tag:blogger.com,1999:blog-60378431868826752132024-03-13T13:33:19.406-07:00RealityTrader BlogRandom thoughts on trading caused by some analogy, typical conversation in a course of mentoring session or e-mail exchange. Typical trade development to learn from. In short - everything to do with educational side of trading. You won't find here market overviews or calls - there are enough blogs of this kind. Our calls are made real time on intraday basis and can be reviewed <a href="http://tradinglog.realitytrader.com/">here</a>. Welcome and feel free to participate.Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.comBlogger60125tag:blogger.com,1999:blog-6037843186882675213.post-51535469890653552482018-12-27T10:11:00.000-08:002019-01-01T10:56:24.842-08:00TradeTheNews overview<div style="text-align: justify;">
For years now subscribers of the Sunday Links newsletter enjoy weekly market updates (<a href="http://tradinglog.realitytrader.com/2018/12/downside-risks-continue-to-overshadow.html" target="_blank">sample</a>), two-months market outlooks (<a href="http://tradinglog.realitytrader.com/2018/11/november-december-2018-outlook.html" target="_blank">sample</a>), and Saturday Barron's summaries (<a href="http://tradinglog.realitytrader.com/2018/12/barrons-weekend-summary_15.html" target="_blank">sample</a>). In the newsletter, you did see the link to the original source of those, <a href="http://www.tradethenews.com/?RT" target="_blank">TradeTheNews</a>. Today I want to present the service behind these informative bits and introduce you to this feature-rich source, highlighting a few more sides of it you may have not seen.<br />
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<i>(Disclaimer: I have no financial interest in TTN, nor do I get paid for this post or compensated for subscriptions) .</i><br />
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At its heart TTN is a real-time scrolling news source. Thus, its default view has the headlines occupying main area. They scroll, you read - simple as that. Of course, you don't have to watch them all the time. There are sound alerts when something significant happens (more on that later). Also, you read more details behind the headline by hovering your cursor over it, like so:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUya8VO6dmQiyXLzZpPRs1JTnNEo5y_lPX0Lib5TUPn3eavWtwR5P-11unJZXW9akymN5a_9gzj9eeYZvQx3qJKbzWEEbf-jjPy9JnTFwDJwfpFwf8_HjO3GKihRfrOt1afsF4ds8eyXA/s1600/TTNHover.jpg" imageanchor="1"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUya8VO6dmQiyXLzZpPRs1JTnNEo5y_lPX0Lib5TUPn3eavWtwR5P-11unJZXW9akymN5a_9gzj9eeYZvQx3qJKbzWEEbf-jjPy9JnTFwDJwfpFwf8_HjO3GKihRfrOt1afsF4ds8eyXA/s400/TTNHover.jpg" width="400" /></a><br />
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You can also click on the headline, and full text will appear in the bottom part, where you will also have an access to other related news, upcoming earnings and current holders of the stock:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2Dp9G5ch4mAdej1Z_bzG2BBO6Jt3sno-T-M7iamAo2k3U-Exc-BIKUp7c-6dnhIuVgWViZJdkROGXoKrOBJkqpARxNgVbyCTZq1wSOMzYJmh-QwTUZX45xx_BntYo3iP6o54wtPwBB7g/s1600/TTNHolders.jpg" imageanchor="1"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2Dp9G5ch4mAdej1Z_bzG2BBO6Jt3sno-T-M7iamAo2k3U-Exc-BIKUp7c-6dnhIuVgWViZJdkROGXoKrOBJkqpARxNgVbyCTZq1wSOMzYJmh-QwTUZX45xx_BntYo3iP6o54wtPwBB7g/s400/TTNHolders.jpg" width="400" /></a><br />
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Speaking of that bottom area, you have a default tab "Show Market Data." It displays S&P 500 real time changes, and there is more to it. First, you can switch to other market indicators, if you prefer - NASDAQ, VIX, even Gold or Oil, etc. Second, there are red circles on the chart. Those are indication of a certain event happened at that point in time. Pointing your cursor to it and reading the event details, you can match the information to the market change:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjgNJnFIZUMxdGW4_i2lWFOEti-4bUtGBJ1oYkdiBlxzETohDSp3NxxFtwbBsxW98ygVZibw7XM_CMUpGx_-c3GfCHiP37ZgE-H8vrqBNrb2X0i2bRfUDqnEBfgRoi596jwYQJG-NOjPXU/s1600/TTN.jpg" imageanchor="1"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjgNJnFIZUMxdGW4_i2lWFOEti-4bUtGBJ1oYkdiBlxzETohDSp3NxxFtwbBsxW98ygVZibw7XM_CMUpGx_-c3GfCHiP37ZgE-H8vrqBNrb2X0i2bRfUDqnEBfgRoi596jwYQJG-NOjPXU/s400/TTN.jpg" width="400" /></a><br />
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This kind of matching the event to the market response is not only informative, it's educational as well. You get a sense for how market is likely to behave when influenced by various news. It's more nuanced than a primitive "good news - up, bad news - down" view that befalls many traders. If you are familiar with my <a href="https://www.amazon.com/gp/product/0973779659?ie=UTF8&camp=1789&creativeASIN=0973779659&linkCode=xm2&tag=daytradingeducat" target="_blank">A Taoist Trader,</a> <a href="http://www.realitytrader.com/111trades.html" target="_blank">111 Trades</a> and other materials, you can see how this idea of verifying the market moves against the information/news background goes to the very heart of my trading approach. Being familiar with patterns described, among others, in <a href="https://www.amazon.com/gp/product/0071414908?ie=UTF8&tag=daytradingeducat&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071414908" target="_blank">Techniques of Tape Reading</a>, utilized by Jesse Livermore and valid since, well, forever, you can gauge which stage of the movement the market is. Is tulip mania at the beginning or at the peak - that's the question you need to answer to understand how the next news item is likely to impact the market. Good news can push the stock upward if it comes at the beginning stages of the movement, and can have just the opposite effect at the top of the move. Accumulation by smart money at the early phase vs. euphoric buying by the crowds at the final stage, and how the news fit in this context - if you have a firm grasp of these concepts, you have the key to the markets. TTN provides the tools for such understanding. In case these concepts are new to you, let me offer you this chart as a means to pique your curiosity and as a starting point for the further research:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJeBZLPY3oA0fSoM6gI9jtMcK_nHecRBqGlbOaTf2B7VpHtYC_CIPTGJoSVra8bbpwoPDZzPGBGiMK_cWuovemcWBtSozEcxofnWo09e5MunmNh2VdutZ_RQHsbUfuv7p6CIWRrtoL1kY/s1600/Sentiment.png" imageanchor="1"><img border="0" height="286" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgJeBZLPY3oA0fSoM6gI9jtMcK_nHecRBqGlbOaTf2B7VpHtYC_CIPTGJoSVra8bbpwoPDZzPGBGiMK_cWuovemcWBtSozEcxofnWo09e5MunmNh2VdutZ_RQHsbUfuv7p6CIWRrtoL1kY/s400/Sentiment.png" width="400" /></a><br />
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But I digress.<br />
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Remember a bit about sound alerts? It's not just your rudimentary beep getting your attention when something of importance happens. It's also a squawk box, voice commenting on the latest news of note, so you can hear it while watching the market or browsing other tabs in your browser:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjj7dBv6PL5vKEhl7O6pVlyWWUImtHs5T8Na9wobMV_Xgx2jln2uCn8QI0A_SYkop7_2fDox1PBXD8jEx_S1-htFmA5v8tnDks42uCxETCPm82fv-XHoE39dl61lK6AU03-yiKp2xVZ2mY/s1600/TTNSquawkBox.jpg" imageanchor="1"><img border="0" height="277" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjj7dBv6PL5vKEhl7O6pVlyWWUImtHs5T8Na9wobMV_Xgx2jln2uCn8QI0A_SYkop7_2fDox1PBXD8jEx_S1-htFmA5v8tnDks42uCxETCPm82fv-XHoE39dl61lK6AU03-yiKp2xVZ2mY/s400/TTNSquawkBox.jpg" width="400" /></a><br />
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Let's move on to the other features. There is a Calendar tab where you can familiarize yourself with all important events of the upcoming week and switch between different world regions:<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-eIgMONcDk5Dt4NDYnvU9IEEPzEPVkYOSra__oG3djr5fYLKpiwgLQjVeoeHU807yamJf1FhZoaEY65zaT7g4WZVbJ1k2BJHXgGQ06_FVAQOmeExm4yYg7viZQZrVSRa3KBiSoTeVql4/s1600/TTNCalendar.jpg" imageanchor="1"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-eIgMONcDk5Dt4NDYnvU9IEEPzEPVkYOSra__oG3djr5fYLKpiwgLQjVeoeHU807yamJf1FhZoaEY65zaT7g4WZVbJ1k2BJHXgGQ06_FVAQOmeExm4yYg7viZQZrVSRa3KBiSoTeVql4/s400/TTNCalendar.jpg" width="400" /></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWPEOgUZvQZkBF1lhV5MZPXXzG_GLL7X2uiXU-Mvh-YWDWkDq4bDQj3WZ56kcFLaSH7foatwsM_hpT_sHePUhnsbRgXg9cSvgnfWsFQVeqHRjznfUX_-c7h7HGqX3IuECbLSFveUMmTrs/s1600/TTNCalendarWeekly.jpg" imageanchor="1"><img border="0" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWPEOgUZvQZkBF1lhV5MZPXXzG_GLL7X2uiXU-Mvh-YWDWkDq4bDQj3WZ56kcFLaSH7foatwsM_hpT_sHePUhnsbRgXg9cSvgnfWsFQVeqHRjznfUX_-c7h7HGqX3IuECbLSFveUMmTrs/s320/TTNCalendarWeekly.jpg" width="320" /></a><br />
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As you look at those tabs, you will notice a few more, providing wealth of information and mostly self-explanatory. Let me show you how they look and what kind of information they provide. Filers tab:<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghLSDtX2IlumI0tR1dYLdDyjGEVy_y1t6_VWYPZdqxWTHFCwt4mxAqQR-fzE79BsihkgVWjeeXUPogKYKnCg8bdy5Ncffr0yawVa4QDPjJxXyikLgc-uzyUrVzPoyFGbk_8i2f3siK_Rk/s1600/TTNFilers.jpg" imageanchor="1"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghLSDtX2IlumI0tR1dYLdDyjGEVy_y1t6_VWYPZdqxWTHFCwt4mxAqQR-fzE79BsihkgVWjeeXUPogKYKnCg8bdy5Ncffr0yawVa4QDPjJxXyikLgc-uzyUrVzPoyFGbk_8i2f3siK_Rk/s400/TTNFilers.jpg" width="400" /></a><br />
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...and Top Stories tab:<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0tVvFqVBgEHZxFNdalVZdY367YddNFwBXenzQdo9GnW7FMPaFX7WqqucSkhalRhM4ZNca7RjAsPQZKvjy4UYg0f_ErwXepqXkwfXrduYYvpAZqoJz8Y1mAiKS7VHJt-E5n79iDyViUe8/s1600/TTNTopStories.jpg" imageanchor="1"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0tVvFqVBgEHZxFNdalVZdY367YddNFwBXenzQdo9GnW7FMPaFX7WqqucSkhalRhM4ZNca7RjAsPQZKvjy4UYg0f_ErwXepqXkwfXrduYYvpAZqoJz8Y1mAiKS7VHJt-E5n79iDyViUe8/s400/TTNTopStories.jpg" width="400" /></a><br />
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Now that have first idea of the interface, I'll leave you to explore the rest of it to discover the TTN's full potential. One more aspect to mention is e-mail alerts. You can configure them to control the volume of incoming e-mails according to your interests and trading style. For instance, to prepare for the beginning of trading day, Pre-Market Movers is invaluable. This is what you get:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPZC_NSKL8YNt-tjIgWj5PNJqplHIlvGa5xXLyXO8FdYmltsdMo19pzXEwxLawImaMTXYEgFZh1N_96Rru1vWjzqdtHdOY919ySv9ERqioPE3wbXIqY8wFGZkcfCqdJO9NL_NJSMDq9iw/s1600/TTNPreMarket.jpg" imageanchor="1"><img border="0" height="197" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPZC_NSKL8YNt-tjIgWj5PNJqplHIlvGa5xXLyXO8FdYmltsdMo19pzXEwxLawImaMTXYEgFZh1N_96Rru1vWjzqdtHdOY919ySv9ERqioPE3wbXIqY8wFGZkcfCqdJO9NL_NJSMDq9iw/s400/TTNPreMarket.jpg" width="400" /></a><br />
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There is Morning and Evening Papers Summary, Online Reading Summary, Market Close Summary, Event Watch, midday Trading Hours Summary... if you get overwhelmed by choice, just watch them all for a week or two to get a sense of which of them are useful for you.<br />
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Let me wrap it up by saying that there is a lot more to the TTN offerings, and the main thing you are likely to discover is a value of a single well-organized and thought-through source of information and analysis. </div>
Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-21295934406495791912013-04-21T07:51:00.002-07:002013-07-16T08:09:28.571-07:00A Few Questions for the Goldbugs to Ponder.Recent developments with severe gold price drop generated, predictably, a lot of controversy, hair pulling, arm wringing and, even more predictably, widespread accusations of manipulation. I want to address those of you who bought into great story of gold going up, up and away, never to look back... and now searching for answers to many questions this drop puts in front of you. Not that I can provide all the answers but I want to offer you a framework in a form of a few questions you need to ask yourself.<br />
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Before we continue however, let's define my audience. If gold is a thing you just like to own whatever the price, stop reading. If gold is a cult for you and you must own it to belong, whatever the price - stop reading. If gold is a form of a protest for you, whatever the price - you are not my audience. We will simply talk past each other since I speak of completely different aspects. So, without judging each other, let's just part our ways, so I can address my audience. Now, if you view gold as a part of your portfolio or a sector for your trading activity, if you do care about the price, want to protect your account and trade for profit, not for abstract social ideas - continue reading. If you read everywhere about how gold was/is/will be manipulated and wonder what to do, continue reading. If you got caught in this price drop and wonder what to do , or you are out of the gold market but are looking to get back in - read on. You are my target audience. With that in mind, let's move on to the questions I want you to ponder.<br />
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1. Manipulation (let's not discuss it itself here lest we cloud the real issue, we spoke about it <a href="http://blog.realitytrader.com/2009/08/manipulation-myth-and-reality.html" target="_blank">here</a> before) manipulates PRICES. It doesn't manipulate YOU. It may cause <b>price</b> to drop, but your <b>account</b> drop is still YOUR doing. Was it your choice to ignore what charts said, or manipulator's fault? It's not like charts were silent on the drop coming - many warnings were posted by solid chartists, and you, as a student of the market, did look at the charts as you contemplated your course of action, right? You might have noticed how the story said up but the price remained stagnant - remember our discussion about <a href="http://blog.realitytrader.com/2008/10/information-price-divergence.html" target="_blank">Price-Information Divergence?</a><br />
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2. If manipulation, or intervention (the term I prefer for many reasons) is a fact of life, why doesn't your trading system includes it as one of market forces? Sound trading approach encompasses everything that influences the market. Each force that moves the price is a factor to consider. Tape Reading for ages defined two major classes of such forces as Smart Money and Crowd, advancing the idea of Smart Money footprints being different and readable. If your friendly market manipulator is not such entity representing Smart Money, then who is? What I am trying to say here is, reading the market was always about decoding what Smart Money is doing vs. what Crowd is doing, with idea to take the side of... well, you can finish the sentence yourself. How in this regard is gold different from any other asset that went up and then down in the past? Over last decade and half we went through what, 3 major bubbles? Tech boom, real estate boom, oil boom? Oh, this time it's different? Sure...<br />
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Now I want you to get really scared. Not with paralyzing fear that won't do you any good but with healthy fear that is a necessary part of a trader's arsenal; it works as a safety mechanism, keeping you careful and putting smoke detectors and fire extinguishers at each level of your (financial) house. So,<br />
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3. Let's recall some details of the oil boom of 2008. It was quite recently, shouldn't be too hard. Please do some simple math. Calculate the percentage of a price drop that oil experienced, from $150 to $35 (rough numbers, we don't need them to be accurate to the cent) before recovering to about $70-80-90. Calculated? Now apply this percentage to the gold top of about $1950 and see what bottom price you come to. I'll wait for you to finish the math, faint and return from your blackout.<br />
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... You are back? Good. Now, I am not saying this is what WILL happen. What I am saying is, it's a possibility. If someone tells you it's not, ask yourself:<br />
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4. If it could happen with oil, blood of the economy, commodity needed by each and every sector and country, why can't it happen with gold? Oh, I know, you've read that cost of gold production is rising and that will put a floor under the price... I remember reading the same about oil in 2008. Didn't help. Market tends to overshoot on both sides, and while drop to $32 was certainly overdone, it still poises the question:<br />
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5. Can you survive such drop should it come to pass? If you are in gold from $300, sold part for solid profit and are holding core position only, you don't have to fear much. If, however, you bought into the story closer to the top... Oh, I know, "but the governments continue printing useless paper, gold is a hedge..." This IS the story, and it's not confirmed by the charts. Sure, there is a cool chart circulating where the rise of debt corresponds with rise of gold. What this chart doesn't show you is a 2 years-long stall in gold while all kinds of QE were ramped up all over the world. Thus, last question:<br />
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6. Is it possible that there is no intrinsic connection between debt and price of gold? That this connection is mostly psychological, exists in investor minds, caused the whole run from 2001 to 2011, and this story has played out? The idea of gold priced in $30,000 or something like that based on the amount of debt is, in turn, based on the assumption of gold standard return - so are you willing to invest in this assumption?<br />
