Who is the main speaker in the video?

Linda Raschke, an experienced trader and Market Wizard.

What is the primary topic discussed by Linda?

Linda discusses the concept of relative strength in trading and the Janus Factor.

What is relative strength in trading?

Relative strength compares the performance of a stock or market to a benchmark, identifying leaders and laggards in a bullish trend.

What trading principle does Linda emphasize regarding entering trades?

She emphasizes never averaging down and being mindful of position size to avoid errors.

How does Linda suggest traders should prepare for trading days?

She suggests doing nightly homework and having a simple, consistent preparation process.

What does Linda say about trading environments?

Different strategies might be needed in different market environments, such as trend-following in bullish markets and contrarian strategies in trading ranges.

How does Linda view trading range markets?

She considers them mean-reverting with negative feedback loops, where laggards might perform better than leaders.

What tools does Linda use for trading analysis?

She uses a variety of tools such as rate of change and oscillators to assess market trends and feedback loops.

What does Linda say about the importance of doing your own work?

She stresses the importance of traders doing their own research and not relying on others’ opinions.

How does Linda adapt her trading over the years?

She adjusts her strategies according to market environments and warns against using excessive leverage.

The Reality of Relative Strength Based Trading with Linda Raschke

01:23:56

https://www.youtube.com/watch?v=jD4nynuWfEU

概要

TLDRExperienced trader Linda Raschke explores the concept of relative strength in trading, outlining strategies for maximizing profits by identifying market leaders and laggards. She discusses the importance of understanding market environments, differentiating between momentum-driven and mean-reverting conditions, and choosing appropriate strategies for each. Linda emphasizes never averaging down, being cautious with position sizing, and the critical role self-discipline plays in trading success. She shares insights on using tools like rate of change and oscillators to stay ahead in trend-following or contrarian strategies. Her advice includes doing thorough nightly preparation, maintaining focus on simplicity during the trading day, and being adaptable to changing market trends. Linda also underscores the importance of traders conducting their own research independently to build successful strategies.

収穫

📈 Focus on maximizing profits by identifying market leaders and laggards.
🔄 Understand changes in market environments and adapt strategies accordingly.
🚫 Never average down in trades; it’s a crucial rule.
💡 Use tools like rate of change and oscillators for trading insights.
🧘‍♀️ Self-discipline is crucial for successful trading.
📝 Do evening preparations to set up for the next trading day.
👏 Conduct independent research to strengthen your trading approach.
📉 Be cautious of trading range markets as they often mean revert.
⚖️ Balance position sizes to avoid unnecessary risk and fear.
🧠 Stay aware of the relationship between price actions and indicators.

タイムライン

00:00:00 - 00:05:00
The initial discussion focuses on strategies for maximizing profit in trading by analyzing pre-existing conditions leading to trends. It emphasizes not getting caught by averaging, trading too small, or too big. Introduction to Linda Raschke, a market expert, speaking on relative strength and the Janus factor.
00:05:00 - 00:10:00
Linda discusses the concept of relative strength, noting how leaders outperform until a certain point depending on market environments. She emphasizes the importance of look-back periods which affect group compositions in trading, noting her evolution from short-term momentum trading to understanding broader market structures.
00:10:00 - 00:15:00
She explains the broader application of relative strength in commodities and indices, stressing its utility in strong market environments driven by positive feedback loops. Additionally, she touches on contrarian strategies for trading ranges and the rising popularity of short-term strategies among day traders.
00:15:00 - 00:20:00
Linda delves into momentum environments and feedback loops, exhibiting how the convergence between leading and lagging stocks can signal shifts. She relates how the Janus Factor quantifies these changes by tracking spreads between leaders and laggards in different market conditions.
00:20:00 - 00:25:00
She illustrates observing market behaviors during spread changes, utilizing various look-back periods for different trading goals, such as identifying institutional moves at the start of a quarter. She explains the significance of a six-month look-back for picking steady investment candidates with likely continued outperformance.
00:25:00 - 00:30:00
Linda introduces the dual nature of markets through the Janus metaphor, highlighting the vacillation between trend following and contrarian modes. The year’s environment affected by momentum decline is discussed, touching on how to adapt strategies during contrarian periods to buy at trading range lows and sell at highs.
00:30:00 - 00:35:00
Expanding on Janus, Linda stresses the importance of distinguishing market environments and aligning strategies accordingly. She acknowledges her strengths as a contrarian trader while discussing the benefits of reading Gary Anderson’s work to understand dual market behaviors and relative strength better.
00:35:00 - 00:40:00
Discusses Gary Anderson's relative strength spread method, explaining it involves identifying top and bottom stocks, averaging changes, and noting D and D+1 changes. Provides insight into adaptation from historical precedents, highlighting mean reversion periods like the 1930s where trend following failed.
00:40:00 - 00:45:00
The 2022 market dynamics are described, noting reduced momentum despite seeming trends. Techniques of buying at trend lows and selling highs are reinforced, drawing examples from past market behaviors and the significance of recognizing mean reversion periods to avoid trend pitfalls.
00:45:00 - 00:50:00
Linda transitions to how shifts in positive feedback patterns affect trade strategies using historical data. She illustrates trading techniques, mentioning consolidation needs and identifying optimal trade times using sentiment analysis and predetermined conditions for entering and exiting trades.
00:50:00 - 00:55:00
Linda shares how developing positive and negative feedback techniques helped her switch from counter-trend to trend-based strategies. She notes that adjustments made for stronger market moves increased profitability, including learning from setback experiences and ensuring not to average losses.
00:55:00 - 01:00:00
She elaborates on tracking strategies using technical markers like momentum oscillators and rate of change tools, emphasizing practical adjustments to fit market conditions. The parallel to historical trader behaviors is explored in developing risk management strategies and adapting to market changes.
01:00:00 - 01:05:00
Discusses two main feedback concepts—positive for trends and negative constituting trading ranges, using them to identify trading days. She emphasizes the importance of self-discipline, staying alert to current market conditions, and using practical techniques like trend day identification.
01:05:00 - 01:10:00
Linda cautions against overcomplicating trading setups, stressing applying consistent processes and attention to market indicators. Personal anecdotes of how different periods affected trading strategies highlight the evolution and refinement of her trading approach to remain effective.
01:10:00 - 01:15:00
She answers queries on risk management and routine setup, sharing insights into order entry discipline and preparation processes derived from experience. Emphasis is on balancing aggression and caution in trading decisions, ensuring risks are manageable while optimizing opportunities.
01:15:00 - 01:23:56
In closing, Linda advises against common pitfalls like trading on emotions or news biases, advocating for personalized work and disciplined strategy refinement. Offers resources for continuing education in relative strength, echoing the need for consistent practice and situational awareness in trading.

よくある質問

Who is the main speaker in the video?
Linda Raschke, an experienced trader and Market Wizard.
What is the primary topic discussed by Linda?
Linda discusses the concept of relative strength in trading and the Janus Factor.
What is relative strength in trading?
Relative strength compares the performance of a stock or market to a benchmark, identifying leaders and laggards in a bullish trend.
What trading principle does Linda emphasize regarding entering trades?
She emphasizes never averaging down and being mindful of position size to avoid errors.
How does Linda suggest traders should prepare for trading days?
She suggests doing nightly homework and having a simple, consistent preparation process.
What does Linda say about trading environments?
Different strategies might be needed in different market environments, such as trend-following in bullish markets and contrarian strategies in trading ranges.
How does Linda view trading range markets?
She considers them mean-reverting with negative feedback loops, where laggards might perform better than leaders.
What tools does Linda use for trading analysis?
She uses a variety of tools such as rate of change and oscillators to assess market trends and feedback loops.
What does Linda say about the importance of doing your own work?
She stresses the importance of traders doing their own research and not relying on others’ opinions.
How does Linda adapt her trading over the years?
She adjusts her strategies according to market environments and warns against using excessive leverage.

