Divots

...continued from yesterday...

BTW, a divot is a piece of golf course turf that is scooped out during a golf swing when the golf club cuts too close to the ground. A divot is not a pivot…

...back next week...

Copyright 2008 Raymond T. Lee. All rights reserved.
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Pivots not in encyclopedia

...continued from yesterday...

Does anyone out there know of any statistics as to how widespread is the practice of trading pirvot points? Trading with Pivot Points don’t seem to be mentioned in either The Encyclopedia of Trading Strategies or Encyclopedia of Chart Patterns (Wiley Trading)

...continued tomorrow...

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Jesse Livermore traded pivots

...continued from yesterday...

Jesse Livermore described an entry method for trading stocks priced at around $30 based on pivots. Jesse was the "World's Greatest Stock Trader", according to author Richard Smitten.

In a downtrend, as new lows are made, if prices rally upwards by $6 from that new low(for stocks priced at above $30), that new low (in hindsight) would be labelled a Downtrend Pivot. Then as the rally stopped and prices dropped by $6 from the highest rally point, that highest rally price (in hindsight) would be labelled a Natural Rally Pivot. When this pair of pivots are identified, one further setup condition has to be satisfied to trigger an entry: Price has to decline back towards a zone that is $3 above and $3 below the Downtrend Pivot (herein called the “Downtrend Pivot Zone”).

When price enters the Downtrend Pivot Zone, an entry is triggered depending on how price exits that Downtrend Pivot Zone. If price breaks out to the upside, Jesse would BUY. If price breaks out to the downside, Jesse would SELL SHORT.

In an uptrend, the reverse is done.

For details about Jesee's Pivot Price entry method, see his book (published in 1940) How to Trade In Stocks

An updated edition of the book has been edited by Richard Smitten, How to Trade in Stocks : The Livermore Formula for Combining Time Element and Price (Revised Ed)

...continued tomorrow...

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Pivots on the floor

...continued from yesterday...

My search of the internet indicates that “pivots” are most frequently associated with Floor Trader Pivot Levels calculated according to the following formula:

PivotPoint = PP = ( Yesterday’s High + Yesterday’s Low + Yesterday’s Close ) / 3

Resistance Level 1 = R1 = PP * 2 - Yesterday’s Low
Resistance Level 2 = R2 = PP + Yesterday’s High - Yesterday’s Low
Resistance Level 3 = R3 = R2 + Yesterday’s High - Yesterday’s Low

Support Level 1 = S1 = PP * 2 - Yesterday’s High
Support Level 2 = S2 = PP - Yesterday’s High + Yesterday’s Low
Support Level 3 = S3 = S2 - Yesterday’s High + Yesterday’s Low

A different formula is presented in Tricks of the Floor Trader: Insider Trading Techniques for the Off-the-Floor Trader

Floor trader Neal T. Weintraub uses the following Pivot Point formula:

PivotPoint = PP = ( Today’s Open + Yesterday’s High + Yesterday’s Low + Yesterday’s Close ) / 4

He uses the same formulae for calculating the Resistance and Support Levels as above. Additionally, he filters the Pivot Point signals with a moving average, buying only if the signal is long when above the moving average and shorting only if the signal is short when below the moving average. Even then, he says that whipsaws are frequent and that less than half the trades taken on the Pivot Point signals are winners.

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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Pivots or divots

If you’d like to know how to distinguish a pivot from a divot, this week’s series of articles will be of interest. Stay tuned.

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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$60 book vs $3000 seminar

...continued from yesterday...

Continuation of discussion about Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis (Wiley Trading)

The book covers other types of trading styles in addition to the Trend and Counter-Trend styles.

I once attended a seminar given by two trading gurus on designing systems for trading. The price of the seminar was about $3,000 in addition to travel and hotel costs. About one third of the materials covered in that seminar are covered in this book priced at under $60. The sample systems along with statistics on tests of those systems are excellent value for the price.

...back next week...

Copyright 2008 Raymond T. Lee. All rights reserved.
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Befriending the counter-trend

Continuation of discussion about Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis (Wiley Trading)

According to the author of that book, you would find counter-trend trading a good fit if you:

 Love to fade the crowd;
 Are able to consistently use stop loss orders;
 Prefer to have more winning trades than losing trades.

Is friendship with the trend suitable for you?

...continued from yesterday...

Continuation of discussion about Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis (Wiley Trading)

According to the author, Richard L. Weissman, you can trade with the trade or trade against the trend and make money either way. Some personalities are more suited to trend trading and other personalities are more suited to counter-trend trading.

You would find trend trading a good fit if you:

 Enjoy buying recent highs and selling recent lows;
 Don’t mind giving back a significant portion of unrealized gains when exiting a trade;
 Can tolerate numerous, consecutive small losses.
 Are humble enough to trade small positions so that you can survive drawdowns;
 Enjoy having between 1 to 5 percent of your trades account for your profits;
 Are willing to stay with an open position for weeks or months; and
 Are comfortable with a slow, analytical process.

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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Traders' Horoscope

Would you admit to ever reading horoscopes in hopes of getting better results in your trading/investing? Here’s a book that’s somewhat horoscope-like, except that I’ve found it very helpful in designing trading systems to suit my preferences and lifestyle: Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis (Wiley Trading)

This week’s series of blogs will look into some of the contents of that book.

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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Back on Feb 19 2008

Beliefs of model successful traders

...continued from yesterday...

Van Tharp has studied the beliefs of successful traders who also have successful lives. He describes the beliefs in Volume 3 of his cornerstone home study course, Peak Performance For Investors and Traders.

Here are the first six of those beliefs:

1. The universe has a purpose – it is evolving.
2. Within that purpose, there is NO success or failure, only feedback.
3. I am part of it, so when I change, I change it.
4. There is no such thing as a true belief.
5. There is no success without commitment, but once you are committed then the universe moves to support you.
6. The world does not lack resources, only people’s model of the world lack resources.

This is an excellent home study course that committed traders work through once or twice a year to keep conditioned for peak performance trading/investing.

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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Cards of fate are reshuffled every moment

...continued from yesterday...

Mark Douglas recommends that traders adopt the following set of beliefs to succeed in trading which I have paraphrased for my own use:

1. Every moment in the market is different because the cards of fate are reshuffled.
2. Therefore anything can happen on the next bar.
3. But you don’t need to know what is going to happen to make money.
4. You just need is to consistently use a system with positive expectancy
5. Any single trade in the system can be either a positive or negative but the net result of all the trades using a positive expectancy system is a net profit.

These are taken from Mark Douglas' book Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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Beliefs - Be, Can, Deserve

...continued from yesterday...

Trading coach Ruth Barrons Roosevelt says the top three beliefs needed for success in trading are:
1. Money can be made in the markets.
2. I can make money in the markets.
3. I deserve to make money in the markets.

She offers pages more of beliefs in Exceptional Trading

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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The power of beliefs

Trading coaches are almost unanimous in holding that having the right beliefs are essential for success in trading. This week’s series of blogs will look at some of the beliefs that are deemed important for success in trading.

...continued tomorrow...

Copyright 2008 Raymond T. Lee. All rights reserved.
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Back on Feb 11 2008

I'll be away from this blog for the Chinese New Year. I'll be back next week.

Action item 10 before cops arrive

...continued from yesterday...

Ten. Get a current passport. If your passport has expired, or if you don't have one, get a replacement one now before you need it. A common condition of bail is that you "remain within the jurisdiction" of the court that set bail. To make that effective, you will be required to surrender your passport. Not being able to surrender it will mean a delay in your release until you get one.

...back next week...

Copyright 2008 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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