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I know, next question to me is going to be: so, what price your charts indicate? As I said many times before, charts have no predictive value. They have instructive value. At this point gold chart does not instruct a buy. The path of the least resistance is still down. You want to hunt for a reversal, read <a href="http://blog.realitytrader.com/2011/08/warning-to-bottom-fishers.html" target="_blank">this</a> first.<br />
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Oh, and answering first e-mail I am likely to get: no, I don't hate gold. I trade it in whichever direction chart instructs me. Not to go too far for an example, <a href="http://tradinglog.realitytrader.com/2013/04/apr-15-2013.html" target="_blank">this is where we went long GLD</a> for an intraday trade.Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-61910936088917242582012-10-17T09:28:00.000-07:002012-10-17T09:28:19.630-07:00Unbearable Boredom of Trading<br />
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<span class="CharAttribute0"><span style="font-size: 12.0pt; line-height: 130%; mso-fareast-font-family: □□;">Ah,
glamorous life of a trader... Shimmering monitors, scrolling news headlines,
whispering TV, hot coffee... You are alert, in control, overseeing and managing
complicated situations... Suddenly something big develops, you catch a whiff of
a big move coming, you are among the first to hear fresh news and evaluate just
how significant it is - and on a moment notice you spring to action, pounding
the keyboard, sending orders, talking into your headset. By the time mere
mortals come home from their mundane day jobs and find out about what
transpired, you already profited from it and moved on. When they ask you about
that event at the weekend party, you will remember (with some feigned effort)
how it went down... And how you moved right on to that next big deal between
Japanese electronics company and German concern, followed by FDA approving new
miracle drug...</span></span><span style="font-size: 12.0pt; line-height: 130%;"><o:p></o:p></span></div>
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<br /></div>
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<span class="CharAttribute0"><span style="font-size: 12.0pt; line-height: 130%; mso-fareast-font-family: □□;">Fun, isn't
it? Except of course it's nothing but adolescent fantasy that has zero to do
with reality. Well, almost... TV screen is there, monitors too - and even
coffee if you make it. News headlines are scrolling but by the time you got
them, so did half of trading world... and the other half just doesn't care.
Now, I am not going to debunk the parts about being in control etc.; we are on
a somewhat different topic here so let's assume you know what you are doing
when pushing those buy and sell buttons. </span></span><span style="font-size: 12.0pt; line-height: 130%;"><o:p></o:p></span></div>
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<br /></div>
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<span class="CharAttribute0"><span style="font-size: 12.0pt; line-height: 130%; mso-fareast-font-family: □□;">One
crucial part of that image however is utterly and irreparably wrong: good
trading is not exciting. It's boring. And it should be. More than that - if
it's exciting, you are doing it wrong. Let's see why.</span></span><span style="font-size: 12.0pt; line-height: 130%;"><o:p></o:p></span></div>
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<span class="CharAttribute0"><span style="font-size: 12.0pt; line-height: 130%; mso-fareast-font-family: □□;">Some traders feel that they have to be in the middle of the battle, in the
hottest stock of </span></span><span class="CharAttribute0" style="line-height: 130%;"><span style="font-size: 12.0pt; line-height: 130%; mso-fareast-font-family: □□;">the day. It's almost as though unless they take part in the "water
cooler topic" of the day, the trading day doesn't count. The truth is,
however, those scorching hot stocks are </span></span><span style="font-size: 12pt; line-height: 130%;">much more likely to cause heavy losses than bring you profits. They tend to
be </span><span style="font-size: 12pt; line-height: 130%;">extremely volatile, move with hard to handle speed, move to extremes that
provoke </span><span style="font-size: 12pt; line-height: 130%;">emotional reactions - and if all that was not enough, they get halted. If
you ever tried to find a bottom in one of those "oversold” stocks cut in
half or so, you know what I mean. Ditto for shorting freight trains that just
keep going. </span><span style="font-size: 12pt; line-height: 130%;"> </span><span style="font-size: 12pt; line-height: 130%;">Do these deliver in the
excitement department? No doubt - but that's where you have to ask yourself about
your motivation for trading: is it profit you are after or the exultation of being
a participant in a hot </span><span style="font-size: 12pt; line-height: 130%;">event? If it's profit (and if not, just stop reading this and go look for
another huge mover to donate more of your money to), then remember that the
amateurs evaluate profit potential while professionals gauge risk first. If you
can't control risk properly, move on to </span><span style="font-size: 12pt; line-height: 130%;">another trade, no matter how tempting the opportunity seems. Remember also that
it </span><span style="font-size: 12pt; line-height: 130%;">looks just as tempting to many others - do you want to be a part of the
crowd which, as we all know never makes money?</span></div>
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<br /></div>
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<span class="CharAttribute0"><span style="font-size: 12.0pt; line-height: 130%; mso-fareast-font-family: □□;">Another
frequently seen reason for one's trading being exciting is creative approach to </span></span><span style="font-size: 12pt; line-height: 130%;">each given
trade. Yes, this is not a mistype (not that I am a stranger to those). You see, </span><span style="font-size: 12pt; line-height: 130%;">good
trading doesn't call for the whole thinking process to happen during trade
search, </span><span style="font-size: 12pt; line-height: 130%;">evaluation
and development. All this process should take place during designing your </span><span style="font-size: 12pt; line-height: 130%;">trading
system, at the drawing board. Trading time is execution time. You don't get
creative during the battle when your decisions are more likely to be influenced
by emotions and made in a rush - you execute pre-planned solutions.</span></div>
<div class="ParaAttribute1" style="line-height: 130%;">
<br /></div>
<div class="ParaAttribute1" style="line-height: 130%;">
<span class="CharAttribute0"><span style="font-size: 12.0pt; line-height: 130%; mso-fareast-font-family: □□;">This takes
us to the idea of correct trading approach. It should include IF-THEN </span></span><span style="font-size: 12pt; line-height: 130%;">scenarios that
make your responses pre-planned. Those scenarios are implemented in a form of
setups that are nothing more than a set of recognizable situations and
instructions how to trade them. In my case, those setups are chart formations;
in yours it can be something else. Time for thinking, for creative process is
when you create, test and tweak your trading system. Providing you have such
setups in your arsenal, got them tested, tweaked to perfection and adjusted for
the current market conditions, your trading turns into quite robotic affair.
You are scanning for your setups and as soon as they appear, it’s purely a matter
of execution. It’s pure eye-finger coordination, with no brain in-between. See
setup – take setup – wait for the market to tell you what it’s going to be,
stop or profit. Take either with no second-guessing. Move on to the next.
Repeat. Repeat. Shut down software at the end of trading day, to fire it up the
next morning and go over whole exercise once again.</span></div>
<div class="ParaAttribute1" style="line-height: 130%;">
<br /></div>
<div class="ParaAttribute1">
<span class="CharAttribute0"><span style="font-size: small;"><span style="line-height: 130%;">Does the
process described above strike you as boring? It should – because it is. You
may sit for undetermined length of time waiting for your trade to come along
and doing nothing. Learn to do that, because when you start pushing for trades
just to break boredom, you start trading marginal setups. Automatic execution
of your trades </span></span><span style="line-height: 20.799999237060547px;">isn't</span><span style="font-size: small;"><span style="line-height: 130%;"> very exciting, it makes you feel like a robot – and as far
as your wallet is concerned, it’s a good thing because your actions won’t be
influenced by your emotions. You want excitement? Get your kicks, whatever you
do for them, after market close. Trading time is for profit, after hours time
is for other stuff… like life, you know. Dull me with profits and I will yawn
all the way to the bank.</span></span></span><span style="font-size: 12pt; line-height: 130%;"><o:p></o:p></span></div>
Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com2tag:blogger.com,1999:blog-6037843186882675213.post-74205122566208198882012-06-29T10:00:00.001-07:002012-06-29T10:35:15.133-07:00How This Market Is UniqueI have to say, current is the most unusual market environment I've witnessed over almost 16 years of trading (sheesh, has it really been THIS long??). No, it's not algos or HFT that make it so unusual. None of those things ever influenced the method I deploy to read the market in any significant way. Here is what is so unique about it.<br />
<br />
Normally market is in one of two states in relation to coming news. First, it has no idea about news coming its way. This is usually what we call "<a href="http://blog.realitytrader.com/2011/09/news-tradeem-or-fadeem.html" target="_blank">Genuine News</a>" - earthquake would be a good example. So, the market trades in its own way, reacting on this and that, until unexpected comes and changes the picture. Second state is, market knows about news coming, evaluates it in advance and starts discounting it. This is the most frequently seen state of the market and the one on which whole trading methodologies are built. We called it Fleece Sheep News in that same article linked above.<br />
<br />
What we have right now though is a weird hybrid of those two modes - the market knows about news ahead but isn't able to factor it in effectively. It remains a matter of speculation and guesses for incredibly long time, and we are not much closer to resolution than we were two years ago. Those who thought the whole EU charade should collapse continue thinking so; those who believed it will print its way out of debt burden still believe it. This very unusual mode for such unusually long time causes very abnormal volatility and bi-polar market that soars like an eagle one day and digs the hole like a mad rabbit another. Even intraday, market acts like a frog in a football kicked by yet another headline. I suspect we will remain in this mode for a good while. Higher volatility goes hand in hand with shorter time frames. Investors turn into swing traders, swing traders become day trader, day traders become scalpers, scalpers... well, they remain scalpers I guess.Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-27840380261863953692012-06-10T10:42:00.002-07:002012-06-10T10:43:14.853-07:00Three Kinds of Crash, re-visited<br />
<h3 class="post-title entry-title" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; position: relative;">
<span style="background-color: #cccccc; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: small;">Below is the article I have written on October 16 2011, with some forecasts about most probable scenarios in the economy and market reactions. Interesting to look at it now and compare the unfolding events with forecasts. Seems that the second scenario, one that I deemed the most probable, takes place. Market reactions are pretty much on target as well. IMO, everything remains intact, so let's re-read it. </span></h3>
<h3 class="post-title entry-title" style="color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 16px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; position: relative;">
<span style="background-color: #cccccc;"><br /></span></h3>
<h3 class="post-title entry-title" style="color: #444444; font-size: 16px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; position: relative;">
<span style="background-color: #cccccc; font-family: Times, 'Times New Roman', serif;">Look Ahead: Three Kinds of Crash</span></h3>
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<div style="text-align: justify;">
<span style="background-color: #cccccc; font-family: Times, 'Times New Roman', serif;"> <i>Life never gets so bad that it can't get worse" </i></span></div>
<div style="text-align: justify;">
<i><span style="background-color: #cccccc; font-family: Times, 'Times New Roman', serif;"> - Solomon Short</span></i></div>
<span style="background-color: #cccccc; font-family: Times, 'Times New Roman', serif;"><br />Putting together pieces of mosaic gathered over last few months by observing both news headlines and market reactions, let me offer my view on the future big picture developments. Everyone has one, why not add another voice and see how reality matches the forecast (rather set of scenarios in my case but you get the idea). Want to say from the start - this is a forecast that I will be happy to be mistaken about.<br /><br />We will break it by two distinctive parts - economy and market developments. Let's start with <b>economy</b>.<br /><br />European Union is non-viable and not-salvageable entity. Its deep underlying problem is discrepancy between various aspects of union. It's a monetary union - but not fiscal. Economic - but not political. This patchwork creates situation where decisions are difficult to make and even more difficult to implement, and solutions help one member at the expense of another. Authorities would be happy to throw more money at the problem but taxpayers of one sovereign state are not keen on bailing out another - and those taxpayers are voters. Push for collateral and austerity threatens autonomy of a debtor - and taxpayers start rioting over there too. There is no third party that could bail it all out (rumors spiking now and then about Latin America or China lending money to EU is pure nonsense and if anything, show the degree of desperation). Thus, there are only two ways forward: crash or money printing. Are these two really two? Not in my view - money printing does nothing but stretches crash in time, turning it into slow motion crash. It's fine with authorities though if they can stretch it by decades - today's decision-makers leave the office till then. So, real choice is between three options, none of which is warm and fuzzy.<br /><br /><i>First</i> is <b>Crash Now</b>. No printing, no bailouts, let's rip the band-aid off, take the (admittedly huge) pain and start healing and rebuilding, with lessons learned in mind. Probability of this? Well, only if enraged taxpayers/voters find the way to force the hand of their respective governments and abandon the attempts to save the union. No politician wants to preside over collapse ("Crash?? Not on my watch!"). Thus,<br /><br /><i>Second</i> is some printing now, masked as bank recapitalization, insurance guarantees etc etc. As we were shown by Fed, there are many ways to create money out of thin air. If Powers That Be manage to agree among themselves and push some kind of package through their respective elected bodies before people take on the street in numbers impossible to ignore, this will postpone the crash a bit. Such solution is nothing but kicking the can down the road, and reality will catch up with fantasy of salvation once again (after all, the debt remains as unsustainable as it was, and even becomes worse). At that point political will to continue on that path runs out, and we face second variation: <b>Crash Later</b>. How much later? Well, depends on how much is printed. Odds? Feels to me, this is the most probable option.<br /><br />Finally, <i>third</i> option is printing gradually over extended period of time. That would be politicians preferred way if they could find the way to do it quietly and as a trivial matter, under the radar so to speak. This is <b>Crash in Slo Mo</b>. Pity the savers; inflation tax forever.<br /><br />One more aspect of the big picture is China (and Asia overall). My feel is, it's a whole new can of worms down the road. It's not in a focus of attention much at this point since European troubles are more imminent. China's turn is to come yet, and unsustainability of economy geared to supply the West which cuts off its demand and of putting money in ghost cities to keep people working and economy humming - unsustainability of all this is going to reveal itself at some point.<br /><br /><br />Let's move to the <b>market</b> side of the picture. How is it going to react in each of the scenarios? In the first one, Crash Now, it's will mirror the economy and crash with it. Second - Crash Later - is what market is betting on over last couple weeks by climbing in the face of grim news. If this option materializes, market will spike first in relief, then drop quickly reflecting the part of reaction built in already by this recent climb and killing later arrivals; then new news will overtake and new worries (or lack of such) will start influence the movement. Finally, third option (Slo Mo Crash) is what market will be most happy about, staging big long term rally, quite possibly to new all time highs. After all, inflation is not only tax - it's also a wealth transfer to those who has what to invest.<br /><br />There. Hope life proves me wrong and things turn more rosy.</span></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-30876857474339163132012-02-20T15:21:00.000-08:002013-09-27T08:05:04.932-07:00Is market a battlefield for you?<br />
<div class="MsoNormal">
