Where do I start?

[PollyM]

SESSION 19

Returning to the spreadsheet, and the charts generated from the data and RSI formula.

It's a simple presentation, but begins to illustrate how well a spreadsheet can process charts. I know most of us have seen this level of charting before in our daily work life, but it's the beginning of a sequence of sessions which will see us step-by-step introducing additional data and filters until, eventually, we'll arrive at a basic and wholesome charting interface which will give us all we need to start trading in one market, with one indicator, and one timeframe. Think of it as a homemade soup (with dumplings if you dare!), which will help keep you warm during cold evenings, always there if you need it.

From that point, you will be then be able to tailor it to suit your preferences, or even re-make it using similar kinds of ingredients.

Looking at the RSI(14)_Chart, it is interesting to see already a particular feature of indicators, and that is of detecting or providing greater clarity on the rate of change of price movement, ie the acceleration/deceleration of price. On the price chart you can see two peaks, the second one being higher than the first. Yet on the indicator chart, even though the first part has only just begun its calculation, you can see the second peak being of a similar height, if not lower, than the first peak. This is what is known as a 'divergence', as the price chart is essentially shown moving in an 'opposite' direction to the indicator chart. In the language of the Elliott Wave theory, this could be seen as a 'fifth wave', where the next wave will swing down to a lower price than the previous 'valley'.

The above account is to help illustrate how price and indicators can show themselves, and how 'visual' trading methods can work. The harmony method alternatively seeks to mathematically 'cling' to the market as closely as possible no matter which direction it goes, regularly calculating new probable positions ahead of time.

Tomorrow, I will move on to the high and low aspects of price data and plotting them on charts. I will also introduce the indicator which we will be using from here on in. It is one of J Welles Wilder Jr's indicators, with a twist ...

Until tomorrow ...


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 20

The indicator that we shall be using as the basis for our first harmony trading model is the Directional Indicator.

In NCITTS, the Directional Indicator is abbreviated to DI, and is the precursor or prequel to the ADX. Being a precursor, there is less lag generated in calculation. Imagine price as the speed of light, and the ADX as a more 'earthly' speed. The DI represents a faster speed, approaching closer to the speed of light.

J Welles Wilder Jr's first few lines in Section IV on Directional Movement are:

"Directional movement is the most fascinating concept I have studied. Defining it is a little like chasing the end of a rainbow ... you can see it, you know it's there, but the closer you get to it the more elusive it becomes."​

In calculating the ADX, the DI calculates two polarities, 'plus' and 'minus', thus giving two 'streams' of output from the high and low price data. I use the word 'polarities' to highlight a relativity, for example, ups and downs, hills and valleys, yangs and yins, heads and tails, etc. In other words, one polarity exists in relation to its complementary polarity.

In the next post, I will begin to explain the basics on how the DI is calculated. The chart for today is likely to be looking at plotting high and low prices, with the DI being introduced early next week (the full DI calculation is quite lengthy so I need a little time to prepare the spreadsheets and videos; this is where the spreadsheet really starts to motor, with still much more to come).

Signing off for now ...


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 21

I have posted the following video on YouTube which shows how to download price data from the Yahoo! service, sort it, and then generate a basic high-low-close stock chart from the figures. I've chosen the window of 1985 to 1990 because this period contains within it the 1987 'crash', and I feel this will be a useful data set to use as a basis for analysis using the harmony method. The market I've chosen is the S&P500 as the Yahoo! service holds data on this going back to 1950. To respect copyright and redistribution restrictions on the Yahoo! data I've thought it best not to post the Excel and OpenOffice files here or on the harmony website.


S&P500_Charts - YouTube


A few notes on the video. The video shows the process being done in OpenOffice, and the Excel procedure is very similar. If you have any difficulties doing it Excel (or OpenOffice) then please ask, as I know the odd hurdle presents itself now and again when transferring data across.

