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Technical Analysis Fallacy

  • #761
  • Jan 8, 2008 4:17am Jan 8, 2008 4:17am
Technical Analysis, Fundamental Analysis, Statistical Analysis are all tools.

But you have to know the right tool to use for the right situation. Knowing this is the key.


A cork opener and a bottle opener essentially do the same thing. But you have to know which one to use with which bottle.
  • #762
  • Jan 8, 2008 7:46am Jan 8, 2008 7:46am
Chapter I. LAYING PLANS1.

Sun Tzu said: The art of war is of vital importance to the State.
Having a Trade Plan is important.

2. It is a matter of life and death, a road either to safety or to ruin.
Hence it is a subject of inquiry which can on no account be neglected.

The trade plan must be thoroughly researched & tested.
Take every market condition and scenarios into consideration when planning.

3. The art of war, then, is governed by five constant factors, to be taken into account in
one's deliberations, when seeking to determine the conditions obtaining in the field.

The Trading plan must take into account the following 5 constant factors.

4. These are: (1) The Moral Law; (2) Heaven; (3) Earth; (4) The Commander;
(5) Method and discipline.

(1) Pyschology & Goals; (2) Fundamentals, Seasonal & Timing; (3) Technical analysis,
Support and Resistance; (4) Commander/Trader; (5) Trading System & maintaining
Discipline to adhere to it

5,6. The Moral Law causes the people to be in complete accord with their ruler,
so that they will follow him regardless of their lives, undismayed by any danger.

(1) Pyschology & Goals - Trading plan should align with the Trader's goals and
objectives. Pyschologically, the trader should be able to stick to the trading plan
even in periods of drawdowns.

7. Heaven signifies night and day, cold and heat, times and seasons.

(2) This refers to the Fundamental factors, Seasonal cycles & Times of high/low liquidity.

8. Earth comprises distances, great and small; danger and security;
open ground and narrow passes; the chances of life and death.

This refers to Technical aspect of the plan.
Entry positioning/timing, stops clustered zones - Support/Resistance areas
Market environment - Trending or Consolidating?

9. The Commander stands for the virtues of wisdom, sincerely, benevolence, courage
and strictness.

The Trader should possess the following virtues:-
a) Wisdom (learn from experience),
b) Trust and belief in the trading plan (confidence in the system)
c) Calm. Don't be too emotional with losses or allow the ego to take over the trade.
d) Courage to pull the trigger and take the trades according to the trading plan.
e) Discipline - To adhere to the trading plan & rules.

10. By method and discipline are to be understood the marshaling of the army in
its proper subdivisions, the graduations of rank among the officers, the maintenance
of roads by which supplies may reach the army, and the control of military expenditure.

Capitalisation, Discipline, Money Management & Position Sizing.

11. These five heads should be familiar to every general: he who knows them will be
victorious; he who knows them not will fail.

The Trader should be familiar with the five main factors in the Trading plan

12. Therefore, in your deliberations, when seeking to determine the military conditions,
let them be made the basis of a comparison, in this wise:--

Use the 5 main factors to determine if the trade should be executed.

13. (1) Which of the two sovereigns is imbued with the Moral law?
(2) Which of the two generals has most ability?
(3) With whom lie the advantages derived from Heaven and Earth?
(4) On which side is discipline most rigorously enforced?
(5) Which army is stronger?
(6) On which side are officers and men more highly trained?
(7) In which army is there the greater constancy both in reward and punishment?

14. By means of these seven considerations I can forecast victory or defeat.

15. The general that hearkens to my counsel and acts upon it, will conquer:
let such a one be retained in command! The general that hearkens not to my counsel
nor acts upon it, will suffer defeat:--let such a one be dismissed!

16. While heading the profit of my counsel, avail yourself also of any helpful
circumstances over and beyond the ordinary rules.

Do not follow or adhere to the rules rigidly.
Monitor the market constantly.
Dance with the market and change it according to the circumstances and situations.

17. According as circumstances are favorable, one should modify one's plans.

One should always modify the plan according to the circumstances.
If favourable conditions, modify the plans to stretch profits.

18. All warfare is based on deception.

Market will mislead you to dance to the wrong tune.
Watch out for the fake moves (as if I know which is fake and real??!!)

19. Hence, when able to attack, we must seem unable; when using our forces,
we must seem inactive; when we are near, we must make the enemy believe
we are far away; when far away, we must make him believe we are near.

20. Hold out baits to entice the enemy. Feign disorder and crush him.

21. If he is secure at all points, be prepared for him. If he is in superior strength,
evade him.

22. If your opponent is of choleric temper, seek to irritate him.
Pretend to be weak, that he may grow arrogant.

23. If he is taking his ease, give him no rest. If his forces are united, separate them.

24. Attack him where he is unprepared, appear where you are not expected.

25. These military devices, leading to victory, must not be divulged beforehand.

26. Now the general who wins a battle makes many calculations in his temple
ere the battle is fought. The general who loses a battle makes but few calculations beforehand.
Thus do many calculations lead to victory, and few calculations to defeat:
how much more no calculation at all! It is by attention to this point that I can foresee
who is likely to win or lose.

A trader that is thoroughly prepared and make many preparations is more
likely to succeed than another trader that is less or ill prepared.
  • #763
  • Jan 8, 2008 10:43am Jan 8, 2008 10:43am
Quoting Green_David
T
4. These are: (1) The Moral Law; (2) Heaven; (3) Earth; (4) The Commander; (5) Method and discipline.

5,6. The Moral Law causes the people to be in complete accord with their ruler, so that they will follow him regardless of their lives, undismayed by any danger.Many friends here think that moral laws means trading rules. No.

