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Hi Diceman,
There was a discussion awhile back about the merits of going long in a bear market. I defended "the trend is your friend" method tooth and nail. Bulkowski was brought in as saying you could make the most money going long in a bear market and at the time i could not figure out why.
As with most discussions that have changed my perspective, this one stuck with me. It continued to stick because there was a lesson there that i could not wrap my head around. This morning something clicked.
For the last couple weeks i have been seeing astounding returns in stocks that have been sevearly beaten down. Returns of 100, 200, 300% in the time span of a couple weeks. I even nabbed a few decent trades in lower priced stocks (50% in SPSN and 20% in LEA). These trades were both less than 1 week. 70% in a week to me is FAST.
I then began looking at charts during the 2000 drop. Here is a chart of SIRI that typifies what I saw:
Here, a perfect short sale in SIRI during the 3 year bear market would have netted just over 98%. That's a good trade, but something stood out to me: the counter trend reactions. Measuring the gains possible during those reactions I came to see this:
If the counter trend reactions were traded perfectly there was a possible gain available of 665%, In 1/3 of the time.
Now, I understand that these are perfect trades, and I for one, do not trade perfectly. But given there was 665% available, I would like to think I would be able to take a decent size chunk out of that.
And this happens in all bear markets. And it uses price decay in favor of the trader. If a stock drops from 100 to 50 which is a 50% drop, it takes 100% to gain it back. the good news for the long is it only takes a $25 dollar gain to make that 50%.
For me, this has been an enlightening experience. And I appreciate the insight. Thank you.
David John Hall
P.S. I would be very interested to hear opposing thoughts as my main goal here is enlightenment and continued education.
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Registered User
Joined: 9/25/2007
Posts: 1,506
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No opposing thoughts ...
But one thought regarding cause & effect ...
Much of what we are seeing are short covering rallies ...
Changing the rules on short-selling ... in an attempt to mute the downside ... will also very likely have the same effect to the upside ...
In the end ... short-selling does not change the underlying value of the company ... or the eventual "resting price" of the security ... only the speed at which it reaches that price ...
There has been much talk of PONZI schemes of late ...
And although there is an element of a stock's price that represents underlying fair value ... everything above that is nothing more than PONZI scheme ...
Our govt is seeking to increase that latter element ...
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Joined: 12/19/2004
Posts: 415
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The trick is of course "knowing" when to buy the dips in a disastrous stock like this. Personally I was never good at picking them, they always continued going down forcing me to sell at lower prices or hang on and "hope" for a recovery. My retirement accounts have too many of those "hopes" still left.
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Joined: 6/6/2005
Posts: 1,157
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Hi Ben, thanks for your opinion. Once I remove the sarcasm and the angst from it, I was left with this:
Certainly a good point. I can see that more than the 96% was available, but certainly not more than 665%. And yet again, the time cost is greater.
I appreciate that you obviously enjoy short selling, I'm not here to tell anyone how to trade, just pointing out the results of a little fact finding mission that had been pointed out recently, and confirmed by the Thomas Bulkowski author of The Encyclopedia of Trading Patterns among numerous other books. He confirmed to me persoanlly through email that his research showed there is more money to be made going long in a bear market.
You can argue this fact all you want -- I certinly did -- but eventually the numbers speak for themselves.
Also, please note that this was not my trade. This was used for the purposes of highlighting a possible trade. And finally, if you want to post a reply, why not offer some examples so that you might enrich the thread instead of simply hurling insults. I don't know if the bear market has gotten everyone so grumpy but I am tired of angst driven replies.
David John Hall
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Joined: 12/8/2004
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BenBellini = ??BB??
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Hi Ben,
On a second reading of your post, I'm not sure about this comment:
It is easy to see that every down leg is longer than any up leg of that chart for the period given.
I'm not sure that a longer move down equals more profits. I'm not out there looking for long moves. I'm looking for profitable moves. Maybe I am missreading this. Do you mean that the trader would have more of a chance to take a position? Thanks.
