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Technical Analysis Fallacy

  • #24,581
  • Apr 27, 2011 8:27am Apr 27, 2011 8:27am
Hi again,

except "feeling the market" or "following the flow" all other elements of trading are pure maths. Managing your risk ist just math.

I'm always vey surprised, when I get in closer contact with some FF members, how small their knowledge is about the trading maths.


I'm talking about very basic things like:

  1. what effect on my equity has a move of x pips against me, when I have y troops deployed?
  2. How many troops do I have at hand, when I only wnat to use 30% of my margin?
  3. How many pips do I need to bring my positions back to BE when I deploy next level? How many do I need when I skip one level?
  4. After how many pips do I have reached my daily limit of y% loss?

And into the same category I count the leverage thingy. It is just maths ....
Nothing magic.
Nothing mythtic.
Only math.

I strongly recommend to set up an excel sheet and play a little with the numbers that are related to your account, like Acc. Size, leverage, Tick value according to position size, your max. Level of pain, possible skews, etc .....

Not sure if I find some time to prepare such an Excel sheet.
But doing it by yourself are the best invested 2 or 3 hours you can spend on ...

All the best,
Niels

  • #24,582
  • Apr 27, 2011 11:16am Apr 27, 2011 11:16am
Quoting Revstar
hi all, fti your an inspiration! & really enjoy your posts..they make me smile

I have been lurking for a while, I have been using order flow technology to help see where order are going through, whilst not a silver bullet, give a good insight, I attatch a chart, you can see red and green, its dynamic so its moving. it freaked me out seeing sell order going through at 169.500!!!!

I hope you dont mind me pitching in some thoughts now and then?

RS
nice try mr. snakeoil
  • #24,583
  • Apr 27, 2011 11:20am Apr 27, 2011 11:20am
Hi friends,

another snippet from the book mentioned above.
I think it adresses one of the most discussed problems: Why I'm not able to let the winners run? Or to speak more in fti's systematic: Why I'm not able to do a proper and stron attack?

" [...]

A valuable psychological rule is that if you wish to change the doing, you must change the viewing. How we see the world colors how we respond to life events. We don’t just react to markets, but also to how we process those markets. Our thoughts are the filters between trading and trader.

Many times we respond in exaggerated ways to markets, not because there’s anything unusual going on in the instruments we’re trading, but because a set of negative thoughts have intruded into our performance. Let’s say, for instance, that I notice that the ES futures are unable to surmount their overnight highs during the opening minutes of trade despite a few flurries of buying. I then observe that large traders are coming into the market hitting bids. I hypothesize that we cannot sustain strength and that the overnight highs will not be breached. I further infer that we will trade back into yesterday’s price range and hit the average trading price from that session. I wait for a bounce higher in the NYSE TICK that cannot make a fresh price high and use the occasion to sell the futures. As the position moves my way, however, the thought enters my mind that I should take quick profits because I’ve had a losing week thus far. A buy program then hits the market and my position ticks higher, eroding some paper profit. Now especially concerned, I take a small profit—only to see the market weaken notably and eventually hit my initial price target.


What has happened in this scenario? Anxiety has interfered with my
performance, turning a good trading plan into bad trading. But the anxiety has nothing to do with the behavior of the market: the market did absolutely nothing to disconfirm my idea. Indeed, when the buy program lifted the index futures briefly, the market was giving me a perfect opportunity to add a second unit to my trade! Not only did I miss an opportunity to profit from a good idea, I also missed an opportunity to hit a home run. Often, keeping losing trades small and hitting those few home runs generates profitability over the long run.

Many traders’ problems show up in how they handle opportunity, not loss.

Sometimes anxiety is a legitimate and appropriate response to a market that behaves in violent and unexpected ways. After all, as I note in the blog, anxiety is our body’s adaptive response to perceived danger. But danger can be a function of perception, not objective reality. I begin my trade immersed in market activity, framing hypotheses and executing an idea well. At some point, however, my thoughts veer from the present market and instead focus on how much money I’ve lost during the week thus far. That focus on loss creates a sense of danger and threat. Instead of responding to the market, I’m now reacting to my own concerns regarding profitability. My thought process has taken me out of the market immersion—and ultimately takes me out of my game. In a cool, calm moment, I can see clearly that the validity of my trade idea/plan has absolutely nothing to do with how I’ve traded the past several days. If I introduce worries over profitability into my trading, however, I’ve now allowed the viewing to affect the doing. I’m no longer absorbed in the market; my focus is gone. I’m responding to my own uncertainties and insecurities.

How can we change our focus and stay grounded in our plans and in
objective market activity? The first step is to recognize our triggers. These are the performance thoughts and worries that typically intrude during trading. Concerns over profitability are one trigger; excitement over anticipated profits could be another. Anything that gets you thinking about how well or poorly you’re doing while you’re doing it is a trigger that can nudge you out of your zone. When you know your triggers, you’re in a much better position to intercept them when they occur and treat them the same way you would treat any ordinary distraction, such as road noise outside your window.

