Archive through 24 January, 2003

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spider

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Post Number: 123
Registered: 10-2002

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Thursday, December 26, 2002 - 05:16 pm:

As we stagger towards a new year and shake off the effects of Christmas (Emotional and physical), I am left to ponder as to the collective fate of our little group. Where will we be this time next year?

How close will we be to achieving our goals?
Will we all be here? Life can be uncertain at times, take the time to tell someone that you love them, find someone you have lost track of and make contact. The people in our lives make our lives worth living!
Thanks for the buzz IC people!
Particularly our Eastern Suburbs people, I look forward to getting to know you over the coming year, even the ones we haven't met yet!
Most of all I look forward to watching you prosper.
I want to hear about it when you feel comfortable enough to trade full time (assuming that is what you want to do, I know that some of you like your day jobs and enjoy trading part time, that's great too!).

We all need encouragement, so any time you have good news, share it. You might feel that you are bragging if you make a good trade ....... that's crap! Tell us how you achieved that trade and we will all learn from it. I will personally bite anyone who accuses you of bragging! (Not really, us spiders are gentle creatures, unless provoked.)

Aussies have a nasty habit of being self deprecating, this really is a complete waste of time, especially here! we are here to learn from each other, so share!

We are lucky to be trading at a time like this , it does not happen this way very often. Most traders don't survive long enough to experience, and profit from the various faces that the markets can show us.
So, if you are still in the game that makes you special, take a moment to congratulate yourself, you're a surviver. After all that is the purpose of life "to endure".

You may be down a little bit, but this is no shame, especially if you haven't learned how to trade the short side of the market. Hang in there, the long side of the market has been a tough place to make money recently. The Spider has had only a handfull of winners on the long side this year.

A LITTLE HOUSEKEEPING>>>>>>>>>>>>>
We have to decide on a venue for our next meeting, Graham K you had a suggestion regarding a venue, how did you get on with that?
One of our members is considering offering the use of their house, so I need to know fairly soon.

BE BOLD AND MIGHTY FORCES WILL RUSH TO YOUR AID.

SPIDER.

spider

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Post Number: 132
Registered: 10-2002

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Monday, December 30, 2002 - 02:57 pm:

Spider read this recently in Jesse Livermore-Worlds greatest trader, thought you might find it interesting............

"As long as the stock is behaving normally, do not have to be in a hurray to take a profit. You must know you are right in your basic judgement, or you would have no profit at all. If there is nothing basically negative, then let it ride. It may grow into a very large profit. As long as the action of the overall market and the stock do not give you cause to worry, have the courage of your convictions, and stay with it.

When I was in profit on a trade, I was never nervous. I could have a line of 100,000 shares out on a single stock play and sleep like a baby. Why? Because I was in profit on that trade. I was simply using the house's money. If I lost all that profit -- well, then I simply lost money I never had in the first place.

Of course the opposite is true as well. If I bought a stock and it went against me I would sell it immediately. You can't stop and try to figure out why a stock is going in the wrong direction. The fact is that it is going in the wrong direction, and that is enough evidence for an experienced speculator to close the trade.

Profits take care of themselves, losses never do.

Never confuse this approach of letting the position ride with the buy-and-hold-forever strategy. I do not and never have, blindly bought and held a stock. How can anyone know that far into the future? Things change: Life changes, relationships change, health changes, seasons change, and people change -- why wouldn't the basic conditions that caused you to buy a stock change? To buy and hold blindly on the basis that a stock is in a great company or a strong industry, or that the economy is generally healthy, is, to me, the equivalent of stock market suicide.

Stick with the winners. Let them ride until you have a clear reason to sell."

Spider 'sleeps like a baby', every four hours I wake up screaming!!!

spider

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Post Number: 141
Registered: 10-2002

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Tuesday, December 31, 2002 - 09:36 pm:

A little more from Richard Smitten's book on Jesse Livermore........................

Take the profits in cash.

"I recommend parking fifty percent of the profits from a successful trade, especially when the trade doubled the original capital. Set this money aside, put it in the bank, hold it in reserve, or lock it up in a safe deposit box.

Like winning in the casino, it's a good idea, now and then, to take your winnings off the table and turn them into cash. There is no better time than after a large win on a stock. Cash is the bullet in the chamber; always keep a cash reserve.

The single largest regret I have ever had in my financial life was not paying enough attention to this rule"

EMOTIONS...........
Livermore agreed with his friend Bradley, the gambler. After timing and money management come emotions. It is one thing to know what to do; it is quite another thing to have the will to actually do it. This is true of the stock market. This is true of life. Who knew better than Livermore?

