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: Thu Apr 30, 2009 11:06 am Post subject: Alright, well here we are!

On my comment that prices are random, the closer you look at the actual bid/ask data the more random it appears. When you look at 1min bars – which is a map, I'd challenge anyone to put any indicator on it and have it work out profitably. It's only when you overlay a "map" on it that you "see" a trend. The problem obviously comes in - a) when do you get in, b) when do you get out? But, that's another thing altogether! The traders dilemma! Which is one of the primary reasons why I love the method I trade – defined entry and exits. Generally my targets are a multiple of the stop (4x or greater) and it’s right about 70% of the time.

Now on where we are on a couple things –
NDX, SPX and Dow are all bullishly postured per the method, but, I’m not altogether convinced that the rally has much in the way of legs.

Bonds are toast per the method, I suppose if we get a sizable decline in stocks, bonds will get a “dead cat bounce” or if the gov’t announces it’s buying another billion of them here/there it might get a bounce as well.

Gold is in truth or consequences territory. My opinion is that it’s been a long bull market for gold – I can’t drive down the road without seeing “we buy gold” signs/billboards all over the place. My local coin dealer says he has 1 guy in my community that brings in 30k in gold jewelry every month from gold parties. It’s still in buy territory per the method.

On a personal note - I have simplified my trading down to only the S&P - I trade the emini futures contract in my brokerage account and SPY or SH in the IRA.

The past 2 weeks I have made 1 particular sort of trade done off the open that works out great when you get this back and forth action - I've got a 33% return in my brokerage acct on the futures doing that trade the past 2 weeks.

The overnight trade got back on yesterday, that was exited at the market open for a nice gain. I only traded 1 futures contract but it was worth $700. Very Happy

My trading decisions are day to day, not committed to anything long term except my wife. Laughing

Stockwizardry · Newbie Joined: 14 Mar 2009 Posts: 2

I disagree with the premise that stock prices are totally random. When considering the "trend", a trader has to look beyond the intraday action. Look at the past few months, even years to decide the likely trend in the near future. Trends tend to persist. If they didn't, nobody could make any money in the market. Prices would be totally chaotic with no discernable up or down trend. The masses are trying to guess what everyone else is thinking. The market is full of cows searching desperately for the leader. It's up to the trader to minimize his risk when he knows he's wrong.

gregf · Posted: Fri Jan 23, 2009 7:54 am Post subject:

It's almost 9am, I see that the futures are pointing to a gap open down.

Traders are generally paralyzed by the disappointment of missing "the whole move".
That's a toxic map IMO. Nobody gets the whole move. Greed/fear issue.
My method directs me to book a percent here, percent there and it compounds into great returns.
Today's going to be a nice profit, I will close it near the open and not fret if it drops off a cliff.

Look at daily bars for gaps down (or up) over the past few months - my headset is to take the shorts off the table quick/near the open.
It might feel like they're going to take it to china, but, they usually don't.
They usually find a way to get it back into the prior days trading range.

gregf · Posted: Thu Jan 22, 2009 3:00 pm Post subject:

Short SPY/QQQQ

gregf · Posted: Tue Jan 20, 2009 9:37 am Post subject:

exited the QID position today @ QQQQ=28.70

lewie2004 · Posted: Tue Jan 20, 2009 9:10 am Post subject:

bought skf at close on friday and sold for a gain of 22 points this a.m. thank you. Cant waite to take class..

gregf · Posted: Fri Jan 16, 2009 2:58 pm Post subject:

signal is short for SPY, GDX and QQQQ

gregf · Posted: Fri Jan 16, 2009 9:15 am Post subject:

stop on QQQQ of 29.60ish was not hit, i added 50% to the QID position on the break of 29.26

It was going to need to break 29.60 in a decisive way for me to cover.

Target is 28.07

gregf · Posted: Thu Jan 15, 2009 2:55 pm Post subject:

Signal is SHORT QQQQ, SPY, GDX

gregf · Posted: Wed Jan 14, 2009 7:13 pm Post subject:

lewie2004 · Posted: Wed Jan 14, 2009 5:53 pm Post subject:

Good call you could sell now and make good money.

gregf · Posted: Wed Jan 14, 2009 4:26 pm Post subject:

At the close had Short signal on GDX, QQQQ and SPY
I took QID positions.

gregf · Posted: Mon Jan 12, 2009 10:33 am Post subject:

gregf · Posted: Mon Jan 12, 2009 10:30 am Post subject:

I hate to post this.

No official signal yet, but, unless there is a strong reversal, it looks like the bullish bias on the opening of the year is now dead for all indexes. Naz broke it today. Sad

lewie2004 · Posted: Wed Jan 07, 2009 4:23 pm Post subject:

Greg,

How has the system done so far this year?