people in this group are really really lcky to read you. and i mean
it. i wish i read you 6-7 years ago : )
beware
of faith and destiny issues...
regards,
torque
No
question these are matters of style and strategy. I took a
different
approach to trading before I started doing it for a living.
When I had
other sources of income I wasn't nearly as conservative and
of course, I
wasn't as consistent either. I didn't need to be because
I could easily pay
the bills and replace any money that I lost.
The information in my
posts is not suppose to be taken as a matter of
fact, but only as a look at
what someone else is doing. Nothing in my
posts say that these methods are
the right way, the only way or the
preferred way to trade. Hardly.
I was reading a trading book this weekend in Barnes&Noble. I
can't
remember the name of it. (I'll look later, and get another piece
of
cheesecake while I'm down there.) In the first chapter, it said
that
it takes someone 3 to 5 years to learn to trade well enough to make
a
living at it, and it's going to cost them $50,000 to $100,000
in
tuition money to reach that point.
I agree with that statement
except I would have added 3 to 5 years
working at it at least 4 to 8 hours
a day. I've often said that
getting an MBA from Harvard is cheaper, and
that it takes less time
and less work. (I've already explained in previous
posts how nearly
anyone with a high school diploma can get into Harvard, so
getting in
is not an excuse.)
For most people on here, trading is a
hobby. That's a whole different
topic, and it should be approached from a
different perspective.
A lot of people dabble with trading for a
couple of years, have some
modest success and then decide to jump into it
full time. Big mistake.
Another thing that attracts too many people to
trading is the gambling
aspect of it. They want to make a big hit, get rich
quick or whatever.
That's why they don't want to consider the Harvard
approach. That
looks like work.
The point is that if someone is
going to achieve wealth at all, it is
going to be built slowly. Sure there
are exceptions. There are about
as many exceptions to that as there are
janitors that have won the
lottery. So if you want to build wealth quickly
and easily, buy
lottery tickets and be one of the janitor exceptions. It
takes a lot
less time and energy than trying to do the same thing trading.
In hindsight, if I had it do all over again, I wouldn't have
gotten
into trading, I would have applied the techniques from the The
Four
Pillars of Investing and used a buy and hold strategy with the
correct
asset allocation. I'm not saying I would have skipped trading
because
I didn't make more money from trading than from buy and
hold---(the
majority of people don't make more, especially after tax)--I'm
saying
that because I underestimated the amount of time it was going to
take
me to achieve those results.
On an after tax basis, I'm ahead
of the the buy and hold strategy but
for me, I didn't make enough extra
money to make it worth the time.
It's a question of thresholds. My question
is "am I going to make
enough money to change my life in meaningful ways as
compared to the
time it takes to do it?"
I enjoy the intellectual
aspects of trading, no question, but I would
have also enjoyed spending
time with my other interests, which have
been neglected because of the time
I spend trading. If all I had to
keep me busy was watching the Oprah show,
that's a different issue.
The one good thing, outside of income, that
has come from my
investment of the time in learning to trade is I feel I
could make
money under any economic conditions. That's a good thing.
The smell of money is a powerful seducer. It can make you do all
kinds
of things you shouldn't be doing. Be careful when the smell waffs
into
the room.
--- In
equismetastock@xxxxxxxxxxxxxxx, mgf_za_1999 <no_reply@xxxx>
wrote:
> First of all, thank you super for taking the time to answer.
> Specifically, regarding your previous posts as well, thanks for
not
> shunning detail but really giving something to chew on.
Again, it
> will take time to digest all of this and will greatly add to
my
> arsenal of market weapons if you want.
>
> Look, I
don't trade for a living. I'm part of a team that builds
> models
for a living, a lot of them for financial markets. I once saw,
>
in 1996, a trading firm make in one day, while we train them in using
>
a model built for them during the previous three months, and using
>
this model, more money than our whole consultation fee for that
>
period. Since then I've been more active in the market - sometimes
on
> a full time basis - after having traded only a little bit
before. I
> had to figure out answers to these types of questions
with very little
> experience and very little guidance and access to a
forum like this
> would have helped me quite a bit.
