Saturday, May 21, 2005

On Success

I consider myself a successful trader, a consideration that has been very, very hard to come by. There were years when I considered myself successful, but it was a delusion. As described in my profile, I was buying stock in the greatest bull market of all time, it had nothing to do with skill, it was dumb luck. Maybe that's why I am so hard on a guy like Jim Cramer, who couldn't trade his way out of a paper bag, but was lucky enough to be in the hedge fund business at the time of the same bull market and likens his success to skill now, wallowing in his own delusional egomania. Yea, sure Jim, you're the greatest. The greatest, "what" we will leave to your viewers, but moron comes to my mind.

Getting back to my rumination on success, I was walking through a Barnes & Noble bookstore today, the bricks and mortar kind inside a mall and filled with educated types, at least more educated then the hordes at the food court across the way. As is my want in these situations, I found my way to the financial sections, investing books in particular. A glance at the book-filled shelves and a couple of smack-in-the-face realizations immediately came over me that I want to share here. First, there was Cramer again, all over the place, his hard cover "Jim Cramer's Real Money: Sane Investing in an Insane World." Sanity is not Cramer's forte, believe me. Flipping through his book, I was taken by how little substance he can put into so many words. Case in point, his "25 Rules of Investing." Number 1, Bulls, bears make money, pigs get slaughtered." What the hell is that supposed to mean? Take quick profits, leave the home run trades for someone else? Have so little faith in your ideas that you cut out on them as soon as there is a glimmer of success?

Or how about this gem: "Beware of Wall Street Hype." Thanks Jim, didn't think of that one. Or "Cash is for winners." Again. What the hell is that suppose to mean? Who cares, let's just make it a rule. Ten minutes of skimming through this book, it appears to be little more then his usual shameless self-promotion. Who among us doesn't know he graduated from Harvard Law, started his career at Goldman Sachs, ran his own hedge fund and has lost eight pounds since some undisclosed point in the recent past? Yet who among us can name five stocks he likes right now? What's it all about Jimmy, is it just for the moment, will it end?

My other smack-in-the-face realization came from the slew of new books out on online trading, daytrading, short-term trading and making a living online stock trading with the secrets of pros. Flipping through a half dozen of these enticing titles, a few basic themes emerged. First of all, these books with such hopeful promises in their titles spend most of their time explaining the most basic terms of the trade. Entire chapters are spent explaining how to read stock tables in the newspapers, or listing the various data sources available online. Technical analysis is painstakingly described in most simplistic, yet confusing ways. Examples, all in retrospect, are set out in beautiful charts. This is the antithesis of our friend Cramer's Rule 13, "No Woulda, Coulda Shouldas.." In retrospect, we are all billionaire traders.

The title of this blog is, "On Success." So let's get to it. Forget Cramer and his like. Forget the books, as in trading maybe more then anything else, those that can do, those that can't write books with catchy titles. One of my friends and readers of this blog as asked me publicly and privately to describe my system, as though there is one magic formula that turns ordinary traders into trading gods with the click of an icon or entry on a spreadsheet. Success is a process, it's an accumulation of knowledge, of instinct gleaned from years of observation, analysis and real time real money trading. I've taught my techniques to only two other traders, one a fellow who has been collaborating with me for a dozen years, and it only seemed fair, since we both had been struggling together for so long, that I share the technique with him. The other person was a friend who I met on an Internet forum, who was going through some painful, life-altering personal problems at home and she suddenly found herself on her own to make a living yet still have time for her children. Trading allows for that sort of freedom and I wanted her to have a fighting chance. Both these traders continue to trade the technique as their sole source of income and have both helped me fine tune what I already have and have inspired me to expand it's capabilities.

But there is nothing magic about what we are doing. It is the result of years of hard work and dedication, focus, perservance and determination. That my readers, is the secret of success, hard work, dedication, focus, perserverance and determination. It comes from within, it is free and it is unique to each one of us. You don't need a moron like Cramer, or a get rich quick promotion from a book, or google click-through ad. Success is an elusive mistress, but not beyond your own capabilities and reach, unless you make it so.

And if you have read this far, here is your reward: Take a 3 period CCI and place under a daily or even hourly chart of any stock or index of your choosing. See if you have it in you to make money off of what you see.

13 comments:

Jack Cory said...

NOW THE FUN BEGINS

Allan,

In your first post of this year you mentioned Harry Dent's research indicating that this would likely be a powerful up year in the markets - and that we would all have great fun. However, the upside impetus has definitely been hiding out for all these months.

My study of market indicators says "The wait is over! Let the fun begin!" I firmly believe that the action of the last 15 days and, particularly, of the past 5 days is the harbinger of a very strong, probably powerful bullish intermediate uptrend. It may be the first of many.

It is not hard to buy near the bottom of an important bullish trends. The key is to place your order. Now!

I don't know about anyone else but this is definitely my opinion.

Allan said...

