Important Posts by Smart Trade_ Part1
- Thread starter Gaur_Krishna
- Start date
Originally Posted by amandeep86 View Post
ST da,
Please share your thought process behind buying NF yesterday....
I do only intraday ,but planning to start swing in NF Futures/options ,Please advise how much capital per lot is required for the same and building a trading plan around it ...
Thanks in advance
---------------------------------
Simple thought process....in swing trades I follow intermediate /visual trends which is up...there is no sign that it has changed to downtrend. We get minor downtrends and uptrends every day...but our eyes for swing trades should be on visual/intermediate trends.
In swing trades in uptrend I buy the extreme panic, and sell the rallies to buy the dips again. But my overall holding will be long....I am fully aware and prepared for biting a bullet and take 40-50 points loss in a trade when the trend changes...but till then I will have plenty of points in my pocket ( in the current trade, half of my month's target is already done in just 1 day....so will be more than happy to take a 50 points SL in swing trade....as I have already pocketed many such 50-100 points moves already...
I dont predict the market ...how far it will go etc....but many will remember that when Combo hit its stoploss, I had posted that now after hitting 8300 stoploss, the market will not go up by 50-100 points but will do 300-400-500 points now...so that also is in the background though I cannot say where the current trend will end....all those channelling, Fibonacchi etc are just estimates...just be with the trend....and dont say "Market Topped Out " ,Negative Divergence etc when we see a minor downtrend.
The above is enough for being a happy trader.
Smart_Trade
ST da,
Please share your thought process behind buying NF yesterday....
I do only intraday ,but planning to start swing in NF Futures/options ,Please advise how much capital per lot is required for the same and building a trading plan around it ...
Thanks in advance
---------------------------------
Simple thought process....in swing trades I follow intermediate /visual trends which is up...there is no sign that it has changed to downtrend. We get minor downtrends and uptrends every day...but our eyes for swing trades should be on visual/intermediate trends.
In swing trades in uptrend I buy the extreme panic, and sell the rallies to buy the dips again. But my overall holding will be long....I am fully aware and prepared for biting a bullet and take 40-50 points loss in a trade when the trend changes...but till then I will have plenty of points in my pocket ( in the current trade, half of my month's target is already done in just 1 day....so will be more than happy to take a 50 points SL in swing trade....as I have already pocketed many such 50-100 points moves already...
I dont predict the market ...how far it will go etc....but many will remember that when Combo hit its stoploss, I had posted that now after hitting 8300 stoploss, the market will not go up by 50-100 points but will do 300-400-500 points now...so that also is in the background though I cannot say where the current trend will end....all those channelling, Fibonacchi etc are just estimates...just be with the trend....and dont say "Market Topped Out " ,Negative Divergence etc when we see a minor downtrend.
The above is enough for being a happy trader.
Smart_Trade
The Mental Aspect of Trading Posted By: Linda Bradford Raschke
The Mental Aspect of Trading
Posted By: Linda Bradford Raschke
Many traders quickly come to acknowledge that despite being familiar with winning strategies, systems, and money management techniques, trading success is dependent on your psychological state of mind. If you’re a trader just starting out, where do you find the initial confidence to pull the trigger? How do you deal with the down times without digging yourself deeper into the hole? If you are in a hole, how do you work your way back out? How do experienced traders push through the ceiling of profitability that caps their initial trading years and make a truly fabulous living?
Trading is a performance-oriented discipline. Stress and mental pressures can affect your ability to function and impact your bottom line. Much of what has been learned about achieving peak performance in both business and sports can be applied to trading. But before looking at some of these factors, let’s first examine the ways that trading differs from other businesses.
Intellect has nothing to do with your ability as a trader. Success is not a function of how smart you are or how much you have applied yourself academically. This is hard to accept in a society that puts a premium on intellect.
There is no customer or client good will built up each day in your business. Customer relationships, traditionally important in American businesses, have little to do with a trader’s profitability. Each day is a clean slate.
