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Are forex signals useful in making profits?

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This question originally appeared on Quora

 

This great question has done a remarkable job at baiting scam-artists. Whoever answered “Yes”, followed by a link to some website is a scam-artist

The one-eyed scam-artist leading the blind

Everyone wants to gain this mysterious esoteric called trading edge. Well, trading edge is not a story, it is a number and here is its formula:

Gain expectancy = Win% * Avg Win% – Loss% * Avg Loss%

Tattoo it where you can be reminded throughout the day (Tramp stamp on your better-half is probably off limit). There are two modules to any trading strategy:

  1. Signals: exits first, last and very very very least entries
  2. Money management: position sizing

The scam artists who answered yes, referred to hereafter as Yes-men will provide dummy statistics about entries but conveniently forget everything thereafter. Entry is easy. You can buy a boat, a sports car, a vacation home any day of the week. Good luck reselling it. Bad entry can be salvaged, bad exits can’t.

Then comes position sizing. Signals conveniently omit position sizing for a good reason. It is a function of win rate and stop loss, both of which are either omitted or optimistically manufactured…

Implicit adoption of a trading system

Now, who does not like to wake up, receive a bunch of signals, pick one or two, send the trades and watch the money roll in? I certainly would love to, except it does not work like that.

Even if signals are thorough enough to encompass all the necessary elements from entry to exit including risk, it still omits the most important: following someone’s signal is adopting her belief system, formalised in a trading system. Example: as a professional short seller, i am naturally risk-adverse (prudent position sizing) but disciplined (take the trade, follow the system). This philosophical tenet transpires in my algorithms. This may not jive with someone who likes big high conviction bets.

Even supposedly objective systems such as deMark have several subjective degrees of freedom. The best example comes from the Market Wizards series. Those wizards have completely different strategies that sometimes seem to contradict each other. Yet, they are profitable because they have a system that suits their personality. When You follow someone else’s system, remember that you half-heartedly embrace someone else’s personality without fully understanding it.

How to spot a scam artist?

First, those who answered Yes and attached a link are scam artists. Coming out was not so tough after all, was it?

Second, here are classic red flags:

  1. No real money live track record = SCAM: Myfxbook provides live track record, so no excuse
  2. Entries only: no exit, no stop loss, no risk, no stats means SCAM
  3. Rosy stats: 70%+ win rate means SCAM. We all want to follow a system that is right 100% but the reality is the best traders LT average win rate is around is largely below 50%
  4. easy money: no you will not turn $500 into $2,000,000 in 2 years. Veteran pros with decades of experience dream of achieving 20% per annum. Scam artists who promise you can achieve 100% returns= SCAM

Conclusion

Basic rule of thumb: we are in finance, assume everyone is a scam artist until proven wrong. Good news, You can cross a few names off the list

What are some of the best techniques for selecting stocks to short?

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What are some of the best techniques for selecting stocks to short? by Laurent Bernut

Answer by Laurent Bernut:

Two parts: let’s start with stuff that does not work and end with stuff that works.

Part 1: stuff that does not work

High short interest:

Short interest and/or borrow utilisation is a function of supply and demand. Supply of stock available for borrow and demand from short sellers. So, when short interest rises, it means two things:

  1. Supply is drying up: institutional long holders liquidate their positions. Remember that whatever information that has led You to conclude something is a short is also available to long holders, who probably conclude it is not worth holding anymore
  2. Demand from short sellers is increasing: unlike going Long, going short is a finite universe. There is a limit to the amount of shares available for borrow. So, You will end up competing with short sellers and stable shareholders, those who never sell

Analysts downgrades:

Analysts are chronically late to the party. It is difficult for them to downgrade their ratings, especially when the whole investment banking food-chain depends on them rating stocks as Buy. Example: Enron was rated Buy days before its collapse.

Bottom line, You don’t need analysts in Bull markets and You don’t want them in bear markets

Fundamental newsflow deterioration:

Many market participants wait for deterioration of fundamentals before putting on a short. Well, if You believe that markets are discounting mechanisms of future events, waiting for the confirmation of those events is by definition late. This is called confirmation bias.

On the short side, it often comes from painful experiences. Market participants often start with anticipation shorts: unsustainable valuations, momentum etc. They get carried out a few times. So, their next move is confirmation short: wait for fundamentals to really suck before putting on a trade. They then compete with other fundamental short sellers.

Vigilante short selling

Tourists short sellers often short stuff that does not make sense anymore. They go after crazy valuation, parabolic momentum etc. They may be right in theory, but they are invariably wrong in practice. One sane person versus an irrational mob is still an unfair fight.

Personally, i have no sympathy for those market participants. They put other people’s money in harm’s way. Their egos breach their fiduciary duty to their clients. Luckily, they don’t hang around for too long

Part II: stuff that works

Momentum:

Between the time a stock should go down because valuations & momentum are unsustainable and the time when a stock should go down because fundamentals are horrible, there is a long period of time when price actually DOES go down. Reality is the time between the “should”

Look for downward relative momentum first, then weave whatever rationale You want.

“Buy” for the long term investor

My favorite of all times is a blind spot of analysts. Within their coverage, there is always a buy rated stock that performs poorly. They call it “Buy for the long-term investor”, meaning short term it will go down and You have to be patient.

So, as a good acid test, thank the analysts for the info and ask them if they would like to be paid long-term commissions for those long-term ideas. If they grimace, then Short

Relative Shorts

Before Valeant (VRX), Wells Fargo, Deutsche Bank, Lehman Brothers, Enron drilled a hole in the earth’s crust in absolute, they underperformed their benchmark for some time.

Relative momentum (Absolute Price / Benchmark price) is by far the surest way to find good shorts. a good Long/Short portfolio is composed of Long book of outperformers and a Short book of underperformers.

Putting everything in relative terms will immediately increase the number of short ideas.

What are some of the best techniques for selecting stocks to short?

#Quora: Do most quantitative trading strategies have limited capacity?

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Wasting water leaks into overfilled glass photo against white

Answer by Laurent Bernut:

The best answer to that question comes from my ex-boss, mentor and more importantly dude friend: “You are at capacity when inertia sets in”

This means that when managers become reluctant to take a trade, this is when they reach capacity. It might be at 100M or at 2B. It is after all subjective. The same can be said about algorithmic strategies.

Algorithmic strategies are more scalable than humans. They can be deployed across larger universes and shorter periodicities. So, diminishing returns kick in later. Market impacts happens and returns come down eventually.