David John Hall
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LOL jack,
It just might be. That's fine. I'm okay with all opinions. That might explain the angst and sarcasm though. :)
David John Hall
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Hi bknight,
I agree with you, it is a diffcult task -- knowing when a reversal is in place. I have found that switching to shorter time frames during the bear has helped me all around. What looks like a fast V bottom on a daily chart might be a nice W bottom on a 30 minute chart that is very tradable.
This coupled with sentiment, looking for recersals at panic stages, could provide nice opportunities. For the sort seller, this is the time they cover longs and wait for corrections to play out. I say, why not take a few small long positions instead of simply covering shorts?
Not like I'm an expert when it comes to trading bear markets, this is the first one I've been through. But I am learning a lot (hope that never stops) andI have found though that opening my mind up to the possibility of short AND long positions during any market has helped my trading quite a bit.
David John Hall
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Above was supposed to read...
'this is the time they cover SHORTS and wait for corrections to play out.
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Registered User
Joined: 10/7/2004
Posts: 264
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IMHO, trading long or short in a bull or bear market is irrelevant. What is relevant is whether you are trading with the trend or against the trend. In a bear market, the trend is obviously down. Thus, any long trades are counter trend and your targets and profits should be taken relatively quickly. Trading short, with the down trend allows you to let your winners run, for larger gains. Revers for a bull market. There is less room for error trading counter trend. Trading with the trend is much more forgiving, imo. Good luck.
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Joined: 10/7/2004
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Golfman has a great point. I've been having some success lately and I can say that even though some of my selections, given enough time have approached or exceeded 3 digit gains, I've been planning to get in and back out within a few days. I guess I've been trading with the mini-trend within the trend.
I can certainly say that this is the most profitable I have ever been and it's been going long (3-5 days at a time) in a bear market.
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Joined: 3/6/2009
Posts: 78
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hi davidjohnhall,
I read your interesting post and looked at it in a different view.
percentages can be deceiving so using dollar amounts, this is what
I came up with. trading with the trend results in almost twice the
profits from counter trades. of course this can only happen with
perfect entries and exits. could you please comment on this?
counter trades
label buy sell profit
81% 30.00 56.69 26.69
45% 20.50 35.25 14.75
142% 6.56 18.18 11.62
397% 2.30 13.05 10.75
-----------------------------
total 63.81
trend trades
label short cover profit
59% 69.44 30.00 39.44
73% 56.69 20.50 36.19
85% 35.25 6.56 28.69
94% 18.18 2.30 15.88
-----------------------------
total 120.20
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Registered User
Joined: 12/18/2008
Posts: 150
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there are always different sides to trading.. whether you only go long, only go short, or both...
some only go long because the market has an upside bias
some only go short because a 50% down move needs a 100% up move to recover
some trade both for the reasons i mentioned above :P
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Hi dryfess,
Thanks for the response. But percentages are not missleading to me. If you are trading 100 or 500 shares or 1000 shares each time then your numbers are correct. But I don't trade that way. I trade based on percentage risk to my account. Which means I take the distance to the stop and devide it by the % of my account I am risking. The % numbers I gave are correct for the way that I trade.
When I calculate the risk of the trade agaist my account I am given a dollar size of the position which I divide by the stock price.
Let's say for sake of example that my risk on these trades was 5% which allowed me to purchase $5,000.00 of stock per position. As you can see, the $ position stays the same and the number of shares would vary.
Actually, my position size is determined by current volatility, but this is just an example.
Long
5,000 * 81% 4050
5,000 * 45% 2250
5,000 * 142% 7100
5,000 * 397% 19850
-----------------------------
total 33,250
Short
5,000 * 59% 2950
5000 * 73% 3650
5000 * 85% 4250
5000 * 94% 4700
-----------------------------
total 15550
Once again, this is idealized trading, but explains why percentages are important to me.
Now, has everyone who has responded to this thread tried to trade this way or are we just discussing theory here? This thread started out as a thought but i will certainly be trading this way until I determine whether or not it is right for me.
So far I am only aware of tobydad trading this way and he is trading successfully.