As he explained to his sons, "I believe that having the discipline to follow your rules is essential. Without specific, clear, and tested rules, speculators do not have any real chance of success. Why? Because speculators without a plan are like a general without a strategy, and therefore without an actionable battle plan. Speculators without a single clear plan can only act and react, act and react, to the slings and arrows of stock market misfortune, until finally they are defeated.

It is my conclusion that playing the market is partly an art form; it is not just pure reason. If it were pure reason, then somebody would have figured it out long ago. That's why I believe that all the speculators must analyze their own emotions to find out just what level of stress they can endure. Every speculator is different, every human psyche is different; every personality is exclusive to that one person. Learn your own emotional limits before attempting to speculate--that is my advice to anyone who has ever asked me what makes a successful speculator. If you can't sleep at night because of your stock market position, then you have gone too far. If this is the case,then sell your position down to the sleeping level.

On the other hand, I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street. As long as they realize the market is a business like any other business, they have a good chance to prosper."

spider

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Post Number: 146
Registered: 10-2002

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Wednesday, January 01, 2003 - 11:24 pm:

The following comes from Dr Alexander Elders book "Come into my trading room".

Channel Targets.

Traders all over the world squint at their charts, trying to recognize patterns , and let their imaginations run wild. Statistical studies, however, consistently confirm only one pattern -- the tendency of prices to fluctuate above and below value. Markets may be chaotic most of the time, but their overbought and oversold conditions create islands of order that provide some of the best trading opportunities. Markets swing between elation and despair, and we can make money from those moods.

Channels are technical tools that help us take advantage of market swings. We draw them parallel to the moving average in the medium time frame, usually daily. A well drawn channel contains approximately 95% of recent prices. Its upper line represents the manic and the lower line the depressive moods of the market.

If we buy value near a rising moving average, we can sell mania in the vicinity of the upper channel line. If we go short near a falling moving average, we can cover at the depressed level near the lower channel line. Channels provide attractive targets for profit taking.

People say that a neurotic is a person who builds castles in the clouds, a psychotic lives in them, and a psychiatrist is the fellow who collects the rent. Channels help us collect rent from what drives most investors crazy -- the relentless swings of the market. The idea is to buy normalcy and sell mania or go short normalcy and cover depression.

Straight channels or envelopes work better for profit taking than standard deviation channels, or Bollinger bands. Those bands grow wide when volatility rises and narrow when it declines. They help options traders, who depend heavily on volatility, but those of us who trade stocks or futures are better off with straight channels.

Channels are for traders not investors.............................. Envelopes or channels work best when you trade relatively short term swings between undervalued and overvalued levels.

If you buy near a rising EMA, place a sell order where you expect the upper channel line to be tomorrow. If the upper channel line has been rising a half a point a day for the past few days and closed at 88 today, then you can place a sell order at 88.50 for tomorrow. Adjust this number every day as the channel moves higher or lower.

Whenever I teach a group how to use channels for profit taking someone raises a hand and points to an area where prices overshot their channel. Taking profits at that channel line would have caused us to miss a large part of a rally. What can I say? This system is good but not perfect. No method, except for hindsight, nails down all tops and bottoms. Robert Precter, who used to be a famous market analyst, put it well when he said, 'Traders take a good system and destroy it by trying to make it into a perfect system.'

If a trend is very strong, you may want to ride swings a little farther. Sell half of your position when prices hit the upper channel line, but use your judgement to dance out of the second half. You may monitor intraday prices and sell on the first day when they do not make a new high. Use your judgment and skills, but do yourself a favour -- give up the idea of nailing tops. Greed is a very expensive emotion.

If a rally is week, prices may begin to sink without reaching their upper channel line. There is no law that says the market must become manic before returning to value..........................................

An A trader is someone who takes 30% or more out of a channel. That is a little more than half the distance from the moving average to the channel line. Even if you buy slightly above the moving average and sell below its upper channel line, you can be an A trader and profit handsomely. Channels help catch normal tops and bottoms, and you can become very rich by steadily raking in normal profits. Channels help set up realistic profit targets."

This stuff is GOLD people, Spider particularly likes the "creates islands of order" line, great stuff!!!!!!!!!!!

If you get bored while you are getting rich from staying with trends, then this will help.
If you are frustrated by the kind of market we have at the moment........... this is for you.
If you want to get rich quietly, a bit at a time, this is for you.
Like short trading, this is a way to turn one of the markets 'negatives' into a trading positive.
Spider has been persuing this for several years, it has been consistently profitably, nothing like the money you can make in a strongly trending bull market, but profitably, none the less..

Spider.

dicky

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Post Number: 27
Registered: 09-2002

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Friday, January 03, 2003 - 03:29 pm:

Hey Spider.

