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Hi Jeff,
Most of the top traders (maybe all) spend a lot of time analyzing
various situations that give them a statistical and/or psychological
edge over the markets. On the purely statistical side, relationships
between markets and correlations or divergences are studied
closely. (intermarket) Massive testing is also done on ramifications
and applications using relative volatility (implied vs. historical) and
bar patterns such as inside bars, outside bars, reversal bars,
continuation bars and expansion bars.
On the psychological side, trader sentiment is measured in fear and
greed. This might be as simple as noting that an expansion bar in
the SP500 made on a Friday, and closing on its low will tend to gap
lower on Monday's open, or an intraday monitoring of tick volume and/or
pattern recognition. On the more complex side, some traders
use fractal theory and psychological matrices to detect extremes in
trading sentiment. this is just the tip of the iceberg, but it gives you
the idea....<g>
Depending on their methodology, they might then use this
information in short-term trading, options trading or longer range plans
like Dow or Elliot theory. Doesn't make much difference what the
vehicle is. Only that the premises are correct.
these types of methods generally give rise to relatively mechanical
forms of trade entry. Were I see good traders using most of their
discretion is in the exits. Sure they often have a mechanical exit
in mind, but if something doesn't look right, or they see something
they don't like, they get out NOW. Strangely, the same thing goes
if a market run suddenly goes heavilly in your favor. Got a couple
of huge expansion bars?? O.k. I'm gone, thanks.This is just a matter of
experience and being in the "zone".
Like any profession, after awhile, you get a feel for it.
Personally, right now I have this funny feeling about Soybeans......<g>
Walt Downs
CIS Trading
-----Original Message-----
From: Jeff Caplan <jeffwcbs@xxxxxxxxxxxxx>
To: omega-list@xxxxxxxxxx <omega-list@xxxxxxxxxx>
Date: Friday, August 14, 1998 5:04 PM
Subject: System v. Methodology
>Hi...
>
>A lot of interesting people here. After a week, and roughly 500 list
>messages, I feel like I'm getting to know some of you folks.
>
> True, I'm also learning about deflation, the existence of God, etc... but
> it's all interesting.
>
>Now that I'm comfortable with my surroundings... a question for
>everyone/anyone...
>
>Is there anyone out there who uses systems as a guide - a methodology- as
>opposed to blindly following buy and sell orders? I was intrigued by the
>quote from the shrink in Tech Analysis of S&C who says the most successful
>traders she's found are the ones who blend methodology and system work.
>
>The advantages of purely playing a system are obvious. What are the
>advantages of using discretion in order placement?
>
>Thanks for any input....
>
>Jeff
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> |X|
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> |X| Jeff Caplan WCBS Newsradio 88, New York
> |X| http://www.newsradio88.com/behindmic/jeffpat.html
>
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