All trading is a function of :
- Time (Sessions)
- Volatility (ATR)
Classes of markets for portfolio building. From The Way of the Turtle P127, by Curtis Faith:
- Fundamentals Driven. Currencies and interest rate instruments. Driven by economics and central banks. Good for trend followers. Dominated by business not speculation.
- Speculator Driven Markets. Driven by trader sentiment. Stocks and futures, like coffee, gold, oil, not suited to trend following. Curtis’s idea of medium term trend is months long. 3 weeks is very short term.
- Aggregated Derivatives Markets. The e-mini is constrained by the underlying S&P500 index. The SPX is an aggregation of speculative stock moves, the aggregation dilutes the sentiment. These are the hardest for a trend trader to trade. Curtis did not trade these during his Turtle period.
My Trade Rules
- A move comes after a consolidation, get in quick.
- Get a stop at break even, quickly, defend your capital.
- The only reason to sell is that the instrument has reached a previous selling price.
- Don’t buy the top of a range or sell the bottom. Breakouts are only 15% successful
- Do sell double tops and buy double bottoms
- Market Makers are limited by the daily ATR, they have to balance their books
- Weekly and monthly portfolio re-balance is practiced by the big traders
- The banks pull the price back into yesterday’s range to fill their client orders.
- Data. If the consensus is in line with the technical, and you agree. Get in front of it, have a wide stop.
- After a holiday or a big loss, take a day to recover the basics, update your allocations calculation sheet.
- When shorting a lower high, the new low should beat the previous low.
- Avoid trading into big data, but consider holding if you can get a 1/2ATR stop.
- Normal speech based moves will retrace quickly. Only serious policy change sets a new trading range.