This volatile current market and The Robots

[manucastle]

To Pascal and Billy,

The recent comments from Dr Alexander Elder below ring very true for me and probably explain the performance of the Robot's recently IMHO.

It could be a strong temptation to adjust the Robots to try to mitigate the problems of this type of volatile market I know, but for me I hope you resist the temptation.

My answer is to trade much smaller until trending markets resume but I am open to any alternative comments.

Trev

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There is one very important reminder to keep in mind as you watch and trade
this very volatile current market. The stock market keeps conditioning huge
masses of people to act in the same way – and when the majority learns that
way the market changes its tune, leaving the majority in the dust. From
August of 2010 through May 2011 the market trained us to be trend-followers.
You had to buy, and if the market went down you had to hold and the market
would rally again and make you whole. After the majority got trained in
trend-following, the market switched its tune. It has become very volatile.
Seemingly powerful moves do not continue but reverse the next day. The only
people consistently making money these days are day-traders. That’s what I
have doing for the past couple of month while chuckling at myself that after
all my railing against day-trading in previous years here I am, doing it
myself. Well, I am reminding myself – and you as well – that when the bull
market resumes the way to make money will again be by trend-following. Do
not forget or discard your old skills and methods. When they stop working,
just put them on a shelf for the better days ahead.
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[Pascal]

To Pascal and Billy,

The recent comments from Dr Alexander Elder below ring very true for me and probably explain the performance of the Robot's recently IMHO.

It could be a strong temptation to adjust the Robots to try to mitigate the problems of this type of volatile market I know, but for me I hope you resist the temptation.

My answer is to trade much smaller until trending markets resume but I am open to any alternative comments.

Trev



Yes, you are right Trev, position sizing is the key.
We have no intention to adapt the IWM Robot. The 20DMF should be able to catch the right moves as it is.
The IWM Robot has already been adapted to entering only non-neutral settings.

Honestly, I am more worried about counter-party risk than anything else.

This is one of the reason why I avoid trading triple leverage and why I am slowly buying gold miners that generate a strong cash flow, with the hope that if the system breaks, it will be easier for me to claim ownership to the equities than trying to get the FDIC or whatever Government cover the lost cash at the brokerage. Let's not forget that if the system breaks, most leveraged instruments could become nil as most are just derivative with no title to the underlying equity.

One of the main problem is the timing: it is to sense the buy point just after assets have become cheaper and QE3 is about to come. We are not there yet, so I am not going to "load the truck", but will cautiously accumulate on dips.

If I have time, I'll post some ideas on the VIT forum (this forum is mainly for Multi-pivots trading.)




Pascal

[Riskslayer]

Honestly, I am more worried about counter-party risk than anything else.



Pascal

Pascal,

I am also concerned about counter-party risk.

The more I read and learn about MF Global, more I think we are going to discover that nothing significantly *illegal* happened there.

Its quite disturbing, but essentially Corzine was simply successful in lobbying his former Goldman colleague and head of CFTC, Mr. Gensler, this summer to permit MF Global to *borrow* money from client's margin account (segregated accounts) by using for collateral ... foreign sovereign debt (PIIGS debt). From there, Corzine went way leveraged long on PIIGS debt. On Dec 6, 2011, Gensler put in place the "MF Global" rule prohibiting this going forward, effective in 6 months.

The books will probably have chapters on how unfairly targeted by shorts Corzine was, etc., and look for a few minor violations to be prosecuted, but the real injustices seem to be the acts of Gensler, CFTC, and other US regulatory officials. Delay and time will be used to hope everyone forgets.. then, the facts will start to slowly be revealed.. Isn't it amazing that we are almost a month down the road and still lack much in the way of official explanation?

But... Broker-Dealers can still quite legally use US Treasuries and most concerning to me, municipal bonds, as collateral for *loans* (hypothecation and re-hypo) from segregated, client margin accounts to make their leveraged bets. Need to keep an eye on those muni bond markets and broker-dealers for specific and systemic problems.

Personally, I am too concentrated at IB. I have discussed with IB and read their information on SIPC and their Llyod's policies in which they say I am covered, but there are probably outs in those.... like the Greek CDS that are not effective b/c Greece will not *technically* default on the legalese of the CDS..

I am looking to spread my cash/funds around to 3 or 4 broker-dealers, banks, and safety security boxes. Not sure if this will be totally safe, but its the best I can think of..

Hope everyone has a great Holiday season,

Shawn