Stock Market - Making REAL money. A plan.

[Jiggy]

Hi everyone,

My name is Jiggy and my associates name is Shayan. Here is our situation, we are best friends and yes people say don't go into business with your friends but the situation is hard to explain. We both have the same goals in life and desires. A couple of months ago we decided that we were not going to live a normal life style and really excel with the tools we've been given, in other words get rich haha. We are normal teenagers, 17 & 16 years old.

We currently have saved up $15,000 and by march we project to have $30,000 in total by next year. My associate will be studying finance at the University of Waterloo and I will be going into psychology as well at the University of Waterloo then continue into law. We have 1 more year until we have to start university.

The reason we started to save up money is for the stock market. For the past few months I have been reading books, studying charts and learning stock screening tools. I do not know that much but in about 8-9 months I plan on have a good grasp of the market. I have also been playing with "virtual stocks" and have made $4500 in about 1 month, 1 week.

Our goal is to make 6-7 million and then invest more. My question is, what do I invest in? I've seen the market and I understand how to make money but what do we have to do to get into that millions range, I have the research ability, understand the market, listen to the news, read reports, analyze companies but I do not know what that final step is, what I have to do to make millions.

Most people invest too late in their lives, we believe we have a chance of getting to our dreams of millions, we have the research abilities, put in the time and make the effort and it has been showing.

Please I need your help. I am still learning and I will continue to work hard, I believe we can do this, and for those who say we can't I say bring it on, no one ever got anywhere in life by giving up and we won't until the end.

Thank you for your time and I appreciate all responses.

P.S: The income we expect to make is not overnight, we are looking at a range of 10-12 years or even more.

[Peterw]

Originally Posted by Jiggy

Hi everyone,

My name is Jiggy and my associates name is Shayan. Here is our situation, we are best friends and yes people say don't go into business with your friends but the situation is hard to explain. We both have the same goals in life and desires. A couple of months ago we decided that we were not going to live a normal life style and really excel with the tools we've been given, in other words get rich haha. We are normal teenagers, 17 & 16 years old.

We currently have saved up $15,000 and by march we project to have $30,000 in total by next year. My associate will be studying finance at the University of Waterloo and I will be going into psychology as well at the University of Waterloo then continue into law. We have 1 more year until we have to start university.

The reason we started to save up money is for the stock market. For the past few months I have been reading books, studying charts and learning stock screening tools. I do not know that much but in about 8-9 months I plan on have a good grasp of the market. I have also been playing with "virtual stocks" and have made $4500 in about 1 month, 1 week.

Our goal is to make 6-7 million and then invest more. My question is, what do I invest in? I've seen the market and I understand how to make money but what do we have to do to get into that millions range, I have the research ability, understand the market, listen to the news, read reports, analyze companies but I do not know what that final step is, what I have to do to make millions.

Most people invest too late in their lives, we believe we have a chance of getting to our dreams of millions, we have the research abilities, put in the time and make the effort and it has been showing.

Please I need your help. I am still learning and I will continue to work hard, I believe we can do this, and for those who say we can't I say bring it on, no one ever got anywhere in life by giving up and we won't until the end.

Thank you for your time and I appreciate all responses.

P.S: The income we expect to make is not overnight, we are looking at a range of 10-12 years or even more.

What kind of money management/position sizing were you using to get those gains?

Sounds like you're on the right track, keep demoing and saving and develop your own system.

[rodav]

I congratulate for having the wisdom to invest early at such a young age. In fact, I envy you.

Are you planning on investing in the stock market alone, or do you plan to invest in other asset classes, like bonds, commodities, real estate? Each of this asset class have their periods of boom and bust. You might want to read David Skarica's "The Great Supercylce of Investing". Read about other investment vehicles, options, futures, etc. As you go along you will discover where you'd want to concentrate, one which suits your personality and goal.

Keep going.

[Jiggy]

Originally Posted by Peterw

What kind of money management/position sizing were you using to get those gains?

Sounds like you're on the right track, keep demoing and saving and develop your own system.