There are three reasons:

  1. Volume market impact: some strategies arbitrage inefficiencies. So, trading naturally correct them. They have built in capacity constraint
  2. Competition: market participants copy each other. Pie does not grow, it gets fragmented
  3. Conceptual shortcomings: that is the hardest problem to solve. Problems are often solved at a different level than they were created. There are four ways it can be solved
    1. go wider: expand your coverage universe
    2. go bigger: accept market impact as a necessary cost of doing business. This means expand limit orders, but it also means refine signals so as mitigate slippage
    3. go deeper: elicit trading: bait other market participants to take the other side so as to create volume. This is the new old thing. Remember “Reminiscence of a stock operator” when the veteran trader tests the market by observing how fast his orders were filled. HFT have perfected that craft.
    4. go different: money management is the new new old thing. Getting in is a choice, getting out is a necessity. Trades do not have to be all-in and all-out. Scaling in and out mitigate capacity issues

Do most quantitative trading strategies have limited capacity?

@Quora: If most people lose in the stock market or gambling, then would I make money by doing the opposite of the average person?

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My answer to If most people lose in the stock market or gambling, then would I make money by doing the opposite of …

Answer by Laurent Bernut:

Statistically speaking, You would be exactly in the same position as the person You go against

There is something called the serenity prayer. Here is a simple adaptation:out_of_balance_-_Google_Search
Allow me to go with the flow when it is in the right direction
Allow me to stand against the crowd when they are running in the wrong direction
Give the wisdom to know which is which

An ethousiastic reader commented on an answer I provided about predictive technical analysis, saying that the win rate of Fibonacci and  iterations of it such as de Mark have a win rate of around 40%. He said I was an idiot (true) but more importantly if it was the case, people would do the opposite and win (false). While I have rarely been accused of being intelligent, probabilities still do not work like that.

There are three types:
Clear wins
Clear miss
Near miss/win

The third category is between 10 to 30%, 10 for simple (elegant) systems, 30 for simplistic (naive) stuff. So, doing just the opposite of what everyone else does will not make You a hero. Sell Apple short because everyone else is buying will achieve one thing only: provide liquidity for other buyers, thank you very much

How to tilt your trading edge

This is an important point for people who develop systematic automated strategies: improving the trading edge comes from reducing false positives, or moving near wins (small losses) into near misses territory (small wins). The compounding effect of tilting the win rate and the average win has dramatic impact on the overall gain expectancy.

For example, in our strategy, we have introduced a lag in the stop loss, called “French Stop Loss”, because it is fashionably late “bien sur”. This gives additional wiggle rooms to each trade. They can mature and are rarely stopped out. Not all of them succeed however. Some are closed because trend reverts. This is far less costly than stop loss though as trend reversals occur around break even. The number of stop losses has come down by almost 3/4 and now trades are closed around the break even point. This has considerably reduced erosion and has allowed us to increase the number of pairs traded from 12 to 36.

If most people lose in the stock market or gambling, then would I make money by doing the opposite of the average person?

The psychology of stop loss

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Diets don’t work. There has never been as many methods in the history of mankind. Meanwhile, we are all getting fatter year after year. Diets just solve the wrong problem. The issue is not the food we ingest; it is how we relate to it. If instead of juicy, delicious, melting, tender, we associated beefsteaks with increased risks of coronary and cardiovascular accidents, reduced life expectancy, arteriosclerosis, high cancer risk, we might be less inclined to partake in the consumption of the flesh of the holy cow.
Stop losses are like diet. Every knows the recipe: “cut your losers, ride your winners”. Everyone also knows the way to accomplish this as well: stop loss losers. So, why do we all fail ? This is not a statistical problem about calculating optimum stop loss. The issue is the associations we make about closing positions. Stop Loss is an identity issue.
The topic of “stop Loss” deserves a book. This article merely scratches the surface. Yet, You will find powerful tools to reframe your stories and practical tools to set and honour stop losses
The interesting twist on stop loss is even though we intellectually know that we are wrong at least 50% of the time, our ego has us still behave as if we have to be right 100%.

Part 1: Making money on the markets goes against nature

 “Hope is a mistake”, Mad Max, Aussie Philosopher
When people say I don’t believe in stop loss,…
… What they actually mean is I don’t like to admit I am wrong. They are often acutely aware that there is something wrong. Yet, they are willing to take on more pain and more uncertainty hoping that things will turn around and that they will be vindicated. This phenomenon has been studied by Nobel laureates Daniel Kahneman and Amos Tversky and known as risk seeking with losses and risk aversion with profits.justice-for-children
At the heart of this lies a confusion between outcome, i-e making/losing money, and process, i-e investment discipline. If being profitable equals being right, then logically losing money means being wrong. Any loss is therefore a direct attack on the self-image constructed by the ego. Since the ego wants to be right, and will always protect itself at any cost, we will sacrifice profits, endure excruciating pain for long stretches of time, jeopardise our jobs, our reputation even our families. The objective is no longer to be profitable but to validate the ego.
In Jungian archetype, the ego is an unhealthy version of the orphan. It is an early version of our personality, developed during the formative years of childhood. The image of the orphan, abandoned and mistreated, is actually a good metaphor.
Deep inside, the orphan’s intentions are good, he means well. He yearns for love and validation. Yet, as a child, he does not know how to handle situations gone out of control. His natural defense mechanism is denial and deflection. He will delay admission that something is wrong only to preserve ego driven self-image. He will pretend it did not happen. He will rationalise. Since he does not have better problem resolution method, he will show extraordinary resilience and wait until wrong turns back to right, until losses turn back into profits.
Do not underestimate the toxicity of a stubborn ego. Reputations and jobs have gone before egos surrender. Examples of pointless wars, companies run into the ground by narcissistic top management.
Bottom line: we are naturally inclined to let our losers run.

Why we cut our winners

We are not born eager to take profits early, quite the contrary in fact. “Beginners luck” stands for taking big risks on a low probability events, something no seasoned player would never dare. We become risk adverse after a few painful losses. We see profits evaporate before our eyes and want to keep some of it next time. If we never experienced losses, we would not feel the need to be risk adverse with profits. We would gladly embrace the riskiest strategies if it was not for the painful lessons we have learned through losses.
Bottom line: it is in our nature to run losers and then cut winners. Making money in the markets goes therefore against our nature

Part 2 How to re-write the story of stop loss

 

1. Accountability: take responsibility

The job of the ego is to protect itself at all cost, at all times. By now, You have probably concluded that this toxic form of ego has happened to people You know, but that You are immune to it. This makes for (hopefully) a nice read, but there is no need to change. Well, if that thought just crossed your mind, Your ego is playing tricks on You. Self-deception covers is a built-in feature that covers its own tracks. Try those exercise and see for yourself how good You are at deceiving yourself.
Exercise 1: Business is a form of procrastination
What do You do when there are uncomfortably large losses festering in your portfolio ? Do You read every analyst report ? Do You call companies, experts, read every article ? Or do You simply clean your desk ?
Chen & al asked students preparing for exams to grade their assiduity as well as break down their daily activities. Students who put off studying were also found more diligent at cleaning their desk , calling their parents. They were engaging in useful activities as a way to rationalise the guilt of not performing essential duties.
Exercise 2: The naked truth of numbers
In one of my previous jobs, i was fortunate enough to analyse the performance of managers stock by stock. If the three worst performing stocks had been removed from every portfolio, all managers would have outperformed their benchmark (before cost) every single year for the entire sampled period.
So, analyse all your trades and compare the bottom 5th percentile to the top 95th percentile. Download the trading edge vizualiser and run the numbers.
Calculate a 5th percentile tail ratio.
 
