How to make profit in stock market

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mjvishy
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How to make profit in stock market

Post by mjvishy » Thu May 08, 2008 5:54 am

Hi all,

Is there any successful trader who can share a trading system that makes profit on day trading.

thanks

jay

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Post by solfest » Thu May 08, 2008 8:18 am

How to Day Trade?

Many people in the "trading" business are willing to sell you their trading system. This begs the obvious question, if the system is so good why would they sell it?

Even if the system is valid the vast majority of people would not make money trading it.

Why?

Because they will inevitably deviate from the system.

Why?

You must trade your own beliefs in the market, not someone else's. This failure to follow occurs whenever there is a drawdown in someone else’s system that you are trying to trade.

Trading is money and money is emotion and when these emotions are put to the fire you will fail if you are not dealing with your own belief system. In order to stick with “the planâ€

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Post by nodoodahs » Thu May 08, 2008 12:08 pm

solfest wrote:Many people in the "trading" business are willing to sell you their trading system. This begs the obvious question, if the system is so good why would they sell it?
And the obvious answer is "to diversify their income stream."

Just as trend-trading in 20, 30, or 50 market simultaneously smooths the equity curve compared to trend-trading in just ONE market, so does selling systems, coursework, newsletters, or DEVELOPMENT SOFTWARE (notice we're on a forum powered by a site which sells, developed by someone who traded, and the software includes systems that trader used).

:shock:

I'm certain that there are purely mechanical day traders (just as I'm certain there's intelligent extraterrestrial life), but I have no direct evidence of them (see the parallel?).

It's not a regimented system per se, but I would suggest visiting Trader Mike, Trader-X, or MaoXian (Google is your friend) and looking into their day-trading methodologies, or spending some time at Brett Steenbarger's site TraderFeed.

Unless you're dead set on day-trading, you might try looking up Pradeep at StockBee for some semi-mechanical short-term systems for equities.

Best, and happy trading.

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Post by solfest » Fri May 09, 2008 8:51 am

There may be another "obvious" answer.

:)

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Post by nodoodahs » Fri May 09, 2008 9:49 am

Your question was, "If the system is so good why would they sell it?" There's only ONE obvious answer to that.

Think in terms of conditional probability, we have an assumption that the system is "good" imbedded in the question. There's no other reason to sell a good system, other than to diversify income. Of course, you weren't asking an honest question, you were being snarky.

Your implication is that there's no reason to sell a good system - which is just incorrect. By extension, you're implying that any and all systems for sale are "bad" and that the only reason they're for sale is because they're worthless for trading.

Hypothetically imagine you had $1 million in trading capital and a system that gave you 20% annually with a 20% standard deviation. Some years you made money, some years you lost money, but overally you compounded at 20%. Take 5% of that to compound wealth, 5% to protect against the rising cost of living, and 10% withdrawn to spend, not counting the impact of taxes. Gee, you might have a tight budget at $100K pre-tax. In the years where you lost money on the system, you would have to dig into savings rather than compound. That would suck. But if your system worked - which in this hypothetical it does, because 20% long-term is pretty goddamned good by CTA standards - you could sell courses and DVDs and have some diversified income.

One of the Turtle Traders' founders famously said that you could publish their methods in the paper and they wouldn't stop working, and that's true.
Most people wouldn't seek out the truth about systems that work;
Many would disbelieve that any publicly available system could be worth using (you, I suspect, fall into this category);
Others wouldn't have the discipline to consistently apply the system and wouldn't be able to come to an informed opinion of it;
Still others would abandon the system in the first drawdown or period of underperformance vs. a benchmark, coming to an incorrect opinion of it;
Only a very few would actually find a system that works and stick to it, enjoying the profits.

At this very moment, you are reading a post, in reply to your post, on a forum that was created to SELL a system development software. Notably, that software includes several systems which were used by the trader who founded this site. When you somewhat snarkily imply that any system for sale is worthless, you (by extension) imply that this site isn't worth visiting.

Now, are there SOME crappy systems for sale? Of course. Are there systems for sale that work, but aren't exactly brain science or rocket surgery, and could have been figured out by someone with half a brain and enough time and data? Yep. There are also systems (and management) out there "for sale" that work, in terms of delivering nice, realistic market-beating returns over time. Caveat emptor.

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Post by solfest » Fri May 09, 2008 12:29 pm

From the Trading BLOX home page.

"We do not sell trading systems. None of our principals has an interest in the sale of any trading system or methodology. Further, the Trading Bloxâ„¢ testing output is sufficiently detailed that you can completely verify any of the results. This makes us the authoritative source for unbiased testing results."

From my original post.

"You must trade your own beliefs in the market, not someone else's. This failure to follow occurs whenever there is a drawdown in someone else’s system that you are trying to trade.