Regarding the chart, I've kept the y-axis in the default linear/arithmetic scale, as when you switch to the logarithmic/geometric setting, the 'stepping' of the axis in this instance becomes too wide. Also, when you come to save the file remember to chose the .xls or .ods format depending on which software package your working with.

Onto the Directional Indicator (DI). It may take a few reads and a bit of googling to understand the full ins and outs of this calculation, so please bear with me. The DI is derived from the directional movement (DM) of price which, for the purposes of calculating the indicator, must be chosen as being either up or down for each price bar (relative to the previous price bar), whichever is the greater. The lesser is assigned a 0 (zero) value for the purposes of calculation, and so are 'inside' days. These values are then expressed as a function of range, in other words they are made relative to range by dividing DM by True Range (True Range or TR is another new concept introduced in NCITTS, and most usually recognised in its ATR form, Average True Range). And so results the +DI and -DI for each stream of 'ups' and 'downs'.

The respective +DI and -DI values are then calculated over the chosen time period(s) using the accumulation technique mentioned in my earlier posts, and both plotted simultaneously on the chart corresponding to their respective price bars.

With the harmony trading method that is as far as the processing of the price data needs to go, and we can now move on to describing the decision making filter. Now, I did mention earlier that we will only be using one timeframe, be it monthly, daily, minutely, or tickly, or anywhere in between. We shall, however, be using two time settings, which we will look to optimise through backtesting.

I shall move onto this stage in tomorrow's sessions, and next week we will start to bring all of this together into a trading interface.

Bye for now ...


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 22

A decision making filter is basically the process through which you decide to go long, short, or out. The third position of going 'out' is essentially your neutral position, similar to that you would return to in tennis say once you have played your stroke.

This 'out' position is what helps you keep your balance in play, and is just as important as the long and short positions in maintaining a steady growth of equity. You can think of it as a default position. And whilst I've referred to it as the third position, it is for trading purposes the point of origin, the 'off' position, with the longs and shorts being the 'on' positions.

So, first off, you will look to take your position, your point of origin, and then your filter will guide you as to go long or short. As you follow your filter's guidance the market will inevitably cross your path, at which point you take your position, be it long or short. Once in your position, your filter will then be showing you when to go 'out'. You keep following your filter's guidance and get out of the position when the market again crosses your path.

In both cases of getting in and getting out, you set out your stall ahead of time. On your trading platform you will place an order to get into your market, and a stop to get out, and you keep repeating this process until your equity grows to to an amount with which you are content (whether this be a daily target, a yearly goal, possibly even as a nest egg for retirement purposes, or again anywhere in between). To further fine tune your approach, you will keep the order or stop under review at prescribed intervals. This fine tuning becomes most critical when you are 'out' and your filter is showing similar probabilities for more both long and short positions.

All of this will become much clearer next week when I move onto a screen recording of a harmony trading interface. In my next session later today I will discuss the construction of the filter and its two time settings.

See you soon ...


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 23

I have attached a pdf of a study I did a while ago to determine an optimum setting for decision making when using the harmony method, and I will come to this shortly.

First I should explain that using two time 'settings' is different to using two time 'frames'. For the harmony method, there is a single timeframe, and the dual-time effect is achieved by two DI outputs, each having a different time setting. This then means that we need only to refer to one timeframe chart whilst having the benefit of a dual-time filter.

I was first introduced to the use of multiple timeframes in Dr Alexander Elder's book Come Into My Trading Room, an excellent book if you are new to trading and looking for a well-rounded information source.

A dual-time filter looks to highlight the strongest waves-within-waves, and I will give a further commentary of this next week. Essentially, when the DI directions of the two time settings line up, then that is your cue to enter a trade, be it long or short. When the DI directions of the two time settings no longer line up, then that is your cue to exit a trade and immediately begin setting up your next one.