Your ego might have tricked You into believing You are rational. It might even have tricked You into believing You were doing the right due diligence, but in the end numbers don’t lie.
 

2. Reframing stop losses

If someone handed You the keys to the sexiest car on the planet, but whispered “brakes don’t work”, would You still take it for a spin ? Stop losses are like brakes. You may not like them, but they will keep You alive.
That simple metaphor is called reframing. It translates an abstract concept like stop loss into something we can relate to. Even though the absolute, imperative, non-negotiable necessity of a stop loss imposes itself beyond any beginning of dispute, we are still unlikely to execute, simply because enforcing them still conflicts our sense of identity. Bottom line, Stop loss is an identity issue.

3. Identity association

For example, diets are healthy, we know that. Yet, the overwhelming majority of people who have successfully lost weight end up putting it back on within a year. They have gone through the physical part, but they maintain unhealthy identity associations with food. Food is not the problem, how we associate to it is.DietsGone wrong
As long as we associate profitability with self worth on a trade-by-trade basis, the ego will trick us into skipping stop losses. We need to consciously associate being right with adherence to an investment process. This shifts focus from outcome (profitability) to process: being right is executing the plan.
This accomplishes two things:
  1. It becomes quantifiable and measurable: one trade is random. 100 trades are a data sample.
  2. It removes the incentive to cheat: being right is no longer an individual trade decision. You can lose money and be right. In fact, this association is stronger than the outcome orientation. It involves the neo-cortex in relationship to the dorso-lateral cortex (siege of identity). It literally rewrite the neural pathways to your identity

4. Clarity: Stop loss is a price, not a fundamental story, not a valuation exercise

Fairness is a trait common to all infants around the world. It manifests itself even before toddlers can speak. The orphan likes boundaries. He likes fairness. He does not like ambiguity. He hates favoritism.
Some people make the mistake of associating stop loss with change in fundamental story or valuation.
  1. Stories: prior to becoming a superstar with Emotional Intelligence, Daniel Goleman wrote an even more interesting book about the lies we tell ourselves. He argued that self deception is a built-in feature that covers its own tracks. We rationalise our bad choices. We will change our beliefs in order to match our actions. If You find excuses to avoid the gym, then You will fabricate excuses to allow losers in your portfolio.
  2. Valuations: Earnings estimates are notoriously inaccurate and jumpy. Forecast accuracy for analysts earnings estimates 1 year out within +/-10% range peaks at 25%, half a coin toss !
If a trade goes sour, You do not lose an investment thesis. You do not lose a P/E, DCF or some Frankenstein sum of the parts valuation either. You do not lose things that were outside your control in the first place.
You objectively lose two things: money and time. Risk is a number: this is how much You can afford to lose
5. When to set a stop loss
The best time to set a stop loss is … 5 minutes before entering a position. Stop losses must imperatively be set before entry
  1. Stop losses are necessary to calculate position sizes. If You do not set a limit on how much You can afford to lose, You may fail to appreciate what the market has in store for You
  2. Emotional interference: Once we enter a position, emotions kick in. Think of it as a prenuptial agreement. Commit to a price in writing, write it close to entry cost and price. Do not trust your brain with some abstract stop loss price. Your brain will renegotiate and it will trick You into a suboptimal decision (marketing buzzword for stupid mistake).
Stop Losses are necessary. We need to know when something is wrong, cut it out and move on for three reasons

6. Pre-mortem: enter each as if You expect them to fail

Everyone knows about post-mortem: this is the quarterly ritual when someone in management goes through your trading decisions with the benefit of hindsight…Grief
Pre-Mortem is a technique invented by Gary Klein: fast forward in time and visualise the decision You are about to make as if it was a failure.
For example, optimism usually peaks before entry. Even though our long term win rate is around 40%, we behave as if every trade was a winner. Consequently, we tend to oversize positions and delay stop loss.
Practice this powerful exercise for a month: just before entering a trade, imagine it will be loser that will have to be stopped out. Visualise yourself closing the trade at a loss, use the present tense. It may seem crazy but it accomplishes two things:
  1. Conservative position size: if you enter a trade expecting it to be a stopped out, You will naturally take smaller bets. You will stay out of illiquid issues
  2. Pre-packaged grief: we normally expect trades to work. When they don’t, we grieve our way to stop loss (Kubler-Ross). We negotiate with the inevitable. Now, if we expect every trade to fail, those which work will be good surprises. That do not perform as expected. It removes the emotional toll.

7. Execute the stop loss: re-parenting

A stop loss is just like any other trade. The difference is the meaning we assign to it can be potentially devastating.
The paradox is that beating ourselves up over losses reinforces the ego. Think of it as an orphan. Children have superb natural resilience. Beat the orphan, shame him, and he will retreat further, deeper. He will drape himself in the warm mantle of anger and call upon his resilience to endure the hardship. The orphan will endure but the child will yearn for forgiveness and love.
There is a link between self-forgiving and learning. Students at U-Penn who were taught to forgive themselves for their lack of assiduity have shparent4own 10% additional retention and 15% better grades than those who were instructed to enforce rigorous discipline. People who forgive and love themselves when they have trespassed their own boundaries tend to learn from their mistakes. In Jungian archetypes, this is the Ruler bringing back the orphan to the committee of the mind and thanking him for his protection. In other words, soothe yourself as if You were talking to your child. This is called re-parenting the orphan.
So, the more You forgive yourself, the less daunting stop loss becomes
The easier it is to execute stop losses, the easier to take new trades
The smoother the execution, the better the performance
Bottom line, forgive yourself for your mistakes and You will become a better portfolio manager.
In conclusion, watch this excellent video from Nobel laureate Daniel Kahneman on mistakes and pre-mortem

Better System Trader: Questions from the audience

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These are questions from the audience on the Better System Trader podcast with Andrew Swanscott. I am honored and humbled by the interest of listeners. We did not have time to cover all questions, so here are some written answers. If You have questions, please feel free to ask

Trading Psychology

From: Jim

The mind plays tricks on us, even with a successful system, as a system trader, what methods to use for the mental part of the system trading?  So meditation, journaling but how to implement them in one overall plan?