>
>
Obviously these questions are not directly related to building
>
technical trading models - as you observe - they are style related
>
questions. If this bothers anybody, super in particular, he does
not
> have to answer them and I'm prepared to live with that - style
is
> quite a personal issue. But I've learned to ask these kind
of
> questions and to value the answers from experienced people.
But I
> trust super's answers were neither forced, nor off topic and I
believe
> they deal with issues relevant to this group.
>
>
Regards
> MG Ferreira
> TsaTsa EOD Programmer and trading model
builder
> http://www.ferra4models.com
> http://fun.ferra4models.com
>
>
>
>
>
>
>
> --- In
equismetastock@xxxxxxxxxxxxxxx, "dr.torque"
<drtorque@xxxx>
wrote:
> > dear mg,
> >
> > would you also reply the same questions that you asked?
>
>
> > personally, i believe that these questions being 100%
dependent on
> the style
> > of your trading -the answers would
not fit any average trader- it is
> also as
> > dependent on
the market you are trading. i doubt the technical
> knowledge of
>
> anyone trying the very same indicator to any two markets without
>
changing
> > the parameters.
> >
> > by
these questions are you trying to analyze "a" winner's trading
> style,
or
> > just looking for a point to critisize a "winner's"
style?
> > anyways, both lacks a point i believe..
> >
> > torque
> >
> > -----Original
Message-----
> > From: equismetastock@xxxxxxxxxxxxxxx
>
[mailto:equismetastock@xxxxxxxxxxxxxxx]
> > On Behalf Of
mgf_za_1999
> > Sent: Monday, May 09, 2005 2:10 AM
> > To:
equismetastock@xxxxxxxxxxxxxxx
> > Subject: [EquisMetaStock Group]
Re: optimize--MG's question
> >
> >
> > Hi
superfragalist,
> >
> > I am still working through this,
chewing on the many interesting bits
> > and pieces in here.
Some things I don't agree with, some I would
> > change but for the
most part, this is very informative, very good and
> > well worth
applying in trading. The one thing I would want to
> >
recommend is that you be less biased towards long and equally prone to
>
> keeping short positions! With that out of the way, I most of
all
> > appreciate the fact, pointed out here, that this is what you
do for a
> > living! Now, really as a matter of interest, but
also to get some
> > practical guidance, could you please ellaborate
on the following
points:
> >
> > - Do you think markets
have become easier or more difficult to trade?
> > Given the
'online', real time environment we operate in coupled with
> >
powerful software such as Metastock, trading should be easier. But
is
> > this offset by an increase in volatility? Or
whatever?
> >
> > - How much time do you spend analysing
the markets. Is it a 24/7
> > thing, two hours a week, one day
a month? Do you spend more time when
> > you make/loose money,
in up- or downtrends or at say month end.
> >
> > - How
long do you keep a position? Of course, 'it depends', but I
> >
once talked to a trader, I guess in a similar situation as you, who
>
> would be very uncomfortable to keep something for more than say two
or
> > three days. He knew this and easily shared it. So
if you have
> > something there, let us know.
> >
>
> Thanks a lot for your inputs.
> >
> > Regards
>
> MG Ferreira
> > TsaTsa EOD Programmer and trading model
builder
> > http://www.ferra4models.com
>
> http://fun.ferra4models.com
> >
> >
> > --- In
equismetastock@xxxxxxxxxxxxxxx, superfragalist <no_reply@xxxx>
>
> wrote:
> > > Good afternoon, MG. Your questions are
interesting ones as usual.
> > >
> > > Because of
your major contributions to the forum, your
background and
> >
> your experience, I would like to respond to all of your
questions
with
> > > a reasonable amount of detail, which would probably
provide more
> > > energy for further discussions that might
benefit others as well as
> > > ourselves. However, I am somewhat
limited in my detail as a
result of
> > > having to respect
Roy's newsletter and the people who pay a very
> > > modest fee to
subscribe.
> > >
> > > I agree that subjectivity in
a trading system is a tricky subject.
