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David Halsey,Trading the Measured Move -Book Review

  
  Education
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David Halsey throws out the old notion of a measured move: that you copy an AB move up (or down) and paste it on a retracement low (or high) of C to get your price target D. In Trading the Measured Move: A Path to Trading Success in a World of Algos and High Frequency Trading(Wiley, 2014) he substitutes Fibonacci levels.

He uses three trade setups: the traditional 50% retracement measured move (MM), the extension 50% MM, and the 61.8% failure. When a trade is entered, its target is 123% from a swing high or low (and sometimes from a breakout) that is followed by a retracement (50% in the traditional setup). That is, the target is AB + 23%. Halsey shows both successful and failed MM trades on charts—unfortunately usually grey bars on a black background, which makes them hard to decipher.

The measured move trade setups are not stand-alones. Halsey discusses the use of multiple time frames, seasonality, NYSE tools, tick extremes and divergences, and gaps. He also discusses how to manage positions and take profits, advanced (actually, pretty basic) risk management, trading psychology, and having a trading plan and journal. (more…)

W. D. GANN’S 24 TIMELESS STOCK TRADING RULES

  
Analysis, Education
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1. Amount of capital to use: Divide your capital into 10 equal parts and never risk more than one-tenth of your capital on any one trade.
2. Use stop loss orders. Always protect a trade.
3. Never overtrade. This would be violating your capital rules.
4. Never let a profit run into a loss. After you once have a profit raise your stop loss order so that you will have no loss of capital.
5. Do not buck the trend. Never buy or sell if you are not sure of the trend according to your charts and rules.
6. When in doubt, get out and don’t get in when in doubt.
7. Trade only in active markets. Keep out of slow, dead ones.
8. Equal distribution of risk. Trade in two or three different commodities if possible. Avoid tying up all your capital in any one commodity.
9. Never limit your orders or fix a buying or selling price.
10. Don’t close your trades without a good reason. Follow up with a stop loss order to protect your profits.
11. Accumulate a surplus. After you have made a series of successful trades, put some money into a surplus account to be used only in emergency or in times of panic.
12. Never buy or sell just to get a scalping profit.
13. Never average a loss. This is one of the worst mistakes a trader can make.
14. Never get out of the market just because you have lost patience or get into the market because you are anxious from waiting.
15. Avoid taking small profits and big losses.
16. Never cancel a stop loss order after you have placed it at the time you make a trade.
17. Avoid getting in and out of the market too often.
18. Be just as willing to sell short as you are to buy. Let your object be to keep with the trend and make money.
19. Never buy just because the price of a commodity is low or sell short just because the price is high.
20. Be careful about pyramiding at the wrong time. Wait until the commodity is very active and has crossed resistance levels before buying more, and until it has broken out of the zone of distribution before selling more.
21. Select the commodities that show strong uptrend to pyramid on the buying side and the ones that show definite downtrend to sell short.
22. Never hedge. If you are long one commodity and it starts to go down, do not sell another commodity short to hedge it. Get out at the market: Take your loss and wait for another opportunity.
23. Never change your position in the market without a good reason. When you make a trade, let it be for some good reason, or according to some definite rule; then do not get out without a definite indication of a change in trend.
24. Avoid increasing your trading after a long period of success or a period of profitable trades.

Don't

  
  Education
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dontsign“Don’t think that trading is fun. The trading game should be boring the vast majority of the time, just like the real-life job you have right now.”

Don’t try to get even. This isn’t a game of catch-up. Every action you make has to stand on its own merits. Take your losses with detachment and make your next trade with absolute discipline.

Don’t ignore the warning signs. Big losses rarely come without warning. Don’t wait for a lifeboat before you abandon a sinking ship.

Don’t ignore your intuition. Listen to that calm little voice that tells you what to do and what to avoid. That’s the voice of the winner trying to get into your thick head.

Don’t project your personal life onto your trading. Trading gives you the perfect opportunity to find out just how messed up your life really is. Get your own house in order before you play the financial markets.

Gambling vs. Trading

  
  Education
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The expectancy in gambling is ALWAYS terrible, while market speculation at times offers outstanding opportunities.  To get a 2:1 or 3:1 opportunity in gambling, one needs to accept incredibly low odds of victory.  In financial markets, those 2:1 or above opportunities come around like clockwork and offer high enough probability that long-term positive expectancy is possible.  Not only that, but the market speculator has the opportunity to adjust his or her position after the game begins…when was the last horse race where you could take a little off the table after the first turn?  Or reclaim most of your bet when your horse stumbles out of the gate?

10 Greedy Characteristics

  
  Education
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1.  You find yourself forgetting your rules.  Which during day trading is the last thing you want to happen since your profit margins are often based on smaller movements.

2.  When reviewing your pre-market plays, every stock looks like a winner.

3.  Shortly after opening your position you see a price target that is much higher but you have no justification for the target.

4.  Trading feels stressful all of the time.  From the minute you get up in the morning, until you close your last position.  Instead of approaching trading with a calm head, you have a constant feeling of fighting and living on the edge.

5.  You stop reviewing your trades.  If someone were to ask your win/loss percentage over the last week you would have no idea; however, you would know how much money you need to make for the week.

6.  You abandon limit orders and start placing more and more trades at market.  Most of the times this will occur when you are trying to get into the position, because you can’t stand the idea of not being in on the winning trade.

