Bruce Stanley Kovner (born 1945 in Brooklyn, New York) is an American businessman. He is the founder and Chairman of Caxton Associates, LLC, a hedge fund that trades a global macro strategy. Kovner is also the Chairman of the American Enterprise Institute, the premiere American neoconservative think tank. With an estimated current net worth of around $2.5 billion, he is ranked by Forbes as the 292nd-richest in the world.
Described as secretive even by family and friends, the 61-year old divorcee is perhaps one of the least known New York City billionaires outside of professional circles.
Biography
Bruce Kovner's family came to Brooklyn, New York, in the early 1900s from Tsarist Russia, fleeing persecution for their Communist beliefs. Two of Kovner's fathers' cousins faced the House Un-American Activities Committee in the 1950s, pleading the Fifth Amendment. However, Bruce's father, Moishe Kovner, was more conservative than his kin, at one point even crossing a picket line to work.
Bruce Kovner grew up in the San Fernando Valley, where his father had moved the family in 1953. Early on, he was a high achiever, becoming a Merit Scholar. He was the student-body president of Van Nuys High School at 16, and an accomplished basketball player. [citation needed]
Kovner went to Harvard College starting in 1962, a time marred by the hanging suicide of his mother back in his family's Van Nuys home. Nonetheless, he was considered a good student and was well liked by his classmates. Avoiding the Vietnam draft by student deferment (when it was still available), Kovner stayed in Harvard, studying political science closely under prominent conservative scholar Edward C. Banfield, who reportedly had great faith and admiration for the young Kovner. [citation needed]
Kovner did not finish his Ph.D., having suffered a severe case of writer's block and overreached in his choice of subject matter. Over the next few years, he engaged in a number of eclectic efforts; he worked on political campaigns, studied the harpsichord, was a writer, and a cab driver. It was during the latter occupation, not long after his marriage to now ex-wife Sarah Peter, that he discovered commodities trading.
Kovner has three children. Among them are Rachel, who will be clerking for U.S. Supreme Court Justice Antonin Scalia in the 2007-2008 court term.
Business
Kovner's first trade was for $3,000, borrowed against his MasterCard, in soybean futures contracts. Realizing growth to $50,000, he then watched the contract drop to $22,000 before selling. He later claimed that this first, nerve-racking trade taught him the importance of risk management.
In his eventual role as a trader under the legendary Michael Marcus at Commodities Corporation (now part of Goldman Sachs), made millions and gained widespread respect as an objective and sober trader. This ultimately led to the establishment of his current company, Caxton Associates, in 1983, which today manages over $10 billion in capital and is closed to new investors. [citation needed]
Kovner is not well known outside of professional circles. He has very rarely given interviews, and is notoriously private. His 5th Avenue Mansion in New York City features a lead-lined room to protect against a chemical, biological, or dirty bomb attack.
Philanthropy and politics
A patron of the arts and a particular devotee of opera, Kovner is an avid collector of rare books and classical music manuscripts and has given millions to art projects and art institutions, notably the Juilliard School (of which he is Chairman). He is a primary funder of the expansion of Lincoln Center and the publisher of many works, including what some consider the finest modern illustrated bible. He is also founder and Chairman of the School Choice Scholarships Foundation, which awards scholarships to financially disadvantaged youth in New York City.
Kovner has contributed extensively to conservative causes. He is the Chairman of the board of trustees of the American Enterprise Institute, for which Caxton Associates manages most investments.[citation needed] His close acquaintances include Vice President Dick Cheney, neoconservative figures Richard Perle and James Q. Wilson, as well as a wide range of government officials from all over the world - relationships which many consider contribute to Kovner's insight into commodities markets worldwide. He is a major backer of the conservative Manhattan Institute and the daily, The New York Sun.
References
Forbes 2006 ranking
Monday, October 29, 2007
MICHAEL MARCUS - TURN USD30K TO USD 80 MILLION
Michael Marcus is a commodities trader who, in under 20 years, is reputed to have turned his initial $30,000 into $80 million.[1] Marcus met his mentor Ed Seykota while working as an analyst and learned money management from him. Later while working.[2] at Commodities Corporation and before becoming the company's executive vice president, he hired Bruce Kovner to be his assistant and taught Bruce the ins and outs of trading.[3].
He graduated in 1969 Phi Beta Kappa from Johns Hopkins and obtained his Phd[1] in Psychology from Clark University.[2]
Personal
At one time he was a devout follower of the Maharishi Mahesh Yogi.[1] His first wife divorced him because he spent more time trading than with her. He has a mansion with a private beach overlooking the ocean in Malibu, California[4] and he also has a ranch near Austin, Texas.[5] In the 1980s Marcus fell on his back and severely injured his lower back. For weeks after, he suffered chronic low back pain and discomfort in his legs, for which he was diagnosed with lumbar disc herniation and a coccyx injury; he decided against surgery and chose an alternative therapy. He claims to have found pain relief through Prolotherapy treatments and IVSAAT therapy. Delighted with the results he funded the program to build the CAM Research Institute.[6]
Career
Marcus began his trading career in 1972, when he took his whole life savings of $700 and bought plywood futures. In the summer of 1972 President Richard Nixon froze prices of some commodities like wood, but the futures contracts went sky high and Michael turned his $700 into $12,000. He would repeat the feat in 1973, turning $24,000 into $64,000.[6] He also used Freight derivatives.
While at Commodities Corporation he hired Bruce Kovner as a trader.[2] As the firm's leading currency trader, Marcus had to wake up every two hours throughout the night to check the markets, which had the negative consequence of ending his first marriage.[7] As a founding trader of the firm, Marcus rose through the ranks at Commodities Corporation eventually becoming an EVP. Marcus has recently diversified by investing in small-company stock through his holding company Canmarc Trading Co and later made private-placement investments in small OTC Bulletin Board listed companies like Prospector Consolidated Resources[8] and Encore Clean Energy Inc[9] and Pink Sheets Touchstone Resources.
ViRexx Medical Corp, a company focused on immunotherapy treatments for certain cancers, chronic hepatitis B and C, and embolotherapy treatments for tumors, announced Marcus's election to its Board of Directors at its Annual General Meeting held May 25, 2006.
Quotes
In the words of Thomas A Bass, in the book The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street.[10]
“ One was Michael Marcus, a former trader at the New York Cotton Exchange, who went on to become one of the world's biggest currency speculators. He made a fortune in gold and another fortune in cocoa before moving into trading tanker rates and other indices in the shipping industry. He parlayed a thirty-thousand-dollar stake into an eighty-million-dollar fortune. He owned ten houses in every beautiful place in the world, many of which he had never slept in.
His wife left him, but Marcus was too busy to notice. Trading from a beachside mansion in California, he was waking up every two hours throughout the night to place three-hundred-million-dollar bets on currency markets in Australia, Hong Kong, Zurich, and London. His secret? Marcus is a chartist. He is a trend follower who keeps an eye on market penetration and resistance.