Trading is money and money is emotion and when these emotions are put to the fire you will fail if you are not dealing with your own belief system. In order to stick with “the planâ€

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Post by nodoodahs » Fri May 09, 2008 2:14 pm

Also from the Trading Blox home page:
We have three great products for the needs of every trader:

1) Trading Bloxâ„¢ Turtle -- an excellent starting platform. Includes three great systems (Turtle, Triple Moving Average, and Donchian), plus all the bells and whistles of our high end backtesting and order generation software. Test Futures, Forex, and Stocks with historical accuracy. Step thousands of parameter combinations in record time. Detailed trade by trade reports, as well as summary results. Generate orders when you are ready to trade. Just $995.

2) Trading Bloxâ„¢ Professional -- Everything listed above, plus eight more great systems (ADX, +DI/-DI, ATR Channel Breakout, Bollinger Breakout, Bollinger Counter Trend, Dual Moving Average, MACD, RSI, Stochastic) and lots of extra blocks (Strength Filter, MACD Filter, Group Risk Manager, Profit Target, Pyramiding, Gap Open Against, Chandelier, Fixed Fractional and Volatility Money Manager). Drag and drop Portfolio Managers, Entry/Exit Managers, Money Managers, and Risk Managers to create your own custom system. No programming required. Just $1995.

3) Trading Bloxâ„¢ Builder -- Everything listed above, plus the ability to create new blox. Using our Blox Basic programming language, you can create the most sophisticated strategy imaginable. Just $2990.


As you can see, they sell systems. Bundled with testing software, but they sell systems. Unless you buy top-of-the-line, you are stuck with their systems, only managing the parameters and markets traded against. If they weren't selling systems, the Builder version would be the only version, and it would come with no systems installed. :wink:

I agree that a system trader must have "buy in" to the system they trade, and while developing your own system is usually sufficient to generate this "buy in," it is NOT necessary. Witness the legions of value investors following in the footsteps of Graham, Dodd, and Buffett - not many of them, I wager, have backtested their systems on a computer, nor developed their systems themselves, and yet they follow them ... These people are system traders, despite the fact that they don't define their systems the way most members here would define theirs.

I agree that backtesting has a lot of value, regardless of the source.

Best to you, too.

Now, back to the snarkiness! Are there, in your opinion, ANY good systems out there for sale (or public domain for free), regardless of the issues traded (ForEx, stocks, futures)?

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Post by Roger Rines » Fri May 09, 2008 4:41 pm

For a large part of the 1991 to 1994 period I worked for Bruce Babcock's Commodity Trader Consumer Report. During my time with Bruce he sold five trading systems he traded each day. To support this claim he published his broker statements a few days after the end of each month, and the statements showed his systems were consistently making money. He also gave people 30-days full exposure to his unprotected software and fully disclosed system rules. If they didn't like what they got, all they had to do was return the entire package for a full refund by the end of the 30-days. Wouldn't it be great if everyone operated that way?

Even though Bruce was successful trading these systems, I only know about a few of his customers who were able to achieve good results. Bruce himself found he wasn't able to follow the system well enough, so he had his broker generate the signals. He told me that doing that was one of the best things he did because it took away the stress he experienced when he was doing it himself. He mentioned his biggest issue was being late to get the signals into the broker because he found himself second-guessing the outcome. His doubt was becoming a larger problem as time went on, so he let the broker take responsibility for generating the signals, that he would check during the day. Second-guessing the systems was a common theme expressed often, and stress seemed to be issue.

Another area that was a major problem was in how people used the system software to generate signals. This was a huge problem that most of the people buying the system never solved. To help Bruce's customers find success with his systems, I spent a huge amount of time teaching in an attempt to help them cleanup their efforts to get their signals correct.

When I look back at that experience it is clear most of the people who tried to do it on their own never got any value out of their purchase. I don't have a qualified list of reasons why they were not successful, but I believe their failure would fall into some of the following categories (not in any meaningful order):
  • People didn't want to do the work the system required each day, and most found they couldn't get the same signals Bruce published. To help people hang in there and get something back Bruce checked his broker's signals daily without failure, and published them after the signals closed.
  • Way too many people didn't believe that Back-Adjusted data could affect current signals, so they would only use individual daily contract to avoid the work of back-adjustment. Here again Bruce sold his market data for almost no money ($50 for updates), so people could see where their signals would be different.
  • A large amount of the people didn't believe in the system, so they kept looking for reasons in the system for failure, instead of learning what they were doing that could be better. This was a surprise to me even though they keep seeing that new statement data showed good performance.
  • Few buyers put enough effort into building confidence with the systems they bought to be able to have confidence through the draw down periods. This is probably one of the bigger issues, and it made me wonder why they would spend the money. At some point I began to think they believed they were buying a magic pill.
  • Most tried to trade without adequate capitalization, and would fail because their accounts were over-leveraged from the very first day. This generated a lot of long conversations about how many markets could they trade with $5K US.
  • Poor Computer Skills. This was a nightmare when DOS was used that didn't get helped much by the early versions of Windows. It probably isn't too much better today, but the current GUI interface is so much better in how it limits unintentional mistakes that DOS guaranteed.
After writing the above, I think people didn't understand that if they don't put the effort into understanding how a system works, and take the time to prove it to themselves, they won't have the gumption to make it work. All too often they believed they were buying a turnkey solution that would drive itself. This was especially true of those who attempted to trade with way too little money.