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00:00:00
we want to be mindful about how do we
00:00:01
make the most amount of money in the
00:00:03
least amount of time the relative
00:00:05
strength between the winners and the
00:00:07
losers increases that means that our
00:00:09
basket shows that the leaders continue
00:00:12
to outperform and continue to outperform
00:00:14
really try to do is concentrate on the
00:00:16
pre-existing conditions that may lead to
00:00:19
a trend Aid relationships that's so
00:00:22
essential for good trading what is price
00:00:25
doing relative to an indicator what is
00:00:27
price doing relative to a certain Market
00:00:29
environment
00:00:30
and you know you're going to get closer
00:00:31
to a top when they start scraping the
00:00:33
bottom of the barrel to look for the
00:00:34
dogs that haven't moved never get caught
00:00:36
into averaging never never never that's
00:00:38
my Golden Rule don't trade too small
00:00:41
because you'll be ridiculously sloppy
00:00:42
and and don't trade too big because
00:00:44
you'll just make unforced
00:00:46
[Music]
00:00:50
errors we've got a real treat uh we've
00:00:53
got Linda rashy Market Wizard and
00:00:55
experienced Trader uh who's going to be
00:00:57
talking about relative strength and the
00:00:58
Janus Factor Linda it's a real pleasure
00:01:01
to have you as a part of uh the
00:01:03
conference so thank you so much for
00:01:04
taking the time and yeah this is this is
00:01:06
one I've been really looking forward to
00:01:08
so I'm really excited to get
00:01:10
going well I know I've got a captive
00:01:12
audience because the Market's just
00:01:14
opened so I'm sure everybody's looking
00:01:16
at their screens but uh thank you very
00:01:18
much for having me on it's an honor to
00:01:20
be here and you had such a wonderful
00:01:22
lineup of guests and from what I
00:01:25
understand excellent attendance so of
00:01:27
course every presenter likes in audience
00:01:30
to deliver to and uh let me just say
00:01:33
there's only so much that I can cover in
00:01:36
a 45 to 60 Minute
00:01:39
presentation but hopefully I'll put some
00:01:42
good ideas in your head here as to the
00:01:45
current environment that we're in and um
00:01:48
different ways of thinking about
00:01:50
relative strength okay because
00:01:53
everybody's heard for years about how
00:01:55
the relative strength leaders outperform
00:01:57
and outperform and outperform until they
00:01:59
don't don't outperform so we're going to
00:02:02
look at the types of environments that
00:02:04
they don't outperform as well as as you
00:02:08
all know relative strength is a function
00:02:11
of your look back period so if I'm just
00:02:13
looking back one day I'll get a
00:02:15
completely different subgroup than I
00:02:19
will looking at a six-month look back um
00:02:22
my my initial knowledge of relative
00:02:26
strength was really my weak point
00:02:28
because I
00:02:30
um was trading more as a short-term uh
00:02:34
Trader off of momentum factors but
00:02:36
that's a little bit different than the
00:02:38
relative strength you know Market
00:02:39
structure and so forth and I was one of
00:02:43
those people I I started off on the
00:02:45
floor the Pacific Stock Exchange back in
00:02:48
1981 and I was always the one sucker
00:02:51
that would buy the dogs because they
00:02:52
hadn't moved yet and guess what they
00:02:55
still wouldn't move until if I sat on
00:02:57
them for three years maybe they'd be up
00:02:59
a fraction there so obviously I was very
00:03:03
um ignorant on some of these principles
00:03:06
and then I was a member of or am a
00:03:08
member of APTA the American Association
00:03:11
of professional technical analysts if
00:03:14
you have been in the markets for seven
00:03:16
years you two can qualify for this
00:03:18
prestigious group and I heard a
00:03:21
presentation uh by George shade and he
00:03:23
was talking about all of his work on
00:03:25
relative strength now George shade has
00:03:27
been an experienced Market participant
00:03:30
for 50 years so uh I always love to
00:03:34
default to the people that have the most
00:03:36
experience and he started talking about
00:03:39
how with these look backs obviously he
00:03:41
wasn't talking about short-term trading
00:03:44
per se but in terms of candidates for
00:03:47
the Investment Portfolio and he said
00:03:50
that the absolute worst look back period
00:03:54
was one month or four weeks and the
00:03:57
optimal look back period was was six
00:04:00
months and so I started playing around
00:04:03
with different look back F you know
00:04:05
periods and I'm going to show you the
00:04:07
pros and cons of of using this in
00:04:10
different ways to capture different
00:04:12
types of things and then we're going to
00:04:15
wind down and we're going to put it into
00:04:17
the context of Gary Anderson's work on
00:04:20
the Janis Factor if you don't know his
00:04:24
work he won the Charles da award in 2003
00:04:28
which is quite prestigious award for his
00:04:30
original paper on the Janus factor and
00:04:33
then he came out with a book in 2012
00:04:36
it's not a very long book but it'll fill
00:04:39
in so many holes and gaps in your
00:04:42
knowledge and approach to the markets if
00:04:45
you have not read it so I'll show you
00:04:47
the name of the book and few
00:04:49
recommendations at the end of this so
00:04:52
moving on
00:04:54
here I need to find my trusty little
00:04:57
arrow okay just in general this is a
00:05:00
general commentary because most people
00:05:03
when they think of relative strength
00:05:05
rightly so it refers to momentum trading
00:05:09
and investing where a stock outperforms
00:05:11
a benchmark now we can do the same thing
00:05:14
with commodities and commodity indices
00:05:16
and see what's outperforming the
00:05:18
relative strength and we can use any
00:05:21
Benchmark I use the SMP 500 but if you
00:05:24
wanted to use the NASDAQ or the NYSC you
00:05:28
can play around with different they'll
00:05:30
all pretty much come up with a similar
00:05:33
group of the leaders and the laggards
00:05:36
okay and the thesis behind relative
00:05:38
strength is that in a momentum type of
00:05:42
environment which is going to be um
00:05:46
generated by a positive feedback type of
00:05:49
system which we'll look at the trend is
00:05:53
going to outperform and in positive
00:05:56
feedback and momentum that is what
00:06:00
generates a trend okay so in a nice
00:06:03
uptrending bull market making new highs
00:06:06
you are going to have good positive
00:06:08
feedback and obviously a trend and you
00:06:12
can see the type of environment that we
00:06:14
have been in for the last uh year and a
00:06:17
half exception of just a few stocks it's
00:06:19
been fairly flat sideways market and so
00:06:24
we'll look at some of the uh little
00:06:25
traps in that type of environment so
00:06:28
it's not only depend on the market on
00:06:30
the look back period but the market
00:06:34
environment and it's most useful in a
00:06:36
strong Market it exhibits the
00:06:38
characteristics of positive feedback so
00:06:40
we can have this positive feedback
00:06:43
phenomena in a downtrending market as
00:06:46
well okay so um obviously contrarian
00:06:50
strategy in the trading range would be
00:06:53
where the laggards are bought at the
00:06:55
bottom of the range and then outperform
00:06:58
the Le ERS um which is something that
00:07:01
most people don't consider these types
00:07:03
of environments because we have been in
00:07:07
such a steady strong bull market which
00:07:10
has been coming to an end so we need to
00:07:13
sort of adjust our thinking for
00:07:16
strategies going forward um for really
00:07:20
aggressive short duration stock Traders
00:07:23
and this is not my style but I see it
00:07:25
amongst some friends and um most of them
00:07:28
are very very shortterm duration they
00:07:31
could even be just day Traders with the
00:07:33
use of weekly options and daily options
00:07:36
you can really capitalize on some of
00:07:38
these things but I'm sure you guys are
00:07:41
familiar with these strategies looking
00:07:43
for what is the largest percent Gap up
00:07:45
on the opening the largest five minute
00:07:48
bar off the opening perhaps you could
00:07:50
incorporate a volume component in there
00:07:53
the largest 15minute gain from the
00:07:56
previous day's higher close in terms of
00:07:58
a percent AG wise and so these
00:08:01
strategies have become so well known and
00:08:04
everybody scour them in the pre-market
00:08:07
that you have to be very Nimble and uh
00:08:10
not shy about pulling that trigger
00:08:12
pretty quickly and so uh also being
00:08:16
quick to exit if you are in a non-f
00:08:19
follow through Market because you'll see
00:08:20
that all the trend will Peter out at the
00:08:23
end of the Europe um Europe close and
00:08:26
you have to be really mindful if you are
00:08:29
using using options as one of your
00:08:30
trading vehicles and I'm sure all of you
00:08:32
have experienced that that trade uh
00:08:35
these little hot potato options so we're
00:08:37
all I'm going to spend more time on
00:08:39
looking back with a longer duration
00:08:42
we're not going to concentrate on all
00:08:44
these shortterm tricks um because I
00:08:48
think that so many of you are familiar
00:08:51
with them I want to bring something new
00:08:53
to the table just by introducing some of
00:08:56
Gary Anderson's work okay
00:09:00
um the reviews okay this is a difference
00:09:04
between the main thesis of Gary Anderson
00:09:07
is the difference between the positive
00:09:10
environment feedback loops and the
00:09:13
momentum is calculated by the spread
00:09:16
between the basket of leaders and a
00:09:19
basket of laggards and I will show you
00:09:21
exactly how to do that so for example we
00:09:25
have been in a downtrending moment
00:09:29
momentum environment I know it sounds
00:09:31
like a mouthful in an uptrend okay but
00:09:34
what's what's happened is that the um
00:09:38
spread between the leaders and the
00:09:40
laggards has been converging because of
00:09:43
this type of environment so normally we
00:09:47
would be in a contrarian type of mode
00:09:49
looking to buy the shares just coming
00:09:51
off of bases at the lower end of the
00:09:54
trading range and a perfect example of
00:09:57
this is on Friday when we actually saw
00:10:01
the laggards Jump by
00:10:04
5.7% I and the leaders Rose 6% so we
00:10:09
really need to figure out where are we
00:10:11
going to get the most bang for our buck
00:10:14
I mean on a day like Friday and the day
00:10:17
before you could practically throw darts
00:10:19
at a dart board and anything's going to
00:10:21
go up but we want to be mindful about
00:10:24
how do we make the most amount of money
00:10:27
in the least amount of time and that's
00:10:29
going to be your selection of markets to
00:10:32
trade okay so I'm going to go back to
00:10:35
showing you at the lowest end of the
00:10:38
range a one-day look back period And I
00:10:41
use trade station and you can see I have
00:10:44
a nice grid here of three different
00:10:48
relative strength look back back periods
00:10:50
and each of them serves a different
00:10:53
purpose so I have a longer term look
00:10:56
back period of 120 days and then I have
00:11:00
a middle column here intermediate and
00:11:02
I'll explain exactly how I use that and
00:11:05
then of course this is our uh one day
00:11:09
and you can actually see this in the
00:11:11
middle of the day very very clearly um
00:11:15
uh and uh I think caterpillar was one
00:11:17
that just boom shot up to the top of the
00:11:19
list on Friday so I just want to show
00:11:22
you what that looks like because you can
00:11:25
see here I have a weekly chart and a
00:11:28
daily chart so any look back period with
00:11:31
longer than three four days of duration