Great stuff. I've always liked the idea of channels. In fact, before i charted i think i naturally used to spot them in raw data. Quicken's website used to offer free data to view. Quite often out of the spreadsheet data it was really easy to spot patterns. This is how i started trading? ... SCARY HUH !!!!! ... I used to be more successfull tho, but times and markets have changed

I have some theories on this.
1 : you can only consume about 20 days worth of numbers. The rest are meaningless.
2 : you can't draw lines everywhere to confuse you. You only focus on the raw data.
3 : The brain is an amazing tool, but lines can confuse it. Just pick up one of those brain tricking books where people are constantly walking up staircases, upside down. How the same picture can show a beautifull woman and an ugly witch. Tricking the brain is all too easy.

While i would never give up charts now, perhaps as a further check on channels you could look at the raw numbers to try and spot patterns, particularly in channels.

Just a thought ;)

ciao.

spider

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Post Number: 159
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Saturday, January 04, 2003 - 02:40 pm:

A Louise Bedford article ............ enjoy. Spider.

http://www.tradinggame.com.au/articles/

spider

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Post Number: 161
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Saturday, January 04, 2003 - 03:37 pm:

Yo dicky,

as always, I am impressed by the depth of your thought!
Your posts always make Spider think, which often leads to headaches! But this is another story.......
Speaking of spiders, why do so many of my fellow arachnids love to take up residence in the pegs on my clothesline? I live in a rain forrest, you would think that there were enough places for these tiny little fellows to live! And, anyway, who put the word out about my clothes line in the first place? Do spiders have some sort of jungle drum system? You would think I would know wouldn't you? Add it to the long list of things that Spider doesn't know!

Back to business................. I enjoyed reading your theories. The 'twenty days worth of numbers' one was interesting. When I first started watching the markets, it used to frustrate me that no matter how hard I worked at studying the market, it didn't seem to carry over in time! I don't feel that way now, but then it seemed that way.

Whenever I set out to learn a new skill, I found that the more knowledge that I accumulated the better I got. Something that I learned today might come in handy in six months time, so I didn't begrudge the time spent. This didn't seem to work the same way in the markets. It seemed to me that I would get a handle on what I thought was going on, only to see it change a month or so down the track, I felt that all that time and knowledge was waisted. It felt to me that anything closer than "twenty days", as you said, was 'old news'!

I love to know 'where people have come from' to get where they are today.This partly explains my fasciation with charts because they tell me stories of where shares have 'come from'.

You are right, also, about lines on a chart sometimes being confusing, or forcing our brains to see in a certain way. I routinely remove all trendlines from my charts to see if I can still see the patterns without them.
About a year before I discovered IC, I sacked my data supplier, and was not able to use my expensive charting package (I was sick of everyone having their hand in my pocket, I felt that I was doing the work and everyone else was bleeding off my profits! Sorry to sound so dramatic, but I did not see all my expenses as 'the cost of doing business'.)

Consequently I was using the charts from the Sanford site....... very basic, no broadband in those days, so they were slow to load, so I had to restrict my research to a handful of shares, and slowly expand my list. But I learned two very important things...............

I no longer had all the 'bells and whistles' that go with a charting package, but my trading didn't suffer, it actually improved a bit!

The Sanford charts didn't have trendlines (I can hear snifter saying "I told you so", but they did have MA's). They didn't even have candlesticks! So for nearly a year I was pretty much going on the things that I had learned, and by necessity I had to "keep it simple". This 'time in the charting wilderness' made me a much better trader.

You are definitely going to get bored hearing Spider say "Keep it simple."!!!!!

I envy your ability to get a feeling from the raw numbers, Livermore had it, Spider is still only scratching the surface. Spider is very visual, he needs the charts to see the patterns.

I look forward to reading your next batch of thoughts. Spider.

spider

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Post Number: 163
Registered: 10-2002

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Saturday, January 04, 2003 - 11:35 pm:

This is an article that Chris Tate wrote on the Turtle Traders, thought you might be interested..................

Turtle Trading
Chris Tate 9 Sep 2002

Turtle Trading
By Chris Tate

The Turtles are one of the most successful groups of traders that the world has ever seen. The group was formed due to a bet between two very profitable traders, Bill Eckhardt and Richard Dennis. Dennis was convinced that trading was a skill and could be taught, so he set out to prove his assertions. He chose a variety of different people from all walks of life who responded to a newspaper advertisement. Only about 50% of this original group continued trading. The others quit. They could not follow the simple trading system set out for them due some form of psychological resistance. The group is called the ‘Turtles’ because less than 50% of the wild turtles actually make it to the ocean to have a chance at survival to adulthood. 50% die on their way to the ocean from predators or other dangers.
The Turtles consistently derive annual returns in excess of 70%, yet their trading system only produces correct entry signals 35% of the time. The probability of a ‘win’ is insignificant when you consider the importance of the size of your wins compared to the size of your losses. Here is a summary of how their system works:

