"Technical analysis is not consistently profitable in the 49 countries that comprise the Morgan Stanley Capital Index once data snooping bias is accounted for. There is some evidence that technical trading rules perform better in emerging markets than developed markets, which is consistent with the finding of previous studies that these markets are less efficient, but this result is not strong. While we cannot rule out the possibility that technical analysis compliments other market timing techniques or that trading rules we do not test are profitable, we do show that over 5,000 trading rules do not add value beyond what may be expected by chance when used in isolation."
Print out today's AMZN chart, keep it at your desk and take a look at it every time you catch yourself thinking about any stock or index:
"It's so high, I need to short it. It just can't go any higher."
For a more 'opinionless' decision tool which also considers the counterposition, on the back of the sheet print out the last few days of AGU.TO. For maximum torment, hang chart with string in a breezy area of the casino. :-)
Relax Dave I think you have a politically-viable trade. We had a chief poohbah in Saudi Arabia come on the news yesterday saying oil at $80 was too high and would hurt the Great Reflation. They'll see to it that it's not going above $80, likely by agreement with the US gov, which after all helps keep the Saudi wife-whippers in power. The Saudis also hate the Iranians and a cap on oil prices will spank the mad mullahs in Tehran, so it's a double win. I also suspect the Saudi King has quite a bit of gold on deposit at GS, so that ought to keep that Wall St. shark in line.
Vad, thanks for sharing at the perfect time for me and I think as usual you are correct.
I'm watching the bottoming action in HOD.TO along with what seems to be topping action in the CDN oilers (or is that consolidation for more upside?). I will be opening a long in HOD.TO if it stays green into today's close and plan to add more fairly heavily if the market confirms the move and oil is indeed reversing (short term) with everything else.
I would appreciate any criticism from anyone on that plan.
My ABX long is also not doing much...seems to be selling into strength there rather than the hoped-for bounce up to delight the gold bugs, so I think the gold bugs may be headed for an HB&B black box ambush as Bill has pointed out.
If market movements are entirely random, then explain to me how Vad makes a living trading those movements.
The way professional gamblers have for ages - with strict risk control. Van Tharp has a chapter on backtests of this - a black box can make money consistently even with random entry and nothing but an atr-based stop for exit. The important part is keeping risk per trade at 1% or less (if I recall correctly). Vad, being a careful observer, unlike the efficient market academic scribblers, discerns the macroscopic structures which we lowly traders see every day in the market, and so his edge is much greater on the entries and exits. Ehlers in one of his books uses I believe the analogy of a smoke cloud for the market. The smoke particles may be chaotic or completely random at the microscopic scale, but the smoke cloud has structure and flow which are easily discernable to a keen observer and it's even predictable at the macroscopic level. There are lots of things like this in the sciences - e.g. atomic phenomena are random i.e. you can't exactly predict where a tiny particle is located but you can predict the behavior of assemblages of particles using things like quantum mechanics. Substitute market orders for particles and you get the idea. I'd be surprised if Goldman Sachs didn't have an army of MIT PhDs exploiting these principles via their basement full of supercomputers.
allengg, no crystal ball or rocket science, just a convergence of hints: as I mentioned yesterday to Davefairtex, weakness into yesterday's close vs. strong ramping into the previous closes. Also USD (dead cat?) bounce, COS-UN.TO RSI (another Oil Sands issue) was already rolling over, no real move higher in SU.TO yesterday despite heavier volume, SU.TO short term EMA way above longer term EMA after the huge ramp job of the last few days in the CDN oilers. It's all screaming for a bit of a pullback don't you think? At the very least it was prudent to exit long yesterday at the close, IMO. As for oil, it wasn't actually a huge factor in my guesswork - but if this thing drops substantially further even in the face of the WTIC oil breakout, I kind of have to wonder how much gas is left in the market's tank, or as 2nd said, change in the pockets of the dip buyers.
All that said, for all I know SU.TO may finish in the green today as the ramp jobs have come later in the day. So take your profits fast and DYODD.
We can only hope. :-) Went short a little SU.TO yesterday at the close (sorry Davefairtex). So far, so good, but I'm ready to take this morning's profit and bail if the usual dipsters show up. God knows any short play which shows a profit won't stay around for long, as you've pointed out often.
