(1) Anytime that you seek trading advice from a person, "always" begin the conversation with the question, "Which Lessons have you completed?" Never assume the answer. Then, follow that question with, "Where did the precise rules work, and where did they not work?" Be sure to get specific dates, before
using someone else's biases. One great thing about the martial arts is that
people get "belts' to publicly display their skill level, based on a thorough test by the Sensei.
(2) Building automatic responses in the Practice is 10,000 times superior to advice. Anytime
you describe something or talk "about" something, you are using a map of a Map of a MAP, and that is far removed from the present Bid/ Ask.
Wednesday, December 30, 2009
Direction and Mis/Direction
(1) The 3 Directions of L&S, R3 and Switch Blade are separate methods. This means
that once you decide upon ONE of the three Directions, you ignore the others for your trade
decisions.
(2) L&S and R3 are based on a comparison of buyers and sellers TODAY on the close, versus
10-15 days ago, and 3 days. There's more to the formulas than that, but in essence, the
question is: compared to the price 3 days ago, is the market up or down? Or is it Neutral
(no signal)? One way of thinking about this, is to take a string and connect the price from 3
days ago to today's close. This is simplistic, but a good visual exercise.
(3) On the other hand, Switch Blade uses EXHAUSTION to know the Direction. We need 2 conditions
to have exhaustion: (a) an ORA below PDSL , and (b) buyers showing up, ie a trade ABOVE
ORBH + 3 ticks. This exhaustion of sellers, must be followed by buyers above ORBH.
(4) Since the 3 Directions are based on different Methods, there will be times they are giving the
same direction, and there will times they are not.
{ Right now, before continuing to read below, re-read (1).}
(5) Once you have decided which of the 3 Direction methods, that you will use, it's useful
to briefly look at the others for information purposes only. It is also useful to know where the market is
in relation to Reports, YOR, Yearly Pivots, YP 20's, Kizeme, etc. For example,
CPI may be 2 days from now, and you decide to not take a trade the night before
CPI. But you recognize that today, trading was confined between the two ATTK lines,
with PDSC right down the middle. I'd look at that, and determine that none of the
market movers are trading, so I might pass on an overnight trade, and just use an edge trade
tomorrow.
(6) One danger of over- analyzing the relationship between the 3 Directions, and (5), is that you
may decrease the number of trades you take so severely, convincing yourself that this is safe. I would
argue that it is more dangerous, than safe. I'll give an example from another type of trade: PDSC. Since
2002, the PDSC trade has averaged about 46.5% wins, but there's one day of the week that
has averaged 80%. So, why not just limit yourself to that one day, and forget the rest?
Because if you did, you would decrease the overall performance of PDSC by 85%, and
you'd barely be able to increase your position size during the past years.
(7) If someone has ACTUALLY done each of the 3 Directions in the Lessons, they would
quickly realize that they work in different situations... and, there are situations that
they each, over a period of time, have a series of losses. If you go back and look at
the negative PnL periods of time on a daily chart, my sense is that YOR, YP, and YP20 were probably
involved. For example, trading during late December slows down, and goes to the big edges, rather than direction oriented because:
(a) the big traders are finished for the year
(b) the big traders are looking for toys to buy: Bentley's, boats etc
(c) the YOR will bring volatility, so just wait until the fireworks start.
(8) During these periods when the biggest traders are not even there, the young traders and Public are off work and trying to squeeze nickels. They want to trade so bad, because they've seen all this movement in the past few months. They get punched in the face because there's
no big traders trading, and when they are, it's from the Big Edge back to the middle.
(9) During the periods of negative PnL's, you might ask, "What does work?" Well, trading
on Mis/Direction always works, trading from the Edge works, and using the purest form of the ACTION Method works at these edges. Anytime that I recognize
that what I am doing is not working, I assume that my trade was made "down the middle",
and, I wait for an Edge to develop, then use the pure form of the ACTION Method.
(10) There is a real danger in getting too cautious: once the volatility starts, you'll wait until everything is in sync, which is rare, and miss the early Mis/Direction.