EXCELLENT QUESTION: Part 2 of the book will focus on this

  1. You cannot trust your mind. Michael Gazzanikas 1964 split brain theory. Self-deception: (Daniel Goleman) is a built-in feature. It happens automatically and covers its own tracks and designed to deceive us.
  2. Accountability: simple exercise to test validity of prediction and convince us we are unable to predict.
  3. Reframe from outcome to process: develop a system, account for signals generation and be honest about signal execution
  4. Daily market journal: write what You think markets, thoughts, things that happen, small comments, ideas, formulas. Do the James Altucher method: keep a moleskin with You at all times. Deliberate practice: activates the Default Modal Network (Olivia Fox Cabane)
  5. Write about the thoughts that cross your mind:
    1. dreams and aspirations when making money, why You keep doing that, why You like it. How does it manifest in the body
    2. fears, pains, detail, reflexes (ex: read the press, look for expert opinions): be specific and commit to writing or dictating. Very important
  6. Walk through your fears: meditate and manifest your fears. Seneca was history’s first investment banker. He also happened to be the founder of stoicism school of philosophy. He advocated one day a month of living frugally as a form of inoculation.

The view from the short-side: how we process emotions and the market signature of the 5 stages of grief

Another post on the topic:

Amygdala and the neurophysiology of Greed and Fear

From: @trader1970

So far as a Trader what is the biggest fear that you have not been able to overcome?  How do you manage this situation?

  • My father had a hemiplegia (brain stroke) when i was 7. He never regained motor skills and speech ability. We fell into severe poverty. As a result, I have a deep seated fear of becoming handicapped and not being able to feed my family anymore. Personal and vulnerable. Markets related fears I can deal with, I am a short seller, this is a versatile skill
  • How does it manifest itself in trading:
    1. Diversify sources of revenue: we have a real estate business that generates enough to cover our primary needs. That provides peace of mind. My family is safe from harm
    2. Frugal lifestyle
    3. Systematically take less risk: when making sizing arbitrage ask yourself, would You be satisfied with earning a little less than You could or losing a lot more than You should ?

 

Position sizing

From: Bass

Tell us more about risk management, Volatility based Stops and position sizing.

  • It really depends on your customers: Investors are like teenage girls: Teenage girls say they want a nice guy and they fall for bad boys. Investors say they want returns but they react to drawdowns:
    1. Magnitude: never lose than what investors are willing to tolerate
    2. Frequency: never be the last person investors think about before going to sleep
    3. Period of recovery: never test the patience of investors
  • Risk is not a story, risk is a hard number: it manifests itself in individual trade risk per trade (RPT), in aggregates exposures. Example: Long small caps / short futures is synthetically residually Long large caps as the index is primarily composed of large caps
  • Volatility stops: swings +/- 3 ATR. Volatility is as welcome as Kanye West at an award ceremony. Bad news, volatility is like Monsieur Kardashian bad manners: it is here to stay. Your job is to ride it and the way to do so is position sizing. For example, biotech and internet stocks are more volatile than department stores for example. So, size them accordingly.
  • used in position sizing. Rank trades by size (bigger first) so as to go for better volatility signature

 

From: Derek

Hi Laurent,

I have been following your website ASC for quite some time and also your answers on quora. I have something related to an answer you had to a quora question In investments, does more risk really equal more return, in the long haul? Your answer immediately clicked with me and it logically made sense to me. Laurent – you may want to quickly summarize what the answer was before we move on to the next part of the question. I’ll ask you what the answer was.

 Would you please elaborate on your convex position sizing method for a risk per trade and draw down module. This was discussed as an answer on Quora. I understand that as you make money you will allocate a larger risk budget using a convex surface with a max risk budget of -0.30. But i do not understand the reverse side of this, the draw down part.  As we get more draw down we should decrease our risk budget again using a convex surface. It starts at 100 and bottoms out at around 35. I do not understand how that part works.

 Also how did you come up with this method? Can you give a practical example of when you used this both for drawdown and additional risk scenarios?

Thank you very much

Derek

Here is a complete article on the topic. Thank You very much for asking

Convex position sizing algorithm: something your brain can trade through euphoria and depression

  1. Long Side: people add risk. Short side; frequent squeezes, start from manageable risk then reduce
  2. Metaphor of accelerator and brakes. Optimum fuel consumption happens when You do not solicit brakes. It clicked while listening to Larry Williams interview on the famous Better System Trader after bringing my daughter to the Hoikuen (crèche in Japanese)
  3. Market Value (MV) = AUM * Risk Per Trade (RPT)
  4. Most position sizing formulas will use one side RPT usually to calculate risk. In my case, this is convex so as we make money take more risk. This is accelerator. You want this to be responsive and nervous so to re-accelerate quickly after drawdown
  5. Meanwhile, when strategy stops working, You need to trade minimum risk. The problem with conventional formulas is that brakes are spongy and re-acceleration slow. You can get whipsawed. Which then erodes emotional capital, which leads to downward spiral. (Feedback loop between emotional and financial capital). By allocating a convex surface, AUM drops dramatically very quickly but then re-accelerates as there are signs of life
  6. Practical example: ETF. At the moment squeeze so drawdown, then surface immediately reacts and I naturally trade smaller. Residual open risk in my latest short entry was -0.12%, down from min risk at -0.25%

Trading Edge

From: Marcia

During your interview in episode 32 you talked about the “Edge” formula, which is, I think, ” (%wins X Average Win) – (%Losses X Average Loss) “? Would you talk more about that and what number you are looking for, or, what insights the number gives YOU?  thank you

Thank You very much. I am writing a book on short selling. Part 1 is about how to build a statistical trading edge. Part 2 is about building a mental trading edge. Part 3 is about constructing a portfolio with a positive trading edge. On the Long side, the market does the heavy lifting. On the short side, the market does not cooperate, so building a trading edge is critical

  • I am looking for positive number. I have never looked for a specific number, thank You for the suggestion
  • Use as asset allocation tool:
    • Plot trading edge by side and strategy
    • Pro-rate trading edge
    • Allocate resources (trading AUM or surface) based on trading edge, with floor and ceiling
  • This is useful for multistrats portfolios where You would systematically allocate resources to the best performing strategy

Shorting strategies

From: Adonis

What are the 3 most successful triggers he uses in going short? Does he use daily or weekly charts?

