Saturday, October 14, 2006

Woodie's CCI

BBC wrote this comment:

I read on your blog that you used Woodie's CCI and learned trading futures, I listened to their chat room and it was helpful using their software....would this be a good route for me? I am new to trading although I have managed our portfolio to good advantage. However I distrust any system software reliance due to chaning market conditions. Thank you.

BBC I’m taking your comment and answer it in its own article as it touches so many aspects of an aspiring traders mentality.

There is the obvious, the clear question whether to trust or distrust Woodies CCI due to changing market environements.

But there is also the statement, that you are already managing a portfolio to good advantage, even if you are new to trading.

And you distrust any software based system because it might not work tomorrow, even if it did so the last year, the last week, yesterday.

The first and maybe the most important point popping up in my mind is, WHY?

Why do you want to change something which is already working according to your own statement. You are already managing a portfolio to good advantage. In trading to be better than yesterday, to have bigger profits today than the day before, you increase size. You don’t change your trading system, you don’t change the kind of instruments you have traded successfully yesterday, you just trade bigger size. And you do exactly the same you did yesterday. This makes sure that statistically over the long run, you will have bigger profits, IF you were profitable in the past.

If you want to change something, if, as it seems to be the case, you have decided to play a more active role in the market and start day or swing trading futures, something you haven’t done before, be prepared to go back to school, be prepared to learn and be prepared to do what is necessary to learn (day)-trading futures.

Learning to daytrade successfully encompasses a lot of things. Some you will learn in Woodies CCI Club. I was there for 3 years and what I learned there still helps me today in my trading. But I was not profitable in Woodies CCI Club. I learned to recognise patterns, something which now helps me extremly in my trading. The money I payed for learning was well invested, as I’m now in a position to earn this money back and more. You might tell me, that Woodies room is free and that is correct (if you don’t count the Trade-a-Longs), but as you can’t learn trading by Demo-trading year in and out, you will see, that being in Woodies CCI Club will cost you money.

CCI Patterns work, when they work. They are never 100% and I would be surprised if they are 65%-70%, if you look at them in realtime. There is a way to increase this ratio of winning to losing patterns, but this can’t be accomplished by introducing more and more filters you need to be aware of, before you take a trade.

Nothing in trading works for eternity. There is no Holy Grail, no 100% system. You will have losing trades. It’s up to you how much you pay the market for your losing trades as it’s only you who decides where you put your Stop.

But I tell you something obvious: Something will not change in the markets: Markets will always oscillate between Trending and Consolidating Conditions. The problem is, you don’t know in advance what type of market we will have today. Technical analysis can help you here, but it also only works when it works. It will fail and maybe as often as it is right.

You need Money Management and Trade Management tools to cope with that. And you need to trust your system 100% that it will in the long run provide you with profits.

I have the CCI on my charts. And I have had this CCI on my charts for 5 or more years, with a brief interregnum when I left Woodies CCI Club and tried some other oscillators on my charts (Stochastic, RSI, Ergodic A/D and some oscillators I developed for my own). It made no difference at all. They all show the same, so I came back to the CCI, which I can read with more accuracy than any other oscillator, just because I was in Woodies CCI Club for so long.

I will not discourage you going to Woodies room, but I will not tell you to go there either. I can’t. You need to find the way, which is right for you. Try it, if it feels right, maybe it is (for now). Because what is right now, what helps you today, may hinder you tomorrow. Adapt to yourself as you change and evolve as a trader.

I’m now usually logged in on IRC #Tradingspace on Othernet, because I can chat with fellow traders there. There is noone teaching, but we are sure willing to answer questions if time permits.