What ultimately determines trader conviction is a 'sound' trading plan. This involves the development of a back test, through sufficient time and conditions, with a viable money management approach. The key point, I believe, is in understanding and learning about how your 'rules', 'strategies' and money management techniques function in different market conditions. My work to date in markets was borne out of a need to discover a technique that characterizes changing market conditions. Why was I performing well as a trader in 07', but struggling at times in 08'? Or why did my system perform so well from Sept 10'-Jan 11', and since then I've been struggling? Did you think to examine that batch of trades, not just on the basis of nominal P+L, Wins/Losses, but on the basis of 'Conditions' for that time period? What were the conditions for that batch? Trending? Quiet and Up Trending? Trending and Volatile? And how do we begin to create parameters to define the classifications?
We can examine market conditions from a variety of perspectives, but ultimately we're talking about characterizing Volatility and Direction. Markets 'phase-shift, just as water undergoes phase-shifts under significant pressure and temperature changes into vapour and ice. Humans experience constant and ongoing 'state-changes' defined by mood; sad for a period of time, to resourceful and 'flowing' and so forth, as a cyclical and inherent-ongoing physiological rhythm. Markets are always responding and changing in someway in anticipation of future on the basis of direction and volatility. These are just moods, reflecting the psychological bias of participants.
Characterizing mood or state of the market in a given period as defined by specific parameters, and learning about how your system performs within specific conditions is essential to a profitable trading system. Market conditions will always repeat, not exactly, but knowing how to recognize these changes will allow for improved decision making.
We have to start responding now and planning for future conditions that will be established in the coming months based on the activity of today. August has carved out a wide monthly boundary, based on its high and low price, that is yet to be fully determined. Nonetheless, the future conditions that will be established from this volatility will be very similar to past conditions of Nov-Dec 07', Feb-Aug 08', Dec-Feb 09' and June-Aug 10'. These time periods all share a similar nature in that the trading conditions exist within wide monthly ranges, established by prior fast downtrends.
Knowing how your system performed within these time periods may help to provide insight into your future performance.
Test.
ReplyDeleteR U shorting this spike? ES is about 1180.
ReplyDeleteHey jj. I covered my 'core' short today in the late day vol. So, technically neutral on stocks as of todays close. Critical range for ES on the hourly chart is 1138-1181 (as per 3 day pivot). Any intraday/closing violation of 1138 is a short signal. Or, any faiure at 1181 could imply a short trade. But, if ES makes a 2 day close above the 3 day pivot range (above 1181) it becomes a long trade for some period of time. Didn't get there today. I will post some charts for visual cue's tommorrow am as my system updates in real time, so you can see this. Thx for the note.
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