Coming back to the attached graph. What I am about to say is very important, possibly one of the most important points raised in these sessions. With the harmony method, when you enter a trade or exit a trade you will be doing it during the current time bar. You will not be taking it at its open (as your indicator has not yet said to enter/exit), and you will not be taking it at its close (because you will have then missed the point when your indicator first highlighted the opportunity). Yes, the closing price may have ended up in a more favourable position to trade on that day than your 'triggered' position, but if this does happen how could you have known this? For all you know, it could shoot off in your chosen direction, meaning that if you took the trade at the indicated opportunity then you would already being seeing a profit, but if you waited until the close then really you have missed the trade and should wait until for the next one to come along. Once price moves, and it can move swiftly, it is important not to be tempted to get in at a less favourable price if you missed the optimum moment, you should wait for the next opportunity to arise. This next opportunity may not necessarily be the next round of indicator alignment, it could be a retrace to optimum price, and I will discuss this aspect of decision making at a later date.

In a nutshell, what I am saying is that when backtesting it is difficult to measure exactly the profit/loss amounts as you only have four pieces of price data to work with, open, high, low, close. The calculation does not have the benefit of knowing the actual price you would take the trade.

One way around this for the backtest calculation is to think that for the most part you will be entering (or exiting) a trade 'somewhere' between the close price on the day you took the trade, and the close price for the following day. The attached graph records a study I did on MetaStock, first working out two sets of data, one being the return if all trades were theoretically made at the day's close price, and the other being the return if all trades were theoretically made at the following day's close price. The mid-point of these two data sets are then plotted on the chart, this being the return if all trades were theoretically made at the 'somewhere' price of the triggered trades.

To further explain the different parts of the graphs. The y-axis is the return relative to the x-axis time settings. The 'return' is the cumulative equity amount generated over approximately 30 years of price data and triggered trades. The time settings numbers on the x-axis represent the slower wavelength time setting. In relation to these numbers, the degree of separation between the slower and quicker wavelengths were varied for the study, ranging between a factor of 3 through to 6. As well as the degree of separation factor, the wavelengths were varied relative to zero. In other words, when the degree of separation is say 5, then the couplings of 8/40 (quick/slow), 13/65, 21/105, 34/169, 55/274 and 89/444 were all backtested. The outputs of these different combinations of degree of separation and wavelengths relative to origin are the dots which are plotted the graphs, the highermost grouping of dots being the 'no lag' outputs, and the lowermost grouping of dots being the '1 day lag' outputs. The middle grouping of dots represent the mid-point of the two as mentioned above.

The trendlines have been added to the graph to help gauge the movement of the dot groupings (I was not able to do this with the lowermost grouping because of the negative values experienced at very 'quick' wavelengths). The colours of the dots are randomly coloured by the spreadsheet, but I have highlighted the uppermost and middle groupings of trendlines to help differentiate between the two.

I will give a deeper analysis of the study's findings in a later session. To conclude for today, the outcome is that a time setting coupling in the region of 21/126 for the quick/slow DIs provide a relatively optimal zone from which to make trading decisions. On the graph, I have highlighted this region in the oval. I will give further commentary on this next week.

Enjoy your weekend ...


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 24

In this session 24, I thought it would be useful to review the ground covered so far over the last two weeks. I've set out below the Session numbers together with a heading and key themes for each. An asterisk indicates that there is an attachment(s) to the particular session.

Section 1: The Melody of the Market
1. LEARNING THE TUNE. The harmony method. Elliott and Hurst.
2. A BIGGER PICTURE. 3d visualisation. Sifting and fusing knowledge.
3. READING LIST. Natural fractals. Fear and myths.
4. FOUR SEASONS IN ONE DAY. Elliott waves. 3d spirals.
5. EXCEL AND OPENOFFICE. Screen recordings.
6. *WAVE GENERATOR. Fusion of Elliott and Hurst.
7. PRICE DATA & CHARTS. High, low and close. Linear and logarithmic.
8. HUGE LOAF OF BREAD ANALOGY. Timeframes.
9. THE BOOK ANALOGY. Waves and particles. Mathematical approach to trading.
10. SPORT OR WAR? It's your choice. Establishing a sound method.
11. *SPIRAL MODEL. 3d AutoCAD images.
12. ON DISCIPLINE. Emotions and alignment.