The traditionally 8-5 work ethic doesn’t apply in this business! A trader could sit in front of a screen all day waiting for a recognizable pattern to occur and have nothing happen. There is a temptation to take marginal trades just so a trader can feel like he’s doing something. There’s also the dilemma of putting in constant hours of research, having nothing to show for it, and not getting paid for the work done. Yet if a trader works too hard, he risks burn- out. And what about those months where 19 out of 20 days are profitable, but the trader gives it all back in one or two bad days? How can a trader account for his productivity in these situations?
If you were to invest time, energy, and emotion into developing a business venture and backed out at the last minute, it would be considered a failure. However, you should be able to invest time and energy into researching a trading idea, and yet still be able to change your mind at the last minute. Market conditions change, and we cannot be expected to predict all the variables with foresight. Getting out of a bad trade with only a small loss should be considered a big success!
What IS the definition of a successful trader?
He should feel good about himself and enjoy playing the game. You can make a few small trades a year as a hobby, generate some very modest profits, and be quite successful because you had fun. There are also aggressive traders who have had big years, but ultimately blow-out, ruin their health or lead miserable lives from all the stress they put themselves under.
Principles of Peak Performance
The first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor-traders scratch dozens of trades during the course of a day, but all that matters is whether they’re up at the end of the month.
Don’t think about TRYING to win the game – that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now.! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He’ll probably lose half the points he plays, but he doesn’t allow himself to worry about whether or not he’s down a set. He must have confidence that by concentrating on the techniques he’s worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent.
The second principle of peak performance is confidence. in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There’s also the old-fashioned “hard work” way of getting confidence. Begin by researching and developing different systems or methodologies. Put in the hours of backtesting. Tweak and modify the systems so as to make them your own. Study the charts until you’ve memorized every significant swing high or low. Self-confidence comes from developing a methodology that YOU believe in.
Concentrate on the technical conditions. Have a clear game plan. Don’t listen to CNBC, your broker, or a friend. You must do your own analysis and have confidence in your game plan to be a successful trader.
Analyze the markets when they are closed. Your job during the day is to monitor markets, execute trades and manage positions. Traders should be like fighter pilots – make quick decisions and have quick reflexes. Their plan of attack is already predetermined, yet they must be ready to abort their mission at any stage of the game.
Just as you should put winning out of your mind, so should you put losing out of your mind – quickly. A bad trade doesn’t mean you’ve blown your day. Get rid of the problem quickly and start making the money back. It’s like cheating on a diet. You can’t undo the damage that’s been done. However, it doesn’t mean you’ve blown your whole diet. Get back on track and you’ll do fine.
For that matter, the better you are able to eliminate emotions from your day, the better off you will be. A certain amount of detachment adds a healthy dose of objectivity.
Trading is a great business because the markets close at the end of the day (at least some of them). This gives you a zero point from which to begin the next day – a clean slate. Each day is a new day. Forget about how you did the week before. What counts is how you do today!
Sometimes what will happen during the day comes down to knowing yourself. Are you relaxed or distracted? Are you prepared or not? If you can’t trade that day, don’t! – and don’t over analyze the reasons why or why not. Is psychoanalyzing your childhood going to help your trading? Nonsense!
The third important ingredient for achieving peak performance is attitude. Attitude is how you deal with the inevitable adverse situations that occur in the markets. Attitude is also how you handle the daily grind, the constant 2 steps forward and 2 steps back. Every professional has gone through long flat times. Slumps are inevitable for it’s impossible to stay on top of your game 100% of the time. Once you’ve dug yourself out of a hole, no matter how long it takes, you know that you can do it again. If you’ve done something once, it is a repeatable act. That knowledge is a powerful weapon and can make you a much stronger trader.
Good trades don’t always work out. A good trade is one that has the probabilities in its favor, but that doesn’t mean that it will always work out. People who have a background in game theory understand this well. The statistics are only meaningful when looking at a string of numbers. For example, in professional football, not every play is going to gain yardage. What percentage of games do you need to win in order to make the playoffs? It’s a number much smaller than most of us are willing to accept in our own win/loss ratios!
Here is an interesting question: should you look at a trade logically or psychologically? In other words, should every trade stand on its own merits? Theoretically, yes, but in real life it doesn’t always work that way. A trader is likely to manage a position differently depending on whether the previous trade was a winner or a loser.
