Come into the Trader's Den

Hi

A discussion about ATR, stop loss, money management and day trading times. What is posted here is quit timeless. Each statement has its own -.

I post only the most important thought's in my view. What is presented is adaptable to other markets. So read carefully and take out from it what you can.

If you want to get more infos go here : traderclub.com

Here it goes :

- In a down trending market, every UP opening, and early morning rally led to SHORT SALES....
and what are we FINALLY seeing today????
Our TURNAROUND day....
First day in a long time that we had WEAK first hour, and are now seeing afternoon strength.

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- it is based on the fact that there is higher degree of TRENDINESS in the last 1 1/2 hours of the day....
Which is why we do not make COUNTERTREND trades against the ticks in the last 1 1/2 hours of the day. last
Funds get notice of new monies coming in, (Or out) after 2:30...

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- CHUCK: Average True Range is simply an average of the size of the bars after adjusting for any price gaps. The Range of each bar is simply the High
minus the Low. But sometimes there can be gaps between the bars so that the "true range" could be the difference between the high and the close of the previous bar. Or on down gaps it could be the difference between the low of the current bar and the close of the previous bar.
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- CHUCK: keep thing simple, just think of ATR as the size of the bars after adjusting for any gaps. By the way, I usually average 20 bars to create the ATR.
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- CHUCK: Now we will talk about how to use ATR. The ATR is a universal tool that can be applied to any market. It allows us to create formulas that
can be applied to any market. For example we could say that risk stops should be set at 2 ATRs from our entry. (Just an example, not a suggestion.)
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- CHUCK: This exit would apply to the S&P, the E-mini, Yen futures, shares of IBM or anything else we might want to trade. It can apply to any market
and best of all it adapts to the changes in volatility. If the market gets more volatile the ATRs get bigger. If the market gets quiet the ATRs get
smaller.
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- Chuck: Everything I said about using ATR applies to bars of any time frame. That's what is so great about ATR. You can use the Chandelier Exit or
the Yo Yo on five-minute bars. No problem.
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- Chuck: Re wide stops on S&Ps. It all has to be relative to the volatility. If the stops are set in units of ATR that adjust to the volatility they
shouldn't be hit any more frequently than any other method. Probably less.

Chuck: I don't day trade S&Ps but risking about two or three ATRs should work on any market and any time frame.
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- CHUCK: The first exit I set is a simple one to protect from some catastrophic loss. This is sometimes called a money management exit. It is a wide
stop that is intended to protect you from a major disaster.

CHUCK: This stop is rarely if ever hit. Good thing. but it needs t be there just in case.

CHUCK: The next stop is a fairly wide trailing stop that is usually closer than the MM stop. You can use the lowest low of X bars or some moving
average. If the trade is moving in the right direction this stop will gradually trail up and reduce the risk on the trade.

CHUCK: After some period of time or after some amount of profit I like to start thinking about maximizing the profit on the trade instead of focusing
on reducing the loss.

CHUCK: I can measure the time in the trade (use some number like after ten bars)and then start tightening the stop whether the trade is profitable
or not. This will keep you from wasting time and capital in markets that aren't moving.

CHUCK: Once the trade reaches some profit threshold then the stops can also be moved up. I like to measure those profit thresholds in units of ATR.

CHUCK: The bigger the open profit the tighter I like to have my stops. I think it is a big mistake to give back big open profits. I hate that.

CHUCK: Keep in mind the idea of starting trades with wide stops and then making them tighter later on. This procedure allows you to have a high
percentage of winning trades and it also allows you to maximize the size of the winners. I think that too many traders try to trade with very tight
stops. that can be a mistake.

Chuck: Trailing stops tend to move up automatically but you can change the way they are calculated at various intervals.

Chuck: For example you can use a 30 bar moving average and then shorten it to a twenty day MA and then a ten day MA, etc.

Chuck: It seems to me that adjusting the way the stops are calculated after time intervals and profit intervals is the key to success. The stop
that you start with is not the stop you end with.

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- If you get a large instant move in your favor do you just lock in the profit or do you continue with the stops and stick with the program?
The windfall trade!
Depends on the time frame I am trying to trade. If I were day trading I would take the windfall. If I were trading longer term I would
raise the stop to a tight level and try to hold on.

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Take care and enjoy your weekend

DanPickUp

Dear AW10,

Thanks for sharing possibilities. It is not that we take covered call/put trade. In some situations, we have to hedge with option. And then all of a sudden market goes to option strike. Though we are getting price point where max possible profit can come. But we can not book till expiry. Hence I asked the question. I normally hedge my position on weekend, and that how I get into covered call/put.