In my opinions, moral laws ARE moral laws. In Chinese ancient philosophy, every thing to be done, the purpose has to satisfy a moral standard even a war. Otherwise the war will have a failure. Think about why US lost the Vietnam War(nor American people neither many countries supported US), Soviet Union also failed in Afganistan occupation. But why US won the war v.s. Iraq in 1992?

Regarding trading, for what purpose we trade? What are our final objectives in trading Forex? Making profits, of couse, but profits for what? If some people seek profits for immoral or wrong purporses such as womanizing, wasteful and unnecessary luxurous life, satisfying unnecessary ego, etc, I don't think they will succeed finally. Because with immoral objectives in heart, they will focus only on money and fast profits, then, a lot of phychological enemies like greed, hope, undue pressure etc. will attack you. And if they got some initial success, they will be in a hurry to satisfy their initial purpose maybe abusing themselvs, then how can they continue to make greater success?

For me, I trade forex just to prove to my self, that by studying hard and lots of efforts, I can make it also, I can also succeed in trading. By trading forex, I will learn decipline, emotion control, patience and more economics knowledge. Money is just a byproduct if you do things right.
David
I second this part very much, I think this is so right, very well said David.
Regards
Alex
  • #764
  • Jan 8, 2008 12:15pm Jan 8, 2008 12:15pm
Hi fti,
Here is my interpretation of the first chapter

I. LAYING PLANS
1. Sun Tzu said: The art of war is of vital importance to the State.
To be a good trader the "art of dancing" with the market is very important.

2. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected.

The skill to sense the market flow is a matter of life or death in trading.

3. The art of war, then, is governed by five constant factors, to be taken into account in one’s deliberations, when seeking to determine the conditions obtaining in the field.

Dancing with market is governed by few factors. A trader has to look carefully study these conditions before entering a position.

4. These are: (1) The Moral Law; (2) Heaven; (3) Earth; (4) The Commander;(5) Method and discipline.

5. The Moral Law causes the people to be in complete accord with their ruler, so that they will follow him regardless of their lives, undismayed by any danger.

Here the ruler signifies the market and the people are traders. Traders have to be in complete accord with the market. Never try to disobey the market, you will be beheaded.

6. Heaven signifies night and day, cold and heat, times and seasons.
Timing the market. A General should know when to make his next move based on the conditions such as night and day etc. Likewise a trader should wait for the right moment to enter the market.

7. Earth comprises distances, great and small; danger and security; open
ground and narrow passes; the chances of life and death.
This signifies the conditions the troops have to cross to invade the enemy. In the case of trading it can be key support and resistance levels from the history data.
distances - great and small - where is the next resistance or support level.
open ground and narrow passes - free fall, rally and consolidation areas.
danger and security - news.
chances of life and death - are we buying at the end of rally or selling at the end of a down move.

8. The Commander stands for the virtues of wisdom, sincerely, benevolence, courage and strictness.

A trader has to have the wisdom of all the 5 virtues and have the courage to execute it.

9. By method and discipline are to be understood the marshaling of the army in its proper subdivisions, the graduations of rank among the officers,
the maintenance of roads by which supplies may reach the army, and the
control of military expenditure.
Scaling in and Scaling out. When the trade goes your way provide more resource to work for you. Make sure you have enough resources(money) to take a trade and support it in the course.

14. While heading the profit of my counsel, avail yourself also of any helpful
circumstances over and beyond the ordinary rules.
15. According as circumstances are favorable, one should modify one’s plans.
if there any changes on the way, like news etc modify your plan based on the new circumstances.

16. All warfare is based on deception.
17. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.

The above two points seems to fit well for the market. A rally up in a downward trend deceives the trader and in the consolidation period the market seems inactive, but moves in either direction suddenly.


24. Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.

Traders have to make sure they have all the scenarios worked out and understand the key levels in the market. This will lead to a winning trade and not doing so to a losing trade.
  • #765
  • Jan 8, 2008 7:25pm Jan 8, 2008 7:25pm
Quoting MickD
Ok, I'll go first.

First of all Leighsww, my deepest condolences, stay well.

My brief understanding of CH 1, Laying Plans:

Know the market:
Before trading we must have a plan, to develop our plan/stratagem we need to understand the market we are trading, what's it's overall condition and sentiment, what is it's current state, ie. trending, choppy etc. Check the different time frames we are likely to be trading, the more we know about the market the better.
Understand price patterns and other TA but don't rest your strategies solely on them alone, use them wisely to gauge the current market and to plan the next move, not decide it!

Know your strategies:
We also need to know when to get in, when to get out, how to recover from a bad position and how to maximise a good one. We need to have these plans well researched and in place 'before' we trade.

Discipline to carry out the plan:
Once we have our strategies we must use discipline in carrying them out, we have developed our strategies with confidence and purpose and they must be adhered to. Failure to do so can lead to poor decisions based on hope, greed or fear.

Be prepared:
Be healthy and alert, do not trade tired or distracted.
Make sure you have sufficient capital to trade with and to execute your strategies. Be prepared to change strategy to save bad trades or enhance good ones, price action can change at any time so be ready to change your strategy as the market changes.

In finishing:
Failing to plan is planning to fail, develop your strategies and execute them with discipline and confidence. Know the market and its condition and be prepared to change strategy as the market changes to either protect your book or maximise profits.
If you have spent the time to understand the market and design your plans you will be in a much better position to make winning trades.
Lesson 1: The General.

