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<DIV><FONT size=2>I should have included one other observation which I made many
years ago when studying historical trading patterns, particularly during the
bear market which started in the late 60's - impulsive (as opposed to
corrective) declines in bear markets are generally sharper and faster than
impulsive rallies in bull markets. This observation was confirmed
during over a decade of system building and testing. From a psychological point
of view, this is probably due to fear being a greater, more immediate and more
mass motivator than greed. This is one of the major reasons why systems
which do reasonably well in bull markets frequently fall apart in bear markets.
My final years of system building consisted of building hybrid systems which
incorporated independent bull and bear market components and a
switching mechanism.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Earl</FONT></DIV>
<BLOCKQUOTE
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
Earl Adamy
</DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A
href="mailto:realtraders@xxxxxxxxxxxx"; title=realtraders@xxxxxxxxxxxx>Real
traders</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Friday, October 01, 1999 5:48
AM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: OEX Swing m/c, Trading
sytems and markets</DIV>
<DIV><BR></DIV>
<DIV><FONT size=2>As usual, you have performed some original and solid
thinking. The point regarding change of clothes is a good one and one to which
I will return in a moment after a couple of comments on the
charts.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>#2 looks great in those nice long trends but whipsawed in
congestion - baring exceptionally long trends, MA crossover systems tend to
run huge drawdowns which will bury most traders because most traders are under
capitalized</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>#3 great example of point I made in #2. Quite logically you
propose that we switch to Swing Trading (or we can trade shorter time frames)
however some intelligence must make that decision and without those nice clear
MA's laid out, one can not readily see when the market has switched until some
long lag in time has take place.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>#4 more chop/chop in a nominally trending market and some
large drawdowns - I've run rigorous tests on MA systems and they plain out
fail in most markets. Colby and Meyers, who tested dozens of popular
indicators across a variety of markets found the same thing.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>#5 very tradable yet but not in the time frame displayed
using MA crossovers - a quick look suggests losses or perhaps a nominal profit
with some very large drawdowns which would bankrupt most traders</FONT></DIV>
<DIV> </DIV>
<DIV>
<DIV><FONT size=2>Back to the change of clothes - I live in a part of the
country which is generally sunny with moderate winters and cool summers
however the daily temperature range is significant. Obviously, a wide
variation in clothing is required. Yesterday, I wore two layers when I went
out to play golf at 7a (38d), stripped off a layer by 9a (55d), shorts
and short sleeve shirt when I went to town in the afternoon (72d), and slacks
and jacket when we went out in the evening (60d and falling). My selections
were based on a combination of experience, observation, and intelligence
acquired from weather reports. It would be rather difficult to build all of
this into a system.</FONT></DIV>
<DIV> </DIV></DIV>
<DIV><FONT size=2>Ultimately, in trading one comes down to system or
discretionary or some combination. Trading a variety of markets successfully
both long and short requires a great deal of human intelligence and
selectivity regarding the type of trading pattern (trading or trending),
market psychology, inter-market influences, and time frame. I think that the
point we were trying to make is that ultimately, most systems which have been
employed successfully in this great bull stock market, will crash and burn in
trading or bear markets - too many of them have been over optimized for a
trending bull market. But now we say ... we have to change tactics ... so we
must program the beast to be more intelligent or we must know enough to switch
to an alternate system or an alternate time frame. But then the market
psychology changes and we have to change tactics again. And then "established"
inter-market relationships change and we have to change tactics again.
Ultimately, we must either acquire a super trading model or we must learn
enough about price patterns, inter-market relationships, market psychology and
other factors so that we can apply our human judgement to the markets. Anyone
who has attempted to program simple price pattern recognition, which comes so
naturally to the trained eye, knows how difficult it is to develop that super
model. This is why the long term survivors apply some degree of discretion to
their trading - either in selecting which trading systems to use in which
markets or a fully discretionary methodology which does not rely on system
signals at all.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Earl</FONT></DIV>
<BLOCKQUOTE
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A href="mailto:OnWingsOfEagles@xxxxxxxxxxxxx";
title=OnWingsOfEagles@xxxxxxxxxxxxx>Gitanshu Buch</A> </DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A
href="mailto:realtraders@xxxxxxxxxxxx"; title=realtraders@xxxxxxxxxxxx>Real
traders</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Thursday, September 30, 1999 8:24
PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> OEX Swing m/c, Trading sytems
and markets</DIV>
<DIV><BR></DIV>
<DIV><FONT size=2>I'd like to take the other side of this debate, for
devil's advocate purposes - Clyde has not said anything so far in defense of
his 15 min swings posted this AM. </FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>I mean no disrespect to Ben and Earl, and I say that
specifically such that we focus on the merits and demerits of statements and
numbers being tossed around and not of the people stating them:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Lets start with this issue of system rigor (being good
through bear and bull markets).</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Intuitively, it provoked this reaction: How can one use