<span style="font-family: Arial, sans-serif;"><span style="font-size: small;">Have you ever heard </span>something<span style="font-size: small;"> like "The market is a battle, be ready to fight with all you've got," or "The market is a war," or any variation of this theme? I bet you have, it's a fairly common theme. But is it true, or better question might be: is this a mindset that you want to adopt? </span></span><br />
<span style="font-family: Arial, sans-serif; font-size: 12pt;"><br /></span>
<span style="font-family: Arial, sans-serif;"><span style="font-size: small;">Don't get me wrong - by no </span>means<span style="font-size: small;"> do I want to present a marketplace as a happy place where refined gentlemen high-five your each win (hmm, do refined gentlemen high-five at all? or they back-slap only?) and console you with fine whiskey and cigar after each loss. No, they are out to get you just as much as you -
them. In that sense, anyone in the market is an enemy of anyone else. But that's not really the point. The point is, is this kind of attitude toward the marketplace and its happenings going to help you survive it, navigate it successfully? Or is it going to undermine your success? <o:p></o:p></span></span></div>
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<br /></div>
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<span style="font-family: Arial, sans-serif;"><span style="font-size: small;">If the market is war for you, you are going to be in the fighting mode all the time. Can you function well for long in a constant fight mode? It's extremely tense mode which is going to wear you out rather quickly. Instead, allow me to offer you a very different attitude - one where a market is a natural
environment for a trader - environment where certain patterns govern all the
comings and goings. Is it a dangerous place for a trader? Of course it is. Think of it as of ocean. </span>It's<span style="font-size: small;"> a dangerous
place to be and swimming in it is a dangerous thing to do - just as trading the markets.<o:p></o:p></span></span></div>
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<br /></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">But is it practically useful to think of ocean
as a battlefield and sharks as enemies? Try to approach it this way, and you
start making your decisions based on emotions, anger, frustration, feeling of
being powerless and moving to inevitable defeat.<o:p></o:p></span></div>
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<br /></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">Instead, try to think of it as a place that is
indifferent to you - not friendly, not hostile - but simply a natural
environment where incorrect behavior gets you killed. Now instead of emotions
you focus on studying patterns - which current goes where, whether it will take
you where you need to be, where the sharks are and what the signs of them
circling are, how you recognize their approach, how you spot fish that you can catch and eat... That's your cold-blooded trading approach where you act
accordingly to the patterns and not to what your emotions would have you do.<o:p></o:p></span></div>
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<br /></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">Those who you may want to dub as enemies based on the concept of fairness and other similar ideas (which are not the nature ideas but
entirely man-made) are those who create these patterns and are part of them.
Consider them enemies - and you find yourself fighting those patterns. Consider
them part of the environment - and you start studying and following those
patterns.<o:p></o:p></span><br />
<span style="font-family: Arial, sans-serif; font-size: 12pt;"><br /></span>
<span style="font-family: Arial, sans-serif; font-size: 12pt;">Reread this paragraph above before you start your next trading day. See if it puts you in a calm confident state of mind where you feel in control of your emotions and actions.</span></div>
Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-73317267051496254382011-11-24T08:37:00.001-08:002011-11-24T09:22:36.352-08:00Capitulation - how you recognize and trade it<br />
<div class="MsoNormal">
One of the well-recognized terms from the<a href="http://www.amazon.com/gp/product/0071414908?ie=UTF8&tag=daytradingeducat&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071414908"> tape reading</a> terminology is Capitulation - often mentioned and often misunderstood. Many apply it in an overly broad sense, labeling any new low as capitulation; some believe that buying into selloff makes them winners almost by default - after all, everyone heard about necessity to go against the crowd, right?</div>
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<br /></div>
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There
are two important things to keep in mind about this concept.<o:p></o:p></div>
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First
is, bottoms are not always being formed by the capitulatory selloff (V-shape).
Sometimes it's a slow grind shaping as a dish; sometimes even with capitulation it's still not that easy - weak initial bounce often leads to another drop and
new low is being made sending a stock into panic.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Second,
and most important to remember. You probably noticed that wherever you
find the description of the concept of capitulation, it's still just a concept - meaning, there
is no measurable component to it. There is, to my best knowledge, no percentage
of the drop that quialifies selloff as capitulation. Name any particular number, and you will
inevitably find a whole lot of cases where it was exceeded. There is a good
reason for that: if there were a certain measurement for capitulation that
guaranteed ultimate low, everyone would be insanely rich waiting for it and buying
it... and no one would be buying a second earlier. But then again, why would
anyone SELL at that ultimate low which has been already proven to be an
ultimate one?... And if the answer is "no one," then from whom the bottom hunters would buy at that same bottom they were hunting?<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Thus,
capitulation is either:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
-
can not be computed and quantified as it's an emotional state, panic, total disarray leading
to a free-fall - but not being quantifiable, it's in the eye of a beholder,
which meakes "getting a read" on it quite discretionary; <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
or<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
-
can be computed to a certain degree IF you somehow know the amount of shares
that were held by different stakeholders, and see that roughly that amount is being
traded in a very short period of time (again, discretionary component) during
very steep selloff (once again, steep by what standard? on what chart?).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
No
doubt, sometimes experienced traders get it right by gut feeling which is a
product of vast experience. By no means it's a fool-proof process for any of
them, and you will always see arguments about whether this particular selling
already constitutes capitulation or not yet, whether capitulation is going to
be the case on this particular bear market or not. This concept is necessary to
understand, but it doesn't mean that once you understand the concept you can
spot the capitulatory type of bottom. That's why I am always advocating for a different type of <a href="http://blog.realitytrader.com/2011/08/warning-to-bottom-fishers.html">bottom-fishing</a> - one that is based on:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
- letting go of the idea of buying THE low, </div>
<div class="MsoNormal">
- waiting for a stock to come out of free-fall, form a recognizable reversal formation,<o:p></o:p></div>
<div class="MsoNormal">
- buying when such formation offers chart-based opportunity free of emotions.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Such approach will never get you in on the exact low - leave that to amateurs to try and brag about those rare instances when they get it right. In exchange, such approach will give you a repeatable reliable method of trading the trend reversals.</div>
<div class="MsoNormal">
<br /></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-68606172872248144832011-11-08T09:45:00.000-08:002011-11-08T10:52:32.909-08:00Simplicity: why don't we appreciate it?There is one curious phenomenon that I observe for a long while. You see, my trading approach is fairly simple (let's make a distinction at once - <b>simple </b>doesn't always mean <b>easy</b>). It's a few chart formations, reading the volume, assigning a transparent and logical structure to the setup and following the standard procedure once a trade is triggered. I admire the simplicity, I enjoy it, and I am a fan of an old phrase by Leonardo: <i>Simplicity is the ultimate form of sophistication</i>.<br />
<br />
Yet time and again I encounter people disappointed by how simple my trading approach is. Yes, disappointed and skeptical - even though they see for themselves that it works. Imagine my amazement when I hear something to the effect: "Yeah, I observed you in action, followed some of trades, made money... read trading logs, see that you are fairly consistent... But come on, market is much more complicated than this! There is macroeconomics, there is stochastic, there is this, that, oh and that - and you ignore all this stuff. It makes no sense. Hundreds of pundits devote their life to all the analysis, and you are telling me you can do without any of that? It makes no sense. It makes no sense."<br />
<br />
- "Okkkay... but hey, you do see that it works, right?"<br />
<br />
Awkward silence. Pause. Blank stare. Then life returns to my counterpart's eyes as the needle finds the familiar groove: "See all these blogs? magazines? TV channels?..." Etc. You get the idea.<br />
<br />
So, why do we do this? Why is simplicity not enough? Worse yet, why is it not enough even though it's proven as an effective approach to trading? <br />
<br />
I have my answer to that. See if it's something you can relate to. It goes to the root of the very reason for our trading. Why do we trade? Sure, everyone immediately answers "to make profits" - but is it really so? Or rather, is it true for all of us? In my experience, no. For many of us, it's an intellectual challenge that we are after - we enjoy analysis, arguing points, proving our points to others... and all this stuff may or may not be relevant to trading in its purest form (which is Enter, Exit, add to your Profit or Loss column). If one's motivation is such intellectual exercise, my approach won't satisfy that person. More than that, to some it feels almost as insult!<br />
<br />
We discussed earlier how such analysis can and often do lead to entrenched opinion which triggers Ego and leads to stubborn defense of one's losing position. It's also a point emphasized in <a href="http://www.realitytrader.com/taoisttrader.html">A Taoist Trader</a> course. Let me cite a quote from that course:<br />
<br />
<br />
<i>Much overcomplicated thinking obfuscates the simplicity and clarity of the real</i><br />
<i>world. Knowledge must be useful and practical.</i><br />
...................<br />
<br />
<b>In comprehending all knowledge,</b><br />
<b>Can you renounce the mind?</b><br />
<i>In Taoist philosophy, there are two types of knowledge: useable knowledge that</i><br />
<i>contributes to the achievement of a goal (daily contentment), and knowledge that</i><br />
<i>does not. The only knowledge worth pursuing is the knowledge that serves the</i><br />
<i>purpose. Our ability to adapt to changes in an environment is a double-edged</i><br />
<i>sword. Our mind sometimes accepts external values without skepticism. These</i><br />
<i>values often conflict with our core nature and represent dysfunctional knowledge.</i><br />
<i>However, by using Taoist principles, we can accurately evaluate which knowledge</i><br />
<i>is worth keeping and which should be discarded.</i><br />
<br />
<div style="font-style: italic;">
The amount of information surrounding the markets is mind-boggling. Some of it
is useful in the process of decision-making and some serves no useful purpose at
all. A trader carefully observes which information helps him navigate the markets
and which wastes his time and adds to confusion. Practical usefulness measured by
actual performance is a trader’s criterion to evaluate which sources should be taken
into account and which should be dismissed. A trader must avoid paralysis caused
by endless and contradictive information flows..</div>
<div style="font-style: italic;">
<br /></div>
If you ever catch yourself questioning simple trading approach merely because of its simplicity, ask yourself: Why are you trading?<br />
<br />
<br />Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com1tag:blogger.com,1999:blog-6037843186882675213.post-21635132639320103322011-10-23T16:55:00.000-07:002012-02-20T17:15:31.943-08:00Blog Summary Updated<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;">Trading Philosophy – General Understanding of the Markets.<o:p></o:p></b></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<div style="text-align: left;">
<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2008/03/history-teaches-us.html">Market and Logic</a></div>
</div>
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<div style="text-align: left;">
<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://www.realitytrader.com/tapereading.html#dual">The Dual Reality</a></div>
</div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<div style="text-align: left;">
<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2008/04/traders-job.html">A Trader’s View of the Market</a></div>
</div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<div style="text-align: left;">
<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2008/10/information-price-divergence.html">Information vs. Price</a></div>
</div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2008/10/turning-points-how-trends-are-born-and.html">Trends and Reversals</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2009/08/manipulation-myth-and-reality.html">Manipulation in the Markets</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2011/09/news-tradeem-or-fadeem.html">News and Price Interaction</a></div>
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<b style="mso-bidi-font-weight: normal;">Building Trading System<o:p></o:p></b></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2007/04/what-do-your-photocamera-frying-pan-and.html">Role of Technical Analysis</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2007/05/method-to-madness.html">How to Start</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2009/12/paper-trading-waste-of-time-or-valid.html">Paper Trading</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2007/06/method-to-madness-ii.html">Type of Movement</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2007/06/method-to-madness-iii.html">Structure of the Setup</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2007/07/bit-aboit-if-and-then.html">If-Then Scenarios</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2007/07/how-aggressive-are-you.html">Types of Entries</a><br />
<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2011/11/capitulation-how-you-recognize-and.html"> Capitulation - how to trade it</a><br />
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://www.realitytrader.com/tapereading.html#mentalstate">A Trader’s Mental State</a></div>
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<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2011/09/trade-what-you-can-read.html">Staying on a Sideline</a><br />
<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;"> </span></span><a href="http://blog.realitytrader.com/2011/11/simplicity-why-dont-we-appreciate-it.html">Simplicity in Trading</a><br />
<span style="font-family: Wingdings;">Ø<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><a href="http://blog.realitytrader.com/2012/02/is-market-battlefield-for-you.html">Trading is Not War</a></div>
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<b style="mso-bidi-font-weight: normal;">Day Trading, Scalping and Tape <st1:city st="on"><st1:place st="on">Reading</st1:place></st1:city><o:p></o:p></b></div>
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<o:p> </o:p></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-79934290671172781292011-10-20T09:06:00.000-07:002011-10-20T09:08:31.820-07:00Profit: how do you handle it? <i> Consistency is a sign of professionalism.</i><br />
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Weird question, isn't it? You pocket it, you smile, brag, drink, spend on that even bigger screen TV or even smarter phone... right? Well, yeah - under one condition: after making that profit you managed to keep it. If you are anything like 99% of the rest of the players then the following complaint will sound very familiar to you:<br />
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<i>I started the day so nicely, got this and that trade right, and if I just fainted right then it would be the best day of the month... but I pushed for more, lost some, felt regret, wanted to get it back, pushed again, lost all my profits... then I just couldn't accept that it all evaporated, and tried again and again... only to finish the day deeply in red. WTF?? (which as we all well know means Why The Failure??)</i><br />
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If you can't related to the above, just skip the rest. You are not human, why bother with our human problems. If you can though, here is the advice I regularly give in the room when someone hits great winning streak in the morning. Make it your standard operating procedure, and you will never find yourself in that frustrating situation.<br />
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1. Decide for yourself how much of your today's profit you keep no matter what and put a "stop on your account" so to speak at that level. My rule of thumb is 75%.<br />