SU.TO faltered into the close despite the breakout. I suppose they could ramp it higher yet tomorrow but I suspect your short today wasn't the worst trade idea.
Must be for his efforts to peacefully start the next war with Iran. And look for the dollar to firm just as soon as China stops being a stick in the mud and gets with the Isreali program to give those dastardly Iranians a damned good thumping. Until China caves and votes with the rest of the clapping seals for the next Great Inflationary War(tm), the weakening dollar will be used like a $2 trillion paddle on the behinds of the uppity Chinese.
That's my signal to short the oilers today...Like geese in autumn TBP appears magically shortly before oilers turn south. And they're struggling this morning.
Now if only QTrade expanded its services to include (hint, Bill):
1) A trading platform in addition to the web-based interface.
2) Trading fees at least comparable to Questrade. Preferrably cheaper for heavy users.
3) A trading application programming interface (API).
The ultimate would be an programming API similar to what Interactive Brokers offers, so that various trading software can be written against QTrade services. Even better would be if the QTrade API was compatible with the Interactive Brokers one, so that many existing trading software packages which already work with IB also worked with QTrade.
I looked long, hard and rather hopefully at QTrade as an alternative to HB&B's platform choices, but I hate to say it, QTrade fees are comparable to HB&B and without a trading platform QTrade is better suited for swing traders or buy&hold mom & pop types than active daily traders.
And what's with the trailing stop being hard wired only in integers from 5% to 99%(!)? A 99% trailing stop but no way to set, say a 6.5% trailing stop? Or have they fixed that since I last looked?
aucourant, if I understand your intention correctly then I think you'll find John Ehlers, among others, has done this sort of stuff and it's been around as a trading indicator for a decade at least. Look at his MESA indicators and books. Metastock, Tradestation, Amibroker, to name a few, all have implementations.
@ Vad, I thought that as a Russian you would appreciate a fatalistic outlook on trading. It's all a tragedy! ;-) Seriously, I pay $50 round trip trades as do many if not most Canadians, the exceptions being day trader types on frequent trading plans or the Questrade crowd. I tolerate it because my purely mechanical 'always-in' system only generates about 50 trades per year, which basically are bought/sold at market open (by design). So even the most useless dinosaur HB&B brokers in Canada can execute that simple but effective system without difficulty and the commission with so few trades is negligible vs. the return.
@ Illini, glad you enjoyed my tirade. :-) But I don't want to discourage Americans from playing our market. For one thing I think the stop rules are more favourable on the TSX vs NASDAQ.
@ BillySundance, I don't use IB mostly because of inertia but I have associates who do and think well of them. So I'm not knocking them. Most mom&pop types I talk to in Canada have never even heard of IB. I've seen Les here chafe under IB's long-only account, which are indeed trivial for mom&pop to get. Trouble is the Canadian version of that restricts you to long-only and only on the CDN markets, plus you must wait 3 days for trades to clear. Any HB&B plan beats that. And I think most serious traders would find those restrictions almost impossible to design an effective system around. Or at least a system that wasn't severely restricted in earning power right out the gate. I simulated many strategies under these IB restrictions and would not personally bother with them. Even with higher commissions the competition was easier to design around. I talked to an IB rep last year, who chuckled and said one could just fill in the application with whatever information is needed to make it 'pass' you as a customer. While he didn't directly advise doing that, the implication seemed clear. It seems to me they're turning away a lot of customers with their paperwork requirements which even their reps just laugh at. I can only assume they don't want the small fry, which HB&B basically signs up for margin in a 2-3 day process and 4-5 pages of paperwork, from my experience. With IB it's weeks and dozens of pages of forms.
Vad, the reason many complicate position sizing or take too much risk in sizing is twofold.
First, many of the investing resources out there complicate the issue (think Van Tharp's 500 pages of rambling wordiness). I agree that it really is as simple as you say it is. In theory. In practice, for small players, it's not, and that raises point #2.
Poorly capitalized or undercapitalized beginning traders are handicapped by a plethora of rules and regulations imposed on them by brokerages (often HB&B in drag) and by exchanges. For example, if your round trip commission per trade is $50 or more, as is common for HB&B outfits in Canada (where you still need to phone in all short trades, at one major player), the only way to offset this is to increase your position size so that commission is perhaps 1% of the trade. Unless you want to be eaten alive by commissions, this means about a $5K PS, or 10% of the account at risk PER TRADE using your example. Sure, you can set stops as you say, and to be clear, I agree with you. But continuously paying $50 per trade plus your loss is going to put a big dent in a 50K account unless you have an extraordinarily good system (ie few trades, on average big winners, on average small losers). Good luck with that if you're a beginner going against HB&B's supercomputers.