How does one know when to take profits on a good trade? You must ask yourself first how greedy do you want to be, or, how much money do you want to make? And also, does your pattern have a “perceived profit” or objective level? Why is it that we hear successful winning traders complain far more about getting out of good trades too soon than not getting out of bad trades soon enough? There’s an old expression: “Profits are like eels, they slip away.”
Successful traders are very defensive of their capital. They are far more likely to exit a trade that doesn’t work right away than to give it the benefit of the doubt. The best trades work right away!
OK. Realistically, every trader has made a stubborn, big losing trade. What do you do if you’re really caught in a pickle? The first thing is to offer a “prayer to the Gods”. This means, immediately get rid of half your position. Cut down the size. Right off the bat you are taking action instead of freezing up. You are reducing your risk, and you have shifted the psychological balance to a win-win situation. If the market turns around, you still have part of your position on. If it continues against you, your loss will be more manageable. Usually, you will find that you wished you exited the whole position on the first order, but not everyone is able to do this.
At an annual Market Technician’s conference, a famous trader was speaking and someone in the audience asked him what he did when he had terrible losing trades. He replied that when his stomach began to hurt, he’d “puke them at the lows along with everyone else.” The point is, everyone makes mistakes but sooner or later you’re going to have to exit that nasty losing position.
“Feel good” trades help get one back in the game. It’s nice to start the day with a winning scalp. It tends to give you more breathing room on the next trade. The day’s psychology is shifted in your favor right away. This is also why it’s so important to get rid of losing trades the day before. so you don’t have to deal with them first thing in the morning. This is usually when the choice opportunity is and you want to be ready to take advantage of it.
A small profitable scalp is the easiest trade to make. The whole secret is to get in and get out of the market as quickly as possible. Enter in the direction of the market’s last thrust or impulse. The shorter the period of time you are is the marketplace, the easier it is to make a winning trade. Of course, this strategy of making a small scalp is not substantial enough to make a living, but remember the object is to start the day out on the right foot.
If you are following a methodology consistently (key word), and making money, how do you make more money? You must build up the number of units traded without increasing the leverage. In other words, don’t try going for the bigger trade, instead, trade more contracts. It just takes awhile to build up your account or the amount of capital under management. Proper leverage can be the key to your success and longevity in this business. Most traders who run into trouble have too big a trade on. Size influences your objectivity. Your main object should be to stay in the game.
Most people react differently when they’re under pressure. They tend to be more emotional or reactive. They tense up and judgement is often impaired. Many talented athletes can’t cut it because they choke when the pressure’s on. You could be a brilliant analyst but a lousy trader. Consistency is far more important than brilliance. Just strive for consistency in what you do and let go of the performance expectations.
Master the Game
The last key to achieving mental mastery over the game is believing that you can actually do it. Everyone is capable of being a successful trader if they truly believe they can be. You must believe in the power of belief. If you’re a recluse skeptic or self-doubter, begin by pretending to believe you can make it. Keep telling yourself that you’ll make it even if it takes you five years. If a person’s will is strong enough, they will always find a way.
If you admit to yourself that you truly don’t have the will to win at this game, don’t try to trade. It is too easy to lose too much money. Many people think that they’ll enjoy trading when they really don’t. It’s boring at times, lonely during the day, mentally trying, with little structure or security. The markets are not a logical or fair playing ground. But there are numerous inefficiencies and patterns ready to be exploited, and there always will be.
http://www.traderji.com/newreply.php?do=newreply&noquote=1&p=1032209
The Mental Aspect of Trading
Posted By: Linda Bradford Raschke
Many traders quickly come to acknowledge that despite being familiar with winning strategies, systems, and money management techniques, trading success is dependent on your psychological state of mind. If you’re a trader just starting out, where do you find the initial confidence to pull the trigger? How do you deal with the down times without digging yourself deeper into the hole? If you are in a hole, how do you work your way back out? How do experienced traders push through the ceiling of profitability that caps their initial trading years and make a truly fabulous living?
Trading is a performance-oriented discipline. Stress and mental pressures can affect your ability to function and impact your bottom line. Much of what has been learned about achieving peak performance in both business and sports can be applied to trading. But before looking at some of these factors, let’s first examine the ways that trading differs from other businesses.