Entry rules
1. Get in on a 20-bar breakout.
2. Before reversing the trend using the 20-bar breakout, there must be a losing trade in the opposite direction.
3. Always enter on a 55 bar breakout.
4. (Subjective) If the market is sideways, use a 55 bar breakout.
5. Once there is a profit in one direction, you can continue to trade in that direction, but to trade in the opposite direction, there must first be a loss.
Stop rules
1. On the day of entry, use a 1/2 (Average True Range) ATR stop. If the trade gets stopped out during the intraday trading, then get back in if the intraday market gives a new signal (makes new lows or highs).
2. Use a 10-day trailing stop.
3. The day after the entry, use a 2 ATR protective stop. Sometimes the 10 day trailing stop is too far away. The 10-day trailing stop assures you will not be risking more than 2-ATR on a trade (except when there is a gap open against your trade).
4. When the trade is at a 2.5 ATR profit, move the protective stop to breakeven.
5. Once the 10-day trailing stop or the 2.5 ATR rule moves the stop to breakeven, start using a wider trailing stop of 20 bars.
6. Once you are ahead by 10 ATR, use a 3 bar pivot as a trailing stop and the 20 bar breakout as a trailing stop.
Additional Techniques
1. Enter additional positions at a 55-day breakout, provided the protective stop on the first positions have been moved to breakeven.
2. After a big profit of 10 ATR or more, do not trade in the opposite direction for 45 bars using the 20 bar breakout method. Use the 55 bar breakout instead.
3. Wait for a sideways market to start trading and get in on a 55 bar breakout.
Money Management Rules
1. Do not risk more than 1% of your account per trade.
2. Do not expose your account to more than a 2 ATR risk at any time.
3. Use fractional entry technique.
4. If in one trade, wait for that trade to be moved to breakeven before adding any new trades.
5. Trade the strongest commodity within a complex, such as grains and currencies.
6. Trade when the volatility shrinks. When the volatility shrinks by 50%, it allows more contracts to be used for the same

dicky

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Post Number: 31
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Sunday, January 05, 2003 - 07:02 am:

Hmmm .. sounds a lot like cooking instructions. It'd be soooo easy if i could cook, alas i burn water and boil toast .. that's how bad i am.

An annual return of 70% in impressive. Here am i with a new years resolution of minimum 24%, 2% / month.

Well i am still just a rank amatuer.

chance

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Post Number: 42
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Sunday, January 05, 2003 - 01:35 pm:

Spider,
re the problem of your clothes pegs.
I have the following suggestions...

HOLD hanging CLOthes on HILls
SELL ALL that you MAY
& BUY or ORGanise a trip to RIO !

This is not investment advice.

spider

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Post Number: 164
Registered: 10-2002

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Sunday, January 05, 2003 - 01:59 pm:

Yo chance,

you have got to get out more!
Seriously though, that was clever! I am currently thinking up a brilliant response, but that might take a while though.
I can tell that you are, or will be a very successful trader because you posses that one trait that is most important in a trader, the ability to crack dumb jokes! No, I meant to say........... a good sense of humour.

Spider needed a good laugh after this past week, more than one of his short positions got stopped out ....... I guess you carn't win them all! Thanks for the giggle.

spider

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Post Number: 165
Registered: 10-2002

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Sunday, January 05, 2003 - 02:28 pm:

A couple of things just occurred to Spider...................

Firstly there is an AN OPEN INVITATION TO ANY REGULAR CONTRIBUTOR TO THIS FORUM. ANYTIME THAT YOU ARE IN MELBOURNE, LET US KNOW AND WE WILL ORGANIZE A 'GET TOGETHER' SO THAT AT LEAST SOME OF US MELBOURNE BASED TRADERS CAN SPEND SOME TIME WITH YOU.
Some of you dudes must have to come to Melbourne on business or pleasure............ after all we have the best footy, golf, basketball, tennis, motor racing, etc... sorry about that just said that to upset everyone! Now that I have alienated the entire continent, I can get on to important matters.......................................

Where have the Dragonflys gone?

I'm not sure wether this is a bad omen (spider doesn't actually believe in such things, we make our own luck), but for the first time in nearly 17 years there arn't any Dragonflys at my house!
It might have something to do with the young ones feeling sorry for spider last year a doing a bit of gardening for him and mrs spider, this included cleaning out the fish pond. Spider is assuming that is where the dragonfly breed each Spring. We have a creek going through one corner of our property, but I don't think Dragonflys breed in moving water. Any bug experts out there, feel free to offer an opinion. Spider's entomology skills are a little 'thin on the ground'.
Spider wants his Dragonflys back!
Apart from mosquitoes, Dragonflys are the only wild creatures that spider has that land on his hand, they are not frightened of people, it's very cool to have one land on you!
I guess I'll just have to stick to feeding the possums!

uturn

Member