Then there are exchange restrictions. For example, I believe the TSX mandates that a short trade must be 100 shares. That's your minimum position size, like it or not. Go to a US exchange to get around that and have fun paying to find out about stop running.
Now, you'll probably say: 'but you can get much better deals than $50 per trade these days - problem solved.' Well, not so fast my Russian friend.
Looking around the Canadian scene, for example, sure, there's Interactive Brokers for 'professionals' as Mr. Petterfy's outfit likes to put it. They're quite selective in who they hand margin accounts to. Just ask our friend Les here about getting locked out of his long-only IB account. Basically he's lending his money to IB for the chance to indulge his hobby of a long-only play once in a while. In any event IB doesn't even want you completing their application unless you've done 100 trades at HB&B first. So then there's HB&B's ripoff commissions. But lest we blame everything on HB&B, look at Bill Cara's QTrade. Commissions there are comparable to the HB&B brokers, unless one is an extraordinarily active trader, which I maintain is not a good thing to be for a beginner who doesn't yet understand position sizing. So small fry are going to get screwdoodled on commissions in Canada no matter what. Not surprisingly, even Bill's QTrade is structured to attract and reduce commissions for players with big capital. 'Social equity' in reverse, if you will.
At the end of the day, even with a system having a good expectancy, a beginner or low cap player (usually the same thing) is facing stiff odds and is going to be doing a lot of unpaid work with most fruits going to the broker and stop losses. The only real solution is more capitalization (min. 100K+) and the economy of scale, but that's a Catch 22 for small traders.
A low-cap beginner can therefore attempt to break out of the institutional box by using A LOT more risk than is prudent, as I can only assume some around here are trying to do by reading their dangerous trading moves: bigger position sizes than the textbook theory recommends, in volatile penny stocks, coupled with what they hope is a very good system. The odds of this succeeding are low and you'll soon be food for HB&B. This is a big boy's game not suited for mom&pop. The way the system is set up speaks for itself. 'Social equity' and playing the markets is a contradiction in terms.
This smells to me like a bull trap more than a bear trap, at least on the TSX. Went short on CNR.TO @54.25 last week. The short has been green since then and I'm holding it for now. This isn't a junk stock, but a major CDN issue. I'm not looking for a crash but a correction somewhere between 10-15%, before moving higher, is where my bet is at. If I see it go above 54.25 again in the next few days I'd be more inclined to get out and say TOF is right. And TOF, I hope you're right about buying into the overdone Apple hype - you have more courage than I going heavily long here. But you are starting to sound a teeny bit desperate about wishing your trade higher...I recognize the symptoms because I've been there and done that - to my regret.
Wasn't Goldman Sachs in the past few days pumping steel production as the next big thing? Add that to what Shanghai Fly is reporting and the writing is on the wall. Steel is, I guess, GS's oil call for 2009 and will probably end the same way as their Great Oil Pump. Which is to say, in a profitable short position for HB&B.
I'm with David on this. I was watching a few TSX issues (e.g. CP, CNR, AGU, SU) and they sold into the close. It wouldn't surprise me if tomorrow we gap down and the bulls stampede.
That said, I don't discount Vad's theory. Not wanting to get impaled on a 'Vad spike' is why I hesitated shorting AGU.TO when it hit my target of 53.75. In hindsight probably a mistake but at this point I won't chase stuff downwards until I see a lot more freshly butchered beef on the menu.
Bev, I think your logic and intuition is valid, although relying on logic in this market isn't always profitable. Going into a Canadian holiday long weekend (markets re-open here Tuesday) I exited all my longs Friday and took a small short position. HB&B has hunted bears to extinction so maybe they'll choose instead to make hay from all those green shoots they've been growing in their rich brand of manure.
technical analysis is really amazing.