Intellect has nothing to do with your ability as a trader. Success is not a function of how smart you are or how much you have applied yourself academically. This is hard to accept in a society that puts a premium on intellect.
There is no customer or client good will built up each day in your business. Customer relationships, traditionally important in American businesses, have little to do with a trader’s profitability. Each day is a clean slate.
The traditionally 8-5 work ethic doesn’t apply in this business! A trader could sit in front of a screen all day waiting for a recognizable pattern to occur and have nothing happen. There is a temptation to take marginal trades just so a trader can feel like he’s doing something. There’s also the dilemma of putting in constant hours of research, having nothing to show for it, and not getting paid for the work done. Yet if a trader works too hard, he risks burn- out. And what about those months where 19 out of 20 days are profitable, but the trader gives it all back in one or two bad days? How can a trader account for his productivity in these situations?
If you were to invest time, energy, and emotion into developing a business venture and backed out at the last minute, it would be considered a failure. However, you should be able to invest time and energy into researching a trading idea, and yet still be able to change your mind at the last minute. Market conditions change, and we cannot be expected to predict all the variables with foresight. Getting out of a bad trade with only a small loss should be considered a big success!
What IS the definition of a successful trader?
He should feel good about himself and enjoy playing the game. You can make a few small trades a year as a hobby, generate some very modest profits, and be quite successful because you had fun. There are also aggressive traders who have had big years, but ultimately blow-out, ruin their health or lead miserable lives from all the stress they put themselves under.
Principles of Peak Performance
The first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor-traders scratch dozens of trades during the course of a day, but all that matters is whether they’re up at the end of the month.
Don’t think about TRYING to win the game – that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now.! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He’ll probably lose half the points he plays, but he doesn’t allow himself to worry about whether or not he’s down a set. He must have confidence that by concentrating on the techniques he’s worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent.
The second principle of peak performance is confidence. in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There’s also the old-fashioned “hard work” way of getting confidence. Begin by researching and developing different systems or methodologies. Put in the hours of backtesting. Tweak and modify the systems so as to make them your own. Study the charts until you’ve memorized every significant swing high or low. Self-confidence comes from developing a methodology that YOU believe in.
Concentrate on the technical conditions. Have a clear game plan. Don’t listen to CNBC, your broker, or a friend. You must do your own analysis and have confidence in your game plan to be a successful trader.
Analyze the markets when they are closed. Your job during the day is to monitor markets, execute trades and manage positions. Traders should be like fighter pilots – make quick decisions and have quick reflexes. Their plan of attack is already predetermined, yet they must be ready to abort their mission at any stage of the game.
Just as you should put winning out of your mind, so should you put losing out of your mind – quickly. A bad trade doesn’t mean you’ve blown your day. Get rid of the problem quickly and start making the money back. It’s like cheating on a diet. You can’t undo the damage that’s been done. However, it doesn’t mean you’ve blown your whole diet. Get back on track and you’ll do fine.
For that matter, the better you are able to eliminate emotions from your day, the better off you will be. A certain amount of detachment adds a healthy dose of objectivity.
Trading is a great business because the markets close at the end of the day (at least some of them). This gives you a zero point from which to begin the next day – a clean slate. Each day is a new day. Forget about how you did the week before. What counts is how you do today!
Sometimes what will happen during the day comes down to knowing yourself. Are you relaxed or distracted? Are you prepared or not? If you can’t trade that day, don’t! – and don’t over analyze the reasons why or why not. Is psychoanalyzing your childhood going to help your trading? Nonsense!
The third important ingredient for achieving peak performance is attitude. Attitude is how you deal with the inevitable adverse situations that occur in the markets. Attitude is also how you handle the daily grind, the constant 2 steps forward and 2 steps back. Every professional has gone through long flat times. Slumps are inevitable for it’s impossible to stay on top of your game 100% of the time. Once you’ve dug yourself out of a hole, no matter how long it takes, you know that you can do it again. If you’ve done something once, it is a repeatable act. That knowledge is a powerful weapon and can make you a much stronger trader.
Good trades don’t always work out. A good trade is one that has the probabilities in its favor, but that doesn’t mean that it will always work out. People who have a background in game theory understand this well. The statistics are only meaningful when looking at a string of numbers. For example, in professional football, not every play is going to gain yardage. What percentage of games do you need to win in order to make the playoffs? It’s a number much smaller than most of us are willing to accept in our own win/loss ratios!
