Confessions and Questions

On June 9, I went short with a position in TZA. I thought I did so according to the robot, but I may have misinterpreted the signal to short TZA as a buy TZA. In any case, I'm a rookie, so please forgive this mistake.

During this day Pascal expressed confidence that the market would move higher. Despite seeing red in TZA, I remained confident the market would move lower in the near term. I had stayed in TZA after Dr. K's signal went to cash in early June and added 20% to an already substantial gain achieved by following Morales and Dr. Kacher. Mostly in cash, I took another position in TZA on June 9 because the macro-economic situation seemed a sure drag on the market. I can't list these reasons here, but I felt that I had caught the rhythms of TZA in relation to the market and was ready to ride it for more profit.

I was also, however, excited and fascinated by the development of the robots. And I made a very good return shorting GDX literally overnight on June 7-8. I decided that I would shoulder hard into a position should the robot go to a signal of strength. I expected the next signal to be SELL. Thus, on Friday morning I was in a condition of contradictory feelings and confusion. The robot said strongly BUY but I was certain the Russell 2000 would go lower.

Friday became horrific for me because I sold the TZA for 1/10th of the profit it would have realized had I held it that day. Moreover, I sought to establish long positions without conviction. At the end of the day I felt like my weight on planet earth had disappeared, and I had become a bouncing specter. I felt this way because my rhythm in the market was lost.

I have spent this week trying to establish and hold with confidence a long position in TNA and IWM. Market makers have made some pocket change from me.

So, here comes my question (if it is that): when I examine the back test data, I see that May 2010 provides a number of examples of when the robot had picked wrongly-- moments in time when the market went lower. Since I was not a participant at that time, I can only imagine how a market can break through the last remaining supports and sink into new depths. How does one's macro understanding/interpretation of a moment affect one's ability to follow a machine?

Throughout this difficult process for me, I have read with great relish the comments of experienced hands, such as Pascal, Billy, Paul Duncan, Mike Scott, Gil Morales, Dr. Kacher, and Ian and Ron. For all this help I am tremendously grateful. But ultimately the choices are mine; the trades affect only my family; I am, at the moment I push the button, utterly alone. I also recognize that my trading decisions are affected very much by my so-called feelings—that is, by my sense of rhythm at work in the market. How do I integrate the feelings and the macro-economic insights with the commands of a robot remains perplexing to me? I can confess I'm trying to remove the feelings, but I worry to do so would leave me disconnected and aloof from the information and trends that define our time. I also worry that at the time I become comfortable with a robot determining my fortune, the market will learn to foil this sophisticated instrument and break it, as it has broken other trend systems.

So this is my confession, and these are my questions. I don’t know whether not any one can or should respond to it. But, regardless of the embarrassment, I’d like to share it. I hope to learn what others experience...

[QUOTE=nickola.pazderic;13603]On June 9, I went short with a position in TZA. I thought I did so according to the robot, but I may have misinterpreted the signal to short TZA as a buy TZA. In any case, I'm a rookie, so please forgive this mistake.

During this day Pascal expressed confidence that the market would move higher. Despite seeing red in TZA, I remained confident the market would move lower in the near term. I had stayed in TZA after Dr. K's signal went to cash in early June and added 20% to an already substantial gain achieved by following Morales and Dr. Kacher. Mostly in cash, I took another position in TZA on June 9 because the macro-economic situation seemed a sure drag on the market. I can't list these reasons here, but I felt that I had caught the rhythms of TZA in relation to the market and was ready to ride it for more profit.

I was also, however, excited and fascinated by the development of the robots. And I made a very good return shorting GDX literally overnight on June 7-8. I decided that I would shoulder hard into a position should the robot go to a signal of strength. I expected the next signal to be SELL. Thus, on Friday morning I was in a condition of contradictory feelings and confusion. The robot said strongly BUY but I was certain the Russell 2000 would go lower.