00:11:34
is not going to capture these things so
00:11:37
I like that one day look back period
00:11:40
when we're just starting to see a move
00:11:43
and what we see here is a classic
00:11:45
example of a lagard of sorts um catching
00:11:51
the bid and outperforming you can see
00:11:53
dish Macy's the Russell uh you know Lulu
00:11:57
of course was a unique sit situation but
00:12:00
caterpillar so these were all the shares
00:12:03
that outperformed the snps on Friday by
00:12:06
a significant amount and that's what we
00:12:09
really want where are we going to get
00:12:11
our you know our
00:12:13
outperformance so this column right here
00:12:16
is our one day relative strength and
00:12:18
usually I I use all three of them when I
00:12:21
look at these at night I'll just kind of
00:12:23
scroll through all three of them and
00:12:25
maybe you don't want to buy the opening
00:12:27
on Monday but then we can put this on
00:12:29
our watch list and that's a good way to
00:12:32
go about doing it so this was the slide
00:12:35
I've I just went over on how Friday the
00:12:39
laggards jumped significantly and that
00:12:42
is indeed signs of a trading range type
00:12:46
of environment or negative feedback
00:12:49
loops and that is a counter Trend it
00:12:53
puts a damper on some of the upside
00:12:55
momentum functions not that we can't
00:12:58
have a bull market we could even go up
00:13:00
and and um go and retest the high we can
00:13:04
even look above the high on the Dow but
00:13:06
it's just saying that as long as that
00:13:08
spread between the laggards and the
00:13:11
leaders is starting to converge you are
00:13:14
going to get more bang for your buck on
00:13:17
those little dogs there so the middle
00:13:22
column that I showed you here I'm going
00:13:24
to go back I don't know why this is
00:13:26
skipping over this stuff here okay
00:13:29
this middle column here I have set to um
00:13:33
I use the last cycle low and so that is
00:13:37
a a oscillator low on the snps and that
00:13:41
always gives a good definition of it and
00:13:44
so it was 21 days just looking back you
00:13:48
can see the the cycle in the NASDAQ and
00:13:50
the
00:13:51
snps and so this is just sort of
00:13:55
interesting you don't want to
00:13:56
necessarily buy this on day 21 but if
00:14:01
you can identify a little cycle low here
00:14:05
and start to do this scan on day three
00:14:08
and day four and day five um those are
00:14:12
the nice little hot potatoes that can
00:14:14
give us much more than we're expecting
00:14:17
and you can see as well we're in that
00:14:19
environment that's not a momentum based
00:14:22
environment where most of these shares
00:14:24
Nidia of course has been hot to trot
00:14:26
here but most of these shares s have
00:14:29
been underperforming with a longer look
00:14:32
back period maybe uh maybe uh 80% of
00:14:36
these have been
00:14:37
underperforming so that's one thing that
00:14:40
we can do with that middle column set
00:14:42
the look back period to the start of the
00:14:45
cycle low on an index another trick I
00:14:49
really like is to look at the start of
00:14:54
the quarter and sometimes if I if I do
00:14:56
it three days out four days out just a
00:14:59
little weak period there at the start of
00:15:01
the quarter what you will see it's going
00:15:03
to pick up all the stocks that have the
00:15:06
best institutional participation behind
00:15:09
them and institutions are slow moving
00:15:12
dinosaurs for the most part and they
00:15:16
tend
00:15:17
to adjust their strategies quarter by
00:15:20
quarter by quarter so if you see things
00:15:22
outperforming the first week of a new
00:15:25
quarter it tends to outperform for the
00:15:29
quarter so it's just a little caveat
00:15:31
there um and let's see here this here is
00:15:37
our traditional six Monon look back
00:15:41
period so when you're looking for
00:15:44
investment
00:15:45
candidates in general it's not 100% but
00:15:49
the shares that have been outperforming
00:15:51
for the previous six months tend to
00:15:54
continue to outperform so ge's been on
00:15:58
my rate radar because it was actually
00:16:00
outperforming in February and March you
00:16:03
know if you had bought any time in this
00:16:05
time period and stuck it in your
00:16:07
portfolio it still made new highs there
00:16:10
on Friday so that's kind of a longer
00:16:13
term duration thing uh great for your
00:16:17
IRA or a a separate holding account just
00:16:20
to establish a little bit of a presence
00:16:23
it may not generate the most beta but um
00:16:27
or Alpha you know but it's steady and so
00:16:30
it has lower draw Downs in general so
00:16:35
let's just talk about this Janus here as
00:16:39
a market metaphor because Janus was the
00:16:42
Roman God of gates and doors represented
00:16:45
by two opposing faces and this
00:16:49
represents the duality of things the
00:16:51
one-sided two-sided nature of things you
00:16:54
know coin has two sides the metaphor of
00:16:58
Jan explains the Dual nature of the
00:17:00
markets and how the markets vacillate
00:17:03
between these two different environments
00:17:05
although one wouldn't think so the
00:17:08
previous 10 years but um one is
00:17:12
determined by the trend followers and
00:17:15
the other has been the contrarian
00:17:18
bargain hunters the trend followers have
00:17:20
not been doing so Swank uh this year and
00:17:25
I think some of the bargain hunters have
00:17:26
caught a few gems
00:17:29
that's just my opinion so I don't have
00:17:31
any way of knowing for sure I never know
00:17:35
for sure who is doing what and I see so
00:17:38
many people fall into the Trap of oh
00:17:42
they're going for the stops or oh it's
00:17:43
the alos or oh kind of forcing a little
00:17:48
bit of um story to the thing and I just
00:17:52
find that that does not serve me and
00:17:54
I've not really seen it ever serve
00:17:57
anybody else else so always remember
00:17:59
there's two sides to a coin but when we
00:18:03
want to um let's see put this into the
00:18:06
positive feedback the positive feedbacks
00:18:09
the momentum and the acceleration and
00:18:12
yes no doubt we did see that Nidia but
00:18:15
Nvidia does not make the whole Market
00:18:18
either okay so we are going to look at
00:18:21
how we use a basket of the top 10% of
00:18:25
shares in our database and the bottom 10
00:18:28
% of shares in our database and keep our
00:18:31
database fairly small two to 300 shares
00:18:35
and they we're going to take the spread
00:18:36
between those so nid of course would be
00:18:39
a contributing factor but uh we'll see
00:18:43
surprisingly how many of the laggards at
00:18:46
the bottom range have been coming to
00:18:48
life one by one so when there is
00:18:51
positive feedback what tends to happen
00:18:54
is the relative strength between the
00:18:57
winners and the losers increases that
00:18:59
means that our basket shows that the
00:19:02
leaders continue to outperform and
00:19:04
continue to outperform and you know
00:19:06
you're going to get closer to a top when
00:19:08
they start scraping the bottom of the
00:19:10
barrel to look for the dogs that haven't
00:19:12
moved which is still a mistake whoops
00:19:16
but I'm going to just go back here and
00:19:18
by the way all my slides will be
00:19:20
available for you so if you want to go
00:19:22
back and review something not a problem
00:19:27
um
00:19:30
so the direction of the momentum can be
00:19:34
up or down that's the widening of that
00:19:36
spread and we see the same thing to the
00:19:39
downside where these laggards get hit so
00:19:43
much further than the leaders so that
00:19:45
spread widens once again when that
00:19:49
spread starts to converge and we've
00:19:51
actually seen that for the last uh you
00:19:54
know 16 months that represents a form of
00:19:58
rotation which is most likely in a
00:20:00
trading range all right but the
00:20:03
increasing momentum is really what
00:20:06
drives the trend sorry about that I've
00:20:09
got a little Twitchy Mouse here I
00:20:12
thought I had to feed him some cheese
00:20:14
okay so yes when the spread is
00:20:17
decreasing there's rotation when that's
00:20:20
increasing you've got upside uh Trend or
00:20:24
downside Trend um so there is the
00:20:27
there's the gist of it and uh again when
00:20:31
there is positive feedback the direction
00:20:34
of the momentum which is the periods
00:20:36
that are moving the market so for
00:20:38
example in
00:20:41
2022 um we saw a directional bias to the
00:20:45
downside obviously but there were
00:20:47
periods of positive feedback during that
00:20:50
period so just be mindful about that so
00:20:54
now we're going to look at how Gary
00:20:57
calculated
00:20:58
his relative strength spread and I think
00:21:01
it's a genius idea and of course
00:21:04
everybody can do their own variations on
00:21:07
this and that's the whole point if you
00:21:09
hear somebody in this conference
00:21:12
suggests an idea you can take that same
00:21:15
idea and say well can I express it this
00:21:18
way can I quantify it that way I'll show
00:21:20
you another way that I quantify it but
00:21:23
it's really you know don't take any of
00:21:25
this as gospel play around with it and
00:21:27
make it your own so to find out whether
00:21:31
the relative strength environment is
00:21:33
working first we're going to identify
00:21:35
the strongest and the weakest stocks as
00:21:38
a day D and then the changes in each set
00:21:43
the changes in the leaders and the
00:21:45
changes in the laggards are averaged and
00:21:48
then they're recorded for the following
00:21:51
day or D plus one so forward changes for
00:21:54
each set are cumulated and then the
00:21:58
specific stocks that rank among the
00:22:01
strongest and weakest may vary daily but
00:22:04
you'll find it doesn't matter when
00:22:06
you're looking at a basket of 20 to 30
00:22:09
stocks so this method provides a
00:22:12
continuous updating of the forward
00:22:15
performance of the relative strength
00:22:17
leaders and lagers and you can do this
00:22:19
just once a week it's not something that
00:22:21
you have to do every single night
00:22:24
because the look back periods that we're
00:22:26
going to use are um you can see here the
00:22:30
relative strength limited to the top
00:22:32
10% we're going to use a five Monon look
00:22:36
back period for the lagard so that does
00:22:39
not change as often and a three-w week
00:22:42
look back period for the leaders so uh
00:22:46
you want to update the this on a weekly
00:22:49
basis because these changes can happen
00:22:53
quickly Gary by the way puts out a
00:22:56
newsletter and I'll give you all the the
00:22:58
information for that and it only comes
00:23:00
out once a month and his client base is
00:23:03
institutional mutual funds you know
00:23:06
hedge funds uh that type of group so you
00:23:09
don't want to be making decisions when
00:23:12
you're running you know half a billion
00:23:14
dollars you know on too short of a time
00:23:17
frame so that's sort of his wheelhouse
00:23:20
there but let me just give you some food
00:23:23
for thought here okay there we go this
00:23:28
is an example of negative feedback
00:23:30
environment meaning mean reversion and
00:23:33
everybody is familiar with Jesse
00:23:35
livermore's name along with uh some of
00:23:39
the others Levy Rich um was a a Pioneer
00:23:42
with relative strength so the 1930s
00:23:46
experienced significant mean reversion
00:23:49
there was no uptrend to the to the um
00:23:53
spread and uh this was a period driven
00:23:55
by negative feedback and risk adverse
00:23:59
contrarian Traders I can't imagine why
00:24:02
after the 20s but during those years
00:24:05
there were five separate months where a
00:24:08
trend following strategy would have lost
00:24:10
over
00:24:12
40% so that's pretty harsh each instant
00:24:16