Here is an interesting question: should you look at a trade logically or psychologically? In other words, should every trade stand on its own merits? Theoretically, yes, but in real life it doesn’t always work that way. A trader is likely to manage a position differently depending on whether the previous trade was a winner or a loser.
How does one know when to take profits on a good trade? You must ask yourself first how greedy do you want to be, or, how much money do you want to make? And also, does your pattern have a “perceived profit” or objective level? Why is it that we hear successful winning traders complain far more about getting out of good trades too soon than not getting out of bad trades soon enough? There’s an old expression: “Profits are like eels, they slip away.”
Successful traders are very defensive of their capital. They are far more likely to exit a trade that doesn’t work right away than to give it the benefit of the doubt. The best trades work right away!
OK. Realistically, every trader has made a stubborn, big losing trade. What do you do if you’re really caught in a pickle? The first thing is to offer a “prayer to the Gods”. This means, immediately get rid of half your position. Cut down the size. Right off the bat you are taking action instead of freezing up. You are reducing your risk, and you have shifted the psychological balance to a win-win situation. If the market turns around, you still have part of your position on. If it continues against you, your loss will be more manageable. Usually, you will find that you wished you exited the whole position on the first order, but not everyone is able to do this.
At an annual Market Technician’s conference, a famous trader was speaking and someone in the audience asked him what he did when he had terrible losing trades. He replied that when his stomach began to hurt, he’d “puke them at the lows along with everyone else.” The point is, everyone makes mistakes but sooner or later you’re going to have to exit that nasty losing position.
“Feel good” trades help get one back in the game. It’s nice to start the day with a winning scalp. It tends to give you more breathing room on the next trade. The day’s psychology is shifted in your favor right away. This is also why it’s so important to get rid of losing trades the day before. so you don’t have to deal with them first thing in the morning. This is usually when the choice opportunity is and you want to be ready to take advantage of it.
A small profitable scalp is the easiest trade to make. The whole secret is to get in and get out of the market as quickly as possible. Enter in the direction of the market’s last thrust or impulse. The shorter the period of time you are is the marketplace, the easier it is to make a winning trade. Of course, this strategy of making a small scalp is not substantial enough to make a living, but remember the object is to start the day out on the right foot.
If you are following a methodology consistently (key word), and making money, how do you make more money? You must build up the number of units traded without increasing the leverage. In other words, don’t try going for the bigger trade, instead, trade more contracts. It just takes awhile to build up your account or the amount of capital under management. Proper leverage can be the key to your success and longevity in this business. Most traders who run into trouble have too big a trade on. Size influences your objectivity. Your main object should be to stay in the game.
Most people react differently when they’re under pressure. They tend to be more emotional or reactive. They tense up and judgement is often impaired. Many talented athletes can’t cut it because they choke when the pressure’s on. You could be a brilliant analyst but a lousy trader. Consistency is far more important than brilliance. Just strive for consistency in what you do and let go of the performance expectations.
Master the Game
The last key to achieving mental mastery over the game is believing that you can actually do it. Everyone is capable of being a successful trader if they truly believe they can be. You must believe in the power of belief. If you’re a recluse skeptic or self-doubter, begin by pretending to believe you can make it. Keep telling yourself that you’ll make it even if it takes you five years. If a person’s will is strong enough, they will always find a way.
If you admit to yourself that you truly don’t have the will to win at this game, don’t try to trade. It is too easy to lose too much money. Many people think that they’ll enjoy trading when they really don’t. It’s boring at times, lonely during the day, mentally trying, with little structure or security. The markets are not a logical or fair playing ground. But there are numerous inefficiencies and patterns ready to be exploited, and there always will be.
http://www.traderji.com/newreply.php?do=newreply&noquote=1&p=1032209
MACD: A Sweet Anticipation by "Ed Seykota"
MACD: Sweet anticipation?
Moving average convergence/divergence (MACD) is one of today's most popular trend-following indicators in analytical software packages and online services, but research shows the indicator isn't always so reliable, particularly in short-swing markets.