There were originally several variations on two strategies (mean reversion and trend following). Over time i have managed to merge them into one.

  1. Define trend: lower highs, lower highs
  2. Wait for roll-over: maximum information: volatility, swing high
  3. Enter on next bar

Exits:

  1. stop loss: full
  2. trend reversal (logical time exit): entry qualified on the other side happens within stop loss
  3. partial exit: risk reduction, take profit objective is to break even

Now, the delicate part is not in the signal module. Trading suspension for example is not a signal issue but a position size one. If sizes are too small, then trades are rejected. For example, sometimes currency pairs flip-flops between bull and bear. So, we count entries and add penalty for each full exit. This reduces risk per trade. If the overall equity is ain a drawdown, then position sizes get smaller. If they are too small, they are automatically rejected. This allows us to trade more pairs as some of them stop trading.

 

From: Graham

How do you simulate borrowing costs when testing a shorting strategy?

Everything at General Collateral (GC) +0,15% added to slippage. The question is probably related to hard to source issues or crowded shorts.

Do not short issues with borrow >5%, except on the Long side: squeeze box. Do not squeeze people: it is bad karma

 

From: Nikhil

1)  Majority of ideas for a short strategies seem to fail rigorous testing on larger time frames so one should focus on more active time frames [5min to 2H based data] instead of passive time frames [Daily to Monthly based data]  ?

Assumption: Nikhil may trade breakdowns, because this is a classic symptom or rebound higher than entry which leads to false positives.

Solution is not in better entry signal, but in partial exit and better money management, Trading system has 3 components: exit/entry, money management and mental.

 

2) Can you highlight a basic idea on a short strategies variable for further research for those struggling with constructing a short only strategy ?

JNK Short

Sure, check post on JNK attached. It is a scale-out/scale-in system.

There are 2 certainties in life: death and short squeeze. Use squeezes to your advantage

3) What opportunities do you see in the financial industry going forward for new generation of entrepreneurs (non trading/investing related) coming up ?

At the moment, everyone wants to be in the HF game. I entered the HF game in 2003 when it was still in infancy: a bunch of cowboys blowing stuff up in their kitchen. HF is bound for yet another healthy correction.

I believe the future to be threefold:

  1. Algorithmic assets allocation: fire your financial advisor. If You don’t know why, he probably does. Machines do a better job and they don’t get kickbacks…
  2. Separately managed accounts (SMA): open a brokerage account and let algo do the heavy lifting. Funds running costs are prohibitive. Besides, there is a proliferation of single brain cells parasites called compliance. They are the TSA (US airports officers) of finance: utterly useless at catching problems but extremely annoying
  3. Active management “soft patch”: SPIVA.com. The overwhelming majority of funds underperform the index and they are more expensive than ETFs. There is a gambler’s fallacy going on: ETFs have outperformed active managers so far, but the latter will be better equipped to navigate volatility and downturns. That is gambler’s fallacy: if managers failed to outperform during easy times, why would they even succeed during hard times ?

As for non-investment profession, I honestly don’t know

 

From: Ola

I am using market filters to keep me out of bear markets for my long only strategies for stocks, and I’m cashed up for periods of time. I find this a bit boring. What type of indicators or price action should I look for to create a short strategy to complement the long strategies? I’m looking for something simple and robust to be used on the daily time frame.

Best regards,

Ola

Check JNK trade attached. 1 Define trend, 2, enter on counter-trend move 3 exit partially as rebound comes

 

General trading

From: Bengt

Hello, it is often said that short trading is very difficult to make money off: Do you agree with this? If so, do you think it is a matter of the odds not being on your side or is it too much to handle mentally?

EXCELLENT QUESTION: “This is space, the environment does not cooperate… You solve one problem after another, and if You solve enough problems, You get to come home”, The Martian.

Andrew, Allow me to explain why people fail on the short side: they think from a Long perspective. This is deep shit that no-one has ever explained in statistical and psychological terms. Fascinating theme, I am writing the book on the topic and how to build a sustainable short selling practice

Example: 4 stocks: A,B Long C,D short, all start at 100

Start: Long exposure 200%, Short exposure: 200%, Gross exposure: 400% , Net exposure 0%,

A goes up by 10%, B drops by 5%. C drops by 10% and D goes up by 5%

End: Long exposure 205%, Short exposure: 195%, Gross exposure: 400% , Net exposure +10%,

Bottom line:

  1. On the long side, the market does the heavy lifting for You. There is a bigger bet on something good
  2. On the short side, the market does not cooperate: there is a bigger bet of something that does not work
  3. Net exposure is +10%. The main reason why people fail is that they want to short a throw away the key when they should be working more on the short than the long book. Just to stand still they should keep running: this is a Sherlock Versus the Red Queen effect

 

On the other end of the spectrum: is there an outer limit, odds-wise, for profitable long term trading, or is an 800-day breakout tougher to handle mentally than a 2 day breakout?

Best regards: Bengt

The problem is false positives: You will have many more false positives because of poor trend formation with shorter periodicity. You will deal with being systematically late. A more robust statistical approach is to deal with exits so as to move the needle from “near win” (false positive) to “near miss” (partial win)

 

From: Rob

Please ask for the following:

1) What works better in the forex market – momentum or mean reversion?

Mean reversion works until trend following works. It is a question of periodicity and tolerance for stop loss.

My strategy is a combination of both.

Post about two types of strategies:

Regardless of the Asset Class, There Are Only Two Types of Strategies

2) If you had to start over from the beginning with the knowledge you have now where would you focus on and what would you throw away?

  1. Psychology: clarity about beliefs. 90% of trading is mental, the other half is good math
  2. Trading edge is not a marketing gimmick: it is a number
    1. Money management: example of convexity
    2. Exits: stop loss is the 2nd most important variable

3) You have said in the past to focus on exits and not entries – but how exactly do you do this? Is it a matter of thinking about when you will exit if you are right or wrong?

Never think about right or wrong, it is the wrong mental association that will lead to death. Think about profitable. I am writing something on the psychology of stop loss. This article is potentially the most or second most important post I have ever written.

The best analogy is diet. Diets don’t work. We are all getting fatter and there has never been as much information on diet. Diets fix the wrong thing. The problem is not what we eat. The problem is how we think about we eat. Same goes with stop loss and exit.

This is not a mathematical problem. This is a psychological issue about the meaning we ascribe to closing positions. If we associate stop loss with being wrong, the ego will revolt.

