greg's new and improved trading method

gregf · Last edited by gregf on Mon Dec 08, 2008 4:09 pm; edited 3 times in total

Well, for you old coots that have been trading the markets a while, you know there's "nothing new under the sun"

My road has taken me through retail brokers, financial pubs (WSJ/Fortune/Money/etc), books, etc. Eventually I found Bill O'neil and his book "How to Make Money in Stocks" - and Investor Business Daily. The method he puts forth is actionable and doable - and it makes sense in an uptrending market. Which, WSJ/Fortune/Money - have nothing that's actionable - its all just "information" for the most part - certainly no sense of a system. The 2 downsides to O'neils system is
a) it will lose $ in sideways and down markets.
b) it will be wrong much of the time, and you'll get stopped out of a position.

IBD has called 2 or 3 rallies so far in this bear market, which have been costly errors if you acted against them,...

There's a saying, there are 2 things in life that have the potential to change your life - the books you read and the people you meet.

I attended an IBD meetup (where IBD subscribers in a town/city get together to discuss trading ideas). In Raleigh we had about 20 people in the meeting I attended on 10/8

I attended the meeting because everything I was looking at was broken, I was hoping to run into someone who had a clue what was going on. Treasuries with negative yields, gold spiking $90, the VIX was soaring, etc. As I found out, nobody had a clue. Some EW guy was waxing eloquent and saying nothing, another lady was empatically saying that lumber was a long term buy, it was pretty bad.

There was a guy sitting next to me that had a chart that I had never seen before and it mapped the market like nothing I've ever seen. I emailed him several times and after getting more and more curious about the method, I sgned up to take the class. Something I haven't done since I took IBD's training class over a decade ago.

The teacher is a protege of Larry Williams, worked for Victor Neiderhoffer and ran a hedge fund. He couldn't be a more humble guy considering where he's been and the fish he's swum with,...

The teacher explained that we all use "maps" - e.g., road maps are useful for telling you generally how to get from point to point, but, they won't tell you that there's a pot hole or road construction - they omit a certain amount of detail to become useful. By the same token, the stock market's data is bid and ask. Everything else is a omiitting information to create a new "map" that we look at. Eg, minute bars, daily, monthly, moving averages - any analytic tool, etc. Is overlaying a "map" onto the markets basic "bid and ask".

He made a number of assertions that were very counter to my beliefs. He challenged us to look at a minute bar chart and make sense of it using whatever we wanted, and, frankly I haven't looked at many minute or tick charts. I was astonished at how random the movements, in general, were - his point is that an indicator masks the inherent randomness of the market. His assertion is that nobody knows with certainty where the market is going. A principle he teaches is "you can't predict anything but you better be prepared for everything".

Interestingly enough - he had a quote by a robotics prof out of Texas - Dr Peter Stone. Who had created a computer simulation for trading the stock market. The initial logic of the model was basically an IBD style approach -

"if the price goes up, it places a buy order, if it goes down it places a sell order. The assumption being that a price rise indicates likely further price rises. However, initial testing of this strategy revealed it lost money more often than it gained. As a result, we decided to flip the buy and sell conditions. We call the resulting strategy the reverse strategy since it does exactly the opposite of the initial strategy. The reason the reverse strategy makes profits in many kinds of markets is that stock market prices are not constant and in fact undergo frequent changes in direction, rather than consistently moving in one direction"."

I had a headache by the end of the 1st couple hours. It ended up being the most enlightening 2 days of my investment career.

After the 2 day class, I wrote another check for some "practice" software. It basically allows you to trade a years worth of a market (one minute bars) in a few hours. With the practice software I get 10 lessons that he gives me to trade against various markets (emini, euro and oil are the 3 we've been using) and then I call him with my results and observations. He then gives me the next lesson when I "get it". I'm in lesson 4 and I have to say that using the practice software has been extremely enlightening to pick up some things that I had never noticed before. When you trade an entire year in a market in a few hours it's astonishing what you'll see that you never noticed watching it real time.

After 4 lessons, I still haven't gotten to use the chart that got me into this new system, lol. He's trying to make points about the market behavior before you start using the chart - he wants to 'rewrite' your map or presuppositions about trading the market. It's very interesting.

Anyways, enough for now! Y'all have a good trade!

gregf · Posted: Wed Nov 19, 2008 2:42 pm Post subject:

Well, I decided that because I have (at least) 5x the long exposure to the market at this point I'm going to keep the QID position as a hedge.

Per the rules however I would have sold at the current level and that would have given me a 7% gain.

gregf · Posted: Wed Nov 19, 2008 10:37 am Post subject:

The session lows are the targets, they're back in play now that the early noise is over with. Might not get there though, time will tell,...

Question is, if those don't hold, do we just exit (per our rules) or do we hold on in case the market unravels? Per the rules we just sell and forget it. But, as I've pointed out, I'm far more long than I am short at this point, do the QID's become a bit of insurance at this point,...the other problem is that I'm in an IRA, I've got trade settlement issues to contend with,...and I'm up against the wall for settled cash,....

And the market has shown a perpensity at these levels to have violent if albeit brief rallies,,,....

gregf · Posted: Tue Nov 18, 2008 2:58 pm Post subject:

signal is short for S&P, QQQQ's.
grabbed the standard payload of QID's, in at 81.63

gregf · Posted: Tue Nov 18, 2008 1:03 pm Post subject:

gregf · Posted: Tue Nov 18, 2008 12:04 pm Post subject:

I've got 27.28 for the target on the QQQQ's - previous yearly low.

probably won't get there,...but, if it does, my crystal ball is still broken

27.94 is the overnight low, might wobble around there some,,..

gregf · Posted: Tue Nov 18, 2008 9:25 am Post subject:

if I was going to follow my rules strictly, I would have exited on the break of the previous day low. If I was just making the trade, that would be my exit.

since I'm very net long with my mf's, I'm going to hold the QID position as a hedge since my signal is short. The exit of the QID position is previous day high.

I could be completely wrong, but, my only exposure is if the market decides to turn right here and blow me out. Which it is more than capable of doing. If we have a day like last Thurs, then I lose about 30% of the gain my mf's will give me, but, that day ended up being a fabulous setup for a short.

My crystal ball is still out for repairs,...

gregf · Posted: Mon Nov 17, 2008 3:01 pm Post subject:

sell signals qqqq, spy, gdx, uym
bought the qid's @ 81.26

rffrydr · Posted: Sat Nov 15, 2008 9:30 am Post subject:

I'll go your teacher one better: Maps imply motion and in a certain fundamental way that itself must be a lie. Yet lies make our world. We can't live without them. That's why they tell you to fall in love with a woman....not a stock.

There's nothing new here, randomness and the stockmarket have their own cycle pattern. The universe was born of randomness yet there is little radom about it. Is gravity "random"? A "six-sigma" event defiles stochastic process. It's fate.

Trade that....make that.
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Today is the Tomorrow you worried about Yesterday!

diesel · Posted: Sat Nov 15, 2008 1:49 am Post subject:

Funny thing is the straddles are whats paying out at the moment. My directional trades have been a road to nowhere as of late on the aggregate. Embarassed

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All cats are gray in the dark.

gregf · Posted: Sat Nov 15, 2008 1:05 am Post subject:

rffrydr · Posted: Fri Nov 14, 2008 8:56 pm Post subject:

Turn that chart upsidedown....you'll not find its opposite. Structure is caused by, and realized in, randomness. Ultimately it becomes a king: one who imposes while being imposed upon.

To find the necessity in chance--that is the only way to trade.

Anything else.... straddles.
_________________
Today is the Tomorrow you worried about Yesterday!