2. On all further trades manage the stop level and position size in a way that doesn't jeopardize more than the rest of the profit made earlier (in that rule of thumb it will be 25%).<br />
3. Each time you make another profitable trade, move your account stop up to protect some of this additional profit as well. My rule of thumb is 50% of new portion. This is not unlike trailing stop, only applied to your trading account.<br />
4. If your "trailing stop" is hit by a losing trade, you are done for the day. Go enjoy life or switch to paper trading if you want - but no more actual trades. Switch to demo mode if your software allows it. Go away from your computer altogether if you suspect you have weak discipline and may give in to temptation.<br />
5. If your winning streak continues, close to the end of the day start trailing even tighter - 75% of all new profits (again, not unlike trailing stop principle where you tighten it more and more as price advances in your favor).<br />
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To put it all into numbers for illustration purposes:<br />
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Let's say you made $1000 in the morning trades. Your stop is at $750 now (if you want to go with my management; adjust to your risk tolerance if it's different from mine). Now, if your next trade loses $150, you have only $100 to lose before you stop trading for the day. You lose $250 - you are done, no live trades today anymore. Your next trade made $300 - trail your stop by $150, so now it's at $900. The next one made $400 - trail the stop by $200... etc, you got the idea.<br />
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This approach will save you a lot of frustration and make you much richer. Don't let the idea of "but what if I miss a great trade" tempt you - there will be a market tomorrow too. Trading is continuous process of many trades, and it's a combined result of them all that matters. Consistency is a sign of professionalism.<br />
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I can't remember, nor can I find on the fly, who said this: market is the easiest place to make money and the hardest place to keep it. Very true. If anyone knows the author and gives me a clue, I will add the name.Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-50315070702087714012011-09-28T10:28:00.000-07:002013-10-15T12:03:23.998-07:00News - Trade'em or Fade'em?Having commented lately on the influence the news flow from Europe has on the market and how sensitive this market is to those headlines, I received a very good question which made me think that I should have written on this topic long ago. Here is this, very valid, question:<br />
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"Vad, I am trying to reconcile these comments (on market sensitivity to Europe news - V.G.) you made in your <a href="http://tradinglog.realitytrader.com/">trading log</a> and on your <a href="http://www.facebook.com/RealityTrader">Facebook page</a> with the idea that you promoted many times before - that the news is usually priced in by the past movement and by the time the news is known to everyone it's too late to act on it, and a trader should start looking for info-price divergence to fade the news. Sure enough, I've seen many times that this idea worked like charm - and I do see now how market reacts on any peep from EU, just as you suggest. Could you comment on this contradiction?"<br />
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To be able to tell these situations apart, we must define two different kinds of news from the point of view of interaction between news and price.<br />
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First, and the most traditional for the "normal" market developments is what I call FSN - Fleece Sheep News. This is exactly what it sounds like. The scenario is old as the market itself. You've seen it 1000 times, and quite possibly were on a receiving end of it at some point early in your trading career. Smart Money starts buying while no one's even looking, it figures out the coming developments and accumulates before these developments become common knowledge. Price moves up slowly at first, then speeds up as an advance starts attracting attention and new passengers climb aboard. Finally the news comes, price spikes sharply and Smart Money feeds previously accumulated shares into such euphoric spike. No more buyers left, the last crop of late arrivals is left holding the bag as the price declines - and it does so against the background of a good news, with no single negative word, all to the amazement, resentment and accusations of manipulation by those who never bothered to study how the market really works... Examples of such news is introduction of a new technology, new product or drug, changes in demand, general industry trends, etc - things that keen observers can figure out with this or that degree of accuracy well before they become obvious to the masses. FSN may be a cruel name somewhat for this phenomenon but can you think of a more precise one?<br />
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Second, and more rare kind is what I call GN - Genuine News. This is an event that is either a) a surprise for everyone or b) known to come but with an outcome impossible to predict. This is where Smart Money has little if any advantage. More than that (although this is a somewhat side observation), often Big Money is at disadvantage here because of bigger exposure and lesser mobility in moving in and out... but this is separate topic. Example of the news catching everyone unprepared? Earthquake; fire; sudden death of a key figure... you get the idea. It's just "here is what happened," and no market participant could have taken the right position before the event other than by an accident or an unrelated reason. Thus, news is not discounted by the prior movement and causes genuine market reaction. Example of an event with unknown outcome? Why, EU latest developments... everyone knows something is going to happen, no one knows what. This is where some stay away and some bet on a certain outcome - counting on their opinion being correct, relying on their ability to calculate the most probable course of events or simply gambling.<br />
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In the former case (FSN), a trader uses price - information divergence as his most powerful weapon. I have written about this in the past (<a href="http://blog.realitytrader.com/2008/10/information-price-divergence.html">here</a> and <a href="http://blog.realitytrader.com/2008/04/traders-job.html">here</a> for instance, not even speaking of <a href="http://www.realitytrader.com/taoisttrader.html">here</a> and <a href="http://www.amazon.com/gp/product/0071414908?ie=UTF8&tag=daytradingeducat&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071414908">here</a>), to show how a trader takes position with Smart Money and stops being a part of the Crowd. As difficult as this concept may be for a layperson, for a trader FSN is a normal trading environment, like water for a fish.<br />
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GN on the other hand introduces huge uncertainty - instead of moving accordingly to street signs, traders have to wait for new and often temporary signs to be erected. In a news-driven market instead of smooth market flow we have lurching movements in stop-and-go fashion. Time frame shortens to "between the soundbites" - and those often come at unpredictable times.<br />
<br />
Thus, in the latter case (GN) - be nimble. Be flexible. Keep your commitment light, do not form an opinion and do not let your Ego lock you in that opinion. Don't be afraid of missing the move by not being in before the move. Remember, newbies chase potential - professionals control risk.Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com1tag:blogger.com,1999:blog-6037843186882675213.post-11713438561407211502011-09-11T11:23:00.000-07:002011-09-11T11:31:02.503-07:00Trade what you can readOne of the common mistakes among newer traders is the idea that a good chart reader must be able to read ANY chart - that is, be able to create trading scenario, analyze odds and so on. They tend to be surprised by "I have no idea" answer when ask an opinion about certain situation they are interested in. Yet this is my fairly frequent answer - and I don't hesitate to give it when I see nothing recognizable in the chart I am shown.<br />
<br />
You see, trading is not about being able to trade each and every movement. Trading is about to be able to pick the right opportunity - right in terms of YOUR trading approach, right in a sense of YOUR ability to read and understand the movement and right in a sense of fitting YOUR risk and objectives profile. What good a perfect breakout chart to you if you are a reversal trader, specializing in trend change setups and having little knowledge of and experience with trend continuation? It's not unlike a hunter who sits patiently in his hide waiting for his prey, waiting for the right moment and acting only when everything is in place for a successful shot.<br />
<br />
Then there are situations which present no or almost no opportunity for anyone, whatever their trading style is. If the chart is a mess with no pronounced levels, no volume clues, no clear configurations - it's safe to assume that we are facing an uncertain situation where nervous traders flee the risk, don't commit and engage very carefully if at all. There will be a resolution of this situation, and that's when you will get your signals, setups will shape up and trades will come your way. Until then, feel confident in your lack of confidence - it takes a real trader to say "I don't know." Good teacher teaches humility - and the market is a GREAT teacher. To quote <a href="http://www.realitytrader.com/taoisttrader.html">A Taoist Trader</a>:<br />
<br />
<br />
"<b>The vulgar are clever, self-assured;</b><br />
<b>I alone, depressed.</b><br />
<b>Patient as the sea,</b><br />
<b>Adrift, seemingly aimless.</b><br />
<br />
<br />
<i>It’s much more common </i><br />
<i>for a really knowledgeable experienced trader to sound reluctant, to be </i><br />
<i>unsure of the future developments and admit it openly. Knowing how </i><br />
<i>uncertain the market is, he is not so quick to express full confidence; he </i><br />
<i>accepts that events may develop in unforeseen way, and such acceptance </i><br />
<i>makes him better prepared for an unexpected turn of events. A Taoist </i><br />
<i>Trader’s plans and prognosis are usually tentative, with provisions for </i><br />
<i>various conditions. They will include many “ifs” and “buts.” He would </i><br />
<i>rather plan for multiple scenarios than put his full confidence in a single </i><br />
<i>one.</i> "<br />
<br />
<br />
<br />
<br />
<br />
<br />Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-61502696043840853342011-08-14T19:06:00.000-07:002011-08-14T20:47:03.280-07:00Tao, photography and tradingSo, being a trader, a <a href="http://www.realitytrader.com/gallery">photographer</a> and a student of <a href="http://www.realitytrader.com/taoisttrader.html">Taoism</a>, what am I to do when I run into the (excellent) book named <a href="http://www.amazon.com/gp/product/0817460047?ie=UTF8&tag=daytradingeducat&linkCode=xm2&camp=1789&creativeASIN=0817460047">Tao of Photography</a>? Why, look for analogies with trading of course. I mean, two of the components are there, gotta look for the third. Didn't take too long to see the similarities in how Tom Ang applies Taoist principles to photography and I - to trading. Read on:<br />
<br />
"The technique of the wise is ever-present, but never evident... Technique empowers the individual but it does not dominate. It must be learned and absorbed via a process of long training, but then falls from consciousness. The aim of technique is to provide fluency - an unbroken movement flowing from thought and conception through to production..."<br />
<br />
Sounds familiar? It should. Automatic reactions on whatever market does - reactions seemingly so instant as if events were foreseen... that's how experienced trader's actions look to a side observer. Did he really foresee sudden news that just hot the marketplace? Of course not - it's years of training that instilled this ability to react instantly and unconsciously. Re-read this <a href="http://blog.realitytrader.com/2008/03/trading-psychology-stage-3-clarity.html">description of the third stage of trader's development</a>, and you will see the same motives. Re-read t<a href="http://blog.realitytrader.com/2007/12/stephen-king-on-trading.html">his post about gunslinger</a> in Stephen King's novel, applying templates to be ready to any development (If - Then scenarios for traders?) Remember my often-said motto: "Trading is simple, but it is through many complications that you arrive to this simplicity." Finally, our trading room members will remember the slogan they see when enter the room: Don't interrupt your brain's work by thinking.Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-48199288731927813972011-08-06T16:27:00.000-07:002011-08-06T16:28:22.050-07:00WARNING TO THE BOTTOM FISHERSI know I've written about this a few times in the past. But it seems never enough.<br />
<br />
Considering the market over the last few sessions and panic over last two, I thought it was high time to scream it out loud once again. <b>DO NOT</b> guess on the bottom. What you think is low today can seem awfully high tomorrow. Selloffs can and do go for much longer than the "common sense" indicates. So do euphoric spikes for that matter. Premature bet on reversal will cost you dearly; correct guess will still be just that, lucky guess. <b>NO ONE</b> ever was able to pick exact reversal points consistently. Attempts to nail exact reversal is second most common reason for traders demise. Oversold gets oversolder, then oversoldest, and then sells some more before reversing. <br />
<br />
Bottom line: if you want to trade reversal, trade it on the <b>RIGHT</b> side of the reversal - <b>AFTER</b> it happened, price retested the low and confirmed the strength. Trading it on the left side is a childish bravery - cemetery of traders' accounts is sprinkled with tombstones saying "He was a brave trader." <br />
<br />
Disclaimer: this warning will be ignored by majority, just like 1000 similar warnings before. If you, a single reader of this - yes, you - heed it and play it right, that's all reward I count on. If there are two of you, I accomplished a lot today.Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com2tag:blogger.com,1999:blog-6037843186882675213.post-28806228341139263152010-07-15T09:24:00.000-07:002012-08-11T09:57:20.370-07:00Culprits and scapegoatsOver last few months, on several occasions I found myself involved in the (often heated) discussion of High Frequency Trading (HFT), Liquidity Providers (LPs) and related topics, ranging from false bids to flash crash. The exchange almost invariably involves angry accusations of HFT as the cause of many market ills. Since I get involved by pointing out the flaws in those accusations and errors in technical assessments of HFT impact, I've got asked a few times: Why do you insist on defending HFT and LPs, what's in it for you?<br />
<br />
Here is the deal: because I've seen it already and I know where it's going. Let me expand on that.<br />
<br />
Remember tech boom of 1998 - 2000 and consequent crash of 2001-2002? As in all boom-bust cycles, a lot of people lost a lot of money; as always in such cases, blame game followed. Now, do you remember who was chosen as a guilty party and what measures were taken? Funds chasing prices to stratospheric highs, throwing newly contributed money in to support the run created by old(er) money, thus creating what can be called an unsustainable pyramid? Market commentators and TV personalities hyping "new economy" and promoting useless companies with no substance? Monetary policies leading to yet another bubble? Lack of any meaningful oversight allowing any hack with computer in the basement to create a website and call himself a company? Yeah right. Powers That Be elected day traders as a scapegoat. They, day traders, run the market up to those insane and unsustainable highs, you see. In the process they also caused abnormal volatility, those bas****s. And of course, they don't contribute anything to society, ya know... darn parasites.<br />
<br />
Stunned day traders meekly objected. We can't run the market anywhere in any more or less meaningful time frame, they said - being very short term participants we are generally net neutral by the end of the day, thus fully eliminating our directional impact. If market goes up day after day, it's surely someone else's buying that causes it. And we jump in with out bids and offers on intraday basis, thus providing liquidity for longer term players, narrowing the spreads - after all, each lower time frame players serve as liquidity providers for higher time frame ones, isn't it ABC's of the market?<br />
<br />
It all made perfect sense for anyone who understands what market is and how it functions. But since when making sense mattered any? Blame had to be assigned, fingers had to be pointed and measures had to be taken. Scapegoat was chosen. What did we get as a result? Why, $25K rule. Remember? Can't day trade unless have $25,000 in your trading account. What a fix, eh? Mission was accomplished - as far as political expedience of the moment required. Did anything got fixed in reality? Well, we moved right to the next bubble; market went through another run-up and consequent crash; volatility during that crash reached unprecedented magnitude; destruction of wealth occurred at the breathtaking scale and speed. Oh, and just to add insult to injury - those same TV personalities continue their hype, never bothering to acknowledge ever being wrong. Can you call that blaming day traders anything but distraction?<br />
<br />
