Archive for November, 2009

WWJT Revisited: Define the Market Environment

November 29, 2009

I’m back. Good to be writing again. ๐Ÿ™‚ I’ll have some more Thinkscript indicators soon, but in the meantime, here’s a philosophy piece:

To revisit my What Would Jesus Trade post, I was listening to a recent podcast by Jeff Quinto where he was talking with another trader about three types of traders. The type they called “Market Savvy” traders would have a framework to define the market environment first and foremost, before any trade setups were even considered. This struck a chord with me.

As I said in my WWJT post, too often we try to tweak the details of our parameters instead of answering the most fundamental questions. It’s like dressing for the weather. If it’s 100 degrees and sunny outside, it’s really pointless to try to decide the best color of raincoat to wear. By a similar token, if it IS raining, then agonizing about whether a yellow or a blue raincoat would be better is equally pointless.

The same is true in trading. If we are in a heavily trending market, then almost ANY trend following setup will do well, and almost EVERY mean reversion setup will do poorly. It doesn’t matter how awesome your backtesting is or what your particular parameters are; these are just the basic facts. Random chop is not too good for anybody but the brokers, and there isn’t a trend following system that can be devised that can make gold out of sewage. The first and most important step is to define how you will interpret and classify market environments. Messing around with other things at the expense of doing this work is foolishness.

So hadn’t you better do the hard work and define some market environments? As they said in the Jeff Quinto podcast, you can’t really learn this from a book or third-hand knowledge. You have to study the market for yourself, and define a model for yourself. It can be simple–Trend or No Trend. That’s simple. You can then refine it to incorporate any other conditions that you want–volume, choppiness, retraces, etc.

One important thing: The market environment definitions are NOT the setups, or the trade plan! They are simply a way to describe generally how the market behaves and how the price action manifests itself. The trade plan and setups follow from that, and almost effortlessly, I would add.

What to do on an up trend day? Buy pullbacks! Trail stops! Maybe take some partials on strength. That’s an easy call. The harder part is knowing how to identify a probable trend day before the day is over. The gifted traders can see a trend day coming within the first 15 minutes of the open. Even CNBC can see a trend day at 4:00 ET.

What about stops? Well, a trend day should make higher highs and higher lows, right? So your stop goes where your market wouldn’t be acting like a trend day anymore. Simple, no agony or optimizing.

You’ve fought 80% of the battle right here. Now just be disciplined to execute and accept the outcomes you get dealt by the probabilistic universe. Of course, your models will need to have some technical parameters or other measurements, but you make a model as a baseline, and then update it if you get a better one. Are you listening, Prospectus? Yes, I am talking to myself here. Very much so.

Quit agonizing about finding a holy grail or a system that “always” works and instead create your own models for different market environments. I’ll be posting some of mine by way of example, but don’t take my word for it. Please do the work yourself and share in the comments if you feel like doing so to inspire others. Apart from learning a few facts, the only profitable reason to read any blog is to gain inspiration to DO SOMETHING, and then use that inspiration to DO SOMETHING. I myself get too caught up in reading and thinking and wishing (and writing) and don’t DO SOMETHING as often as I should. Hope this inspires us all a bit.

Burning the Candle at Both Ends

November 25, 2009

So if you still even read my blog, you’ve noticed that I haven’t posted much in a while. I’ve been finishing custom projects, programming indicators for EOT and also had a busy time with work. Topped off with a leaky roof and allergies, I’ve pushed too hard for too long. And I’m worn out.

I’ll be regrouping during the thanksgiving holidays and afterwards I’ll start some blogging again. Hope you have a good holiday and enjoy your families and friends.

Hello to EOTPro!

November 10, 2009

Richard has decided to move on from EOTPro. I wish him the best in his new trading adventures! He’s always been a great friend and mentor to me, and I know I’ve needed it. Richard’s departure has opened up a need for a developer at EOTPro. I’m starting to slowly try to fill Richard’s shoes. It’s a tall order, but I’m doing my best. Along with development for EOTPro proper (hence my scarcity here), I’ll be finishing and releasing my automation for Bill’s Arrows over the next month. That way, EOT members will be able to have the indicators from their subscription with EOT, and get automation, including customization of rules and support from me. I still plan on blogging here as my time permits, and in developing for Think or Swim and Ninja separately from EOT as I have in the past. (Of course, their proprietary info shall remain proprietary and will not be shared.) More info to come in the near future!

If you haven’t checked EOT out, hit the picture link below!

eotpro-final

EOT Automation Status Update: Good Progress

November 3, 2009

Okay, so here’s where I am: The strategy is working with ATM templates. It takes the first arrow after a color change. I have also started creating a GUI for managing the strategy parameters outside of the built-in Ninja strategy inputs area. This is because we lose the saved real-time data like EOTSVCommitPaintBar every time we load, modify or restart the strategy. The strategy starts over, but the chart plot stays, causing them to no longer be trading the same thing. The new GUI is vital to make sure we can start the strategy in the morning at the same time as the chart, and leave it alone all day so that they match. This has also been the biggest delay item as I had to reverse engineer part of the Ninja Chart API through trial and error and deal with inserting my form classes into the Ninja namespaces.

I still have more to build, but here’s where it is right now:

EOTform2

Basically, when you load the AutoTrade strategy on a chart, it will create a button on the toolbar (see example on the chart toolbar, called “EOT Strategy Panel”). This button will open the Auto Trade Strategy Controls (see example form floating over the chart). You can minimize the controls, move them around, etc. If you close the control form, then clicking the toolbar button brings it back, but resets the control states. The control form will let you specify if the strategy is armed to enter trades (or disarmed–just watching), as well as a start time and an ending time. Not yet finished are options to take only longs, only shorts, or entries in both directions, as well as the ATM strategy template to use. I will also be able to add custom inputs as the need arises for individual projects.

I still have to build the rest of the GUI, hook up the inputs to the strategy and do some testing, but the hard part is over (I hope). I should have a release before the end of the week. Thank you very much for your patience with this very delayed process. My schedule and learning curve have not been cooperating, but it looks clear from here!