In other words,

it’s not the thoughts of performance that take you away from your focus, but your identification with those thoughts.


[...]
  • #24,584
  • Apr 27, 2011 12:29pm Apr 27, 2011 12:29pm
Piccolo, if i think your implying what it is I think your implying then you would be wrong if & my intention to share/help have been taken the wrong way then this is my error… i am disappointed that my first post in the thread is well.., questioned... I will remove my post and go back to lurking, its safer

RS

Quoting piccolo
nice try mr. snakeoil
  • #24,585
  • Apr 27, 2011 1:23pm Apr 27, 2011 1:23pm
The live stream of Bernanke's Press conference:

http://www.ustream.tv/channel-popup/federalreserve
  • #24,586
  • Apr 27, 2011 1:36pm Apr 27, 2011 1:36pm
if the leverage 1:100, divided account 100 parts, then one part 1:1 ...
  • #24,587
  • Edited 2:54pm Apr 27, 2011 1:52pm | Edited 2:54pm
Quoting Jaro
No Evolution can correct me. It has no mind! I believe in Creator. I saw what Evolution - No God - did in the former Soviet Union.

What is happening with E/U???
Good Traiding,
J
... free will, this is "the clothes and our homes", separate between out "flow" ... you can then correct yourself.


best
Inserted Video



Inserted Video
  • #24,588
  • Apr 27, 2011 3:18pm Apr 27, 2011 3:18pm
Quoting MaMood
Hi friends,
[indent]another snippet from the book mentioned above.
I think it adresses one of the most discussed problems: Why I'm not able to let the winners run? Or to speak more in fti's systematic: Why I'm not able to do a proper and stron attack?

" [...][font=Century-Book][size=2][font=Century-Book][size=2]
[left]A valuable psychological rule is that if you wish to change the doing, you must change the viewing. How we see the world colors how we respond to life events. We don’t just react to markets, but also to how we process those markets....
Thanks Mamood,

Great timing for me with that post.

Good Trading
Mike
  • #24,589
  • Apr 27, 2011 5:43pm Apr 27, 2011 5:43pm
Any news on Fti's surgery?
  • #24,590
  • Apr 27, 2011 6:10pm Apr 27, 2011 6:10pm
Quoting auxesis
Any news on Fti's surgery?

[quote=[B]imjscn[/b];4573545] I can't get in touch with fti. That was 15 hours ago.

this is what we know so far.
Praying for him.
  • #24,591
  • Apr 27, 2011 7:38pm Apr 27, 2011 7:38pm
Quoting imjscn
There seems some one caught very short usd/yen ,(refer the aticle) and trying to buy back. Seems is a big player and muscle down to buy. I can't get in touch with fti, so does any body know who this US party is?

TOKYO, Apr 27 (IFR) - TOKYO, Apr 27 (IFR) - From the early low of 81.27, USD/JPY has rallied strongly. The push down earlier with stops sub-81.40-50 hit was apparently initiated by an US player, perhaps the same one recommending USD/JPY shorts and moves to and below for some time now. They were vindicated when USD/JPY shot down to 76.25...
hey
Kampo, haven't heard that name in a long time.
  • #24,592
  • Apr 28, 2011 2:21am Apr 28, 2011 2:21am
i think if starting out, the whole rescue skews are appropriate however

i do agree with mamoo, skews depend on market condition and the feel of price

for example if the momentum is your way and you want to maximize attack there is nothing wrong with that as long as you take your artillery of the field or move it when shells are fired. in other words sometimes i break the skews rule if price has momentum i put 20 troops in watch very carefully and if price stalls or loses momentum i simply minimize exposure by taking my artillery of the field and leaving my infantry if, my entry is still justified.

when im rescuing against trend, is very tricky, i calculate what average would get me break even and if corrective wave is likely to move that way, i act quickly, if it is not acting accordingly and my troops can still be rescue i minimize exposured and await a corrective wave.

using 12358 i find it great except that following it blindly means that for every level of attack i would need a 50% retrace to break even, the market is not that generous sometimes
AVT INVENIAM VIAM AVT FACIAM
  • #24,593
  • Apr 28, 2011 2:46am Apr 28, 2011 2:46am
Quoting the redlion
i think if starting out, the whole rescue skews are appropriate however