Section 2: Trading Methods
13. THE GOLF ANALOGY. A wood and a few balls. Keeping it simple.
14. INDICATORS. New Concepts in Technical Trading Systems. Using spreadsheets for charting.
15. *RELATIVE STRENGTH INDEX. Excel and OpenOffice. Harmony trading method.
16. WILDER'S ACCUMULATION TECHNIQUE. Smoothing effect. Processing data.
17. *FIRST CHART. HarmonyTrading.info.
18. HOBNOBS. Trading and investing. Mobility of trading. More analogies.
19. SOUP & DUMPLINGS. Rate of change. Divergence.
20. DIRECTIONAL MOVEMENT. DI & ADX. Speed of light analogy. Complementary polarities.
21. *PRICE CHARTS. Downloading prices and creating charts. The 1987 'crash'.
22. DECISION MAKING FILTER. Long, short or out? The tennis analogy.
23. SOMEWHERE OVER THE RAINBOW. The harmony method. Backtesting dual-time filters.
24. *REVIEW. Review of previous sessions (this post).

I will post again later today ...


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[Bint_Crusher]

Does anybody seriously take the advice of this muppet or do we all see him as the emperor MONG. I wish I could be more explicit but the fun police have been on to me with all sorts of threats.

 

[PollyM]

SESSION 25

In these sessions we are discussing the harmony method of trading.

The harmony method is approached with pure mathematics, with the aim of 'clinging' to the market movements as closely as possible, that is, with as little lag as possible. This is principally achieved through choosing an indicator which minimises the number of layers of data processing, sifting the results through a dual-time filter, and then setting up ahead of time the appropriate order(s) or stop, depending on whether you're in or out at the time of calculation.

I will cover this process in greater detail in section three of these sessions. For the moment I've attached a video of a typical calculation using an imaginary S&P500 market as an example (this data will vary from the main S&P500 market, so please do not use it for your trading decisions, it is purely set out as an example).


Harmony Trading Interface - YouTube


The video shows the procedure involved in using the spreadsheet to input the day's data (assuming say you trade the daily bars and input first thing in the morning), and then simulates probable futures or moments by extending the highs and lows in turn.
(Note: I'll start using the word 'moments' so to avoid any confusion with the 'futures' markets.)

As these high and low thresholds are determined they are entered in the 'order' or 'stop' column as appropriate. You would then go to your trading platform (brokers, spreadbetting firm, etc) to physically set up your order(s)/stops.

If either of the orders were triggered later that day then you would re-visit your calculations so to set up your stop, and so the process continues in a rolling motion.

The harmony method of trading recognises that the market has its own free will to go in two directions, up or down, and sets out its stall ahead of time, which is then reviewed as soon as any order or stop is triggered.

A word on the dual-time filter. The purpose of using two settings is to help highlight the strongest waves-within-waves, or major trends, relative to the time settings. If you study charts for long enough you notice that now and again there is a particular wave formation that indicators exhibit, which resembles three hills or pyramids, the middle one being relatively larger than those flanking it. The dual-time approach helps to isolate these wave formations whilst minimising others.

One of the most important breakthroughs in learning trading is to find a method which sees the sum of profits made from the three-hill trades exceeding the sum of losses made from the other signalled trades. The harmony method is one example, and I'm sure there are many others.

It is important to choose a method which can be robustly backtested. This means seeing how it performs in 'open play' so to say, rather than just during the major trends. We can all pick out parts of a chart where a trading set-up performs excellently, but it is the range-bound sections where these approaches can fall down, incurring a sum of losses which far exceed the few-and-far-between profits of the set play.

