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Filter Exchange · Heres an Awesome Long Filter for all you Greybeards.
guru_trader
msg #40609
1/23/2006 4:56:32 AM

What would you recommend as an exit filter for backtesting this type of trade strategy?


Filter Exchange · Heres a Penny stock filter that will blow your mind!!!
guru_trader
msg #40608
1/23/2006 4:56:07 AM

What would you recommend as an exit filter for backtesting this type of trade strategy?


General Discussion · Article: Averaging Down is a Losing Proposition
guru_trader
msg #40560
1/21/2006 3:06:00 PM

Source: http://biz.yahoo.com/tm/060120/13812.html

TradingMarkets.com
Averaging Down is a Losing Proposition
Friday January 20, 9:27 am ET
By TradingMarkets Research

Many traders, especially those new to the markets, have a habit of "averaging in" to trades that aren't going their way. The following reasoning is used: If this trade was a good entry at my earlier price, then it must be an even better entry now! On top of that, the trader gets caught up in the idea of improving his "average entry price."

DaytradeTeam traders have seen this mistake all too often...

Unfortunately most traders learn the hard way that this logic simply does not hold up. This is a natural response that everyone has, which is exactly why it doesn't work in a market. The reasoning that "this trade was good then so at this price it must be even better" is based on the flawed assumption that the first entry price was a good one.

[Chart here: http://biz.yahoo.com/tm/060120/13812.html]

Pride tries to keep us from realizing that the very fact that the position is a loser right now is PROOF that the first entry was NOT a good entry (at least not yet). In fact, the stock or option has moved in the opposite direction the trader thought it was going to move, indicating that either the analysis/reasoning used to take the position in the first place was incorrect or at the very least the reasoning has been weakened by the market action since the position was established. This does NOT mean that the trade is no longer a good one just because you did not make your initial entry at the perfect moment (who does?) -- it just means that you probably shouldn't be willing to put more capital at risk now that it has started to prove you wrong.

The other part of the reasoning, that "this will improve my average entry" is simply a mathematical illusion.

By "averaging in", you don't just move your entry closer to the current price (the part Pride makes us focus on), you also double your losing position (the part we don't want to see). Instead of 1000 losing shares at 10.25 you now own 2000 losing shares at 10.00 -- BIG DEAL -- you are still down $500 because the stock price is still at $9.75 and now you own 1000 extra shares of a stock that is in a downtrend instead of the uptrend you predicted!

Don't get me wrong, it is not always a mistake to increase your position on a losing trade -- some circumstances (such as the stock sitting right at a very strong resistance or support level) warrant it. If you absolutely must add to a losing position, always do so with the conviction necessary to exit the ENTIRE position quickly should the trade move against you (through that critical support level you saw, etc.) from there.

On the flip side of the coin is the exact opposite reasoning and the exact opposite results over time. Adding to winning positions is a practice rarely done by even the most experienced traders, but one that can lead to increased profitability over time. This is exactly the strategy that our #1 ranked Day Trading System has used successfully since 2000. The next few times you hear pride telling you to "lock in your profits", double your position and set a stop at your new "average entry". After 5-10 of these trades you will be surprised at what a profitable (and a confidence building) method this can be.

Once again, traders who ignore pride and trade the opposite of emotion will reap extra profits and a much more pleasurable trading experience. DON'T MISUNDERSTAND ME -- you will not profit more every time you add to a winner and you won't lose every time you add to a loser -- I am talking about trading strategies to work OVER TIME -- anything can happen in the window of a few trades.

Andy Swan

Andy Swan created and co-founded DaytradeTeam five years ago on a principle of empowering individual stock and options traders with the techniques and analysis methods typically reserved for elite professionals. His expertise in technical analysis and commitment to educating members earned DaytradeTeam a top-ranking among advisory services for several years. Go to www.TradingMarkets.com to find out more about a free trial to Andy's live trading room.


General Discussion · Techie + Fundie = Trendy (!?%@#)
guru_trader
msg #40548
1/21/2006 1:40:37 PM

What makes the market tick?

Take, for example, the drop of the Dow on Friday ...

