MY STYLE - BLOG
Once does go through this journey of life with experiences which betray trust.
You see so much on TV and other media of situations, where people rip you off, intentionally and by design.
In the business that I am, its providers like me who are seen to be the scammers. We have tried to be different by being ethical, professional and transparent.
But lurking amongst the traders that are out there, are scammers of a different kind. Unprofessional and unethical.
In the service offering that we offer here, we accept intentions of traders who want to join and trade with us or those that who arent satisfied where we refund their balance monies. For the first time in my professional experience, I have had someone who agrees to subscribe a service and plays a fraud by depositing an out of date cheque in my bank account, that ultimately reaches me after ten days and enjoys free service for 10 days.
Its not the money that's important, but the fact that he refuses to respond to mails or acknowledge messages.
Well, thats life, and a new learning from scam street anonymous!
Technical analysts have used various methods to handle ranging periods. However, these dont work most of the time as a ranging period still appears as a range.
Here are some different approaches to handling ranging. Range bars for example are a part solution where noisy movement within a given amplitude is suppressed. Here are some other options :
1 - Time based compression : In this approach, one would see ranging segments within an existing time frame by changing the time frame of that period from a current level to a higher period dynamically. What this means is that one would see a 5 minute chart having a user selectable period when that part of the chart is displayed with a higher time frame. What will happen is that the ranging period will drop or disappear in the overall context of the chart. I will show the conceptual implementation of the same in a few days.
2 - Amplitude based compression - beyond range bars - where variable amplitude thresholds are implemented based on the trend. So that trends stay sticky. What that means that if a chart shows a trend, the system will automatically start increasing the amplitude of the reversal threshold so that no mid trend whipsaws affect the trades. This is perhaps one of the best kept secrets of smart technical analysts, as it is not easy to implement such a scheme.
3 - Noise less charts - Point and figure, Renko and Kagi charts eliminate noise. Change the key threshold parameters in these charts to get the same impact of amplitude based compression. This is current part of TradeWithMe's cutting edge research, where initial experiments demonstrate very good potential. See samples of what is achieved. Same data - two different logic:
Much has been written by many writers and traders about ranging periods.
As a technical trader, I prefer to allow the trading system to manage such days so that trading remains non discretionary and enable automation. What are the ways to handle ranging ? These are some ideas:
1 - Stay away from the market - easiest and most prone to opportunity profit losses.
2 - Put a limit on stop loss loss limit for the day and exit trading for the day.
3 - Enable a well thought out strategy to play itself out. One example of that is to take trades initiated following a cross of a threshold. For example, if RSI or Stochastics does not cross 30/70 or 20/80, do not initiate a new trade.
Option 3 is the most promising and can be used by both discretionary and non discretionary traders for consistent trading. The choice of threshold logic is wide open, and can include what the trader prefers and uses normally.
A fundamental input, that may be used is to stay away from periods that include ranging before a market news event. Thats optional.
A good idea to manage volatile markets is to trade more frequently than even intraday strategies. This is something which I call "Fast Reversal" where trend direction is estimated at every price move and a trade taken. It can result in amazing accuracy as our own tests on BankNifty, which is very volatile, have shown. Accuracy levels are usually in excess of 80% for a well configured approach. As usual, no indicators - price is king!
Its not good enough to just trade and make profits. There need to be several grains of consistency to ensure that trading generates a steady income, if that is one of the objectives for trading.
In the last post, I wrote about trading accuracy, which reduces the effort to achieve a profit level.
If our trading accuracy is 70% and each winning trade makes Rs 1000 and a losing trade loses 500, then in 10 trades our profits would be 7 x 1000 - 3 x 500 = 7000-1500 = 5500 or 55% of the maximum profit potential.
If our trading accuracy is 50%, the same equation turns to give a profit of 5000-2500= 2500 or 25% of the profit potential.
Now, if we want an income of Rs 50000 in a month and we traded at 70% accuracy and did 10 trades in each session, we would need approximately 10 sessions to achieve this objective. If however, our accuracy is 50%, we would need to traded 20 sessions to achieve the same results. i.e. for a 20% drop in trading accuracy, we have to trade 200% more to achieve the same results.
That leads me to the next important consideration, that I have been focusing for the last 6-7 months. Consistency. Consistency means, how often you can reproduce the trading accuracy, day on day....If you could consistently generate a 70% accuracy, then you can trade your method and take your winnings home day on day and live happily ever after.
In the real trading world, this is less easier said, than done. The issue is with the underlying assumptions of the trading system that you use. If it cannot handle trading situations consistently... i.e. with the same level of results accuracy, then we have a problem.
It is my submission, that identifying winning trades has a strong relationship to the ability to recognize supports, resistances and trend breaks. These two factors need to be in some form part of any part of the technicals of a good trading system and when combined with a good risk management system is what will make a trader win consistent profits.