It wasn't that hard, the gains were very slow gains though. I would use the amount of money I projected I would have in reality. And it wasn't much of a technique, usually just look at company's that were projected to have a high return rate, look at the company and then decide if it was worth it. Most of the time I would invest when the company was rising and when it got to a certain point before its high I would sell. Now if I could get to those company's before less people realized what was about to happen my gains would be a lot higher. It generated slow profits but it was better then nothing. Essentially it was all about profit, not the amount but making it.

[Jiggy]

Originally Posted by rodav

I congratulate for having the wisdom to invest early at such a young age. In fact, I envy you.

Are you planning on investing in the stock market alone, or do you plan to invest in other asset classes, like bonds, commodities, real estate? Each of this asset class have their periods of boom and bust. You might want to read David Skarica's "The Great Supercylce of Investing". Read about other investment vehicles, options, futures, etc. As you go along you will discover where you'd want to concentrate, one which suits your personality and goal.

Keep going.

First I'd like to say Thank you for the support! It means a lot. And well at first we want to establish ourselves in the stock market. We do plan to buy commodities but we haven't gone into that and as for real estate that requires more money but we definitely have thought of going into those areas. And yea I will definitely find a copy of the book and read it. Thanks again for the support!

[Peterw]

Originally Posted by Jiggy

It wasn't that hard, the gains were very slow gains though. I would use the amount of money I projected I would have in reality. And it wasn't much of a technique, usually just look at company's that were projected to have a high return rate, look at the company and then decide if it was worth it. Most of the time I would invest when the company was rising and when it got to a certain point before its high I would sell. Now if I could get to those company's before less people realized what was about to happen my gains would be a lot higher. It generated slow profits but it was better then nothing. Essentially it was all about profit, not the amount but making it.

Do you have any rules or a system for how much you risk/per investment or how and when you take profits and when you get out of a losing investment?

This is the 'system' aspect that's more important for a long term business.

Imagine you and your friend run a hedge fund and you manage $1bn of other people's money. You have just taken on a new trader to look after one of your funds...

What rules/parameters to you tell him/her to follow? Here's an example:

So you've found an investment and you're ready pull the trigger on it. Before hitting the buy/sell button:

1. At what point do you cut it off if it goes against you?
2. How much % of your capital do you risk per investment/trade?
3. If it goes in your direction how/where do you take profits?

Do you have a set of hard and fast rules to answer these questions? These are mine (currently - I review them regularly):

1. At what point do you cut it off if it goes against you?
I set stop losses based on if the trade goes a certain amount against me. This varies per trade but for the sake of this discussion let's say for stocks I will calculate the average daily tick movement (average true range - ATR) over the last 2 weeks and multiply it by 3. Therefore if the ATR=100 ticks then my cut off point if it goes against me is 300 ticks. This 300 ticks I will refer to as a risk multiple (R). 300 ticks is 1R for this particular trade.

2. How much % of your capital do you risk per investment/trade?
I risk 5% of my capital for equity trades. Therefore I will calculate 1R/5% of my capital and that is the size of the position I will open.

3. If it goes in your direction how/where do you take profits?

If the trade goes 2R (risk x 2 or 600 ticks) in my direction I will set my new cut off point ("stop loss" if your broker lets you use them) to breakeven thus eliminating all risk from this investment. So if it reverses back on me as far as my entry point I'm out.

If it moves 4R (risk x 4 or 1200 ticks) in my direction I will move my cut-off point (stop loss) to 2R.

I will continue to move my cutoff point (stop loss) at each 2R in my direction until it reaches 10R at which point I will reduce the distance to 1R.

I will continue to trail price by 1R until it eventually reverses and takes me out.

You can also add positions as you go along like this:

At 2R profit move the cut off (stop loss) to breakeven and add another 5% (1R) position.

It's a bit complicated but you want to operate as an investment business you need hard and fast rules and systems like this to make it in the long run.

[SuperManny]

You can accomplish any goal if you meet two key conditions.
1) You must have a clear focused intent.
2) Never entertain any thoughts that contradict your goal.

So I have some questions. Please don't take them the wrong way, they are primarily to help clarify your objective.

If you make $6-7 mil., you probably wouldn't need to work for a living. What would you do with your life?

