ETMA_The Evolution

Happy New Year to everyone, may the next Year be full of Health, Wealth, Happiness and loaded with some new yearly resolutions.

Working even on my Holiday. Good articles who teach us where is the skin in this game and how to win it.

On the Subject of Trading Methods.

We often hear that over 80% of traders are on the losing side of the stock market game. Therefore, the first question is why so many traders fail. I believe it is in the way they play the game.

A few years back a professor (forgot his name, sorry) made up a test for his bright graduating students (most in management and economics). The game was simple and described as follows:

1. 1. Each student was given 100 points.
   2. They could place bets on the outcome of a 100 coin toss.
   3. They won, it doubled their bet; they lost, well, they lost their bet.
   4. The coin had a 60% chance of turning up head.

   
   
   

The students agreed to the rules and the winner (the one with the most points) would get the real money prize. The similarities with a stock market game were relatively close: an upward 10% drift with Gaussian volatility. The toss was the same for all and no player could do anything about it.

Where it gets interesting is in the results. 80% of the students lost their entire stake; even though the only viable strategy, which was obvious to all, was to bet head at every turn. This is like playing the stock market game with a 60% hit rate. And if you look at the math of the game, a 10% edge can be considered impressive, if not outright alpha generating. Then why did most students fail?

The answer is in the way the students played the game: for most, their trading strategy was mathematically biased to fail. Their betting method did not respect the game for what it was. The outcome of any toss was still a gamble even with 0.60 odds. Doubling up or doubling down (playing martingales) were sure ways to end up at the bottom of the heap. Playing using optimal-f or by the Kelly number where also almost sure ways to fail. The dip-buyer lost, the doubling down player lost, the optimal trader lost, the big bet at every turn lost. What got them was the variance of the game. They would go broke long before they had a chance to profit from the upward bias.

Those who won (the 20%) were those playing with smaller bets and the biggest winners where those improving on their bet size as profits increased. It was with their position sizing methodology that they won the game. They played within the constraints and stayed within the variance barriers. The overall winner was still a lucky student and no one could have predicted who it would have been from the beginning of the game. He played with a long term view; he knew his expected outcome, the variance of the game, and placed his bets accordingly.

Many of the principles learned from this simple game have been applied in my trading methodology. Small bets spread over many stocks so as to reduce the impact of any one bet while staying very well within the variance of the game. You generate alpha by your position sizing methodology which is reinforced by the reinvestment of part of the generated profits.

So the first thing to do is stop playing the game the way the 80% fails. Look at the “investment” game with a long term view. Spread your bets and reinvest part of your profits just like you would dividends. Study the game for what it is and let it teach you how to play. Then, play the game under your conditions, within your constraints, and by your own rules. You don’t play the game to be right; you play to game to win.

Long story short :
1 - Invest with a long term view.
2 - Small position sizing.
3 - Spread your small position bets or diversification across multiple assets.
4 - Cut your losses early.
5 - Scale in to your winners or reinvest part of your profits.
6 - Set your emotions aside, you don't play to be right you play to win.

Created on ... January 24, 2011 Guy R. Fleury. All rights reserved.

Last Trading day of the year, a USD retracement, an AUD change of direction (Both already hit their ADR for the Day) and the yen pairs are pointing us to a new game plan this new year, is it gonna hold ?.

Best.
B.R.

Good Morning everybody and welcome to the Year 2015, hope it will be a successful year for all Humankind specially fellow Traders.

Here is Something to start your Year on a upbeat tone :

Remember to Mark your calendar.

http://www.pirellical.com
http://www.reef.com/missreef

Best,
B.R.

Cool post and a nice thread bassramy....a happy New year to you

cheers Ja

Thank you and the same to you Dude.

The Kirk Report

A Year Of Transformation

Saturday, January 3, 2015 at 12:29 PM

“My prayer for you and those you love is that you rise in 2015. Rise to meet all challenges with a peaceful heart. Rise above mediocrity in hot pursuit of mastery. Rise to live the life of your childhood dreams. You deserve no less.” – Robin Sharma

A year ago this very day something truly significant happened in my life.
My wife and I were sitting around after the holidays and talking about the year we just had. In that conversation, I asked her a simple question – where do you want to be a year from today?