came as the market Rose
00:24:18
substantially trapping Jesse Livermore
00:24:22
and he was forced to declare bankruptcy
00:24:24
yet again not that he wasn't a very
00:24:28
Savvy Traer but he was essentially a
00:24:31
one-trick pony which is going to bring
00:24:34
us at the end to why we need to adjust
00:24:37
our strategies in certain environments
00:24:40
so there's very few single methods or
00:24:45
strategies that we can apply through all
00:24:48
these varying conditions so always be
00:24:52
aware of that you know right when they
00:24:53
find the key it stops working right the
00:24:57
key of the lock so this was the period
00:24:59
you can see here in the 1930s and even
00:25:02
into the 40s where there was no uptrend
00:25:06
there was no downtrend it was a very
00:25:08
flat period it was a mean reverting
00:25:10
period sell the rallies buy the dips you
00:25:13
know buy the dips sell the rallies right
00:25:15
when you think there's going to be a
00:25:16
breakout it's a trap etc etc so that
00:25:19
would be an example of a chart and I
00:25:22
used monthly data just because I wanted
00:25:24
to compress that time period that Jesse
00:25:27
liver got caught in now this is a chart
00:25:30
courtesy of Gary Anderson and what we
00:25:33
see is a little bit ironic it's kind of
00:25:36
a paradox because since the start of
00:25:41
2022 momentum has been declining and I'm
00:25:45
sure some of you felt this you know a
00:25:47
month or two months ago with the
00:25:49
contraction in the daily ranges I always
00:25:53
calculate the dollar value for the daily
00:25:55
ranges on the Futures that that I trade
00:25:59
and it's just it's just been going down
00:26:01
down down if you were to plot a chart of
00:26:03
the average true range probably because
00:26:07
some of the money uh liquidity has been
00:26:10
uh you know tempered a little bit by the
00:26:12
FED but this is sort of interesting
00:26:15
because you can see we had this
00:26:17
continual downtrend which is a little
00:26:19
bit deceptive because you think there
00:26:21
was a downtrend in the market but it was
00:26:25
not a momentum decline even though I'm
00:26:28
sure it felt like that if you were
00:26:30
getting long prematurely so I thought
00:26:34
that was interesting of note we have
00:26:36
seen these Trends in the direction of
00:26:41
momentum persist for multiple years at a
00:26:44
time so it does not mean that everything
00:26:46
has to come to life and right now we are
00:26:50
in that contrarian negative feedback
00:26:53
type of loop um so what we want to do is
00:26:56
buy at the lower ler end of the training
00:26:58
range and sell at the upper end of the
00:27:01
range and I'm not saying step in front
00:27:03
of something like L like a Nvidia but I
00:27:07
am saying that as you can see on
00:27:10
Friday's action uh some of these little
00:27:14
um laggards just grossly outperformed
00:27:18
the leaders and uh so just be aware of
00:27:21
that um as a contrarian and I'm a better
00:27:25
contrarian Trader than I am a moment
00:27:27
Trader frankly because that's just how I
00:27:30
started off on the trading floor and it
00:27:31
was very difficult to be on a trading
00:27:34
floor and buy breakout so that is not my
00:27:37
forte but we'll always be looking for
00:27:40
the soldout issues that are ready to
00:27:43
turn and this this does not mean like
00:27:45
dog dogs that you know were uh High
00:27:48
risers for the pandemic and then just
00:27:50
crashed and burned and they're still up
00:27:52
in Flames um but you know contrarian you
00:27:56
looking at some of these oversold Dow
00:27:59
shares that we saw they're good shares
00:28:02
uh but they were just sold out and um
00:28:06
you know uh they uh we we want to buy
00:28:09
them before they pop not like after they
00:28:12
pop on Friday but you should see that
00:28:13
they should get some continuation in the
00:28:15
trend here and uh I think that there's a
00:28:18
chance that they can make back
00:28:20
50% of their downtrend which would pull
00:28:24
more money in because most of you know
00:28:26
with the readings has been way way way
00:28:30
too bearish for way way way too long so
00:28:32
we have to figure out how uh the
00:28:34
Market's going to pull in some of this
00:28:37
money and I think that they feel safer
00:28:40
buying these uh contrarian types of
00:28:43
shares oh golly Jeepers okay so I'm just
00:28:46
going to give you some quick resources
00:28:48
before moving on this is Gary Anderson's
00:28:51
book The Janis Factor Trend followers
00:28:54
guide to Market dialectics and it was
00:28:56
written in in
00:28:59
2012 and I find everything more relevant
00:29:03
than ever um Equity PM is his newsletter
00:29:07
and I think it's fairly reasonably
00:29:09
priced at any rate you can go to his
00:29:11
website Gary Equity pm.com I want more
00:29:16
people to be aware of his work and his
00:29:20
research because it is so unique it's so
00:29:24
unique that it was recognized as getting
00:29:27
the Charles da award which is a very
00:29:30
prestigious paper and um I have not seen
00:29:34
hardly anything else written about this
00:29:36
but I do feel if you read his book it
00:29:39
will fill in a missing Gap or hole in
00:29:44
your knowledge because we tend to be
00:29:46
very linear based in our approach to the
00:29:49
markets these days um and by that I mean
00:29:53
not using as much context as we should
00:29:57
so so I think he'll just highlight that
00:29:59
awareness and if you are a student of
00:30:01
relative strength the number one book
00:30:04
you really want to look at is Robert
00:30:07
Levy's book the relative strength
00:30:10
concept of common stock price
00:30:12
forecasting so this is a classic and
00:30:16
should be in every technician's library
00:30:20
and if you're a Trader and I know that
00:30:22
most of you trade stocks uh and um so I
00:30:27
think this would be a valuable addition
00:30:28
for you to pick up as an aside since
00:30:32
I've quoted Gary multiple times he is a
00:30:35
woff efficient AO woff adds a lot of
00:30:39
structure to the market as well and he
00:30:42
has been in the markets for 45 years
00:30:46
he's been a principal of Anderson and
00:30:48
low which he formed in
00:30:49
1990 and his advisoring services are um
00:30:54
subscribed to by a very International
00:30:56
clientele so he's got a lot of
00:30:59
credentials and credibility there so
00:31:02
moving on now I am going to show you
00:31:06
some other ways that I have always
00:31:08
viewed this positive feedback and this
00:31:12
negative feedback especially since I was
00:31:15
originally coming from even though I
00:31:17
started on the options floor doing
00:31:20
stocks uh 10 years later I gravitated to
00:31:23
doing mostly Futures most of the things
00:31:26
I talk about I have to consider true
00:31:30
principles of price Behavior meaning
00:31:33
that they will work on stocks equally as
00:31:35
well as Futures but you all know they
00:31:38
have their own unique little subtle
00:31:41
nuances especially when it comes down to
00:31:44
noise and most stocks tend to be much
00:31:47
noisier than Futures so this is a little
00:31:51
thing down here that I plotted for you
00:31:54
and actually I put this in the in the uh
00:31:57
book that trading sardines book that I
00:31:59
did as an example of what I did in you
00:32:04
guys are going to laugh it was in the
00:32:06
late uh
00:32:08
1980s and the early
00:32:11
1990s and at that time in the late 1980s
00:32:15
the oex options were the thing to trade
00:32:19
they were very hot they were liquid um
00:32:22
you know this was course uh in the good
00:32:25
old days and um what I would do is down
00:32:28
here at the bottom you can see I've got
00:32:31
assorted rates of change a three a four
00:32:35
a five a six a seven period a nine
00:32:39
period you can play with this and throw
00:32:41
in whatever you want and you'll see that
00:32:44
we have periods right here where all the
00:32:47
rates of change pull on up that's your
00:32:50
positive feedback mode and that's what's
00:32:53
giving it go go go typically after after
00:32:57
the positive feedback mode has ended
00:33:00
you'll see this fragmentation here
00:33:03
between all the different rates of
00:33:05
change the longer term ones are still
00:33:08
going up but the ones that are shorter
00:33:11
have fallen and at this point right here
00:33:15
when this spread is the widest that's
00:33:18
when I would short straddles on the oex
00:33:21
because it needs to
00:33:23
consolidate and then you can see
00:33:25
typically what happens we wound down
00:33:28
this green here this is a hard to see
00:33:31
green but it's an equilibrium point so
00:33:34
this is typically the Market's process
00:33:37
everybody tends to think of the best
00:33:40
buying opportunities uh coming from
00:33:43
oversold or overbought conditions and
00:33:45
that's not always so a lot of times we
00:33:48
have to wind down to these equilibrium
00:33:51
points and if you are a student of
00:33:54
Market profile you will understand
00:33:57
understand exactly what I'm talking
00:33:58
about by developing a high volume node
00:34:02
or this um balance I think Jim Dalton
00:34:06
calls it a balance period so in that
00:34:09
balance period right in here we're
00:34:11
starting to get our price bar overlap it
00:34:15
tends to take three bars uh before you
00:34:18
can say that a trend has come into
00:34:21
balance and then it's susceptible to
00:34:24
either continuation or reversal but we
00:34:27
can say that the trend has ended and
00:34:30
come into balance down here at which
00:34:33
point in this case you can see we had a
00:34:35
whole new positive feedback loop
00:34:38
starting to the upside and then of
00:34:41
course up here it had to consolidate and
00:34:44
do choppy choppy so so easy in hindsight
00:34:48
right you know okay but it doesn't
00:34:50
always work that way real time
00:34:52
especially when you look at it on your
00:34:54
particular Market I just want you to see
00:34:56
see this process it's a continuous
00:34:59
process positive feedback
00:35:02
consolidation wind down to that
00:35:05
equilibrium point and it does tend to
00:35:07
work on most markets now this is a minic
00:35:11
cycle of what we were talking about with
00:35:14
Gary's work but it's still utilizing the
00:35:17
same concepts of different environments
00:35:20
where different strategies work here
00:35:23
we're in our counter Trend mode just
00:35:25
because this is so
00:35:27
fragmented you know you can uh buy dips
00:35:30
sell rallies buy dips sell rallies or
00:35:33
short premium this is a great
00:35:35
environment that I like for shorting
00:35:37
premium and I just make sure I take it
00:35:41
back as these start to consolidate
00:35:45
because then you're going to be ready
00:35:46
for another rock and roll type of
00:35:49
session and so now I'm going to
00:35:52
introduce one more thing because this is
00:35:54
my favorite tool that I use in trading
00:35:57
Futures and we will see that it does
00:36:00
work on stocks here were our little
00:36:03
squiggly lines I swear you can never
00:36:05
throw enough squiggly lines up on the
00:36:07
charts and it's bound to you can see
00:36:09
whatever you want to see in it but down
00:36:12
here at the bottom in this green line I
00:36:14
have the two period rate of change which
00:36:17
is my main trading tool because it is
00:36:22
slightly better signal to noise raer Rao
00:36:26
than a one day rate of change okay so it
00:36:30
just cleans out a little bit of the
00:36:32
noise even though momentum just so you
00:36:34
know is the noisiest indicator you can
00:36:37
use it's really a lot like reading tea
00:36:40
leaves so this here is a 310 oscillator
00:36:44
the difference between a three period
00:36:46
and a 10 period simple moving average
00:36:49
with a 16 period smoothing line so we're
00:36:53