Not according to these guys:
"Technical analysis is not consistently profitable in the 49 countries that comprise the Morgan Stanley Capital Index once data snooping bias is accounted for. There is some evidence that technical trading rules perform better in emerging markets than developed markets, which is consistent with the finding of previous studies that these markets are less efficient, but this result is not strong. While we cannot rule out the possibility that technical analysis compliments other market timing techniques or that trading rules we do not test are profitable, we do show that over 5,000 trading rules do not add value beyond what may be expected by chance when used in isolation."
http://papers.ssrn.com/sol3/papers.cfm?abstract_id...
Print out today's AMZN chart, keep it at your desk and take a look at it every time you catch yourself thinking about any stock or index:
"It's so high, I need to short it. It just can't go any higher."
For a more 'opinionless' decision tool which also considers the counterposition, on the back of the sheet print out the last few days of AGU.TO. For maximum torment, hang chart with string in a breezy area of the casino. :-)
Relax Dave I think you have a politically-viable trade. We had a chief poohbah in Saudi Arabia come on the news yesterday saying oil at $80 was too high and would hurt the Great Reflation. They'll see to it that it's not going above $80, likely by agreement with the US gov, which after all helps keep the Saudi wife-whippers in power. The Saudis also hate the Iranians and a cap on oil prices will spank the mad mullahs in Tehran, so it's a double win. I also suspect the Saudi King has quite a bit of gold on deposit at GS, so that ought to keep that Wall St. shark in line.
Vad, thanks for sharing at the perfect time for me and I think as usual you are correct.
I'm watching the bottoming action in HOD.TO along with what seems to be topping action in the CDN oilers (or is that consolidation for more upside?). I will be opening a long in HOD.TO if it stays green into today's close and plan to add more fairly heavily if the market confirms the move and oil is indeed reversing (short term) with everything else.
I would appreciate any criticism from anyone on that plan.
My ABX long is also not doing much...seems to be selling into strength there rather than the hoped-for bounce up to delight the gold bugs, so I think the gold bugs may be headed for an HB&B black box ambush as Bill has pointed out.
If market movements are entirely random, then explain to me how Vad makes a living trading those movements.
The way professional gamblers have for ages - with strict risk control. Van Tharp has a chapter on backtests of this - a black box can make money consistently even with random entry and nothing but an atr-based stop for exit. The important part is keeping risk per trade at 1% or less (if I recall correctly). Vad, being a careful observer, unlike the efficient market academic scribblers, discerns the macroscopic structures which we lowly traders see every day in the market, and so his edge is much greater on the entries and exits. Ehlers in one of his books uses I believe the analogy of a smoke cloud for the market. The smoke particles may be chaotic or completely random at the microscopic scale, but the smoke cloud has structure and flow which are easily discernable to a keen observer and it's even predictable at the macroscopic level. There are lots of things like this in the sciences - e.g. atomic phenomena are random i.e. you can't exactly predict where a tiny particle is located but you can predict the behavior of assemblages of particles using things like quantum mechanics. Substitute market orders for particles and you get the idea. I'd be surprised if Goldman Sachs didn't have an army of MIT PhDs exploiting these principles via their basement full of supercomputers.
allengg, no crystal ball or rocket science, just a convergence of hints: as I mentioned yesterday to Davefairtex, weakness into yesterday's close vs. strong ramping into the previous closes. Also USD (dead cat?) bounce, COS-UN.TO RSI (another Oil Sands issue) was already rolling over, no real move higher in SU.TO yesterday despite heavier volume, SU.TO short term EMA way above longer term EMA after the huge ramp job of the last few days in the CDN oilers. It's all screaming for a bit of a pullback don't you think? At the very least it was prudent to exit long yesterday at the close, IMO. As for oil, it wasn't actually a huge factor in my guesswork - but if this thing drops substantially further even in the face of the WTIC oil breakout, I kind of have to wonder how much gas is left in the market's tank, or as 2nd said, change in the pockets of the dip buyers.
All that said, for all I know SU.TO may finish in the green today as the ramp jobs have come later in the day. So take your profits fast and DYODD.
We can only hope. :-) Went short a little SU.TO yesterday at the close (sorry Davefairtex). So far, so good, but I'm ready to take this morning's profit and bail if the usual dipsters show up. God knows any short play which shows a profit won't stay around for long, as you've pointed out often.
SU.TO faltered into the close despite the breakout. I suppose they could ramp it higher yet tomorrow but I suspect your short today wasn't the worst trade idea.