(11) Some people have split the Two Day Trading Method, into two separate trades, for their
own time convenience. Once they split it in two, they are only taking an Overnight Trade
or the Edge trade. Actually, most of these people are just taking the ONT, and ignoring
the edge trade. Two Day Trading is designed as ONE unit of a WHOLE, so that if the market is having
lots of overnight movement, you capture it, or if it's all during the day, you capture it. You
cannot predict which one will work until you press the trade button.
(12) People who don't have the time to do both parts of Two Day Trading should:
(a) use their free time to master the trade in the Practice Software. Part of
mastery is figuring out how to trade through difficult times. Having more"guts" is
not really the answer, rather it's number (8).
(b) Do the PDSC trade, and build your account overtime, increasing contracts. Yes, you'll go through 7-8 losses, but you'll have streaks of wins, too.
(c) or, call me and we'll figure out how someone can learn the SIMPLE methods,
based on a their own specific financial situation. These take less time and are
more profitable than all the rest combined.
(13) The key to Two Day Trading is not which of the 3 Direction entries that you take, rather
it's the EXIT. The Public spends 95% of their time over-analyzing the direction, whereas, the PIT
recognizes that the EXIT is the most important thing, simply because ANYTHING CAN HAPPEN after a trade begins. The exits limit your loss, and captures the big gains.
(14) There's an old saying in boxing, "everyone has a plan, until they're punched in the face."
Once someone gets punched in the face, then, they start over-analyzing, and trying to
take these so-called SYNC trades to be "safe.". Bologna. Instead, do what a seasoned
boxer does: get away from the sucker punches "down the middle" by stepping to the side,
and WAIT, then, start your full force attack from the side.
(15) One of the greatest things that someone can do, is to get punched in the face, and go
immediately back to the Practice Software, and learn what to do in similar situations.
Taking time off to become over-skilled is the hallmark of the greatest traders. The best trader I know is taking the entire month of January off, simply to PRACTICE. When he starts again, I
pity anyone within the flash of his blade. He will be vicious, ruthless,and thirsty for blood.
that once you decide upon ONE of the three Directions, you ignore the others for your trade
decisions.
(2) L&S and R3 are based on a comparison of buyers and sellers TODAY on the close, versus
10-15 days ago, and 3 days. There's more to the formulas than that, but in essence, the
question is: compared to the price 3 days ago, is the market up or down? Or is it Neutral
(no signal)? One way of thinking about this, is to take a string and connect the price from 3
days ago to today's close. This is simplistic, but a good visual exercise.
(3) On the other hand, Switch Blade uses EXHAUSTION to know the Direction. We need 2 conditions
to have exhaustion: (a) an ORA below PDSL , and (b) buyers showing up, ie a trade ABOVE
ORBH + 3 ticks. This exhaustion of sellers, must be followed by buyers above ORBH.
(4) Since the 3 Directions are based on different Methods, there will be times they are giving the
same direction, and there will times they are not.
{ Right now, before continuing to read below, re-read (1).}
(5) Once you have decided which of the 3 Direction methods, that you will use, it's useful
to briefly look at the others for information purposes only. It is also useful to know where the market is
in relation to Reports, YOR, Yearly Pivots, YP 20's, Kizeme, etc. For example,
CPI may be 2 days from now, and you decide to not take a trade the night before
CPI. But you recognize that today, trading was confined between the two ATTK lines,
with PDSC right down the middle. I'd look at that, and determine that none of the
market movers are trading, so I might pass on an overnight trade, and just use an edge trade
tomorrow.
(6) One danger of over- analyzing the relationship between the 3 Directions, and (5), is that you
may decrease the number of trades you take so severely, convincing yourself that this is safe. I would
argue that it is more dangerous, than safe. I'll give an example from another type of trade: PDSC. Since
2002, the PDSC trade has averaged about 46.5% wins, but there's one day of the week that
has averaged 80%. So, why not just limit yourself to that one day, and forget the rest?
Because if you did, you would decrease the overall performance of PDSC by 85%, and
you'd barely be able to increase your position size during the past years.