Friday became horrific for me because I sold the TZA for 1/10th of the profit it would have realized had I held it that day. Moreover, I sought to establish long positions without conviction. At the end of the day I felt like my weight on planet earth had disappeared, and I had become a bouncing specter. I felt this way because my rhythm in the market was lost.

I have spent this week trying to establish and hold with confidence a long position in TNA and IWM. Market makers have made some pocket change from me.

So, here comes my question (if it is that): when I examine the back test data, I see that May 2010 provides a number of examples of when the robot had picked wrongly-- moments in time when the market went lower. Since I was not a participant at that time, I can only imagine how a market can break through the last remaining supports and sink into new depths. How does one's macro understanding/interpretation of a moment affect one's ability to follow a machine?

Throughout this difficult process for me, I have read with great relish the comments of experienced hands, such as Pascal, Billy, Paul Duncan, Mike Scott, Gil Morales, Dr. Kacher, and Ian and Ron. For all this help I am tremendously grateful. But ultimately the choices are mine; the trades affect only my family; I am, at the moment I push the button, utterly alone. I also recognize that my trading decisions are affected very much by my so-called feelings—that is, by my sense of rhythm at work in the market. How do I integrate the feelings and the macro-economic insights with the commands of a robot remains perplexing to me? I can confess I'm trying to remove the feelings, but I worry to do so would leave me disconnected and aloof from the information and trends that define our time. I also worry that at the time I become comfortable with a robot determining my fortune, the market will learn to foil this sophisticated instrument and break it, as it has broken other trend systems.

So this is my confession, and these are my questions. I don’t know whether not any one can or should respond to it. But, regardless of the embarrassment, I’d like to share it. I hope to learn what others experience...[/QUOTE]

Thank you for sharing your experience Nickola.


If your system of analyzing the market and taking trading decisions works well, you should not change it.

The robot is a mechanical system. It works on probabilities and has a close stop loss level when initiating a position.
It is made so that you do not need to "think" too much. If you still want to make a full analysis, then the robot becomes just one of your imputs and one more source of conflict.

What you could do is try to follow the signals with a small position and compare the results to your standard trading.

Trading is a lot about confidence. If you are not confident, then you reduce position size.


Pascal

[QUOTE=nickola.pazderic;13603]On June 9, I went short with a position in TZA. I thought I did so according to the robot, but I may have misinterpreted the signal to short TZA as a buy TZA. In any case, I'm a rookie, so please forgive this mistake.

During this day Pascal expressed confidence that the market would move higher. Despite seeing red in TZA, I remained confident the market would move lower in the near term. I had stayed in TZA after Dr. K's signal went to cash in early June and added 20% to an already substantial gain achieved by following Morales and Dr. Kacher. Mostly in cash, I took another position in TZA on June 9 because the macro-economic situation seemed a sure drag on the market. I can't list these reasons here, but I felt that I had caught the rhythms of TZA in relation to the market and was ready to ride it for more profit.

I was also, however, excited and fascinated by the development of the robots. And I made a very good return shorting GDX literally overnight on June 7-8. I decided that I would shoulder hard into a position should the robot go to a signal of strength. I expected the next signal to be SELL. Thus, on Friday morning I was in a condition of contradictory feelings and confusion. The robot said strongly BUY but I was certain the Russell 2000 would go lower.

Friday became horrific for me because I sold the TZA for 1/10th of the profit it would have realized had I held it that day. Moreover, I sought to establish long positions without conviction. At the end of the day I felt like my weight on planet earth had disappeared, and I had become a bouncing specter. I felt this way because my rhythm in the market was lost.

I have spent this week trying to establish and hold with confidence a long position in TNA and IWM. Market makers have made some pocket change from me.

So, here comes my question (if it is that): when I examine the back test data, I see that May 2010 provides a number of examples of when the robot had picked wrongly-- moments in time when the market went lower. Since I was not a participant at that time, I can only imagine how a market can break through the last remaining supports and sink into new depths. How does one's macro understanding/interpretation of a moment affect one's ability to follow a machine?