In addition and to the above, the General must be well trained, confident and subjective.
The General must not be too emotional about what he is doing, must be calm in all situations so to can make the correct decisions based on the current situation and not make hasty or overconfident/scared decisions.
To be able to achieve this the General needs to study and practice the following:

For a General to succeed he must have a good knowledge of the terrain he is fighting in and of the enemy (know the market and how it works, know your platform and how to order/sell etc.).

The General must be well trained for the many different situations the terrain and the enemy throw at him (have developed strategies to handle the different market conditions as they occur).

To do this the General must have a good knowledge of his resources and how to deploy and use them as the situation dictates, he must be definite in that he needs to win but not at the risk of tiring out or losing too many troops for any given battle (you must have a good, sound money management strategy to handle even the worst situations. This means you must have enough capital at your disposal to defend and fight back out of a bad position if required and you must never over expose your book to the market on any given trade. Overuse of capital can leave you over exposed when things go against you, steady profits (small battles) won consistently win the trade (war).

The General therefore when going into battle, having a sound knowledge of the above, must be able to asses the battle field and the enemy (the market and conditions) and work out his strategy before attacking (entering a trade).
Once the overall strategy is decided, this includes both attacking and defensive tactics, the General then needs to 'anticipate', not hope or predict the next move, then decisions can be made on how to use resources and the strategy to fight the current battle at hand (be prepared and anticipate the market, use your MM strategy to reduce or enhance your position as the market allows).

Only once the General is competent in these matters can he take part in battle with a clear mind that won't be persuaded by fear or greed (if you have your MO, MM and trading strategies planned you should be able to trade with a subjective mind that won't be 'rattled' by market conditions that may arise), then the General can go into battle confident in the strategies in place to win the battles and to win the war.
  • #766
  • Jan 8, 2008 8:21pm Jan 8, 2008 8:21pm
Hi Fti,

Here's my newbie interpretation of what I have read. Please correct me if I have misinterpreted it in anyway ( which I am sure I have done)


. LAYING PLANS


1. Sun Tzu said: The art of war is of vital importance
to the State.

It is important for the trader to be knowlegeable (strategies to deal with different market conditions, money management, etc) before entering into the market. This is of vital importance to the trader, to do so otherwise will surely lead to the collapse of the trader's account (state).

2. It is a matter of life and death, a road either
to safety or to ruin. Hence it is a subject of inquiry
which can on no account be neglected.

Without the knowlege (the art of trading), the trader will be doomed. It is of utmost importance to the trader if he is to make it in the market. Having the knowledge will ensure survival in the marke.

3. The art of war, then, is governed by five constant
factors, to be taken into account in one's deliberations,
when seeking to determine the conditions obtaining in the field.

The five constant rules of trading

4. These are: (1) The Moral Law; (2) Heaven; (3) Earth;
(4) The Commander; (5) Method and discipline.


5,6. The Moral Law causes the people to be in complete
accord with their ruler, so that they will follow him
regardless of their lives, undismayed by any danger.

Have the conviction and trust to follow your trading plan through

7. Heaven signifies night and day, cold and heat,
times and seasons.

The market different conditions - bull market, bear market, trending, liquid or illiquid market.

8. Earth comprises distances, great and small;
danger and security; open ground and narrow passes;
the chances of life and death.

The market

9. The Commander stands for the virtues of wisdom,
sincerely, benevolence, courage and strictness.

The trader must present himself to be knowledgeable, disciplined and focused on what he does.

10. By method and discipline are to be understood
the marshaling of the army in its proper subdivisions
the graduations of rank among the officers, the maintenance
of roads by which supplies may reach the army, and the
control of military expenditure.

Be methodicaland disciplined in managing trades. Each trade should have a plan suited to the market condition. Ensure adequate capitalisation and good money management.

11. These five heads should be familiar to every general:
he who knows them will be victorious; he who knows them
not will fail.

The trader must familiarise himself to the rules of trading in order to survive in the market.

12. Therefore, in your deliberations, when seeking
to determine the military conditions, let them be made
the basis of a comparison, in this wise:--

13. (1) Which of the two sovereigns is imbued
with the Moral law?
(2) Which of the two generals has most ability?
(3) With whom lie the advantages derived from Heaven
and Earth?
(4) On which side is discipline most rigorously enforced?
(5) Which army is stronger?
(6) On which side are officers and men more highly trained?
(7) In which army is there the greater constancy
both in reward and punishment?

14. By means of these seven considerations I can
forecast victory or defeat.

15. The general that hearkens to my counsel and acts
upon it, will conquer: let such a one be retained in command!
The general that hearkens not to my counsel nor acts upon it,
will suffer defeat:--let such a one be dismissed!

Stick to a winning strategy. Keep all the good rules and throw out the bad ones. Keep a winning trade on and be quick to discard trades that are showing signs of having gone wrong.

16. While heading the profit of my counsel,
avail yourself also of any helpful circumstances
over and beyond the ordinary rules.

Always be willing to learn from new situations and add on to one's knowlege base.

17. According as circumstances are favorable,
one should modify one's plans.

The trader must be responsive to different circumstances and paln accodingly.

18. All warfare is based on deception.

The market place is a very deceiving one and so the the trader must be aware of its deceptive characteristic and trade accordingly

19. Hence, when able to attack, we must seem unable;
when using our forces, we must seem inactive; when we
are near, we must make the enemy believe we are far away;
when far away, we must make him believe we are near.

Do not follow the crowd. Do not do the "expected" thing.

20. Hold out baits to entice the enemy. Feign disorder,
and crush him.

Show patience, trade small positions initially and when the set-up looks good, increase one's stake.