He graduated in 1969 Phi Beta Kappa from Johns Hopkins and obtained his Phd[1] in Psychology from Clark University.[2]
Personal
At one time he was a devout follower of the Maharishi Mahesh Yogi.[1] His first wife divorced him because he spent more time trading than with her. He has a mansion with a private beach overlooking the ocean in Malibu, California[4] and he also has a ranch near Austin, Texas.[5] In the 1980s Marcus fell on his back and severely injured his lower back. For weeks after, he suffered chronic low back pain and discomfort in his legs, for which he was diagnosed with lumbar disc herniation and a coccyx injury; he decided against surgery and chose an alternative therapy. He claims to have found pain relief through Prolotherapy treatments and IVSAAT therapy. Delighted with the results he funded the program to build the CAM Research Institute.[6]
Career
Marcus began his trading career in 1972, when he took his whole life savings of $700 and bought plywood futures. In the summer of 1972 President Richard Nixon froze prices of some commodities like wood, but the futures contracts went sky high and Michael turned his $700 into $12,000. He would repeat the feat in 1973, turning $24,000 into $64,000.[6] He also used Freight derivatives.
While at Commodities Corporation he hired Bruce Kovner as a trader.[2] As the firm's leading currency trader, Marcus had to wake up every two hours throughout the night to check the markets, which had the negative consequence of ending his first marriage.[7] As a founding trader of the firm, Marcus rose through the ranks at Commodities Corporation eventually becoming an EVP. Marcus has recently diversified by investing in small-company stock through his holding company Canmarc Trading Co and later made private-placement investments in small OTC Bulletin Board listed companies like Prospector Consolidated Resources[8] and Encore Clean Energy Inc[9] and Pink Sheets Touchstone Resources.
ViRexx Medical Corp, a company focused on immunotherapy treatments for certain cancers, chronic hepatitis B and C, and embolotherapy treatments for tumors, announced Marcus's election to its Board of Directors at its Annual General Meeting held May 25, 2006.
Quotes
In the words of Thomas A Bass, in the book The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street.[10]
“ One was Michael Marcus, a former trader at the New York Cotton Exchange, who went on to become one of the world's biggest currency speculators. He made a fortune in gold and another fortune in cocoa before moving into trading tanker rates and other indices in the shipping industry. He parlayed a thirty-thousand-dollar stake into an eighty-million-dollar fortune. He owned ten houses in every beautiful place in the world, many of which he had never slept in.
His wife left him, but Marcus was too busy to notice. Trading from a beachside mansion in California, he was waking up every two hours throughout the night to place three-hundred-million-dollar bets on currency markets in Australia, Hong Kong, Zurich, and London. His secret? Marcus is a chartist. He is a trend follower who keeps an eye on market penetration and resistance.
Wednesday, October 24, 2007
CONTRARIANISM - KEY TO SUCCESS?
It takes patience, discipline and courage to follow the "contrarian" route to investment success: to buy when others are despondently selling, to sell when others are avidly buying. However, based on half a century of experience, I can attest to the rewards at the end of the journey. - Sir John Marks Templeton
Contrarianism means figuring out what the herd is doing, and doing the exact opposite. It isn't usually particularly hard to know what everyone else thinks, if people are bullish then you will hear how clever everyone thinks they are as they regale the whole party with their latest killings on the stock market and it seems that everyone you meet is into shares. When the bears are out in force people tend to look at you like you are some kind of risk-taking nut if you mention the share market, and they usually turn to happier topics, like infant mortality and the upcoming global pandemic that will destroy western civilisation.
When the market is bearish no one wants to talk about it, those few die-hards who are invested for the long term console themselves on the old propaganda that if you hold for five years all will be well, as they try not to think about the massive capital losses on their portfolios.
Contrarianism means being an anti-social fool that refuses to listen to the advice of anyone they come into contact with, it means being skeptical when the market has been bullish for a while, and it means going out and betting the bank when prices fall.
Not only investors but also speculators can benefit from a contrarian strategy. It isn't necessarily the case that the crowd is always wrong, most will be wrong over longer periods but if it was a simple matter of reading market sentiment surveys and doing the opposite then the few who do that would be hugely rich. They aren't. The advantage of contrarianism is that as a whole the market is pretty bad at doing forecasting, if we are to assume that bullish or bearish sentiment has exactly nothing to do with the future course of the market, then it means the total possible returns by going contrarian should be greater.
If the market anticipates an event such as a takeover or an interest cut, the price will rise in anticipation. The more convinced the traders are that this move is going to happen, the more it will be reflected in the share price. If 99% of traders anticipate a certain set of numbers and they are right, the price will hardly budge. What if they are wrong? The more convinced the market was of the data coming out as anticipated, and the more wrong everyone was, the greater the disillusionment when they turn out to be wrong. Although not in itself a complete trading system, certainly not something you would send money after purely on these grounds, many speculators incorporate contrarianism into their strategy, it often means if they are right they make huge profits, if they are wrong very little happens. Surveys done through brokerage firms and various web sites poll traders for their views, in almost every occasion where massive moves have been made, the crowd has been wrong, if not unanimously, then at least in the main.
The greatest caution should be advised at this point. If a stock can trade at a stupidly high price-earnings ratio of 100, then it can just as easily trade at 200. The Japanese market in the 1980s was as crooked as anything in the western world in the 1920s and soared to insane heights. It was expensive and then it got very expensive and then it got staggeringly expensive and then it had a glorious bull run. The falls that occurred later on were certainly devastating, and blind Freddy could see that the market was due for a fall, but if you had shorted the market when the prices first became unsustainable you would have lost your shirt as the Japanese citizens dutifully put their money into whatever their most influential brokers told them to. It can happen to whole markets, it can happen to sectors (often technology) and sometimes it just happens to single stocks. Contrarianism is a powerful technique but should never be blindly applied.
As far as speculation goes it works best with economic events that are hard to predict yet widely anticipated, like interest rate moves. In investment it amounts to a caution against buying just because it has tripled. Futures traders are often interested in forming views of sentiment, and keep track not only of bull/bear surveys but also open interest and volume.
Investors like Warren Buffett bypass contrarianism altogether, considering it all a rather futile pursuit to even bother with what the market thinks. He buys businesses, not stocks, as long as the price is not unreasonable the market quote means very little to him, he merely keeps a casual eye on prices to see if anything he likes is going at prices he thinks are pretty cheap.
Regression to the mean, which I discuss next article can make a potentially very profitable investment strategy. Computer analysis of the All Ords (see Sensible Share Investing by Austin Donnelly, pg. 39) shows that historically the results of the previous five years have been a fairly reliable indicator of the performance of the next five, though in a contrary manner.
If the last five years has seen an annual return of between -14.25% to 4.99%, historically the average return of the next has been 11.04%. When the last five years has returned between -5% and 9.99% then you can expect, based on the past performance of the All Ords, an annual return in the next five years of 7.57%, and historically five year annual returns of 10% to 36.13% have led to an average result in the next five years of only 4.81% per annum.