Do you have any limiting beliefs that prevent this from happening?
(Trust me, they'll show up!)

What is your plan for this much money?
Universe doesn't understand amounts of money, but It understands a well-defined objective.
Example: I've set goals before for arbitrary amounts of money, but I almost never got it. But when I needed $10,000 to save my business, I manifested it in just a couple of days, and to this day I honestly don't know where most of it came from.

What sort of value are you prepared to offer for the money?
If you don't provide value in exchange, you may find it hard to hold on to. Even just giving 10% to your favorite charity is a huge starting point.

How much are you prepared to leverage your money? (Leverage=Risk)
Example 1. I used the principle of leverage and bought SLV call options just 2 days ago and they'res now up almost 60%.
Example 2. Find a volatile stock and buy some straddle options. You'll make money whether it goes up or down, but not if there's no significant price move, therefore the more volatile the better.

And one last tip... RESEARCH! You can never know too much about the stocks you invest in.
Example; When the sub-prime mortgage fiasco hit the market, I took a large short position on the banking sector. I lost my shirt because I had no way of knowing that our generous government was going to bail them all out!

Hope this helps!

[Jiggy]

Originally Posted by Peterw

Do you have any rules or a system for how much you risk/per investment or how and when you take profits and when you get out of a losing investment?

This is the 'system' aspect that's more important for a long term business.

Imagine you and your friend run a hedge fund and you manage $1bn of other people's money. You have just taken on a new trader to look after one of your funds...

What rules/parameters to you tell him/her to follow? Here's an example:

So you've found an investment and you're ready pull the trigger on it. Before hitting the buy/sell button:

1. At what point do you cut it off if it goes against you?
2. How much % of your capital do you risk per investment/trade?
3. If it goes in your direction how/where do you take profits?

Do you have a set of hard and fast rules to answer these questions? These are mine (currently - I review them regularly):

1. At what point do you cut it off if it goes against you?
I set stop losses based on if the trade goes a certain amount against me. This varies per trade but for the sake of this discussion let's say for stocks I will calculate the average daily tick movement (average true range - ATR) over the last 2 weeks and multiply it by 3. Therefore if the ATR=100 ticks then my cut off point if it goes against me is 300 ticks. This 300 ticks I will refer to as a risk multiple (R). 300 ticks is 1R for this particular trade.

2. How much % of your capital do you risk per investment/trade?
I risk 5% of my capital for equity trades. Therefore I will calculate 1R/5% of my capital and that is the size of the position I will open.

3. If it goes in your direction how/where do you take profits?

If the trade goes 2R (risk x 2 or 600 ticks) in my direction I will set my new cut off point ("stop loss" if your broker lets you use them) to breakeven thus eliminating all risk from this investment. So if it reverses back on me as far as my entry point I'm out.

If it moves 4R (risk x 4 or 1200 ticks) in my direction I will move my cut-off point (stop loss) to 2R.

I will continue to move my cutoff point (stop loss) at each 2R in my direction until it reaches 10R at which point I will reduce the distance to 1R.

I will continue to trail price by 1R until it eventually reverses and takes me out.

You can also add positions as you go along like this:

At 2R profit move the cut off (stop loss) to breakeven and add another 5% (1R) position.

It's a bit complicated but you want to operate as an investment business you need hard and fast rules and systems like this to make it in the long run.

Yea, I understand that, that is what I plan on learning and developing in the next 8-9 months. There is a lot research I have to put forward and am willing to do that. I need put a system into place but once I do ill come back and let you know.

[Jiggy]

Originally Posted by SuperManny

You can accomplish any goal if you meet two key conditions.
1) You must have a clear focused intent.
2) Never entertain any thoughts that contradict your goal.

So I have some questions. Please don't take them the wrong way, they are primarily to help clarify your objective.

If you make $6-7 mil., you probably wouldn't need to work for a living. What would you do with your life?

Do you have any limiting beliefs that prevent this from happening?
(Trust me, they'll show up!)

What is your plan for this much money?
Universe doesn't understand amounts of money, but It understands a well-defined objective.
Example: I've set goals before for arbitrary amounts of money, but I almost never got it. But when I needed $10,000 to save my business, I manifested it in just a couple of days, and to this day I honestly don't know where most of it came from.

