Forum Archive Index - February 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Travis,
>
> 
>you've provided an example where it
>worked and assumed that a single example proves the
>rule.  Like it or not once again low turnover trend
>trading systems can't be programmed into a computer
>because as anyone who's ever backtested an indicator
>in Metastock can attest the hit rates on any technical
>indicator are too low for them to pay off.
>
>

Again, I don't claim to speak for Phaedrus, but from what I have 
observed he doesn't use the same indicators on all shares he trades.  
He does back test the indicators he uses on the particular share he 
trades with though.  He doesn't have to get a system that works for 
all shares.  He only has to find a system that works for the share 
he wants to trade.

He is in effect trying to find an indicator(s) - there 
may be more than one -  that will reflect the investor psychology 
that drives one particular share price.  But he certainly doesn't 
assume that because an indicator is successful in one share it will 
always be useful when charting any other share.

Of course any system using a signal which is an indicator of 
human emotion and perception will not be mathematically 
numerically precise.  To expect an 'answer' that you can put into a 
formula, and hence program up a computer to do it, is like asking a 
precise answer to the question:

"How bad do you feel about this bit of bad news?"

The answer depends upon who the collective 'you' is, how 'bad' the 
bad news really is and how you *perceive* this bad news.  The answer 
to this question is a judgement call which is why you need a human, 
not a machine to make it.


> 
>Successful traders are much like successful gamblers,
>they occupy themselves with managing their bet sizes
>and limiting the amount they lose in any one session. 
>  
>I'm not claiming that there are no successful traders,
>I am claiming that there are no successful technical
>analysis methods .
> 
>Money management and risk management is, a field
>quite distinct from technical analysis as it does not
>involve chart reading, prediction of trends or
>reaction to trends and instead focuses on the trader's
>equity.
> 
>Just as with gamblers there is no suggestion that you
>know what is coming up next, and this certainly has
>nothing to do with support and resistance.
>
>

So what you are saying, Travis, is that successful traders are really
successful risk managers.  

Phaedrus is not using the idea of a 'support level' as something 
that will always exist in the future.   Just because a 'support 
level' has been observed to exist (respected) does not mean it will 
be the next support level that exists as trading in that share 
continues.  If that 'support level' is is breached then Phaedrus will 
sell.  Strip away the fancy language ('support level')  and what 
Phaedrus is describing is just a simple risk management technique.

It looks to me Travis, that both you and Phaedrus are saying the same 
thing here on the subject of 'risk management'..

>
> 
>Risk management isn't TA so anyone trying to argue
>that TA works because risk management works is tying
>themselves into logical knots.
>
> 
>There's the Johnson Report on day traders,
>commissioned by North American Securities
>Administrators Association (NASAA, a consumer
>protection group trying to keep the futures industry
>honest) that demonstrated that almost none of those
>surveyed made money and the few that did so appeared
>to take on so much risk that their risk of ruin was
>calculated to be nearly 100%, implying that eventually
>they were nearly guaranteed to lose.
>

Phaedrus doesn't make his decisions on intraday prices, so this is a 
red herring.

>
>TA and risk management are quite distinct
> concepts.
>

How can you have a trend without a beginning and an end?  So how can 
you argue that using risk management techniques to determine a 
beginning and an end is a 'quite distinct concept'?

> 
>In the previous paragraph I pointed out that buying
>grossly overpriced stocks just because they are going
>up is a dumb idea and you argued that this is why you
>don't trade.  Different concepts again.  
>
>

'grossly overpriced stocks' never came into it.  Personally I 
wouldn't trade becase of that 'risk of ruin' you talk about.  The 
longer anyone trades the more likely it is they will have a trade 
where they can't get out at their predetermined stop loss point, and 
that the loss will be catastrophic.


> 
>> Yes but all T/A is not the same, just like all F/A  
>>is not the same.  
>>If for example you picked shares only on P/E ratio 
>> being high, thus showing the company to be
>>  a 'good growth company' you may come unstuck. 
>>
>  
> That would be a very dumb system given the bounty of
> evidence that one is better off avoiding high PE
> stocks.
> 
>

Of course it would be a dumb system.  That's the point I was making.  
Finding a trading system, or finding several trading sytems to be 
dumb is not necessarily proof that all trading systems are dumb.

You have already identified some things that are dumb: high turnover 
(using systems that generate too many buy/sell signals).  Systems 
that have a poor associated risk management system.   Phaedrus's 
system may indeed be dumb.  But by setting up a couple of straw men 
and pulling them down you have not proved it to be so.

> 
>>I don't think Phaedrus does do a high
>>turnover.  Perhaps 
>>this is one of the reasons he has been trading for
>>several years and  is still here.
>>
> 
>Please reconcile "holds many stocks for a few months"
>with this last paragraph.  I'm totally mystified by
>that.
> 


High turnover is a relative term.  What I am saying is that *if* 
there is such a thing as a successful trading system, the chances are 
it has a low turnover, as shown by your referenced studies.  I 
haven't seen any traders here that hint they are trading at a less 
frequent rate than Phaedrus.  So I'm guessing Phaedrus is a more 
successful 'trader' than most.

SNOOPY


 
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