DugDug

james - there is an interesting article under John Authers - the long view - in the Financial Times about stock picking and asset allocation. They mention a Robert Ibbotson and the Financial Analysts journal - his recent study adds a third factor into the debate between asset allocation and stock picking - market movement. If you are interested it might be worth looking up as I just read about it on the back of the paper this weekend. When it comes to diversification I I guess I should have specified it as blind diversification is not so good - ie; buying an index. I think James said it correctly having a simple model that you can adjust simply with the 70/30 split is always going to beat most markets, ( and I am sure most things will beat 90% of short term traders.) As another point I follow a lot of long term trend trading ideas and models and this is definitely not buy and hold, however over the long term this outperforms most things - the issue here is - how long is the long term and how to deal with the drawdowns. example; EMC classic is a fund that has returned CAGR = 23.2% over 25 years however they went through a period between 1995-2001 being underwater - very tough to handle. In all these matters it is the long term compounding that is the vital element

i am not smart enough to work out if the market is going to react positively or negatively (OR positively then negatively OR negatively then positively ) to any news items. Unless I have a global macro viewpoint its a game that I dont play deliberately.

Hi FX Girl - "What we are after is behavioral change." Thats actually an interesting and a very valid point - especially in a thread about know thyself. As I guess what you are really saying in a general way - who cares what you think, what you want to know about yourself, who cares what your hangups are, issues and rationale for trading and why you have certain trading issues - the key to all this is not to actually know yourself, the key is to change yourself. To eliminate the bad habits and replace them with good ones through an actual process of coaching and training - not just constant analysis. (I also think that when people do say - just get some discipline - it is along the lines of saying if you are not prepared to actually change your behaviour and become disciplined about your approach then its going to be tough to improve as you are not even prepared/open to change your behaviour in the first place....) Its similar to evidence based management which essentially makes business decisions based on the actual results and the evidence as opposed to making decisions based on a philosophy, false business myths or other such generalised rules of thumb based on analysis derived from generalised ideas.eg; all teenagers like computer games therefore lets design the banking websites around a game. (i am sure most people, including teenagers dont want their bank to pretend they are gamers - however the evidence might prove me wrong on this) I like the approach of here is the problem - how do we change the behaviour to fix the problem, more so than try and work out why the problem occurs in the first place (eg; mummy did not love me enough and let me wear her high heels when I was a child )

BF - every country is clearly different and I guess the stock brokers have changed recently (last ten yrs) I forget that even the banks and larger brokers are pushing people into charging you 1%+ to allow them to manage your money just so they advise you to go into a fund that charges another 1% to match an index! (Many of the brokers I know are still old school independents who get paid per trade.) These are separate again from the independent financial advisor's who are really incentivised to put clients into the funds as they receive a kickback - whoops I mean rebate - to put clients into certain funds. The worst of these guys will get you to roll every 3-5 years as they also get the rebate from the up front fees - if there are any. So even then you dont get any benefit from the buy and hold strategy. - double doh! currently there is a push to ban these rebates in the UK from 2013 onward I think. While there are definitely a lot of capable advisor's/broker/managers etc; the industry kinda does create the incentives to clip fees...... but mainly again as most people cant be bothered to do their own homework - they would rather watch TV on the weekend for 10 hours a day (not including Browns fans)...... so who is to blame. Regards a well diversified portfolio approach -well yes that will help spread the risk (not necessarily reduce it ) but it will also ensure that you dont achieve much in the way of great returns unless your asset allocation is spot on - and I think a lot of research tries to show that asset allocation is what makes up the vast majority of good returns (??) funny that as traders (mainly short term) here most people are specialising and not diversifying..... Buffett and Soros and most of the others will tell you the same - dont. But again - it all depends on how much work you wish to do. So is buy and hold dead..... it should be if you are not too lazy, you truly believe that people can outperform the market over the long term via active management and you have the risk tolerance to be proved wrong.