Developed by Gerald Appel, MACD, like many approaches, uses averages to smooth out fluctuations and reveal the underlying trend. MACD uses two moving averages. One, typically a 26-unit moving average (26 MA), defines the trend; another, typically a 12-unit moving average (12 MA), indicates a change in 26 MA by crossing over it.
The problem with regular moving averages is that they are slow. Notice on the 40-day cycle chart that the crossover comes after the price peak.
MACD attempts to compensate for this delay by anticipating crossovers. Rather than waiting for crossovers, MACD reacts when the averages begin to converge (or diverge).
The MACD accomplishes this by computing delta, the difference between the 26 MA and the 12 MA. When crossovers occur, delta crosses zero. MACD tries to anticipate delta's crossing of zero by measuring when delta begins to trend toward zero.
MACD measures the trend of delta by yet another average, usually a nine-period moving average of delta. Delta signals its own trend by crossing its moving average.
Thus, MACD is a double exponential average crossover system that tries to anticipate crossovers by signaling when the distance between averages begins to converge.
In theory, MACD should outperform other moving average systems. However, the reverse appears to be true, according to several studies.
For instance, The Encyclopedia of Technical Market Indicators reports that MACD substantially underperforms a 40-week simple moving average crossover rule.
The Dow Jones Irwin Guide to Trading Systems notes that a five-year performance study shows MACD results inferior to Richard Donchian's 5-and-20 moving average method and the moving average combination of 4, 9 and 18 days.
Flaws of anticipation
Other testing corroborates these findings. The "anticipation" seems to be counterproductive.
The chart of Standard & Poor's 500 prices illustrates the problem with anticipating. Prices rarely move smoothly. The whole advantage of using moving averages is that they are slow and give signals when a market's trend is well under way. Trend traders believe the best time to trade is well into the trend, with momentum. While anticipation occasionally picks a top, it more likely picks a false jiggle and gets whipsawed.
The 20-cycle and 40-cycle charts show a subtle aspect of backtesting systems that use exponential averages: Results may vary widely depending on how the averages are "initialized" -- that is, what time spans are used.
Ironically, the MACD is a "low pass" filter. The technique filters out high-frequency bumps and allows low-frequency trends to pass through. The standard 12-26-9 MACD combination tends to grow ineffective at approximately 40 time units, although the shorter cycles do not pass through.
The MACD provides a good example of the counterintuitive nature of system design. The delta with a nine-period moving average, intended to overcome the lag between price peaks and signals, actually increases the phase lag for intermediate-term and short-term cycles.
This supports the findings that MACD's long-term trading results underperform simple systems while MACD's short-term trading grows progressively worse.
Proponents of MACD generally acknowledge these findings, then elaborate that, well, it's an indicator, not a signal, and must be used with other indicators, secret sauce and good judgment. So far, there have not been enough of these trading systems incorporating MACD that are precise enough to test historically.
Facing such evidence, you must question the indicator's popularity. It likely was built on these items:
* Its claim to anticipate is alluring. * It has been touted as an indicator rather than a signal. * MACD provides a parascientific license to generate plenty of action, excitement, anxiety and commissions.
MACD plays an important role in the market ecology, but it just doesn't happen to be a tool that makes money when used by itself.
The industry has plenty of good systems. The catch is that they require considerable emotional aptitude. Many traders avoid dealing with their emotions by trying to anticipate, optimize and otherwise abandon their systems.
You cannot escape the fact that systems are, by nature, low-pass price filters. They do not predict -- they either just dict (say what's happening) or postdict (say what's happened). Working to anticipate the future can be a distraction from the important task of dealing with the present.
Ed Seykota is a professional trader and money manager in Incline Village, Nev.
Source:
http://www.allbusiness.com/technology/computer-software/154988-1.html
MACD: Sweet anticipation?
Moving average convergence/divergence (MACD) is one of today's most popular trend-following indicators in analytical software packages and online services, but research shows the indicator isn't always so reliable, particularly in short-swing markets.
Developed by Gerald Appel, MACD, like many approaches, uses averages to smooth out fluctuations and reveal the underlying trend. MACD uses two moving averages. One, typically a 26-unit moving average (26 MA), defines the trend; another, typically a 12-unit moving average (12 MA), indicates a change in 26 MA by crossing over it.
