friday 8 august 2014: session 2 of 6 -...

FRIDAY 8 AUGUST 2014: Session 2 of 6

• Trading Systems: The Good, The Bad and The Ugly • Review of last session homework • How it turned out: Divergence • Seasonal confluence – Quick comment - August • Today’s extreme focus • Homework this week

www.jakebernstein.com© 2014 by Jake Bernstein 800-678-5253

Session topics and homework

• Session 2: Trading Systems: The Good, The Bad and The Ugly

HOMEWORK: I will give you 4 track records of systems I have programmed. YOU will

choose 1 and send me your answers to a list of questions based on what you learned

in the session

Session 3: How Traders Win: Why Traders Lose

HOMEWORK: I will describe 4 different traders to you. You will choose 1 and answer a

list of questions about those traders and their behavior based on what you learned in

the session

Session 4: Structure, Organization, and Results

HOMEWORK: I will describe 4 different daily procedures to you. You will choose 1 and

answer a list of questions about those procedures based on what you learned in the

session

Session 5: How to Use Cycles in Your Trading and Investing

HOMEWORK: I will show you 4 different markets.. You will answer a list of questions

about those markets and their cycles, if any, and their use based on what you learned

in the session

Session 6: Three New Trading Patterns From My Research

HOMEWORK: I will teach you 3 different patterns. You will answer a list of questions

about those on several charts based on what you learned in the session

© 2014 by Jake Bernstein 800-678-5253

www.jakebernstein.com

• The topping process is over for the countertrend rally that started in the first quarter of 2009: the next leg lower that commenced in April should now deliver a decline that will ultimately be bigger than the 2007-2009 selloff. As forecast, credit spreads between lower-grade and higher-grade debt reversed to a widening trend in late April. Spreads should continue to widen in conjunction with the decline in equities, eventually reaching a record extreme. Gold poked to a new high, but in doing so, likely completed a pattern in mid-May that will lead to a multi-month selloff. Silver too poked briefly above its December high but quickly reversed lower and is now continuing the larger bear market that started in March 2008. The U.S. Dollar index is fulfilling our forecast for a strong advance. Optimism has reached an extreme, but the bigger-picture rise is not over

Goals / objectives clarified

• 100% objective rules and trades

• Devil in the details - examples

• Methodology and thought process

• Continuity - examples

• Risk management and profit maximizing

• Process: so many choices so little time

• Be outstanding at a few things or be mediocre at many? SPECIALIZE

• Importance of feedback: 2 types

• Feedback from the market or feedback from a very experienced trader – we will get that today

• Organization and structure



Homework ground rules

• At the end of each session I will provide an assignment you can

download from this location or it will be attached to the recording

• The homework will include questions and 3 or more choices

• Please provide answers

• Email me or FAX me (831-430-0800) your homework

• Email me if you are not clear on the assignment(s)

• [email protected]

• I will provide answers in the next session and show any glaring or

common errors

• If I show your work in the session I will NOT show your name

• This is designed to help you learn



mailto:[email protected]



Feedback

• THANKS to all who turned in homework

• I will go thru answers today

• WHY NOT email you the answers?

• HOW THINGS TURNED OUT

• Here are the set ups shown last week



It never ceases to amaze me…

• Homework report – 23 received

• Items of interest

• 5 people did not use the markets assigned

• 3 people bot and sold ma hi and low regardless of trend

• 2 people sent me blank faxes repeatedly

• 1 person sent me a lesson from another course and a

copy of their passport

• 1 person was 100% wrong on everything

• 3 people didn’t use the correct indicators

• 2 people didn’t use the right symbols

• 2 people used GANN charts

• 1 person did an elliott wave analysis



Before we go on to the main topic…

• Current trends can help you determine

what to focus on

• What do I mean?

• Consider current selloff – has it created

any setups?