Those are averages, take a look at the downside risk, when the previous five years have shown a loss between 14.25% and a loss of 4.25%, the next five years have never in the last 50 years produced a loss, the worst case scenario has been a 4.9% per annum gain in the next five years. When the market has returned between 5% and 9.99% in the last five years though, the worst performance of the following years has been a 14.51% per annum loss.
When the market has returned 10% and 36.13% in annual gains for the last five years, the worst result was an annual loss of 14.25% for the next five years, that means that strong bull markets have tended to precede big losses, 14.25% PA lost over five years is a 46% decline in total, which is precisely what happens to most investors that watch too many of those terrible popular current affairs shows that run all those stories on housewives striking it rich in stocks, so they buy in with great confidence, comforting themselves with the knowledge that this market has produced good returns for many years, and will probably continue to do so, because crashes only ever happen in the past, and the bad old days of greedy speculators went out with the 80s...
So what are your chances of making a profit in the market, given the returns from the past five years? Well, past returns are no guarantee of future results, but if history is any guide then the chance of making a profit would be: 91%, if the previous five years have returned an annual gain of between -14.25% and 4.99%, 70%, if the market returned between -5% and 9.99% and finally if the market has returned between 10% and 36.13% for the past five years, historically you can make a profit in the next five only 41% of the time.
Contrary investment usually means selling shares when they are near historic highs in terms of price-earnings ratios and historic lows for dividend yields. It means buying right in the midst of doom and gloom, but it means you are probably buying at prices way below the average in terms of PERs and with very good dividend yields.
Value investors don't explicitly set out to do the opposite of what everyone else is doing, but do tend to buy at the same time as contrarian investors, for exactly those reasons, so if you want to be a contrarian investor you may well wish to study value investment to improve your hit ratio.
In the same book, Donnelly ran some more tests on the implications of the past five years with respect to the next. The following table is a summary of end-of-quarter results of the All Ordinaries from January 1955 to December 1993, a total of 156 rolling 5-year periods. Zone refers to Donnelly's "Zone" system, more on this later. 5 year average gain is the compound gain of the market from the previous five years. Average is the average per annum compound gains of the five years after the backtest period, worst is the worst compound gain or loss for the next five years, best is the best compound gain for the next 5 years. Volatility is the coefficient of variation, the standard deviation (sigma) divided by the mean. If you aren't a statistician this merely means that the smaller the number the more steady the prices, the larger the more wildly gyrating. Success rate is the rate of achieving at least an 8% gain in capital. He assumes that you can get 8% from risk-free investments, and so anything returning less than 8% in the share market is obviously a failure, to expose your money to risk of capital loss and make less than some guy with a term deposit account should be called a bad result.
Contrarianism means figuring out what the herd is doing, and doing the exact opposite. It isn't usually particularly hard to know what everyone else thinks, if people are bullish then you will hear how clever everyone thinks they are as they regale the whole party with their latest killings on the stock market and it seems that everyone you meet is into shares. When the bears are out in force people tend to look at you like you are some kind of risk-taking nut if you mention the share market, and they usually turn to happier topics, like infant mortality and the upcoming global pandemic that will destroy western civilisation.
When the market is bearish no one wants to talk about it, those few die-hards who are invested for the long term console themselves on the old propaganda that if you hold for five years all will be well, as they try not to think about the massive capital losses on their portfolios.
Contrarianism means being an anti-social fool that refuses to listen to the advice of anyone they come into contact with, it means being skeptical when the market has been bullish for a while, and it means going out and betting the bank when prices fall.
Not only investors but also speculators can benefit from a contrarian strategy. It isn't necessarily the case that the crowd is always wrong, most will be wrong over longer periods but if it was a simple matter of reading market sentiment surveys and doing the opposite then the few who do that would be hugely rich. They aren't. The advantage of contrarianism is that as a whole the market is pretty bad at doing forecasting, if we are to assume that bullish or bearish sentiment has exactly nothing to do with the future course of the market, then it means the total possible returns by going contrarian should be greater.
If the market anticipates an event such as a takeover or an interest cut, the price will rise in anticipation. The more convinced the traders are that this move is going to happen, the more it will be reflected in the share price. If 99% of traders anticipate a certain set of numbers and they are right, the price will hardly budge. What if they are wrong? The more convinced the market was of the data coming out as anticipated, and the more wrong everyone was, the greater the disillusionment when they turn out to be wrong. Although not in itself a complete trading system, certainly not something you would send money after purely on these grounds, many speculators incorporate contrarianism into their strategy, it often means if they are right they make huge profits, if they are wrong very little happens. Surveys done through brokerage firms and various web sites poll traders for their views, in almost every occasion where massive moves have been made, the crowd has been wrong, if not unanimously, then at least in the main.
The greatest caution should be advised at this point. If a stock can trade at a stupidly high price-earnings ratio of 100, then it can just as easily trade at 200. The Japanese market in the 1980s was as crooked as anything in the western world in the 1920s and soared to insane heights. It was expensive and then it got very expensive and then it got staggeringly expensive and then it had a glorious bull run. The falls that occurred later on were certainly devastating, and blind Freddy could see that the market was due for a fall, but if you had shorted the market when the prices first became unsustainable you would have lost your shirt as the Japanese citizens dutifully put their money into whatever their most influential brokers told them to. It can happen to whole markets, it can happen to sectors (often technology) and sometimes it just happens to single stocks. Contrarianism is a powerful technique but should never be blindly applied.
As far as speculation goes it works best with economic events that are hard to predict yet widely anticipated, like interest rate moves. In investment it amounts to a caution against buying just because it has tripled. Futures traders are often interested in forming views of sentiment, and keep track not only of bull/bear surveys but also open interest and volume.
Investors like Warren Buffett bypass contrarianism altogether, considering it all a rather futile pursuit to even bother with what the market thinks. He buys businesses, not stocks, as long as the price is not unreasonable the market quote means very little to him, he merely keeps a casual eye on prices to see if anything he likes is going at prices he thinks are pretty cheap.
Regression to the mean, which I discuss next article can make a potentially very profitable investment strategy. Computer analysis of the All Ords (see Sensible Share Investing by Austin Donnelly, pg. 39) shows that historically the results of the previous five years have been a fairly reliable indicator of the performance of the next five, though in a contrary manner.
If the last five years has seen an annual return of between -14.25% to 4.99%, historically the average return of the next has been 11.04%. When the last five years has returned between -5% and 9.99% then you can expect, based on the past performance of the All Ords, an annual return in the next five years of 7.57%, and historically five year annual returns of 10% to 36.13% have led to an average result in the next five years of only 4.81% per annum.
Those are averages, take a look at the downside risk, when the previous five years have shown a loss between 14.25% and a loss of 4.25%, the next five years have never in the last 50 years produced a loss, the worst case scenario has been a 4.9% per annum gain in the next five years. When the market has returned between 5% and 9.99% in the last five years though, the worst performance of the following years has been a 14.51% per annum loss.