Fast forward to these days. Is it time for new blame game to start? You bet. Will Powers That Be try to find another scapegoat, allowing real culprits escape spotlight once again, thus dooming us for another boom-bust cycle? That's exactly what is happening in front of our very eyes, with the same arguments and purpose. This time it's HFT. They cause unsubstantiated direction (never mind that they scalp tiny spreads, often less than a cent, not causing any direction). They cause volatility (never mind that in order to earn their rebate they must ADD liquidity by putting in bids and offers, not taking someone's; thus they do provide liquidity for higher time frames as design intends). They cause crashes when withdraw their orders (never mind that if it were so then forbidding their activity would have caused crash right away). There are many other accusations, most of them based on complete lack of understanding how market mechanisms function. There are probably valid ones too but it's hard to hear them in the choir. Nor there any interest in meaningful discussion - just as there wasn't any back then, after tech boom. Just as back then, there are those who fuel all this finger-pointing with purpose of shaping up yet another scapegoat and diverting the spotlight from real culprits, while imitating activity instead of resolving real problems. Then, there are those who simply misdirect their anger, believing that it's HFT that really causes troubles in the market...<br />
<br />
Are there negative sides to HFT in my eyes? Sure, and they must be dealt with. Quote stuffing (practice of submitting a bunch of orders and immediately cancel them in order to overwhelm the system and take advantage of faster computing) must go - and is very easy to deal with. Establish min time for an order to remain valid (1/2 sec to 1 sec, for instance) - problem solved. Exchange presenting order information to an HFT firm before order goes to open market - if that happens, it's simply illegal (and it would be illegal with any other market participant so it's not HFT-specific violation); jail them if you caught them doing that. Etc. But no, HFT opponents insist on transaction tax and/or widening the spreads as a method of reigning in the HFT. Talk about scorched earth tactics - cover the ground with napalm to eradicate the mosquitoes; bears, rabbits and birds be damned.<br />
<br />
So there you go. Instead of real solutions we are going to get tweaks to what needs no tweaking, and measures that will harm retail investor. Blood-thirsty angry crowds will be satisfied. Officials charged with market oversight will demonstrate that the measures have been taken. Mission will be accomplished - once again.<br />
<br />
That's why I express contrary view on this topic so adamantly. I've seen it already. Same arguments, same volume increase, reaching crescendo soon. Same purpose. Same outcome, too.Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-21083776959034337002010-05-10T12:57:00.000-07:002010-05-10T13:30:47.661-07:00Market reversal setupOn Apr 30 I made <a href="http://caracommunity.com/content/bill-cara%E2%80%99s-blog-april-30-2010#comment-61968">this post</a> describing my conditions for the market reversal:<div><br /></div><div><b><span class="Apple-style-span" style="color:#3333FF;">Today's selling</span></b></div><div> <p class="MsoNormal"><b><span class="Apple-style-span" style="color:#3333FF;">Submitted by Vadym Graifer (1179 comments) on Fri, 04/30/2010 - 15:12 #61968</span></b></p> <p class="MsoNormal"><b><span class="Apple-style-span" style="color:#3333FF;">... is much closer to what I'd like to see for a trend reversal than anything we have had in quite a while. Slow, orderly, sustainable... Not ready to call it full blown reversal yet, but if SPY doesn't go over 121 and loses 118.20, that should do it.</span></b></p><p class="MsoNormal"><br /></p><p class="MsoNormal"></p><p class="MsoNormal">Let me show the setup I had in mind making that call. To provide a background which is fresh in memory today but will be a bit murky for readers in a while, the market had huge rally for about 13 months, and last couple months we had almost no pullbacks - just day after day of relentless upward climb. Search for the reversal and calls for the top, made all too often during whole rally, became almost hysterical. Time and again asked if "we are there yet" I was answering that I saw no signs of reversal. This post above though described a trigger for market reversal. Let's have a look at the chart where you will see a horizontal line showing the trigger:</p><p></p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLwayL8XvP8qP5vWaKJ4-1zmAvhIU2HJLIdRPq00SFGHSH2X_t6TgCJOhA3n6hNHgqdkJmJVIptACI3hkRCavohQF9JoqkY4c0yHF8EJwSJ_4L3OqZsb53592aHSwL4i2MOlCdb88gbgU/s1600/SPY+reversal.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 164px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLwayL8XvP8qP5vWaKJ4-1zmAvhIU2HJLIdRPq00SFGHSH2X_t6TgCJOhA3n6hNHgqdkJmJVIptACI3hkRCavohQF9JoqkY4c0yHF8EJwSJ_4L3OqZsb53592aHSwL4i2MOlCdb88gbgU/s400/SPY+reversal.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5469736466095493522" /></a></div><br />Looking at the top of the few bars forming the mini-range just above the breakdown line, you can see also where the resistance $121 came from. So, what we have here is: high at $122.12 made on 04/26, sharp retreat next day bottoming out at $118.25, a few days of consolidation forming a range between $118.20 and $121. That's the range that presented the setup mentioned in the call. <div><br /></div><div>From here we had two scenarios. First is hypothetical now: SPY breaks $121 thus invalidating the breakdown. From there would would be watching for possible double top or abandon short idea if new high were made. Second is what took place: support was broken, and the rest is history.</div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-51968418211908290482009-12-19T11:54:00.000-08:002010-11-25T14:54:32.910-08:00Blog summary<div class="MsoNormal"><b style="mso-bidi-font-weight: normal;">Trading Philosophy – General Understanding of the Markets.<o:p></o:p></b></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/03/history-teaches-us.html">Market and Logic</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://www.realitytrader.com/tapereading.html#dual">The Dual Reality</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/04/traders-job.html">A Trader’s View of the Market</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/10/information-price-divergence.html">Information vs. Price</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/10/turning-points-how-trends-are-born-and.html">Trends and Reversals</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2009/08/trading-climate-new-or-same-old.html">Changes and Consistency in the Markets</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l3 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2009/08/manipulation-myth-and-reality.html">Manipulation in the Markets</a></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><b style="mso-bidi-font-weight: normal;">Building Trading System<o:p></o:p></b></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l2 level1 lfo2; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/04/what-do-your-photocamera-frying-pan-and.html">Role of Technical Analysis</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l2 level1 lfo2; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/05/method-to-madness.html">How to Start</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l2 level1 lfo2; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2009/12/paper-trading-waste-of-time-or-valid.html">Paper Trading</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l2 level1 lfo2; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/06/method-to-madness-ii.html">Type of Movement</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l2 level1 lfo2; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/06/method-to-madness-iii.html">Structure of the Setup</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l2 level1 lfo2; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/07/bit-aboit-if-and-then.html">If-Then Scenarios</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l2 level1 lfo2; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/07/how-aggressive-are-you.html">Types of Entries</a></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><b style="mso-bidi-font-weight: normal;">Risk Control<o:p></o:p></b></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level1 lfo3; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/08/non-stop-discussion-of-stops.html">Role and Necessity of Stops</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level1 lfo3; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/03/can-you-afford-to-be-wrong-for-too-long.html">Stop Loss vs. Sitting It Out</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level1 lfo3; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2009/06/averaging-down-yea-or-nay.html">Averaging Down</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level1 lfo3; tab-stops: list .5in; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/04/stops-why-and-how.html">Basics of Stop Loss</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level1 lfo3; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/05/stops-deeper-look.html">Deeper Look into Stop Loss</a> </div><div class="MsoNormal" style="tab-stops: 156.5pt;"><o:p> </o:p></div><div class="MsoNormal" style="tab-stops: 156.5pt;"><o:p> </o:p></div><div class="MsoNormal" style="tab-stops: 156.5pt;"><b style="mso-bidi-font-weight: normal;">Trading Psychology<o:p></o:p></b></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l4 level1 lfo4; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/02/psychology-101.html">Basics of Trading Psychology</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l4 level1 lfo4; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/02/trading-psychology-stage-1.html">Novice</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l4 level1 lfo4; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/02/trading-psychology-stage-2.html">Intermediate</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l4 level1 lfo4; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/03/trading-psychology-stage-3-clarity.html">Experienced</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l4 level1 lfo4; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2008/04/trading-psychology-stage-4-through.html">Sophisticated</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l4 level1 lfo4; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/05/stops-why-dont-we-keep-them.html">Psychology of a Stop Loss</a> </div><div class="MsoNormal" style="margin-left: .5in; mso-list: l4 level1 lfo4; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/09/costly-hiccups-do-you-have-any.html">Psychology of Relapse</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l4 level1 lfo4; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://www.realitytrader.com/tapereading.html#mentalstate">A Trader’s Mental State</a></div><div class="MsoNormal" style="tab-stops: 156.5pt;"><o:p> </o:p></div><div class="MsoNormal" style="tab-stops: 156.5pt;"><b style="mso-bidi-font-weight: normal;">Day Trading, Scalping and Tape <st1:city st="on"><st1:place st="on">Reading</st1:place></st1:city><o:p></o:p></b></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l1 level1 lfo5; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/04/as-you-name-boat-or-what-is-scalping.html">What Is Scalping</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l1 level1 lfo5; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/04/as-you-name-boat-or-what-is-scalping_22.html">What Is Scalping II</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l1 level1 lfo5; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://blog.realitytrader.com/2007/11/whats-in-name-or-what-is-tape-reading.html">What Is Tape Reading</a></div><div class="MsoNormal" style="margin-left: .5in; mso-list: l1 level1 lfo5; tab-stops: list .5in left 156.5pt; text-indent: -.25in;"><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><a href="http://www.realitytrader.com/tapereading.html#philosophy">Basics of Tape Reading</a></div><div class="MsoNormal" style="tab-stops: 156.5pt;"><o:p> </o:p></div><div class="MsoNormal" style="tab-stops: 156.5pt;"><o:p> </o:p></div><div class="MsoNormal" style="tab-stops: 156.5pt;"><o:p> </o:p></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><o:p> </o:p></div><div class="MsoNormal"><o:p> </o:p></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com1tag:blogger.com,1999:blog-6037843186882675213.post-64304532623163878282009-12-08T15:10:00.000-08:002009-12-19T14:02:20.179-08:00Paper Trading: Waste of Time or Valid Learning Method?<p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Numerous discussions of</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">paper trading, and its value as a learning tool, usually see participants divided into two camps. One claims total uselessness of paper trading, another vows never to start without it. The scoffing camp points out the obvious limitations of paper trading:</span></span><span style="color:#222222;"><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:0in;text-indent:-.25in;mso-list:l0 level1 lfo1;tab-stops:list .5in"></p><ul><li><span style=" color: rgb(34, 34, 34); font-family:Wingdings;"><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">It doesn’t allow you to estimate</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">slippage</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">during your execution.</span></span></li><li><span style=" color: rgb(34, 34, 34); font-family:Wingdings;"><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">It leaves unanswered the question of whether your</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="color:#636363;">order</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">has a chance to be executed at all.</span></span></li><li><span style=" color: rgb(34, 34, 34); font-family:Wingdings;"><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">It keeps you in a relatively relaxed state of mind as there is no pressure of endangering real money.</span></span></li><li><span style=" color: rgb(34, 34, 34); font-family:Wingdings;"><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">It also doesn’t allow you to master your</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="color:#636363;">order routing</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">tools in full. </span></span></li><li><span style=" color: rgb(34, 34, 34); font-family:Wingdings;"><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Finally, it’s very easy to cheat oneself, changing one’s decision after the fact and booking corrected results.</span></span></li></ul><p></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Is this all true? Why, of course it is. Does it render paper trading useless? By no means. Paper trading can be extremely helpful if two conditions are met. The first is applying this learning tool at the right time and with the right purpose. The second condition is doing your paper trading right.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Let’s try and build the rules of paper trading that will allow us to turn it into powerful learning tool. We can identify three cases where paper trading instead of live trading is in order:</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <ul type="square"> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l2 level1 lfo2;tab-stops:list .5incolor:#222222;"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">A beginner getting his feet wet.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l2 level1 lfo2;tab-stops:list .5incolor:#222222;"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">A trader testing a new</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">trading system.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l2 level1 lfo2;tab-stops:list .5incolor:#222222;"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">A trader hitting a losing streak.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> </ul> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">The first case is the most common. Let’s analyze the right way to structure paper trading for this situation.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Paper trading allows you to ease into real trading and see if your theoretical approach works. It is a stage where you start measuring your method against<span class="Apple-style-span" style="color:#636363;"><b> </b><span class="Apple-style-span" style="color:#000000;">market</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">movements. You are going to have enough time to deal with the psychological pressure and execution side later on, adding them gradually as you start trading with a small</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="color:#000000;">size</span></span></span><span class="Apple-style-span" style="font-size:medium;">. However, before real money is used, theory should be checked against the reality, and this first experiment should be as painless for your trading account as possible. Obviously paper trading does not pursue any meaningful target unless your trading system is structured so you can test it; thus, start with constructing your trading approach, then proceed with testing it in</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">real time.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Paper trading is done in a fairly simple way. It is an imitation of your actions without actually sending your orders to the marketplace. You define your setup with all of its components: trigger for</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">entry,</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">stop</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">level, signs of </span><a href="http://www.trade2win.com/traderpedia/Exit" title=""><b><span style="color:#636363;"><span class="Apple-style-span" style="font-size:medium;">exit</span></span></b></a><span class="Apple-style-span" style="font-size:medium;">, possibly with partial exit and stop trailing. Then when observing the market action you are imitating your responses and writing them down. This is going to be your first encounter with the market so take it seriously. Paper trading will teach you plenty about market action without risking your money if you are watching carefully and acting responsibly.