• Lets look. Look at what? FILTERS (stocks)

• Symbol grid Genesis

• LOOK AT MD…why?



waiting



Count



Start watching



I’m in



Bear md



Today

• We will review homework

• The TN replay can help you understand the step by step

process

• This tool has its limitations but is very effective as a

learning tool and as a confidence builder or destroyer



3X3 EMA MOM/MA ST

35

• Ema 3HI 3LOW

• Trend indicator MOM14c/MA14 of MOM14c

• If trend is up buy MA 3 low

• If trend is down sell MA 3 high

• Exit MA low if short

• Exit MA high if long

• RISK (STOP) 2 x mac (can you use 1x?)

• Profit MAX strategy – your choices

• Markets ES1 YM1 ZB CL2 G6A SB2 ZS ZL

• Examples

Quick review

36

Homework

Using 3x3 rules for the 4 charts shown

• Find all buy and sell points

• Show all entries and exits

• If you have Genesis use the playback game mode

• Show me the next profit/loss for the trades you selected

• Start at the vertical line

• USE profit max strategy (today)

• CAN do manually on paper and fax or email me your annotations

• FAX 831-430-0800



CHART 1



ANSWER



current



Chart 2



ANSWER



Chart 3



ANSWER



Chart 4



ANSWER



Trading Systems

• Defined

• Rules, Procedures, 100% objective

• Profit maximizing strategy

• Black box issue

• How was it developed?

• Face validity

• Back test issues

• CRITICAL: what the track record really mean?

• You can learn almost everything you need to know about

a system by understanding its track record



Trading method

• Entry and exit rules are not 100% objective

• Lack of profit maximizing strategy

• Stops are not necessarily related to market

behavior

• Generally used with other indicators

• Often the starting point or basis of a

completely systematic approach

Trading system

• 100% objective entry and exit rules

• 100% objective risk stop – market related

• Floor level or profit target 1 (optional)

• Can have several profit targets for multiple

exits

• Trailing stop as profit maximizing strategy

• Can trade a portfolio of markets

• Can use position management approach

Trading Systems - issues

• Optimization

• Back test procedure

• Out of sample data

• Analysis of results

• Applicability to other markets

• Developing a STRATEGY BASKET

• Long only or short only system?

• Multiple contract entry and exits

• When to begin live trading? IMPORTANT!

What to look at

• % win

• Max consec wins and losses

• Avg profit avg loss

• Max drawdown

• Net profits

• p/l ratio

• Performance graph

• Forward period

• LARGE trades %

• # of trades

• # of years in sample

• Month of year

• Length of trade



Let’s look at a track record my way

Moving Average Based Systems: 200 day MA

Much vaunted – not effective (S&P back to 1982)

IBM 200 Day MA results

Dow 200ma 1948

50/200 cross - DJ

Are there types of gaps?

• Simple gap

• Multi gap (example)

• Are there intraday gaps?

• Weekly gaps?

• Examples

Performance – what to look for: Results DAX gap trade

Does it come back? Robust?

Questions

• Does it come back? Robust?

• Are losing years smaller than winning

years?

• Does it go forward AFTER optimization?

• We will discuss optimization in great detail

next session

• What about performance statistics – we

will discuss in detail as well

• See next table: Gap trade DAX after opt.

DAX GAP

Test on Tbonds: valid or not?

LOOK at the trades!

TBond pattern

Always ask why?

• Simple daily gap up and down already

shown and defined

• MultiGap (next chart)

MultiGap 1967 – to 2008



MultiGap current



Details



For each of the track records shown

• Is this an excellent, good, marginal or bad system or do

you need more history?

• What are the good points of this system if any?

• What are the bad points of this system if any?

• What else, if anything, would you want to know about this

system (other than market and rules)?



Homework system 1 2005-2014

System 2 1973-2009

Equity curve system 2

System 3



System 4



• Mentoring appointment interview

– http://www.comtrade1.com/letter/

• PTT sessions are recorded

• I can be reached at

• 800-678-5253 or 831-430-0600

• Email me if you have questions:

– [email protected]

Best of trading,

Jake Bernstein



http://trade-futures.com/learn_earn/top_stock_trades_2.html

http://trade-futures.com/hong_kong_seminar/hong_kong_seminar_social.html

friday 8 august 2014: session 2 of 6 -...

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