All these issues create a set of complicated anecdotal results that had little resemblance to what was actually happening. It seems that when people fail at something, instead of trying again and working harder, they toss up their hands and create a roar of noise about how nothing sold is worth buying. This is where the phrase "nodoodahs" highlights, "If the system is so good why would they sell it?" is probably one of the big issues that set people up for failure. I mentioning that phrase because of how many times I was asked if the broker statements were real. They were, but success required a lot of work back then, and when I think about it, it still does today.

If there is another side to the system-failure argument it is to NOT sell anything that works. I think this last argument is a bigger issue than "why would they sell it". It is bigger because signal size is a real problem in most markets. It is a real problem because markets move to size and known signals are flags for front running. Both of these issues should be major concerns for vendors and buyers. This last issue has been a big problem when large hands get the system, and their broker is an idiot about how they enter orders. It will probably be even worse today with our electronic markets, even in large markets like the currencies and financials.

This last point shouldn't be a reason to not buy a known good system. I think people can learn a lot from a system that is well documented and performs well, even if they don't ever trade the system exactly like it is published. I reserve this last comment to systems that are NOT black-box packages. Anyone buying a black box can't understand why something is working, so I don't know how he or she can ever understand when it is not working. More importantly, if you don't understand something you must live on a faith that most often doesn't survive difficult times. Without faith in the system, people are at a high risk in bad period that teaches them it is easier to give up.

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Post by nodoodahs » Fri May 09, 2008 5:24 pm

Great response. Fascinating story. Good thread.

It seems that there existed, at least once in time, at least one system that worked and was sold. Which disproves (as only one counterexample is needed for a disproof) the hypotheses that "if it were any good they wouldn't sell it."

Now, the question of whether the average retail scrub system buyer is capable of USING a good system that they purchased ... THAT'S the next question!!!!!!! I would guess that the three of us are probably in agreement that most customers don't get the value out of the systems they buy (at least some of which are "good" systems), but this isn't the sellers' fault - it's the customers' fault.

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Re: How to make profit in stock market

Post by Mark Johnson » Fri May 09, 2008 5:51 pm

mjvishy wrote: ... a trading system that makes profit on day trading.
Roger Rines wrote:For a large part of the 1991 to 1994 period I worked for Bruce Babcock's Commodity Trader Consumer Report. During my time with Bruce he sold five trading systems he traded each day.
The late Bruce Babcock sold at least one daytrading product, see attached image. Whether you would judge it "good" or not, is hard for me to predict.
Attachments
blue.jpg
1997 Babcock product
blue.jpg (110.38 KiB) Viewed 11548 times

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Post by Roger Rines » Sat May 10, 2008 8:11 am

Hi Mark,
I don't know anything about the package you posted. It isn't something I see in my old file, and I don't remember ever talking about it. For certain it isn't one of the main systems he reported performance during my time with him.

Bruce was not a fan of Day-Trading, so seeing the cover has me wondering how he tested an intraday system. CQG was the data package Bruce used, and it didn't have any testing capabilities. He also didn't start using TradeStation until sometime in 1993, making his sale of a day trader in 1992 an even bigger surprise.

Bruce often worked with some of the more popular traders of the time and created special report items. He often published a "System of the Month" that was very popular for the ideas it offered, and because it was inexpensive. From looking at the cover your package looks like one of the above two items, so I would not take what is in it for anything more than a source of ideas to consider.

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Post by Mark Johnson » Sat May 10, 2008 8:30 am

Roger, it was 1997 (final digit is a seven). Right click the image, save it to your desktop, then right click it on your desktop and Open With -> Windows Picture and Fax Viewer. Use the Zoom Tool (magnifying glass icon) to enlarge the print at the bottom. You will see, One Nine Nine Seven.

If you kept the catalogs that Bruce used to put out, you'll find this system on page 5 of the 2000 catalog "Reality Based Trading Company, Products Catalog, Continuing The Bruce Babcock Legacy". In that catalog it was listed for $95.

"This is a truly remarkable system that works in a number of markets using the same parameters so it's not just curve-fitted to back data. It has been tested for a very long period of time. You are given enough statistical information so you can adjust the profitability expectations by adjusting the parameters. In other words, you can trade it one way to achieve higher total return or trade it another way to achieve a higher winning percentage.

Order The Best Mechanical Day Trading System manual now and you'll receive:
  • The results of Bruce's comprehensive testing in 14 markets for the last 10 years
  • Day trade and two-day versions of the system
  • A comprehensive discussion of day trading
  • The name of RBT's broker who will gladly trade the system for you"[/i]

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Post by Roger Rines » Sat May 10, 2008 9:13 am

Ok on the 1997 date.

That later date makes it an even bigger surprise to see that Bruce published anything at that time. Bruce's health began to slide in a big way in 1994. By 1997 he was in bed most of the time, and on October 8th, 1998 he lost his battle with cancer.

How he managed to organize a report on day-trading in 1997 is now an even bigger mystery than before. Maybe the person who picked up the business from Bruce in 1994 worked with a trader to generate what you show, or maybe after my time with him it was something Bruce played that work didn't get published until 1997.

As for catalogs, I haven't seen a catalog since before 1995, and I am surprised to see they were still publishing them in 2000.

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Post by mjvishy » Sun May 11, 2008 7:49 am

dear solfest,nodoodahs,Roger Rines,Mark Johnson,

there is lots of unwanted replies for the topic(i guess), pl. if you know any successful profit making trading techniques, pl. guide.

Are you guys successful traders ?

thanks

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Post by nodoodahs » Sun May 11, 2008 9:18 am

Check my first reply, I pointed you towards those who I believe have the best day-trading or very-short-term trading ideas. You may be able to codify a system from their material.

I post my trading ideas and returns regularly on my blog. You can read it and my archives and decide for yourself if I'm any good.

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Post by RedRock » Sun May 11, 2008 10:00 am

mjvishy wrote: there is lots of unwanted replies for the topic(i guess), pl. if you know any successful profit making trading techniques, pl. guide.
thanks
You seek an answer. But by asking, the implication is you do not understand the nature and depth of the question!

But hey, here's one for you.... http://tinyurl.com/6hjvvw

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Post by AFJ Garner » Sun May 11, 2008 1:57 pm

Let us add another "vendor system" which was (perhaps is) widely sold and which did (and does) work and works well.

Aberration by Keith Fitschen. Mark certainly knows all about that one.

There has been plenty of discussion about it on this site and those who are able to read between a few lines will be able to test my assertions for themselves, using Trading Blox, with consummate ease. Even on the original parameters it still “worksâ€

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Post by AFJ Garner » Sun May 11, 2008 2:12 pm

Oops - I have just realised that my last paragraph appears rude and dismissive. It was not meant to be.

The essence of my message is as follows: the sole trader with limited capital and experience may be better off trading longer term using (built in or other)Trading Blox systems rather than trying to compete with the big guys in the intra day arena.

I don't know.

My impression of "elitetrader" has always been that it suffers from a rather high noise to signal ratio.

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Post by Angelo » Tue May 13, 2008 2:08 am

mjvishy wrote:dear solfest,nodoodahs,Roger Rines,Mark Johnson,

there is lots of unwanted replies for the topic(i guess), pl. if you know any successful profit making trading techniques, pl. guide.

I too find very enlightening Roger's reply.
I still have on my PC some of the systems he programmed for Bruce Babcock, and I find them very instructive of the "pros" and "cons" of mechanical trading (yes, in historical testing they made money, but they degraded after Bruce sold them, and the "bad periods" were very difficult to bear).

For the rest, as this is a forum of mechanical testing, you will just find one kind of answer here: get a testing engine, and find a system for yourself.

Just as an example, IMHO, good source of ideas for short term stock trading (but NOT day trading) can be found in

http://www.amazon.com/Hit-Run-Trading-S ... 407&sr=8-1

http://www.amazon.com/Stock-Trader-Livi ... _2_rsrsrs0


If you have instead the attitude of "please tell me a good system rule, one that YOU spend a lot of time and effort to test and I can use to make money" you are obviously in the wrong place (but there are plenty of them on the web, just use Google... and good luck.... there's also a lot of sharks out there).

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Post by mjvishy » Wed May 14, 2008 3:38 am

Angelo,

This book that you reffered is for Equity markets ?, I am a equity market trader in India.

Regarding :

If you have instead the attitude of "please tell me a good system rule, one that YOU spend a lot of time and effort to test and I can use to make money" you are obviously in the wrong place (but there are plenty of them on the web, just use Google... and good luck.... there's also a lot of sharks out there).

I started looking at many fourms because of i sold my last shirt for trading and failed and convinced my self that there is something I am missing for the past years regarding trading. I would like to conclude that I am looking for "a good system rule, one that YOU spend a lot of time and effort to test and I can use to make money".

Let me see my search will be fruitful of not, any how thanks for your suggestion.

Final question to you, are you a successful trader ?

Thanks

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