I was shocked, surprised and also very excited by her reply. As I recall, my wife said something like “I don’t want to be in the same place, doing the same things, as we have been for over twenty years. I want to take time to really enjoy life, to live the life we really have worked hard to have, to find new and better ways to help others more, to be much more healthy and take time to do the things we want before it is too late.”

It was the first time she answered that question in that way. More importantly, if she asked me that same question, I would have answered it the same way!
On the surface to everyone we knew, it seemed like we had it all. Awesome careers, more money than we could ever need, a huge luxury home, wonderful friends, supportive family, and so on. Everything they tell you that you need to live a very happy life.

But to have those things, we lived in a constant state of stress, fear and exhaustion. We had no time to enjoy any of it as we both worked 7 days a week +80 hour work weeks, we were stressed out and grumpy most of the time, and even worse, my health was starting to significantly deteriorate from spending so much time sitting in front of the computer in recent years. Yep, it was finally time to make a major change before it was too late. We had simply come to the end of that chapter in our lives and it was time to embark on another.

We then spent the rest of the day, weeks, and months that followed planning out what we wanted to do and, more importantly, how we were going to go about doing it. In the months that followed, we worked every day to work toward creating a new life. The life we wanted to live.

In 2014 we both changed our focus and careers, sold and gave away the bulk of our possessions that we accumulated over two decades of marriage, and moved to Kauai, Hawaii to begin our new life. After trading full-time since 1999, I retired from full-time trading so I could focus more on The Kirk Report, my special mentoring program, market research and in turn discover new ways to be much more helpful to members than I have in the past.

My wife also left her 22 year career in teaching in order to write books and serve as a mentor to new teachers entering the profession so she could put her experience and knowledge to good use helping others. In our free time now we take time to exercise, try to have fun each and every single day, and enjoy living in paradise while volunteering time and money to several organizations we are now involved in.

In sum, after 22 years we are finally living the life we wanted. It took a lot of hard work and luck to get here, but we finally made it. Looking back, the only serious mistake we made was not starting this new journey earlier. And to think – all of this began by asking and answering a simple question one year ago today!
Rest assure, I share this not to brag. But, rather, to make sure that you really understand that you and your family have an important choice to make today. A year from now you can be in the same place doing the same things you always have been or you can stand up today, transform yourself and your life into what you really want and wish it to be. My sincere hope and wish for you is that you have the courage to go for the life you really, truly want. None of us know how much time we will have to do this and life is very short. With each new year, brings new opportunity for change and to move closer to your dreams. Don’t let this opportunity pass you by.

I am not going to be one of those people who tell you that any of this will be easy. It really won’t be. At times, it may be the most difficult thing you ever have done. It certainly was for us so be prepared. It will be frustrating, messy, extremely scary, and difficult as you and your family will face tremendous challenges, obstacles and hardships every single step along the way. Not to mention that some of your friends, family, and business partners will also turn against you out of jealousy, as they will hate you for having the courage to stick your neck out there and really go for the life you want. But, in the end, it will be worth it.

As Henry David Thoreau once wrote – “most men lead lives of quiet desperation.” It does not have to be that way unless you let it. One of the most important things you can do for yourself and your family is to constantly work toward to life you want to live. To never give up on your dreams, not matter how silly or strange they may seem to others. To have the courage to make change, even though it will be both very difficult and scary in order to move one step close to the life you wish to live.

With all of my heart, I sincerely hope and wish that 2015 will be your year of transformation!

- See more at: http://www.kirkreport.com/2015/01/03....TGnF8rvv.dpuf

It's a privelege to have you here B. Magnificent post. :-)

State of the Trend, Indices and Commodities.
Crude Light, Natural Gas, The S&P, The Dow, The Nasdaq and Gold.

The Dow *sobs*. You know I have an open wound. Do you want more salt? /tic :-)

I know that you will come out on top, i have faith in you and your detailed work.

State of the Trend Currencies, Some charts for the Day.
Still short EU but hedging with minimal risk on Heavy W1, M1 support.

Crude Light is under 50 = 48.80 USD

Oops...

Pffft. Just chalk it up. I get heaps of those.

I slept better last night after our chat. I have a pending short some distance away below S/R of 1.164 at 1.1575.

Thanks B :-)

PS..... Very impressive background B. I was blown away (but that's just between us).