(7) If someone has ACTUALLY done each of the 3 Directions in the Lessons, they would
quickly realize that they work in different situations... and, there are situations that
they each, over a period of time, have a series of losses. If you go back and look at
the negative PnL periods of time on a daily chart, my sense is that YOR, YP, and YP20 were probably
involved. For example, trading during late December slows down, and goes to the big edges, rather than direction oriented because:
(a) the big traders are finished for the year
(b) the big traders are looking for toys to buy: Bentley's, boats etc
(c) the YOR will bring volatility, so just wait until the fireworks start.
(8) During these periods when the biggest traders are not even there, the young traders and Public are off work and trying to squeeze nickels. They want to trade so bad, because they've seen all this movement in the past few months. They get punched in the face because there's
no big traders trading, and when they are, it's from the Big Edge back to the middle.
(9) During the periods of negative PnL's, you might ask, "What does work?" Well, trading
on Mis/Direction always works, trading from the Edge works, and using the purest form of the ACTION Method works at these edges. Anytime that I recognize
that what I am doing is not working, I assume that my trade was made "down the middle",
and, I wait for an Edge to develop, then use the pure form of the ACTION Method.
(10) There is a real danger in getting too cautious: once the volatility starts, you'll wait until everything is in sync, which is rare, and miss the early Mis/Direction.
(11) Some people have split the Two Day Trading Method, into two separate trades, for their
own time convenience. Once they split it in two, they are only taking an Overnight Trade
or the Edge trade. Actually, most of these people are just taking the ONT, and ignoring
the edge trade. Two Day Trading is designed as ONE unit of a WHOLE, so that if the market is having
lots of overnight movement, you capture it, or if it's all during the day, you capture it. You
cannot predict which one will work until you press the trade button.
(12) People who don't have the time to do both parts of Two Day Trading should:
(a) use their free time to master the trade in the Practice Software. Part of
mastery is figuring out how to trade through difficult times. Having more"guts" is
not really the answer, rather it's number (8).
(b) Do the PDSC trade, and build your account overtime, increasing contracts. Yes, you'll go through 7-8 losses, but you'll have streaks of wins, too.
(c) or, call me and we'll figure out how someone can learn the SIMPLE methods,
based on a their own specific financial situation. These take less time and are
more profitable than all the rest combined.
(13) The key to Two Day Trading is not which of the 3 Direction entries that you take, rather
it's the EXIT. The Public spends 95% of their time over-analyzing the direction, whereas, the PIT
recognizes that the EXIT is the most important thing, simply because ANYTHING CAN HAPPEN after a trade begins. The exits limit your loss, and captures the big gains.
(14) There's an old saying in boxing, "everyone has a plan, until they're punched in the face."
Once someone gets punched in the face, then, they start over-analyzing, and trying to
take these so-called SYNC trades to be "safe.". Bologna. Instead, do what a seasoned
boxer does: get away from the sucker punches "down the middle" by stepping to the side,
and WAIT, then, start your full force attack from the side.
(15) One of the greatest things that someone can do, is to get punched in the face, and go
immediately back to the Practice Software, and learn what to do in similar situations.
Taking time off to become over-skilled is the hallmark of the greatest traders. The best trader I know is taking the entire month of January off, simply to PRACTICE. When he starts again, I
pity anyone within the flash of his blade. He will be vicious, ruthless,and thirsty for blood.
The New Year
The Big CON
Before you continue reading this New Year's edition, I'd like you to read an article that someone recently sent me. Once you read the article, think about it, and then continue reading below:
http://www.zerohedge.com/article/three-month-flat-market-yesif-you-exclude-constant-after-hours-manipulation#comment-172925
Now that you've read the article there's several things I'd like to point out.
In my family growing up, if you instantly wanted to not get your dessert, all you had to do was, ask ,"Well, so what?". Evidently that question was
so antagonizing to my parents, that, rather than get an answer, you'd just lose your dessert and be sent to your room. So, at the risk of being sent to my room without dessert, now that you've read the article, I'd like to ask, "Well, so what?"