When the market has returned 10% and 36.13% in annual gains for the last five years, the worst result was an annual loss of 14.25% for the next five years, that means that strong bull markets have tended to precede big losses, 14.25% PA lost over five years is a 46% decline in total, which is precisely what happens to most investors that watch too many of those terrible popular current affairs shows that run all those stories on housewives striking it rich in stocks, so they buy in with great confidence, comforting themselves with the knowledge that this market has produced good returns for many years, and will probably continue to do so, because crashes only ever happen in the past, and the bad old days of greedy speculators went out with the 80s...
So what are your chances of making a profit in the market, given the returns from the past five years? Well, past returns are no guarantee of future results, but if history is any guide then the chance of making a profit would be: 91%, if the previous five years have returned an annual gain of between -14.25% and 4.99%, 70%, if the market returned between -5% and 9.99% and finally if the market has returned between 10% and 36.13% for the past five years, historically you can make a profit in the next five only 41% of the time.
Contrary investment usually means selling shares when they are near historic highs in terms of price-earnings ratios and historic lows for dividend yields. It means buying right in the midst of doom and gloom, but it means you are probably buying at prices way below the average in terms of PERs and with very good dividend yields.
Value investors don't explicitly set out to do the opposite of what everyone else is doing, but do tend to buy at the same time as contrarian investors, for exactly those reasons, so if you want to be a contrarian investor you may well wish to study value investment to improve your hit ratio.
In the same book, Donnelly ran some more tests on the implications of the past five years with respect to the next. The following table is a summary of end-of-quarter results of the All Ordinaries from January 1955 to December 1993, a total of 156 rolling 5-year periods. Zone refers to Donnelly's "Zone" system, more on this later. 5 year average gain is the compound gain of the market from the previous five years. Average is the average per annum compound gains of the five years after the backtest period, worst is the worst compound gain or loss for the next five years, best is the best compound gain for the next 5 years. Volatility is the coefficient of variation, the standard deviation (sigma) divided by the mean. If you aren't a statistician this merely means that the smaller the number the more steady the prices, the larger the more wildly gyrating. Success rate is the rate of achieving at least an 8% gain in capital. He assumes that you can get 8% from risk-free investments, and so anything returning less than 8% in the share market is obviously a failure, to expose your money to risk of capital loss and make less than some guy with a term deposit account should be called a bad result.
Sunday, October 21, 2007
PAUL RABAR - THE GREATEST TRADER OF ALL TIME
Paul Rabar
Paul Rabar was a Turtle. His company is Rabar Market Research.
It is well known that over a period of several years, Richard Dennis traded an initial stake of $1,200 into $300,000,000. By at least some measures, he thereby achieved the greatest performance in the history of the markets. To do so, his methods must have been different from or contrary to those of other traders in some important respects. The concept of contrarianism is perhaps the most important of those imparted by Dennis. Because each futures market is a zero-sum game, even a marginally profitable trader must extract capital from other market participants and, therefore, must use methods that are different from those of other market participants. Contrarianism in one form or another, whether or not a trader consciously identifies it as such, is the first requisite for profitability.
Barclay Group
Rabar Market Research, Inc. uses long-term trend following. Technical indicators are analyzed by computers that generate trading instructions or orders. Though most of these orders are followed strictly without any interpretation, some are modified by Paul Rabar, the company's president. Rabar's risk management limits exposure in each trade, each market, each sector, and each account. Risk is also controlled with extensive diversification of markets traded. Paul Rabar, CEO and sole principal of Rabar Market Research, Inc., was trained in the mid-1980s by Richard Dennis, one of the most successful futures speculators of all time.
Company Profile
Paul Rabar was a Turtle. His company is Rabar Market Research.
It is well known that over a period of several years, Richard Dennis traded an initial stake of $1,200 into $300,000,000. By at least some measures, he thereby achieved the greatest performance in the history of the markets. To do so, his methods must have been different from or contrary to those of other traders in some important respects. The concept of contrarianism is perhaps the most important of those imparted by Dennis. Because each futures market is a zero-sum game, even a marginally profitable trader must extract capital from other market participants and, therefore, must use methods that are different from those of other market participants. Contrarianism in one form or another, whether or not a trader consciously identifies it as such, is the first requisite for profitability.
Barclay Group
Rabar Market Research, Inc. uses long-term trend following. Technical indicators are analyzed by computers that generate trading instructions or orders. Though most of these orders are followed strictly without any interpretation, some are modified by Paul Rabar, the company's president. Rabar's risk management limits exposure in each trade, each market, each sector, and each account. Risk is also controlled with extensive diversification of markets traded. Paul Rabar, CEO and sole principal of Rabar Market Research, Inc., was trained in the mid-1980s by Richard Dennis, one of the most successful futures speculators of all time.
Company Profile
Friday, October 19, 2007
MA 5 AND 20 CROSSES - The Proof
On 18 October 2007, the MA5 and 20 crosses. On the 19 October, the DJI index drops more than 300 points.
This justify the theory of Richard Donchian's MA5 and MA20.
Everytime when these two MA crossed, a reversal will occur.
Another MAs will which combine so well are MA3 and 5.
Based on the DJI chart, the two MAs crosses on the 12 October when the index was at 14092. Today it is 13522.
This justify the theory of Richard Donchian's MA5 and MA20.
Everytime when these two MA crossed, a reversal will occur.
Another MAs will which combine so well are MA3 and 5.
Based on the DJI chart, the two MAs crosses on the 12 October when the index was at 14092. Today it is 13522.
Thursday, October 18, 2007
RICHARD DONCHIAN
RICHARD DONCHIAN is one of the many successful trend traders. He didn’t begin trading his successful tren following system until the age of 65. He quickly amassed large returns after that and continued to trade until into his 90s.
His trading system consisted of following crossovers of the 5 and 20 day moving averages.
His 20 Guides of Trading Commodities can be applied just as well to trading stocks. Of these guides there are 4 that he - and I - consider the most important.
LIMIT LOSSES, ride profits - irrespective of all other rules. Watch for “crawling along” or repeated bumping of minor or major trendlines and prepare to see such trendlines broken. Breaking of minor trendlines counter to the major trend gives most other important position-taking signals. Positions can be taken or reversed on stops at such places. (This is possibly the most imprtant of all the technical guides.) During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, expecially if volume declines on the reversal. (This has proved to be a very valuable guide.)
His trading system consisted of following crossovers of the 5 and 20 day moving averages.
His 20 Guides of Trading Commodities can be applied just as well to trading stocks. Of these guides there are 4 that he - and I - consider the most important.
LIMIT LOSSES, ride profits - irrespective of all other rules. Watch for “crawling along” or repeated bumping of minor or major trendlines and prepare to see such trendlines broken. Breaking of minor trendlines counter to the major trend gives most other important position-taking signals. Positions can be taken or reversed on stops at such places. (This is possibly the most imprtant of all the technical guides.) During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, expecially if volume declines on the reversal. (This has proved to be a very valuable guide.)