Jack, Would you be willing to expand on your discussion of your market indicators? I tend to agree with you, not based on any real or complicated substantive analysis, but based mostly on what I perceive as an abundance of bearish sentiment and guarded skepticism even from those whose indicators are bullish. The only unabashed Bull (other then Dent) I know is Don Wolanchuk, but's he's always been bullish, which if you listen to him, speaks for itself as to his genius. Anyway, if you feel like expanding on your indicators, I would be honored to have you do so here.
A

Jack Cory said...

Allan, thanks for the invitation to discuss the indicators.

5/23/05 (after the close)

Monday's strength indicates that the DJIA might well reach into the range of 10800-10900. Today's indication was an upward breakout move from a small flag formation. Such moves normally provide a measured move that will be accomplished in subsequent days.

There are several indicators that point to an intermediate uptrend of significant strength:
The McClellan Oscillator actually gave a buy signal I call "The Tick" almost 8 weeks ago. It happens that the market drifted a somewhat lower after that signal. This was followed by a series of slightly lower lows in the DJIA but by higher lows in the McClellan Oscillator. This sets up a positive variance from which the market has shot upward. ("The Tick" is a pattern which I noticed in the Oscillator several years ago. I do not know that anyone else has ever named the phenomenon.)

The McClellan Summation Index, which operates at a slower pace than the Oscillator, created a positive variance against the last two DJIA lows; one at the end of April and the other at the end of the second week of May. Then, and this is wonderful news for bulls, the Summation Index created a very fast rise; what is termed a series of upward Breakaway Gaps by analysts who study the Index. The Index itself is almost always regarded as an indicator of Intermediate Trend movements.

New Highs/New Lows offer a number of possible indications. I will discuss only two major ones at this time. First, the number of new lows outnumbered the new highs in mid-March and again in mid-April. This was a bearish indication. However, new highs then began to outnumber new lows; a positive indication which has continued. Secondly, as the DJIA made three successive lows in the range of 6950, the number of new lows diminished in each of the three occasions. Once again, this is a positive variance that usually points to higher market prices.

The Bond Yield Curve has been inclining upward (I suspect that is a redundant use of two words with a single meaning.) An inclining Yield Curve is almost always a positive indication for the general stock market indices. I use it as a validation of my synopsis of other indicators, not as an indicator itself.

I actually review over 40 indicators each week or two; sometimes only monthly. Many of the individually named indicators are developed for each of the market indices, DJIA, NYSE, SP500, NASDAQ and others derived from those indices, such as the SP400 and SP600, etc. This makes a total of well over 100 indicators to peruse.

No single indicator ever gives methodical valid signals. There is, however, a body of work that was defined by a market analyst of great merit. I refer to the late George Lindsay. Unfortunately he did not write much about his methods but those methods about which he did write are incredibly valuable. In my work I find that his deliniations of patterns for major market tops are almost magical. Patterns of major market bottoms vary more greatly, but his work regarding bottoms is also extremely valuable.

Allan said...

Jack, thanks for sharing your analysis, nice work. A

Anonymous said...

Allan,
It's a great blog you have here. I've learned a lot.

A few questions if you don't mind.
How do you come about choosing CCI
over say Stochastic? The 3 period, I suppose you are doing very short term trading.

What's the expect profit target?

What's your trail stop strategy?
$100 trail stop no matter what?

How about position sizing?
What's the expectancy of your system?
What software do you use to test your system?

Thanks in advance!

Hong Cham.

Allan said...

It's a great blog you have here. I've learned a lot.
Thanks! Glad you find it useful.


A few questions if you don't mind.
How do you come about choosing CCI
over say Stochastic?

Everyone and their brother uses stochastics, who else do you know who uses CCI on stocks?

The 3 period, I suppose you are doing very short term trading.
Yes.

What's the expect profit target?
I try to bank 1% minimum, usually 3% tempts me to take it all off the table.

What's your trail stop strategy?
$100 trail stop no matter what?
I use the CCI to exit, or $100 loss, whatever comes first, assuming the profit targets have not been met.

How about position sizing?
Do I feel lucky today?

What's the expectancy of your system?
To avoid having to go back to practicing law.

What software do you use to test your system?
For my Mac, I use Personal Hotline by Trendsetter. For my PC, I use Street Smart Pro from Schwab.

Please note, the CCI-based trades are only a very small part of what I do; despite my highlighting it here, my other stuff is much more profitable, consistent and reliable. But describing all that I do could adversely effect my own results, i.e. I don't need a lot of other traders getting triggered into things just as I am, call me superstitious, but I don't like crowds. No two of my readers are going to see the exact same potential from the CCI (3). Nonetheless, the potential is there, in a number of ways, to scalp profits from it. Best of luck and keep coming back.

Anonymous said...

Maybe if you understood Rule number one in Cramer's book you wouldn't have LOST 80% of that fortune you made in the great bull market? Just a thought...

Allan said...

Had I paid attention to that rule, I would never have made the fortune to lose.

Greg Reiman said...

Thanks for the reward at the end of your comments. It is saved in my "tool box" which I am gradually filling with the other nuggets you slip in occassionally.

I didn't comment on your recent blog about "some numbers to ponder", but I am pondering and appreciative.

Thanks

Greg Reiman

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