Thursday, October 19, 2006

10 Trading Commandments - Who Can Follow Them?

The 10 Trading Commandments written by Minyanville's Todd Harrison and served by TheKirkReport will improve your trading if followed - it's that simple.


Our question is, Can the commandments be followed?

Sun Tzu says, "Know they enemy". We say "Know Yourself".

Experience painfully teaches traders that they are their own worst enemy. So it goes without saying that the hardest part of following the 10 Trading Commandments is . . . following the 10 Trading Commandments.

This is where Trade-Ideas and The Odds Maker come in handy. The tools serve heaping handfuls of discipline like an all you can eat Italian buffet. Added to Todd's divine dishes, we add a touch of our own marina sauce (never from a bottle):

  1. "Respect the price action but never defer to it": If you use The Odds Maker to see which strategies are paying off probabilistically you do not need to have a bias about the direction of the market. Simply play in the direction with higher odds of success.

  2. "Discipline trumps conviction": 100% Truth. The market is not going to do something just because you hope that it will. When The Odds Maker gives you a readout like this: Average winner = $0.922, Average loser = $-0.3158 you know what to expect from a strategy's trade alert (i.e., the profit target, the stop) before you even enter it. Discipline to manage risk.

  3. "Opportunities are made up easier than losses": Trade-Ideas' alerts show hundreds of opportunites from which to choose every day. Take your time and find the right ones using The Odds Maker. There is no reason to rush or force anything - every trade arms you with an informational edge.

  4. "Emotion is the enemy when trading": Trading is ruled by fear and greed. Those two sinners thrive on a lack of enough information or trade expectations. The Odds Maker readout collars these guys by revealing a strategy's odds of success (%) as well as average winners and losers and net gains or losses.

  5. "Zig when others zag": The trickiest of all the commandments. How do you even know if you are zigging while others are zagging? You certainly don't want to zig in front of zag by GOOG, lest you be left very zoggy. Use The Odds Maker and instantly clue in when it's time to make the right move. Rest assured those relationships are always in flux.

  6. "Adapt your style to the market": It is so important to know what kind of foe you are facing. Do breakouts follow through or do they pull back? Are you in a trending or range bound market? The Odds Maker tells a trader which strategy best fits the market's behavior.

  7. "Maximize you reward relative to risk": A simple example how The Odds Maker takes this commandment to the next level. Below is a readout of 2 Trade-Ideas strategies evaluated by The Odds Maker:

    Choice 1: 53 out of 69 trades = 76.81% success rate (defined as up at least $0.01 and exiting the position after 30 minutes); Average winner = $0.922, Average loser = $-0.3158, Net winnings = $46.00, Best = $4.23, Worst = $-1.96; Casino Factor = 100%

    Choice 2: 72 / 157 = 45.86% up $0.01 in 30 minutes; Average winner = $0.3979, Average loser = $-0.4413, Net winnings = $-6.21, Best = $1.69, Worst = $-2.24; Casino Factor = 14.14%

    Which strategy provides you with an edge? It is clear that scenario one is preferred over scenario 2. Without The Odds Maker it's difficult to know which Trade-Ideas strategy to use without risking capital in the market - no matter how good your money management is. The Odds Maker lets you float the buoy.
  8. Perception is reality in the marketplace: See #5.

  9. "When unsure, trade 'in between'": See #3.

  10. "Don't let you bad trades turn into investments": See #4. Shed light on any strategy with The Odds Maker.

In golf a handicap is used to even the playing field between players of different skill levels. In trading innovative technology helps the have-nots (of capital and elite access) gain some edge over the haves. Make sure you are playing with the right set of clubs. You still are not assured the green jacket, but The Odds Maker and the right mentality, education, trading buddy or mentor are the right stuff that makes it possible.

Want more? Our Odds Maker manual (quick read) explains more.


Trent said...

I enjoyed your critique of semi-conventional wisdom. My problem with most investment advice is that it is buried underneath so much "philosophy speak" that it is hard to get to the concrete of what is being said.

D TradeIdeas said...

Trent, you are speaking to someone who constantly tries to separate the pie-in-sky musing from real truth. That's what due diligence is all about. We built Trade-Ideas around a few traders with the grizzled experience to know exact what the perfect tool should do. The only way you'll know that is by trying it and seeing the effort.

There's a marketing challenge to this as well. Someone else with a big budget can tell you they have a better widget and drown your voice out. That's why we encourage trying the tool and do employ many 'guerilla' tactics to level the playing field.

Thanks for the comment.

Mandeep said...

Last week I was at the CyberTrader client summit and I spoke with the director of marketing Kyle and asked him if it was possible for them to integrate Trade Ideas into CT Pro. He told that you guys are already in negotiations with Trade Ideas to make your sofware part of their package. How exciting!

Mandeep said...

My comment does not even make sense. I guess you get the idea what I am trying to say. I better go to sleep.