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Observe whether your</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="color:#636363;">setups</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">are working. Watch the market action and define if your response is reasonable. If you lose money on paper day-by-day, something is not right with your approach. Try to make corrections, find out what factors have not been considered. This is your troubleshooting stage – look for problems to solve. If you get negative results, do not get frustrated – take them as a blessing in disguise. It’s much better to find out about a problem before committing actual money to a flawed method.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Watch if your</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="color:#636363;"><b>risk control</b></span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">is working. Do you lose within your defined limits on any given trade and on any given day? Maintain strict discipline at this stage – your future trading results are going to suffer if disciplined behavior doesn’t become your second nature.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">The crucially important purpose of paper trading is to find out the maximum</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">drawdown that you can run into. This element might require a somewhat prolonged paper trading stage. The point here is, losses and wins are not necessarily distributed evenly along the timeline of your trading. You can run into cluster of losses. While the average loss might be affordable in terms of your trading capital, such a cluster may not. It is very important to make sure that a losing streak is not taking you out of the game.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Here are the rules of paper trading that allow it to be as realistic as possible and make paper trading an effective learning tool:</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <ul type="square"> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l1 level1 lfo3;tab-stops:list .5incolor:#222222;"><strong><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Make your decisions real time only, not after the fact.</span></span></strong><span class="apple-converted-space"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Looking at the</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="color:#636363;"><b>chart</b></span></span></span><span class="Apple-style-span" style="font-size:medium;"> and deciding where you would have entered and exited won’t do you any good. Everything is easy in hindsight and looks very different when you are up against what Alan Farley called The Hard Right Edge – end of the real-time chart leading you into unknown. Write down your entry when your setup is triggered; write down your exit when the chart hits your profit target or stop.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l1 level1 lfo3;tab-stops:list .5incolor:#222222;"><strong><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Keep you trading rules exactly as if you were trading real money.</span></span></strong><span class="apple-converted-space"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Any decision of “I’ll do this although with real money I would do that” kind renders your paper trading worthless. If your stop level is hit, your paper trade is stopped and should be written down as such, even if a</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="color:#636363;"><b>stock</b></span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">immediately bounced back up. If your profit target is not hit, do not write it down as less profit but still profit – it negates the very purpose of paper trading, which is to see if your targets are realistic and your stops are placed correctly.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l1 level1 lfo3;tab-stops:list .5incolor:#222222;"><strong><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Take trades with the same degree of risk as if you were trading real money.</span></span></strong><span class="apple-converted-space"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">A decision to paper trade a risky stock that you do not intend to trade when doing live trading makes no sense. You paper trade to test your strategy, not to play around.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l1 level1 lfo3;tab-stops:list .5incolor:#222222;"><strong><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Use the same set of tools as you intend for live trading.</span></span></strong><span class="apple-converted-space"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">If your trading strategy requires</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><a href="http://www.trade2win.com/traderpedia/Level_II" title=""><b><span style="color:#636363;"><span class="Apple-style-span" style="font-size:medium;">Level II</span></span></b></a><span class="Apple-style-span" style="font-size:medium;">, for instance, paper trading without it with idea that with it your trading will be even better makes no sense. It won’t be better, it will be different.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l1 level1 lfo3;tab-stops:list .5incolor:#222222;"><strong><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Consider your entry and exit executed only if there are actual prints at the price you target.</span></span></strong><span class="apple-converted-space"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Just seeing</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">bid</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">or</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">offer</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">where you want them is not a guarantee that you could get your order filled at that price.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l1 level1 lfo3;tab-stops:list .5incolor:#222222;"><strong><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Consider the amount of shares available at your price.</span></span></strong><span class="apple-converted-space"><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">If you intend to trade 1,000</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="color:#636363;"><b>shares</b></span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">but there are only 100 shares offered, chances are in real trading you wouldn’t get your order filled in full. Watch actual prints to determine how many shares there really are.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;mso-list:l1 level1 lfo3;tab-stops:list .5incolor:#222222;"><strong><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Do not use paper trading to project what kind of money you are going to make.</span></span></strong><span class="apple-converted-space"><b><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;"> </span></span></b></span><span style=" ;font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">This is not the purpose of this stage. It can only make you unnecessarily impatient and eager to start trading live before you are ready. Simply write down the results to see if your planned strategy is working.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></li> </ul> <p class="MsoNormal"><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><o:p><span class="Apple-style-span" style="font-size:medium;"> </span></o:p></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">One more purpose of this stage is to get comfortable with your tools. Configure everything as you need it for live trading. Move windows around your screens to have them placed as conveniently as possible. Start with your</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">charting software. Play with the fonts to have all the information that you need on the screen while text is still easy to read. Play with the colors so that different windows are easy to distinguish. Learn to quickly manipulate your charting software. Change symbols, link windows, change time frames – do everything that you will need to do in the course of trading. Draw necessary lines on the charts, add and delete</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">studies</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">and</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">indicator</span><b><span class="Apple-style-span" style="font-size:medium;">s</span></b><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">that you are going to use. Do it long enough to make the process automatic.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Learn your order routing software. Manipulate the controls, changing quantity of shares, price of your order, type of order and route. Switch from</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">limit order</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">to</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">market order</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">and back, practice changing the price quickly. Play with controls long enough to make the process automatic. See how to set advanced orders. If necessary, print out excerpts from order routing instructions and place it within easy reach.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Finally, start routing orders in a way that keeps your money safe. Do it in the following way.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Set small amount of shares – from ten to fifty. Set the price far enough from the market price to not get filled. If a stock is trading at $20, prepare your buy order at $10 and short order at $30. Send the order. Observe how a confirmation appears. Now cancel the order and observe the confirmation. Make sure that all the messages you receive become familiar so you do not spend much time reading them later. Make sure that confirmation pop-ups do not get in the way of observing the action. Observe the reliability of your quote feed, especially in the most active periods – market opening produces fast conditions when the quotes are most likely to lag. Make sure that you have</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">trading desk phone number on a speed dial to be able to reach help as fast as possible if something happens to your internet connection or quote feed – no technology is perfect.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">It’s often asked how long this stage should be. There is no fit-for-all answer. There are traders that breathe through it in a week, and I know a trader that paper traded for a full year. It doesn’t mean he was a slow learner. He just was perfecting his trading system until he was totally satisfied with it. Although a year is probably a bit on an extreme side, a week or two is not really what suits most people. This is usually not a matter of exact time that would be the same for everyone. Paper trading serves certain purposes, and you should move ahead when those purposes are achieved. Keeping all the rules of paper trading, do you show consistent profit? Have you observed how your setups work and gotten comfortable with them? Have you made sure that you know the drawdown your system can produce and that you can sustain it? Have you become comfortable with your charting and order entering software? If you can answer Yes to all these questions, then paper trade just for a couple weeks more. If not for any other reason, do it to practice one of crucial elements of your psychological makeover – patience. The skill to sit on a sideline will serve you well. It will also allow you to get into your first trading day with more feeling of self-control.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">We mentioned two more cases when paper trading is appropriate.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><strong><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Testing a new system</span></span></strong><span class="apple-converted-space"><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;"> </span></span></span><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">or to tweak an existing one is obviously calling for going back to paper. You are changing something – why risk real money before you make sure it works well? Usually when a trader is doing that he already has enough experience under his belt to know how to paper trade effectively. Just make sure that you give it enough time so your results are statistically significant. I know a trader who does this kind of new tweak testing not even stopping his live entries and exits. While making real trades he simultaneously writes down optimized ones, comparing the results and making conclusions about the quality of optimization.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><strong><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">Going through a losing streak</span></span></strong><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">, a trader wants to find out the cause of under-performance. Is it market conditions that change in a way that ruins his system? Is it a trader himself acting in an undisciplined manner? If it’s the market, does something get changed fundamentally or is it a short-lived fluke? Does a major</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">trend</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">change? Is it just a temporary</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">range contraction</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">with no</span><span class="apple-converted-space"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-size:medium;">volume? What is likely to come next? These kinds of questions are not easy to answer in the heat of the battle. Thus stepping aside to re-evaluate things, to regroup and to regain your confidence or to re-tune your approach is a good decision.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p><span style=" color: rgb(34, 34, 34); font-family:'Trebuchet MS';"><span class="Apple-style-span" style="font-size:medium;">For whatever reason you go to paper trading, your major step to assure the success of it is to define the purpose and to work out the steps to achieve it.</span><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto"><span style="Trebuchet MS";font-family:";font-size:6.5pt;color:#222222;"><o:p> </o:p></span></p> <p class="MsoNormal"><o:p> </o:p></p>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-78865121577130078042009-11-15T08:59:00.000-08:002009-11-15T11:37:35.055-08:00Stupidity, hypocrisy or both?<span class="Apple-style-span" style="font-size: medium;">When I have the same conversation many times in a row, I know it's time to do a blog post on the topic. This time it's a discussion (somewhat outside of usual scope of my posts but relevant anyway) of the causes of financial crisis, framed as "who is to blame" question. This thing is, I refuse to join the "darn banksters and their greed got us where we are" chorus. Not because I have some particular reason to love banks and bank people, mind you. I simply can't see how you blame something or someone acting according its nature and doing so </span><b><span class="Apple-style-span" style="font-size: medium;">within the framework you yourself created</span></b><span class="Apple-style-span" style="font-size: medium;">.</span><div><span class="Apple-style-span" style="font-size: medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size: medium;">Any explanation, any description, any user manual is by definition simplification of things. Let's simplify this.</span></div><div><span class="Apple-style-span" style="font-size: medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size: medium;">If you put a carrot in rabbit's cage - carrot will be eaten.</span></div><div><span class="Apple-style-span" style="font-size: medium;">If you put a rabbit in wolf's cage - rabbit will be eaten.</span></div><div><span class="Apple-style-span" style="font-size: medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size: medium;">Putting carrot in rabbit's cage or rabbit in wolf's without understanding what fate awaits for both is stupidity. </span></div><div><span class="Apple-style-span" style="font-size: medium;">Bemoaning carrot's and rabbit's fate, blaming rabbit in carrot's "death" and wolf - in rabbit's is hypocrisy. </span></div><div><span class="Apple-style-span" style="font-size: medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size: medium;">Pushing lenders to lend to barely or un-qualified borrowers; Lowering lending standards; Repealing laws and rules that kept such unsafe practices at bay; Guaranteeing those unsafe loans via GSEs; Keeping super low rates for too long - all this created a framework where profits could be had while risk was mitigated or masked by those guarantees. Creating a situation where a profit-oriented by its very nature organization can make a profit while relegating risk to someone else's shoulders and not foreseeing the inevitable failure is stupidity. Creating such situation, observing that organization doing just that and blaming it for following its very nature is hypocrisy. </span></div><div><span class="Apple-style-span" style="font-size: medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size: medium;">Should banks be excluded fully as entities having their hand in everything that happened? Lord no. But the idea that the bank by itself is some kind of evil organization or that people working in or for the banks are necessary bad is ummm... how do I say it softly... stupid? Yet it's just the mindset that is being propagated. Let's all hate banks and solve our problems by materializing this hatred in this or that form - while real culprits are all too happy to channel the anger away from themselves. </span></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-43895733744909404812009-08-30T12:17:00.000-07:002010-03-11T18:24:32.108-08:00Manipulation: myth and reality<span class="Apple-style-span" style="font-size:medium;">Always hot and contradictionary topic, causing emotional flare-ups all over various boards and forums. Since the conclusion some make is that manipulated markets are untradeable, it becomes a matter of practical interest for us. As traders though, we are interested in reality, so let's try and analyze the matter at hand. Also, as traders we want to do it not for the brain exercise but in pursuit of a practical pragmatic purpose - and that's what we are going to arrive at.