Happy trading!

If someone asked you what are the chances of the market being up or down, you would say the chances are 1 in 2 or that there is a 50% chance that the market will move up or down. Many of us take position based on this statistic that we will be right half the time about guessing the market direction. This weekend I thought about this widely believed statistics and here is a different spin on the same.

We believe that everyday is a independent event and hence what happened yesterday has no significance on that 50% chance about the guess of direction. Is this really true?

Let us start with the thought that we will look at the market as a two day cluster instead of a single day view. That means if there are 5 trading days next week, there will be 4 two day cluster in it: (Mon,Tue), (Tue, Wed), (Wed, Thu) and(Thu, Fri. What are the chances of two consecutive days being up? Elementary Perm/Comb tells us that we can have four possibilities: (Up,Up),(Up,Down),(Down, Up) and (Down,Down) days. Which means two consecutive days being Up has a chance of 1 in 4 or a 25% chance. So here is the catch, if we don't look at yesterday, we would think that the market being up today is 1 in 2 whereas if we see yesterday was up, we should think that the chances of the market being up today is 1 in 4, taking the 2 day cluster view also into account. The probability has reduced by half. Would you take the same bet now?

What happens if we shift to a three day cluster view? In a three day cluster view we have eight possibilities (UUU,DDD,UDD, DUU, UUD, DDU,UDU and DUD) The chances of a three consecutive days being up is 1/8. So in this view if two days have been up then the third day being up is not 1/2 but 1/8. The probability has reduced from 50% to 12.5%. Would the same bet make sense?

As we keep shifting to a higher cluster of days, the probability of the trend continuing keeps getting reduced by 50%!! In other words probability of the trend continuing has half life with every passing day.

I just looked randomly at 2008 figures. This was just to see if the cluster days occurred as per statistics

There were 243 cluster of 3 days. Statistically there should have been 60 cluster of three-up days + three down days together, (1/8+1/8= 1 in 4 clusters). We had 53 cluster of 3 trending days (14 up and 39 down)

There were 242 clusters of 4 days. Statistically there should have been 30 cluster of four-up days + four down days together, (1/16+1/16= 1 in 8 clusters). We had 24 cluster of 4 trending days (3 up and 21 down)

There were 241 clusters of 5 days. Statistically there should have been 15 cluster of five-up days + five down days together, (1/32+1/32= 1 in 16 clusters). We had 11 cluster of 5 trending days (1 up and 10 down)

2008 was a bearish year and hence more down cluster days than up cluster days.

I don't know if I have been clear in explaining the idea. But with this knowledge it is difficult to think of the chances of a day being up or down as just 50-50.

Hi TT,

As a thumb rule you can expect to reverse after 5 days.

Hi all,
I just visited the DEN after a long while, and found that it is active as ever.

Cheers :thumb:

Hi simple_trader

I checked again, what you asked about covered calls. How to do that best ?

Today I had again a chance to look in different stock funds, which are managed from Dr. Marc Faber. He is a friend of a friend of mines. Today, I was in his company and he gave me the possibility to look at that stuff.

Dr. Marc Faber regularly trades covered calls on his most famous shares. He can earn thousands of shares from one company in one fund. As I see live,, he goes regularly short with calls on some of his shares. Not with one call, I see here positions with thousands of calls.

This calls are not to expensive and they have a in regular a short live.

Typical covered calls !

I not see him taking any action to cover his covered calls with any other options in any situations. If they work, they do and otherwise it seems, that he not care about it, because the risk he took was not significant. Very good MM and RRR.

This is an inside look to one of the most known investors in the world and I would say, to know and see directly, how such people work is worth a lot. It may let you look in a different way at your trade. If not, others may like to profit from this post.

Take care

DanPickUp

Hi

Here an other great article about successful traders. Each one of this articles give us a deeper look in to there traders Den Room.

Enjoy it. Here it goes :

-Secrets of Top Trading Performance-

Much of a trader's early education is concentrated on strategies and market analysis. But what are the necessary ingredients for peak performance? What are the tools for both mastering the mental side of the game and busting out of the inevitable slumps that can occur along the way?

There are several key common ingredients when you are performing your best, no matter what the field.

EXPECT success.