21. If he is secure at all points, be prepared for him.
If he is in superior strength, evade him.

Avoid difficult market conditions. When in a losing trade, cut the loss early.

22. If your opponent is of choleric temper, seek to
irritate him. Pretend to be weak, that he may grow arrogant.

23. If he is taking his ease, give him no rest.
If his forces are united, separate them.

24. Attack him where he is unprepared, appear where
you are not expected.

25. These military devices, leading to victory,
must not be divulged beforehand.

26. Now the general who wins a battle makes many
calculations in his temple ere the battle is fought.
The general who loses a battle makes but few
calculations beforehand. Thus do many calculations
lead to victory, and few calculations to defeat:
how much more no calculation at all! It is by attention
to this point that I can foresee who is likely to win or lose.

Always have a trading plan before entering into a trade, taking into consideration the many different scenarios that could present itself in the unpredictable market.
  • #767
  • Jan 8, 2008 9:10pm Jan 8, 2008 9:10pm
Quoting Daemien
He said fostered, not created. Leonardo Da Vinci used some of the Fibonacci principles in his artwork...

fos·ter http://cache.lexico.com/g/d/premium.gif http://cache.lexico.com/dictionary/g...una/thinsp.pnghttp://cache.lexico.com/g/d/speaker.gif /ˈfɔhttp://cache.lexico.com/dictionary/g...una/thinsp.pngstər, ˈfɒshttp://cache.lexico.com/dictionary/g...una/thinsp.pngtər/ Pronunciation Key - Show Spelled Pronunciation[faw-ster, fos-ter] Pronunciation Key - Show IPA Pronunciation
–verb (used with object) 1.to promote the growth or development of; further; encourage: to foster new ideas. 2.to bring up, raise, or rear, as a foster child. 3.to care for or cherish. 4.British. to place (a child) in a foster home. 5.Obsolete. to feed or nourish.

I would say that #1 covers it!


D.
Funny to see a famous artist in a list of famous traders... ah well.
  • #768
  • Jan 8, 2008 9:33pm Jan 8, 2008 9:33pm
Quoting fti
@Argonaut
There, DutchAngel explained it, She's right.

I say again.
All currencies are traded against the USD because of its relationship to Gold , due to the old relationship bretton woods system and the USD.
Further if you read "Paper Money" you would have discovered the links of the driving force behind all the world's economies, ie crude oil,( Black Gold ) which is traded only in USDs.

All currency crosses can be engineered from the USD pairs.
The Majors of the USD pairs are the EUR/USD, GBP/USD, USD/YEN, USD/CHF which are most liquid.

Basic chart reading and Technical Analysis is non market specific and can be used on the charts of any market.
There is however localised differences of read due to the different character of the markets.
Attention must be paid to the accuracy of the data inputs
and the interigity of the datafeed.
This is cos, Rubbish in (Rubbish charted) Rubbish Out. (Rubbish Trades).

It is unhealthy to place stop loss orders in the majors as I have previously explained. ( althought the liquidity is high).
Placing Stop loss ordes on exotic currency pairs is sucidal.

regards

Thank you fti.
I'm looking forward to learning from you.
  • #769
  • Jan 8, 2008 10:24pm Jan 8, 2008 10:24pm
Hi fti and all. Thought I join in the fun with my parallels of Sun Tzu aow to trading. Cheers. Thank you. Eagerly waiting the teachings and insights. :-)

Chapter 1

1. Sun Tzu said: The art of war is of vital importance
to the State.
2. It is a matter of life and death, a road either
to safety or to ruin. Hence it is a subject of inquiry
which can on no account be neglected.

thinking here:
The art of trading (the workings of trading) is an important factor to an individual in whether he/she will succeed in trading or not. As the stakes could be high(eg. trading for a living); it could be a mean for breaking out of the mediocrity to one of betterment, a matter of survival/achieving or a loss of hope and despair. Therefore we must study it and understand it.

3. The art of war, then, is governed by five constant
factors, to be taken into account in one's deliberations,
when seeking to determine the conditions obtaining in the field.
4. These are: (1) The Moral Law; (2) Heaven; (3) Earth;
(4) The Commander; (5) Method and discipline.

thinking here:
There are 5 forces which controls the way one whom trades, the art of trading.

5,6. The Moral Law causes the people to be in complete
accord with their ruler, so that they will follow him
regardless of their lives, undismayed by any danger.

thinking here:
This is the market structure and laws. The rules and laws that creates the markets and how the markets work, participants (central banks, professional, individuals, private, public) intertwine. How moves tend to work, how trends tend to form, how demand and supply are established. Basically, you will have to play/battle it out(trade) under these laws. Otherwise one who does not comply in the "right" way, loses he/her shirt.

7. Heaven signifies night and day, cold and heat,
times and seasons.

thinking here:
This could be the time of the day - the trading session. Heaven at night could mean probably when the market is closed - so little activity. During the day is when it's open. Cold is when there is not much activity in the markets and heat is when everything is moving and buzzing. This sentence encompasses when it is the best time or conditions to trade.

8. Earth comprises distances, great and small;
danger and security; open ground and narrow passes;
the chances of life and death.

thinking here:
This could be the different type of markets; like what kind of market it is a the moment, ie. ranging, trending etc. And where open ground could be a trending market, so it is easier to trade and narrow passes could be ranging, so it is best not to trade or to engage in caution.

9. The Commander stands for the virtues of wisdom,
sincerely, benevolence, courage and strictness.

thinking here:
The commander is yourself; so you have to have all those things when trading - wisdom is knowledge of markets, sincere is for being responsible for your actions, not sure what benevolence is, courage is having courage to trade, and strictness is following your plan. Could the commander be the general here?