i do agree with mamoo, skews depend on market condition and the feel of price

for example if the momentum is your way and you want to maximize attack there is nothing wrong with that as long as you take your artillery of the field or move it when shells are fired. in other words sometimes i break the skews rule if price has momentum i put 20 troops in watch very carefully and if price stalls or loses momentum i simply minimize exposure by taking my artillery of the field...
I think 1-2-3-5-8 is more appropriate for an attack. I don't think it's ever been suggested as a good rescue sequence. Of course it depends on volatility and price action, but I often use a 1-3-(9) on rescues.
  • #24,594
  • Apr 28, 2011 3:46am Apr 28, 2011 3:46am
Wishing fti all the best with his medical proceedures and recovery.
  • #24,595
  • Edited 4:50am Apr 28, 2011 4:06am | Edited 4:50am
Rescue should bring our average as close to current price as possible, that’s why the MINIMUM is a fibo progression. More aggressive rescue could be applying fib to a reset base (akin to adding 1.6 X existing vs. adding 0.6 X existing), more aggressive again is the martingale, it depends on our NOW market read of how much retrace we can expect. Attack should avoid bringing our average too close to current price and therefore REVERSE fibo is more appropriate.

But whether rescue or attack we should be mindful of the limit of our exposure. Fti talked about working out optimal exposure for different volitilities of the market. In one post he mentioned 3 conditions: impulse (acceleration), pulse (trending) and congestion (trading range). Suppose we decide our max exposure for this particular battlefield is 20 troops and we have engaged 4 when impulse suddenly moves our way, we can add the remaining of 20-4 = 16, and exit the big guns in reverse order (8,5,3) as momentum wanes. This is the famous hypothetical example fti posted, in real life each of us will have to work out our own sequences based on the battlefield, our skill, capitalization and risk appetitite.

Although we should be familiar with the math behind the rescue and attack skews it is not rocket science, the visual take of the volatility and wave shape and form will cue us whether to follow or skip fib numbers, in order or in reverse, or forget fib numbers and apply whatever that suits.

Just my € 0.02

edit: some battlestation posts (for example in August 2008) show fti moves fluidly up and down 1,1,2,3,5,8 depending on whether price has moved with or against his last add, while mindful of his exposure cap and state of book /foreign capital.
  • #24,596
  • Apr 28, 2011 5:59am Apr 28, 2011 5:59am
Quoting Atomic_Sheep
Wishing fti all the best with his medical proceedures and recovery.
Knowing Fti, It's just a matter of days before he post again... He is one tough son of a gun
  • #24,597
  • Apr 28, 2011 7:54am Apr 28, 2011 7:54am
Hi Friends,

just want to add my blotter from today.
I do not like situations like this morning before London opening, when markets have gone very strong in one direction. So I started very carefully. I have switched direction a few times. Was not sure about direction. But that's what we have scouts for ....

As you can see, my sizing is very dynamically.
Also when I feel very good (=in tune with my lady) I jump in big, like I did after the US figs a few minutes ago.

Sizing is a matter of expereince and can not be a result of some rigid calculations. It has to be in sync with the market (and account size of course). And when opportunities arise feel free to skip some skewing levels ...

Well - my dancing is not as smooth, as it could be, but it gives you an idea how I use fti's teachings ....

All the best,
Niels
Attached File(s)
File Type: pdf 2011-04-28_01.pdf   23 KB | 734 downloads
  • #24,598
  • Apr 28, 2011 9:02am Apr 28, 2011 9:02am
yea, my scout tends to be buy/sell a lot in congestion. The thing is, I treat ever new day as flat book. So even the small scouts have impact at first, and they rarely go back to zero like yours.


Quoting MaMood
Hi Friends,

just want to add my blotter from today.
I do not like situations like this morning before London opening, when markets have gone very strong in one direction. So I started very carefully. I have switched direction a few times. Was not sure about direction. But that's what we have scouts for ....

As you can see, my sizing is very dynamically.
Also when I feel very good (=in tune with my lady) I jump in big, like I did after the US figs a few minutes ago.

Sizing is a matter of expereince and can not be a result of some rigid...
  • #24,599
  • Apr 28, 2011 10:21am Apr 28, 2011 10:21am
Quoting MaMood
Hi Friends,

Well - my dancing is not as smooth, as it could be, but it gives you an idea how I use fti's teachings ....

All the best,
Niels
You rock, what a dancer, skip all the way to level 12 (144 troops) out of 1400 troops at your disposal at 1:50 leverage.

Thank you for sharing, very educational.

rgs,
Baifu
  • #24,600
  • Edited 11:46am Apr 28, 2011 11:29am | Edited 11:46am
Hi Mamood,

If you don't mind I have a couple of questions regarding your blotter:

Why are a few sizes shown as 0.00, and you seem to have simultaneous open long and short positions occasionally?

Come to think of it, Saxobank also allow this sort of "hedging", besides 1:100 leverage, I remember you also had open long and short positions in previously posted blotters.

Regards,
Baifu

Edit: I remember you mentioned using precoded programs to manage entry-exits for convenience and speed, may be that's why there are 0.00 positions and occasional both long and short positions (since you allow for many troops I don't think you use hedging to stretch margin)
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