Must be for his efforts to peacefully start the next war with Iran. And look for the dollar to firm just as soon as China stops being a stick in the mud and gets with the Isreali program to give those dastardly Iranians a damned good thumping. Until China caves and votes with the rest of the clapping seals for the next Great Inflationary War(tm), the weakening dollar will be used like a $2 trillion paddle on the behinds of the uppity Chinese.
That's my signal to short the oilers today...Like geese in autumn TBP appears magically shortly before oilers turn south. And they're struggling this morning.
Now if only QTrade expanded its services to include (hint, Bill):
1) A trading platform in addition to the web-based interface.
2) Trading fees at least comparable to Questrade. Preferrably cheaper for heavy users.
3) A trading application programming interface (API).
The ultimate would be an programming API similar to what Interactive Brokers offers, so that various trading software can be written against QTrade services. Even better would be if the QTrade API was compatible with the Interactive Brokers one, so that many existing trading software packages which already work with IB also worked with QTrade.
I looked long, hard and rather hopefully at QTrade as an alternative to HB&B's platform choices, but I hate to say it, QTrade fees are comparable to HB&B and without a trading platform QTrade is better suited for swing traders or buy&hold mom & pop types than active daily traders.
And what's with the trailing stop being hard wired only in integers from 5% to 99%(!)? A 99% trailing stop but no way to set, say a 6.5% trailing stop? Or have they fixed that since I last looked?
aucourant, if I understand your intention correctly then I think you'll find John Ehlers, among others, has done this sort of stuff and it's been around as a trading indicator for a decade at least. Look at his MESA indicators and books. Metastock, Tradestation, Amibroker, to name a few, all have implementations.
@ Vad, I thought that as a Russian you would appreciate a fatalistic outlook on trading. It's all a tragedy! ;-) Seriously, I pay $50 round trip trades as do many if not most Canadians, the exceptions being day trader types on frequent trading plans or the Questrade crowd. I tolerate it because my purely mechanical 'always-in' system only generates about 50 trades per year, which basically are bought/sold at market open (by design). So even the most useless dinosaur HB&B brokers in Canada can execute that simple but effective system without difficulty and the commission with so few trades is negligible vs. the return.
@ Illini, glad you enjoyed my tirade. :-) But I don't want to discourage Americans from playing our market. For one thing I think the stop rules are more favourable on the TSX vs NASDAQ.
@ BillySundance, I don't use IB mostly because of inertia but I have associates who do and think well of them. So I'm not knocking them. Most mom&pop types I talk to in Canada have never even heard of IB. I've seen Les here chafe under IB's long-only account, which are indeed trivial for mom&pop to get. Trouble is the Canadian version of that restricts you to long-only and only on the CDN markets, plus you must wait 3 days for trades to clear. Any HB&B plan beats that. And I think most serious traders would find those restrictions almost impossible to design an effective system around. Or at least a system that wasn't severely restricted in earning power right out the gate. I simulated many strategies under these IB restrictions and would not personally bother with them. Even with higher commissions the competition was easier to design around. I talked to an IB rep last year, who chuckled and said one could just fill in the application with whatever information is needed to make it 'pass' you as a customer. While he didn't directly advise doing that, the implication seemed clear. It seems to me they're turning away a lot of customers with their paperwork requirements which even their reps just laugh at. I can only assume they don't want the small fry, which HB&B basically signs up for margin in a 2-3 day process and 4-5 pages of paperwork, from my experience. With IB it's weeks and dozens of pages of forms.
Vad, the reason many complicate position sizing or take too much risk in sizing is twofold.
First, many of the investing resources out there complicate the issue (think Van Tharp's 500 pages of rambling wordiness). I agree that it really is as simple as you say it is. In theory. In practice, for small players, it's not, and that raises point #2.
Poorly capitalized or undercapitalized beginning traders are handicapped by a plethora of rules and regulations imposed on them by brokerages (often HB&B in drag) and by exchanges. For example, if your round trip commission per trade is $50 or more, as is common for HB&B outfits in Canada (where you still need to phone in all short trades, at one major player), the only way to offset this is to increase your position size so that commission is perhaps 1% of the trade. Unless you want to be eaten alive by commissions, this means about a $5K PS, or 10% of the account at risk PER TRADE using your example. Sure, you can set stops as you say, and to be clear, I agree with you. But continuously paying $50 per trade plus your loss is going to put a big dent in a 50K account unless you have an extraordinarily good system (ie few trades, on average big winners, on average small losers). Good luck with that if you're a beginner going against HB&B's supercomputers.