IAU option trade anecdote funny and excellent example to talk about emotional capital and Zibbibo viognier white wine blend from Etna

4) What do you think about fixed fractional position sizing

it is a good basis of any position sizing algorithm. Now, it is a bit simplistic for 2 reasons:

  1. Uniform risk taking through the cycle: think of it as a car. Sometimes it is good to accelerate, sometimes You need to decelerate. Win rate changes through the cycle and so should risk
  2. Dissociation: Long and short sides rarely work well at the same time. Since they have different win rate, they should have different risk numbers

Dissociation by side of the book, strategy using trading edge or win rate. Please check my post on convex position sizing

5) Please talk more about stops. you said in the past your stops have a large impact on your P&L – but how do you calculate your stops. What are the considerations when using a mean reversion vs momentum strategy and type of market forex vs futures.

Sure, happy to explain the equation

The game of two halves: an elegant two-step process designed to cut losers, run winners, while maintaining conviction

Now, for mean reversion strategies, the equation includes another variable: frequency. Let me give You a simple example. If you clock +0.5% per month and then have -6% month, it will take roughly a year to make that back if everything else works. So, a simple idea is to empirically come up with a patience factor. Example: never allow losses to be greater than 4 months of average profit. The difficulty though is correlation. Accidents travel in group.

Another important point on mean reversion, never trade open risk strategies. Example: short naked gamma. I was having dinner with some options portfolio managers friends. Short OTM gamma is still marketed to unsuspecting investors. Those are scams: they show consistent returns until they blow up

From: John D

I trade a long term trend following (trade every 1-3 months) system on stocks indices currencies and commodities. What type of exits would you use on this type of system?

Trailing ATR stop? Time stop? Both?

John D, You are right on all of them

Three stops:

I have developed something called box concept. Once in a trade, there are three possible scenarios:

  1. It does not work and needs to be stopped out. That is a floor or ceiling depending on whether You are Long or Short
  2. It works well and warrants some de-risking: take money off the table and leave a portion for the long right tail
  3. It goes nowhere: this immobilizes resources and needs to be dealt with

The concept is that whatever happens, it will trip one of the mines and will be dealt with. This is how it is done in practice

  1. Isometric staircase stop loss: swing +/– allowance for volatility. Markets do not go up in straight lines. They go up or down, retrace and resume their course. This method allows markets to breathe
  2. Partial trailing stop loss: take some money off the table so as to reduce risk, but leave a residual for the big trend. After taking some money off the table, it makes sense to re-enter and a add a little bit more risk.GBPJPY
  3. Time stop: buying power and trading frequency. Some stocks do not move enough to warrant either a stop loss or a risk reduction. These are the harder ones to spot. The solution is to timestamp them.

About timestamp:

A powerful two step process to deal with the endowment effect: The game of two thirds, or how to deal with free loaders in your portfolio

 

Round 2: synchronous short selling signals across multiple asset classes

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1. Trading journal

2. Tip of the day: Triage, kick out the free loaders and never trade laggards

1. Trading journal: Round 2, time to short again and don’t complain there aren’t enough short ideas

This is the big day, time to get back in the ring. Short squeeze came and went. Now, stocks are rolling over again. This is quite an unusual to do so though. Roll-over usually happen over the course of a week. This time, it’s different (just love to say that to confuse people).Roll over happens across asset classes on the same day. In fact, there were so many they had to be split in two files. It took more than an hour and almost half a bottle of Prosecco to process them. So, don’t complain there aren’t enough short selling ideas.

So, “is it the right time to dip our toes in the water ?” When everyone is buying, short selling seems like a bad idea. By the same token, when everyone around the world, across asset classes is selling, does it sound like a good idea to go out and buy ?

If You want details on any signal, send a mail or a comment and i will post it with comments.

All signals are ranked by size assuming a 0.10% risk per trade. I placed a whole bunch of orders. The priority algo was as follows:

  1. Free up some space and kick out free loaders: see Tip of the day
  2. Top-up of existing positions: SPY, EWL, EWH, EPP, PHO, VWO. Ignore EWA, IDV and TDIV already fully loaded or expensive borrow
  3. Enter qualified trend reversals: we have designed a neat trend reversal qualification test some time ago. This is as early and as safe as a trend reversal can be detected. So, anchor positions with minimum risk per trade very near the top
  4. Enter trending shorts by size and lot numbers: the bigger the size and the higher the number of lots the better. High lot number means easier partial exit

Tip of the day:

Triage:

  1. Make space, get rid of stale positions: multiple simultaneous positions means something happened in the markets. So, the first thing to do is to get rid of the positions that did not react. Those that do not react are likely to hurt when the market moves the other way. For example, during this sell-off, some positions held their ground. Two of them even went up. Fine, OUT now. Yeah but the thesis, the long term prospect, blah blah blah. Sure, when ready to cooperate, we will talk about it, but for now OUT. This frees out some resources to more promising ideas
  2. Weight ranking: position sizing algo is fixed fraction position sizing of equity at risk -0.10%. So, for the same risk budget, the bigger the position size, the lower the volatility. Yeah, but i like the thesis on bio stocks. Great, they are too volatile still, so wait until they are ready for a serious relationship

Free Loaders:

Managers often fail to meet their objectives not because of spectacular blow-ups, but because of the drag of poor performing stocks. So, relentlessly kick out stocks that do not react or perform poorly. Here is a simple powerful way to reframe the situation

If You owned a building, would You allow tenants to stay rent free ? No, You expect them to pay their rent. Apply the same discipline to stocks and performance will mechanically improve. Here is a simple elegant “how to” article

http://alphasecurecapital.com/the-game-of-two-halves-an-eleg…

Never trade laggards

Brokers and fund managers have this constant fear of missing the boat (fear of missing out or FOMO). So, they have come out with this brilliant idea to round up thematic stocks and identify laggards. The basic thought is “This is the next…”. IBM is not the next Apple, Squarespace is not the next Facebook. Laggards are just left overs

The best remedy is to think that the boat You just missed is not an ocean liner but a Vaporetto. There will be another one shortly. The market will give You another chance

Trading Journal 20160203

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Trading Journal 20160203

1. Trading Journal

2. Tip of the day

Trading Journal

As explained in a previous post, Shorts entered after a squeeze offer better visibility and have higher probability of success. So, the alert pad came back quite full. Most of the signals are frequent flyers on the short side.

Shorts are like a glasses of wine, they tend to be depleted, so they require regular top-ups. Let:s not complicate things here.