To be fair - brokers dont promote buy and hold - they promote you trading - thats how they make money. buy it "cher-ching" - oh look its gone up - buy some more, oh your not bullish then you should sell it - "cher-ching" And given the discount brokerage these days and the fact that we are all benefiting from it I dont see how any one can really complain - no one forces us to trade. Its more the fund mangers who are long only that promote buy and hold.... as this is where they gain the fees, and this is where when they have terrible performance they just say how they performed in line with the market. The reality is that for the billions of dollars they have to be buy and hold. whereas we as individuals if we do our own work dont have to be. (cher-ching the sound of a cash register ringing)

FESX (expected to practically track SP500 at this time of the day) - will rapidly move stop down as there is a medium term uptrend in place.

One recurring theme that will constantly pop up from many traders is that price action is all you need and indicators are a waste of time. Personally, they are just tools derived from the price action so if they help - like any tools then great - otherwise spending countless hours looking for the holy grail is a waste of time. Trading off price action is a combination of watching the market as its trading and then putting the current flow of the market into context - uptrend, downtrend, resistance, support - in which certain repeatable patterns can be followed. these patterns may only offer a 50-50 chance of ideal success (that is they will be profitable) but with proper trade management of cutting losses and running profits on a good risk reward ratio, then, taken over a series of trades you should be profitable. No indicators, no hope, no second guessing - just simple planning based on setups which will will be profitable if the pattern fits the ideal result.

Jon - double tops and bottoms - I wrote in my notes some while back that I thought double tops and bottoms were just a hindsighted version of an ABC (or 123). Its only on looking back do you realise they actually formed a double top or bottom. Do you think there are any particular characteristics that separate a DT or DB from an ABC that makes them more or less tradeable?

is this a topic about buy and hold or broker bashing? We all know the only person who is ultimately responsible for your economic investments is you, the question is how active do you want to be or how passive.

Jon - a wise man said to me when I was about 15 years old.... "spend 10-15 minutes every day reading the financial press, then 1 hour on the weekend and learn from it, you will never miss the time and it will cost you nothing however it will save you a fortune over your life time" Most people spend more time researching the car ( a depreciating asset) they are going to buy rather than a stock they will buy. If your advisor is telling you to buy and hold a market index then they are putting themselves out of a job as you go and match some indexes, regularly invest and dont pay people fees. In terms of getting enough money to invest in a portfolio of active good hedge fund managers - thats a whole other problem

I dont believe buy and hold has ever really worked in most instruments. Its generally pushed by fund managers who are not active to say that you should invest over the long term and you cant beat the market etc; etc. These usaully reinvest everything and also rebalance as the stocks that made up an index generally completely change over a 40 yr period. It does work for those as a savings plan that cant watch the markets or cant make sensible economic decisions. (put it this way if it was that easy - go and borrow 100million - plough it into the market and offer to repay it and the difference to the bank in 30 years. They should be happy to lend it to you as you are just going to buy and hold and this surely would beat interest rates - risk free with a slight banking premium - wouldn't it - especially if they are the bank pushing the buy and hold idea!!) Once you account for inflation, interest costs and you dont reinvest your dividends and profits it does not look as good. Whilst it does have a tax advantage - lets ignore that for now as we are talking about trading and everyones circumstances are different. long term trend trading aims to capture these big moves and its not buy and hold either. There is nothing wrong with a money management system that reallocates between different sectors - bonds, real estate, cash, equities, commodities whilst maintaining a portfolio with exposure to all of them - the key here is to have a very simple valuation system for each product an to go overweight underwight etc; Remember buy and hold is good if you only want to match an index...... it probably should form a part of the portfolio separate to the trading one - I have seen good mixes of 70-80% strategically allocated buy and hold and 20-30% actively traded.... Utimately it will depend on which art of the cycle you are in - my portfolio will most likely be worth more in 50 years than it will today - however I will be dead and that does not do me any good does it.:helloooo:

This actually brings up a good point about waiting for trades - (this also applies to Corys thread at present as well) For some years I had the issue of not really having a view, watching an instrument go into a choppy range and then trying to take lots of small trades- usually costing me money. Such as shorting an instrument in a downtrend, when its starting to retrace or congest. One thing that has worked for me (when I actually practice it ) is when I look at the market and feel that its entering an area of congestion - such as the 6E - it could retrace, could fall. Either way I am not comfortable with the current pattern. (this is how I thing I could probably use TTT as a guide not to chase, and not to necessarily look for the trades that may not be here today, but may tomorrow) I mentally ask myself - do I need to be here. If the answer is no then I usually sit and wait. There is not an imperative to make $x per day but rather to take the trades that will maximise my year end PL through a series of trades. This takes a lot of pressure off feeling like I have to make every day, and if for example at the end of the week I make $5000 from 3 days with good setups as opposed to grinding it out with lots of trades to make the same I know which choice I would always take. (I realise you never know which days really will be good or bad sometimes, however after years of trading you get the feel for when to step away and wait.There are always opportunities) (today coincides that I had other things to do, but the point is the same.)

Hi Plaste - you just hit the age old - do i take profits or not - I know you posted in the other thread I started. Answer so far for me - completely up to the individual - so long as the process becomes consistent. There is nothing worse than taking profits on the runners, and then not taking profits on retracements. Thales seems to ratchet up the trailing stop much quicker than many so is that a take profits or a stop? Either way my thoughts on the EUR are to continue to look for shorts - however on saying that the 15min chart is showing signs of bullish resilience - overlapping highs and lows so I am sitting out and waiting. I still feel it needs to fall a little to make a higher low prior to rallying if thats what it is going to do. GBP 15m - looks like a choppy rally - looking to sell a spike above 1.5150, or a break down of the small channel upwards. Es and FESX - all wait and see - potentially bearish for a quick job trade but not doing anything today. (no charts as I am switching a few things over today)

This might interest people as a new historical book about the sub prime - this is a vanity fair article extracted from a new book I think. http://www.vanityfair.com/business/features/2010/04/wall-street-excerpt-201004?printable=true

There was an interesting article in the UKs FT paper about two months ago about investors using checklists and how they are often ignored, underused and yet a very valuable tool. I read the paper copy but I am sure you could find it online. Pilots use checklists all the time and its proven that in doing so - safety is improved. After a while even though muscle memory will take over a lot of what happens in a normal checklist, mistakes will still occur. Charlie Munger also has a checklist of things to look out for when investing in a company - this checklist involved assessing to ensure that he was not biasing his decisions in some way Google "charlie munger bias checklist" it should be the first one that comes up. In terms of what your checklist contains - thats up to you.

Competition between traders is irrelevant - pick YOUR plan and stick to it. Remember Thales told us about him and a few of his trading friends who entered the trade with the same levels - different trailing stops - different results. Its about the series of trades your plan gives you not one off trades. Also Cory on the last trade, there is one thing I have learnt over the years is "dont chase a trade" if you missed it the first time and you are kicking yourself about it - One suggestion I occasionally follow when I feel like this - I will place a limit order to buy at the original level and wait for a pullback - I feel its a 50-50 chance you get set and it rallies again (as it did in your case) or it fails. Either way you will take a small loss - however it will stop you from chasing it as you have a resting order, and it can help reinforce the idea of waiting for a trade to come to you rather than forcing it. Just an idea.

I downloaded and read the George (must be a Dyslexic writer) Taylor book over the weekend. The way I do these things is to read it makes some notes. Put it down and leave it for a week let the subconscious work on it, then try again (and possibly again) as Thales said you need the "aha" moment. So far my take is he provides an interesting take on the structure of how a market moves, that if you can get into sync with it can certainly help with visualising the flow of the market, and objective points. This can really hep a trader pre plan the next days likely action. My first thought is not to think too much in terms of days as he talks about - but in terms of swings and flow of the market (especially not with near 24 hr trading) I may be wrong here but I think Thales hints at this with the hint of looking at highs, lows, and the moves between them. If I find it fits in with my mindset, I get the aha moment and find it adds value the associated website certainly looks a great tool to save me the work of trying to crunch numbers myself. lets see what the future holds.

