But If They're So Rich, Why....

Bruce Willis came to Japan recently, to promote his new movie "Hostage". Nothing so special about that, but it's the other thing he did in Japan that got me thinking...

I've been to two seminars about trading. One was about trading options on the ASX. The other was about trading currency on the forex markets.

Both were very informative, although attending them has not made me a successful trader. After thinking long and hard about why following the rules I bought only seem to make me do exactly the wrong thing, I came to the conclusion that the fault lay with trend lines, and support-resistance (SR) lines.

Many of you are scoffing now - of course the rules don't work, because if they did, those guys wouldn't need to give seminars. People who can't do, teach -kind-of-thing. (Just don't say that around my aunt the high school teacher).

But bare with me about the SR line thing. Both seminars I went to, they talked about SR lines being very important. "If the stock is moving up, and everything looks fantastic for a trade but there's an SR not too far away, don't get into the trade. Most likely it will hit it's head on the SR line and drop back," they would say.

It all works fantastically at the seminar - even if they have a live data feed (i.e. not pre-arranged charts). And I come away from the seminar just with a "knowing" kind of feel about me - like everything's going to be okay from now on.

I get home, put the lines on my chart, and those lines keep me out of what would have been fantastic trades. So I start taking lines off the chart - only keeping the *major* SR lines, where the price has reacted to that price level many, many times - so many times it's obvious that everyone in the world has drawn a line at exactly the same spot. That means I'm free now to get in on trades where, sure, the price has reacted there before, but only a few times.

Whenever I open a trade like that, the price *always* hit its head and dropped away.

So I put the lines back. I'm more cautious again. Now I only get in on trades where there is a decent amount of room to move before the next SR line.

Even after having done that, though, as soon as I open a trade it seems to hit its head and drop away. I ask myself "oh, should I have put an SR line there? ... Yeah, oh, I see, there's a couple of times there it did the same thing. Silly me. Be more careful next time."

I add that SR line so it doesn't happen again. I go through and add SR lines wherever they might just even have the smallest possibility of being an SR line. Now my chart is so covered with lines that it's impossible to trade - there is not enough room anywhere between lines for a decent profit, and I am therefore not able to place any trades.

And this, dear reader, is what happens to me time and time again when I try to use SR lines. I start off with a couple. I end up with hundreds. Seemingly impenetrable lines are broken without effort if I'm not in the trade. Places where the price reacted just once before become impenetrable if I'm in the trade. "Oh dear, that didn't seem like an SR line to me", I might say (but probably with many swear words thrown in), when that happens. Then I go to the next seminar. Repeat.

So the placement, and how many SR lines you put on your chart, are subjective. Different people will put different numbers of lines, at slightly different places, to the other people. It all depends on their past experiences, their recent experiences, and how they felt when they got up in the morning.

I've discovered that I absolutely suck at subjective things. Way too left-brain for that. Using trend lines and SR lines to trade is, for me, a losing combination.

Moreover, trend lines and SR lines work exceptionally well, except when they don't. From before, there were seemingly impenetrable SR lines that get broken in an instant when the market feels like it.

Anyway, I need to find a trading system (bunch of rules which tell me when to buy and sell) which is completely, 100% objective. IF such-and-such a condition is true THEN buy. IF the price is near an SR line THEN don't buy looks on the face of it as objective, but because the placement of that SR line is subjective, the rule becomes subjective.

So my new requirement for a trading system is that it must be so objective that a computer could do it. No emotion. Just rule says yes, so do it. By the way, both of the seminar dudes recommended trading diaries - to keep track of how you were feeling while trading. Did you buy because the rules said to, or because you just really wanted to trade something? Then at the end of the month, read through your diary and try to remove the emotion from your trading. But my take on it is that if the rules were 100% objective, there is no need for such a diary.

And I thought, well, if my requirement is that a computer could trade the system, then a computer should trade the system. There's no need for me to sit and stare at the computer screen all day. And that's something I did glean from the second seminar - he said he had a business partner who had made a trading-bot based on his rules. Before hearing that, I didn't think such a thing was possible. As soon as I heard it was, my mind kicked into gear on how to go about making my own.

So for the past four to five months, I've been working pretty hard on my software which will interact with the forex broker, and automatically trade on its own based on the system that I've given it. So I could be getting a suntan at the beach (unlikely - more like drinking at the pub), and yet making money at the same time. Well, trading at least, making money if I'm lucky.

I guess a quick and nasty version would have been up by now. But I wanted to make it special. It does backtesting now, so I can test my systems before making them "live". And the way I've set it up is so that rules can be added to a system by a few clicks of the mouse.

There is similar software available, but they are generally in the thousands of dollars range, and all require the learning of a cut-down version of computer programming language. You code your system, each system, and plug it into the software. It doesn't appeal to me. Where there is coding there is chance of bugs. And if you want to change/add/delete a rule from the system, there is modification of code. And with modification of code there is chance of bugs.

So my software is all mouse clicks. Want a system based on the Directional Movement System (based on the interplay between three calculated lines)? Click click click. Done. A couple more clicks and it's backtested. Ok, it didn't work. Want to change it from buying when +D is above -D, to buying when ADX is below +D and also below -D? Click click click. A couple more clicks and it's backtested. Ah, much better. But let's change the period from 20 to 30. Click click click... You get the picture.

You can set up different accounts to trade with. You can use a different company's data feed to make trading decisions with. You can tell each system how much money it has to trade with, and what percent of that money to risk on each trade. You can even tell it to stop trading until the last X number of trades have a certain Profit Factor.

It's seriously cool, and I haven't seen anything else like it in the marketplace. I'll put some screenshots up soon so you can reverse-engineer it. Two places to get APIs for brokers are Oanda and DynaOrder.

So Bruce Willis must make about $10 million per movie. And maybe about one movie every year or so. That's a decent income. A lot more than the people that gave the trading seminars, I'm willing to guess. He came to Japan, and aside from promoting his new movie, he did a car commercial. Huh? But if he's so rich, why did he do a car commercial? Isn't $10 million per year enough?

The big soccer stars earn about $100 million every 3 years. Yet they continue to play after that contract is over.

Bill Gates rocks up to work even though he's a freakin' billionaire.

Does anyone yell out "Hey! Andre Agassi! If you're so rich, why do you keep playing?". Or "Hey! Clint Eastwood! If you're so rich from being an actor, why do you want to direct movies as well?".

Or, to give a more correlated example: "Hey <insert your favourite now-retired famous sportsperson here>! If you're so rich, why do you want to be a coach?"

No, people don't have a problem with any of those. In fact, people think it's quite a normal thing for a previous champion sportsman to become a coach. Nobody questions their motives. So why do people have such a problem with pro-traders who want to give seminars? Isn't it exactly the same?

It's another income stream. If you had knowledge that others are willing to pay for, you'd give seminars too. So get over it.

Those two seminars didn't turn me into a pro-trader, but they sure did set me on the path. You don't become a pro-anything after one weekend of tuition. The question is, does the seminar provide you with your moneys worth of information? How much money would you have to lose in the markets before you come to the same conclusions as taught to you in the seminar? And that varies from person to person.

Oh, and then there are some shonks. So be careful :-)