ParkTwain's Parlor

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.
//

Trader's own trading rules:

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

//
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.
//

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.
//

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.

[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

how do you know whether I am still invested?

[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

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

[IIC]

Thought for the day:
http://www.amazon.com/gp/reader/0967...21#reader-link

My kinda book...Doug(IIC)

Thought for the day:

http://www.amazon.com/gp/reader/0967155312/ref=sib_dp_pt/102-7189256-4055321#reader-link

Park,
Been reading your stuff. I am beginning to like you. A lot.

I agree.

His plan seems to be well thought out etc.

Sold two-thirds of my DDD position (the remaining shares held represent roughly my profit to date in the entire position), bought a little more RMIX. Almost bought some ANX, but will watch it for now.

Did you guys ever notice the ROE for OXPS, then also notice the ZERO DEBT.

http://finance.yahoo.com/q/ks?s=OXPS

For most public corporations, but not for OXPS, very high ROE is a function of decent profits yoked to a high debt-to-equity ratio.

[New-born baby]

Yeah!

Park,
Been reading your stuff. I am beginning to like you. A lot.

Today I ordered copies REAL CHEAP (like $2.50 per book) of Ney's first two books at alibris.com. I think they are hardcovers. Beats amazon.com to hell. The shipping cost more than the book!

Recently I also found in my local library for $1.00 a donated perfect 1st ed. copy of Lowenstein's "Buffett: The Making of an American Capitalist." This edition of the book is offered for about $50.00 at alibris.com.

http://www.alibris.com/search/search.cfm?chunk=25&mtype=&wauth=lowenstein&wtit=buffett&qwork=838860&S=R&matches=84&browse=1&qsort=p&page=4