Tradester - for day trading I have to agree. I come from the angle of longer term trend trading and am starting to do a lot more intraday trading. Its a different mindset and trying not to turn every trade into a massive winner is crucial for day trading. You have to remeber that day trading is moving in fast forward and the aim is to make small profits from many opportunities. There is nothing wrong (in fact it probably should be encouraged) when day trading - so long as the risk reward plan still stacks up. What will happen then is the longer term trades look after themselves, and ideally if the longer term triggers and you happen to have a short term trade that is already on then you can merge the two. However I find its imperative to keep the accounts/records for the two completely separate as they are separate strategies. One way to think about it is to think about mini trends within the day.

I like that Thales - "swing after swing after swing " This is pretty important as taking losses is about surviving to trade again. Taking small losses is about keeping the nerve to trade again, and doing it continually in order to give yourself the opportunity to profit from those moves that go your way profitably as you planned them is important. Even if the simple patterns/swings/indicators people use are only a 50-50 bet thats all you need to keep swinging (swinging as in a bat and not socially I am sure thats what Thales means at least):did I say that?:

Ahhh... the classic mental game we play with ourselves when we believe that something that we currently have is worth far more than when we did not have it. I am awaiting my OEC funding for a new account it will be interesting to see how I like the upgrade after using the Demo last month. Futures only - scrapping my overly in comparison expensive and unnecessary e-signal feed.

Dont worry MM - I think that every pre trade I have actually posted here has been a looser! (There is a big Red L on the forehead.) The trades I have not posted are sometimes a loser sometimes a winner. Funny thing is I feel my paper trading over the last week was getting me back into the swing of things, so today I did a few live trades in one instrument to restart.... (now I know these are hindsight, but it does not take too much to see that these were pretty easy trade levels to take, so I will keep it minimised out of respect for Thales ) I just feel the love flowing back into me now. This might provide a level of interest later in the 6B H0, either for a further retracement rally - or a break of the 1.4875 level. Cory - thats an interesting one that you were afraid to give it back. Its one thing that thankfully has never plagued me, I definitely do agree that you should give yourself some measure of telling you when to stop - either exchange time, PL loss, or beer o'clock - but dear god not the fear of giving a small gain back. I feel if you practice this one it will lead to bad habits. (my 2 cents) Better to just keep a tight stop but continue to give yourself the opportunity to make more.

Using IB - because they are the prettiest - the best colours the best sound effects and just the vibe of the thing. Seriously - IB due to the good platform, spread of instruments - equities, options, futures, FX. and low prices. However they suck from a charting and customer service point of view if you need your hand held Also opening up an OEC account as I trailed and like their platform for day trading futures.... acct not quite open yet so who knows if I end up not liking them - but I enjoyed the trial. Unless you know exactly what you are trading, and how you are trading you are best and will ultimately probably end up trialling a multitude of systems.

Thanks Tom. Definately the best way to go to smooth returns over a portfolio is to add various strategies - if they actually increase returns over the long run they are even better. Did the website I directed you to help, or did you already know about it? (very different to this one - more tailored to trend trading) There are endless discussions about combining strategies there. Thats why I use this site more to ask and learn about day/short term trading - or associated trading ideas.

Zdo - my ideas are more shoot from the hip, personal experience and popular (but by no means unscientific human nature ) science books. I dont really know enough about theories but I am always happy to try and add what I can. One thing about having worked on a trading floor and with other traders for many years is you do see a lot,.... and I mean on a daily basis from a lot of people....the whole range of human emotions and the various ways of handling them from different personalities in fast forward and real time. Not after the fact analysis. When you see grown men cry, sulk, fight, niggle, haggle, joke, get up to mischief in quiet times, ram rubbish down each others throats,screw other people then go for a beer afterwards its fascinating - I sometimes wish the floors were still open in many places, as its not quite the same in front of a computer.

ZN ten yr bonds.... remember to check expiry dependant on how long you wish to trade this for..... potential short for me...live. .