20 "TRADING RULES" OF TRADING
Richard Donchian began his Wall Street career in 1930. Donchian began writing a technical market letter in 1933, and continued for many years (lot of biographical info on Donchian here).
I like going back to successful traders from the early part of last century, as their focus is driven by Human Nature -- not current events or technological advancement. As such, they manage to uncover timeless truths about our unchanging natures -- and how these natures act and react in capital markets.
The following trading guidelines were first published in 1934:
General Guides
1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.
2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
3. Limit losses and ride profits, irrespective of all other rules.
4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing.
5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.
6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation.
7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%
8. In taking a position, price orders are allowable. In closing a position, use market orders."
9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.
10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.
11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.
Technical Guides
1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.
2. Reversal or resistance to a move is likely to be encountered:
- 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range
- On approaching highs or lows
3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently.
4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken.
5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places.
6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side.
7. Watch for volume climax, especially after a long move.
8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps.
9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
Great stuff. Astonishing how advisable these 70 year old rules remain today.
I like going back to successful traders from the early part of last century, as their focus is driven by Human Nature -- not current events or technological advancement. As such, they manage to uncover timeless truths about our unchanging natures -- and how these natures act and react in capital markets.
The following trading guidelines were first published in 1934:
General Guides
1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.
2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
3. Limit losses and ride profits, irrespective of all other rules.
4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing.
5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.
6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation.
7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%
8. In taking a position, price orders are allowable. In closing a position, use market orders."
9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.
10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.
11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.
Technical Guides
1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.
2. Reversal or resistance to a move is likely to be encountered:
- 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range
- On approaching highs or lows
3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently.
4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken.
5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places.
6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side.
7. Watch for volume climax, especially after a long move.
8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps.
9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
Great stuff. Astonishing how advisable these 70 year old rules remain today.
RICHARD DONCHIAN - THE FATHER OF TREND FOLLOWING
Richard Donchian
Richard Donchian is known as the father of trend following. His original trend following ideas form the basis for all trend following success that has followed, including Richard Dennis. Donchian's original methods involved the use of a moving average for the entry/exit indicator portion of his system. Richard Dennis, however, did not use a moving average for entry/exit and concentrated much more heavily on money management than Donchian. Money management accounts for 90% of the Turtle success story. Then once you have that down, your psychology accounts for 100% of your success.
Donchian Biography
Richard Davoud Donchian was born in Hartford, Connecticut, in September, 1905, the son of Samuel B. Donchian and Armenouhi A. Davoud, both of whom migrated from the Armenian province of Turkey in the 1880's. Richard attended public schools in Hartford, the Taft School in Watertown, Connecticut, and graduated from Yale University in 1928 with a B.A degree in economics. Upon graduation, he entered the family's oriental rug business.
Although he appreciated studying about and collecting oriental rugs, he became more interested in the financial markets after reading the book about Jesse Livermore, Reminiscences of a Stock Operator. After suffering personal financial losses during the market crash of 1929, he began his study of technical analysis, believing that only the chartists made sense and money. While continuing to serve as a Vice President of the Samuel Donchian Rug Company, he became a securities analyst and account executive with Hemphill, Noyes & Co. in 1933.
During World War II, he participated in the invasion of Sicily and later served as an Air Force Statistical Control Officer in the Pentagon. After the war he returned to the world of investments as a private investment adviser and economic analyst, remaining self-employed until 1960. In 1948 his focus changed from securities to the trading of commodities. He created "Futures, Inc.," a pioneer publicly held commodity fund, based on the principle of diversification, an idea new in this field. He was later dubbed the 'father of modern commodities trading methods," having developed a technical trading method called "trend following," which presupposes that commodity prices will move in long sweeps like bull and bear markets. He used a mathematical system based on moving averages of commodity prices. During this period, he authored numerous articles on both securities and futures trading.
In 1960 he became associated with Hayden Stone Inc., as Director of Commodity Research. From then until his death on April 24, 1993, he was associated with the various configurations of Hayden Stone and Shearson Lehman Brothers (now Smith Barney) and was a Senior Vice President. Also in 1960 he became responsible for writing a weekly technical newsletter entitled "Commodity Trend Timing," which he continued to author for 19 years. In 1963 he was awarded a Chartered Financial Analyst degree from the Institute of Chartered Financial Analysts at the University of Virginia.
Mr. Donchian was best known for his pioneer work in the field of commodity futures money management. He was a member of the Commodity Exchange, Inc., the New York Cotton Exchange, the New York Futures Exchange, the New York Society of Security Analysts, the American Statistical Association, the National Association of Future Trading Advisers, the Financial Forum, and listed in Who's Who in America. In June 1983 "Managed Accounts Report" selected him as the first recipient of its "Most Valuable Performer Award," for outstanding contributions to the field of commodity money management.
Source: http://www.rddonchian.org
Donchian and his Students
Richard Donchian, though now deceased, left many students that still trade or run money management firms. A sampling of his students include:
Nelson Chang
Worked for Donchian
Started Chang-Crowell Corp.
Robert Crowell
Worked for Donchian
Started Chang-Crowell Corp.
Barbara Dixon
Worked for Donchian
Started Spackenkill Trading
Bruce Terry
Worked for Chang-Crowell Corp.
Paul Dean and Brent Elam of TrendLogic
What's the point? Trading as a Trend Follower is a learned behavior. Not everyone is going to trade this way. Most people want no more complexity in their life than to buy and hold. Most people don't want to think or learn about new methods. It takes discipline.
But, if the students of Richard Dennis or the students of Richard Donchian don't provide inspiration as to how important learning the right method is toward achieving success...well buy a mutual fund and shoot for 12% a year.
Richard Donchian is known as the father of trend following. His original trend following ideas form the basis for all trend following success that has followed, including Richard Dennis. Donchian's original methods involved the use of a moving average for the entry/exit indicator portion of his system. Richard Dennis, however, did not use a moving average for entry/exit and concentrated much more heavily on money management than Donchian. Money management accounts for 90% of the Turtle success story. Then once you have that down, your psychology accounts for 100% of your success.
Donchian Biography
Richard Davoud Donchian was born in Hartford, Connecticut, in September, 1905, the son of Samuel B. Donchian and Armenouhi A. Davoud, both of whom migrated from the Armenian province of Turkey in the 1880's. Richard attended public schools in Hartford, the Taft School in Watertown, Connecticut, and graduated from Yale University in 1928 with a B.A degree in economics. Upon graduation, he entered the family's oriental rug business.
Although he appreciated studying about and collecting oriental rugs, he became more interested in the financial markets after reading the book about Jesse Livermore, Reminiscences of a Stock Operator. After suffering personal financial losses during the market crash of 1929, he began his study of technical analysis, believing that only the chartists made sense and money. While continuing to serve as a Vice President of the Samuel Donchian Rug Company, he became a securities analyst and account executive with Hemphill, Noyes & Co. in 1933.