Think of a trading approach as a football or soccer team, and you are the manager. Can the team work together and play a full match with great robustness, or does it just rely on the set plays of free-kicks and penalties? Remember it is only the most consistent football teams that are top of their league, knowing every part of their game.

The football/soccer analogy is an interesting one, and I may return to it at a later date. Remember, it’s okay to let in the odd goal, it happens, and is known to be part of the game. In fact, it can be a gift if looked at from another angle. What’s important is to know that your system can consistently play the full match in tight formation and take all goal-scoring opportunities as the come along. Remember, the markets do not give away many free kicks, and penalties can be like hen’s teeth!

In the next session I will delve into some reasoning behind crashes and gaps, and why they need not be feared.

Until then ...


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 26

Crashes and gaps. Friends or foes?

If you approach the markets like a war and take sides, then they could be either. If you approach the markets like a sport and simply enjoy the taking part then the polarities of friends or foes don’t even enter the equation … you are simply enjoying yourself, letting those who want a war to get on with it as they will.

A market has many natural paths that it can travel along, and the randomicity of a market is an illustration of its free will in doing this. As seen in earlier sessions, these many natural paths coalesce to form a fractal pattern, from which a model can be drawn based on its predominant wavelengths. Such an example is the Wave Generator, a video of which I have now posted on YouTube, and Excel and OpenOffice file formats can be found on HarmonyTrading.info.


Wave Generator - YouTube


Each predominant wavelength can be thought of as both a parent and a child, in that it has smaller child-like waves nestled within its own wavelength, whilst simultaneously being nestled within a larger parent-like wave. Similarly, this analogy can be extended to include grandparents, great-grandparents, great-great-grandparents …

This fractal structure seems to provide a natural self-calibrating mechanism for any wavelengths that get a bit too cocky. Yes, a particular wavelength may have the power to stretch itself and temporarily ‘control’ some of its parent wavelengths, but eventually it will come up against a natural boundary of a combined grouping through which it simply cannot penetrate any further. The subject wavelength becomes too overstretched and this, coupled with the more rounded knowledge (or common sense) of the combined grouping, result in the subject wavelength having to return to its more natural pathways, like a rubber band snapping back into position. This is then perceived as a ‘crash’, which can include a single gap or many spaced-out gaps, their severity and frequency being proportional to the magnitude of the misguided belief or beliefs which underlie the desire for control.

In other words, what I am saying is that a crash is in fact a structured re-alignment, following a misguided misalignment on the part of the subject wavelength. It is no accident. It is a release of pressure through the safety valves of the market structures.

The topic of misguided beliefs is a catch-22 situation, and can lead to much overstressing of market mechanics. Put simply, because the ‘child’ wavelengths are nestled within a misguided ‘parent’ wavelength, the child wavelengths cannot see that anything is out of alignment, for they are spiralling around the ‘parent’ wavelength. And so the market can carry on in this manner, up until the point when a combined grouping of wavelengths highlight an issue or issues, and then the whole lot comes flooding out. Crash, bang, wallop.

As an example, you can think of these wavelength groupings, from larger to smaller, as international government bodies <> national government bodies <> public limited companies <> private limited companies <> small businesses <> sole traders <> individuals, although there will be many variations on this, and the subject wavelength(s) which is out of alignment can sit anywhere in between all of these. What I have written here is a linear representation, whereas there are many networks of relationships that also exist where governmental and commercial, and public and private decisions all interact.

I must also highlight that misguided beliefs are not ‘wrong’ as such. At one time they may have been of great value, otherwise they would simply not have existed in the first place. They can be beliefs that are outdated or out of sync, not keeping up with or suppressing market revolutions so to speak. The traditional sayings of being long in the tooth, or someone being set in their ways, carry much truth and can exist on group levels just as much as on individual levels, even though the group is made up of individuals themselves. A group is in a sense a collective consciousness, representing a ‘balance’ of the individuals’ viewpoints.