What sort of value are you prepared to offer for the money?
If you don't provide value in exchange, you may find it hard to hold on to. Even just giving 10% to your favorite charity is a huge starting point.

How much are you prepared to leverage your money? (Leverage=Risk)
Example 1. I used the principle of leverage and bought SLV call options just 2 days ago and they'res now up almost 60%.
Example 2. Find a volatile stock and buy some straddle options. You'll make money whether it goes up or down, but not if there's no significant price move, therefore the more volatile the better.

And one last tip... RESEARCH! You can never know too much about the stocks you invest in.
Example; When the sub-prime mortgage fiasco hit the market, I took a large short position on the banking sector. I lost my shirt because I had no way of knowing that our generous government was going to bail them all out!

Hope this helps!

Well, I plan on making the a decent amount of money within 4-5 years not millions a few 100 thousand (3-4) and that will be once I'm in university. And as for the money we plan on buying real estate with a portion and working on that. For my job my associate will be going into finance so some sort of job in that area and I will be doing law after my undergrad. Since for law you do not need a specific undergrad you can do just about anything and get into law school so I am doing something extremely easy so I will have a lot of time to focus on this and keep my marks up.

And yea I will research this whole year I am going to see how things turn out and what I need to do to get better and understand the market fully.

Thank you for your help! This was very helpful.

[Peterw]

Originally Posted by Jiggy

Yea, I understand that, that is what I plan on learning and developing in the next 8-9 months. There is a lot research I have to put forward and am willing to do that. I need put a system into place but once I do ill come back and let you know.

The whole system/plan thing is covered in "trade your way to financial freedom"

Best book I've read on trading/investing so far without a doubt:

Trade Your Way to Financial Freedom: Amazon.co.uk: Van K. Tharp: Books

[SnerpGoodWord]

Originally Posted by Peterw

The whole system/plan thing is covered in "trade your way to financial freedom"

Best book I've read on trading/investing so far without a doubt:

Trade Your Way to Financial Freedom: Amazon.co.uk: Van K. Tharp: Books

While Tharp is interesting reading, be aware that Tharp can't trade. He's one of a large group of education vendors surrounding the trading space that can't "do", but "teach" anyways.

That doesn't mean that none of his research is of value, but be careful any time he makes actual trading system recommendations.

[SnerpGoodWord]

To the OP, I would chill out a bit. Learning to trade is a long process, and it benefits greatly from trading as part of an institutional desk. Point being, a retail trader like yourself can expect a very long and difficult learning curve. I would not make too much of any success you had trading stocks in the last 2 years or so - it's easy to make money by being long stocks when there just happens to be a huge bull market going on. The proof of a stock trading strategy comes from:

1) how well it deals with large bear markets
and
2) how well protected it is against unusual events (Black Friday, Black Monday, the flash crash, various debt crisis etc.)

Given your age I would try very hard to get a position trading at a prop firm, bank desk, or hedge fund. The things you learn there about market structure, risk management, profitable strategies, appropriate IT setups etc. are invaluable. Plus you'll spend 10+ hours a day talking trading, and eventually that rubs off on nearly anyone. Also, if it turns out you're not cut out for trading you'll find that out trading other people's money.

[Peterw]

Originally Posted by SnerpGoodWord

While Tharp is interesting reading, be aware that Tharp can't trade. He's one of a large group of education vendors surrounding the trading space that can't "do", but "teach" anyways.

That doesn't mean that none of his research is of value, but be careful any time he makes actual trading system recommendations.

I don't think he's ever claimed to be a trader himself. He's an NLP trainer who teaches trading pyschology by modelling the winning habits of successful traders.

I don't even know if he trades himself, but he made it into the first Market Wizards book

[SnerpGoodWord]

Originally Posted by Peterw

I don't think he's ever claimed to be a trader himself. He's an NLP trainer who teaches trading pyschology by modelling the winning habits of successful traders.