7. You start to over trade.  If you normally put on 3 trades per day, you will now find yourself placing 6 or more trades per day.  This sort of behavior will run its course as the increase in trading activity while abandoning your day trading rules always points to losing money. (more…)

Speculation, Trading, and Bubbles-by José A. Scheinkman (Book Review )

  
  Education
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SPECULATION-TRADING-BUBBLESTo pay tribute to one of its most famous graduates, Kenneth J. Arrow, Columbia University launched an annual lecture series dealing with topics to which Arrow made significant contributions—and there were many. Speculation, Trading, and Bubbles stems from the third lecture in the series given by José A. Scheinkman, with adapted transcripts of commentary by Patrick Bolton, Sanford J. Grossman, and Arrow himself. I’m going to confine myself here to a few excerpts that encapsulate some of the lecture’s key points, ignoring the often perceptive commentary.
Scheinkman offers a formal model of the economic foundations of stock market bubbles in an appendix to his lecture, but he lays out its basic ideas in the lecture proper. The model rests on two fundamental assumptions—“fluctuating heterogeneous beliefs among investors and the existence of an asymmetry between the cost of acquiring an asset and the cost of shorting that same asset. … Heterogeneous beliefs make possible the coexistence of optimists and pessimists in a market. The cost asymmetry between going long and going short on an asset implies that optimists’ views are expressed more fully than pessimists’ views in the market, and thus even when opinions are on average unbiased, prices are biased upwards. Finally, fluctuating beliefs give even the most optimistic the hope that, in the future, an even more optimistic buyer may appear. Thus a buyer would be willing to pay more than the discounted value she attributes to an asset’s future payoffs, because the ownership of the asset gives her the option to resell the asset to a future optimist.” (pp. 15-16)

(more…)

John S. Wasik,Keynes’s Way to Wealth-Book Review

  
  Education
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John Maynard Keynes was not only a renowned economist, he was an investor. He managed his own money as well as that of King’s College, his friends and family, and insurance companies. As John C. Bogle writes in his introduction to the book, “His spectacular success showed not only his passion for making money, but his growing aversion to losing it. As someone who had gained two fortunes through his trading prowess and lost them through his hubris, Keynes is a stellar example of how an investor can learn, fall on his face more than once, and still come out ahead.” (p. xxxiv)

John S. Wasik explores this investing journey in Keynes’s Way to Wealth: Timeless Investment Lessons from the Great Economist(McGraw-Hill, 2014). Let me start with the rewards of the journey: what Keynes did with his wealth. He bought art as well as rare books and manuscripts. The Keynes collection of rare books, bequeathed to King’s College in 1946, is, according to the college’s web site, “especially strong in editions of Hume, Newton and Locke, and in sixteenth and seventeenth century literature. About 1300 books in this collection have been catalogued on the online catalogue. … Keynes’s collection of manuscripts by Newton, Bentham, John Stuart Mill, etc., is housed in the Modern Archive Centre.” A man after my own heart, but with a bigger budget.

Keynes was a speculator. According to his own definition, “The essential characteristic of speculation … is superior knowledge. We do not mean by this the investment’s actual future yield … we mean the expected probability of the yield. The probability depends upon the degree of knowledge in a sense, therefore it’s subjective. If we regard speculation as a reasoned effort to gauge the future from present known data, it may be said to form the reins of all intelligent investing.” (p. 8) (more…)

You Should Have All 4 Elements To Be Successful

  
  Education
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Trading is a very complex undertaking and if you miss one element you will likely eventually fail  in this endeavor.

Here are the four different elements we must have working for us for success in trading:

The Knowledge

If we don’t do the homework to know what we need to know we will fail due to ignorance. Understanding historical price action, reading books by and about the best traders, seminars, mentor-ships, and  systems testing is all part of the homework we must do to get the needed knowledge.

The Resources

While trading with a small account is a good place to start it is not a good place to stay. Traders must be adequately capitalized for meaningful trading. We must have an affordable broker that does not charge bloated commissions and gives great execution on orders. A trader must have a platform and charting service that is adequate for his trading style. Trading a small account with an expensive broker with poor execution is a path to eventual failure.

The Desire (more…)

The Foundation of Technical Analysis

  
  Education
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First Principles

  • Markets are highly random and are very, very close to being efficient.
  • It is impossible to make money trading without an edge.
  • Every edge we have is driven by an imbalance of buying and selling pressure.
  • The job of traders is to identify those points of imbalance and to restrict their activities in the markets to those times.
  • There are two competing forces at work in the market: mean reversion and range expansion.
  • These two forces express themselves in the market through the alternation of trends and trading ranges.

The Four Trades

  • Traders usually view market action through charts, which are useful tools, but are only tools.
  • Trades broadly fall into with-trend and countertrend trades. These two categories require significantly different mind-sets and approaches to trade management.
  • There are only four technical trades. Some trades are blends of more than one trade, or an application of one trade to a structure in another time frame, but these are just refinements. At their root, all technical trades fall into one of these categories:
  • Trend continuation.
  • Trend termination.
  • Support and resistance holding.
  • Support and resistance failing.
  • Each of these trades is more appropriate at one phase of the market cycle than another. If you apply the wrong trade to current market conditions, you will lose.

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10 Quotes by Mark Douglas

  
  Education
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reading“I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market’s behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It’s what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realize you can’t use analysis to overcome fear of being wrong or losing money. It just doesn’t work!”
-Mark Douglas

“There is a random distribution between wins and losses for any given set of variables that defines an edge. In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades. This truth makes trading a probability or numbers game. When you really believe that trading is simply a probability game, concepts like “right” and “wrong” or “win” and “lose” no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.”
-Mark Douglas

The less I cared about whether or not I was wrong, the clearer
things became, making it much easier to move in and out of positions,
cutting my losses short to make myself mentally available to take the next opportunity.
– Mark Douglas (more…)

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