> > > I've always believed
that a mechanical system is highly unlikely
to be
> > > traded
as a strict mechanical system when that system is in the
hands
> >
> of an individual. It's very difficult to remove judgement or
emotion
> > > from someone who is not only executing the system
but tracking it's
> > > performance with their personal funds.
Anyone who has the iron will
> > > and stomach to stick strictly
to a mechanical system as the
drawdowns
> > > grow, is someone
who has the discipline to trade without such a
> > > system. I
think various research projects by Future's Truth Magazine
> > >
has shown this to probably be true.
> > >
> > > On
the other hand, mechanical systems make sense for money managers
> >
> with larger amounts of capital and staff resources. The corporate
>
> > structure is usually diversified, disciplined and monitored
>
> > sufficiently to get the best from a mechanical system.
> >
>
> > > For me, I feel the human mind is the fastest, most
flexible CPU
there
> > > is and I don't want to remove it from
my decision making even though
> > > sometimes the human CPU can
be significantly disrupted by all
kinds of
> > > events.
Unfortunately, I don't see Kalman filters as an indicator of
> > >
how much I should train my neural nets. Everyone in my family thinks
>
> > they're in charge of that task.
> > >
> >
> In my trading, I look for four kinds of markets:
uptrends,
downtrends,
> > > consolidation with leadership in
tact and consolidation with
rotation.
> > > Consolidation
includes sideways markets, normal pullbacks and
various
> > >
other gyrations that aren't trends.
> > >
> > >
Regardless of the market conditions, I use the same methods for
> >
> finding my prossible trades. Mine is a combination of TA, quants
and
> > > fundementals along with a pure TA exploration that is
very
effective.
> > > I don't vary that technique because I
haven't found a method that
> > > produces a better pool of
candidates.
> > >
> > > The size of the pool of
candidates changes as market conditions
> > > change. In an
uptrend, I'll find 50 to 100 trades that look
> > > reasonable. I
have a set of chart rules that I use to evaluate which
> > > of
those candidates I'm willing to take a risk on. My chart rules
> >
> don't change according to market conditions, either.
> > >
> > > In a consolidating market with leadership in tact, the pool
of
> > > candidates might shrink to less than half as many as when
the
uptrend
> > > is clearly visable. Obviously downtrends stop
my long trading
and I go
> > > short. Markets consolidating
with rotation, or alternatively
that are
> > > directionless,
calls for no trading, or very, very short holding
> >
periods.
> > >
> > > How much subjectivity is there
in the chart rules? I would say that
> > > there is little
flexibility and subjectivity in creating the pool of
> > >
candidats, but somewhere in the area of 40% in the evaluation of a
>
> > chart as to which of those possible trades to take.
> >
>
> > > I've used systems testing to create the part of my
system that
selects
> > > stocks for inclusion in the pool.
I've tested that system in all
four
> > > market conditions and
I know the trade statistics that are likely to
> > > occur in each
case. I've developed a method for figuring out which
> > > market
condition exists, and I have a pretty good idea of what to
> > >
expect from the pool based on how I see the market at that moment.
>
> >
> > > However, when the 40% (plus or minus of course)
subjectivity comes
> > > into the final selection of which stocks
to buy, then the systems
> > > tests are of little value. I've
figured out those trading statistics
> > > by analyzing the final
trading results. This gives me feedback
on how
> > > my chart
reading rules are working.
> > >
> > > I have a
standard chart template I use to look at stocks. I only
use a
> >
> couple of indicators to confirm what I think I'm seeing. While
I
don't
> > > use the indicators as a reason to buy, I
sometimes use them as a
> > > reason not to buy. I'm mostly
looking at price volume action,
with the
> > > indicators as a
back stop in case I'm reading that wrong.
> > >
> > >
In addition, to the total number of stocks that look like
good
trades
> > > changing according to market conditions, my
rules for size,
exits and
> > > stops change also.