I don't even know if he trades himself, but he made it into the first Market Wizards book

A lot has changed since Market Wizards was written though. Back then, very simple technical methods could give you a big edge in a variety of asset classes. Of the Market Wizards guys, at least the "turtles" and Ed Seykota were trading Donchian channel breakout. Maybe some of the other guys too. It doesn't get much simpler than that, and back then it actually worked.

Point being, in the old days if you were quantitatively inclined and could program a computer it was trivial to find a working trading method. So all that mattered was the psychological aspect, and you got lots of psych gurus like Tharp cropping up to cater to that market.

Fast forward to 2011, and Donchian channel breakout doesn't work on any market I know of. Neither do most other naive trend following or mean reversal methods. Even some relatively complicated methods like opening range breakout and equity pairs trading don't work nearly as well any more. Now the problem is not so much psychology, but finding a working method in the first place. For that, Tharp can't help you because he never had one.

It's also worth mentioning that I don't think a trader can develop correct psychology until he has access to a working trading method. The mind rebels at consistency when the method being consistently applied doesn't work.

[Peterw]

Well from what I've read he doesn't show any bias toward any particular methods, technical or fundamental. He does give examples of various different styles ranging from the short term technical 'scalper' to the Buffet style fundamental investor.

My experience of his material so far is that he's profiled a lot of successful investors and traders and taken the core elements of what makes them successful then developed training materials to develop those same habits.

He doesn't spend very much time on the actual methods people use for entering and exiting the market as there is enough of that elsewhere. I truly believe that success in this business is 90% down to having a system and rules and being able to follow them. He even experimented with entering and exiting markets based on flipping a coin to test the value of position sizing, having a set stop loss rule and a set rule for trailing price using R multiples.

I'm finding it incredibly useful to have such good training on how to develop a business plan and system for the long term. People are too focused on what they think works or doesn't work and trying to prove to each other that thier edge/system is better.

I don't know anyone else who's teaching the business plan/risk management/position sizing/profit maximising/NLP stuff as well as Tharpe is. Especially when it's catered for any method in any market regardless of what worked then, now or in the future. Is there a better course for this stuff out there anywhere?

[SnerpGoodWord]

Originally Posted by Peterw

He doesn't spend very much time on the actual methods people use for entering and exiting the market as there is enough of that elsewhere.

There's certainly no shortage of discussion on trading methods, but the vast majority of that information is completely worthless or at best highly incomplete. I would guess that 95%+ of traders spend their entire time active in the market without ever using a single trading method that actually works.

No amount of NLP or business plans will correct that.

[Peterw]

Originally Posted by SnerpGoodWord

I would guess that 95%+ of traders spend their entire time active in the market without ever using a single trading method that actually works.

No amount of NLP or business plans will correct that.

I agree - they're all following other people's systems and not developing their own based on their unique requirements, situation, objectives and psychological make up.

Anyway- I'm not going to bang on about Tharp anymore except to say that in his system development programs the part about finding a profitable method is covered and aimed at developing an edge that fits your individual goals, situation and personality.

Most people just want 'paint by the numbers' though so this material is only for about 5% of the trading population

[SnerpGoodWord]

Originally Posted by Peterw

Anyway- I'm not going to bang on about Tharp anymore except to say that in his system development programs the part about finding a profitable method is covered and aimed at developing an edge that fits your individual goals, situation and personality.

I guess what worries me, and why I advised OP to go the institutional route is that I don't see many things on Tharp's list of strategies he teaches that I would put much stock in. He advertises:

trend following, band trading, value trading, mental scenario trading, seasonal tendencies, spread trading and arbitrage

Of those, only spread trading and arbitrage have the potential to net a high enough return to make a job of it barring huge capitalization. Meanwhile, large numbers of strategies that DO work are missing from the list - equity pairs trading, news trading, equity program trading, statistical range breakout, delta neutral volatility trading, conventional NBBO market making, and by far most importantly - order flow, order book and market structure analysis. Serious yield arbitrage might or might not be covered is his "arbitrage" section but I doubt it.

So if you looked in the golf bag of a typical successful hedge fund or prop desk you'd see 9 or 10 clubs, all of them modern clubs in good working order. If you looked in Tharp's bag you'd find 1 modern sand wedge, one of those old wood-shaft clubs, a hockey stick, a plastic Mattel golf club, an oversize candy cane and a slinky. Which bag would you rather hit the golf course with?