Then there are exchange restrictions. For example, I believe the TSX mandates that a short trade must be 100 shares. That's your minimum position size, like it or not. Go to a US exchange to get around that and have fun paying to find out about stop running.
Now, you'll probably say: 'but you can get much better deals than $50 per trade these days - problem solved.' Well, not so fast my Russian friend.
Looking around the Canadian scene, for example, sure, there's Interactive Brokers for 'professionals' as Mr. Petterfy's outfit likes to put it. They're quite selective in who they hand margin accounts to. Just ask our friend Les here about getting locked out of his long-only IB account. Basically he's lending his money to IB for the chance to indulge his hobby of a long-only play once in a while. In any event IB doesn't even want you completing their application unless you've done 100 trades at HB&B first. So then there's HB&B's ripoff commissions. But lest we blame everything on HB&B, look at Bill Cara's QTrade. Commissions there are comparable to the HB&B brokers, unless one is an extraordinarily active trader, which I maintain is not a good thing to be for a beginner who doesn't yet understand position sizing. So small fry are going to get screwdoodled on commissions in Canada no matter what. Not surprisingly, even Bill's QTrade is structured to attract and reduce commissions for players with big capital. 'Social equity' in reverse, if you will.
At the end of the day, even with a system having a good expectancy, a beginner or low cap player (usually the same thing) is facing stiff odds and is going to be doing a lot of unpaid work with most fruits going to the broker and stop losses. The only real solution is more capitalization (min. 100K+) and the economy of scale, but that's a Catch 22 for small traders.
A low-cap beginner can therefore attempt to break out of the institutional box by using A LOT more risk than is prudent, as I can only assume some around here are trying to do by reading their dangerous trading moves: bigger position sizes than the textbook theory recommends, in volatile penny stocks, coupled with what they hope is a very good system. The odds of this succeeding are low and you'll soon be food for HB&B. This is a big boy's game not suited for mom&pop. The way the system is set up speaks for itself. 'Social equity' and playing the markets is a contradiction in terms.
This smells to me like a bull trap more than a bear trap, at least on the TSX. Went short on CNR.TO @54.25 last week. The short has been green since then and I'm holding it for now. This isn't a junk stock, but a major CDN issue. I'm not looking for a crash but a correction somewhere between 10-15%, before moving higher, is where my bet is at. If I see it go above 54.25 again in the next few days I'd be more inclined to get out and say TOF is right. And TOF, I hope you're right about buying into the overdone Apple hype - you have more courage than I going heavily long here. But you are starting to sound a teeny bit desperate about wishing your trade higher...I recognize the symptoms because I've been there and done that - to my regret.
It appears Bill is not a blowhard, despite rumours to the contrary at HB&B.
Wasn't Goldman Sachs in the past few days pumping steel production as the next big thing? Add that to what Shanghai Fly is reporting and the writing is on the wall. Steel is, I guess, GS's oil call for 2009 and will probably end the same way as their Great Oil Pump. Which is to say, in a profitable short position for HB&B.
I'm with David on this. I was watching a few TSX issues (e.g. CP, CNR, AGU, SU) and they sold into the close. It wouldn't surprise me if tomorrow we gap down and the bulls stampede.
That said, I don't discount Vad's theory. Not wanting to get impaled on a 'Vad spike' is why I hesitated shorting AGU.TO when it hit my target of 53.75. In hindsight probably a mistake but at this point I won't chase stuff downwards until I see a lot more freshly butchered beef on the menu.
Bev, I think your logic and intuition is valid, although relying on logic in this market isn't always profitable. Going into a Canadian holiday long weekend (markets re-open here Tuesday) I exited all my longs Friday and took a small short position. HB&B has hunted bears to extinction so maybe they'll choose instead to make hay from all those green shoots they've been growing in their rich brand of manure.
check out the section "China Breaking":
http://www.marketwatch.com/story/gmos-grantham-sto...
"[China's economy] is dangerously unbalanced and very likely to come unhinged in the next few quarters, surprising the pants off investors..."