David John Hall
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QUOTE (dryfess)
hi davidjohnhall,
I read your interesting post and looked at it in a different view.
percentages can be deceiving so using dollar amounts, this is what
I came up with. trading with the trend results in almost twice the
profits from counter trades. of course this can only happen with
perfect entries and exits. could you please comment on this?
counter trades
label buy sell profit
81% 30.00 56.69 26.69
45% 20.50 35.25 14.75
142% 6.56 18.18 11.62
397% 2.30 13.05 10.75
-----------------------------
total 63.81
trend trades
label short cover profit
59% 69.44 30.00 39.44
73% 56.69 20.50 36.19
85% 35.25 6.56 28.69
94% 18.18 2.30 15.88
-----------------------------
total 120.20
Dryfess,
let me admit right up front that I'm very tired so maybe I'm not even thinking clearly. But I don't think I'm off on this. Someone will let me know if I've figured this wrong.
Anyway, it seems to me that your calculations above are based on buying one share of each stock; or at least equal number of shares. But what if someone buys equal dollar amounts? This is how I work. The Bible says, "Give a portion to 7 and also to 8 for you do not know what evil may come upon the earth." So I try to divide up the portfolio in no less than 8 portions.
Now if we work with a sample 100,000 portfolio, that gives an average $12,500 per position. I already made one mistake and calculated based on $12,000 but that won't change the test results. Working with this approach, I calculate my entry price, to see how many shares I am going to purchase or sell short. Obviously, that dictates the number of shares I will have to sell or cover short for profit or loss.
Using your numbers, and keeping a consistent dollar amount, I believe the long positions win handily.
wse has hit the nail on the head in that one can make a profit either way and should work with the approach with which one is the most comfortable, knowledgable and skilled. But as far as the sheer numbers are concerned, higher percentage is higher percentage; I'm not sure how higher percentage, all other factors being equal cannot yield greater profit.
Someone please help me understand if I'm missing something here. I've given examples below using your numbers.
30.00 x 400 shr = 12,000 taken from 56.69 x 400 shr = 22,676 for 10,676 profit
20.50 x 580 shr = 11,890 taken from 35.25 x 580 shr = 20,445 for 8,555 profit
6.56 x 1830 shr= 12,005 taken from 18.18 x 1830 shr = 33,269 for 21,264 profit
2.30 x 5200 shr = 11,960 taken from 13.05 x 5200 shr = 67,860 for 55,900 profit
Total profit going long 108,400 profit
69.44 x 170 shr = 11,805 less 30.00 x 170 shr = 5100 for 6,705 profit
56.69 x 210 shr = 11,968 less 20.50 x 210 shr = 4305 for 7,663 profit
35.25 x 340 shr = 11,985 less 6.58 x 340 shr = 2237 for 9,748 profit
18.18 x 660 shr = 11,999 less 2.30 x 660 shr = 1518 for 10,481 profit
Total profit going short 34,597 profit
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Registered User
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Yes, of course, I am also assuming perfect entries and exits. As well, no consideration has been given to commissions. But omitting these from my results only keeps the report consistent with the foregoing.
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Registered User
Joined: 10/7/2004
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By the way, wish I had been in these trades....
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One other note, Ben Bellini (hmmm, jack, good point...BB??...who knows anymore...so many alter egos around here I feel like it's the twilight zone) could have been going short and long in the example David mapped out on his chart. Why not double up the profits.
Once again, the whole point? do what makes sense. Just as people say, don't fight the trend. Well, I would add, don't fight the percentages. Whatever ethically makes you the most money with the least effort in the shortest time seems to me to be the ticket to which we all aspire.
Please note, emphasis on "ethically".
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Joined: 3/6/2009
Posts: 78
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I see your point tobydad. good explanation.
question for david, I can see how you figure the % for the longs,
it is close enough for our examples, but how do you figure the %
for the shorts? for instance, my last figure short 18.18 and cover
at 2.30 is the same as buy at 2.30 and sell at 18.18 which could be
said to be 790% instead of 94%. How do you see this?
This is an interesting discussion and I wish some math experts would
chime in with their opinions.
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Dryfess;
I apologize, you ask David questions, then he opens his mouth and my voice comes out.
