ParkTwain's Parlor

[IIC]

End of today's session, my trading account is up 19.5% YTD 2006. A good 1-month return for a mere position trader.

The month is not over Park...Doug

[ParkTwain]

how do you know whether I am still invested?

[IIC]

how do you know whether I am still invested?

I'm so sure that you are not 100% in cash that I will bet Lyehopper's life on it.

BTW...Great call on DDD...Doug

[ParkTwain]

RMIX pops up this morning after last night's news of a secondary offering. On Jan 23 the company had also raised 2006 earnings guidance.

Update: Sold my entire position for a quick 10% gain. Probably too soon but the timing was very attractive.

[ParkTwain]

Richard Donchian's trading rules

http://www.seykota.com/tribe/Resources/Donchian/index.htm

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Richard Donchian graduates from Yale with a BA in economics and begins his Wall Street career in 1930. From 1933-1935 he writes a technical market letter for Hemphill, Noyes & Co. For several years thereafter, he publishes a stock market service, "Security Pilot," and sells it to brokerage houses. During WW II he serves as an Air Force statistical control officer with a group they call the "Whiz Kids." For two years after the war, he acts as economic trend analyst and market letter writer for Shearson Hamill & Co. Quotes from his "Market Outlook" letters appear in the Wall Street Journal and other financial publications. He joins Hayden, Stone in 1960 and becomes VP and Director of Commodity Research. He writes numerous articles including "Trend Following Methods in Commodity Price Analysis." He publishes a weekly "Commodity Trend Timing" letter, based on his 5-20 moving average method and achieves a circulation of over 10.000.

Donchian's 20 Trading Guides (First publication: 1934)

General Guides:

1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.

2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.

3. Limit losses and ride profits, irrespective of all other rules.

4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing.

5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.

6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation.

7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%

8. In taking a position, price orders are allowable. In closing a position, use market orders."

9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.

10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.

11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.

Technical Guides:

1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.

2. Reversal or resistance to a move is likely to be encountered.

0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range

On approaching highs or lows

3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently.

4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken.

5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places.

6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side.

7. Watch for volume climax, especially after a long move.

8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps.

9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
//

[ParkTwain]

Trader's own trading rules:

http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=7084524&tid=vlo&sid=7084524&mid=42742

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After reading one poster's lament about VLO trading losses, I post my personal trading rules in the hope that some inexperienced traders might find them helpful.

1.) Don't fall in love with a stock, its only worth what people are willing to pay for it.

2.) When you have a profit, take it if your objectives have been met.

3.) Don't force a trade where there is none, be patient. Don't trade out of boredom.

4.) Don't chase a stock.

5.) Wait for a market disclocation on the upside as well as the downside.

6.) Buy/short only secular trends, no one can time the market consistently.

7.) Use your emotions as a contrary indicator. Separate emotion and intellect.

8.) The hardest course of action to take is usually the correct one.

9.) Don't buy a gap opening up.

10) Stick with leading companies, they got there for a reason.

11.) Don't make decisions based on tax considerations.

12.) If the stock doesn't do what you expect it to do, cut your losses quickly.

13.) Your objectives determine your strategy.

14.) Discipline and money management are key components of successful trading.

15.) Don't pull the flowers and water the weeds.

16.) Diversification is a hedge against ignorance. Concentration of assets creates wealth, diversification preserves it.

17.) Be flexible, when you find the right key, the market changes the locks.

18.) Don't confuse brains and a bull market.

19.) Trading is a zero sum game. If it were easy, everyone would be rich.

20.) Don't ignore anecdotal evidence, it is just as valuable as fundamental and technical analysis.
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[ParkTwain]

I found this paper while googling for "Richard Donchian." Major academic article re: profitability of technical trading systems:

http://www.farmdoc.uiuc.edu/agmas/reports/04_04/AgMAS04_04.html

(Click on the "Print Preview" link at top right to open the PDF version of this article.)

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The purpose of this report is to review the evidence on the profitability of technical analysis. To achieve this purpose, the report comprehensively reviews survey, theoretical and empirical studies regarding technical analysis and discusses the consistency and reliability of technical trading profits across markets and over time. Despite a recent explosion in the literature on technical analysis, no study has surveyed the literature systematically and comprehensively. The report will pay special attention to testing procedures used in empirical studies and identify their salient features and weaknesses. This will improve general understanding of the profitability of technical trading strategies and suggest directions for future research. Empirical studies surveyed include those that tested technical trading systems, trading rules formulated by genetic algorithms or some statistical models (e.g., ARIMA), and chart patterns that can be represented algebraically. The majority of the studies were collected from academic journals published from 1960 to the present and recent working papers. Only a few studies were obtained from books or magazines.
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[skiracer]

[...]*

* the link was broken and the original message has been deleted. Karel

Well Park there is another site that I have added to my favorites. Looks like alot of good reading there. Another good one. Thanks. How and where do you find these little gems? Do you sleep?