I think the reason that Tharp (and trading education vendors in general) don't teach strategies that work is that those strategies require substantial investments in IT, good data & news feeds, mathematical sophistication, access to various spot and OTC markets, big capital etc. Things that people looking to buy trading education rarely if ever have. That's why I suggested OP go institutional. There, people who already know how to trade and who know methods that work and what tools are required, teach you. And they already have all the "stuff" you need to be successful sitting there, already paid for by the firm's existing activities. It's a much better situation.

[Bradman]

Snerp, you mention trading as a job with an institution. I am assuming one would need a business degree or similar experience for something like that? It sounds intriguing to me, but I give myself next to zero chance of getting a job like that without the proper training.

Also, I never did understand the pairs trade. What do you do, sell the winner and hold the loser for eventual gain?

[SnerpGoodWord]

Originally Posted by Bradman

Snerp, you mention trading as a job with an institution. I am assuming one would need a business degree or similar experience for something like that? It sounds intriguing to me, but I give myself next to zero chance of getting a job like that without the proper training.

Depends on the institution.

Generally banks and hedge funds looking either for a finance degree (either undergrad or grad) or a technical/science/math degree - some sort of engineering, mathematics, physics, etc. The interviews are tough.

Prop desks are much more flexible, but there are quite a few shady ones out there that wouldn't offer the benefits I describe. Even for the good ones many of them want you to buy into the prop firm's partnership to one degree or another. The ones that don't require a capital contribution are almost as picky as the banks/hedge funds.

My suggestion to OP to go institutional was based on the fact that he's still in high school and can tailor his education to get in if he so desires.

For older traders who lack the education required, retail trading may be a better option. I think it's still worthwhile to adopt an institutional mindset as much as possible though.

[SnerpGoodWord]

Originally Posted by Bradman

Also, I never did understand the pairs trade. What do you do, sell the winner and hold the loser for eventual gain?

No - you're in effect creating a synthetic instrument consisting of long one stock and short another. Sometimes it's done where the two positions are equal dollar-wise, sometimes the ratio is the linear regression of moves in the two instruments.

Now, since any two stocks can potentially form a pair, you've got millions of potential synthetic instruments. You generally sort through those to find ones that show tight correlation and good mean-regression properties and trade those. The actual trade usually consists of waiting until the price of the synthetic instrument is some amount above or below its historical mean and then trading expecting it to return to that mean. Frequently trades are entered when the synthetic instrument is 2 standard deviations off its mean price.

There are additional details about legging into and out of the trade, stops etc but in general that's how it works. This can be done on a lot of different time frames, but the classic version does it inter-day so that stops are an effective form of risk control and thus more leverage can be used. Pairs trading is generally best done either through a prop firm or via a portfolio margin account (as opposed to Reg-T margin) to facilitate that leverage.

[trevorturtle]

Stocks are in a bear market. Compared to gold and silver (which actually hold value, unlike dollars) stocks have been going down since 2001 IIRC.

The world economy is very shaky right now. Who knows what's going to happen when Greece defaults (it's definitely a when, not if).

Good luck. Be careful.

[Peterw]

Originally Posted by SnerpGoodWord

I guess what worries me, and why I advised OP to go the institutional route is that I don't see many things on Tharp's list of strategies he teaches that I would put much stock in. He advertises:



Of those, only spread trading and arbitrage have the potential to net a high enough return to make a job of it barring huge capitalization. Meanwhile, large numbers of strategies that DO work are missing from the list - equity pairs trading, news trading, equity program trading, statistical range breakout, delta neutral volatility trading, conventional NBBO market making, and by far most importantly - order flow, order book and market structure analysis. Serious yield arbitrage might or might not be covered is his "arbitrage" section but I doubt it.

So if you looked in the golf bag of a typical successful hedge fund or prop desk you'd see 9 or 10 clubs, all of them modern clubs in good working order. If you looked in Tharp's bag you'd find 1 modern sand wedge, one of those old wood-shaft clubs, a hockey stick, a plastic Mattel golf club, an oversize candy cane and a slinky. Which bag would you rather hit the golf course with?