"Stocks plummeted amid fears of an imminent terrorist attack on the United States and surging oil prices. The market took a further pounding after several blue-chip firms announced earnings downgrades. The Dow erased its gains for 2006. Citigroup and GE joined a growing list of companies, including chip maker Intel Corp. and Internet media firm Yahoo Inc., whose quarterly results have disappointed investors."
~Source: http://finance.news.com.au/story/0,10166,17890294-462,00.html

What?! I didn't notice anything; my stocks continued rising on Friday.


General Discussion · Predator or Prey: What pond do you play in?
guru_trader
msg #40544
1/21/2006 12:58:38 PM

You are welcome


Filter Exchange · help with dma and going back in days
guru_trader
msg #40517
1/20/2006 3:42:04 PM

Are you sure the results aren't correct?

Keep in mind that when you backtest any displaced (DMA) filter, you won't see the crossing over on the chart. The DMA curve shifts positions every day as it moves forward, so when you look at a "backtest" or "historical chart" you'll only see where it did trigger an entry/exit at that time.

Hint:
What I like to do is plot a MA(14) along with the DMA(28,-14) ... this will show you the position where the DMA(28,-14) was in relation to price at that time. Then, look at how the DMA(28,-14) was approaching the MA(14) ... from above or below. After the crossover, time your entry with the RSI(2) entry filter.


General Discussion · The ABC of Stock Speculation
guru_trader
msg #40512
1/20/2006 2:47:32 PM

Yes, thank you, please start that thread


General Discussion · Bad news!
guru_trader
msg #40511
1/20/2006 2:29:43 PM

Why are they dumping the Canadian exchange?


General Discussion · Predator or Prey: What pond do you play in?
guru_trader
msg #40498
1/20/2006 2:01:09 AM

Here is one view of the markets I find very entertaining ...

Source: http://www.hardrightedge.com/wizard/ss1.htm

PREDATOR OR PREY?

Each timeframe in the market has a completely different set of players. Each one has its own predators and its own prey. Do you know your timeframe? The scary part is that if you don't know and stick to your timeframe, you're going to be someone's prey and never know why.

OK, so what are these timeframes? Let's use a pond and fish analogy. The first pond is the 2 minute timeframe. The others are the 5 minute, 15 minute, and daily ponds. Don't worry too much about the physical property of these ponds. For instance, fish in the 2 minute pond can feed on fish in the 15 minute pond. But, the pond analogy is still useful.

The 2 minute pond is the group that takes money in a way that we call slippage. They nasty little devils are fast and furious. It is amazing to watch them. They are really big fish, with tiny little mouths. They spend their day eating teenies. It takes a lot of teenies to satisfy them. So they have to be quick and repetitive. They'll choke on big pieces of meat (large positions for a long time), so they keep their bites small. These fish are comprised of Market Makers, Specialists, abridgers, and scalpers. These guys are trying to take money from all the other fish - including each other.

The 5 minute pond is full of day traders trying to take money from the 15 minute pond. These are the fish looking for intraday trends. Their mouths are built for 1/4, 1/2 or full points. Where the 2 minute fish worry about not getting enough volume, these guys worry having too much. "Who am I going to buy 3,000 shares from and how will I unload 'em." If they try to eat too much at once, their prey might panic and run away.

The 15 minute fish are big ones. These guys work all day long to fill one order. These are the institutional traders or Market Makers acting as traders. They also worry about how much volume they move, but sometimes they just can't hide it. So, they can't buy or sell all at once. They also have to hide their tracks, because the 5 minute fish are trying to spot them and eat from the same plate.

The daily pond is a funny mix. There are two main groups. There are the mutual funds and the Investradors. (I call them this because when a position goes away from them they become Long Term investors, and when they are making money, they are traders. This confusion between Investor and Trader begets the term Investrador.) Investradors are the bottom of the food chain. They supply the money for all the other fishes. Very kind of them really. Fortunately, 80% of them are philanthropic, so there is always a stream of new funds.

The Mutual Fund fish are really big. They move from place to place in the pond, swallowing great masses of Investradors. How can they do this? Can't everyone see them coming? Aren't they the slowest fish in the pond? Yes to all of the above. So the Mutual Funds must use bait. Mutual Funds swim around with their mouths open wide. Around this mouth are numerous goodies to tempt the Investradors. They dangle Research Alerts, Upgrades/Downgrades, Sector Analysis, cover stories on Fortune Magazine, etc.

