To what instruments is tech. analysis applicable?

[Thales]

Without wishing to sound facetious - how many do you know?

A solid dozen at-home retailers (while watching many dozens try and fail), and too numerous to count from my prop/street days. I've been around.

Best Wishes,

Thales

 

[dbphoenix]

(bold added by Thales)

Everyone I know who has learned to day trade successfully has done it through observing the market and learning to think for themselves.

Best Wishes,

Thales

Hey, Thales, long time no see. You're not dead yet?

How's the daughter? Still wrestling the market to the ground?

Db

 

[mangetout]

Why are you so hostile to new members?

Well, he did spend 13 years on Elite Trader.

 

[Thales]

Hey, Thales, long time no see. You're not dead yet?

How's the daughter? Still wrestling the market to the ground?

Db

I only look dead, Db!

My oldest daughter is still trading, though she only day trades in the summer (can you believe she is now a sophomore and just a few months shy of her sweet sixteen?!)

My younger daughter gave it a try, but it wasn't for her. She wants to be a chef, so who am I to stop her?

My son just turned 10 and he is getting started. He is making a good start, but too early to tell how good will be his finish.

I see you're still putting up the good fight, Db. Not sure where your patience comes from. If only you could preach to the choir rather than the world wide web!

Best Wishes,

Thales

 

[dbphoenix]

Well, he did spend 13 years on Elite Trader.

Actually 4, which was at least 2 too many.

 

[IFeelFree]

Everyone I know who has learned to day trade successfully has done it through observing the market and learning to think for themselves.

True, but you also need a sound trading system. Some systems are better than others. I've been trying to make the case for algorithmic trading methods, especially those based on statistical arbitrage. Such methods are widely used by institutional traders and I think they can be successfully implemented by day traders and swing traders who have a good math/programming background.

 

[timsk]

Hi Thales,
Thanks for your earlier reply to my question. With your experience, I hope to be reading a lot more from you.

. . .My son just turned 10 and he is getting started. He is making a good start, but too early to tell how good will be his finish.

With regard to your comment about successful traders "observing the market and learning to think for themselves" - I'm curious as to how much direction you give your children? I imagine there must be times when you see them making mistakes and have to bite your lip to ensure they learn from their experiences?

. . . I see you're still putting up the good fight, Db. Not sure where your patience comes from. If only you could preach to the choir rather than the world wide web!

I assume - and hope - that this comment isn't in response to the exchange between dbp and IFeelFree which, IMO, is of the highest calibre and exactly the sort of thing I wish there was more of here on T2W. Great contributions from both members. Dbp is more than capable of speaking for himself (obviously), but I'd like to think he agrees with me on this, as IFeelSure (do you see what I did there) - he'd much rather have an exchange of views with someone like IFeelFree - than with some other (past) members he's crossed swords with!
:cheesy:
Tim.

 

[dbphoenix]

I see you're still putting up the good fight, Db. Not sure where your patience comes from. If only you could preach to the choir rather than the world wide web!

Best Wishes,

Thales

Not much preaching anymore. Since the last time we talked I wrote the SLA (see my signature), so it's pretty much take it or leave it. If one elects not to take it, that's okay by me. It's now written and done so I can focus my attention on other things.

Hard to believe it's been seven years since your daughter annotated those charts.

Db

 

[Thales]

With regard to your comment about successful traders "observing the market and learning to think for themselves" - I'm curious as to how much direction you give your children? I imagine there must be times when you see them making mistakes and have to bite your lip to ensure they learn from their experiences?

I keep it simple for them. Some Darvas, some O'Neil, some Kroll, and a few others, e.g. selections from Wyckoff the original, Livermore's How to Trade (the original), etc. Can't say I've ever bit my lip. In each case they started by simply watching a live data feed without our ever having discussed trading, orders, stop losses, profit targets, etc. My oldest took to it quickly, and has turned a ridiculously small forex micro account into a rather impressive futures trading account in six years. My younger daughter did well, but she didn't enjoy it. My son is just spending time watching a live data feed and replay. He really has no idea as to how any of what he sees is eventually to translate into a trading plan.

I assume - and hope - that this comment isn't in response to the exchange between dbp and IFeelFree

For some reason today I got in in my head to see what some of my old TL colleagues might be up to, assuming I could find any who were still active. Found db over at ET but then came to realize he'd been sent packing and that he was now posting over here. What I said was based on the general sense I derived from some of the interactions he has had with other folks.

 

[Thales]

True, but you also need a sound trading system. Some systems are better than others. I've been trying to make the case for algorithmic trading methods, especially those based on statistical arbitrage. Such methods are widely used by institutional traders and I think they can be successfully implemented by day traders and swing traders who have a good math/programming background.