The problem with regular moving averages is that they are slow. Notice on the 40-day cycle chart that the crossover comes after the price peak.
MACD attempts to compensate for this delay by anticipating crossovers. Rather than waiting for crossovers, MACD reacts when the averages begin to converge (or diverge).
The MACD accomplishes this by computing delta, the difference between the 26 MA and the 12 MA. When crossovers occur, delta crosses zero. MACD tries to anticipate delta's crossing of zero by measuring when delta begins to trend toward zero.
MACD measures the trend of delta by yet another average, usually a nine-period moving average of delta. Delta signals its own trend by crossing its moving average.
Thus, MACD is a double exponential average crossover system that tries to anticipate crossovers by signaling when the distance between averages begins to converge.
In theory, MACD should outperform other moving average systems. However, the reverse appears to be true, according to several studies.
For instance, The Encyclopedia of Technical Market Indicators reports that MACD substantially underperforms a 40-week simple moving average crossover rule.
The Dow Jones Irwin Guide to Trading Systems notes that a five-year performance study shows MACD results inferior to Richard Donchian's 5-and-20 moving average method and the moving average combination of 4, 9 and 18 days.
Flaws of anticipation
Other testing corroborates these findings. The "anticipation" seems to be counterproductive.
The chart of Standard & Poor's 500 prices illustrates the problem with anticipating. Prices rarely move smoothly. The whole advantage of using moving averages is that they are slow and give signals when a market's trend is well under way. Trend traders believe the best time to trade is well into the trend, with momentum. While anticipation occasionally picks a top, it more likely picks a false jiggle and gets whipsawed.
The 20-cycle and 40-cycle charts show a subtle aspect of backtesting systems that use exponential averages: Results may vary widely depending on how the averages are "initialized" -- that is, what time spans are used.
Ironically, the MACD is a "low pass" filter. The technique filters out high-frequency bumps and allows low-frequency trends to pass through. The standard 12-26-9 MACD combination tends to grow ineffective at approximately 40 time units, although the shorter cycles do not pass through.
The MACD provides a good example of the counterintuitive nature of system design. The delta with a nine-period moving average, intended to overcome the lag between price peaks and signals, actually increases the phase lag for intermediate-term and short-term cycles.
This supports the findings that MACD's long-term trading results underperform simple systems while MACD's short-term trading grows progressively worse.
Proponents of MACD generally acknowledge these findings, then elaborate that, well, it's an indicator, not a signal, and must be used with other indicators, secret sauce and good judgment. So far, there have not been enough of these trading systems incorporating MACD that are precise enough to test historically.
Facing such evidence, you must question the indicator's popularity. It likely was built on these items:
* Its claim to anticipate is alluring. * It has been touted as an indicator rather than a signal. * MACD provides a parascientific license to generate plenty of action, excitement, anxiety and commissions.
MACD plays an important role in the market ecology, but it just doesn't happen to be a tool that makes money when used by itself.
The industry has plenty of good systems. The catch is that they require considerable emotional aptitude. Many traders avoid dealing with their emotions by trying to anticipate, optimize and otherwise abandon their systems.
You cannot escape the fact that systems are, by nature, low-pass price filters. They do not predict -- they either just dict (say what's happening) or postdict (say what's happened). Working to anticipate the future can be a distraction from the important task of dealing with the present.
Ed Seykota is a professional trader and money manager in Incline Village, Nev.
Source:
http://www.allbusiness.com/technology/computer-software/154988-1.html
Originally Posted by niftytaurus View Post
Good Morning ST Da
If we choose to trade only in trending market/scrip /Time frame..means If we choose to trade only in market which is trending, or the scrip which is trending at present time or tradin that time frame which is trending.Can we choose to trade like this? As says, market trending 30% times..but at any time some scrip, or market or time frame must be trending..so just only those..Can we do this? please give your view..
Example- IChumoku is a trend trading system..so we trade its signal on complete trending environment only
Thanks
----------------
We need to understand what is needed to make money in trading.Markets are trending only 30 % time so we must make large money in those 30 % time by holding the positions and also adding at various levels. In sideways period we will have a few stoplosses and loosing trades but the money made in trends should be much more than money we loose on stoplosses.Good trend traders make typically 3 to 8 times the price move by number of adds. So if the move is 500 points, they make 1500 points from that move by adds.