I think the reason that Tharp (and trading education vendors in general) don't teach strategies that work is that those strategies require substantial investments in IT, good data & news feeds, mathematical sophistication, access to various spot and OTC markets, big capital etc. Things that people looking to buy trading education rarely if ever have. That's why I suggested OP go institutional. There, people who already know how to trade and who know methods that work and what tools are required, teach you. And they already have all the "stuff" you need to be successful sitting there, already paid for by the firm's existing activities. It's a much better situation.

There are a lot of people making very good money from the strategies mentioned - especially trend following and pure technical analysis.

I don't think getting a job as a trader in an institution is a viable option for about 99.99% or people wanting to get into this business..

Anyway - we're going round in circles now I believe

[Peterw]

Originally Posted by trevorturtle

Stocks are in a bear market. Compared to gold and silver (which actually hold value, unlike dollars) stocks have been going down since 2001 IIRC.

The world economy is very shaky right now. Who knows what's going to happen when Greece defaults (it's definitely a when, not if).

Good luck. Be careful.

I have no problem shorting bear markets and range/band trading choppy consolidations. I'm working on developing 3 systems, 1 a long term position/trend following system, 2 the medium/short term swing trading system I'm using now, and a more aggressive intraday/scalping system. These will range over FX, commodity futures, stocks, indexes.

Either way I'll make money when it goes up, down or sideways regardless of the state of the economy. The more volatility the better

[SnerpGoodWord]

Originally Posted by Peterw

There are a lot of people making very good money from the strategies mentioned - especially trend following and pure technical analysis.

Trend following hasn't worked very well for a long time now in most markets. And in the markets where it does work the return is no longer outsized compared to the risk like it was before 1995. Movements have gotten sharper and stop hunting more prevalent.

"Pure technical analysis" isn't a trading strategy or even a family of trading strategies and thus is meaningless to this discussion. Technical analysis is simply math performed on price, order book and tick information. It doesn't tell you what the strategy is ie. what math is being performed or how profitable the result is. For example, both order flow analysis (effective) and drawing lines on charts (ineffective) are technical analysis.

[Peterw]

I see so many people saying things like "this doesn't work", "I'm right - you're wrong", "my system is better than yours", "you've got it all wrong" it's made me decide to have a completely open mind and never think of investing/trading as having any absolute truths.

At the end of the day I know what works *for me* because I see it working week in week out. I also see what works for other people. What works for you will most likely be completely different than what works for me in the same way that your taste in food/music films is probably entirely different.

What matters is the you know what works for you and you can make it work consistenly. Same for me, same for the Motley fool newsletter subscriber, same for the 5 minute chart scalper, same for the trend follower, same for the options guy, same for the penny stock lady... etc etc.

Technical analysis using price action and support/resistance does work because it works for me and my account balance is proof of that. Does that mean I think value investing or some other method I don't use *doesn't work*? If someone is making money at it then it probably does work.

I'm probably wrong but I don't care as long as I'm making money consistently - which (*to me*) is more important than being right. I shall continue to see my beliefs about the market for what they are - *my beliefs* and keep an open mind.

I've resolved to never see my beliefs or mental position as any kind of absolute truth as I see that as counter productive. The need to be right is quite dangerous in this business.

I'll let other people bash each other over the head about who's got the better system and "what works and what doesn't" while I'll plod along with my 5% a month trading price action + support resistance

[SnerpGoodWord]

Originally Posted by Peterw

I see so many people saying things like "this doesn't work", "I'm right - you're wrong", "my system is better than yours", "you've got it all wrong" it's made me decide to have a completely open mind and never think of investing/trading as having any absolute truths.

You can decide that if you want, but trading is not a venue for whishy washy open mindedness. If you wonder if something works, FIND OUT. Get the data and prove it works or doesn't work to a high level of statistical confidence, and then in essence close your mind - the evidence is in. If it works, trade it. If it doesn't work, walk away (or trade the opposite if it fails badly enough).