During World War II, he participated in the invasion of Sicily and later served as an Air Force Statistical Control Officer in the Pentagon. After the war he returned to the world of investments as a private investment adviser and economic analyst, remaining self-employed until 1960. In 1948 his focus changed from securities to the trading of commodities. He created "Futures, Inc.," a pioneer publicly held commodity fund, based on the principle of diversification, an idea new in this field. He was later dubbed the 'father of modern commodities trading methods," having developed a technical trading method called "trend following," which presupposes that commodity prices will move in long sweeps like bull and bear markets. He used a mathematical system based on moving averages of commodity prices. During this period, he authored numerous articles on both securities and futures trading.
In 1960 he became associated with Hayden Stone Inc., as Director of Commodity Research. From then until his death on April 24, 1993, he was associated with the various configurations of Hayden Stone and Shearson Lehman Brothers (now Smith Barney) and was a Senior Vice President. Also in 1960 he became responsible for writing a weekly technical newsletter entitled "Commodity Trend Timing," which he continued to author for 19 years. In 1963 he was awarded a Chartered Financial Analyst degree from the Institute of Chartered Financial Analysts at the University of Virginia.
Mr. Donchian was best known for his pioneer work in the field of commodity futures money management. He was a member of the Commodity Exchange, Inc., the New York Cotton Exchange, the New York Futures Exchange, the New York Society of Security Analysts, the American Statistical Association, the National Association of Future Trading Advisers, the Financial Forum, and listed in Who's Who in America. In June 1983 "Managed Accounts Report" selected him as the first recipient of its "Most Valuable Performer Award," for outstanding contributions to the field of commodity money management.
Source: http://www.rddonchian.org
Donchian and his Students
Richard Donchian, though now deceased, left many students that still trade or run money management firms. A sampling of his students include:
Nelson Chang
Worked for Donchian
Started Chang-Crowell Corp.
Robert Crowell
Worked for Donchian
Started Chang-Crowell Corp.
Barbara Dixon
Worked for Donchian
Started Spackenkill Trading
Bruce Terry
Worked for Chang-Crowell Corp.
Paul Dean and Brent Elam of TrendLogic
What's the point? Trading as a Trend Follower is a learned behavior. Not everyone is going to trade this way. Most people want no more complexity in their life than to buy and hold. Most people don't want to think or learn about new methods. It takes discipline.
But, if the students of Richard Dennis or the students of Richard Donchian don't provide inspiration as to how important learning the right method is toward achieving success...well buy a mutual fund and shoot for 12% a year.
Wednesday, October 17, 2007
TOP HEDGE FUND TRADERS OF ALL TIME
Hedge Fund and Top Traders Hall of Fame
Michael Covel (February 14, 2005)
Hedge Fund and Top Traders Hall of Fame
Ed Seykota
Paul Tudor Jones
Jim Simons
John W. Henry
Richard Dennis
Richard Donchian
They might not have careers in the public eye (their choice of course), but their performance and trading styles are works of true discipline, exacting precision and huge profits. You won't see them on CNBC.
Michael Covel (February 14, 2005)
Hedge Fund and Top Traders Hall of Fame
Ed Seykota
Paul Tudor Jones
Jim Simons
John W. Henry
Richard Dennis
Richard Donchian
They might not have careers in the public eye (their choice of course), but their performance and trading styles are works of true discipline, exacting precision and huge profits. You won't see them on CNBC.
ED SEYKOTA - A LIVING LEGEND
Ed Seykota
TurtleTrader is especially grateful for Ed's guidance and influence. You can read much more about Ed in the book Trend Following.
Trading as a Trend Follower, Ed Seykota turned $5,000 into $15,000,000 over a 12 year time period in his model account - an actual client account. Ed was self-taught, but influenced early on in his career by Richard Donchian's writings. He has served as a teacher and mentor to some great traders including Michael Marcus, David Druz and Jim Hamer.
What makes Ed especially unique is his continual self-examination and commitment to studying the psychological components of trading while also helping other traders achieve their potential.
Seykota Background
In the early 1970s, Seykota was hired as an analyst by a major brokerage firm. He conceived and developed the first commercial computerized trading system for managing clients' money in the futures markets.
Q. How did you first get involved in trading?A. In the late 1960s, I decided that silver had to rise when the U.S. Treasury stopped selling it. I opened a commodity margin account to take full advantage of my insight. While I was waiting, my broker convinced me to short some copper. I soon got stopped out and lost some money and my trading virginity. So I went back to waiting for the start of the big, inevitable bull market in silver. Finally, the day arrived. I bought. Much to my amazement and financial detriment, the price started falling! At first it seemed impossible to me that silver could fall on such a bullish deal. Yet the price was falling and that was a fact. Soon my stop got hit. This was a very stunning education about the way markets discount news. I became more and more fascinated with how markets work. About that time, I saw a letter published by Richard Donchian, which implied that a purely mechanical trend following system could beat the markets. This too seemed impossible to me. So I wrote computer programs (on punch cards in those days) to test the theories. Amazingly, his [Donchian] theories tested true. To this day, I'm not sure I understand why or whether I really need to. Anyhow, studying the markets, and backing up my opinions with money, was so fascinating compared to my other career opportunities at the time, that I began trading full time for a living.
The Market Wizards by Jack Schwager
Ed Seykota was originally profiled in the Market Wizards.
Seykota is another in the long line of alumni from the legendary Commodities Corporation.
Bet Sizing Article by Ed Seykota and David Druz
TurtleTrader is especially grateful for Ed's guidance and influence. You can read much more about Ed in the book Trend Following.
Trading as a Trend Follower, Ed Seykota turned $5,000 into $15,000,000 over a 12 year time period in his model account - an actual client account. Ed was self-taught, but influenced early on in his career by Richard Donchian's writings. He has served as a teacher and mentor to some great traders including Michael Marcus, David Druz and Jim Hamer.
What makes Ed especially unique is his continual self-examination and commitment to studying the psychological components of trading while also helping other traders achieve their potential.
Seykota Background
In the early 1970s, Seykota was hired as an analyst by a major brokerage firm. He conceived and developed the first commercial computerized trading system for managing clients' money in the futures markets.
Q. How did you first get involved in trading?A. In the late 1960s, I decided that silver had to rise when the U.S. Treasury stopped selling it. I opened a commodity margin account to take full advantage of my insight. While I was waiting, my broker convinced me to short some copper. I soon got stopped out and lost some money and my trading virginity. So I went back to waiting for the start of the big, inevitable bull market in silver. Finally, the day arrived. I bought. Much to my amazement and financial detriment, the price started falling! At first it seemed impossible to me that silver could fall on such a bullish deal. Yet the price was falling and that was a fact. Soon my stop got hit. This was a very stunning education about the way markets discount news. I became more and more fascinated with how markets work. About that time, I saw a letter published by Richard Donchian, which implied that a purely mechanical trend following system could beat the markets. This too seemed impossible to me. So I wrote computer programs (on punch cards in those days) to test the theories. Amazingly, his [Donchian] theories tested true. To this day, I'm not sure I understand why or whether I really need to. Anyhow, studying the markets, and backing up my opinions with money, was so fascinating compared to my other career opportunities at the time, that I began trading full time for a living.