Anyway, I think what you have to account for in this instance is the fact that you sell short 660 shares for 18.18 (using my example above) and your broker is going to take that much cash or spending power from your account. I'm sure theoretical math experts could argue this up one wall and down the other but for all practical purposes, your actually making 87% profit on your money invested.
660x 18.18 less 660 x 2.30 = 10,481 (profit not including commissions) x 100 / 11,999 (original investment not including commissions) gives you your percentage of profit or about 87%.
At least from a business perspective you'd have to see it that way. And I don't know how else to see it other than from a business perspective.
Somebody please check me and see if I did that correctly.
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Hey Dryfess,
I'm not sure if I'm reading your question correctly so if I get this wrong, my appologies. The last leg down I have from 13.07 on 1/07/02 and a low of .65 on 8/16/02. This is a drop of 95%. The short could never drop more than 100% during any single stage. I am not sure what hyou mean about the 790%. It would be that much of a gain if it were going the other way but there is no reaction like that.
For the short I took 13.07 and subtracted .65, this gave me 12.42. This is then devided by 13.07 to let me know that the position would have gone down 95%. This would have been the gain on the short side.
I think tobydad's math might be more correct than I am. But (in my opinion) it's all close enough to highlight the idea.
I would also like to hear from the mathematicians.
David John Hall
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Joined: 1/28/2005
Posts: 6,049
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No problem davidjohnhall.
As I see it there are two worlds involved here.
Looking back stocks like: APOL, COCO, DRL during
the 2000/2002 bear look rather pedestrian.
They look like stocks would in a bull market. The only
"odd" thing is the background "noise" of a bear market.
Notice there is no bounce, rebound or short covering.
They are just stocks or sectors in there own upward trend.
(like a bull market)
If the news is the type that is "scary" gold will also typically
fall into this category.
Recently I've become interested in the explosive potential
of "cheaper"($2 to $5) stocks at short-term turning points.
Not only has this offered potential under these market
conditions but also in the pullbacks of bull markets.
One could argue that panic/bear selling actually makes this
more profitable.
(this came from meeting someone who's been very sucessful
at this over a number of years)
Obviously the second is much more of a counter-trend
type trade.
I can see now that tobydad has been aware of this for
quite some time.
(I just never realized what he was doing until now)
Thanks
diceman
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Joined: 3/6/2009
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another metric to consider in this discussion is actual trades. the figures given for buys and sells are in a perfect world. realistic trades would most likely be 20% slippage on the buy and the sell of the longer trends and would be more on the shorter counter trades. it does take a few bars to recognize a trade.
where are the mathematicians on this site.
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Well, anyone can theorize all they want but here are the facts, my group of pics from 3/04 is up 129% as of today's close; over 20 winners, no losers.
My group from 3/10 (many but not all the same) is up 115%
and so on. Most of these are cheap stocks (aren't they all these days?)
These were all long positions. We don't know if this will go on forever but for now, woohoo!
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BigBlock,
Thanks for your reply. It's much appreciated as it was yours and tobydad's discussion of these stocks and their corrections that initially prompted my deeper exploration and testing in this area.
Regarding the initial illustration -- I'm not sure if I get you -- 2000-2003 was a bear market unless I am mistaken and longer than our current one. If I am not reading this correctly, please let me know. but all of the information I have confrims 2000-2003 was a bear market. the Nasdaq lost 80% of it's value and as SIRI traded on that exchange I thought it might make a decent stock to highlight my thoughs.
As for readjusting position sizes, you are correct. I am. And it can get VERY pretty tiring, and no I am not automating it other than an excell spreadsheet, but the results are worth it as this works better for me than trading a fixed amount of shares.
And I agree 100% -- you could be correct as much as Bulkowski is correct. I think tobydad brings up a good poin t when he says we do what works for us. i am merely exploring different avenues of thought and keeping an open mind or expanding on tests with live trading to see if something works for me.
A majority of my portfolio follows the trend but certain conclusions I've drawn lately warrant a closer look.
David John Hall
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Congratualations, tobydad!
As far as I am concerned, there is nothing better than hearing about the successes of a fellow Worden trader. No doubt you have put in a lot of time and effort on your plan -- you have been helpful and gracious with your findings -- and I think it's fantastic that your method is coming together for you. In a year that has been filled with frustration and dissapointment for many your results are inspiring.