For traders abroad, they have facility to trade many markets on their screen so they can decide to trade only those markets which are trending...that is the reason why a trending market gets more participation and a dull market has less participation.
We in India only have Stocks and few commodities to trade. It is always better to trade trending markets because in trends your risk is actually much less and rewards much more. But in sideways market also it like taking singles in cricket...for a large score, singles are also important as markets will give singles 70 % time.. But this is from a point of view of a futures trader. If one is options trader specialising in selling of calls/puts he is more happy in sideways markets .
Sideways markets are difficult to trade so initially traders will do well if they trade only trending markets and stay out in sideways markets...but with experience one can trade in both type of markets.
Smart_trade
Good Morning ST Da
If we choose to trade only in trending market/scrip /Time frame..means If we choose to trade only in market which is trending, or the scrip which is trending at present time or tradin that time frame which is trending.Can we choose to trade like this? As says, market trending 30% times..but at any time some scrip, or market or time frame must be trending..so just only those..Can we do this? please give your view..
Example- IChumoku is a trend trading system..so we trade its signal on complete trending environment only
Thanks
----------------
We need to understand what is needed to make money in trading.Markets are trending only 30 % time so we must make large money in those 30 % time by holding the positions and also adding at various levels. In sideways period we will have a few stoplosses and loosing trades but the money made in trends should be much more than money we loose on stoplosses.Good trend traders make typically 3 to 8 times the price move by number of adds. So if the move is 500 points, they make 1500 points from that move by adds.
For traders abroad, they have facility to trade many markets on their screen so they can decide to trade only those markets which are trending...that is the reason why a trending market gets more participation and a dull market has less participation.
We in India only have Stocks and few commodities to trade. It is always better to trade trending markets because in trends your risk is actually much less and rewards much more. But in sideways market also it like taking singles in cricket...for a large score, singles are also important as markets will give singles 70 % time.. But this is from a point of view of a futures trader. If one is options trader specialising in selling of calls/puts he is more happy in sideways markets .
Sideways markets are difficult to trade so initially traders will do well if they trade only trending markets and stay out in sideways markets...but with experience one can trade in both type of markets.
Smart_trade
Originally Posted by Smart_trade View Post
My thumb rule is when Nifty falls more than 30 points from the top it reaches....then the chances of trend days are very low...less than 10 %....it may consolidate the whole day ...
Smart_trade
One can convert this simple observation into a trading set up...In strong markets I always buy a 15-20 points dip...and keep a stoploss at 15 points below my entry point. In 80 % time this trade will work...and 20 % time if it hits a stop then the market goes listless and I am not interested in hanging around in that market from bullish side. Trading need not be on too complicated methods...simple setups like this works wonders.
ST
My thumb rule is when Nifty falls more than 30 points from the top it reaches....then the chances of trend days are very low...less than 10 %....it may consolidate the whole day ...
Smart_trade
One can convert this simple observation into a trading set up...In strong markets I always buy a 15-20 points dip...and keep a stoploss at 15 points below my entry point. In 80 % time this trade will work...and 20 % time if it hits a stop then the market goes listless and I am not interested in hanging around in that market from bullish side. Trading need not be on too complicated methods...simple setups like this works wonders.
ST
In anything if one can perform, then he/she can rise very fast...I just spoke to a girl who did her MBA summer vacation project in my office...I told her to do a project on growth stocks and monentum stocks.....with that project, she made a small portfolio with Rs 15,000 in cash stocks......in 2-3 years that portfolio appreciated to 35000. She went for a foreign hedge fund interview and she spoke about her stock selection...the interviewers were so impressed by seeing the actual portfolio constructed.She got the job and now she is in US and heads risk control of that hedge fund and has 16 guys working under her ....
All started from constructing a good Rs 15000 portfolio and proving to the world that she is a performer with real example...not a idealistic theorist....
ST
All started from constructing a good Rs 15000 portfolio and proving to the world that she is a performer with real example...not a idealistic theorist....
ST
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