Here is how to read the above table

  1. Stop Loss: it has a dual function, one obviously to put a quick end to a bad trade for now. The second function of a stop loss is to calculate a position size. Those are isometric staircase stop loss using a multiple of ATR 2.5 or 2.6
  2. Limit: Entry is a choice, exit is a necessity. This has been severely back-tested and reinforced in real life trading: this strategy works best over time if we do not chase stocks. Stop Loss and Limit are used to calculate position size
  3. ATR: Average True Range 20 days, simple average.
  4. Weight: suggested position size. This is a Fixed Fractional Position Sizing method or equity at risk that assumes -0.10% risk per trade. This is a clean simple multiplier
  5. Risk Adjustment: this is the -0.10% factor
  6. Equity at risk: position sizies are rounded to the nearest lot and this gives residual equity at risk
  7. Ranking order: the bigger the better. For a same risk budget, the trade suggesting the largest size comes first. There is no “qualitative/fundamental” assessment here. Size is a primarily a reflection of the volatility signature

For the record, I have placed orders on some of those ETFs. I am not suggesting You should buy/sell/short sell or buy to cover any of those signals.

As You can see, the numbers at the right side of the charts are the same as the ones on the table. In fact, I go through every chart and write those numbers.

SJNK is another junk bond ETF. It has low volatility and clean trend. Those are rare and nice shorts: bearish calm

On the Long side, the information is below the swing point. Interestingly enough, the algorithm flagged a partial exit shortly before this re-entry. Re-entries are possible only after a partial exit has been performed.You

The logic is simple: take risk off the table before adding some. Adding to a position with open risk compounds risk. It works until it does not

 

Tip of the day

Whatever asset class and time frame, we all trade the same thing: risk. So, the first order of business after entry is to reduce risk.

Short-selling: “Come with me if You want to live”

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The 30s’ are usually remembered as the “Great Depression era”. Yet, from 1932 to 1937, despite abject poverty on main street, what was left of Wall Street enjoyed an exceptionally resilient bull market. The government had found a new tool called pump priming, inspired from an economist (only they can get away with such awful track records on the markets) named John Maynard Keynes. The government loved it and they feel asleep on the button. Sounds familiar ?

We have enjoyed a synchronous long smooth bull market. It has been good to all participants. Yet, no bull market has ever boosted anyone’s IQ. If anything, this Fed sponsored bull market has made participants fat and complacent: low interest rates pick up the tab anyway. Now, that the Fed has decided to tighten the purse, things may get a bit more turbulent out there.

Short-selling is the most underrated skill on the markets. It is neither a nefarious conspiracy nor an anti-patriotic gesture. It is a rare, versatile and immensely valuable craft that will ensure your survival in the most turbulent times. Markets have dropped by 50% twice in the last decade. If You would like to retire on returns rather than stories, then this is something worth learning.

Why You should listen to me ?

“Too many people look at “what is” from a position of “what should be”, Bruce Lee, Chinese philosopher

come-with-me-if-you-want-to-liveThese days, everybody seems to have an opinion on short-selling. Short sellers seem to proliferate faster than syphilis on a ship. I cannot but feel humbled in such illustrious company. I have been in the alternative space for 15 years (hedge funds and large institutions). For the past 8 years, I was a dedicated short-seller with Fidelity Japan.

My mandate was to underperform the inverse of the longest bear market in modern history: Japan equities. Every day, I woke up -100% net short, having to do worse than the worst market on earth, good morning. These days, it feels somewhat refreshing to be around -50% net short.

While every other freshly minted guru has some elaborate speech about how short selling should be done, I have earned my short selling-skills the hard way and I have the scars to prove it. It is all lovely and cosy but the only tiny difference is that in the real world You can’t hit the reset button after Game Over. So, Come with me if You want to live

Why should You master the craft of short-selling ?

There are three obvious reasons:

  1. The secret to raising AUM is to perform when no-one else does. So, if You are a professional in the alternative space, just remember that when it is Babylon on the markets, investors will worship the Jamaican Prophet His Almighty Bob Marley
  2. Markets go up and markets go down: why not profit from both ? It takes a little more skill, that’s all
  3. A stronger version of yourself: In the world of short-selling, the market works against You. Either it will forge excellence out of You, either it will crush You. It is that simple. So, even if You decide to stay Long Only, learning to sell short will undoubtedly make You a formidable market participant.

Why do most people fail at short selling ?

“In theory, theory and practice are the same. In practice, they are not”, Yogi Berra, American Philosopher

Market participants approach short selling the same way they approach long buying. They do their analysis, watch some of it being validated and then happily conclude it is just the inverse of going long. That all works well until it is time to put theory into practice.

A couple of short-squeezes that would turn Barry White‘s rich baritone into Barry Gibb‘s high falsetto, a couple of quarters of humbling losses down the road, and they conclude that short-selling is dangerous. What they do not realise is that on the short-side, the market does not cooperate, stock picking is just not good enough. Market participants fail to understand the dynamics and the mechanics of short selling.

On the long side, picking stocks is sufficient. The market does all the heavy lifting thereafter. Stocks grow bigger, everything works in tandem: they contribute more both in terms of alpha and exposures. Losers shrink and hurt less.

On the short side, the market works against You. Winning big literally means watching your portfolio shrink like a magic skin:  You have smaller victories when successful and bigger problems when unsuccessful.

Picking stocks is just the start. The real work of extracting alpha comes after that. This is hard, frustrating work, when it works at all. This is why people keep looking for structural shorts all the time, something they can sell short and throw away the key. Structural shorts are like market gurus, they are everywhere. Profitable structural shorts are more like market wizards, good luck finding one. They are so rare they make Big Foot look like a frequent guest on the Saturday Night Live show. Welcome to the mechanics of short selling: scarce poor quality borrow leading to short squeezes, prohibitive interest fees and dividends payable.

The MMA of short-selling

Martial arts are a good analogy for the markets. If Long only was a fighting sport, it would be English boxing, Queensburry rules. If Short selling was a sport, it would be MMA, Vale Tudo. Floyd Mayweather is the undefeated champion of the world. He is a solid contender for the title of the best boxer of all times. Yet, should he face Conor McGregor in the octagon, MMA style, he would be dismantled, dismembered and disfigured long before the first round bell has a chance to save him.

On the Long side, all You have to do is pick stocks and the market does the rest of the work for You.