Throughout this difficult process for me, I have read with great relish the comments of experienced hands, such as Pascal, Billy, Paul Duncan, Mike Scott, Gil Morales, Dr. Kacher, and Ian and Ron. For all this help I am tremendously grateful. But ultimately the choices are mine; the trades affect only my family; I am, at the moment I push the button, utterly alone. I also recognize that my trading decisions are affected very much by my so-called feelings—that is, by my sense of rhythm at work in the market. How do I integrate the feelings and the macro-economic insights with the commands of a robot remains perplexing to me? I can confess I'm trying to remove the feelings, but I worry to do so would leave me disconnected and aloof from the information and trends that define our time. I also worry that at the time I become comfortable with a robot determining my fortune, the market will learn to foil this sophisticated instrument and break it, as it has broken other trend systems.

So this is my confession, and these are my questions. I don’t know whether not any one can or should respond to it. But, regardless of the embarrassment, I’d like to share it. I hope to learn what others experience...[/QUOTE]

Are you ready to stop believing in yourself and start proving yourself?

[url]http://www.petershallard.com/self-doubt-is-useful-and-other-counter-intuitive-psychological-truths/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+PeterShallard+%28Peter+Shallard%29[/url]

Billy

Note: a cross of death appears possible in XLF!

I didn't note this the other day because the Robot is currently long, but XLF (financials) is now the primary shorting target when the Robot goes short.

This replaces XLE (energy) and could change again before the Robot actually goes short again. Rather than just but people every time my model changes a sector selection, I'm only noting the current selection when the Robot gives a new signal.

this is my set of beliefs as far as the relationship between macro events and asset prices (stock prices):
1. Predicting macro events is impossible. Majority of economists and experts in this field are unable to do so. Majority of great forecasters are close to 50% so not very far from random. In the middle of 2008 we were told that subprime did not matter, at the beginning of 2009 that the future is dire. Since really smart people can't predict the macro i don't think i can do it.
2. Direction of asset prices can not be predicted. Also the relationship between stock prices and real economy is not stable - sometimes the market leads the real economy by many months sometimes it does not. Even the best traders/investors can not predict these relationships (even Mr.Morales quoted in this thread had substantial losses in 2009 as he was not well positioned at the beginning of the bull move). Its just really, really hard to do it consistently.
3. One can try to evaluate the market in probabilities (similar to weather i guess - we don't know if it will rain but when we see heavy clouds it does make sense to take an umbrella). Mechanical system might be a great help in assessing probabilities. "Robot" seems to me an excellent system (in fact one may even argue its Sharpe ratio will have to decline in the future it's so incredibly good). It is important to remember that losses are inevitable and can not be eliminated from the system (if there is a system without the losses or with very few of them it usually means it was curve fitted). What matters most is how large the losses are in comparison with the gains. Percentage of wins to losses is secondary (it does, unfortunately affect the psychology). Since i can't control the economy or predict prices i try to focus on what i can do. Proper position sizing, minimizing loss size and not overtrading.

"...I also recognize that my trading decisions are affected very much by my so-called feelings—that is, by my sense of rhythm at work in the market. How do I integrate the feelings and the macro-economic insights with the commands of a robot remains perplexing to me?..."

The question is how accurate your sense of market rhythm is. Collect the data and analyse the win/loss ratio, and calculate the expected returns vs risk. Then you would know if your 'sense of market rhythm' is worth following.

[QUOTE=jt12;13623]What matters most is how large the losses are in comparison with the gains. Percentage of wins to losses is secondary (it does, unfortunately affect the psychology).[/QUOTE]

The three measures: Win Rate, W/L Ratio and Profit Factor can be related to each other using a formula (see: [url]http://www.priceactionlab.com/Blog/2011/04/what-every-trader-should-know-about-the-win-rate-profit-factor-and-payoff-ratio[/url]). WinRate is not necessarily secondary to W/L Ratio from the strict point-of-view of total profit generation, tho I agree with you that it's harder to follow a system with a low Win Rate.