[RL]

Park you are just fantastic with all your Info, sure glad you started posting regularly.YOU AR THE MAN

[IIC]

3.) Don't force a trade where there is none, be patient. Don't trade out of boredom.


I did this today...didn't work...But no harm(well a bit)...no foul...Still a very good week...Good advice...Doug

[ParkTwain]

HOWEVER, this might be the coolest stuff I read all this week, the MIT master's thesis of Pasha Roberts (whose father is Lawrence Roberts http://www.ziplink.net/~lroberts/, one of the true actual inventors of the internet) that was published in 2003.

"Information Visualization for Stock Market Ticks: Toward a New Trading Interface" (83 pages)
(The good stuff starts on PDF page 36.)

http://lineplot.com/expertise/Thesis.pdf

Later, Pasha Roberts helped to start a company called Lineplot Productions (http://lineplot.com/index.html) to do video visualizations of dynamic market data. At this website, click on the "Gallery" link, then click to watch the 60-second video.

Pasha Roberts was at one time a grad student under Andrew W. Lo at MIT. You should also be aware of what Lo is doing at MIT (http://web.mit.edu/alo/www/). Notice on Lo's home page that he has co-authored at least one paper with Brett Steenbarger, a psychology professor who also consults to traders and in all his free time maintains a couple of very interesting websites (http://www.brettsteenbarger.com/).

[ParkTwain]

Found at amazon.com, an illustrated edition ("coffee table" book), including the original artwork found in the Saturday Evening Post, of Lefevre's Reminiscences of a Stock Operator" with a foreword by Wm. O'Neill and commentary by financial historian Charles Geisst.

http://www.amazon.com/gp/product/0471678767/ref=ase_httpwwwwillco-20/102-2148488-4672151?s=books&v=glance&n=283155&tagActionCode=httpwwwwillco-20

[IIC]

Found at amazon.com, an illustrated edition ("coffee table" book), including the original artwork found in the Saturday Evening Post, of Lefevre's Reminiscences of a Stock Operator" with a foreword by Wm. O'Neill and commentary by financial historian Charles Geisst.

http://www.amazon.com/gp/product/047...tpwwwwillco-20

Park...just a reminder...My b-day is April 9th...Doug

[ParkTwain]

Here are some articles related to Peter Brandt's (chart-oriented commodity trader) use of classical chart patterns.

"Classical Charting Principles: An 'Edwards and Magee' Approach to Trading Futures Markets" (1989 article, 26 pages) (VERY GOOD!)

http://www.charttricks.com/Resources/Articles/Peter%20Brandt%20MTA%201989%20May.pdf

Here is Brandt's own book:

http://books.global-investor.com/books/3808.htm?ginPtrCode=00000&identifier=

Available here:

http://www.rb-trading.com/books.html

"Best Way to Trade [Futures Markets] with Limited Capital" (Bruce Babcock)

http://www.rb-trading.com/article8.html

"Role of Classical Chart Patterns" (Dan Chesler)

http://www.performancetrading.it/Documents/DanVolatility/DnV_Role.htm

This is part of a longer article that can also be found in PDF format here:

http://www.charttricks.com/Resources/Articles/Chesler_article.pdf

[ParkTwain]

Nice points found in:
"Classical Charting Principles: An 'Edwards and Magee' Approach to Trading Futures Markets" (Richard Brandt, 1989)

http://www.charttricks.com/Resources/Articles/Peter%20Brandt%20MTA%201989%20May.pdf

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1. Charting is more of an art than science. Successful chart interpretation takes time, study and effort.

2. Charts can be misread, much in the same way as a Wave Count can be prostituted.

3. Charting is a TRADING TOOL, not a means for price forecasting. People who use chart books to make grand economic forecasts are in dangerous territory. Charts should be used for timing trading maneuvers, not for formulating fundamental opinions.

4. Even the most well-defined and seemingly perfect chart pattern is subject to failure.

5. Not every market, all of the time, can be understood using classical chart principles. The real danger is trying to fit a chart interpretation to all markets all of the time. More often than not, a given market will defy classical charting principles.

6. It is very easy to over analyze a chart. The temptation for a novice chartist is to keep studying a chart until something is made of it. The mentality is one of ... "there has got to be something on this chart and I have to find it." My experience is that chart patterns pop off the page; that legitimate chart patterns will find us. We don't need to find them. My rule is that if I have to spend over 15 seconds on a chart, it is time to turn the page.
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