smoothing the momentum here you can
00:36:56
easily use a stochastic you could use a
00:37:00
seven period stochastic with a percent
00:37:03
like D3 or four and a 12 to 16 period um
00:37:08
you know Slow line on the stochastic so
00:37:11
uh multiple ways to skin a cat the most
00:37:14
important variables in this model tend
00:37:17
to be the trend of this slow line
00:37:21
representing the trend of the momentum
00:37:24
very analogous to price being above that
00:37:27
20 period EMA and then the positive
00:37:31
slope in the two period rate of change
00:37:34
so we have all three slopes in the same
00:37:38
direction it's pretty rare that you get
00:37:41
more than two maybe three back-to-back
00:37:45
days of positive feedback most positive
00:37:49
feedback when I'm trading these futures
00:37:51
for my purposes my holding time tends to
00:37:55
be 2 and a half days days and then we
00:37:57
might have a little reaction back and
00:38:00
you can load the boat again if you feel
00:38:02
so inspired so you also notice that when
00:38:05
we're in this positive feedback mode for
00:38:08
the most part it's going to lead to a
00:38:11
trend day a range expansion day very
00:38:15
important because as a
00:38:17
Trader you know it's a burnout job after
00:38:21
a while and you don't want to be trading
00:38:23
little every wiggle and jiggle and so
00:38:26
forth so what I really try to do is
00:38:28
concentrate on the pre-existing
00:38:31
conditions that may lead to a trend a
00:38:34
and what you'll what you'll see is when
00:38:36
the Market's in a consolidation as it is
00:38:39
here I look at these pf3 down you see
00:38:43
the negative slopes here in all three of
00:38:46
these things the market is giving it
00:38:49
everything it's thought to the
00:38:52
downside hello
00:38:54
doggy my dogs want to join the party
00:38:57
okay it's giving it everything it's got
00:38:59
to the downside and it's not leading to
00:39:02
any range expansion the ball is entirely
00:39:05
in the Bear's hands and they're fumbling
00:39:08
it yet a little bit of a dinky trap look
00:39:11
below that previous low and then right
00:39:13
back up so uh that's my interpretation
00:39:17
of it and the best thing I could suggest
00:39:19
to you if you are interested in pursuing
00:39:21
this is to do your own work and study I
00:39:26
print out 20 charts of each Futures
00:39:29
Market at the end of the year and just
00:39:31
review the different patterns and the
00:39:34
setups that led to the upside breakouts
00:39:37
or downside and it's just an exercise
00:39:40
for me now uh with the uh 10year notes
00:39:46
Here slightly bit of a different
00:39:48
environment but this is back in uh a few
00:39:51
months ago I want you to see that um
00:39:56
again this huge range expansion up those
00:39:59
are the trend bars up and that's where
00:40:01
you get your positive feedback and it's
00:40:04
really rare once again that you get two
00:40:08
or three days back to back of positive
00:40:11
feedback so after I saw this one two I'd
00:40:14
be looking to buy I buy H the Market's
00:40:17
not giving me much okay I'll get out
00:40:19
after a day or two you know okay
00:40:21
positive feedback to the downside you
00:40:23
can catch something for two or three
00:40:25
days you know the whole point in trading
00:40:28
is we don't have to be perfect on our
00:40:31
entries or our exits all we need to do
00:40:35
is to get the main idea right and we Far
00:40:39
Over complicate things I do my best work
00:40:43
just off of daily candle charts and of
00:40:46
course I'll look at the shortterm uh
00:40:48
intraday time frames after the Market
00:40:51
opens you know and that's where I've
00:40:54
always felt that that market profile
00:40:57
work understanding the six or seven
00:40:59
basic types of days is it going to be a
00:41:03
double distribution day is it a little
00:41:05
neutral day is it a you know all of
00:41:07
these types of Concepts really serve you
00:41:11
if you're a professional Trader you
00:41:13
don't have to trade by them but just
00:41:15
being aware of these different day types
00:41:19
in context with maybe one or two little
00:41:22
other indicators so here I wanted to
00:41:25
show you something really fun this is
00:41:28
another tool that I use God bless trade
00:41:31
station because now everybody can have
00:41:34
their radar scan functionality for free
00:41:39
huh how many times do you get something
00:41:41
for free they used to charge 90 bucks a
00:41:43
month but now it's free so I have a scan
00:41:47
and you might want to try this out where
00:41:50
it says show me the new momentum highs
00:41:54
with a 30-day look back period
00:41:56
so it will catch things like this just
00:41:59
coming to life okay the momentum
00:42:02
precedes the price and then you see our
00:42:05
pf3 is up are giving a steady Trend and
00:42:09
our our Bears attempt to flush down is
00:42:13
not now I want to point out one thing
00:42:17
this is indicative of a long liquidation
00:42:21
flush we don't have lower lows like
00:42:25
Beyond any of these lows
00:42:26
it's just a gentle soft correction so
00:42:30
don't get caught up in that trap again
00:42:32
this is putting momentum in a different
00:42:35
type of context now of what is the
00:42:38
market structure are we in an uptrending
00:42:43
structure sometimes you can get these
00:42:45
one or two day wash outs these flushes
00:42:47
to the downside and they're little traps
00:42:50
but if I see it coming out of this nice
00:42:53
uh consolidation structure and it makes
00:42:56
a new momentum High I am all uh over
00:43:00
that and a lot of times you can just buy
00:43:02
call spreads or however you want to
00:43:04
trade it and then we made yet another
00:43:06
new momentum highs don't get trapped in
00:43:10
looking at the diverences with these
00:43:13
things in most cases unless you're in a
00:43:15
trading range now what do we see again
00:43:19
look it it's trying to force itself to
00:43:22
the downside and where is this little
00:43:26
sucker now I can I've got trade station
00:43:29
on one side and I've got cqg on the
00:43:33
other side it's really for the
00:43:36
redundancy but um okay so
00:43:41
now look at this look at this here is
00:43:44
your positive consolidation because the
00:43:49
Bears are giving it everything they have
00:43:51
to the downside here you can see this
00:43:54
oscillator is correct in all of the The
00:43:57
Fast and Slow line on my 310 oscillator
00:44:00
a stochastic would be correcting and
00:44:03
it's not getting anywhere this is such a
00:44:07
strong signal so a lot of our processing
00:44:10
as Traders is
00:44:13
relationships that's so essential for
00:44:15
good trading what is price doing
00:44:18
relative to an indicator what is price
00:44:21
doing relative to a certain Market
00:44:23
environment so I just look out of the
00:44:26
corner of my eye and General Electric is
00:44:29
pushing
00:44:31
106 but you wouldn't necessarily see
00:44:34
that in advance that's the whole funny
00:44:37
thing about the markets you can't look
00:44:39
around the corner and predict but we can
00:44:43
say this is not a top this is not
00:44:46
distribution this is a consolidation
00:44:49
with higher lows and higher highs and
00:44:53
this is just going to explode again to
00:44:55
the the upside so as you gain an
00:44:59
experience okay you can better look at
00:45:02
these
00:45:04
relationships you know one price
00:45:06
relative to an indicator One Price
00:45:09
relative to the price at the start of
00:45:10
the Year all of these types of
00:45:13
relationships I think are way
00:45:15
underestimated in their value okay I
00:45:19
want to show you something else for fun
00:45:21
since we're on my little wheelhouse here
00:45:24
this is um using the slope of the 3 four
00:45:29
five6 rate of change and I do believe I
00:45:32
put all these squiggly charts this is
00:45:35
this little indicator right here is just
00:45:38
a three four five six period rate of
00:45:41
change and if you want to be really
00:45:43
clever you can calculate out the pivot
00:45:46
at which point it will flip I just see
00:45:49
it I I put my um arrows so that they pop
00:45:53
up in the middle of the day not
00:45:54
necessarily the close of the the day so
00:45:56
I have time to evaluate it so here you
00:45:59
can see the little arrows is when they
00:46:01
were all flipping down all flipping up
00:46:04
and we can use some useful tools like
00:46:08
only do the buy signals in the direction
00:46:11
of the trend or only do the sell signals
00:46:13
but you can see some of these little
00:46:15
buys generated some interesting uh
00:46:19
short-term swing trades and so um that
00:46:22
was uh so much fun with that now
00:46:25
unfortunately you cannot trade
00:46:27
everything so you have to settle on you
00:46:30
know are you going to do the Futures are
00:46:32
you going to have a basket of 20 stocks
00:46:34
or you going to concentrate on one
00:46:35
strategy across 200 stocks and this is
00:46:39
everybody's personal journey in the
00:46:41
markets so here I've got Nvidia because
00:46:45
it was one of the stronger ones and you
00:46:47
can see the little down arrows maybe led
00:46:51
to one or two days follow through not
00:46:54
very satisfying at all but if you bought
00:46:57
every little flip up in the momentum in
00:47:00
this uptrending market it did not catch
00:47:04
it here instead it gapped way up there
00:47:07
but that's just part of the game right
00:47:09
guys it never does exactly what we
00:47:11
wanted to do but it still worked and
00:47:14
then I want to show you the flip side of
00:47:16
the coin with the same arrows and the
00:47:18
same little rates of change and now
00:47:21
we're back into our trading range where
00:47:24
we have the negative feedback and I just
00:47:27
want you to note how many false signals
00:47:31
you would have had or how whipsaw you
00:47:34
might have had felt if you bought and it
00:47:36
didn't have follow through and you sold
00:47:39
and it didn't really have follow through
00:47:41
and you bought and it didn't go and you
00:47:43
sold and it didn't go and you bought and
00:47:45
it didn't go you guys get the picture
00:47:47
here so this is and then of course one
00:47:49
stomping bad signal at the end this is
00:47:53
why I think was it a Jessie Livermore
00:47:56
made a quote about staying out of these
00:48:00
flat narrow range sideways markets okay
00:48:04
obviously he preferred the trend
00:48:07
momentum type of plays but you can just
00:48:09
see the entirely different range than
00:48:12
what I sold before so it's it's a part
00:48:16
common sense you know and another thing
00:48:20
uh that Jesse Livermore said was even
00:48:22
though he went bankrupt three times he
00:48:24
did a lot of fabulous market analysis
00:48:27
and quotes and observation and he said
00:48:31
um don't try and basically guess the
00:48:33
breakout you know let the market come to
00:48:36
life don't go in and pick the direction
00:48:38
at this point it's a useless exercise
00:48:42
and so sometimes we can say um how can
00:48:46
we save our resources how can we avoid
00:48:50
taking marginal signals that's a very
00:48:52
big part of the game because we only
00:48:54
have limited energy and so we really
00:48:57
need to be careful about narrowing these
00:49:00
things down so um I put together a
00:49:04
little slide of common pitfalls for
00:49:06
Traders hey see that okay that was
00:49:09
Richard's suggestion um it's hard for
00:49:13
even me um I'm well seasoned to escape
00:49:18
cognitive biases it just happens and
00:49:21
there's so many different types of
00:49:23
cognitive biases recency biases you know
00:49:27
just getting influenced by somebody else
00:49:29
there's everything under the sun and
00:49:33
um that's a really important thing to
00:49:37
keep in mind be aware of yourself how
00:49:40
easy are you to flip on a market to
00:49:42