Trader D

1. Billy's link made much sense to me. thanks again.

2. I'm trained in social analysis, music and linguistics. Cultural, social, and economic analsys makes sense to me; mathematics and programming are not my strong suits.

3. I'm very sensitive to sound.

4. I was also, at one time, a highly rated chess player-- no longer to be sure.

I have tested my ideas in paper trading, and my performance is consistently superior to my real-world trading.

I should also note that my results with Think or Swim since last year are literally zero.

On the other hand, with Vanguard's quiet grandpa technologically inferior interface, I reached over 40% in the first five and a half months of 2011.

I think some of my problem with TOS is that it overwhelms me sensually-- too much information and no real capacity, it appears, to reduce the static/noise.

Of course there are many angles from which to ponder such problems. Knowing I'm at wit's end gives me good reason to turn to a robot. Unfortunately, the robot closed me out of a good trade and told me to sit tight at the low end of a market!

many thanks,

[QUOTE=nickola.pazderic;13634]......, the robot closed me out of a good trade and told me to sit tight at the low end of a market!

[/QUOTE]

That can happen with any single trade from any trading system. When N=1, the observation is meaningless.

The relevent measurement is what the outcome would be in 20 trades and more. Based on the data, the Robot will shine.

But I wish I knew a way to contribute intellectually or otherwise to its success...

Now, I need to go buy a new lawn mower...

May be you can make a thread and share your sense of the market rhythm?

If I asked how I could integrate my driving style to improve the performance of my car, no one would have any clue about that b/c I haven't provided any information about how I drive.

The above comment brings to mind the fact that nearly everyone thinks they are an above average driver.

I wonder if traders think similarly? The harsh reality of monetary loss should prove to them otherwise.

In fact, as the responses point out any rythm that I may sense is entirely subjective and not universalizable. And yet, I had a clear sense that I was making a bad choice last week. The problem, to my mind is simply this: from a long term, fundamental decision standpoint, the robot is an exceedingly logical choice-- provided its programmers can adapt it to the feedbacks that it itself may generate! However, from the immediacy of my experience and sense of self and the markets, the long-term choice seemed unreasonable. This contradiction must occur to trend traders frequently, I suppose.

Now I will confess my intution for fun and perhaps profit: I took a large position in TNA at the end of the day. I can give numerous fundamental and technical reasons for this position, but when I made the trade I asked myself: does it sit/feel right? And the answer was yes.

Now I hope very much I'm in alignment with the robot. If, however, the robot directs a sell...I will take note of the irony and...probably put on the trade. I would like it much more, of course, if my sensibilities and judgments aligned perfectly with the device. But alas the human race has not yet evolved into such a cyborg!

Looking for to tomorrow's robot direction and Pascal's comments,

In my "limited" experience, I found that the best way to retain my gains during the bull run is to sit out and wait for the market to correct and settle. The best way to loose my gains is to try to play the short side of the market, even if your predictions are "in sync" with market actions. Shorting is such a difficult game in that you have to have perfect timing for entry and exit in order to consistently be profitable. This has been proven to me, the hard way, across every major top in the past 3 years. I'm starting to get it but I found that being in cash might be one of the hardest thing to do as a trader. But that is often the best thing to do. As Billy pointed out through his decades of playing the market, the only thing that might be closed to being the "holy grail" in trading is patience. And to do that requires an uncommon discipline over your greed and fear emotions.

[quote]
The above comment brings to mind the fact that nearly everyone thinks they are an above average driver.

I wonder if traders think similarly? The harsh reality of monetary loss should prove to them otherwise.

[/quote]
That happens to new drivers, and new traders. Beginner's luck.

[QUOTE]1. Billy's link made much sense to me. thanks again.

2. I'm trained in social analysis, music and linguistics. Cultural, social, and economic analsys makes sense to me; mathematics and programming are not my strong suits.