In the article, the author points out the differences between trading during the day... and, trading during the night session, and that since all the recent market gains have
been during the night session, that there's a big conspiracy going on. There's a couple of interesting charts, and this is what the author wants you to focus on. Obviously, from the chart, the market gains have been from the overnight session, and created by these evil things called Dark Pools. These evil Dark Pools (huge pools of money that you can't see), are manipulating the markets. Now, here's my first series of ,"Well, so what?":
1. If you can't SEE these Dark Pools, how do you know that they are "HUGE"?
2. If you can't SEE these Dark Pools, how do you know that they are "DARK"?
3. If you can't SEE these Dark Pools, how can you know that it's "THEM," that are doing this insidious evil upon the markets?
But, there's something further that I want you to think about (one of the few times, I'll ever ask you to do that to that this coming year!). The chart compares
two sets of data:
1. Opening price -------> Closing price
2. Closing price---------> Opening price
In the article, the author tells us that you are trying to make money between the Opening Price and the Closing Price, while the evil Dark Pools
are making money from the Closing Price to the Opening Price. And, these evil Pools are keeping you from making money during the day. Now, here's my
second series of ,"Well, so what?":
OK, who really trades from Open to Close to Open?
Well, it's certainly not the Pit Traders. We trade from the EDGE. In Two Day Trading, yes, we take a
trade at the Closing Price, but then tomorrow, we exit at THE EDGE, because that's where the money is. In simplest terms, we exit at the safest places in the market,
allowing our Pit Trader friends to take the market first one way then the other after the Open, towards these edges. So, who trades from the Open to the Close? It's the
Public. And, the last thing I'd ever want to do, is to take a trade along side what those guys are doing because they eventually lose their money. Even if they are right in the direction, I'd rather use Mis/Direction to knock them out of their trade, so that I can get a better price, making them chase the market.
But, there's something much deeper here.
In Two Day Trading, you can break it down into two types of trades:
#1: a trade from the Close to tomorrow's EDGE.
#2: a trade from tomorrow's EDGE to another EDGE (called an ATTK), which usually ends up near the high or
low for the day.
Because Two Day Trading is made up of BOTH of these trades, it really doesn't matter if you make all the money during the day, or during the night,
because one of the two type trades will be the big winner, and the other will be a small loser. And, rather than having to "predict" which will make money tomorrow and the next month,we just take the two types trades. Granted, there were periods that one made money, and the other didn't, but how can you predict when it
will change to the other one? If you use BOTH types of trading, you never have to play the prediction game, and when the change comes, you will have adapted.
Whether the money is made during the day, or during the night, it doesn't matter because we're taking BOTH trades.
So, now that I've lost my dessert, and been sent to my room, let's talk about what I call The Big CON.
The Big CON is not some evil, horrible dark pool of money that's controlling the market. The Big CON, or Big Conspiracy, is something much more evil
than that.
The Big Con is ANYONE that will get you to have a BIAS. Once you have a bias, you've effectively let someone else pull the wool over your own eyes, and now you are trading from a BIAS, not what's happening in front of you on the screen. The article that you read is really trying to get you to be biased, first, by having you focused on Open to Close type trades, and then, by telling you that it's something evil under your bed that's going to get you. If you fall for that Big CON, then, suddenly you've got a bias. Once you have a bias that overnight trades are the way to go, you won't take the other type trades, and now, that you have a bias controlling your trades, well, why not just use a big stop, too. And, you might as well get a tattoo that says. PUBLIC across your forehead, too. Personally, I'd rather keep my eyes open and trade from the Edge.
As we approach the New Year, it's easy to develop biases. I spent part of my holiday with a Volvo executive that told me that unless they started selling more trucks
by the end of the first quarter, that the lay-offs would start again. Evidently, they haven't sold any trucks this past year, and, they can only keep their employees if things turn around. Understand this: if that statement about Volvo gave you a bias,and you trade from that bias, you'll take one direction of trade, and not take the other. That's when you've fallen for the Big CON.
