Experiments in Day Trading: Calling Dr. K

Like others, I've ventured into short term day trading. My results have been mixed. But I've hit upon a strategy that I'd like to share for consideration and critique alike.

First, my Short-term Market Direction Model:

1. 30 minute NYSE tick.
2. 30 minute chart with ATR
3. A screen of the NASDAQ 100, showing the intraday advance decline of each equity.
4. A core sector's list


Second, an Active Trader Screen with

1. One minute chart
2. 50 minute SMA
3. 100 minute SMA
4. Pivots
5. Average (20) volume indicator

Third, BUY when

1. the MDM is on the side of the trade (either TNA or TZA are my preferred tickers)
2. a pocket pivot signature appears. (in particular I look for a green volume greater than any single down volume in the previous 10 bars).
3. the price has crossed over or touched upon the simple moving average lines or if it has lifted from or crossed through a pivot.

Fourth, SELL when

1. A red volume bar appears equal to or nearly equal in size to the original pocket pivot buy signal bar.

Fifth,

1. Remember only trade in the direction of the market.
2. This is a trend system. So the following applies: Trend traders show a mean aversion to mean reversion.

OK. Done.

Now I know something about developing a system.

I expose it to the world in the spirit of levity and scientific inquiry.

And once again, my appreciation for those who have worked out systems increases

Nickola,

Can you elaborate on the testing that you have done with your system? Can you describe in-sample vs. out-of-sample performance? If not, perhaps this is a great place to start with a detailed trading long. If so, then the next step is to isolate those situations that were losers and analyze the trades that won.

Note in my "Links" thread [URL="http://www.effectivevolume.com/showthread.php?3671-Links&p=14228#post14228"]here[/URL] I have a file entitled "ME-PRR-CalculationExample.xls" which is actually an excerpt from my trading log that I keep. This may help you get started. Of course there will be fields that do not matter, but for the most part, you should be able to get going with something of this sort to help document your winners and losers, independent of in-sample vs. out-of-sample testing.

Let me know if the file is useful.

Regards,

pgd

Hi Paul,

Thanks very much for the response. [I]It is precisely what I wanted and what I feared.[/I]

The logic I presented derives entirely from an intuition that was tested, if only subconsciously, over the past few weeks.

My method must seem, as it is, haphazard.

Here is how the EUREKA-- yes I borrow this from the dynamic duo at HGSI-- came to be:

I'm sitting at my computer with the dreaded Thinkorswim Active Trader Window open in one monitor while I listen to my daughter practice Spanish with Dora the Explorer on her mother's computer beside me. I'm also looking at some chess problems from a recent grandmaster game in my primary monitor. In the corner of my eye I see the TZA green bar grow with vivacity at precisely 11:42 AM.

I looked up and down at the screen, knowing the internals-- ticks, Advance/decline, and Dr. K's market direction-- I took a trade without second guessing myself and followed it with great ease. I sold out at a nice profit. After the trade, I pieced together the intuition and wrote it down.

I will certainly test out my theory via self monitoring over the next several weeks. This approach will be very qualitative in nature. I would like to imagine that the method could be back tested, but I don't believe it is entirely mechanical. The method I described-- an explication of intuition-- depends on some sense of the market as well as objective measures, such as ticks, ATRs, and volume signatures. As Dr. K wrote regarding his own Market Direction Model: "Some of the rules I have built are not black box but subject to the quality of the prior price/volume formation of the NASDAQ and S&P 500 ([I]Trade Like an O'Neil Disciple[/I], p. 258).

The word "quality" is one that should bring all objective thinkers into condition of doubt. Perhaps you have read [I]Zen and the Art of Motorcycle Maintenance[/I], which is an extended meditation of the use and limits of words such as this. I should also note that in my own field, the word excellence is used without a proper definition but with a shared sense that it can be known. Frankly, I'm more comfortable with an extended philosophical discussion of Phaedrus' Quality than I am with the unreflective use of the word excellence by presidents and chancellors alike.

So, my dilemma is simple, and it is perhaps symptomatic of the difference in our training and temperament: I had a "clear and distinct intuition" (to use the language of John Locke) but it cannot be universalized without an ample sense of quality.

I will explore this problem more thoroughly my own notebooks. But I can say that the act of writing out my thoughts gives me a guide to approach the market in the days to come. It gives me a scientific question in fact. One which might not be answerable absolutely but which can help me approach the daily problems the markets presents with greater clarity, creativity, and ease. At least I hope for this. Indeed, any logic I employ must include [I]an element of ease[/I]. Trading really becomes a "Zero Hedge" operation when the sure fire result of it is hypertension, etc.

Ok. that's it.

Thanks again for your stimulating particpation and thoughts,