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Here is my take on this question which is a typical newbie question or
thinking pattern especially from people who have some kind of
technical degree.
I've been trading stocks off and on for nearly 30 years. If you want
to see my background, you can read Roy's newsletter.
At any given moment in time around the world there are literally a
million people writing and testing trading formulas. Some are
individual traders, some work for bankers, some work for hedge funds
and a lot of them work for nothing.
A few bankers and hedge funds look for ways to exploit small
imbalances in the market. There are mathematical techniques that can
find opportunities to make a quarter of point on inefficiencies. And
the bankers and hedge funds spend many millions of dollars looking for
those inefficiencies and formula's. Unfortunately those opportunities
rarely, if ever, exist for the small trader and 99% of all other traders.
No one, including the bankers and hedge fund managers have ever found
any method based on rocket science, or rockhead science, to beat the
market consistently. Every avenue of quantitative, fundamental and
technical analysis has been examined in extreme detail by personal
computers, mainframes and super computers. It ain't happening for any
of them.
Every want-to-be trader coming into the game thinks they're going to
get rich primarily because they've read bull-shit stories written by
people selling trading products. Yes, there are a few, very few
people, who have the instincts and skills to consistently make money
trading equities. The key word here is consistency.
I get my butt chewed out every time I say that trading options is a
losing proposition or that futures traders eventually get their ass
handed to them, or that day traders will get wiped in the long run.
Someone pops up with a story about how they're making money selling
puts and calls or trading currency or toilet paper. Yeah, I know. Call
in 20 years and we'll talk about your track record.
Consistency is the problem.
In an uptrend when 60% to 75% of all stocks are rising my dog does a
great job of picking stocks. In fact I'm surprised at how often my dog
beats a lot of the TA systems I have sitting around in my computer. As
I've said in this forum before, my dog has been offered jobs at mutual
funds, but she has a problem showing up everyday so I've had to pass
on letting her do that.
Okay, the question is can an individual trader make money consistently
over the course of 20 or 30 years. Yes, I know a few who have done that.
Here is what I've seen to be successful.
1. Only trade when the market is in a state conducive to what you are
trading. If you are an equities trader trading long, trade only during
uptrends, etc.
2. Prescreen the universe you're going to trade from. In other words,
if you're trading equities only trade the equities someone with a very
long track record like Valueline, IBD, Ford Equity or Standard and
Poors has picking stocks with quant and fundamental analysis.
3. Use a very simple system to decide on what trades to make from the
prescreened universe.
4. Keep a lot of records, read a lot of charts and study the crap out
of what you are doing until your instincts are better at picking
winners than are whatever simple indicators you are using.
5. Study the overall market so you will have on the money knowledge of
when your trading strategy is going to perform well.
6. Learn to manage risk.
7. Stick with what you are doing until nobody on earth does it better.
8. Understand that making money takes time. Consistency, compounding
and performance over time beat trying to get rich quick.
As far as ARIMA goes, if it lights your fire okay, but it's not going
to make you any more money. In my opinion David Sepiashvili is one of
the best time series guys around.
http://www.alticom.com/indicators/applications.html
I've used and tested a lot of his stuff. It's nice, if it's your
personal preference. And it works pretty good in an uptrend. But as
far as making you more money, the rules I set out above will really
get the job done much, much better.
John Ehlers over at Mesa software has all kinds of indicators, books,
systems and other stuff you can buy based on signal processing
mathematics. John's a nice guy, knows what he is doing and sells a lot
of stuff. I like John, and I like David and his stuff, it's really
more about personal preference than performance. John's stuff works
well in an uptrend also.
I described some very simple systems in Roy's newsletter that work
really well (also in an uptrend). There was not one bit of rock
science in them, even though I understand the mathematics of rocket
really well. If it made money consistently I would use it.
People pick trading strategies based on their personality and
emotional make-up, at least the survivors do. Then they find whatever
feels comfortable and works, which means they apply the 8 concepts I
already mentioned.
Some people think that if something is complex it must be good. For
them there are the untestable and totally inconsistent Elliot Waves,
Murrey Math and Gann Charts. For other people, a simple 60 day high
and the right looking chart gets it done.
By the way the 2nd derivative of a polynomial equation that describes
a stock's price curve is a good way to rank stocks for future
performance. However, it's not nearly as good as the external relative
strength and all I have to do to get that is click on a tab key in
SpyGlass.
Have fun, whether you're winning or losing!
Super
--- In equismetastock@xxxxxxxxxxxxxxx, pumrysh <no_reply@xxx> wrote:
>
> Eric,
>
> Really thought you might have gotten more replies to this.
>
> So let's consider your question.
>
> First you comment that "there are so many financial institutions
> developing indicators based on complex Calculus formula."
>
> My question would be how do you know this? Are you being told this
> or have you actually seen the indicators?
>
> Realize that much about the financial world is pure hype...always
> has been and likely always will be. Why else do you think the SEC
> has so many watchdogs out there and is shutting down bogus
> operations.
>
> Next is the question of whether you need a complex formula inorder
> to make money. Take some time and study the countless systems out
> there. What you will find is that the simpler ones are usually the
> ones making the most money. So why do you need a complex formula?
>
> I've written and studied formula's for a little while now. What I've
> come to realize is that a lot about how the formula is written is
> based on the background and training of the individual doing the
> writing. A good case in point is a formula that I had worked on
> years ago. I thought the formula was just the stuff that
> millionaires were made of. A number of us played with the formula
> and realized that it was just a simplified version of a pre-existing
> formula. Years later an engineer came along and published a version
> of the same indicator. It was so strickeningly similar that he and I
> had conversations about his work. The difference in our versions was
> that his calculations were a bit more complex than mine but the
> final outputs were identical.
>
> Next thing to consider is that financial institutions usually don't
> look at a single stock. They are more concerned with the stocks that
> make up a market. Their concerns are related to the fundamentals. I
> doubt that you will find a financial institution putting very much
> money into a company that doesn't have an outstanding reputation and
> outlook. They are looking at such things as return on investment,
> projected earnings, sales and growth.
>
> Fundamental and Technical analysis are very different. They can and
> do compliment each other though. It is extremely wise to select a
> stock first on a fundamental basis then on a technical basis. Do
> this and you'll find the rewards to be far better.
>
>
> Preston
>
>
>
>
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, chichungchoi <no_reply@>
> wrote:
> >
> > There are so many financial institutions developing indicators
> based on
> > complex Calculus formula, does anyone have any suggestions what
> > advantage it is as comparing with OHLC indicator for Metastock?
> > Thanks in advance for any suggestions
> > Eric
> >
>
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