The last thing that you want to do this coming year, is to be biased as you begin the year. I assure you, you will want to keep your eyes open. At the bottom of this email are a couple of quotes, one from the Mad Max movie, where Mel Gibson got his start. If you want to be a fortune teller, get a bias, and hang up a sign. That's about the only way you can make a buck from having a bias. The second quote is from Kendo, and leaving pronunciation aside, it simply means, "mind of no mind." This is the state of mind that the Samurai wanted when going into combat, where they had no bias or prediction on what their attacker would do, rather simply instantly reacted to any opening, based on all their practice. When their opponent's blade flashed, the Samurai would use whatever opening was available to quickly end the fight.
When you did the lessons in the Practice Software, you took the trades without bias. And, you did really well. And, some of you, once you moved to trading in Real Time, didn't do as well. Why? I hate to be the one to tell you, but it's because you had a bias. Maybe you watched the news, maybe you read the blogs, maybe you thought the Gold Bugs were right, either way you developed a bias, and would only take one type of trade. Face it, you fell for the Big Con, and let someone pull the wool over your eyes.
Tear up your Big CON bias, and open your eyes, so that you can react to the first flash of the swords in the coming New Year.
OK, go ahead, send me to my room without dessert. After all, in my family, I was the one that told everyone there were monsters in the dark, hiding under my bed. I'd keep telling them stories around the dinner table about these awful monsters, their big eyes,and scary teeth, until no one would ever dare look under my bed. That way, when I'd ask, ,"Well, so what?", I was ready to go to my room.
I couldn't wait to get to my room, After all, under the bed was where I hid the dessert.
I hope each and every one of you has a Happy and Profitable New Year with many desserts. Oh yeah, and don't fall for the Big CON, instead
KEEP YOUR EYES OPEN!
Before you continue reading this New Year's edition, I'd like you to read an article that someone recently sent me. Once you read the article, think about it, and then continue reading below:
http://www.zerohedge.com/
Now that you've read the article there's several things I'd like to point out.
In my family growing up, if you instantly wanted to not get your dessert, all you had to do was, ask ,"Well, so what?". Evidently that question was
so antagonizing to my parents, that, rather than get an answer, you'd just lose your dessert and be sent to your room. So, at the risk of being sent to my room without dessert, now that you've read the article, I'd like to ask, "Well, so what?"
In the article, the author points out the differences between trading during the day... and, trading during the night session, and that since all the recent market gains have
been during the night session, that there's a big conspiracy going on. There's a couple of interesting charts, and this is what the author wants you to focus on. Obviously, from the chart, the market gains have been from the overnight session, and created by these evil things called Dark Pools. These evil Dark Pools (huge pools of money that you can't see), are manipulating the markets. Now, here's my first series of ,"Well, so what?":
1. If you can't SEE these Dark Pools, how do you know that they are "HUGE"?
2. If you can't SEE these Dark Pools, how do you know that they are "DARK"?
3. If you can't SEE these Dark Pools, how can you know that it's "THEM," that are doing this insidious evil upon the markets?
But, there's something further that I want you to think about (one of the few times, I'll ever ask you to do that to that this coming year!). The chart compares
two sets of data:
1. Opening price -------> Closing price
2. Closing price---------> Opening price
In the article, the author tells us that you are trying to make money between the Opening Price and the Closing Price, while the evil Dark Pools
are making money from the Closing Price to the Opening Price. And, these evil Pools are keeping you from making money during the day. Now, here's my
second series of ,"Well, so what?":
OK, who really trades from Open to Close to Open?
Well, it's certainly not the Pit Traders. We trade from the EDGE. In Two Day Trading, yes, we take a
trade at the Closing Price, but then tomorrow, we exit at THE EDGE, because that's where the money is. In simplest terms, we exit at the safest places in the market,
allowing our Pit Trader friends to take the market first one way then the other after the Open, towards these edges. So, who trades from the Open to the Close? It's the
Public. And, the last thing I'd ever want to do, is to take a trade along side what those guys are doing because they eventually lose their money. Even if they are right in the direction, I'd rather use Mis/Direction to knock them out of their trade, so that I can get a better price, making them chase the market.