It begins initially with your self-talk. Do you get down on yourself when you make a mistake? - or do you say to yourself - next time I will do better because I have great trade management and am a superior trader! Be your own best motivator and believer in yourself. Positive Self Talk leads to positive BELIEFS. If you believe you can do something, you WILL eventually find a way. When you have a positive belief system that the eventual outcome will be OK, then you are more mentally and physically relaxed. You then have better concentration, which leads to smoother execution, which of course leads to peak performance.

Be Prepared

All of the above factors deal with external factors and internal belief systems. Now let's get down to the DOING part! Every trader should be prepared before the markets open because they already did their homework - right?! One of the most impressive points in the Rogue Warrior book was this veteran navy seal's obsession for being totally prepared for Mr. Murphy! There was always a backup plan for everything and this is what kept him alive. Prepare your daily game plan by looking for both new setups and preparing strategies for managing existing positions.

So, assuming that you have done your daily homework as a trader, the next step is to learn how to get into the groove. There is no better tool for this than having routines and rituals. Pre-market rituals help calm the nerves, get you into a rhythm, and also help to turn off the logical part of your brain - the part that wants to over analyze everything.

Here is another helpful factor: A healthy body keeps a healthy mind. EXERCISE! This gets oxygen to the brain and keeps the blood flowing. How can you expect to be a peak performer when you are eating junk food and going through insulin swings? Or perhaps you drank too much wine the night before or are jittery from drinking too much coffee. How can you concentrate well if you are not getting a full decent night's sleep? Sure, most of these are minor factors but they can all add up to major bumps in your performance. One moment of sloppiness can lead to forgetting to place stops or letting a bad trade go too long. Then when damage is done, your confidence gets chipped away. You must treat your confidence level as something to be protected. Good habits will keep your confidence level high. Once you have good habits, it will allow you to increase your trading size.

Goal Setting

* Flexibility. Be flexible - if what you are doing isn't working, change what you are doing!
* Confidence. When down, get a little rhythm and confidence going. Don't worry about being too ambitious.
* Concentration. Stay with your game. Don't let outside distractions bother you. They take energy and break your concentration.
* Know Yourself. Match your particular strengths to the type of market conditions.

The battleground isn't the markets but what's within you!!!

And on that last note, remember that ATTITUDE is everything. How you frame out an individual experience or event will affect your success in the long run. Do you see a trading loss or bad draw down period as a major setback, or do you see it as a learning experience from which you can figure out how to be on the RIGHT side of a trade instead of the wrong side the next time around. Many great traders use periods after draw downs to go back to the drawing board. Some of the best systems and trading ideas have come after periods of adversity. What incentive is there to learn and improve ourselves when everything is smooth sailing and we are fat and happy? But when times are tough, that is when we can rise to the occasion and prove that we can overcome any OBSTACLE set down in our path.

So many great athletes have been able to come from behind when they are down because they have learned how to seize that one opening or opportunity and CONVERT. They latch on to the tiniest shift in momentum and milk it for all it is worth. Latch on to that next winning trade and convert. The first small moral victory is the first step towards reaching the top of Mt. Everest. And if you keep making small steady steps, you will eventually reach the top. Sometimes for a trader, the greatest feeling in the world can be making back those losses, no matter how long it takes, because once you have done that, you realize you can do anything.

Source : from Brad Gilbert's book, Winning Ugly

Take care

DanPickUp

Fantastic , have heared that it is the perpective of people to look same thing in a different way like mathematicians will try to see everything in world through numbers than a artist who sees world in a different way

Though i am not a statistician nor a artist but love to read this type of idea

Thanks for sharing you ideas

Reagards

Like a mathematician will try to compare diff fib level for womans navel to her head distance but a artist will see different pattern on it .............

Thanks TT for sharing very different perspective here.

I do agree with you on this that probability of trend continuation reduces with the age of the trend. One nice indicator that takes care of this is parabolic SAR.
IMO, statistics based setups work quite contrary to regular TA readings. While TA will say that trend will continue once it is in place, stats will start saying that it has low probability of continuation but higher probability of reversal/correction.
As a trader, I found it a challenge to adjust my thoughts and make up the decision in this conflicting findings.

But they are great contrarian setups, and many hedge funds use them effectively.

I was trying to analyse the great successful traders (soros, paul tudor jones, paulson etc) and found that they made the killing by going against the crowd i.e. thru their contrarian trades (short gbp trade, 1987 Dow crash, subprime crash + gold runup from $700 to $1250 respectively.)..

So certainly, contrarian traders have their golden days too, and on top of it, they are great in risk mgmt and quick to collect their profits.

So statistical setups are good first step towards it. Ultimate contrarian are those who can take macro economy or social trend based contrarian calls.

happy trading