</span><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><i><span class="Apple-style-span" style="font-size:medium;">Little qualifier before we begin: everything said below is said about normal liquid markets. I am not discussing extremely thin markets where the smallest order can move the market - those are disaster in the making for anyone who wants to play them, manipulation or not. I am talking about those real markets, you know - hundreds of millions of shares available, thousands of players involved.</span></i></div><div><i><span class="Apple-style-span" style="font-size:medium;"><br /></span></i></div><div><i><span class="Apple-style-span" style="font-size:medium;">Second qualifier: everything said below is said as a TRADER - someone who reads the markets and strives to profit from his read. If you prefer to discuss social aspects of this topic - that's for some other blog.<br /></span></i><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">First things first: we need to agree on a definition - so we discuss the same thing. Let's go over some versions and see which ones are realistic and which are not. So, what do we mean when we say "manipulation"?</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">1.</span><b><span class="Apple-style-span" style="font-size:medium;"> Assigning the price arbitrarily.</span></b></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">Here are couple phrases that you will find familiar; I have no doubt you heard them many times.</span></div><div><span class="Apple-style-span" style="font-size:medium;"></span><i><span class="Apple-style-span" style="font-size:medium;">"They keep the price down so they and their friends could load up on the cheap". </span></i></div><div><i><span class="Apple-style-span" style="font-size:medium;">"They run the price up so they and their friends could unload".</span></i></div><div><span class="Apple-style-span" style="font-size:medium;">Sounds familiar? Thought so. The premise here is, there is certain entity (THEY) that is capable of making the price whatever they want. Practically assigning a price. </span><a href="http://www.youtube.com/watch?v=NUT07eZoXPw&feature=related"><span class="Apple-style-span" style="font-size:medium;">Woke up this morning, got yourself a price</span></a><span class="Apple-style-span" style="font-size:medium;">... How nice for THEM. I have couple questions though. </span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">First: </span><b><span class="Apple-style-span" style="font-size:medium;">HOW</span></b><b><span class="Apple-style-span" style="font-size:medium;">?</span></b><span class="Apple-style-span" style="font-size:medium;"> Really, what is the mechanics of artifically keeping the price low or running it high? Can you just say "stay low" or "run up" and so it will? Or you have to actually SELL in order to keep it artifically low and BUY to run it artificially high? Because if you have to sell, really sell real shares, then what is the point in doing that? If you want to take advantage of the low price you kept low by selling, you will need to buy, right? And that's when you are going to play right in hands of those who bought from you earlier - lifting the lid and switching to buy side, you are going to run the price up now, to the benefit of those who bought from you earlier. If you are lucky, you may break even by buying back your shares at about the same avereage price you sold at earlier. Most likely you won't. Same scenario plays out if our brave manipulator runs the price up by his own buying. He does that for... whose benefit? His own or his friends, right? And just what will he/they have to do in order to take advantage of that inflated price? Why, sell of course. But he is not supporting the price anymore since he turned into a seller. If he run the price up all by himself, it's going to collapse as soon as he withdraws his bid, let alone starts selling. (</span><i><span class="Apple-style-span" style="font-size:medium;">If you are tempted to say at this point "wait, but his actions could have attracted others so he kind or provoked them and then they did his bidding for him" - good thinking but hold your horses, we will get to it</span></i><span class="Apple-style-span" style="font-size:medium;">). </span></div><div><br /></div><div><span class="Apple-style-span" style="font-size:medium;">So, actual selling or buying in order to get price where manipulator wants it is not really the way to achieve anything but get steamrolled. And, I still have second question. Here it is: </span></div><div><span class="Apple-style-span" style="font-size:medium;">Listen, if government/Fed (entities most often accused of manipulating the markets) really have the ability to just make up any prices - why do we experience these gut-wrenching crashes at all? Those wild fluctuations cost elected officials and public servants their jobs, influence one's historic reputation - why wouldn't THEY just keep markets going up forever and ever? Everyone's happy, everyone's wealthy, some are rich, no mass revolt, no complications, THEY are cheered - what possible reason would THEY have to let it all go down in flames making THEIR life immensely difficult?</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">There is only one conclusion I can come to here answering "true or false" to this one: </span><b><span class="Apple-style-span" style="font-size:medium;">FALSE!</span></b></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">If we agree that no entity can simply assign a certain price, let's move to the next possible definition.</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">2. </span><b><span class="Apple-style-span" style="font-size:medium;">Manipulating information flow</span></b><span class="Apple-style-span" style="font-size:medium;">. </span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">THEY present reports and numbers and analysis in a distorted way in order to provoke certain reaction - that's the gist of this accusation. True or false? I don't think anyone in their right mind would deny it's possible and it does take place. The only question I have about this one: what else is new? Name me any society, any civilization, any period in human history where and when it wouldn't be done. Let's be real here: no one should endorse or condone or justify this practice - but there is no reason to consider the markets being untradeable for this reason. How exactly you trade the markets where information is being distorted is another matter, and we did dicuss it earlier, for instance </span><a href="http://www.realitytrader.com/blog/2008/10/information-price-divergence.html"><span class="Apple-style-span" style="font-size:medium;">here</span></a><span class="Apple-style-span" style="font-size:medium;">. As far as traders' point of view goes: there always was, is and, I'll venture to suggest, will be a divergence between what available information says and how the market reacts. You will find confirmations of this phenomena in the books written 100 years ago. Whatever you think about the practice, whatever causes it - by no means it prevents anyone from correct reading the market and profiting from its moves. It happened always and at all levels - </span><a href="http://www.thecanadianencyclopedia.com/index.cfm?PgNm=TCE&Params=M1ARTM0011316"><span class="Apple-style-span" style="font-size:medium;">Bre-X</span></a><span class="Apple-style-span" style="font-size:medium;">, anyone? </span><a href="http://www.cnbc.com/id/26608126"><span class="Apple-style-span" style="font-size:medium;">UAUA false news last fall</span></a><span class="Apple-style-span" style="font-size:medium;">? </span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">Interesting thing about this aspect is, many of those who express their outrage at this kind of practices by government, Fed etc. also claim they they see through the lies and know how things look in reality. I certainly don't claim anything even close to this kind of understanding of these complicated economic issues, but... if what THEY do is so transparent, then it must be possible to exploit, no? I mean if you understand what manipulator is doing, then as a trader thank him and use his manipulation to your benefit. And if you can't - well, either his manipulation is not as transparent as you think (in which case what's with accusations) or your trading skills are not as great (in which case, maybe best to focus on honing those) ?</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">My conclusion would be: </span><b><span class="Apple-style-span" style="font-size:medium;">TRUE</span></b><span class="Apple-style-span" style="font-size:medium;">, but old as the world itself.</span></div><div><br /></div><div><span class="Apple-style-span" style="font-size:medium;">3. </span><b><span class="Apple-style-span" style="font-size:medium;">Government's and Fed's own buying or selling of certain assets</span></b><span class="Apple-style-span" style="font-size:medium;">.</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">Sure. Why would anyone try to deny this if they themselves claim they are doing it. The question though is, so what? They pursue certain goals, thei intentions can be analyzed, so how is it different from any other market force? Read the tape and trade accordingly. And, while we are on a subject of definitions, let's call it for what it is: intervention. Because, if you want to call any entry into the market with certain purpose in mind a manipulation, then any single buy or sell, yours included, will be manipulations. Government intrusion, considering that the government is not, or should not be, exactly market moving force can safely be called intervention then.</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">Conclusion: </span><b><span class="Apple-style-span" style="font-size:medium;">TRUE</span></b><span class="Apple-style-span" style="font-size:medium;">, but from a trader's point of view, how is it different from any other market moving forces?</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">4. </span><b><span class="Apple-style-span" style="font-size:medium;">Faking intentions so other traders get duped into wrong reactions</span></b><span class="Apple-style-span" style="font-size:medium;">.</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">Ahha! Now we are talking my language (those of you who read our </span><a href="http://www.realitytrader.com/tradinglog/"><span class="Apple-style-span" style="font-size:medium;">trading logs</span></a><span class="Apple-style-span" style="font-size:medium;"> know it as Threeiish). This is where we are going back to that suggestion that manipulation can be done by provoking trading mases to act in a certain way.</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">There are two aspects to this kind of manipulation. One is what is known as "</span><a href="http://www.investopedia.com/terms/p/paintingthetape.asp"><span class="Apple-style-span" style="font-size:medium;">painting the tape</span></a><span class="Apple-style-span" style="font-size:medium;">". The term refers to illegal activity in which manipulators buy and sell the stock between themselves. While they remain net neutral, their actions create a false impression of a certain activity. This is clearly and undeniably illegal; if you know for the fact it's taking place on a certain security and have an evidence - simply report it. </span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">Another aspect is actual trades placed by manipulator in the market in attempt to create certain reactions. Our manipulator may try to buy very quietly in order to mask the fact that he is building position - and that's what in fact skillful player will do at the early stages of accumulation. When his accumulation is mostly done, he will try to make his buying more noticeable to attract new crop of buyers by increasing volume and new highs in price. When and if he is successful, other players will come and take the price higher - and he will start distributing his shares to late buyers. And that's how The Game is played. This is readable. This is basics of the method known as </span><a href="http://www.amazon.com/gp/product/0071414908?ie=UTF8&tag=daytradingeducat&linkCode=as2&camp=1789&creative=9325&creativeASIN=0071414908"><span class="Apple-style-span" style="font-size:medium;">Tape Reading</span></a><span class="Apple-style-span" style="font-size:medium;">. If our manipulator is successful in doing it - more power to him, AS LONG AS IT'S DONE BY HONEST RISK TAKING. Yes, that's my criteria - because what I described means he takes the risk, fair and square. If he is unsuccessful, he will lose money. Can it be that the company goes bankrupt on him while he accumulates shares? Sure, if he didn't do his homework well. Can it be overtaken by another company at the price lower than his average accumulated price? Can the sector turn down before he gets a chance to distribute his shares? Can some new technology come around and benefit a competitor while making the company whose share he accumulated obsolete? See where I am going with this? </span><b><span class="Apple-style-span" style="font-size:medium;">Unless our hypotetical manipulator acts on illegaly obtained inside knowledge, he takes honest risk - and, most importantly for us trades, in a process of doing so he creates readable opportunity for us.</span></b><span class="Apple-style-span" style="font-size:medium;"> At least for those of us who have the skill to read it - but isn't it the whole point?</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">Let's make out last conclusion: </span><b><span class="Apple-style-span" style="font-size:medium;">TRUE</span></b><span class="Apple-style-span" style="font-size:medium;">, and thank you trading gods for that.</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;">Got other scenarios? Throw them in, let's discuss.</span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size:medium;"><br /></span></div><div><br /></div></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-21644217595346734292009-08-29T08:05:00.000-07:002010-03-11T18:41:16.933-08:00Trading climate: new or same old?<span class="Apple-style-span" style=" color: rgb(25, 25, 25); line-height: 25px; font-family:Verdana;font-size:20px;"><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">Reading a lot of "market is not a place for a reasonable investing/trading anymore" comments, I thought I'd chime in and offer my point of view. </span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">To see where I am coming from, consider that I:<br />- have been trading every day (aside of vacations) for the last 13 years (2 months shy as of this moment),<br />- made every trading mistake known to humanity and couple I invented all on my own,<br />- recovered from them after 2 years of learning curve and trade for a living ever since,<br />- conversed with hundreds if not thousands of traders of all thinkable backgrounds, time frames and approaches.</span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">Here are some of things I see similar in any market, I'll list them and you see if they sound familiar.</span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">1998 - 2000, tech boom, things go higher and higher and higher. Some are happy, making tons of money and talking about "new paradigm"... and some are not, losing their shirt on attempts to short the market, talking about how insane and irrational the run-up is, predicting demise day after day, talking about manipulation and how impossible it's become to trade. There are stocks here and there that turn into cult names, and groups of fanboys cheering them up. XYBR is louded as next MSFT, WAVX is predicted to go over 100, analysts say QCOM should go over 1000 when it trades at 700. KTEL goes from 5 to 20 and 30, and "realists" (your faithful was one of them and </span><a href="http://www.realitytrader.com/blog/2008/03/can-you-afford-to-be-wrong-for-too-long.html"><span class="Apple-style-span" style="font-size:medium;">paid dearly for that</span></a><span class="Apple-style-span" style="font-size:medium;">) short it, and it proceeds to 80.<b> Some make money trading what's right in front of them; the rest is discussing how the market should not be this way, trading their beliefs and losing money.</b></span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">2001 - 2003, tech crash and consequent bear market. Trend reverses, yet permabulls continue buying every new low thinking it's just a pullback (new paradigm, remember?). Market proceeds lower and lower and lower, and seeing the magnitude of drops, a lot of people start talking about selling being overdone. Now it's a move down that is considered insanely big. Each new leg down is being blamed on, guess what... manipulation of course. "Market became impossible to trade" is being heard from every corner. Optimists average down and lose their shirt. Yesterday's darlings start disappearing altogether - simply go bankrupt, delisted etc. Some lucky names get bought out before the final crash, and its the suitors that get killed now. Quality companies lose their value at unthinkable rate - QCOM is nowhere near 700 anymore, and soon loses even 100; a lot of former highfliers go to lows some call insane (NT, JDSU anyone?). Now.... one thing seems to be the same: <b>During all this some traders make money trading what's right in front of them; the rest is discussing how the market should not be this way, trading their beliefs and losing money.