10. By method and discipline are to be understood
the marshaling of the army in its proper subdivisions,
the graduations of rank among the officers, the maintenance
of roads by which supplies may reach the army, and the
control of military expenditure.


thinking here:
So by method and discipline, you are following your plan properly and trading that plan. Know what kind of capital money you have, the money you have to risk, what kind of trading conditions, what kind of market you are trading, the costs, etc.

11. These five heads should be familiar to every general:
he who knows them will be victorious; he who knows them
not will fail.

thinking here:
The 5 forces should be understood by every trader. As one who knows them well will succeed in trading.

12. Therefore, in your deliberations, when seeking
to determine the military conditions, let them be made
the basis of a comparison, in this wise:--
13. (1) Which of the two sovereigns is imbued
with the Moral law?
(2) Which of the two generals has most ability?
(3) With whom lie the advantages derived from Heaven
and Earth?
(4) On which side is discipline most rigorously enforced?
(5) Which army is stronger?
(6) On which side are officers and men more highly trained?
(7) In which army is there the greater constancy
both in reward and punishment?
14. By means of these seven considerations I can
forecast victory or defeat.

thinking here:
In order to assess whether we would succeed in each individual trade(battle), we need to ask ourselves whether we can answer/overcome the 7 questions.

15. The general that hearkens to my counsel and acts
upon it, will conquer: let such a one be retained in command!
The general that hearkens not to my counsel nor acts upon it,
will suffer defeat:--let such a one be dismissed!

-

16. While heading the profit of my counsel,
avail yourself also of any helpful circumstances
over and beyond the ordinary rules.
17. According as circumstances are favorable,
one should modify one's plans.

thinking here:
Trading is a vast field filled with many events and many different participants, with various ideas and concepts. The markets are ever changing and adapting, you too should be aware of any useful knowledge that maybe helpful and may to incorporate into your new plans.

18. All warfare is based on deception.
19. Hence, when able to attack, we must seem unable;
when using our forces, we must seem inactive; when we
are near, we must make the enemy believe we are far away;
when far away, we must make him believe we are near.
20. Hold out baits to entice the enemy. Feign disorder,
and crush him.
21. If he is secure at all points, be prepared for him.
If he is in superior strength, evade him.
22. If your opponent is of choleric temper, seek to
irritate him. Pretend to be weak, that he may grow arrogant.
23. If he is taking his ease, give him no rest.
If his forces are united, separate them.
24. Attack him where he is unprepared, appear where
you are not expected.
25. These military devices, leading to victory,
must not be divulged beforehand.

thinking here:
Could trading is based on deception be that of oneself. Logical thinking versus their intuition side. Or could it be that the deception of tipsters, like for example when they inform public to go long, but then they are shorting instead.

26. Now the general who wins a battle makes many
calculations in his temple ere the battle is fought.
The general who loses a battle makes but few
calculations beforehand. Thus do many calculations
lead to victory, and few calculations to defeat:
how much more no calculation at all! It is by attention
to this point that I can foresee who is likely to win or lose.

thinking here:
The most informed and prepared trader will tend to succeed.
  • #770
  • Jan 9, 2008 1:14am Jan 9, 2008 1:14am
War is a simple art,..... its essence is in its accomplishment.

~ Napoleon Bonaparte
  • #771
  • Edited 8:18am Jan 9, 2008 5:16am | Edited 8:18am
Quoting MickD
Thank you for your input Fti, I really appreciate it and it's good to know that I'm heading somewhat in the right direction.

I have since been experimenting with phi and it's skew with reasonable success, it's uncanny how the PA can follow these numbers!
I'm currently battling my way out of a very bad trade on demo, it's quite an experience (4 days now!) but I'm pulling square and may even make quite a good profit if the PA keeps up (I'm long A/J).
At the very least I want to get back to where I started the position, I'm almost there
Hi MickD,

Wow, buddy. lol.
Whats with the pain threshold?
Could it be that you are in wrong direction, instead of wrong timing?
Suffering 4 days and still out of court is not how you're supposed to show resilence. If this was to happen regularly in your trading MO, then I fear that you may not even have a spent candle left, before you're finished with trading.

Square out your positions already, and go get yourself a trend to capture. A vacation after this ordeal would serve you well, to reset your energies.
Be careful that too much of this heroics can warp you outlook and feel.

Sure hope that, you are enjoying this pain thingy in demo mode , I assure you that you may feel altogether differently if real $$ were involved.
Although I do advocate that you must have a zero tolerance for losses attitute, you could at the same be very intolerant of long protracted loss battles as well. Cou;d your skew and MM expansion be too mild to be effected in short cycles?

I do believe, without going into studying this AUSYEN pair that you trade,
that may be you are adopting the trading style into the macro time frames. Am I right?

regards
  • #772
  • Jan 9, 2008 5:52am Jan 9, 2008 5:52am
Quoting jest1081
Hello sir,

Hats off to you for sharing such valuable information and thanks to those who have been actively promoting growth and discussion in this thread. I've always wondered why a friend and mentor trades w/o stops. But he did not got into much details into loss management.
Thanks for your kind words. But last I checked haven't been knighted yet. LOL


Quoting jest1081
I would like to hear more about the methods required into snowballing a position to reduce a loss. (at the same time understanding that i am entirely trading on the wrong side of the market)
About the snowballing of the positions, well it isn't like some rocket science thingy. You're supposed to be trading "on the wrong side of the markets" while on the right side of the trend, if there's one.
otherwise you"ll just be doing the two steps in a range band, la.