3. I'm very sensitive to sound.[/QUOTE]

Here is an excellent article by Dr. Brett Steenbarger on the subject of [URL="http://traderfeed.blogspot.com/2007/07/medical-student-who-came-to-my-office.html"]dealing with different learning styles[/URL]. He also links to a brief test (called a [URL="http://www.vark-learn.com/english/results.asp"]VARK Questionnaire[/URL]) that I found quite helpful years ago. I had assumed I had a single dominant learning style, and it turned out I was nearly equal in all four. Knowing this gave me the confidence to trust intuition that emerged from processing disparate sources and forms of information.

Screen trading would seem to suit the visually learning dominant; however, I've read (no longer have the link) that auditory dominant people tend to have more patience sitting in front of a screen for long periods. Perhaps this has to do with the patience it takes to learn an instrument.

[QUOTE]4. I was also, at one time, a highly rated chess player-- no longer to be sure.[/QUOTE]

This would suggest you are able to memorize (chunk) the thousands of possible opens and evolutions of play. Good news, because this is a key skill with trading, but only comes with a lot of time and experience. What is a bit different in trading is the unfolding of moves over time is never exactly the same, rhyming more than repeating.

[QUOTE]I have tested my ideas in paper trading, and my performance is consistently superior to my real-world trading.[/QUOTE]

I would bet this is nearly universally experienced. Paper trading or trading on a simulator can be useful for getting the mechanics of trading down early on, but the results change dramatically (for the worse) once actual trading commences. It can be useful for gathering statistics on discretionary setups as you perceive them in real time.

[QUOTE]I should also note that my results with Think or Swim since last year are literally zero.[/QUOTE]

If that is your first year, you have done well. According to a recent NFA study, more than half of new futures traders have blown out at an account or had a margin call within the first six months. Of course, this is in the highly leveraged futures world, but I would bet first year results are not rosy for most in any market.

[Quote]On the other hand, with Vanguard's quiet grandpa technologically inferior interface, I reached over 40% in the first five and a half months of 2011.

I think some of my problem with TOS is that it overwhelms me sensually-- too much information and no real capacity, it appears, to reduce the static/noise. [/QUOTE]

Perhaps the less visually stimulating platform is the way is for you. Some traders trade with surprisingly little information in front of them. For instance, Al Brooks, a well-known eMini day trader, trades a 5 minute chart with a 20 period EMA. That's it. He builds an entire discretionary system around that one chart, and says anything more is too confusing to any person. I don't think he gives enough weight to what Steenbarger addresses above, but his methodology works for him. [As an aside, I also think that by monitoring the tick by tick development of each 5 minute bar, he has unwittingly internalized a form of tape reading.]

[ATTACH=CONFIG]8866[/ATTACH]

A 747 pilot can monitor this entire instrument panel and fly the plane at the same time. Not every light or dial means something significant at every moment, but each is valuable at certain inflection points. Some traders thrive by monitoring many time series, and through experience are able to discern what is relevant.

So what is relevant? Beginning and intermediate traders spend a lot of time trying to answer that question, often getting suckered by gimmicks. In the end, you have to find what helps you see the market best, particularly being able to anticipate and sense supply and demand. Avoid grail searching.

[QUOTE]Of course there are many angles from which to ponder such problems. Knowing I'm at wit's end gives me good reason to turn to a robot. Unfortunately, the robot closed me out of a good trade and told me to sit tight at the low end of a market! [/QUOTE]

Many discretionary traders turn to systems trading, only to find the same problems they had as a discretionary trader pop up with systems trading. Tweaking after every drawdown, overriding signals etc. If you've mastered discretionary trading, you can probably override a system with success. If not, and you're not following the signals exactly, it's important to realize you are still trading discretionarily.

More good news, though (perhaps). If you're at your wit's end, you might be at the confusing stage that precipitates a breakthrough. I believe you can make that happen if you keep digging.

My last comment.

The reason to go with a mechanical system, is b/c a well tested mechanical system helps the traders to avoid the biggest plaque in trading, ie emotion.

To inject 'sense and feel' back into a well tested mechanical system, appears to defeat the original purpose.

Good luck to all.