The main point of this as a trader is to understand that when a distorted market moves back into realignment, a lot of stored energy is released in a relatively short space of time, and you should ensure that you are positioned to receive that energy or, if preferred, stay out of the way altogether. In the case of ‘crashes’, this means that you are either short, or you close out all positions.

This is my last session for today. Tomorrow I will look at the motions of the 1987 ‘crash’ and see how a sound trading method can keep you rolling on, guiding you into optimal positions.

Bye for now …


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 27

To follow yesterday’s theme I’ve attached a video of today’s calculation for the imaginary S&P500. I’ll keep posting this daily to help illustrate the rolling process for adjusting the order/stop each morning (and later in the day if the order/stop is triggered). It is helpful at the moment that the position is ‘out’ (green), as this is the preferred ‘default’ position when adopting the harmony method.


HTiChart _ Tue 24 Jan 2012 - YouTube


Moving onto the 1987 crash. The attached pdf shows the indicator page of the harmony trading interface for this general period. From the bottom up, there are five charts: Two +/-DI calculations at 21 and 126 period (day) time settings; two corresponding +/-DI Histograms which show the net effect of the bottom two charts respectively (ie –DI subtracted from +DI); and the main price chart with coloured bars corresponding to the output signal of the 21 and 126 +/-DI Histograms (ie long, short or out).

One of the first things that you notice is that the crash serves to ‘reset’ the path of the market back to a steadier upward trend which was established up until the end of 1986. There will have been reason for the market to start getting ‘carried away with itself’ in 1987 but, as I mentioned in the previous post, there is no need to get caught up in any ‘rights’ or ‘wrongs’ when trading. This only adds baggage to your mindset, at a time when you’re looking to keep things simple and travel light.

If any readers have any questions about the indicator page then please let me know. There may be an aspect of it which I have become used to which requires further explanation if coming to it first-time around, so please raise any queries whatsoever.

I’ll post again later today, looking at position sizing and compounding.


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 28

I've attached a pdf of a compounding matrix, together with the Excel file of the same. I've posted both the Excel and OpenOffice files at harmonytrading.info.

I was first introduced to the compounding effect in Hurst’s book The Profit Magic of Stock Transaction Timing. Essentially it demonstrates how a small number can grow to a very large number over time when your returns are ‘ploughed’ back into your capital sum. For our purposes, and to avoid any confusion, the word ‘capital’ is the same as ‘equity, the ‘pot’, the ‘kitty’, or any other name your happy with.

I did hesitate posting the table as its appeal can lead you into a dilemma of thinking of how much money you should actually start with. You can see that very small amounts can grow to very large amounts if you are looking at long range timescales, but a large amount will kind of give you a head start?

One way is to start with a very modest amount, one you can afford to lose several times over. I say this for a number of reasons:

1. If you start with a relatively small amount, however small it may be, there is less stress involved in allocating this money to trading. As a result, your decision making will be less clouded, and your enthusiasm will be maintained.

2. One of the most important aspects to growing capital by compounding is to keep to the guidance outputted by the trading method, be it the harmony trading method or any other effective trading approach. When you start to use a particular method you need to get used to it in your daily life, and in this learning process you may make the odd ‘mistake’ in putting it all together. If you have a good cushion then such a loss will not break the bank. And remember that a ‘mistake’ is there to learn from, it is not a ‘wrong’ move. So again, do not stress over ‘mistakes’.

3. The harmony trading method, like most other effective trading methods, could see a string of small losses or drawdowns before there is the profitable breakout of range which brings the return to cover the drawdowns plus more. You should make sure therefore that you have a good cushion in your trading account to cover any such drawdowns.

4. Remember the story of the tortoise and hare? If you know how things work then you do not always need a head start.

The matrix is very useful in illustrating the compounding effect, but once digested it is important that you put this to one side and focus on method. Once you do this, the returns will take care of themselves, as shown in the matrix.