Quoting jest1081
You indicated, that we will need a squad to save a losing position. Hope that you could find the time to further divulge this piece of information.
That's already given in AOW, if you studied it. anyways, here's another way to look at it. The last you heard, how many cops where sent to take out lone gunman in college shooting incidents. Thats the approach in positional rescues. The efficiency ratio, from personal experience for me is a skew of the pi but of course you are not required to mimic me, as I have balls of steel from my training.

Quoting jest1081
Could you aslo reccommend some books which explicitly discusses on position/risk management?

Have you solved your broker issue?
You might wanna try demoing with mfglobal.sg?
Anyway are you putting up in Cameron?

best regards
jest
Already recommended that you study the Sun Zi Art of War for that
and not forgetting the W Wilder recovery table that I provided.

No, may like to talk to SGX, if no worthy brokers are found.
If there's a market , surely can find the facilitator.
May start a whole new project. but maybe not.
For now tussling with the credit risk issue.
And just for info, am back at Sg already,
but may be travelling again soon due to personal errants.

regards
  • #773
  • Jan 9, 2008 10:08am Jan 9, 2008 10:08am
Quoting hharrington
@david

I have managed to rescue 2 bad trades in countertrend trading with FTI's method...and the third i had to bite the bullet on...but in the last 19 trades i have had only 2 negative trades to my book.....very small also...and also have never risked more than 3 percent of my book.


I am a firm believer in price action,,but with this method it takes it to another level..I have been trying to trade the 5 min charts for the last several months, and i finally found something that suits me....

Have a great day everyone HH
Hi hnarrington,
Is it working for you?
Are you gonna learn Sun Zi?

regards
  • #774
  • Jan 9, 2008 10:36am Jan 9, 2008 10:36am
Hello All,

Could somebody point me in the direction of the Wilder recovery table, can't seem to access the thread attachments, and no joy on Google yet.

Thanks,

Ed.
  • #775
  • Jan 9, 2008 10:56am Jan 9, 2008 10:56am
Quoting Ted1983
Hello All,

Could somebody point me in the direction of the Wilder recovery table, can't seem to access the thread attachments, and no joy on Google yet.

Thanks,

Ed.
Try this link

http://www.forexfactory.com/showthre...41#post1748941
  • #776
  • Jan 9, 2008 10:58am Jan 9, 2008 10:58am
Quoting Ted1983
Hello All,

Could somebody point me in the direction of the Wilder recovery table, can't seem to access the thread attachments, and no joy on Google yet.

Thanks,

Ed.
HI Ed

You will find it in post 440 on page 30 of this thread.
Hope isn't a viable investment vehicle.
  • #777
  • Jan 9, 2008 11:19am Jan 9, 2008 11:19am
Thanks,

I was thinking it was something a bit more "snazzy". Always useful to bear those figures in mind though.

BTW Really good thread, finally got round to reading Art of War because of it.
I've been meaning to do that for ages.
  • #778
  • Edited 12:47pm Jan 9, 2008 12:13pm | Edited 12:47pm
Quoting Jairo
Hi,

I discovered this thread last weekend and I read it throroughly. This is my first post. I was thinking to ask a question to FTI but since the discussion is going on I will post it now.

I wonder if there is the possibility of using the loss recovery technique from a more "distant" point of view. Let me make it more clear. I have limited time to follow the market. I can access my account in my work desk but cannot concentrate too much to take intraday trades and baby sit them. So I thought about taking trades that follow an intermediate trend (a few days to weeks). This will make the cycles longer. I estimate to be able to check market 3 to 6 times a day.

In this condition, loss recovery becomes a very critical task. Drawdowns will certainly be bigger and will take longer to revert. I made some calculations in an Excel spreadsheet: with an account balance of 3.3K (an experimental standard account), let's say I first buy 0.01 lot EURUSD at 1,4550. A passive wait until margin call would require price falling to impossible -1.8400 (a 32950 pips drop). To recover from this drawdown, let's say my analysis at 1,4450 (100 pips below initial entry) indicates it's time to increase the bet. I buy 0,02 lots. This would move margin call price to 0.3534 (10916 pips below this second entry). Let's think of a third buy of 0,04 lots at 1,4300. Margin call price goes to 0.9715 which is 4.585 pips below the third entry level. With good market analysis and not going against the trend this seems to me relatively "safe".

Is this doable or am I missing something or dreaming awake? There is still the possibility of counter trend independent trading, which reduces drawdown and pushes margin call farther away.

Thanks for any ideas from fellow traders and from FTI when he's back from vacation.

Ppl, I was trying something like this live when I discovered this thread. I look forward for any feedback. I used to feel a lot doubtful doing that alone against many people's advice but now, after reading FTI's lessons, I know I am at least in the right direction. But don't know if I am doing everything right.

Again thank you very much for your attention and very good trading for us all.
Hi Jairo,

The answer is yes. It is possible. Nothing is written in stone.
But you pay a high price for it.
If you are unable to watch the market closely ,
then much opportunnities may elude you.
And timing becomes an issue,
as you may not be able to capitalise on critical timing.

What you can do is to acertain that during critical sectorial zonal change of guards you must be able to spend some time on trying to decipher whats happening to market trend on a macro basis.
All in , you may, find that trading becomes rather frustrating, as you would have other non trading factors creeping into your trading form.
Its for you to find your niche, and MO.

