At first a remark about the Successful trading. The successful trading is based on
1) POWER OF COLLECTIVE SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle). (STABLE GREAT SCIENTIFIC THOUGHT-FORM OR BELIEF FACTOR IN TRADING. )
2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )
3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL FACTOR IN TRADING)
We may make the metaphor that successful trading is the ability to have successful resonance with the activities of top minority of those who determine the markets.
A common question is : WHAT IS BEST TO UTILIZE? TECHNICAL ANALYSIS, NEWS OR MACRO-FUNDAMENTALS?
There are many who claim and believe that macro-fundamentals is just a moving-sand in forecasting commodities or cross exchange rates (forex).
An there are also many who claim and believe that following the news that prove to be almost always posterior and too late , is just a moving-sand in forecasting commodities or cross exchange rates (forex).
And those who believe that making technical analysis can become moving-sand in forecasting commodities or cross exchange rates (forex).because in spite the believe of hidden regularities in the patterns they can very well be more unpredictably random than one can believe.
I must say that all of the above perceptions have a significant percentage of truth!
But I will add that when combining all of these three different classes of information then macro-fundamentals seize to be moving-sand and so are the news, while technical analysis seizes to be unpredictably random.
Probably , the failure to combine all the three methods simultaneously may be the main reason for systematic failure in trading.
We must remark also that more than 90% of the traders that try to apply Technical Αnalysis, in short term from minutes to months, result in to losing, but more than 90% of those than do not apply technical analysis, do not forecast the markets, and are doing either buy-and-hold for an horizon of 11 or more years, or are doing portfolio adjustments only (see the method in post 3) again without forecasting , result in to systematic winning and profits. These statistics do not exclude cases of systematic winners with short term technical analysis. One main reason for the difference in the statistics is of course that non-forecasting and only portfolio adjustments, is vastly simpler and has lower risk, that short-term technical analysis forecasting. In addition he difference is that the second simpler method requires large capitals, while the first does not.
For example Warren Buffett , according to his sayings has applied 1) News 2) Micro-fundamentals 3) Portfolio adjustments and minimum horizon of holding the investment of 5-11 years. And his result was a 20% annual return. Those that have flowed Warren Buffett in his investments are thousands.
Nevertheless Bill Williams (known from his books) , has applied seasonal scale technical analysis only (no news, no macro or micro fundamentals) and he has been claiming the last 40 years a much higher annual rate of return. Those that have followed B. Williams systems of trading with similar success seem to be few.
For example Warren Buffett , according to his sayings has applied 1) News 2) Micro-fundamentals 3) Portfolio adjustments and minimum horizon of holding the investment of 5-11 years. And his result was a 20% annual return. Those that have flowed Warren Buffett in his investments are thousands.
Nevertheless Bill Williams (known from his books) , has applied seasonal scale technical analysis only (no news, no macro or micro fundamentals) and he has been claiming the last 40 years a much higher annual rate of return. Those that have followed B. Williams systems of trading with similar success seem to be few.
THE TOP 6 FACTORS OF ATTENTION IN MANUAL TRADING ARE
1) NEVER USE ALL YOUR FUNDS FOR TRADING. DIVIDE THEM TO TRADING AND NON-TRADING FUNDS BY THE RATIO f=R/a^2 RULE (see below for this ratio or in posts 3,13,33). THE DIVISION OF FUNDS AT EACH PERIOD IS ADJUSTED TO CONFORM WITH THIS PERCENTAGE RATIO. NEVER WITHDRAW PER PERIOD FROM THE NON-TRADING FUNDS MORE THAN HALF OF THE AVERAGE PROFITS OF THE TRADING FUNDS PER PERIOD. This division and adjustment of the funds has been applied for many years in buy and hold investments by professor Michael LeBoeuf.
2) THE ONLY CERTAINTY, WHILE TRADING IS ALSO OUR FIRST PRIORITY: WE MAY DETERMINE THAT OUR LOSSES AT EACH POSITION WILL NOT BE LARGER THAN A SPECIFIED PERCENTAGE DEFINED BY THE KELLY CRITERION (see posts 3, 13, 33)
3) FOCUS ON MACROSCOPIC INSTRUMENTS LIKE STOCK INDEXES WITH PERMANENT STRONG LONG TERM TREND, even if you want to trade at short time scales. (e.g. of the American Economy which is young and strong and indexes like Dow Jones, SnP500, Nasdaq etc)
4) FOR VERY LOW RISK AT OPENING POSITIONS ON THE PREVIOUS INDEXES WITH PERMANENT STRONG TREND, OPEN AT TERMINAL SPIKES AGAINST THE TREND. This is the Bill Williams technique.
5) READ THE NEWS AND FINANCIAL STATEMENTS BUT THE ASSESSMENT OF THE PATTERNS OF THE MARKET REQUIRES THAT IT IS DONE IN MANY SUCCESSIVE TIME FRAMES CHARTS. This is a basic recommendation by Alexander Elder, which, by now, it is a common knowledge to traders
6) BE FLEXIBLE IN FORECASTING THE MARKET AND DO NOT HESITATE TO FOLLOW PROMPTLY ANY UNEXPECTED CHANGES OF THE TREND OF THE MARKET.