Congrats!
David John Hall
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David;
thanks.
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Joined: 3/21/2006
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Just another quick visit with my friends. Davidjohnhall you are still right that the trend is your friend. In any market however there are trends within trends and one can profit from these short term rides. Diceman trading pennies  now there is a new one. And the list I generated on your "pennies" thread has done very well to date. (I think just a product of this glorious bull rally within a bear market).
God bless and happy trades...
Apsll.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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"Well, anyone can theorize all they want but here are the facts, my group of pics from 3/04 is up 129% as of today's close; over 20 winners, no losers.
My group from 3/10 (many but not all the same) is up 115%
and so on. Most of these are cheap stocks (aren't they all these days?)
These were all long positions. We don't know if this will go on forever but for now, woohoo!"
-----------------------------------------------------------------------------------------
Now tobydad. We dont want to start soiling the board with facts.
Opinion is were its at. Thats what I hang my hat on, opinion.
I never let the facts get in the way.
Thanks
diceman
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Joined: 3/6/2009
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after studying counter trend trading in a bear market from statements made by davidjohnhall and tobydad; I believe that what they are saying does indeed have merit. then again, not everyone can make winning trades in a situation like that. I guess that's where the old saying comes from, "sit on your hands" until the bull comes back. congrats to davidjohnhall and tobydad.
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BigBlock;
The tops didn't burn me like a dragon from hell. I got out with double-digit gains on most of the positions within a week. Because, as I've said many times, one should not try to get all of the profits from a move. That said, the system I use, though you have tried numerous times to scare me and everyone else here, has worked quite well in 99% of the situations in which I've found myself.
But now let me ask you, why are you so intent on finding fault with everything everyone else does? What is your need? What is your motive?
Oh, and, no, you don't need to cut the percentages in at least half because the entire forum knows when I posted the lists and anyone can double check them.
Last item, I'm somewhat a topic of conversation lately because what I'm doing is working...for now. Eventually it will not work because that is how the markets work. Then my notoriety will fade and someone else with a system that is working will step into the spotlight and I will gladly be asking them for help and insights on what they are doing that is working. This is how a forum works; it's how it is supposed to work. Why don't you drop your quest for whatever it is that you're after and just come join us? You would be welcome. We can just put the past behind and move forward trading.
No need to reply to me. It's more important that you provide the answers to yourself.
Blessings.
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Registered User
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Quote BigBlock, BestBoy, BenBellini or whoever you are:
"We are not talking here about whether you can profit or not. Anyone can profit in any type of market within the correct time frame for whatever way they are trading.
We are talking here about ODDS."
Actually, yes, I am talking about profit. Why would I not be talking about profit? It's profit, pure and simple, that we all seek. Profit is profit. If I profit and I know how I profited and I know how to repeat the process than those are all the odds I need.
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QUOTE (BestBoy) When folks talk about 100, 200, 300% ..... profits - well I have been trading the markets long enough to know better. But hey don't take it personally - I wouldn't.
Have a look at the lists, see when they were posted, I cannot fake that. Check for yourself. It's not difficult.
Or do you have some other motive for challenging this? Ah, Shakespeare, methinks he dost protest too much.
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By the way, funny thing, you've never come after me before; why now? Because I'm getting some attention? Is that bothering you? Don't let it bug you, it will end soon enough. It's just the nature of things. I'll fade into the background as soon as these pops are over.
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Joined: 1/1/2005
Posts: 2,645
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Consider trading SIRI long each day from close-to-close beginning with the first peak on 02/17/00 and ending with the second peak on 09/28/00. The share price decreased over this interval, but the average daily return was positive.
Three types of daily trading are given and whether the result was a profit or loss.
1) Long a fixed number of shares each day. Result: A loss.
2) Long a fixed dollar amount each day. Result: A profit.
3) Long a fixed fraction of equity each day. Result: A profit if the fixed fraction was less than some critical value. A loss if the fixed fraction was greater than the critical value.
Type 3) is as considered in using the Kelly Criterion.
Any comments will be appreciated.
Thanks,
Jim Murphy
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