Confessions and Questions

[Billy]

The nightmare begins when one (in this case, me) tries to win back the losses in hurry and the losses compound.

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

[davidallison@gmail.com]

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

[slgerritz]

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,

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

[Pascal]

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

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.

http://www.effectivevolume.com/conte...r-June-13-2011



Pascal

[adam ali]

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.

[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

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

[Neil Stoloff]

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.

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

[nickola.pazderic]

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

I missed the big move this week in IWM.

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.

[ernsttanaka]

Nick,

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

Ernst

[ilonaross]

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