[QUOTE=jt12;13623]this is my set of beliefs as far as the relationship between macro events and asset prices (stock prices):
2. Direction of asset prices can not be predicted.[/QUOTE]

I would say that the right way to look at how to work with the market is to consider trading or investing as an activity where you are estimating the distribution of future prices. How that is done can be any of a million different ways. As long as you (figurative "you") can estimate future price distributions better than most of your competitors (in time frame, in security types, etc.), then you can do well. No one method has an inherent advantage over any other -- simply because if it did, more people would do it, and it would lose effectiveness.

Future stock price distributions can be well estimated by Pascal and Billy's robots as we are seeing in real time. On the complete other side, they can also be very well estimated by deep fundamental analysis over long time periods without regard to technical analysis. Numerous of the world's richest people did exactly that.

The main thing is to find a method that matches one's own personality and that has an inherent edge using one's own skill set. The problem is that I believe it may take 10 or more years to find that combination. Warren Buffett would be completely lost with what we're doing here. And we would be completely lost with what he is doing. But we can all be successful if we find the correct combination for each of us.

-Mike

Bob is a single best valuable source for all kind of information. This is great.

I am grateful for the replies. They are all insightful and helpful.

I've looked over my trading record and there have been stretches like this past week previously. A series of green positive trades is interrupted by a string of red losers. The nightmare begins when one (in this case, me) tries to win back the losses in hurry and the losses compound. Every athlete or chess player or salesperson or, yes, trader, knows the feeling I believe. In baseball, hitters have slumps. Most of the time there is no single answer to free the performer from the quicksand. I would bet, however, that renewed patience and a trust in one's inner self (which Billy quickly pointed out) are probably most important to recovery.

Think or Swim is a very powerful trading platform. High Growth Stock software is similarly powerful. Often I feel overwhelmed with one or the other or both. I enjoy very much the metaphor of an airliner cockpit. I fantasize about constructing a high powered computer system with multiple monitors-- especially when I see photographs of traders who operate effectively and successfully in such an environment. But I also know that the graduate student who introduced me to trading conducts research and make trades with only a small lap top. She can't understand why one might need two screens and laughs at how hyper I appear on skype during the trading day. Somehow I need to turn down the noise.

If I have one strong suit from years of teaching, it is this: I'm able to spot people who do quality work and who have substantial potential to contribute. I'm here now because I see tremndous potential for me and for others in the group assembled here. This should be fun and profitable for all.

Most gratefully,

[QUOTE=nickola.pazderic;13658] The nightmare begins when one (in this case, me) tries to win back the losses in hurry and the losses compound. [/QUOTE]

Nickola,

Long time members of the old VIT group know that this is exactly what happened to me last year (2010). I had a compounded YTD gain of over 80% in my discretionary accounts until near the end of May. Then, a series of losing discreionary trades compounded 6-7% trades losses without interruption to bring my accounts in the red just prior to the explosive September bull run. I had lost all confidence in my trading, so when I went long at that time I only started trading 1/3 of my previous position sizes and I could never make it back in spite of the best opportunity to do so.
Besides the psychological healing process, I scrutinized every one of my losing trades to find out what could have avoided the disaster. It was not risk management. My discipline was strict about cutting losses fast according to my trading plan. It was the compounding effect of the "small" losses that was the culprit.
My risk management was and still is based on my multi-pivot methodology. It gave me "optimal" buy and short entries for each day with an "optimal" stop loss. But the decision to take the buy or short entry on any day was entirely discretionary; like you I was following my feeling for market rhymes. And i've been 100% wrong for three long painful summer months. Then I looked back at all the 20 DMF signals over the period and I immediately saw that simply trading my methodology in the direction of the 20DMF instead of my best market direction guesses would have avoided most of my disaster. And, at a minimum, I would not have experienced the vicious negative compounding effect. And I would have started the bull run in September on full margin from accounts up 65% YTD.

On his side, Pascal was doing very well compared to me but analyzing his trades he noticed he could improve a lot the risk management of his trades using my methodology. His Einsteinian reflex was to backtest and backtest and backtest, filtering out every noise that didn't provide any risk-adjusted edges.