I would like to caution your wanting to use of the loss recovery technique in this operating environment. This is because in changing modes, the MO & MM changes.
And as you may be blind-sighted when you are not monitoring, there arises the risk that your MO & MM may be dated to that which is happening in the markets.
Moreover the progression and its skew creates snowballing of position and price risk by multiple times, which is dangerous to manage from afar,
esp when that snowballing has gone in excess of level 3. ( ie 3rd progression). You would really need nerves of steel or very deep pockets to operate that way.

Although the impact on the attack mode MO & MM may probabily be mildly affected, it is not so in rescue mode.
The key to successfully implimenting rescue mode is cap size and short tenure risk. This must be implimented using undue force of postional size for small market range captures, to bring the book back to the front line. And as this undue force means big size snowballs, timing is of essence, and it is unhealthy to overstay the market. Overstaying normally would indicate that rescue is trapped and the trading book risk has actually being escalated to a different risk perspective. Depending on trader skills such rescues can become ruin critical.esp if unknowingly against trend or at major trend turns.
At banks dealing rooms, this can be managed at differing levels of managerial levels by seniority, the contingency of last resort being the bank's exco or board.

Over the decades markets had witness failures when rescue MO, is mismanaged to become positional MO.
So be fore-warned
here's some famous personalities.
Nelson bunker Hunt, Nick Leeson, Yasuo Hamanaka, John Rusnak, Chen Jiulin, Liu Qibing
http://www.jeffooi.com/2006/07/bank_...forex_deba.php
http://www.oftwominds.com/blogs/rogue-trader.html

Personally I would discourage operating in this MO unless you babysit the exposures and operated only in short tenures for rescue.

regards

PS: Unfortunately, what I am trying to teach you is universal for pro-trading. I did warn that this is not for everyone or for those lacking experience or training. It may take you heads-off if mindset is wrong or undisciplined. Safety first, please. Approach with caution.

Also be informed, that for thousands of dealers operating in this professional MO, these mention were the exceptions, their cause for failure can be found in their mindset and recklessness. Mostly ego.
  • #779
  • Jan 9, 2008 1:12pm Jan 9, 2008 1:12pm
Hello fti and to all,

I've been a quiet observer of this thread from the start and find it extremely enlightening. I am intrigued by the philosophical reference to the AOW. Although I am educated, I am not certain of my interpretations of phi and it's skew, however I will patiently wait for that lesson. In the meantime, let me get involved and post my thoughts on Chapter 1.

Thanks Fti for your contribution. I think point 9 in chapter 1 sums up your character most fittingly; "The Commander stands for the virtues of wisdom, sincerely, benevolence, courage and strictness."

Cheers,
Northpro

My Thoughts:
LAYING PLANS

1. Sun Tzu said: The art of war is of vital importance to the State.
You must have a plan before action is executed.

2. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected.
The “Plan” must be followed without waivering. This is not a game of chance.

3. The art of war, then, is governed by five constant factors, to be taken into account in one's deliberations, when seeking to determine the conditions obtaining in the field.
4. These are: (1) The Moral Law; (2) Heaven; (3) Earth; (4) The Commander; (5) Method and discipline.
5,6. The Moral Law causes the people to be in complete accord with their ruler, so that they will follow him regardless of their lives, undismayed by any danger.
Have a complete understanding of the purpose of your trading. There must be an absolute ethical reason to trade other than to watching the account grow. Why do we trade? Underneath the methods of one’s trading, their lies a reason to engage in this dance to begin with, understand simply that “morally” you must be trading for the right reasons. It is this foundation that will keep you focused and steadfast when you are in the trenches of a trade in rescue. There has to be more than just the money. If it is just the money than greed and fear will eventually prevail.

7. Heaven signifies night and day, cold and heat, times and seasons.
Get a feeling of the markets climate. Is it trending or ranging? Why is it doing what it is doing? Understand the controlling fundamental forces that are driving the present state of the market. An understanding of this should help determine a probable direction of the market.

8. Earth comprises distances, great and small; danger and security; open ground and narrow passes; the chances of life and death.
I think this is charting and time frames in which you read the analysis. It is also your ability to read the trends, ranges, support/resistance levels, where to plot your fib levels. Failing to interpret the overall trends will lead to swimming against the current.

9. The Commander stands for the virtues of wisdom, sincerely, benevolence, courage and strictness.
This is you the trader. It is you who does the study and analysis. You must be the one whom with sound commitment with reason execute a trade within the boundaries of your plan.


10. By method and discipline are to be understood the marshaling of the army in its proper subdivisions, the graduations of rank among the officers, the maintenance of roads by which supplies may reach the army, and the control of military expenditure.
Your Money Management is the key to your survival. Dictate a MM plan based on your initial capitalization and prepare for the worst case scenario. If you execute a poor trade you must have the resources to rescue that trade when the time and price levels dictate.

11. These five heads should be familiar to every general: he who knows them will be victorious; he who knows them not will fail.
Plan your trade and then trade your plan. Understand why you are trading this particular trade, how you will execute this trade and always respect the enemy if you yourself want to be respected.

12. Therefore, in your deliberations, when seeking to determine the military conditions, let them be made the basis of a comparison, in this wise:--
13. (1) Which of the two sovereigns is imbued with the Moral law?
(2) Which of the two generals has most ability?
(3) With whom lie the advantages derived from Heaven and Earth?
(4) On which side is discipline most rigorously enforced?
(5) Which army is stronger?
(6) On which side are officers and men more highly trained?
(7) In which army is there the greater constancy both in reward and punishment?
You can never know enough. You can never be over prepared. Do as much homework as possible before entering into battle. Have your plan laid out for both victory and setback. With proper planning, purpose, discipline, and MM, your trade victory should prevail .

14. By means of these seven considerations I can forecast victory or defeat.
The more prepared you are the probability of victory is in your corner.