On the short side, not only do You have to do that, but You will have to master those skills:

  1. position sizing: successful shorts shrink, unsuccessful ones hurt fast. Learn to size position so that they may contribute if successful, but not wound if not
  2. Milk your ideas: successful shorts shrink. So, it is not enough to find them, You must constantly work at them to extract alpha
  3. Consistent idea generation: a healthy short book shrinks, so You need to come up with at least twice as many ideas as the Long side just to keep up
  4. Market timing: two certainties in life: death and short squeezes a la Barry Gibbs. Use the latter for trading purposes before the former catches up
  5. Superior understanding of risk: risk is a number, not a pretty paragraph at the end of a dissertation. Short sellers naturally develop a keen understanding of hedges and probabilities.
  6. Process versus outcome thinking: if investment is a process then automation is a logical conclusion
  7. Mental fortitude: would You like to be the iceman on the trading floor when everyone else panics ? After a while, bull markets, bear markets, they all taste like chicken

The good news is that short-selling is a skill. It can be acquired, perfected and expanded. It is also a versatile and valuable one. Remember this: with this skill, You can go Long without breaking a sweat, but can Long-Only do your job with the same ease

How does it work in practice ?

Short selling is a high pressure sport. Those who have only gone Long will suddenly be confronted with unfamiliar levels of stress. Volatility, uncertainty, fear, stress, pressure constrict the thinking brain (prefrontal cortex). Whatever mental bandwidth is left will be thankful for clear, unambiguous and simple instructions. So, do not be fooled by the apparent simplicity zen appearance of the charts. It took years to mature and thousands of lines of code to come to this level of clarity. In time, I hope You will learn to appreciate the gift of simplicity.

The above chart is designed to be intuitive.

  1. Price Bar colour: Down trends are coloured tomato. Uptrends are coloured olive. Back in 2012, the original name of the strategy was Olives & Tomatoes. (no wonder it initially failed to garner traction in my venerable institution…)
  2. Swings: swing high bars are coloured in green with a green annotation above the price bar. Swing low bars are coloured red annotation below the chart
  3. Annotations above/below swing bars:
    1. Olive (above) / Tomato (below):
      1. Stop Loss: Single number above/below all annotations
      2. Target price: target price is a risk management level. It is not an expression of fair value. Life is unfair, so are the markets, get over it
      3. #ATR: Average True Range [20 bars]
    2. Mauve (never trust a Frenchman with the colour code): Remaining balance. When engaged in a position, the algo calculates the quantity to exit so as to break even on the trade thereafter and prints remaining balance
  4. Dotted Green/Red Line: isometric staircase stop loss. Stop losses are reset for all positions. Those who fail to honour them will be unapologetically de-friended: may You be chained, eagles devour your liver and Justin Bieber fill your ears
  5. Black triangles: represent entries. Stacked triangles mean single entry, multiple exits. Above/Below is a precious roadmap that contain all the values for the journey ahead
    1. Ceiling/Floor: this is the equivalent of stop loss.
    2. LoB: is the equivalent of a Limit or Better price. Do not chase stocks past that point as probability recedes thereafter
  6. Red/Green inverted triangles: mean unprofitable/profitable exits. Stacked triangles mean final exits of multiple positions
  7. Moving Average: we all love our Christmas trees. This has no bearing on the strategy, but users have found it easier to anchor their beliefs around a long term moving average.

Charts have all the essential information You need to know to go on your journey: bullish/bearish underlying trend and exit roadmaps. It is kept simple by design. For example, position sizes have been removed in this version. They are calculated separately in the alert table. It all comes down to essentialist philosophy: focus on the essential few and let go of the trivial many. With this tool, You have a sustainable fighting chance against the markets.

Trading Journal

The above chart translates into real trading: multiple entries and exits. Green column is entry. Salmon is partial exit and grey is final exit. As soon as a position is entered, the first order of business is to take some money off the table so as to reduce risk.

Above is JNK, the ETF for high-yield bonds. When the first trade was taken, the chrematocoulrophony (chremato: money, phone: voice, coulro: clown) or consensus on The Street was talking about “Buy the dips”, “value hunting”. These days, everyone talks about the implosion of the high yield space. Bottom line, the hardest trades often offer the best rewards. Stick to your system.

Alert table

The table contains the same information as charts, only in a more compact numerical form.

Types of Alert:

  1. Long Limit / Short Limit:
  2. Profit Taking: A swing has been recorded and the market is about to rebound/drop so time to take risk off the table. Exits are executed at market price: entry is a choice, exit is a necessity
  3. Trend reversal: Trend has changed from Bull to Bear and vice versa. Close open positions at market
  4. Stop Loss: remember the curse of Prometheus: liver may regrow, but Justin Bieber that is rough
  5. Weight: is derived from a fixed fractional position sizing method set at -0.10% (equity at risk method) for simplicity;s sake

That’s it, everyone is set. Happy trading. Two things, I trade the same signals that are shared on the website. Call it front-running or camaraderie. Rather than 5 pages of lawyerly bizantyne disclaimer, one sentence suffices: You are responsible for your own choices.

Conclusion      

“The time to repair the roof is when the sun is shining”, JFK, modern mystery

Short-selling is a habit. It takes time, mistakes, patience to unlearn bad habits and form new beneficial neural pathways. The best time to do so is when urgency forces focus, but not critical enough to be a question of life and death.

The Fed has ended its life-support, which means more turbulence ahead. This is a good time to learn how to ride volatility with serene equanimity.

Daily #Markets Signals

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Our sincere apologies for the long silence. We were immersed in a fascinating auto-trade project. It has been a wonderful watchmaking experience. “If investment is a process, then automation is a logical conclusion”. We will come back with solid content soon.

  1. FTASE (Athens) Bearish Strength 2015-06-08.png
  2. CAC Bearish Strength 2015-07-06.png
  3. BELSTK Bearish Strength 2015-07-06.png
  4. AMX Bearish Strength 2015-07-06.png
  5. TUSISE Bullish Strength 2015-06-08.png
  • If investment is a process, then automation is a logical conclusion
  • Complexity is a form of laziness
  • Great traders are not smarter, they have smarter trading habits
  • If investment is a process, then automation is a logical conclusion
  • If You are interested in short-selling, trading systems, position sizing, trading psychology, visit us at: www.alphasecurecapital.com
  • Bullish weakness: Longer-term trend is bullish. There has been some temporary weakness, but the uptrend is likely to resume
  • Bearish strength: Longer-term trend is bearish. There has been some temporary rally, but the downtrend is likely to resume
  • Volatility Channels (Horizontal dotted lines) : Markets often retest swings. This is a volatility buffer to allow wiggle room.
  • Volatility Channel: Think of the other side of a volatility channel of the distance it would take to close half the position to break even if the remainder was to hit the stop loss
  • #n%: Think of it as a rudimentary equity at risk position sizing. It is 1% divided by the distance from the day the swing is recorded to the volatility channel
  • Disclaimer: this is neither a solicitation, nor an investment advice