>
> >
> > > If the market is in an uptrend like it was in Nov
and Dec of 2005, I
> > > use longer MA's, loser stops and less
rigorous exits. In January I
> > > tightened the stops and exits
and shortened the MAs. In April I
didn't
> > > trade. My
holding periods change accordingly as you would expect.
> > >
> > > I'm mostly a long only trader. I do short the indexes when
I see a
> > > downtrend, but I'm even more conservative in my
shorting. With
> > > commissions so low and execution times so
high, there's little
> > > economic reason not to be conservative
when it so cheap to buy
back in
> > > if you're stopped out too
early. It takes some degree of
discipline to
> > > go back to a
trade after being stopped out, but my number one
rule is
> > >
don't lose money.
> > >
> > > I have to live strictly
off of the returns on my capital account so
> > > preservation of
my capital account is a rule with zero
subjectivity.
> > >
> > > A lot of people want to automate the chart reading criteria
that
I use
> > > to narrow my lists of trades among the choices
I have. I don't think
> > > that works very well because the
subjective evaluation is
necessary to
> > > respond to
different market conditions and to consider all of the
> > >
variables and their constraints.
> > >
> > > If you
read Roy's newsletter you will see how Pareto's principle and
> >
> my education in the mathematics of operations research has
shapped
> > > what I do. I have an explanation in there about why
I don't believe
> > > maximization or minimization despite the
high usage of these
> > > principles in econometrics and
production management. (Even an
> > > excellent, expert,
programmer such as yourself would find some
> > > interesting and
new things in there. I do and have increased my code
> > > library
a lot because of it. You would even get a few new systems
> > >
develop ideas out of it.)
> > >
> > > I don't
optimize much using the systems tester. As I said in my
other
> >
> post I optimize mostly to evaluate robustness. I use the systems
>
> > tester as a relative comparison and to figure out how much
the
trading
> > > statistics change from one market condition
to another.
> > >
> > > When I do optimize I
optimize the sytem to perform the best in
> > > uptrends, and then
I add rules to restrict it's ability to trade in
> > > other
market conditions.
> > >
> > > I do not feel that
optimizing or testing across a wide range of
market
> > >
conditions as a means of optimization is a good idea. I do
test
across
> > > several years to look at overall systems
performance, but I also
test
> > > year by year to correlate
the performance with the market
conditions.
> > > I also test
on various subsets of the universe of stocks. I use in
> > >
sample and out of sample data, especially when I want to
evaluate
the
> > > performance of the system in a particular market type,
or to
determine
> > > the effectiveness of my filters at
preventing trading when the
trading
> > > statistics for that
market condition are below my acceptable
> > thresholds.
>
> >
> > > I see trading as more about strategy than about
indicators so I
don't
> > > waste a lot of time with
indicators. Trading to me is the management
> > > of
probabilities. Unfortunately the mathematics of probability
is one
>
> > of the hardest math techniques for people to understand. Too
many
> > > people assume they understand probability because they
can get a
feel
> > > for a one in ten chance or 40% losers and
60% winners. To me, that's
> > > not probability, it's performance
statistics.
> > >
> > > As you know, probability is
understanding independent events and
> > > dependent events and
how to determine the possibility of different
> > > combinations
occuring.
> > >
> > > Well, this is a long post so I
won't go into any more detail. The
> > > detail and code is in
Roy's newsletter, but I hope that this
much of a
> > >
discussion has at least been worth the time it takes to read it.
> >
>
> > > This stuff works for me. Obviously there are thousands
of ways to
> > > trade. I've looked at as many of them as I could,
and what I do
is the
> > > best fit for me, and it produces
great results on my scale of
results
> > > measurements. My
three primary requirements are: don't lose money,
> > >
consistency is more important than big numbers, and make enough
to
pay
> > > the bills and increase my capital account to offset
inflation
and any
> > > slips in rule number one.
> >
>
> > > Thanks again for your contributions. While a lot of
them are way
over
> > > my head, I'm sure many people
appreciate the time and effort it
takes
> > > to post
them.
> >
> >
> >
> >
> >
> >
> > _____
> >
>
> Yahoo! Groups Links
> >
> >
> >
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>
>
> >
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