This post is an introduction to position sizing. I’ll cover this in more detail in section three on trading the live game, where we will amongst other things look at how to comfortably accommodate the drawdowns and engineer a ratchet effect to the returns.

Will post again later …


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 29

Let’s go back to a beginning for a moment. Where does a financial market come from? Let’s take an equities market as an example.

Imagine in your early years you develop a hobby in say programming software, and you enjoy it so much that you would like to keep it going as a job when you leave school. Your apps have already attracted some interest across the internet and so gradually you begin to build up a business, the energy you find through your enjoyment helping greatly to fuel everything on. Year on year you see revenues and profits increasing, with projects and client networks becoming larger and larger, and you taking on increasing numbers of staff to resource the demand for your services.

You then reach a point where new projects require a relatively large investment of your company’s infrastructure, involving say bringing in a whole raft of new computer technology and equipment. It will cost millions. At the same time you are beginning to feel that because your company has grown so large, you are no longer doing the creative things that you enjoyed the most in your early years, but instead much of your time is taken up with administrative and managerial tasks.

You are comfortable with the life you have created for yourself so far, and have lately been contemplating early retirement. So you decide to list the company on a stockmarket, to raise the funds for the new investments in infrastructure and help secure employment for the company’s staff going forward. Once this is done you will then decide whether to take early retirement, to explore new creative ideas from scratch, so rediscovering the fresh energy you first experienced in your early years …

So where does a financial market come from? … Ideas … Inspired thoughts … Desires. They are creations of individual minds in all aspects of productivity. Individual minds design the engines, and a financial market is a turbocharger plug-in.

A turbocharger is a wondrous invention, taking the energy from an engine’s exhaust to then power a turbine, which in turn brings more air into the cylinders, so increasing the amount of power generated from a given drop of ignited fuel. If driven carefully, it can significantly increase the efficiency of an engine, and generally help to reduce the stresses on a vehicle’s components.

The turbocharger analogy has a lot of mileage in it (pardon the pun) and I’ll come back to it at a later date with more pieces of the jigsaw.

This is my last post for today. I may need to do some housekeeping tomorrow, but will post the daily calculation and keep looking in.

Bye for now …


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

SESSION 30

I’ve posted the below video on YouTube, showing this morning’s rolling calculation for the imaginary S&P500.


HTiChart _ Wed 25 Jan 2012 - YouTube


Keep tootling along ...


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[D Trade]

I am reading the Naked Trader, a very good starting point, although I have been working in business and finance for 7 years or so.

 

[Bint_Crusher]

The Wealth of nations. Adam Smith
Trading in the Zone. Mark Douglas

If you want some lighter reading.

How to get inside a journalists knickers by P. Boyles

 

[PollyM]

I just started trading two weeks ago and I am a bit lost... Could you recommend me any books for beginners please? Thanks a lot in advance!

Hi penny5

There are many books out there, the following is one particular route you could follow:

1. Come Into My Trading Room by Dr Alexander Elder
2. Technical Analysis of the Financial Markets by John J Murphy
3. Elliott Wave Principle by Frost & Prechter
4. The Profit Magic of Stock Transaction Timing by J M Hurst
5. New Concepts in Technical Trading Systems by J Welles Wilder Jr

Elder's book is a well-rounded introduction to trading. Murphy's book is an excellent reference book for most aspects of technical analysis. The next three books become more focused on particular methods, but read in combination provide a sound footing from which to develop your own style.

You could buy them one by one or a few at once and read in rotation, depending on how you prefer to build up knowledge. I sometimes find that if I have two or three texts which I can read over and over in quick rotation that this helps to find the 'common sense' across all. It is this common sense that will help you build sound techniques.

Sometimes these books are not easy to find on Amazon although I notice this is now changing. In the past, I've bought some of the books from Global Investor Bookshop and Traders Press (some are shipped from the US but always arrive in good time).