At TradeWithMe, we have been using the Point and Figure method for over a year and innovated around that. The original point and figure method works well, in identifying new trends, but fails in ranging periods as do most trading methods. By using our own variation of the basic point and figure method and incorporating pattern recognition in a rudimentary form at this time, we are now able to trade with close to 100% accuracy and consistency well above 70%. A sample of what could be a good trading system is shown below to give ideas to the reader:
And we manage a better than 80% success ratio. Waiting to see how it stays in the days to come.
Several posts ago, I indicated that you can make money by coin tossing, which has a 50% success ratio by statistical probability. How does that happen? Smart traders always try to keep stop losses manageable and smaller than their profit targets. Effectively, your average win profit divided by average loss should be a factor of 1.5 or more, so that you make money. What this is means that for every losing trade your winning trades will make at least 1.5 times what you lost. On a win ratio of 0.5 or 50%, this will effectively translate to a win ratio of 1.25 in money terms across all trades.
(see the definitions below for the ratios)
So the question is, what is good ? Just a great absolute profit ratio in real money or also the trade count win ratio.
Here is where risk comes in again. Any trading system with a low win ratio will have a higher risk exposure, as the laws of statistics will work in the long run, but in the short run may expose you to significant draw down in a low trade count success ratio system versus one that has a high success ratio.
Traders are sometimes impatient people. And that is their failing. By trying to search for trades in every market move, one is going to add up to loss overheads without any significant gain. And yours truly also admits having fallen for that sometimes.
But here is what we have done now. We had a trade win ratio of 60% and a profit win ratio of better than 90%, but we were concerned with the draw downs on sharp market moves. So here are two things that we did, which others can also benefit from :
- Tweaked the systems that we use to push up trade win ratio to better than 80%. Fewer trades, but successful.
- Move to fixed reverse stop loss (if the trade does not make money, exit it at a predefined level).
Important observation was that none of this reduced the overall net profit capabili
Definitions : Trade win ratio or trade count win ratio = Winning trades / sum of winning and losing trades or all trades
Profit win ratio = Profit from winning trades/ sum of profit and loss from all trades.
During the last three months we have had our downs where range bound periods tended to make mince meat of our trades. Conventional wisdom suggests that one stays out of ranging periods. But there lays a story. Ranging periods like trends tell us that there is indecision. Most professional traders give up and ignore ranging periods. We dont. As ranging periods tell us about changing market sentiments. If we can capture that sentiment, trades can be more effective.
And we have done exactly that! We have refined our methods and done immense original automation around our core trading methods, that trading time is focused on observing market sentiment alone. We are working on a sentiment index and will share information around that soon. And all of that is simply around price action.
We have published indicator less trading concepts, which are again cutting edge approaches which approximate the extremely effective "tukka" or chance/gut feel traders. Again price is king in this approach.
We have dissected the point and figure trading approach to superimpose that on normal time charts and then reverse engineer the original concept to add features that combine the best of both approaches, without making a mess of them. Check the Point and Figure knowledgebase in the technical analysis section.
This is a question I keep asking myself every week. And the answer relies on just point. Are we trading consistently? Which means is our trading method giving consistent profits - sum of winning trades over losing trades remains consistently positive. And the answer is a resounding YES.
If I asked this question a month ago, I had the niggling doubt, that we were getting exposed to whipsaws now and then and losing good profits in a few bad trades. Now that has changed. How?
First our trading systems use small stop losses for all classes of trades. For intraday trades for Nifty the stop losses are as small as 4-10 points and for Bank nifty 12-25 points. This implies that we can survive more stop loss trades (not that we need to have them more often!) in our risk management approach. The second and more significant improvement is being able to make right interpretations of the bigger picture during market hours so trade trends are correctly identified and trades are entered at the right levels.
That is where our proprietary research into identifying trends and supports and resistances has come to play. A visual display of this information is displayed by a conventional bar chart and is superimposed onto point and figure precision. Infact, the two systems now help double check against one another like a closed loop. The impact was felt today -- expiry volatility in intraday trades was completely managed! See the example of BankNifty trades below. The light green and reddish brown lines are the resistances and supports, which another proprietary program generates, trades are generated using a P&F system and the trade monitoring robot generates the stop losses based on these levels. The result is amazing precision! And thanks to pretty original research that generates these charts.
The original swing theory of higher highs and lows for long trades and lower lows for short trades remains king. The issue where traders stumble is to filter the noise out and identify the highs/lows. Thats where technical traders come in with their arsenal. If you can master this, and I am not yet fully there, but slowly moving in that direction, trading takes the level of an art! Because you try to project trader psychology onto the charts, and that can be subjective and disastrous at times. The upside is that you trade only with price action, the purest form of market direction. Think about this!
Abnash Singh, Am a Trader helping small traders to realize their dreams.