trading to the long side when it's in
00:49:45
called for or trading from the short
00:49:48
side I know so many people that cannot
00:49:52
trade gold from the short side okay so
00:49:55
you know we all have our little uh fond
00:49:57
you know pets and so forth but you
00:50:00
really need to um get rid of those
00:50:02
cognitive biases so when you're trying
00:50:05
out something new just such as some of
00:50:08
the things that I'm talking about always
00:50:11
observe the results on a walk forward
00:50:14
basis because our eyes tend to go
00:50:17
selectively to the things that worked
00:50:19
and you'll find if you program this
00:50:22
stuff it picks up a lot more noise than
00:50:25
you would have thought so your only
00:50:28
thing is to try it out on a walk forward
00:50:31
basis even if it's just for two to three
00:50:33
weeks and then examine the Cons with a
00:50:37
real conscious effort all the times that
00:50:39
the strategy failed some of my best
00:50:42
observations have come from looking at
00:50:44
failed signals and what were the
00:50:46
conditions in those failed signals so
00:50:48
that's a probably the most useful tip I
00:50:51
can give self discipline cannot be
00:50:55
programmed
00:50:56
Med and one of the things that Traders
00:50:59
like to do is get ahead of the data try
00:51:03
to see too many swings uh in advance
00:51:07
especially in fast-paced markets and and
00:51:10
we just end up seeing what we want to
00:51:12
see and projecting what we would like to
00:51:16
have happen so again try and stay in the
00:51:19
moment try and live one data point to
00:51:22
one data point even if you have a
00:51:25
long-term swing trade that you're in
00:51:28
you're always monitoring for signs of
00:51:30
the loss of momentum or should we
00:51:33
tighten up our stop at some point so
00:51:37
don't try to see too far ahead um
00:51:40
because that's not going to serve you
00:51:43
and then lastly sorry about that do your
00:51:46
own work okay such a such a strong
00:51:50
statement because you know we all have
00:51:53
different levels of experience
00:51:55
and uh some things may work for me only
00:51:59
because I've jotted down the data for so
00:52:01
many years other things might work for
00:52:04
other people some people are breakout
00:52:06
Traders some people counter Trend
00:52:08
Traders um so do your own work because
00:52:12
if I am looking at something and I have
00:52:16
it in my trading homework the night
00:52:19
before I have a certain expectation as
00:52:22
to how that market should behave if it's
00:52:26
going to do what I'm thinking it can do
00:52:29
and I'm very focused on trying to
00:52:31
capture a trend day so at this point I'm
00:52:36
pretty good at figuring out just two or
00:52:39
three hours into the morning that it's
00:52:41
not going to be a trend day all the
00:52:43
pre-existing conditions were there but
00:52:46
the volume didn't come in the groups are
00:52:49
too uh you know segmented half up half
00:52:52
down uh the breadth is too flat it's not
00:52:55
going going to be a trend day and we
00:52:57
didn't see that urgency of Supply demand
00:53:00
in that first half hour because those
00:53:02
imbalances are what really create a
00:53:05
trend day but you're not going to get
00:53:08
that same feel or knowledge if I'm just
00:53:10
sending out a sheet to you and all of
00:53:12
these could be Trend days and then you
00:53:13
look at them and you put something on oh
00:53:15
it didn't work that time you're not
00:53:17
going to know it and you'll you'll just
00:53:19
end up uh getting stopped out more often
00:53:22
than you would wish so do your own work
00:53:24
come up with your own thing I think
00:53:26
that's one of the um learning curves
00:53:30
that newer Traders
00:53:32
underestimate is that they don't give a
00:53:36
strategy enough time and they don't give
00:53:38
it enough time to try different hats on
00:53:42
are you going to be a breakout Trader
00:53:44
are you going to be a momentum Trader do
00:53:46
you like this short-term relative
00:53:48
strength work and it just takes much
00:53:50
longer than anybody thinks I had a
00:53:53
friend who um you know he had sold his
00:53:58
um engineering firm this is like many
00:54:00
decades ago he's long past but he would
00:54:04
his his cousin was the largest Trader in
00:54:06
the gold pit at the time so he was
00:54:09
always uh very enthralled with the
00:54:11
markets and he would subscribe to a
00:54:15
strategy like for example Steve Moore's
00:54:18
seasonals or a volatility breakout
00:54:21
system or this style and he would give
00:54:23
it three months you know to really
00:54:27
evaluate It ultimately he settled on day
00:54:32
trading the snps and he was the one in
00:54:34
that street smarts book that came up
00:54:36
with the three little Indians uh pattern
00:54:39
which is just three pushes at the end of
00:54:41
a swing but it took him a long time to
00:54:44
arrive at that once he feels comfortable
00:54:46
with that that's all he did and that's
00:54:49
where you really start to make the money
00:54:51
is being consistent so a consistent
00:54:54
process for your nightly preparation it
00:54:57
will keep you from getting too impulsive
00:55:00
the next day and you are the least
00:55:04
biased if you do your homework after the
00:55:06
markets are closed all right so be
00:55:09
conscious about these types of things so
00:55:12
just to summarize because we do want to
00:55:15
have some time for questions here and I
00:55:17
told Gary I would keep this or told
00:55:19
Richard I would keep this under an hour
00:55:21
so there's many ways to use relative
00:55:23
strength but for short-term trades as
00:55:25
well as string trades and portfolio
00:55:27
positions you can greatly improve your
00:55:29
results by finding a process that helps
00:55:32
quantify that market environment or just
00:55:35
pure observations studying examples in
00:55:37
the past Gary Anderson showed us the way
00:55:40
that he prefers to do it in his book
00:55:42
with the relative strength leaders and
00:55:44
laggards and the spread but there's
00:55:46
multiple ways that you can quantify the
00:55:49
level of noise in the market environment
00:55:52
um gartly is another another classic
00:55:56
technician that you should all study if
00:55:58
you like the technicals because he
00:56:00
contributed a lot with volume but he was
00:56:02
one of the first to Pioneer relative
00:56:05
strength work but he abandoned all his
00:56:08
work in the 1930s and 40s because it
00:56:10
stopped working remember that flat
00:56:13
period there where Jesse Livermore went
00:56:15
broke that was almost two decades where
00:56:17
it just fell on its face but on the
00:56:20
other hand Robert Levy the other fellow
00:56:22
that you should definitely get his book
00:56:24
said the historically strongest stocks
00:56:27
produced the best future results and the
00:56:29
weakest stocks preferred the worst and
00:56:33
he was looking at the
00:56:35
1960s so take all that to heart and I've
00:56:39
got plenty of time for questions thank
00:56:42
you yeah great Linda thank you so much
00:56:45
for for putting that together uh some
00:56:47
extremely important points and I'm sure
00:56:48
everybody watching got some great
00:56:50
takeaways um we'll go ahead and start
00:56:52
with a Q&A I've got some questions to
00:56:54
kick things off
00:56:55
but if anybody watching has some
00:56:56
questions for Linda this is the perfect
00:56:58
time to drop them in the chat I already
00:57:00
see a few coming in here so we'll get to
00:57:02
those in just a second uh but first see
00:57:04
the chat uh if you go to the URL you can
00:57:08
um if you'd like to no that's okay I'll
00:57:11
rely on you all right all right cool um
00:57:14
to kick things off um to your point of
00:57:16
doing your work and also I I liked your
00:57:20
uh your bit about you know each year you
00:57:23
print out a chart of of all all the
00:57:25
markets and really study it could you
00:57:27
could you talk about um or or give any
00:57:29
advice to traders who want to do that
00:57:32
type of work study a process um do you
00:57:35
have any advice for uh I guess having
00:57:38
better deliberate practice in that sense
00:57:40
and getting the most out of that and
00:57:42
applying it to their
00:57:44
training so interestingly when I was a
00:57:46
member of the MTA I went to their annual
00:57:48
conference which was in Santa Barbara at
00:57:50
the time very nice place to be and heard
00:57:53
a very powerful speech by by uh Frank
00:57:56
hudin Frank excuse me Hank Pruden see
00:57:59
this is what happens when I talk too
00:58:01
long Hank Pruden was probably the
00:58:04
world's top yof
00:58:06
afficianado and his topic was doing your
00:58:10
own work you know you are your best own
00:58:14
best client you'll do your own work with
00:58:16
closed doors and closed windows in other
00:58:19
words isolated from all other opinions
00:58:21
and distractions and then later I found
00:58:24
out that this was put out first by wof
00:58:27
okay that you need to do your own work
00:58:30
free of all other input and
00:58:32
distractions and um that's the first
00:58:36
part of it the second part of it is I
00:58:39
have logged numbers for ages uh I I had
00:58:43
to stop about 10 years ago because I was
00:58:47
getting a a problem with my joint in my
00:58:50
thumb but since you can see my slide up
00:58:53
I'll show you what I was was doing by
00:58:55
hand probably for a good solid 30 years
00:59:01
and uh see I can just this is pretty
00:59:04
cool being on Zoom I can just slide this
00:59:07
over assuming it comes up here Excel not
00:59:10
responding okay yeah right now right now
00:59:13
I still see oh there it is there it is
00:59:15
it just came up yeah popped up so this
00:59:17
is an Excel spreadsheet and I use a dll
00:59:20
link to extract the data from cqg so you
00:59:24
can do this with trade station several
00:59:26
different software products you know
00:59:28
suck the data out and then put it into
00:59:31
someplace else so I would essentially
00:59:34
write down let get the snps up here
00:59:38
write down the closing price this is the
00:59:41
two period rate of change the most
00:59:43
important variable for me uh this was
00:59:46
the pinball cell column we don't need
00:59:49
that 5 SMA thing there and we don't need
00:59:53
that oscillator thing this is just the
00:59:55
closes above or below the five smas so
00:59:58
you can see right now the snps have had
01:00:01
five closes above the 5 SMA we can see
01:00:05
this momentum reading of plus 100 is
01:00:09
greater than all these other previous
01:00:11
readings till we get down here um you
01:00:14
can also see that uh you know there's
01:00:17
several little subtle patterns here
01:00:20
these two pf3 is up that I was talking
01:00:22
about where I gave it everything you
01:00:24
could to the upside we closed at
01:00:28
4215 and then we had to consolidate for
01:00:31
two days actually three four five six
01:00:35
seven before we caught a bit again so I
01:00:38
used to do this for probably 25 markets
01:00:42
every day and now you can see I just
01:00:45
have it all in an Excel spreadsheet but
01:00:48
what I did then was to consolidate this
01:00:52
all onto one sheet here so so I can just
01:00:55
print out this is just because we
01:00:57
haven't started trading it um in these
01:00:59
two markets the boons and the Dax they
01:01:01
open up a little bit later same with the
01:01:03
grains so I could put them all on one
01:01:06
window but just to let you know I would
01:01:09
write down every single one of these by
01:01:13
hand and so I had to uh get creative
01:01:16
here and uh find another way to do that
01:01:19
the best way I look this is after I've
01:01:22
logged all my numbers which could take a
01:01:24
25 minutes and it's grunt I hate doing
01:01:28
it I really do it's like my least
01:01:30