But, there's something much deeper here.
In Two Day Trading, you can break it down into two types of trades:
#1: a trade from the Close to tomorrow's EDGE.
#2: a trade from tomorrow's EDGE to another EDGE (called an ATTK), which usually ends up near the high or
low for the day.
Because Two Day Trading is made up of BOTH of these trades, it really doesn't matter if you make all the money during the day, or during the night,
because one of the two type trades will be the big winner, and the other will be a small loser. And, rather than having to "predict" which will make money tomorrow and the next month,we just take the two types trades. Granted, there were periods that one made money, and the other didn't, but how can you predict when it
will change to the other one? If you use BOTH types of trading, you never have to play the prediction game, and when the change comes, you will have adapted.
Whether the money is made during the day, or during the night, it doesn't matter because we're taking BOTH trades.
So, now that I've lost my dessert, and been sent to my room, let's talk about what I call The Big CON.
The Big CON is not some evil, horrible dark pool of money that's controlling the market. The Big CON, or Big Conspiracy, is something much more evil
than that.
The Big Con is ANYONE that will get you to have a BIAS. Once you have a bias, you've effectively let someone else pull the wool over your own eyes, and now you are trading from a BIAS, not what's happening in front of you on the screen. The article that you read is really trying to get you to be biased, first, by having you focused on Open to Close type trades, and then, by telling you that it's something evil under your bed that's going to get you. If you fall for that Big CON, then, suddenly you've got a bias. Once you have a bias that overnight trades are the way to go, you won't take the other type trades, and now, that you have a bias controlling your trades, well, why not just use a big stop, too. And, you might as well get a tattoo that says. PUBLIC across your forehead, too. Personally, I'd rather keep my eyes open and trade from the Edge.
As we approach the New Year, it's easy to develop biases. I spent part of my holiday with a Volvo executive that told me that unless they started selling more trucks
by the end of the first quarter, that the lay-offs would start again. Evidently, they haven't sold any trucks this past year, and, they can only keep their employees if things turn around. Understand this: if that statement about Volvo gave you a bias,and you trade from that bias, you'll take one direction of trade, and not take the other. That's when you've fallen for the Big CON.
The last thing that you want to do this coming year, is to be biased as you begin the year. I assure you, you will want to keep your eyes open. At the bottom of this email are a couple of quotes, one from the Mad Max movie, where Mel Gibson got his start. If you want to be a fortune teller, get a bias, and hang up a sign. That's about the only way you can make a buck from having a bias. The second quote is from Kendo, and leaving pronunciation aside, it simply means, "mind of no mind." This is the state of mind that the Samurai wanted when going into combat, where they had no bias or prediction on what their attacker would do, rather simply instantly reacted to any opening, based on all their practice. When their opponent's blade flashed, the Samurai would use whatever opening was available to quickly end the fight.
When you did the lessons in the Practice Software, you took the trades without bias. And, you did really well. And, some of you, once you moved to trading in Real Time, didn't do as well. Why? I hate to be the one to tell you, but it's because you had a bias. Maybe you watched the news, maybe you read the blogs, maybe you thought the Gold Bugs were right, either way you developed a bias, and would only take one type of trade. Face it, you fell for the Big Con, and let someone pull the wool over your eyes.
Tear up your Big CON bias, and open your eyes, so that you can react to the first flash of the swords in the coming New Year.
OK, go ahead, send me to my room without dessert. After all, in my family, I was the one that told everyone there were monsters in the dark, hiding under my bed. I'd keep telling them stories around the dinner table about these awful monsters, their big eyes,and scary teeth, until no one would ever dare look under my bed. That way, when I'd ask, ,"Well, so what?", I was ready to go to my room.
I couldn't wait to get to my room, After all, under the bed was where I hid the dessert.
I hope each and every one of you has a Happy and Profitable New Year with many desserts. Oh yeah, and don't fall for the Big CON, instead
KEEP YOUR EYES OPEN!
Subscribe to:
Posts (Atom)