I think Hurst's book is currently out of print but is of great value to traders. I'll email Traders Press to see if they have any plans to reprint. You can get hold of used ones but they have a very high price tag (I'm sure the one I have was around £15 when I bought it).

Hope the above helps. Let me know if you need any further guidance.

 

[timsk]

I just started trading two weeks ago and I am a bit lost... Could you recommend me any books for beginners please? Thanks a lot in advance!

Hi Penny,
Welcome to T2W.

On a more general note, check out this FAQ: Which Books should a Beginner Read?
Tim.

 

[PollyM]

SESSION 31

I should be completing section two on trading methods today, and will do two or three posts to bring it to a close. My feeling is that section three on playing your part in the live game will be relatively short compared to the first two sections.

For the moment, I would like to return to the book analogy and close prices, and again relate these to the 3d spiral model of market movement. Adding this third dimension to price charts helps to give you a more objective bird’s eye view of the market, and the part that markets play in the whole scheme of things. It also helps you to see how market myths and distorted beliefs can develop, and that you simply do not have to get involved in such shenanigans and banter if you don’t want to.

Imagine a market like a novel, and the most current price bars show the words you have just read in the story. The heights and depths of the storyline are similar to the highs and lows on the price chart. The first word on each page is similar to the open price on the chart, and the last word on each page is similar to the close price on the chart.

With the harmony trading method, where you are constantly seeking to enter the slipstreams of a market’s dance, the high and low price data are the primary inputs, and Wilder’s directional movement system is a very good starting point for developing an effective indicator. For me, this seems a most natural path and one that I will continue to trade and research. I recognise that other systems also use close prices in their entry/exit decisions, but I do feel at the moment that this is like trying to understand a storyline by only reading the last word on a page, which in some cases may even be mid-sentence. This is not how I would usually read a book in my day-to-day life, it just doesn’t seem natural to me.

I say this as a personal preference however, and it is important that you try out every method that feels right to your own unique personality. In time, I may find the primary value in the close price, which I can then bring into the equation, as Bint_Crusher has done, but for the moment I am happy with my current outlook.

While it is lasting, I do enjoy the banter with Bint_Crusher and his/her alter egos. He/she has helped me investigate certain paths that I may not have otherwise travelled. The brightness, contrast and colour he/she displays helps me fine-tune my own personal tv settings.

Below is the YouTube link for today’s calculation of the imaginary S&P500.


HTiChart _ Thu 26 Jan 2012 - YouTube


Will post again later …


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]

 

[PollyM]

Thanks Bint_Crusher.


The third want I leave it for another one...

I've emailed Traders Press to see if they have any plans to re-print Hurst's book. I'll post again when I receive a reply.

B_C, the invisible hand, that brings back memories ...

 

[PollyM]

SESSION 32

A word on mathematics, dimensions and constants.

Mathematics can help to measure nature and create models. This is the basis on which the harmony trading method is founded. Also, because the 2d up-and-down representation of the financial markets is in itself a model (in this case a ‘flat’ tracing of multi-dimensional happenings), a relatively simple framework of mathematics can handle it with ease.

Mathematical models or constructs can help you further your understanding of how things tick. When looking at the 2d and 3d models, what is seen as acceleration and deceleration in two dimensions, is in three dimensions the relatively constant speed of an ‘orbiting’ price. ‘Fact’ therefore changes to ‘fiction’ as you add and subtract dimensions, and vice versa.

Think of someone riding a bicycle. From a distance, looking from the front or rear, it will seem that the pedals are just going up and down, slowing down and speeding up at the top and bottom motions. From the side, however, you can see the pedals going around at a constant speed.

It is often useful to question anything which is said to be ‘fact’, or the ‘only way’ of doing something.

Bye for now …


[Running total of set-up cost = £0.00. See SESSION 13 re spending a penny.]