Let's take a look at this food chain from top to bottom. All the money comes from the Investradors. The mutual funds eat them alive. However, in order for the Mutual Funds to move around they need the help of the Institutional Traders. Kind of like tug boats pushing a freighter around the bay. So once the Mutual Fund fish eats all the Investradors on one path in the daily pond, he calls in the Institutional Trader fish to help change direction. These fish move millions of dollars worth of Investrador flesh. So they tell the Mutual Fund, "OK, I can do it, but you'll have to wait a day or two." Then they take the flesh to the 15 minute ponds and start moving it. This creates eddies in the waters of the 15 minute pond. A good institutional trader with a small amount of Investrador flesh in a big 15 minute pond can't even be seen. However, the larger the order and smaller the pond, the bigger eddies.

Now the astute 5 minute fish is watching the waters of the 15 minute pond. Here he notices something - a trend. The waters of the 15 minute pond can be very murky. However, it is a little easier to spot these moves in the 5 minute pond. That big fish sometimes gets too close or makes a mistake and the Daytrader Fish spots his action. He jumps in front of the Institutional Trader and steals his pound of flesh and moves on. Institutional Fish don't like Daytrader Fish.

During this entire process, the 2 minute fish run around cleaning up all the little leftovers. Finally, all the Investrador flesh is gone. The pond is red with blood, but the fish are feed.

What pond do you play in? There is money to be made in each pond. But only if you know who your prey is and who is your predator.

You can be a 2 minute fish. Are you fast? Are you happy with making teenies? But remember these guys are cannibals.

You can be a 5 minute fish. Are you patient? Do you mind scanning constantly looking for signs of 15 minute fish? But when it is time to act you better be fast and decisive. And you better like 1/2 point mouthfuls.

You can be a daily fish. Can you handle the big swings in price? Can you watch your stock drop 3 points, while waiting for it to gain 9?

Here's a table to help you evaluate just whom you are competing with:

[Original table here ... http://www.hardrightedge.com/wizard/ss1.htm]

NAME
POND
HOLDING PERIOD
FOOD SOURCE
QUALITIES

Investradors
Random
No clue
No Clue
No Clue

Mutual Funds
Daily
Weeks
Investradors
Huge amounts of money, Marketing/research groups, and a tackle box full of Investrador lures.

Swing Traders
Daily
Days
Investradors
Smart, careful. Decision-making after market hours.

Institutions
15 Minute
Hours
Mutual Funds
Deep pockets, Move Markets over short timeframes, very astute, inside information.

Day Traders
5 Minute
Minutes
15 Minute Fish
Waits for rock solid plays. Decisive. Decision making during market hours.

Momentum
2 Minute
Seconds
Investradors
Timing High Volume, High Volatility Stocks.

Scalpers
2 Minute
Seconds
Everyone
Happy just going click, click, click all day long.

One of the most important follow-on lessons here is what timeframes to watch. Basically, you are taking money from the timeframe above you and giving money to the timeframe below you. For example, if you measure your holding period by minutes, then trade off a 5 minute chart. However, you need to monitor the 15 minute and daily charts for opportunities. Likewise, use the 2 minute chart to monitor that pond for hazards. But remember if you are playing in the 5 minute pond then stay there. Don't move from pond to pond.

Now can you decide what pond you are in? Know your prey. Know your predators.


General Discussion · The ABC of Stock Speculation
guru_trader
msg #40497
1/20/2006 1:52:31 AM

nikoschopen,
I'm glad you've been posting those excerpts from "The ABC of Stock Speculation" by S.A. Nelson.

I often wonder why the price of one stock rises and falls with regularity, while another stays put over long periods of time.

What really drives the price of a stock up and down?

Several people on this forum have poo-poo'd the role of "funny-mentals" affects on stock prices. I understand their reasoning, but I'm not sure how to integrate that concept since I have noticed how earnings announcements have often resulted in a gap-up/gap-down in a stock's price that my technicals didn't hint at. Aren't long-term investors motivated by earnings announcements and fundamentals?

What about insider trading activity affecting a stock's price? Is there an indicator specifically for insider trading I can use on SF ... it could have saved me a few times. :D I lost some money on a stock recently that I was holding for intermediate-term that looked good with technicals, but those technicals didn't catch the director of the company, along with several major holders, selling a good portion of their shares (my fault for not following that better).

Comments like the following make me really think about how the market works, "We've been struggling as a stock, but not as a company," says Craig Rogers of Cell Robotics.


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