Monthly Archives: March 2011

Timeframes and impatience

I guess I’m impatient… Well, I’m not needing to guess anymore because now I know I’m impatient

Attempting to trade on a 1 minute time frame just gets me killed all day long 😉

Not going to do that anymore! More on this later…

Trading… while working…

Or, in other words… ‘I have a job so how do I deal with the demands of learning to trade too?’

There is a simple answer to this question which demands a lot of your ‘self’ to actually implement…

It’s taken me more than three months of procrastination to get to my target which I managed to achieve for the first time today, Tuesday 29th March 2011.

What was my target? To wake up before 7pm, pay attention to the markets, plan some ideas (still early days) for looking at different things during the day and then go to work, having made at least one trade. Ta Da! Sounds simple, right? Wrong!! WRONG!! WRONG!!

To be able to make this ‘simple’ change in my habit I’ve had to force myself to not stay up till midnight (which I’ve done for literally years) and go to bed at 10pm rather. I have to not play any sort of computer game at all or start watching any kind of movie. I have to go to the gym directly after work or I’m all hyped and can’t go to sleep till much later. I have to plan my meals. I have to just stay off the interweb and start winding down at about 9.30 to have any chance of actually getting enough sleep to not be a total zombie in the morning.

For me, this is a lot of changes. However, what a difference! This morning I was keen to see what was happening. I had a positive outlook. I felt alert. I looked at some setups during the day and while they didn’t work out today I did learn a lot. Most importantly, having started the day as ‘a trader’ I’m now excited to carry on reading or learning and looking at today’s performance.

So while I’m holding down a job I’ve managed to get in three hours of trading related activities (plus some trades) and I’ve just got back from work! This actually means I could hit my 2,000 hours/2 years target with ease, accelerate my learning curve and of course my financial results.

On the ‘business’ side there’s no greater incentive than making money to achieve my dreams 🙂

8 day stock prediction test

8daystockpickinganalysis

So I wanted to try a little experiment… David was kind enough to pick 10 stocks at random from different sectors in the FTSE with values >300 points.

What I was attempting to do was predict the daily results (up/down) on the previous day and also assign a ‘confidence score’ to rate what I felt the chances were of my prediction coming true. This is only up/down on the previous days close rather than an overall direction over a period of time. What I’ve not yet done is looked at aggregate values against the stocks final resting place. That’s what your P&L is for – hahaha.

My tools were only the previous days candles (pricing) and looking at the FTSE 100 index. I also recorded my results for predicting the movement of the 100 index too.

Just a note on this chart – cells not coloured green should be red i.e my prediction was wrong. I didn’t colour them in red though because the whole thing would descend into an unreadable mess – see the attachment 🙂

So this generated some interesting results which I’ll get to in just a minute.

Now, one thing which someone could argue may screw the results is that the Japanese Tsunami hit on the first Thursday/Friday as I begun this experiment. Now it’s likely that this did indeed screw the results but in a positive way i.e. the movement/psychology of the market became more pronounced and therefore easier to read. Even with this factor I do believe the overall conclusions from the data would be the same.

My reason for this is that what I’m actually looking at is my perception of the market and so unless my perception radically changes I’d suggest that overall the results would be the same if I did this exercise again. Of course I’m going to do this another time =)

So what did I find?

I’m correct 60% of the time, purely looking at the candles in predicting whether a stock will go up or down the next day

Aligning the results with the direction of the trend (down) and re-calculating gives 80% accuracy without any thinking – this is a 25% improvement on a daily basis over my own results

Confidence in a given result seems to be irrelevant. My confidence in making predictions actually decreased greatly as this exercise progressed. Looking in the last column you see some very low marks (20%) that turned out to be correct.

Conclusions

There’s clearly no point at all taking a trade in the opposite direction to the trend. Seems like money flows in and out of the stock market like the tide so in a down trend people only buy back in when they see real value to be had. In other words when greed outweighs fear! Picking stocks moving in the same direction as the trend gets you a +25% chance that the trade will be a success – obviously worth having 🙂

Confidence or maybe ‘attachment to outcome’ is not a good thing to be thinking about when looking to analyse the movement of a particular stock. I think everyone usually starts this business with an apprehension about going short. This might be more difficult to overcome if you’re a naturally positive person! Attachment to the outcome of a particular decision needs to be removed in order to understand or react to what is going on as early as possible.

Mind like water grasshopper!

learning impaired

So basically this is the FTSE 100 from October 2010 onward (daily)

When did I enter long trades? At the beginning of January when the market stalled and headed south… This put me off enough to basically stay out of the market till the end of Feb when again I decided to put on only long trades! Am I completely nuts or what?

There’s another exercise I’m engaged in at the moment which proves beyond any doubt that making long trades in a falling market is beyond retarded 🙂

The other interesting thing from the chart above is that I’ve marked the peaks and troughs of these trends which all have pretty clear morning and evening star characteristics. I know these aren’t EXACTLY 100% matching the criteria but they’re close enough to provide a warning!

This chart is one day out (Friday closed slightly lower) so if on Monday we see a BIG up day like on the 1st Feb we could be on the up again. Maybe the index needs to get back down to 5700 or lower before everyone returns thinking there are bargains to be had.

Suffice it to say I’m going to WAIT for some confirmation before doing anything.

If someone puts a gun to my head now and makes me place a trade I’ll be going SHORT!!! (I may be learning!)

long trades in a down market

Basically this is a no-no. It appears I’m rather slow in catching on that we’re actually in a bear market – actually this is the second time I’ve been caught like this. On the one hand it’s a valuable learning experience but of course it’s a little galling financially!

This week I’ve closed my MF Global account and will be re-routing some of it towards my IG Index account because from the beginning of April they’ll be allowing funded roll-overs rather than closing/re-opening positions at the end of day.

So essentially I need to stop and complete a number of steps before getting back into the market. Steps like – completing my business plan. Actually come up with an end-of-day (EOD) strategy which I can test (and backtest) in prorealtime. Finish the Van Tharp course I bought and sort out my psychology.

Also something else that needs addressing is the base amount of funds in my account – which will take longer to address. However, it seems the foundations are still not in place for me to avoid getting excited (or bored) and throwing money away 😉

What have I been doing??

Right, so no posts for a couple (6?) weeks! Which begs the question – what have I been doing? I guess the main thing is attempting to get my head working in a correct way and deal with a couple of underlying issues.

1) I firmly believe that if you don’t have enough money then you don’t have enough money to trade with! How can you be expected to make a rational decision which involves managing risk if your outlook is that you actually can’t really afford to take the risk int he first place! Putting it like that of course it makes no sense 😉

2) There has to be a process for trading and the key thing to concentrate on is loving the process and making it into a habit. You might get the opportunity to analyse the market for 3 hours on a Sunday BUT you probably need to spend this time looking at what’s going on EVERY day to not get caught out by something.

3) Measuring, recording and tracking what you’re doing… VERY important. I’ve just finished building a Filemaker Pro database to help me do this. It’s extremely useful and helps me put what I’m doing into some logical and questionable framework. Now, I’m of course not in control of the markets BUT at least I can use this as a framework for recording trades, ideas and analysis. The key point here is to be able to measure your own performance/learning against your results.

I hope to put up more details and information up here in the next few days