The Market Wizards by Jack Schwager
Ed Seykota was originally profiled in the Market Wizards.
Seykota is another in the long line of alumni from the legendary Commodities Corporation.
Bet Sizing Article by Ed Seykota and David Druz
TRADING AS A PROFESSION
Issues for New Traders
Michael Covel (March 12, 2006)
Think you can't make a living trading? Think Again. Traders fail because they risk too much and often have no trading plan. Today it's more crucial than ever to become "Market Wizard" knowledgeable about the real money-making techniques of the great traders. It is no longer rational to invest your personal net-worth in a mutual fund hoping for it to go up forever. Most people are afraid to learn new ways of thinking, particularly when it comes to their money. But the bottom line is, you have no choice if you want to build a fortune. Trend following is designed to keep your emotions in check. Being objective and unemotional is the big difference between the great traders and losing traders.
Formal Education Is Not the Key
A top CEO recently spoke before a class of Harvard MBAs. After his presentation students asked questions one of which was, "What must we do now?" The CEO replied, "Take whatever money you have not spent on tuition and do something else." His point was clear: formal education means less and less in today's world. Trading is no different. The best traders are usually not the products of a formal education in business or finance. Bottom line: you don't have to be a Ph.D. or MBA to trade. You only need to have the desire to work hard and learn. If you must have a Ph.D make it a "Poor, Hungry and Driven" degree instead. If you want honest, straightforward training, we can help. If you want short cuts and hype, do yourself a favor and move on. This is not for you. The great Trend Followers don't ask for permission, they don't make excuses, they just do it.
Geographic Irrelevance: Learn Anytime, Anyplace
You can trade from anywhere in the world as long as you have access to the internet. You do not have to be on Wall Street or have access to Wall Street's buzz as demonstrated by where these superstar trend followers live:
Canadian, Texas (Salem Abraham)
Incline Village, Nevada (Ed Seykota)
Towson, Maryland (Keith Campbell)
Michael Covel (March 12, 2006)
Think you can't make a living trading? Think Again. Traders fail because they risk too much and often have no trading plan. Today it's more crucial than ever to become "Market Wizard" knowledgeable about the real money-making techniques of the great traders. It is no longer rational to invest your personal net-worth in a mutual fund hoping for it to go up forever. Most people are afraid to learn new ways of thinking, particularly when it comes to their money. But the bottom line is, you have no choice if you want to build a fortune. Trend following is designed to keep your emotions in check. Being objective and unemotional is the big difference between the great traders and losing traders.
Formal Education Is Not the Key
A top CEO recently spoke before a class of Harvard MBAs. After his presentation students asked questions one of which was, "What must we do now?" The CEO replied, "Take whatever money you have not spent on tuition and do something else." His point was clear: formal education means less and less in today's world. Trading is no different. The best traders are usually not the products of a formal education in business or finance. Bottom line: you don't have to be a Ph.D. or MBA to trade. You only need to have the desire to work hard and learn. If you must have a Ph.D make it a "Poor, Hungry and Driven" degree instead. If you want honest, straightforward training, we can help. If you want short cuts and hype, do yourself a favor and move on. This is not for you. The great Trend Followers don't ask for permission, they don't make excuses, they just do it.
Geographic Irrelevance: Learn Anytime, Anyplace
You can trade from anywhere in the world as long as you have access to the internet. You do not have to be on Wall Street or have access to Wall Street's buzz as demonstrated by where these superstar trend followers live:
Canadian, Texas (Salem Abraham)
Incline Village, Nevada (Ed Seykota)
Towson, Maryland (Keith Campbell)
TREND FOLLOWING - A BRIEF NOTES
Commodity and Stock Trading with Trend Following and Turtle Trading Systems
Michael Covel (February 16, 2005)
Trend trading is reactive and systematic by nature. It does not forecast or predict markets or price levels. Prediction is impossible! Trend trading demands that you have strong self-discipline to follow precise rules. It involves a risk management system that uses current market price, equity level in an account and current market volatility. Trend traders use an initial risk rule that determines your position size at the time of entry. This means you know exactly how much to buy or sell based on how much money you have. Changes in price may lead to a gradual reduction or increase of your initial trade. On the other hand, adverse price movements may lead to an exit for your entire trade. Historically, A trend trader's average profit per trade is significantly higher than the average loss per trade.
Trendtrading is not a Holy Grail. It is not some passing fad or hyped-up secret black box either. Beyond the mere rules, the human element is core to the strategy. It takes discipline and emotional control to stick with trend trading through the inevitable market ups and downs. Keep in mind though, Trend Followers expect ups and downs. They are planned for in advance. What must all trend followers consider?
Price: One of the first rules of trend following is that price is the main concern. If a market is at 60 and goes to 58, 57, 53 - the market is in a down trend. Despite what every technical indicator might predict, if the trend is down, stay with the trend. Indicators showing where price will go next or what it should be doing are useless. A trader need only be concerned with what the market is doing, not what the market might do. The price tells you what the market is doing.
Money Management: The most critical factor of trend following is not the timing of the trade or the indicator, but rather the determination of how much to trade over the course of the trend.
Risk Control: Trend following is grounded in a system of risk control and money management. The math is straightforward and easy to learn. During periods of higher market volatility, your trading size is reduced. During losing periods, positions are reduced and trade size is cut back. The main objective is to preserve capital until more favorable price trends reappear. Cutting losses is the way to stay in the game.
Rules Rule: Trend following should be systematic. Price and time are pivotal at all times. Trend Following is not based on an analysis of fundamental supply or demand factors. Trend Following does NOT involve seasonals, point and figure, Market Profile, triangles or day trading.
Trend Following answers these critical questions:
How and when to enter the market.
How many contracts or shares to trade at any time.
How much money to risk on each trade.
How to exit the trade if it becomes unprofitable.
How to exit the trade if it becomes profitable.
Conclusions
If you want in-and-out day trading, we can't help. Good trend following systems average five or six trades per market per year. What do you need to get started?
An active mind, willingness to learn and passion to win.
No knowledge of what an Italian bond is worth or what companies comprise the S&P or FTSE index. The key is the price on the chart.
Discipline and common sense to do the right thing per all rules.
About an hour each day at the end of the day to check trades.
A PC and telephone line (or internet connection).
Trading is a zero-sum game. For every winner, there is a loser. What's the difference between winners and losers? Smarts and strategy. For every loser in the NASDAQ implosion there was a winner. Does this mean that there are traders with neither strategy nor smarts actively losing, effectively shifting their funds to the winners, armed with strategy and smarts? Yes, absolutely.
