Saturday, July 14, 2018

Simplicity and robustness - with a word from Larry Hite

By their very nature trend following systems or methods are relatively simple pieces of coding. Read about some of the most successful trend followers in history, and they have even themselves referred to the fact that their rules could be written on the back of an envelope or the proverbial cigarette packet.

All you are trying to do is identify whether price is trending up, trending down or is stuck in a range. Once you have determined your timeframe, it is pretty simple to see that, and from there you can create your own parameters and rules.

Saturday, June 30, 2018

Jesse Livermore, the Dow and the changing market state

Below we have the current daily chart of the Dow. This is a classic example of a 'tale of two market states'. Up to the beginning of February, we can see a stable (low volatility), trending state. And from the beginning of February to date, a volatile, non-trending state. This is highlighted by the rise in the readings of the volatility factor indicator and the 2ATR measurement.

Saturday, June 23, 2018

Examples of opportunity loss

Suppose you have a situation where you take an entry signal only for the position to go nowhere, so you end up getting frustrated and close the trade. The next thing you know, the stock takes off in the direction you were attempting to trade, leaving you left on the sidelines. What have you lost? 

Some people would say that, as you haven't lost anything, you should simply move on and concentrate on what is happening in front of you now.

While I agree with the fact that you need to move on, I would  disagree with the point about not having lost anything - there is an opportunity loss incurred. 

Thursday, June 14, 2018

Learning from the Turtles experiment - what should you learn first?

The ad that started a legend.

An often overlooked aspect of the Turtle Traders experiment was not simply what they got told, but the order in what they got told. We can piece this together from the various writings about the experiment, including that of the Turtles themselves.

"Rich and Bill first taught us the foundations of basic gaming and probability theory. They explained to us the mathematical basis for money management, risk of ruin, and expectation" - Curtis Faith, from Way of The Turtle

It is also known that, while a commodities trader, Richard Dennis preferred not to read economic or crop reports - his preferred reading was Psychology Today. So I think it would be fair to say that (whether it was directly done or not) there was some basic trading psychology covered during the training period.