And the robot was born, optimizing the mixing of proven outperforming market signals with a proven outperforming risk management system.

Billy

Billy,

Your comments really hit home as I fnid myself trading too much and have lost much confidence, trading on emotions. I'm even trading the robot signals too much! Regarding the most recent primary IWM robot trade on Fiday, and without getting too personal, would you lever yourself up on this trade, as the signals are quite strong?

Dave

[QUOTE=nickola.pazderic;13634]1. Billy's link made much sense to me. thanks again.

2. I'm trained in social analysis, music and linguistics. Cultural, social, and economic analsys makes sense to me; mathematics and programming are not my strong suits.

3. I'm very sensitive to sound.

4. I was also, at one time, a highly rated chess player-- no longer to be sure.

I have tested my ideas in paper trading, and my performance is consistently superior to my real-world trading.

I should also note that my results with Think or Swim since last year are literally zero.

On the other hand, with Vanguard's quiet grandpa technologically inferior interface, I reached over 40% in the first five and a half months of 2011.

I think some of my problem with TOS is that it overwhelms me sensually-- too much information and no real capacity, it appears, to reduce the static/noise.

Of course there are many angles from which to ponder such problems. Knowing I'm at wit's end gives me good reason to turn to a robot. Unfortunately, the robot closed me out of a good trade and told me to sit tight at the low end of a market!

many thanks,[/QUOTE]

Pascal or Billy,

I am trying to get an understanding as to how the 20 DMF buy signal relates to the sector tables. The sector table currently shows only one sector, the jewlery sector, with a plus sign, meaning that it is the only buy candidate at the moment. On the other hand the 20 DMF is giving us a signal to buy the market. On the surface it seems that the 20 DMF is telling us that the market is deeply oversold and that we should buy now; yet, the sector tables do not seem to support this recommendation. Is the 20 DMF merely acting as an overbought/oversold oscillator? Markets can remain oversold for some time and can drop dramtically after major support is breached. Or, is the 20 DMF detecting large player accumulation going under the radar? Your answer will be so helpful?
Steve

[QUOTE=slgerritz;13710]Pascal or Billy,

I am trying to get an understanding as to how the 20 DMF buy signal relates to the sector tables. The sector table currently shows only one sector, the jewlery sector, with a plus sign, meaning that it is the only buy candidate at the moment. On the other hand the 20 DMF is giving us a signal to buy the market. On the surface it seems that the 20 DMF is telling us that the market is deeply oversold and that we should buy now; yet, the sector tables do not seem to support this recommendation. Is the 20 DMF merely acting as an overbought/oversold oscillator? Markets can remain oversold for some time and can drop dramtically after major support is breached. Or, is the 20 DMF detecting large player accumulation going under the radar? Your answer will be so helpful?
Steve[/QUOTE]

The relation is explained in my June 13 comment of the day. The short version is that in a steep downtrend, money will move out of most sectors, but not uniformely. Some sectors will be sold before others and hence, when the selling stabilizes, some sectors will start attracting money while others will still go deeper in the red. The 20DMF tries to catch the point when there are more sectors that attract buyers than there are sectors that attract sellers.

That can also be seen in the figure that counts the number of days before a buy signal. When this figure reaches 0, it means that the majority of the sectors that had been waiting to issue a buy signal have done so. This is usually when longer term systems like IBD would detect a follow-through. So the 20DMF is very early and back-tests have show that this offers better returns, although it also carries more risks of drawdowns before a reversal. Large funds would go for slower systems, because they have more funds to invest. Individual traders have the advantage of being able to jump out very fast even without anyone noticing.

With the robots, we have a very good way to prevent drawdowns, because the robots have volatility based trailing stops and an entry close to a strong support level (for long plays.) We can see it with the current trade: it is very frustrating because it does not take off, but we have a low entry and a tight stop with a very good probability of gain. If the stop is taken out, the robot will turn to cash and will reassess the situation.