Michael Covel (February 16, 2005)
Trend trading is reactive and systematic by nature. It does not forecast or predict markets or price levels. Prediction is impossible! Trend trading demands that you have strong self-discipline to follow precise rules. It involves a risk management system that uses current market price, equity level in an account and current market volatility. Trend traders use an initial risk rule that determines your position size at the time of entry. This means you know exactly how much to buy or sell based on how much money you have. Changes in price may lead to a gradual reduction or increase of your initial trade. On the other hand, adverse price movements may lead to an exit for your entire trade. Historically, A trend trader's average profit per trade is significantly higher than the average loss per trade.
Trendtrading is not a Holy Grail. It is not some passing fad or hyped-up secret black box either. Beyond the mere rules, the human element is core to the strategy. It takes discipline and emotional control to stick with trend trading through the inevitable market ups and downs. Keep in mind though, Trend Followers expect ups and downs. They are planned for in advance. What must all trend followers consider?
Price: One of the first rules of trend following is that price is the main concern. If a market is at 60 and goes to 58, 57, 53 - the market is in a down trend. Despite what every technical indicator might predict, if the trend is down, stay with the trend. Indicators showing where price will go next or what it should be doing are useless. A trader need only be concerned with what the market is doing, not what the market might do. The price tells you what the market is doing.
Money Management: The most critical factor of trend following is not the timing of the trade or the indicator, but rather the determination of how much to trade over the course of the trend.
Risk Control: Trend following is grounded in a system of risk control and money management. The math is straightforward and easy to learn. During periods of higher market volatility, your trading size is reduced. During losing periods, positions are reduced and trade size is cut back. The main objective is to preserve capital until more favorable price trends reappear. Cutting losses is the way to stay in the game.
Rules Rule: Trend following should be systematic. Price and time are pivotal at all times. Trend Following is not based on an analysis of fundamental supply or demand factors. Trend Following does NOT involve seasonals, point and figure, Market Profile, triangles or day trading.
Trend Following answers these critical questions:
How and when to enter the market.
How many contracts or shares to trade at any time.
How much money to risk on each trade.
How to exit the trade if it becomes unprofitable.
How to exit the trade if it becomes profitable.
Conclusions
If you want in-and-out day trading, we can't help. Good trend following systems average five or six trades per market per year. What do you need to get started?
An active mind, willingness to learn and passion to win.
No knowledge of what an Italian bond is worth or what companies comprise the S&P or FTSE index. The key is the price on the chart.
Discipline and common sense to do the right thing per all rules.
About an hour each day at the end of the day to check trades.
A PC and telephone line (or internet connection).
Trading is a zero-sum game. For every winner, there is a loser. What's the difference between winners and losers? Smarts and strategy. For every loser in the NASDAQ implosion there was a winner. Does this mean that there are traders with neither strategy nor smarts actively losing, effectively shifting their funds to the winners, armed with strategy and smarts? Yes, absolutely.
Ed Seykota - My Mentor
Ed Seykota
Career
As a young man he attended high school near The Hague, Netherlands and also lived in Voorburg.
[edit] Trading methods
Seykota is a trader who in 1970 pioneered a computerized trading system (now known as System trading) for the futures market for the brokerage house he and Michael Marcus were working for. Later, he decided to venture out on his own and manage a few of his client’s accounts.
Much of Seykota’s success was attributed to his development and utilization of computerized trading systems to which he first tested on a mainframe IBM computer. Later on, the brokerage house he had been working for adopted his system for their trades.
His interest in creating a computerized system was spawned after he read a letter by Richard Donchian on utilizing mechanical trend following systems for trading and also Donchian’s 5 and 20 day moving average system. He was also inspired by the book Reminiscences of a Stock Operator. His first trading system was developed based on exponential moving averages.
Ed Seykota, Market Wizards
“
Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible.
”
Seykota improved this system over time. This did not mean that he changed the system, but rather he adapted the system to fit his trading style and preferences. With the initial version of the system being rigid, he later introduced more rules into the system in addition to pattern triggers and money management algorithms.
Another aspect of his success was his genuine love for trading and his optimistic demeanour. This factor sustained his efforts to continuously improve on his system.
Career
As a young man he attended high school near The Hague, Netherlands and also lived in Voorburg.
[edit] Trading methods
Seykota is a trader who in 1970 pioneered a computerized trading system (now known as System trading) for the futures market for the brokerage house he and Michael Marcus were working for. Later, he decided to venture out on his own and manage a few of his client’s accounts.
Much of Seykota’s success was attributed to his development and utilization of computerized trading systems to which he first tested on a mainframe IBM computer. Later on, the brokerage house he had been working for adopted his system for their trades.
His interest in creating a computerized system was spawned after he read a letter by Richard Donchian on utilizing mechanical trend following systems for trading and also Donchian’s 5 and 20 day moving average system. He was also inspired by the book Reminiscences of a Stock Operator. His first trading system was developed based on exponential moving averages.
Ed Seykota, Market Wizards
“
Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible.
”
Seykota improved this system over time. This did not mean that he changed the system, but rather he adapted the system to fit his trading style and preferences. With the initial version of the system being rigid, he later introduced more rules into the system in addition to pattern triggers and money management algorithms.
Another aspect of his success was his genuine love for trading and his optimistic demeanour. This factor sustained his efforts to continuously improve on his system.
MECHANICAL TRADING MA 5 AND 20
Yesterday the indicators showed average buying. The CI futures were down at 1355 in early morning and closed at 1375. Those who bought clearly made a comfortable profit.
The CPO futures which hit a new high on Tuesday closed down lower and now trigger a "take profit while still high" environment.
Those who have taken profit can now prepared for to enter the market when the price is below Moving Average 5 and continues to average buying. As usual the market will rebound and prepare to take profit once it moves above Moving Average 5.
Richard Donchian and Ed Seykota are still my mentors and have great influence on my trading decision.
The CPO futures which hit a new high on Tuesday closed down lower and now trigger a "take profit while still high" environment.
Those who have taken profit can now prepared for to enter the market when the price is below Moving Average 5 and continues to average buying. As usual the market will rebound and prepare to take profit once it moves above Moving Average 5.
Richard Donchian and Ed Seykota are still my mentors and have great influence on my trading decision.
Tuesday, October 16, 2007
MECHANICAL TRADING
I am now trading using the MECHANICAL TRADING concept.
It has been successful.
The MOVING AVERAGE 5 AND 20 can be a good guidance.
I did manage to weather the SUB PRIME storm.
On average I am making 70% on monthy average.
I am targetting the 1 million mark by end of this year.
Mr Richard Donchian has been and always be my mentor.
It has been successful.
The MOVING AVERAGE 5 AND 20 can be a good guidance.
I did manage to weather the SUB PRIME storm.
On average I am making 70% on monthy average.
I am targetting the 1 million mark by end of this year.
Mr Richard Donchian has been and always be my mentor.
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