No argument from me on needing a sound system. No problem accepting the validity of certain stat-arb models as yielding consistently profitable results. I do not agree with the random market hypothesis. And I am certain that the stay-at-home retail trader wannabe will do much better focusing on price action rather than statistical arbitrage. And by saying that, I do not mean to imply that statistics do not play an important role in the development of a sound trading plan based on price action.

 

[Thales]

Hard to believe it's been seven years since your daughter annotated those charts.

Db

It wasn't hard for her. She learned to draw straight lines and count to 3 in pre-school, and I introduced her to trading when she could still believe that it really could be that simple.

You might be interested to know that this past summer her preferred day trading vehicle was the NQ. I don't trade it myself, but on days she is home right after school, we'll often put it up on one of our screens and play some shouldawouldacoulda while we watch the close.

 

[dbphoenix]

It wasn't hard for her. She learned to draw straight lines and count to 3 in pre-school, and I introduced her to trading when she could still believe that it really could be that simple.

You might be interested to know that this past summer her preferred day trading vehicle was the NQ. I don't trade it myself, but on days she is home right after school, we'll often put it up on one of our screens and play some shouldawouldacoulda while we watch the close.

If you haven't -- or even if you have -- gone into mean reversion with her, send me a PM. I have something which may be of interest.

Db

 

[IFeelFree]

No argument from me on needing a sound system. No problem accepting the validity of certain stat-arb models as yielding consistently profitable results. I do not agree with the random market hypothesis. And I am certain that the stay-at-home retail trader wannabe will do much better focusing on price action rather than statistical arbitrage. And by saying that, I do not mean to imply that statistics do not play an important role in the development of a sound trading plan based on price action.

The random walk hypothesis (as applied to market prices) is not absolutely true, it is an approximation. If it were absolutely true, it would be impossible for traders without inside information to consistently make money in the markets. (Obviously, some traders do make money consistently.) Some studies have presented evidence that supports the view that there are trends in the stock market and that the stock market is somewhat predictable. Some evidence indicates that markets are about 95% random and 5% deterministic.

Savvy traders use a wide variety of methods to gain an edge, even their own intuition. (There are many stories of the legendary trader, Jesse Livermore, having "premonitions" that led him to place highly profitable stock bets.) Statistical arbitrage methods model market prices as a combination of random and deterministic contributions, and then seek to maximize returns by minimizing the random component and maximizing the deterministic component. One of the advantages of algorithmic trading is that I don't have to stay at home and stare at streaming charts all day. I run my software once a day and execute trades when conditions look promising. I now spend less than 5 hours a week devoted to trading activities (although I must have spent hundreds of hours learning about statistical arbitrage and developing my software.). In the past 3 1/2 months, I've made 13.3% returns in live trading. (That puts me on track for >50% average yearly return I expected from a year of paper trading.) That's good enough for me.

 

[dbphoenix]

While everyone is entitled to believe whatever they choose, it is important on message boards like these to be more exact than one might be expected to be in the comments section of an article or blog. We have moved from a certainty that the market is random to an approximation and from conclusive studies to "some evidence". We have also moved from your >50% average yearly return to the results of a year of paper trading.

As for 13.3% over 3 1/2 months, that's fine. At least you are not in the red. However, there's nothing particularly remarkable about it. Even so, if you can do it "algorithmically" without having to babysit your trades, that's fine. But it's hardly the only way, much less the best way. It's just the best way for you, like tape reading was best for Jesse Livermore. And it's worth remembering that if statistical arbitrage methods were all there was to it, the success rate amongst traders would be much higher than it is.

Db

 

[IFeelFree]

I've never said that the markets are purely random. I've always tried to be clear that they have a large random component (when analyzed via statistical methods), but also a small deterministic component. Investors are not entirely rational which allows mispricings, and so, trading opportunities. Traders attempt to exploit these small (and occasionally not-so-small) mispricings to make profits. In early 2008, I sensed that investors were becoming too complacent and I moved the funds in my retirement account out of the stock market and into a money-market fund. In March 2009, I sensed that the panic and despair had become extreme, and I moved all my money 100% back into the stock market. This is an example how we try to take advantage of mispricings. Algorithmic trading methods are another way of doing that.

I've discussed my trading history using statistical arbitrage in other threads, such as:

http://www.trade2win.com/boards/technical-analysis/210318-trading-using-statistical-arbitrage-vs-traditional-technical-analysis.html

I don't claim extraordinary results, but they are pretty good, and time will tell whether my approach continues to perform well. It's always possible to get higher returns using more leverage, but that entails greater risk, as well. (See, Long Term Capital Management.) I'm using 2:1 leverage, which is as much as I feel comfortable with.