15. The general that hearkens to my counsel and acts upon it, will conquer: let such a one be retained in command! The general that hearkens not to my counsel nor acts upon it, will suffer defeat:--let such a one be dismissed!
Follow your rules with discipline and conviction, but don’t forget to feel the music for the dance.

16. While heading the profit of my counsel, avail yourself also of any helpful circumstances over and beyond the ordinary rules.
I think this means to be nimble. Be ready to abandon a trade if circumstances change beyond what you forecasted. Determine why things are changing against you and the likely effect it will have. Is it enough to justify abandoning or is it a temporary setback that can be absorbed within your trade plan. Regardless of the circumstances, do not rely on hope, rely on knowledge and discipline.

17. According as circumstances are favorable, one should modify one's plans.
Again, stay nimble not only in bad times but in good ones. We try and determine a likely target (fib level) and time to get there, if things are happening faster and further than expected, adjust your target levels to the next progression and consider adding to positions as in positive snowballing.

18. All warfare is based on deception.
Beware of headfakes and false breakouts.

21. If he is secure at all points, be prepared for him. If he is in superior strength, evade him.
I think this would apply to volatility and stability. If the market and timeframe you trade is dancing to your rhythm, then attack. If it is acting erratic and non predictive, then stand aside. You will succeed more being patient than being hasty.

24. Attack him where he is unprepared, appear where you are not expected.
Attack on retracements to key fib levels along with the overall trend. Adding to positions as the trade continues to go your way and passes key levels. I think this is what stretching the trend is referencing.

26. Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.
Laziness is a recipe for disaster. Never let your guard down. Study your trade plan before you execute. Know your trend, your fib levels, your probable target in price and time, possible retracement level against you if you miss-timed the entry, where you will add to positions in a rescue trade and where you will add to positions when the enemy is down, and where you will exit. There should be no surprises.
  • #780
  • Jan 9, 2008 2:13pm Jan 9, 2008 2:13pm
I. LAYING PLANS1.Sun Tzu said: The art of war trading plan is of vital importance to the State trading account. 2. It the trading plan is a matter of life and death, a road either to safety or to ruin. Hence it the trading plan is a subject of inquiry which on no account be neglected. 3. The art of war the trading plan, then, is governed by five constant factors, to be taken into account in one's deliberations, when seeking to determine the conditions obtaining in the field trading arena. 4. These are: (1) The Moral Law; (2) Heaven; (3) Earth; (4) The Commander; (5) Method and discipline.5,6. The Moral Law trading plan’s basic rules causes the people each trade to be in complete accord with their ruler the trader, so that they each trade will follow him the trader regardless of their lives, undismayed by any danger. 7. Heaven signifies night and day, cold and heat, times and seasons price action. 8. Earth comprises distances, great and small; danger and security; open ground and narrow passes; the chances of life and death time frame and time progression. 9. The Commander trader stands for the virtues of wisdom, sincerely, benevolence, courage and strictness the trading plan and ability/ dicipline to follow it.10. By method and discipline are to be understood the marshaling of the army trade book in its proper subdivisions, the graduations of rank fills/lot size among the officers, the maintenance trade management of roads orders by which supplies position size/ market exposure may reach adjust the army trade book, and the control of military expenditure money management.11. These five heads should be familiar to every general trader: he who knows them trading plan will be victorious; he who knows them not will fail.12. Therefore, in your deliberations, when seeking to determine the military conditions market make-up, let them be made the basis of a comparison, in this wise:--13. (1) Which of the two sovereigns bull trader vs bear trader is Imbuled with the Moral law? (2) Which of the two generals has most ability capitalization? (3) With whom lie the advantages derived from Heaven and Earth price and time/trending vs trading market? (4) On which side is discipline the plan most rigorously enforced? (5) Which army book is stronger? bull camp vs bear camp (6) On which side bull vs bear are officers and men more highly trained? Indicates trend (7) In which army is there the greater constancy both in reward and punishment trading wins to loss ratio?14. By means of these seven considerations I can forecast victory or defeat.15. The general trader that hearkens to my counsel trading plan and act upon it, will conquer winning trade: let such a one be retained in command! The general trader that hearkens not to my counsel nor acts upon it the plan, will suffer defeat losing trade:--let such a one be dismissed blown account!16. While heading the profit of my counsel, avail yourself also of any helpful circumstances over and beyond the ordinary rules the trading plan should allow for and be adaptive to changes in market make-up, trend, etc. BE NIMBLE .17. According as circumstances are favorable, one should modify one's plans see 16.18. All warfare trading is based on deception the strong money almost ALWAYS is buying into pullbacks and selling into rallys.19. Hence, when able to attack initiate a position, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. Scale into a position.20. Hold out baits to entice the enemy. Feign disorder, and crush him. Wait for sitting-duck stops to be “swept” before taking a position.21. If he is secure at all points, be prepared for him trending market; wait for consolidation entry. If he is in superior strength, evade him never chase a market.22. If your opponent is of choleric temper, seek to irritate him. Pretend to be weak, that he may grow arrogant. sideline position; no position IS a position23. If he is taking his ease, give him no rest. If his forces are united, separate them.24. Attack him where he is unprepared, appear where you are not expected. This is where a marketmaker would sweep for stops25. These military devices, leading to victory, must not be divulged beforehand. Be humble in trading; don’t boast or brag26. Now the general who wins a battle makes many Calculations Tech/Fund Analysis in his temple charts ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation Holy Grail/Black Box subscribers at all! It is by attention to this point that I can foresee who is likely to win or lose.
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