favorite part of my job but there is
01:01:32
something where you write down with
01:01:35
pencil that goes to the brain and you
01:01:37
remember it as opposed to just looking
01:01:40
at some spreadsheet like this so what I
01:01:43
also do is I print out charts that are
01:01:47
just daily charts daily Candlestick
01:01:49
charts and then I'll just make a little
01:01:51
notation on the chart and then that
01:01:54
takes the replacement of this so that
01:01:57
was just one creative way of writing
01:02:01
down this data now you certainly do not
01:02:03
have to do so many markets you could
01:02:05
certainly just write down the S&P index
01:02:07
and that is what I did for the very
01:02:11
first uh year that I started logging
01:02:14
these
01:02:15
numbers and where I got the idea was
01:02:19
from Taylor trading technique my
01:02:22
all-time favorite book and you can go in
01:02:25
there and I do not understand his little
01:02:28
squiggles and gyration and how the hell
01:02:31
he was calculating these things they
01:02:32
make no sense to me but it was his way
01:02:37
of seeing things at a time where they
01:02:39
didn't have charts they didn't have
01:02:41
computers and he was just trying to keep
01:02:44
some Rhythm there so I never went to his
01:02:48
method of his little weird you know the
01:02:50
difference between the high and the
01:02:52
previous days low but I did start
01:02:55
writing down these things
01:02:57
and in the back of that George Douglas
01:03:01
Taylor trading technique was a brief
01:03:04
article by
01:03:07
um oh shoot can't remember his name
01:03:11
right now I always believe in giving
01:03:12
everybody credit my my book right here
01:03:17
somewhere I usually have five dozen
01:03:20
copies around the office but uh that's
01:03:23
okay oh George Andel George Andel that
01:03:26
was it and so he started talking about
01:03:29
the two period rate of change and he had
01:03:31
his little metrics for uh I don't know
01:03:34
monitoring if it was a you know big high
01:03:36
to low day or so forth and so forth so
01:03:39
that's where I just fell into the habit
01:03:41
of doing this and um yeah I I think it
01:03:45
really works you know writing stuff down
01:03:47
by hand so you can pick anything I just
01:03:49
pick the snps and I used to write down
01:03:52
the Open high low
01:03:54
close probably Overkill open high low
01:03:58
close two period rate of change and and
01:04:00
I'd also put like a little circle if it
01:04:03
was what I call a three bar triangle or
01:04:06
three price bars of overlap because then
01:04:09
the trend has come into balance and I
01:04:12
found that I can't predict the outcome
01:04:15
at those points you can't predict if
01:04:17
it's going to go down or you can't
01:04:19
predict if it's going to go up but you
01:04:21
do know if it starts Trading above that
01:04:24
first hour's range or below that first
01:04:27
hour's range you just want to be on
01:04:29
board and you can just enter at the
01:04:31
market and half the time um it really
01:04:34
needs to keep going you can pretty much
01:04:36
pull your stop down to even a break even
01:04:38
after three hours if it's working and if
01:04:40
it's not working you know you just
01:04:42
scratch it or take a small Nick and it
01:04:45
actually works fairly well in stocks if
01:04:47
you go back and study that yeah
01:04:50
fantastic and to calculate the two-day
01:04:52
rate of change is it the
01:04:55
um is it as simple as the close divided
01:04:58
by the close two days ago and then the
01:05:00
the percent change divided by it's
01:05:02
taking today's close minus the close two
01:05:06
days ago gotcha and you'll see on most
01:05:09
software programs it's labeled either
01:05:13
rate of change or momentum they're
01:05:15
essentially the same thing yeah perfect
01:05:18
that's helpful um are there any other uh
01:05:21
parts of that indicator that you find
01:05:23
people get confused about when it comes
01:05:25
to calculating it the the oscillator
01:05:27
that you fabricated that I'm sure a lot
01:05:29
of people might want to investigate that
01:05:31
and and see if it works for them um so
01:05:33
any any advice oscillator yeah yeah so
01:05:37
interestingly I did not create that um
01:05:40
that came from a company called security
01:05:43
market research and uh oh my
01:05:47
goodness so many Traders used to
01:05:49
subscribe to that back in the uh good
01:05:51
old days um you know Williams uh who's
01:05:56
the uh very vocal guy that
01:06:01
um pitbull wrote Pitbull Marty Schwarz
01:06:05
yeah Marty Schwarz yeah so that's what
01:06:07
we used back in those days and they
01:06:09
would overnight us the new set of charts
01:06:12
um each weekend and then during the day
01:06:15
we could update them and you could get
01:06:17
the plot you call on the telephone just
01:06:19
like you would for a hotline and you had
01:06:21
a little worksheet and it would read off
01:06:23
the numeric values for each of those but
01:06:26
what they did is they normalized it in
01:06:30
slightly different ways that you
01:06:32
wouldn't ever have a zero thing and so
01:06:35
the the values were never the same as on
01:06:37
the charts and then I just figured it
01:06:39
out like this is just the difference of
01:06:42
a three and 10 period simple moving
01:06:44
average but it took me like 10 years to
01:06:46
figure that out they had had a good one
01:06:48
on me um you really oscillators are just
01:06:53
based on the price so I can create a
01:06:55
stochastic that looks near identical to
01:06:57
the 310 oscillator the 310 has a little
01:07:00
bit more definition because it's not a
01:07:02
banded oscillator like the stochastic
01:07:05
everybody finds their own little tool
01:07:08
you know and you only need one yeah
01:07:11
perfect and uh there's a good question
01:07:12
from Ro Roberto Wilco and I actually
01:07:14
have the same question here uh Linda how
01:07:17
has your trading change over the years
01:07:19
uh and are you using these same
01:07:21
techniques and strategies or have you
01:07:23
adapted different
01:07:25
markets um well two things you know when
01:07:29
I had my hedge fund I had uh the
01:07:32
opportunity to do a lot more strategies
01:07:35
I had two assistants I had somebody
01:07:37
doing my execution so I could trade a
01:07:40
lot more markets if I try to do that by
01:07:42
myself I will I will so get into
01:07:45
trouble um I'm not a very good stock
01:07:48
Trader short term I mean it just is a
01:07:50
distraction for me so I really
01:07:52
concentrate on the Futures that that's
01:07:54
my bread and butter and where I get the
01:07:56
most bang for the buck I would say that
01:07:59
um in terms of what's changed very
01:08:03
little with my original strategies I was
01:08:05
so influenced by that you know in one
01:08:08
day out the next day style that uh
01:08:11
volatility breakout players like you
01:08:14
know Larry Williams or Toby krael or
01:08:16
these types of uh people they were so
01:08:19
popular in the
01:08:20
1980s and um I think we were way head of
01:08:24
the curve with the equity Traders now
01:08:26
the equity Traders have caught on to
01:08:28
quantifying things a lot more I would
01:08:30
say the biggest thing that's trading now
01:08:32
is that I tend to put positions on at
01:08:35
Asia opening you know so I might have a
01:08:39
signal that says wow this next day is
01:08:41
going to be a strong buying day but I
01:08:44
might come in the next morning it might
01:08:46
have already been well marked up in Asia
01:08:48
and Europe so then it's still a buy day
01:08:52
but sometimes you can short it for first
01:08:54
and catch a little down and then try
01:08:57
buying the pullback so um the
01:09:01
24hour phenomena did you know make
01:09:04
things more complicated I just don't
01:09:07
trade them if they've left me in the
01:09:09
dust or I don't want to bother so if you
01:09:11
have enough setups you know each day by
01:09:14
maybe that I mean maybe 10 you know or
01:09:17
10 or 12 on your list and you capture
01:09:20
two or three of them I I mean for me
01:09:23
I'll get into Trouble Over trading and
01:09:25
I'll get into trouble having too many
01:09:27
positions on so I've throttled things
01:09:29
way back you know I'm supposed to be
01:09:31
retired but here I am in front of my
01:09:33
screens every day and I I closed my
01:09:35
hedge fund down like I don't know eight
01:09:37
years ago
01:09:38
so it's nice yeah there you go perfect
01:09:42
no regulatory
01:09:44
stuff and my favorite question to to ask
01:09:48
Traders um is about their routines and
01:09:51
kind of their prep work uh so would you
01:09:53
be willing to kind of walk through your
01:09:54
day and kind of how you go about you
01:09:56
know preparing for the trading day and
01:09:59
all the way up to you know executing a
01:10:01
trade what's kind of your process there
01:10:03
and what are what's kind of the
01:10:04
checklist that you run through each
01:10:06
time well at night I print off my sheets
01:10:08
so I have my trading sheets where uh
01:10:11
it's very very simple I'll just put you
01:10:13
know buy day or breakout mode or exit
01:10:18
you know if I have a position on I mean
01:10:20
I really keep it down to two or three
01:10:22
words I find that my head if I just
01:10:24
write down too much and try to analyze
01:10:26
too much it's all goes out the window so
01:10:29
just the simplest cue that I can take
01:10:32
off and then when the Mark I I I try to
01:10:36
sit down at uh 8 AM eastern time I'm
01:10:39
always at my desk then because um I used
01:10:43
to trade the bonds real regularly and um
01:10:46
they'd have a time of day function
01:10:48
because your uh Europeans would be going
01:10:51
to lunch you know and there'd always be
01:10:53
an infl in lection point uh around that
01:10:56
period plus or minus 20 minutes same
01:10:58
thing with gold it would have an
01:10:59
inflection point and over time these
01:11:01
inflection points have changed a little
01:11:03
bit now gold and silver can actually
01:11:05
flush down in the first hour a lot more
01:11:08
than they used to uh but I I have a
01:11:12
chart that's like all the little five
01:11:13
minute charts and I have a line that's
01:11:16
plotted there as to the 8 A.M opening so
01:11:20
I have not only the 8 A.M Eastern time
01:11:24
opening but I also have a chart that
01:11:27
shows all of these markets pit session
01:11:30
data only so you can see pretty quickly
01:11:34
um at 8 AM if I have a market that gaps
01:11:37
up even if it's the snps or the nas in
01:11:39
Europe's not even open yet and they do
01:11:42
three bars up off of that opening price
01:11:46
that's very likelihood it's going to be
01:11:47
a strong Trend up this it's so funny I
01:11:50
don't know what it is about those three
01:11:51
five minute consecutive bars bars and
01:11:54
then likewise um if there's a gap you
01:11:58
know does it retrace partly into the Gap
01:12:02
and it is all just everybody's so
01:12:03
familiar with trading these gaps now
01:12:05
does it hold or is it you know going to
01:12:07
partially fill and then off to the races
01:12:10
so we learn a lot just from that and
01:12:12
I'll try to identify the the few markets
01:12:16
that look like they're going to be the
01:12:17
strongest off the opening price or or
01:12:19
the weakest and again this is 8 A.M it
01:12:21
doesn't matter that the NYS see isn't
01:12:24
open it really doesn't matter because
01:12:26
I'll ceue off the Dax and I find that
01:12:29
the the patterns in the Dax you know
01:12:31
just stay true to the snps you know the
01:12:34
five and 30 and one 120 minute if
01:12:36
there's divergences or you know that
01:12:38
kind of stuff and then um you know it's
01:12:43
uh I I I I would try to sit and just you
01:12:48
know watch and uh usually if I saw a
01:12:53
little little Flur in activity or
01:12:55
something that was in the direction of