Now I'll be the first to say that what works can change over time, but those changes are pretty slow - trend following was first articulated via Dow Theory in the late 19th century and didn't stop working in the bulk of markets until about 1995 - and it still works weakly in a few (mostly equity indexes). So the correctness of trading ideas has a very long shelf life. That means a minimum of mental flexibility - either X is true or it's false - will serve you very well.

A long standing feature of trading discussions is vast over-optimism based on small samples and thinking the way the market works has changed because of recent events. This is generally not true - I would suggest there have been only two market-changing events in the last 100 years:

1) the advent of electronic exchanges and automated trading

and

2) the liquidity rebate on public exchanges vs. liquidity fee in dark pools model

It's no coincidence that the demise of trendfollowing pairs up nicely with 1).

When I see someone claiming that some method which no one has ever managed to make substantial money on (like support and resistance) is making them good money, there are only 2 options:

A) This person is special, the anointed one, the only one capable of making money by drawing lines on charts.
or
B) This person is wrong. They may think they'll make money in the long run, but they won't.

One of these seems more likely than the other.

[Peterw]

Originally Posted by SnerpGoodWord

When I see someone claiming that some method which no one has ever managed to make substantial money on (like support and resistance) is making them good money, there are only 2 options:

A) This person is special, the anointed one, the only one capable of making money by drawing lines on charts.
or
B) This person is wrong. They may think they'll make money in the long run, but they won't.

One of these seems more likely than the other.

"This person is wrong" - is your belief about support/resistance, it's not true for everyone - just you.

How do you know no one has ever made any substantial money trading the method that I'm using? The group of people I've learnt this from have been teaching it openly and making solid money from it from at least 2005. The guy who started the thread has been at it for 25 years, blown hundreds of thousands getting it wrong and now has a simple method of trading price action + support/resistance that the average Joe retail trader can learn and make steady money - as long as they can learn to develop and follow rules and stick to them (which is where Van Tharp comes in).

I know of other people who made an absolute killing trend trading the £/$ from $2 down to $1.4 over 2008-2009. What about people like John W Henry - is he going out of business because his methods "don't work" any more? Ed Seykoyta, where is he now? What about all these people trend trading gold and commodities - have they got it all wrong using methods that don't work any more? The only reason I'm not doing it is because my account balance doesn't support the size of the stops I'll need to stay in for the long haul.

Sure the Donchian 20/50 day breakout method probably doesn't work any more as any well publicised method never does when the market makers figure out how to exploit it, but people adapt. As long as there are trends there will be trend following and I don't see trends going away any time.

Is 'buy and hold' not a form of trend trading?

Look at gold over 2010-2011- do you think no one is trading this with wide stops, re-entering when they get stopped out and will continue for as long as it keeps going? Also do you think someone else will continue to try picking out tops and reversals and having a hard time fighting against it?

I believe that trend trading is alive and well because:

1. I can see it clear as day on the charts
2. I know people are making fantastic money doing it

The same goes for support/resistance - the evidence is in on that one. As for other methods, if they work for the people who have taken the time to test them and develop a set of rules that they can follow then they probably work as well.

You may have opinions and beliefs about Fibonacci levels, Elliot wave, harmonic frequencies, lunar cycles, moving average crossovers - so do I. I don't use them (I do use fibs) and haven't tried and tested them, but I don't see that as qualifying me to write them off as not working. If people are making steady money at them then kudos to them.

I'm probably wrong - but I'm making money so until I stop making money I'll carry on being wrong

[Peterw]

[SnerpGoodWord]

Originally Posted by Peterw

How do you know no one has ever made any substantial money trading the method that I'm using?

Because I have enough background in trading to know at least in broad strokes the strategies employed by all the long-run profitable desks and funds. And none of them care one bit about support and resistance. The ones which have a technical bias use primarily the methods I listed earlier.

Simply put, "support and resistance" is a strategy sold by trading educators who can't trade to the ignorant. I realize it may seem kind of insulting for me to say that, but that's the way it works. Trading educators sell it because it gives hope to the people with no trading skills - since anyone can draw lines on a chart, if it's possible to make money drawing lines then ANYBODY could make money (including the would-be buyer of trading education). That's very seductive - and also very false.