[url]http://www.effectivevolume.com/content.php?774-Comments-for-June-13-2011[/url]



Pascal

Pascal,

Would it be possible to obtain an Excel file that matches the dates of the 20DMF buy signals and the number of days before a buy signal going back to 2007?

Thanks.

[QUOTE=davidallison@shaw.ca;13706]Billy,

Your comments really hit home as I fnid myself trading too much and have lost much confidence, trading on emotions. I'm even trading the robot signals too much! Regarding the most recent primary IWM robot trade on Fiday, and without getting too personal, would you lever yourself up on this trade, as the signals are quite strong?

Dave[/QUOTE]

Dave,

Your question is the main reason why we have added the LT/ST statistics to help traders who only want to take the strong signals or increase their leverage on such signals. About 80% of the simulated returns came from about 20% of the signals, coinciding with statistical strong buy LT/ST status.
However, the final decision is only yours. Surely, increasing leverage at an opportunistic vicinity of the current stop loss and using that stop after your entry can provide excellent reward/risk potential. But increasing leverage on strength may be a bad idea since we are still in a "dead cat bounces" environment and upside follow-through is far from certain at this stage.
Billy

[QUOTE=nickola.pazderic;13642]

I took a large position in TNA at the end of the day. I can give numerous fundamental and technical reasons for this position, but when I made the trade I asked myself: does it sit/feel right? And the answer was yes.

[/QUOTE]

Nickola, consider the possibility that your "yes" answer made it more likely that you entered a bad trade, not a good one. The market doesn't care how you feel. I have seen reports (consistent with my own experience) from investors who follow a disciplined strategy that their best trades have tended to be the ones about which they felt the worst when entering them, and their worst trades came when they felt the best.

Cheers,

Neil

I never thought this thread would last so long or be resurrected. Well, since it is, I'll share another confession:

[I]I missed the big move this week in IWM. [/I]

However, I'm not concerned about that loss terribly.

Indeed, it provides a good lesson for me.

One aspect of the market that attracts me is that victories and losses are clearly visible on the balance sheet-- unlike other social realms where wins and losses are calibrated in secrete and result in unpredictable outcomes.

I also confess that taking losses in the market has become increasingly less stressful for me. In November when the market turned against me, I experienced a terrible migraine headache. A couple months later, I had a second less powerful one. And some time after that, I had 1/2 a migraine. And now, I feel a little agitated--see the beginning of this thread-- but I believe there will be another, better day.

Partly this faith comes from my experience and partly this comes from the work here. I'm amazed and inspired by the intelligent discussion and serious analysis that goes into many threads and comments. I literally cannot wait to read the comments after I wash my face in the morning. I hope it continues like this, and I hope I continue to improve, too. To improve certainly means to become less emotional and more disciplined.

Here's to the next challenge that the market presents and our capacity to adapt, overcome, and prosper.

Nick,

I liked the books from Steenbarger, when it comes to the softer part of our chosen profession.

Ernst

Hmm.... more authors sitting on my bookshelf.

Maybe time to add these to the online book group.

I'll add this to the other thread and figure out how to mobilize this group.

Ernst, while we're at it, is Larry McMillan's book the bible? Or do you have other suggestions?

Ilona

[QUOTE=Neil Stoloff;13880]Nickola, consider the possibility that your "yes" answer made it more likely that you entered a bad trade, not a good one. The market doesn't care how you feel. I have seen reports (consistent with my own experience) from investors who follow a disciplined strategy that their best trades have tended to be the ones about which they felt the worst when entering them, and their worst trades came when they felt the best.

Cheers,

Neil[/QUOTE]

The IWM robot for example often takes trades that I feel look like terrible setups based on my discretionary feelings.
For example the last one, you had price below a declining 5 day MA below a declining 10 day MA below a declining 20 day MA below a thick Ichimoku cloud resistance on the 60 min. Who in their right mind would take such a trade on the long side ? The robot apparently, and so far it turns out to be correct.