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Hi Stewart & RTs,
I agree with you completely.
The reason that a simpler system is usually better is that it makes
fewer assumptions. The assumptions made when designing a system must be
valid. A simple system has 2 or 3 assumptions. A complex system may
have 8 or 9. If a system makes money, great; if not, you have to go
back to your assumptions and find which one or which combination is
invalid. A false assumption (or a combination of false assumptions) can
wreck a system.
If you design a complex system and it is NOT working, then you are going
to have a hard time because finding which assumption (or which
combination of assumptions) is invalid in your system is very difficult
when your complex system has a lot of assumptions. This is a
statistician's worst nightmare.
The more assumptions a system make, the harder to fix the system if it
goes wrong. I learned this from statistics course and also from the
movie "Under Siege 2: Dark Territory" (Steven Segal).
Good trading!
Mervin
Stewart Taylor wrote:
>
> Quite of few of you have posted asking for some guidance in finding simple
> methods. I decided to post back to the list.
>
> I want to be thoughtful in my reply. Let me start out by saying that
> because something is simple doesn't mean that it is easy. To come to my
> simple style of trading, I have literally looked at hundreds of thousands
> of bar charts. My specialty is the bonds. For a period of almost 10 years
> I watched, traded and analyzed every tick that the bond market made. In
> short, I learned to read and see the bar chart for what it was.
>
> To find simple methods... you have to understand the chart (and understand
> that no matter how hard you study the chart there will still be plenty of
> times when the action and the setups are still unclear). When the chart
> isn't clear, there isn't a trade there. You must come to understand that
> every little tick and every little wiggle that a market makes doesn't
> necessarily mean something. I tell people all of the time that if you are
> living and dying and agonizing by the tick.... something is wrong.
>
> In my personal trading, I use bar charts from five minute to monthly. I
> use one oscillator (an exponentially slowed and smoothed stochastic)across
> all time frames. I don't pay much attention at all to the news and I don't
> really care about my big picture opinion (which I always keep for my
> clients). In short, I am looking for setups and I don't really care what my
> or anyone else's opinion in regard to a market is.
>
> Many of the old masters had it right. Bar chart action and setups from 100
> years ago are almost identical to those that are found today. Wyckoff,
> Schabacker, Edwards and Mcgee...Fibonacci targets and Replacements... if
> you wait for the setups, this stuff works and works well. It isn't sexy and
> doesn't make for exciting seminars, but it is sound, good work.
>
> Frankly, I wasn't always this way but now, when I see people applying
> mathematical thingamajorbies out to 47 decimal places and neutral fuzzy
> polynomial filters and spending weeks finding the right oscillator... it
> just makes my eyes glaze over and my knees feel weak. Im not saying that
> these things don't work. I have seen guys make money with some of the most
> complicated god awful systems and methods... but as long as they are
> comfortable with it so am. Frankly, there are lots of ways (many of them
> very good) to skin the trading cat. I have found an approach that I
> understand and that appeals to me and fits my personality.
>
> I love to take day and swing trades. When the one oscillator that I use
> gets overbought in the hourly perspective I start watching for bearish
> setups and reversals that occur in the 15 minute perspective that have a
> chance to turn into swingers (two to four days). By the way, before you
> start asking me for the oscillator... don't bother. I would be happy to
> give it to you (its just the old CQG stochastic), but any simple oscillator
> will work. There is nothing special about what I use. BUT: I understand my
> oscillator, what its strengths and weaknesses are and when it is likely to
> work and likely not to work. Frankly, the oscillator is the last of my
> crutches. It is simply a visual aid that saves me a couple of seconds of
> thought.
>
> One of my favorite trades is one of the simplest ones. I wait for a market
> to become overbought or oversold, I watch for a buying/selling climax or
> ending action in the perspective of one higher degree, and wait for a
> retest. I don't anticipate that a retest is going to result in a reversal
> so I typically use a trigger to stop me into the market. Monday in the
> bonds provided a good intraday example.
>
> Friday the bonds traded all over the board, but the upshot of it all was
> that my little oscillator was deeply oversold in the hourly perspective.
> Bonds had bounced off of weekly support on Friday, rallied sharply and then
> spent the balance of the day setting back toward the early Friday low. The
> angle of setback was less than the angle of the prior decline, the price
> spread on the set back was narrower and the tick volume was lighter. In
> short, supply was not as strong as it was on the initial push to the low.
>
> If the market was going to rally (and there was a lot of doubt in my mind
> that it could), the combination of deeply oversold and strong support would
> probably be enough to turn it higher for a few hours.
>
> The set back to the low left in place a very well defined decline. I was
> able to run a trend line along the highs of several hours worth of 15
> minute bars as the market set back. If price pushed above this line, the
> odds that the market had mounted a successful retest of Fridays low would
> skyrocket. Markets tend to wash out prior lows and run stops. I knew the
> trade would be even stronger and more likely to work if the market set a
> marginal new low, then pushed higher and took out the trend line. I placed
> a stop a 2/32 above the downtrend and moved it down a time or two through
> the morning.... Price slipped below Fridays low by 6/32 and the rallied
> strongly, took out the downtrend and triggered my entry stop. The market
> blew through the trigger, never put the trade in jeopardy for more that
> 3/32 after filling me and subsequently netted 15/32 on the day.
>
> These same kind of trades set up in all perspectives across a great number
> of commodities and shares. Again, nothing fancy....
>
> I know that this isn't exactly what you had in mind. But it at least gives
> you a starting place. Test - Retest - Trigger into thrust.... Strong
> thrust from a high or low, buy/sell the breakout of the first bull/bear
> flag that forms on the intraday chart..... watch for three drives to a high
> or low, run a trigger line beneath them and enter on the break.... Watch
> confluences of support and resistance for reversal bars and use the
> reversal to trigger in with a stop just above the high or low.... These
> are the kind of classic trades that work over and over and over again.
>
> Most of all, get out your bar charts and a ruler. Work from risk back to
> reward. Study the classics....
>
> One last thing... Whenever possible I attempt to systemize discretionary
> trading tactics. There are several setups, like the one in the
> illustration that can be set up in an almost completely non- discretionary
> manner. I have spent a ton of time taking as much of the decision making
> progress out of my own hands as possible. Once I recognize a tradable
> setup, I put my little set of rules to work.... I am stopped into the
> market, I immediately know where my initial stop is going to go. The
> largest part of my discretion then comes in the trade management end.
>
> One last last thing... you don't need a huge number of setups to work with.
> Three or four basic patterns across several futures markets and a few of
> the more active shares will make a pretty decent living.
>
> Hope this helps,
> Good luck,
>
> Stewart.
>
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>
> Stewart Taylor
> Taylor Fixed Income Outlook
> Voice: 501-219-9774
> Fax: 501-228-0963
> E-Mail: staylor@xxxxxxx
> Web Site: http://www.cei.net/~staylor/
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