Articles for: United States

There are always a few common mistakes that are made when implementing a trading system. These range from excessive positive expectation leading to over leverage all the way to a lack of preparation and system testing. Indeed, often the actual system itself leaves a lot to be desired in terms of the logic that supports it and the market conditions it is implemented through. In this article we will look at a method of back testing and some important components to be considered in developing a trading method.

As I search to fathom out the melee of the last couple of weeks I try and contemplate likely scenarios. I say likely as to talk of just possible scenarios is really just sitting on the fence and I am not good at that. Nor can I say I am good at picking short term moves. I say ‘moves’ as I am inclined to think a short term ‘trend’ is almost a contradiction of terms. I do not aspire to pick the short term moves but only to understand them as a foundation to at least the medium term move ahead.

It always amazes me when people tell me that techniques are too simple to work. I’m not pointing the finger here, I have done exactly the same thing myself. For example, take Gann’s rule of markets moving in equal sections.

While the direst predictions over the world economy have failed to pass, it is nevertheless a fact that many of us did it tough, and in fact are still doing it tough today. But outside of losing a job any pain was most likely, to a large extent at least, self inflicted. That’s a little harsh, but the truth isn’t always nice.

Perhaps chaos is slightly too strong a word for what we have experienced in global markets in the last few days. However it has caused some consternation, otherwise we would not have seen this kind of action:

In some recent editorial I have referred to methodology and making sure whatever system you use is well founded and has been successfully tested. I would like to elaborate a little more on this.

Given the apparent devastation that resulted from the Global Financial Crisis, a casual observer would be forgiven for thinking that stock market investors are still licking their wounds. After all, the Australian market more than halved in value between Late 2007 and early 2009 and still remains a good 25% below its all time high. Fortunes have been lost and, according to the popular media, the hopes and dreams of the soon to be retired baby boomers have gone up in smoke.

Welcome to Part 11 of my series of articles on the Butterfly. In this week's article, we will continue looking at the Risk Graph page. We will work with the same Butterfly we have been working with throughout the series, the Apple Computers (AAPL) Oct 09 155|175|195 Call Butterfly. At the time we constructed the trade, AAPL's price was about $173.