01:12:56
my bias I just buy it at the market so
01:12:58
I'm not trying to move the sides that I
01:13:01
did when I have the had the fund you
01:13:03
know so I'm like get the trade
01:13:06
on and um lately the past year I have
01:13:10
been playing tennis in the middle of the
01:13:12
day there you go so you know I don't get
01:13:15
quite as leveraged as and and uh trading
01:13:18
as I I used to so I've stepped back a
01:13:22
bit I'm supposed to be
01:13:24
chilling you know but it's fun you know
01:13:27
here's the problem it is it is a really
01:13:29
fun game and especially when you have
01:13:32
your style and your strategy down you
01:13:34
know and and you know you know you've
01:13:37
got the tiger by the tail but it does
01:13:40
it's um even though I've been doing it
01:13:42
all those years it still takes an hour
01:13:45
every evening for me to do my prep and
01:13:48
if I'm not going to do that hour prep in
01:13:51
the evening I'm uh probably not going to
01:13:53
trade much the next
01:13:57
day I Know Myself by now I'll start to
01:14:00
get reactive yeah yeah perfect um and
01:14:04
looking back on your trading career
01:14:06
especially as you're kind of developing
01:14:07
your strategy and your method um were
01:14:10
there any kind of key turning points
01:14:12
where your performance really you turned
01:14:14
a corner um you know maybe it was a
01:14:17
trade that kind of shifted things for
01:14:19
you uh where you made a realization and
01:14:21
any any like stories or anything like
01:14:23
that come to
01:14:24
mind sure well two key things you know I
01:14:27
started off in the options pit so I was
01:14:30
first on on the Pacific coast Stock
01:14:32
Exchange and then I was on the
01:14:35
Philadelphia Stock Exchange and back in
01:14:38
those days you know the market makers's
01:14:40
function you're standing in the pit and
01:14:43
you're you're forced to fill the paper
01:14:46
you know the broker comes in you have to
01:14:48
make a two-sided Market you don't know
01:14:50
if he's a buyer or seller although
01:14:51
generally you do and and um you know so
01:14:56
you have to make an offer and it's
01:14:59
usually sometimes it's when the Market's
01:15:01
really going up you know so you have to
01:15:03
figure out how to position yourself
01:15:04
ahead of time long gamma to take
01:15:06
advantage of that or be very good at
01:15:09
hedging quickly with stock because it's
01:15:12
not like there's
01:15:13
two-sided uh paper like you would have
01:15:16
in the Futures you know the Futures it's
01:15:17
constantly bides bides bides but we
01:15:20
would have periods where the Brokers
01:15:22
would walk into the pit and all they
01:15:24
want to do is sell the premiums because
01:15:27
they're bu writers you know bu right bu
01:15:28
right so everybody ends up choking on
01:15:31
these same
01:15:32
positions and
01:15:34
um so therefore my initial conditioning
01:15:38
was very counter Trend and I like
01:15:41
everybody else would get run over twice
01:15:44
a month by a strong Trend date you know
01:15:47
although it still made money well
01:15:49
because it was a lucrative uh
01:15:51
inefficient Market at the time but then
01:15:54
when I started managing money you cannot
01:15:57
be that Nimble when you're trading you
01:16:00
know some size and I I thought you know
01:16:03
I have to switch my thinking I really
01:16:05
have to do a reversal and figure how to
01:16:08
be on the right side of a trend day and
01:16:11
never get caught into averaging never
01:16:13
never never that's my Golden Rule um and
01:16:17
so one of the ways that helped me was
01:16:20
just trading a canned volatility
01:16:23
breakout system from a friend Bob uran
01:16:26
and you start to get a better sense of
01:16:28
the statistics oh I only need like 20%
01:16:32
huge wins and everything else kind of
01:16:34
washes out a little bit you just have
01:16:36
these gifts you know like four trading
01:16:38
days a year could make your entire year
01:16:40
it was crazy so I thought ah you know I
01:16:43
need to be mindful of this range
01:16:46
expansion concept so that was one uh
01:16:50
really good turning point and um
01:16:56
H I would say that was probably the most
01:16:58
important thing figuring out how to
01:17:00
capture a trend day instead of you know
01:17:03
being the market maker upstairs thing
01:17:05
which just does not work for me yeah
01:17:08
perfect and with regards to learning
01:17:12
more about risk management and kind of
01:17:14
mastering that side of things were there
01:17:16
any kind of big losses that impacted you
01:17:19
uh in a large way or um how how did you
01:17:22
go about learning risk management and
01:17:23
learning its importance in your
01:17:26
trading oh I have to tell you there were
01:17:29
periods where I was absolutely the worst
01:17:30
risk management you know horror stories
01:17:33
you know and I think I put some of them
01:17:35
in that trading sardines book you know
01:17:37
where I was short all this way out of
01:17:39
the money uh premium in I don't know if
01:17:41
it was the 10 year or the 30-year notes
01:17:43
at the time and this was at the you know
01:17:46
time when the Fed was playing Hanky
01:17:48
Panky with everything and you know I got
01:17:50
caught in one of those little positive
01:17:53
feedback Cycles because everybody was
01:17:55
short derivatives and the bonds are
01:17:56
notorious for that and I was over in
01:17:59
Hong Kong and staying up all night and
01:18:02
it's just the I don't know somehow I
01:18:04
managed to trade my way out of that and
01:18:06
just scratch the whole thing I have no
01:18:09
idea how my first always thing if I'm
01:18:12
caught on something like that just a a
01:18:15
Black Swan or something that you can't
01:18:18
see and keep in mind I I could not put
01:18:21
stops in because I might have 600
01:18:24
contracts in a particular position and
01:18:27
you can't use stops like that you just
01:18:29
have to have your levels where you're
01:18:30
going to stop you know where you're
01:18:32
going to start getting smaller but I
01:18:34
found that if I could take off part of
01:18:37
the position right away you know um then
01:18:41
I could reinitiate it at a much better
01:18:43
price so that was one saving grace and
01:18:46
the other Saving Grace was that I really
01:18:49
traded on fairly low leverage I think
01:18:51
people would be shocked at what low
01:18:52
leverage I use you know one contract per
01:18:55
100,000 you know dollars that that type
01:18:58
of stuff so that's always I always had a
01:19:00
unit size and um I would say that most
01:19:04
of my career as a fund manager I never
01:19:07
really had more than a a 2% draw down
01:19:11
you know in one day except for this time
01:19:14
that I got caught where the snps gapped
01:19:17
higher and I had just put on a big short
01:19:19
position that Friday you know and they
01:19:22
came out and you know made some random
01:19:24
freak announcement and the markets
01:19:27
opened up 40 s smps higher against me
01:19:29
and I think I was short couple hundred
01:19:31
snps and a couple Russell and I'm like
01:19:34
ah you know yeah but I I ended up only
01:19:37
really you know at at its extreme it was
01:19:41
about a 4% loss but it was a big dollar
01:19:44
amount very big dollar amount it's like
01:19:46
four million dollars and like opening up
01:19:49
on Sunday night but you know what do you
01:19:51
do get smaller to the point where you
01:19:54
can trade again and I think over time
01:19:58
every Trader just starts to get
01:20:00
desensitized to these things and you
01:20:02
just don't want to use big leverage if
01:20:05
you are newer you know just stay small
01:20:09
because I'll tell you one last story
01:20:11
this is a really good one um when I was
01:20:13
at the Philadelphia Stock Exchange Jeff
01:20:16
Yas was there trading at the same time
01:20:18
Jeff went off to form sesana he's
01:20:21
basically a billionaire because I think
01:20:22
they sold out to Swiss I don't know one
01:20:25
of the other big biggies there and Jeff
01:20:29
is super Savvy he's probably the
01:20:32
smartest guy I have ever seen in terms
01:20:35
of processing data I I've never seen
01:20:37
anybody come close to Jeff yoss and um
01:20:42
he was a very astute poker player I mean
01:20:46
he could play in the Championships in
01:20:48
Las Vegas and he um would always have
01:20:53
his groups of Traders play poker after
01:20:55
the market Clos and he would kind of
01:20:57
supervise them you know to see how
01:20:59
they're doing because he felt that was
01:21:00
the best way to learn about risk
01:21:03
management and so um he uh he said that
01:21:10
if you bet too small you're not going to
01:21:13
play a good game so if you're trading in
01:21:17
the markets and you have an account size
01:21:19
of
01:21:20
$200,000 and you're trading one em okay
01:21:23
it's not going to mean anything it's not
01:21:24
going to hurt you're not going to be as
01:21:26
attentive to it okay so on the other
01:21:30
hand if you trade too big now all of a
01:21:32
sudden you've introduced this variable
01:21:34
of fear so you need to really think
01:21:38
about what is proportional to your
01:21:40
trading account in terms of your unit
01:21:42
size and you can do the same thing with
01:21:44
stocks you know what's what's your
01:21:46
average line that you use and the price
01:21:48
of the stock and so forth and uh I I I
01:21:52
think I think that's really important
01:21:53
for people to recognize don't trade too
01:21:55
small because you'll be ridiculously
01:21:57
sloppy and and don't trade too big
01:22:00
because you'll just make uh unforced
01:22:03
errors yeah for sure uh Linda this has
01:22:05
been really great I think I just have
01:22:07
kind of one last question for you uh you
01:22:09
mentioned never averaging down is kind
01:22:11
of a golden rule of yours uh are there
01:22:13
any other kind of uh golden rules that
01:22:15
you abide by that you think are really
01:22:17
important for for Traders out there to
01:22:19
hear oh man I I just like something
01:22:23
doesn't feel comfortable it's starting
01:22:24
to go against me I love my flatten
01:22:26
button I am I'm in Dent to that flatten
01:22:29
button boom flatten it's like off my you
01:22:32
know off my p&l off I don't see the
01:22:34
trade anymore and then like I said if I
01:22:37
really feel like I did that in a little
01:22:39
bit of a selling into the hole you know
01:22:42
I can always Reby it back so I I love
01:22:45
the flatten button yeah perfect uh well
01:22:49
Linda thanks again for taking the time
01:22:50
for putting this together and for
01:22:51
joining us today today and for answering
01:22:53
all these questions uh I really
01:22:54
appreciate it I think everybody watching
01:22:56
had a great time as well and took
01:22:57
something away as I can see from the
01:22:59
chat um where can people learn more uh
01:23:02
from you your style uh what what other
01:23:04
resources would you point everybody
01:23:06
watching
01:23:07
towards oh my gosh I have so many
01:23:10
YouTube videos I've made out there like
01:23:13
long ones 45 minutes an hour of webinars
01:23:16
taped for free you
01:23:18
know it's all free you don't even have
01:23:20
to subscribe to anything to get access
01:23:23
to them it's just go on the internet and
01:23:25
Google uh you know Linda rashki YouTube
01:23:27
or something you'll see dozens of little
01:23:30
things you'll see a common theme through
01:23:32
most of them too yeah great well Linda
01:23:35
thanks again uh for the time for
01:23:37
everybody watching make sure leave a
01:23:38
like down below subscribe to the
01:23:40
[Music]
01:23:51
channel
01:23:54
no

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trading
relative strength
market environments
Linda Raschke
Janus Factor
trend-following
contrarian strategy
market analysis
self-discipline
trading strategies