</b></span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">Bull market starts in the spring of 2003. No internet crazies anymore, but hey, there is always a place for "new new paradigm". Market goes higher and higher and higher, and a lot of people say it's insane, housing is a bubble, financials are overblown... and lose their shirt trying to short them... Now, one thing seems to be the same: <b>Some are making money... my reader, be a doll, save me some typing and insert the end of the first two paragraphs.</b></span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">Housing finally bursts, crash ensues, some of yesterday's darlings go bankrupt (spectacularly I must say), bear market starts. Market proceeds lower and lower, and attempts to buy each new low become common and lead to new bursts of frustration and refrain of "insane, manipulation, impossible to trade". <b>Some are making money...</b> etc, I know, get's annoying.</span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">Market puts a low in March of 2009, and starts making new highs - insane new highs, of course... you can finish this part now without me typing it all.</span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">See some things repeating themselves over and over again? Patterns in who makes money and who doesn't? Patterns in language, in assigning the blame, in finding another scapegoat (day traders in tech boom, "frequent traders" now), in invoking all-encompassing word "manipulation" that makes some feel better but still doesn't help them make money? Patterns in going against the trend, effectively fighting the market instead of being in tune with it? Patterns in trading ones own beliefs instead of market's reality given us in prints on the tape? Patterns in thinking "if something doesn't go according to my belief, it's the market that is wrong but never I"?</span></p><p style="margin-top: 0.6em; margin-bottom: 1.2em; "><span class="Apple-style-span" style="font-size:medium;">See where my favorite motto of many years </span><b><span class="Apple-style-span" style="font-size:medium;">TRADE WHAT YOU SEE, NOT WHAT YOU THINK</span></b><span class="Apple-style-span" style="font-size:medium;"> is coming from?</span></p></span>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-69604278030697748712009-08-24T16:25:00.000-07:002009-08-24T17:14:38.678-07:00One question testAs it often happens during the most uncertain times - at what potentially is a trend reversal point - I get a lot of questions about signs of such reversal, in this case top. As it often happens, a lot of those questions are asked in order to confirm author's belief - and if no such confirmation is obtained, back and forth arguments ensue. Over the last week or two, I expressed my point of view that we were not ready for full blown reversal yet, and more upward action was likely to come. <div><br /></div><div>One theme that constantly popped up in such exchanges (not a first time mind you, it's rather typical way of thinking) was this: "but there is no job creation, commercial real estate is imploding, A is weak, B is wrong (long list of what is wrong with economy)... this market must drop, I am shorting it!" </div><div><br /></div><div>Notice one thing that all those reasons have in common? Well, aside of them being probably right. They all have no ties with market timing. Here is what I mean by this: if you employ some idea for trading related decision-making, you have two major questions to answer. One is the direction of your planned trade. Another is timing of the trade initiation. All the ideas listed above have to do with direction... do they have anything to do with timing? How do we distinguish which ones help us pick the right entry moment and which do not, leaving us to seek more indications to time our trade right? </div><div><br /></div><div>Easy. There is a one question test that does just that. As you evaluate your trading idea, ask yourself: <b>IS IT A NEW TURN OF EVENTS OR WAS IT SO A DAY, A WEEK OR A MONTH AGO?</b></div><div>Because if jobs creation wasn't there a month ago either yet market went up during this month, how does this fact enable you to enter short now? It does not. Any economy related, company related, sector related idea can be verified by this question in order to find out whether it should be used in timing your trade or you need to keep it as purely directional idea and look for something else to help you with timing.</div><div><br /></div><div>You would think this is something that concerns mostly position or swing traders... but I get this from day traders too. 'I am shorting RIMM, I just analyzed their this and that, and it's very weak". RIMM is up 2 and half points for the day, so I ask: Why here? Is there any short setup, sign of reversal? What is it that makes you think short right here and right now? The answer is: Well, I just finished reading that report... Pause, then we both laugh as my counterpart realizes that his timing of finishing the report is fairly dubious as a market timing event. OK, I start laughing just a tad sooner as I am not polite enough...</div><div><br /></div><div>Anyway, once again. Your one question test concept is, could this have been said a week or a month ago just as well and did not impact market during this time? If so, what makes me think it will do so now?</div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-55221377766718850262009-07-09T18:01:00.000-07:002009-07-10T10:35:19.170-07:00Interesting lifestyle concept for a trader<div style="text-align: center;"><br /></div><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realitytrader.com/blog/uploaded_images/Image00001-740440.jpg"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 320px; height: 243px;" src="http://www.realitytrader.com/blog/uploaded_images/Image00001-740401.jpg" border="0" alt="" /></a><br /><a href="http://www.aboardtheworld.com/lifestyle/">The World</a> visited our city<div><br /></div><div>Interesting concept eh? Unless you are are prone to seasickness... but navigating choppy market should have taken care of that I assume.</div><div><br /></div><div>Main problem would probably be constant confusion with time zones and their relation to New York time... when do I get up tomorrow for NYSE opening if we are in New Zealand?... Sydney?... Bahamas?... (OK, this last one was easy).</div><div><br /></div><div>For those who are too lazy to click on a link: this is floating condominium constantly circumventing the globe. Buy your condo (not very cheap, mind you) and live in permanent cruise-state.</div><div><br /></div><div>Can't help it but show one more version of the shot:</div><div><br /></div><div><img src="http://www.realitytrader.com/blog/uploaded_images/Image00002-791190.jpg" style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 243px;" border="0" alt="" /></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0tag:blogger.com,1999:blog-6037843186882675213.post-43666119596714007372009-06-23T17:01:00.000-07:002009-06-23T17:12:20.930-07:00Averaging down - Yea Or Nay<div><span class="Apple-style-span" style="font: normal normal normal 19px/15px Verdana; "> <p style="FONT-WEIGHT: normal; FONT-SIZE: 10pt; MARGIN-BOTTOM: 10px; COLOR: rgb(0,0,0); LINE-HEIGHT: 150%; FONT-FAMILY: Verdana, Arial, sans-serif; TEXT-ALIGN: left">"Averaging down" as a trading approach regularly causes controversy. While difference of opinions is always good, let's have a deeper look into it to make sure that opinions are informed and that we are talking about the same thing.</p> <p style="FONT-WEIGHT: normal; FONT-SIZE: 10pt; MARGIN-BOTTOM: 10px; COLOR: rgb(0,0,0); LINE-HEIGHT: 150%; FONT-FAMILY: Verdana, Arial, sans-serif; TEXT-ALIGN: left">There is averaging down and averaging down. Not all of them are created equal. I'd break them down by two kinds.</p> <p style="FONT-WEIGHT: normal; FONT-SIZE: 10pt; MARGIN-BOTTOM: 10px; COLOR: rgb(0,0,0); LINE-HEIGHT: 150%; FONT-FAMILY: Verdana, Arial, sans-serif; TEXT-ALIGN: left">1. A trader buys, position goes against him, he fails to cut his losses, sees them growing and getting out of hand. Eventually at some point he adds to his position following the logic "If I liked it at $20, it should be even better at $10" and/or "it can't go any lower". Both are false: anything can and often will go lower (no lack of examples of that over last year, eh?); and who is to say it was any good at $20 to begin with? And is $10 a better price or simply a proof that $20 was a mistake? This kind of averaging down is a "bad" one; it's done out of frustration, and it adds to a mistake. More often than not it increases eventual loss. In most cases what follows is: your position does recover some, by some magic stalling right under new breakeven level ($15 in our example). This gives you a chance to exit with a small loss but you don't take it - after all, recovery has started, you are looking at possibility of nice profits now (and on double size, no less). Sure enough, stock reverses and drops under $10 where you either exit with even bigger loss or put it in your long term portfolio, a.k.a. Grave of Short Term Trades Gone Bad. Another frequent scenario is, stock dives briefly under your second entry level, you sell your second position for a small loss, and that's where stock reverses and goes back to that 15... you curse your decision to cut losses on second part and don't sell first part - after all it's cutting the loss that killed your chance to get out even, right? Sure enough, it reverses down and you are looking at ever-increasing loss again.</p> <p style="FONT-WEIGHT: normal; FONT-SIZE: 10pt; MARGIN-BOTTOM: 10px; COLOR: rgb(0,0,0); LINE-HEIGHT: 150%; FONT-FAMILY: Verdana, Arial, sans-serif; TEXT-ALIGN: left">Those rare instances when this strategy works only reinforce the idea of it being a viable approach, eventually provoking you to employ it again and again, until it leads you into a loss exceeding anything you saw in your worst nightmares.</p> <p style="FONT-WEIGHT: normal; FONT-SIZE: 10pt; MARGIN-BOTTOM: 10px; COLOR: rgb(0,0,0); LINE-HEIGHT: 150%; FONT-FAMILY: Verdana, Arial, sans-serif; TEXT-ALIGN: left">2. Averaging down is a part of planned strategy. When a stock comes into your target zone but there is a lot of uncertainty in the markets, you don't feel confident enough to fully commit and don't want to stay on a sideline. You break your purchase in parts and plan a strategy for those parts. This strategy includes various scenarios of building up to full position in a case of further drop, in case of reversal, in case of stall. It also includes an "uncle point" - event or scenario which proves that the whole idea of entry was an error, so whatever is accumulated up to that point is being dumped. There is nothing's wrong with this kind of averaging down - it's done by a design, to minimize exposure at the uncertain time and increase it as events develop in a favorable way. I wouldn't even call averaging down but that's a matter of semantics.</p><p style="FONT-WEIGHT: normal; FONT-SIZE: 10pt; MARGIN-BOTTOM: 10px; COLOR: rgb(0,0,0); LINE-HEIGHT: 150%; FONT-FAMILY: Verdana, Arial, sans-serif; TEXT-ALIGN: left">As we see with many other things, there are no absolutes in trading. There is, however, need in clarity, in straigforward well-designed and thought through plan. Such plan, among other things, wil include definitions - as we mentioned earlier in this blog, "as you name the boat, so wil it float".</p></span></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com2tag:blogger.com,1999:blog-6037843186882675213.post-76806327546427941552009-02-22T11:32:00.000-08:002009-02-22T11:57:06.161-08:00Securities Tax Proposal<div><span><span class="Apple-style-span" style="font-size: medium;">I've got quite a few e-mails asking about my take on this proposal, enough to warrant a blog post. For a someone making his living by trading the market my answer may be somewhat unexpected: I don't worry about it too much.</span></span></div> <div><span class="Apple-style-span" style="font-size: medium;"> </span></div> <div><span><span class="Apple-style-span" style="font-size: medium;">Here is why: I don't believe it has any realistic chance to materialize; And if it does, we will have much bigger problem on our hands than the end of active trading as our way to provide for ourselves and our families.</span></span></div> <div><span class="Apple-style-span" style="font-size: medium;"> </span></div> <div><span><span class="Apple-style-span" style="font-size: medium;">Let me explain. Most of my correspondents are coming from the (absolutely correct) assumption that such tax will end day trading. Imposing a prohibitve cost on the transaction, it no doubt would do just that. Notice that it's not just an additional burden, additional cost on the essential need that would help replenish government coffers as for instance gas tax would - it's prohibitive cost that renders the activity unprofitable and eliminates it altogether. There goes the idea of "let the Wall Street pay for bailout" - there won't be financial benefit to the government. Instead, there will be the destruction of the whole profession, sending more people to an unemployment lines. And I am not talking about day traders only - what about whole brokerage industry, discount brokers who suddenly lose their whole client base? More uneployed, more unhappy, less taxes collected - who could benefit from that?</span></span></div> <div><span class="Apple-style-span" style="font-size: medium;"> </span></div> <div><span class="Apple-style-span" style="font-size: medium;">Now, is the impact going to be limited to day traders and brokers that serve them? If it were so, some political expediency in search for a scapegoat could still warrant such proposal going through. After all, imposing $25K rule on day traders was no less idiotic (although less damaging), yet it did pass. In this case, however, it's about much more than just those pesky day traders. You don't really think it's just a day traders who trade every minute and every second and whose prints fill the tape with this endless flow, do you? Think of how many day traders there are and what kind of volume they could provide - and compare it with every day's volume on NASDAQ, NYSE and AMEX. What do those numerous trading desks of the banks, brokerages, all kinds of funds are doing day in day out, all day long? Who provides liquidity for longer term traders when they want in or out? Who makes the market bidding and offering on each and every stock at each and every point in time? Whom pension funds buy from and sell to when they reposition themselves? All these people, all these organisations will suddenly be put out of business by such tax. Now, imagine them all being out of the action. What happens to volume, liquidity and bid/ask spreads? Can you apply any word to the US capital market other than desert if that happens?</span></div> <div><span class="Apple-style-span" style="font-size: medium;"> </span></div> <div><span class="Apple-style-span" style="font-size: medium;">Let's talk about foreign investors - what are they going to do when they find themselves in the market with no lliquidity? Does the government want mass exodus of those?</span></div> <div><span class="Apple-style-span" style="font-size: medium;"> </span></div> <div><span><span class="Apple-style-span" style="font-size: medium;">Let's talk about companies listed on US markets. What are they going to do when the markets all but cease to exist? This is their financing source and pricing mechanism. Does the government want mass exodus of those?</span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><br /></span></div><div><span class="Apple-style-span" style="font-size: medium;">Let's talk about the public. Does average member of the society benefit from the cost of transaction being passed to him/her when their 401K etc are being positioned and repositioned? Or from their self-directed transactions being burdened with this cost? I mean, no one seriously thinks brokerages are going to eat this cost, do they? Does the government want to load our, dwindling as it is, investments with this additional expense?</span></div> <div><span class="Apple-style-span" style="font-size: medium;"> </span></div> <div><span><span class="Apple-style-span" style="font-size: medium;">Internet and globalization era, the markets all over the world are accessible with unprecedented ease... do you impose such prohibitive measures on your market and push people into the welcoming hands of competitors?</span></span></div> <div><span class="Apple-style-span" style="font-size: medium;"> </span></div> <div><span><span class="Apple-style-span" style="font-size: medium;">All above leads us to one question: who would benefit from that proposal? After all, for any legislation to go through, there must be benefitting party influential enough to push it through. I fail to see any single entity within the USA that would benefit from it. We have Wall Street, Main Street, public and government as the suspects to look at. Who of them benefits from this? Not the government, not the banks and brokerages, not the public, not the companies. I just can't see it happening.</span></span></div> <div><span class="Apple-style-span" style="font-size: medium;"> </span></div> <div><span class="Apple-style-span" style="font-size: medium;">Now, as a last argument: not all things happening are being governed by the logic and that dying creature called Common Sense; sometimes raw emotions, populism, pandering to the lowest emotional reactions of the crowd takes over. That could lead to such proposal still being seriously considered and passed. Well, I still prefer to think that with no one particularly interested in the outcome, it won't - and if it will, we, as I said at the beginning, would have much bigger problem on our hands. We would have Powers That Be deliberately destroying the very fabric of the society, contributing to the job losses, capital outflow and desrtuction of the business - all for no good reason. If that happens, we better make sure we turn our houses in fortresses and have means to protect them, because in the chaos and insanity that will come, clicking Buy and Sell buttons will no longer be of any concern.</span></div>Vadym Graiferhttp://www.blogger.com/profile/15305351597783430611noreply@blogger.com0