the same system for opposite polar phenomena? Isn't it kind of like saying
that cotton T-Shirts are the only top one should wear in summer and winter
regardless of where one lives, because cotton is the only "safe" fabric for
human skin.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Let us say we backtest and foretest and undertest and
overtest and find something that can capture every wiggle, penny, and
deutsche mark from anticipated price action. Aren't a few non-systemic
issues to be handled first?</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>For example, the issues of </FONT></DIV>
<DIV><FONT size=2>a. Timeframe of trade v/s efficacy of system</FONT></DIV>
<DIV><FONT size=2>b. Account capitalization and appetite for risk while in
duration of trade</FONT></DIV>
<DIV><FONT size=2>c. Opportunity cost of capital blocked in any specific
trade.</FONT></DIV>
<DIV><FONT size=2>d. Staying power (psychological fortitude to take system
triggers and follow-through on the trade day after tiring day)</FONT></DIV>
<DIV><FONT size=2>e. Plain old fashioned discipline, and the
willingness to stick it out through times that disturb the system's rhythms
and therefore our trading rhythm.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>I wonder how many of these can be simultaneously gamed
into a system. Any system. How can a computer program unknown human
behaviors? (Yes, I did some course work on this in my MBA Human Psychology
201 term paper).</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Assuming they can, how long is it before some
external dynamic changes the elegance of a 2, 3 or even 4
factor model?</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Clyde's SM (never used it myself) seems to pick probable
outcomes based on historical behavior. Where probability cannot be assigned,
he says so.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>We all know that just because something has a probability
number, the market does not need to oblige.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>So what are Ben and Earl talking about when they refer to
testing it in some bear market time periods? They have been here long enough
to know that Clyde has tested this swing thing back to 1914.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Ben says: </FONT><FONT size=2>start 01/11/1973
- 2/13/1980 (Dow only got back to
even!!!! after 7 years)<BR></FONT></DIV>
<DIV><FONT size=2>So I did a simple MA crossover system for that
period. One sells or buys on price closing below/above the MA, uses the
prior swing high/low as a trailing stop. Decent, during that period.
Indecent, during the only non-trend period. Monthly, Weekly,
Daily.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Learning: MA crossovers do not work in non-trending
markets. Change tactics.</FONT><FONT size=2> One size, we learn, does not
fit all.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Maybe the humint element will tell us that price behavior
has changed from trending to non-trending before the system shock
significantly damages our account and psychology.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Ditto when I look at 1963, as Earl suggests. Same system,
same result.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>And I'm not even swing trading.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Then I think to myself, heck, we trade bear markets in
commodities all the time. I know for a fact that Earl and Ben are
accomplished cross-market traders. Therefore, what is the big deal here
anyway ?</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>I am forwarding charts to illustrate my statements, since
pictures speak louder than words. </FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Once again, I am stirring up discussion to issues we seem
to be taking for granted (e.g. 1 or 2 systems should work in all market
patterns; or a deeper issue of a trader's (the subjective humint
factor) causes the trader more harm than good - hence the need for a system
to start with).</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>A bear market is a bear market. Wealth destruction is
never any good. But we are talking trading here. Does it really make a
difference where price goes, as long as we can capture the fallout of that
price move ?</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Comments welcome. Charts follow this email, separately due
to bandwidth restrictions.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Regards</FONT></DIV>
<DIV><FONT size=2>Gitanshu</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2> </DIV></BLOCKQUOTE></BLOCKQUOTE></FONT></BODY></HTML>
</x-html>From ???@??? Fri Oct 01 14:36:00 1999
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From: "comdytrd" <comdytrd@xxxxxxxxxxxxx>
To: "real traders" <realtraders@xxxxxxxxxxxx>
Subject: Fw: Letter from Brennan and Donovan on Eurex
Date: Fri, 1 Oct 1999 14:58:21 -0400
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-----Original Message-----
From: Bret Gallaway <BGAL46@xxxxxxxx>
To: MemberNet Message <membernet@xxxxxxxxxxxxxxxxx>
Date: Friday, October 01, 1999 2:36 PM
Subject: Letter from Brennan and Donovan on Eurex
>Following is a letter to CBOT members from Chairman Brennan and President
Donovan:
>
>October 1, 1999
>
>Dear Members:
>
>We would like to inform you that the CBOT-Eurex Alliance contracts have
been signed.
>
>The final contracts, a detailed summary of which you approved in June, were
signed today by both CBOT and Eurex leadership. The Alliance is official,
and implementation of this high-priority initiative already is underway.
>
>We want to thank the many members and staff who worked diligently on behalf
of the membership to make the Alliance a reality. Through our Alliance,
which is scheduled to launch in mid-2000, the Chicago Board of Trade will
continue to give our members and customers a global electronic platform for
trading our contracts as a supplement to our open outcry markets.
>
>As always, please feel free to contact us directly if you have any
questions on the CBOT-Eurex Alliance.
>
>Sincerely,
>
>David P. Brennan
>Thomas R. Donovan
>
>
>
>
>++++++++++++++
>
>If you wish to be removed from this MemberNet broadcast list, please
>e-mail us at "membernet@xxxxxxxx"
>
>
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