Momentum trading

[roguetrader]

Not all arbitrage is instant. Also not all arbitrage is zero (or negligible) risk. That rather depends on the nature of the market(s) that you are dealing with. If you're talking spot FX then yes, it's to all intents and purposes instant and reasonably risk free (assuming you get done on all three sides of the trade of course). The Simex / Osaka N225 Futures play that Leeson was doing is another example of this.

But there are other forms of arbitrage, many involving assets that are almost but not quite the same, or option related plays. Examples of this would include some convertible bond trading strategies (and indeed some vanilla bond plays as well).

To be honest lots of this stuff is kind of outside the scope of most discussions on T2W. The 'arbitrage' to which most people refer on these boards is indeed the simple plain old simultaneous trade virtually risk free type.

Just a bit of background info. Hardly exhaustive but hope it helps.

GJ

Thanx GJ that was helpful, when I used the word "familiar" it was in relation to the term "arbitrage" not the actual tactics employed by such a trader., I also pointed out that this practise may have other forms or definitions which you have elaborated on.

As regards Mr Leeson, that was exactly what I was saying.

Just to clarify, JumpOff. the arbitraging activities of Nick Leeson were not what caused his demise.

 

[charliechan]

Not all arbitrage is instant. Also not all arbitrage is zero (or negligible) risk. That rather depends on the nature of the market(s) that you are dealing with. If you're talking spot FX then yes, it's to all intents and purposes instant and reasonably risk free (assuming you get done on all three sides of the trade of course). The Simex / Osaka N225 Futures play that Leeson was doing is another example of this.

But there are other forms of arbitrage, many involving assets that are almost but not quite the same, or option related plays. Examples of this would include some convertible bond trading strategies (and indeed some vanilla bond plays as well).

To be honest lots of this stuff is kind of outside the scope of most discussions on T2W. The 'arbitrage' to which most people refer on these boards is indeed the simple plain old simultaneous trade virtually risk free type.

Just a bit of background info. Hardly exhaustive but hope it helps.

GJ

nice post

some of u fx arbie types may find this interesting (quite basic, but....)

http://www.elitetrader.com/vb/showthread.php?threadid=51771

 

[JumpOff]

I feel like we have gotten a bit off track here (surprise, surprise! welcome to tangentville).


Leaving aside the selling of options and arbitrage plays, I'd like to come back to the topic of momentum. Accelerating, steady, declining. I get the sense that even some pretty short term TA traders (aka swing traders who hold a position for a few days or weeks) perceive shorter term traders as "merely momentum trading", when in fact are they doing the same thing - albeit on a longer time frame?

I'm still hoping someone can point out why it is a bad or wrong thing to be able to recognise and play the momentum aspect of a live price chart. I'm sure it's not the only valuable skill, but it sure seems like being good at dealing with momentum could help avoid sloppy entries.
JO

 

[Trader333]

JO

This all depends upon the definition of "Momentum Trading"

Maybe you could explain what you understand by this term and then give an example of how you would enter a trade if you intended to trade using a momentum approach ?


Paul

 

[JumpOff]

GJ and others - no apologies needed, all additions are welcome - I just couldn't figure out how to segue back to my question. I like living in tangentville...I've often found myself making tangential paths where none previously existed....

Paul - you are obviously confusing me with someone who knows what momentum trading looks like!

I'll hunt around my old data and see if I can find some examples, of how I think it might be used. But I probably won't call it a coulda/shoulda thing - that would imply that I have a clue.....!

Mostly I was thinking of things other people (can't remember who) have said about selling into strength, buying into weakness. I have a suspicion that the best momentum traders are entering and exiting in a way that is completely counter intuitive to inexperienced traders.
JO

 

[Trader333]

JO,

In your first post on this thread you talk about us all being momentum traders of a sort and from that I thought that you may have a view of what momentum trading is but maybe I misunderstood you ?


Paul

 

[chump]

Paul,
You have not said too much on the BB about your trading ,but the bit that I have read I have respected so ,quickly parking the flattery , would you be kind enough to put forward your definition of momentum trading ?

 

[charliechan]

momentum = (volatility + direction) / time

?


guess we could also use the momentum indicator formula for the sake of arguement and without wanting to get into a debate abouts its usefulness.

 

[JumpOff]

Yes, but some of us actually know what we are doing... The rest of us are still wandering in the desert. I'll post a chart or two in a little bit, and that might help.
JO

 

[JumpOff]

Ok Here is an example of what I'm talking about. Does it matter if the bars on these chart are 10 second, 10, minutes, daily, or weekly? If the grey horizontal lines are S &R that have been tested before we see them on this chart, and this is the chosen time frame, -isn't this traded in the same way, regardless of the time frame? Why are they called by different names? Is one riskier than the other?

JO

 

[JumpOff]

Ok - I should tell you that I had a pretty hard time finding 2 charts that looked exactly alike - so the best I could do was to find to that were kind of similar. And it's only fair that you should know that in both of these the price was rising into R before the chart started and went on to touch R again after the chart finishes (B went on through, and A petered out).

JO

 

[barjon]

jo

i don't know but i can say that what works for me on the daily chart doesn't seem to work on intraday.

why? again i don't know, but i rationalise it on the basis that intraday periods are "artificial" whereas the daily reflects a "true" trading period where books are opened at the start and
closed at the end.

good trading

jon

 

[KRONOS]

According to Investopedia.com Momentum trading trade lasts upto single trading day:

"In momentum trading, traders focus on stocks that are moving significantly in one direction on high volume. Momentum traders may hold their positions for a few minutes, a couple of hours or even the entire length of the trading day, depending on how quickly the stock moves and when it changes direction."