Oops... Nº 2, long stop hit triggering another sell stop order well under the most important support, where is the EU going and where it will stop ?, will it rebound from here (Highly unlikely taking the trend in consideration) but nobody knows, in either way we will ride the so called trend be it bull or bear.

Another important support also broken and confirmed on the AN (AUDNZD), and another sell stop triggered well under support.

“Order and simplification are the first steps toward the mastery of a subject.”THOMAS MANN

“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.”PABLO PICASSO

“Be regular and orderly in your life, so that you may be violent and original in your work.”GUSTAVE FLAUBERT

“When I am ... completely myself, entirely alone... or during the night when I cannot sleep, it is on such occasions that my ideas flow best and most abundantly.”WOLFGANG AMADEUS MOZART

“I never could have done what I have done without the habits of punctuality, order, and diligence, without the determination to concentrate myself on one subject at a time.”CHARLES DICKENS

“I keep to this routine every day without variation. The repetition itself becomes the important thing; it’s a form of mesmerism. I mesmerize myself to reach a deeper state of mind.”HARUKI MURAKAMI

Here is a very important quote from trend follower Salem Abraham's May 2005 letter to his investors:

Our research allows us to select trades that put the odds in our favor. However, it takes time to prove that the odds truly are in our favor. The statistics below demonstrate this truth:
Percentage of the time we make money in any day: 54%
Percentage of the time we make money in any month: 56%
Percentage of the time we make money in any 3 months: 64%
Percentage of the time we make money in any 6 months: 77%
Percentage of the time we make money in any 12 months :92%
Percentage of the time we make money in any 24 months: 100%
We do not have a crystal ball, so we do not know when this current losing period will end. However, we can look in the rear view mirror and see that when we experienced periods like this before, not only did we survive, but we thrived.

When I trade stocks, I want to put the odds in my favour. I believe that I am doing this by trading in the direction of the trend. However, even if you are trading with the odds, you will not make money every day or even every year.
Many traders believe that to make money in the stock market, they must find an indicator or system or chart pattern that will work at least 80% of the time. What I have observed is that most of the great traders, the one's that trade north of $100 million, are far from making money every day.
Incidentally, this is how casinos make money. For example, when a roulette wheel is spun, a casino has no way of telling what the outcome will be. Casinos, like trend followers, are not able to predict the future. But, casinos know that if a roulette wheel is spun enough times, they will come out ahead, and this is because the odds are in their favour.
On a practical level, one very simple way to put the odds in your favour in the stock market is, again, to trade with trend. A very basic rule of thumb that I follow in this regard is this:
Buy stocks making new highs in bull markets
Short sell stocks that are making new lows in bear markets
There is more to trend following than this, but even if you follow this very simple rule, I think it will give you a small edge. If a small edge is repeated over time, the results can be surprisingly good.

Methodology

1) React rather than predict
Rich traders know they don't know; new traders don't know that they don't know
Forecasts, market calls, projections etc... are not what I do

2) Price itself is the best indicator
The current price of a stock contains the collective wisdom of thousands. If a stock is making new highs, it is probably because people who know more than you are buying
I only buy stocks that are making new 52 week highs

3) Identify the general market trend first
I only buy stocks when the general market is rising, hold cash in sideways markets, and sell short when the market is falling
I use a 100 and 150 day moving average to define the long term trend
I use a 20 and 50 day moving average to define the short term trend

A: Summer: The S&P 500 is in a bull market. I buy strong stocks making new highs in this environment.
B: Fall: I go into cash or bonds in this environment.
C: Winter: The S&P 500 is in a bear market. This is the season for shorting weak stocks.
D: Spring: I cover my shorts and go into cash.

4) Buy strong stocks in bull markets
I scan for stocks making new highs after breaking out of consolidations.

5) Short sell weak stocks in bear markets
Trend followers, embracing volatility, make money in up and down markets.

6) Do not lose more than 1% of your account equity on any given trade.
If you risk much more than 1% you will go bankrupt eventually. As Larry Hite says, "If you don't bet, you can't win. If you lose all your chips, you can't bet".
I continue to add stocks, one per week, until a maximum of seven stocks are added.

7) Stops are placed according to stock's volatility
Each stock I buy is a unit of risk. Volatile stocks have wider stops and smaller positions; less volatile stocks have tighter stops and larger positions: