Black swan

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stopsareforwimps
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Post by stopsareforwimps » Wed Mar 16, 2011 4:57 am

[quote="rabidric"] So then by some kind of heuristic/fuzzy logic based decision making , i find myself using fundamental based (the media have overblown the threat to long term economic activity in peoples minds), and intraday based technical analysis (normally poor expectation) to scalp some nice opportunities. Discretionarily.[/quote]

Can you share any more specifics on this? One thing that comes to mind, along the lines of what you said, is trading against "very emotional magazine cover" type sentiment.

Also buying the bottom of the steep V shaped decline perhaps.

Chelonia
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Post by Chelonia » Wed Mar 16, 2011 5:59 am

That is not a consistent additional strategy, trust me. Just stick to what you tested/run!

If you can´t stand the heat gear down to a level where you feel comfortable even under the worst conditions.

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Post by rabidric » Wed Mar 16, 2011 7:32 am

stopsareforwimps wrote: Can you share any more specifics on this? One thing that comes to mind, along the lines of what you said, is trading against "very emotional magazine cover" type sentiment.

Also buying the bottom of the steep V shaped decline perhaps.
ok, i'll give you example from yesterday/today.

1. i figure stocks is where emotional plays will be highest concentrated, so i ignore all bond/currencies and anything illiquid.
2.BIG gap down in all european indexes.
3. nikkei 225 CME contract goes limit down a few times
4. pull up 3 minute nikkei and dax charts.
5. stand aside while new lows are made in dax in morning trading. wait for a new low which doesn't penetrate very far and then bounces up.
6. observe decline in volatility for a few bars.
7. get long march dax @ 6542, stop at 6529. ride it up 70 points and back down. exit at b/e.
8. buy again after 13.30 GMT after failed attempt at new low, long June dax at 6562, stop at 6542. ride it up. shit takes off. moniter news for rest of day to make sure nothing new happens that will spark off extra panic.
9. mkt closes onside by approx 100 ticks. i decide this is acceptable risk buffer. This is all about overblown fear of radiation. reading about the hard facts of the reactor design types and procedures employed, rather than listening to a newscast loop of some whiney broadcaster trying to inject dramaticism, helped my conviction. Real worst case radiation scenario is only a fraction as bad as the tsunami damage which has already happened. very unlikely chance of another big downside gap after all the high volume selling in the morning. i.e. temporary exhaustion of selling by all those who wanted or forced to sell, and we are 150-200 points above the event lows so far.
10. morning today in europe, opens strong. after mid morning rally tops out and fails to make new highs after 2 seperate attempts, i take off half as mkt trades down through 6725 area.
11. i still have the first half on as i write this. i have a b/e stop in at 6562, and will sit tight. this remaining position could be a keeper.

net result: 1 long term position entered into at a good location(value) and for much lower than normal entry risk(0.1 ATR instead of 1.5-3 ATR i use in my "systems".)
Also 1 small short term trade of 8:1 reward:Risk.
two potential losers of 20 ticks risk.
i would have attempted that long a third time if necessary.

at no time did i put on excessive size. i.e. if it gapped against me by double the previous gap down, then i would have been in the hole for no more than a few percent on my account measured against the prev close. my onside buffer would have absorbed some of this potential loss.

I am not holding this up as an example of a alternative strat to diversify my longer term trading. it isn't for that. I just viewed it as an opportunity to make some extra cash, and keep my brain in the game.

In many ways it helps to view the strat i used in this particular instance as a sort of synthetic option play. i.e. core belief is that value is good and implied vol grew too large; rather than write put options or straddles, i self-broke my way into a cheap long ATM call type off payoff. far cheaper than any actual call option, and with no vega and theta decay to worry about.

Normally I am all for trend following, screw "value" , whatever that is , eh?.
But when EVERYBODY appears to lose sense of perspective i think you need to turn this on it's head, and look at value and animal instincts. make the trade others find too hard to accept the risk for, you'll get rewarded. just don't try and catch knives while they are still falling.

there that is my insight. another example of this type of thinking is when i bought a handful of UK bank stocks after it seemed that the volatility had blown out. it was a more medium term play, i.e. i held the biggest winners for a couple of years. (e.g. long BARC @90p now it is ~300p) and cut the weak ones for a 50% profit still.

rules:
don't try and bet the farm on these home-run setups.
keep it small so you can keep a level head.
wait for volatility to start decaying from it's peak on some time frame or other.
then, get in(don't wait for "confirmation" at some obvious level, as then your tight stop will be more likely to get hit , as it is an obvious entry play)).
use a tight stop.
be prepared to have a few cracks at it, but pace yourself- declare some kind of minimum attempt rate, so you don't overtrade and get caught up in nasty noise too often.
never re-enter lower than first entry- keeps you from buying " all the way down" if market just keeps going south.
don't trail stops tightly- markets are in a crazy way, let them breath.
wait for another opportunity if need be- no-one is forcing you to trade- This is your key advantage.

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Post by rabidric » Wed Mar 16, 2011 11:20 am

update: i got stopped out on remaining half. no big deal, i'll have another crack maybe if the market shows a will to go higher. i.e. not gonna just keep on trying to reboot the same trade- mkt may range here for a few days.

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Post by Chelonia » Wed Mar 16, 2011 2:03 pm

It´s a mugs game. You win some, you lose some but overall (years) you loose. And after all, why would a black swan be a bad thing, especially for trendfollooooooowers?!

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Post by mmtrader » Wed Mar 16, 2011 2:40 pm

"I would be more concerned about my system's ability to stay reasonably solvent after multiple, significant gaps through my stops (say, multiple simultaneous 5R losses.) Curtis Faith discussed one horror story with a Eurodollar position in his Way of the Turtle book."

I was thinking about this the other day and it occurred to me that had Curtis Faith decided to trade the equity indices ie S&P then his horror story might have been a little less horrific as he probably would have been fully loaded short on the Spoos, no?

I wonder if that gives an insight into including markets in a trend following system that don't seem to trend well? Or at least that perhaps you should have some exposure to all the asset classes including the equity indices as you never know when it might come in handy.

I'm sure this has already been covered before but just thought I would mention it.

rabidric
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Post by rabidric » Wed Mar 16, 2011 3:23 pm

Chelonia wrote:It´s a mugs game. You win some, you lose some but overall (years) you loose. And after all, why would a black swan be a bad thing, especially for trendfollooooooowers?!
If those black swans are against the trend as you define it?

you're entitled to your opinion of course, i read you didn't have a good time of intraday trading.

But when markets are this volatile and stampeding around, and you can shorten your time frame, then you can achieve in hours what it normally takes days. i.e. so far even with various stop outs etc, i am up the equivalent of two weeks of normal trend action, in 24 hours, for the dax.

I agree that it is low margins to trade like this all the time, but i don't anymore. though i did for many years, successfully. for short burst in interesting times though i wouldn't so simply dismiss it as an option.

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Post by Chelonia » Wed Mar 16, 2011 4:36 pm

I´ve always been succesfull in day/swing trading for over 20 years. Made millions, but there where also the drawdowns. Until one day i´d had enough and decided i didn´t wanted to be glued to the screen most of the day. That´s when i took up TF. My decision wasn´t even based on performance but more on quality of life and stuff. I then spend a year trying to do both but my TF system always beated my discretionary trading over time and finally i threw the towel.
I can however fully understand your reasoning and drive behind it. Maybe it´s an age thing and i´m getting to damn old!? If you can really control your drive to when things become very obvious you might get that extra buck. Good luck

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Post by Chelonia » Wed Mar 16, 2011 4:47 pm

mmtrader


You make a good and in my opinion very valid point. System and portfolio selection is very important.

stopsareforwimps
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Post by stopsareforwimps » Wed Mar 16, 2011 5:22 pm

rabidric wrote: ...In many ways it helps to view the strat i used in this particular instance as a sort of synthetic option play...
Thank you, very enlightening.

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Post by LeviF » Thu Mar 17, 2011 12:46 am

Rough couple of days. I was up almost 20% for the year, now up 4%.

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Post by rabidric » Thu Mar 17, 2011 3:19 am

Chelonia wrote:I´ve always been succesfull in daytrading...Until one day i´d had enough and decided i didn´t wanted to be glued to the screen most of the day. That´s when i took up TF. My decision wasn´t even based on performance but more on quality of life and stuff.
I think we are on the same page. I did the same. I just find it difficult to put my head in the sand and stay on the sidelines when stuff is REALLY going off.
A little voice or something whispers to me " you know how to trade this stuff, ignoring it is a wasted opportunity."

I think missing opportunity has always been more painful to me than taking on risk...

In my TF trading i literally feel sick and ill if i somehow have not got my full position on when i should.

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Post by Chelonia » Thu Mar 17, 2011 4:18 am

I know what you mean. Shorting DAX was my all time favorite :wink:

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Post by Chris67 » Thu Mar 17, 2011 7:39 am

I bet anyone following a trendfollowing system who isn't getting buried so far in March would have been fired by Richard Dennis for not taking the positions they should have on !
A few nice moves like the yen granted - but aint even paying the brokerage on all the other stops going off !!!!!

All fund and games I guess and definately all part of the process
C

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Post by zacharyoxman » Thu Mar 17, 2011 9:28 pm

Sticking by the system, I find that during times like this, it makes it all a bit (I said...a bit) easier to deal with.

These Yen moves are insane. The trade sizes both yesterday and today during the blow up and blow...down...today were some of the largest per trade that I've seen.

Wild.

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Post by Moto moto » Fri Mar 18, 2011 2:42 am

have to reply....even though its all a personal journey....
for me....I understand and trust and believe in trend following. However, to a large extent...WHILE I STILL ENJOY THE DAY TO DAY MARKET FOLLOWING.... I may as well do the intraday/shortterm trading. Coming from a discretionary equity option market making background, i find it hard to stop :)

In the meantime, I place my spare cash with trend followers who have better systems, data management, business models than I could....especially if I am only looking to earn 20% on the money ( very happy).
Plus my own style is very much trend following anyway.

I put a small amount in an account - do much the same as rabidric - which is...get things to break even very quickly and then let it run - based on a discretionary basis.
it keeps me busy and happy - or at least busy on a day to day basis.
Point is its diversification with diversification!
Lets me do my thing....ignore the swings, and let the experts trade...
for the record////.my own personal trend following coped a pasting this week, but my discretionary (equity trading) and futures jobbing did well....next week it may be different.

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Post by Chelonia » Fri Mar 18, 2011 2:58 am

These markets are ideal for stresstesting your system(s).....and the people operating it!

Anyone still long Yen at 12220? It´s a bitch

Looks like stops are sitting around the 12000 level

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Post by rabidric » Fri Mar 18, 2011 5:34 am

intervention is a biatch. seems like everytime a Govt gets involved, my trend positions get pissed on. this is intuitively the way it will always be.
But it highlights that govt action risk is probably a major part of event risk, for a TFer.

I don't get why G7 have deemed this particular yen move all that significant, i mean in the grand scheme of things it is hardly that big a move, and it is only against the dollar that it looks so high. this says more about the rubbish USD than the yen tbh. e.g. EURJPY is doing nothing really at the moment and the moves of the last few days are just insignificant in terms of monthly and annual moves.

I mean, where is the state sponsored buying of stock markets eh? they have been hit far worse surely ;) My brave index longs-from-the-lows(net long 6506 june dax as we speak) are certainly deserving of the assistance in recognition of their honourable efforts to calm things down in the interests of the public wellbeing.... :lol:

The whole" to calm financial markets " angle seems like bollocks in this instance. the short term yen move to the upside seemed blown out of it's own accord anyway, and all stock and bond markets were starting to countermove. i.e. the intervention was unnecessary by the time they actually did it. :oops:

some people feel that they just have to be seen to be "doing something" it seems. :?

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Post by Chris67 » Fri Mar 18, 2011 9:08 am

I been in the yen a very long time - like probably 10% lower than here if my memory serves me correctly - so the pop up and pop down is neither here nort there is it ?
seems to me that the intervention looks pretty shoddy from uk and u.s - japan sold a cartload agreed and that initially did the job - intervention works best when it takes the market by surprise - in this instance they told teh whoel world so moist people are now presumably short the yen
see you at 1.40

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Post by LeviF » Fri Mar 18, 2011 11:27 am

LeviF wrote:Rough couple of days. I was up almost 20% for the year, now up 4%.
Been quite the ride - back to where I was.

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