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.


bbc said...

Thank you for addressing my questions. My success with our portfolio was based on 'judicious' use of a newsletter, NoLoadX. After doing well, I decided 1/06 to pursue investing more and people told me I needed to learn TA and Fundamentals. So I am reading Murphy's book on TA and day trading with some success, daytrading since the lessons are quickly learned in this school. I would describe my stage as moving from (a) prices move up to (2) prices move up faster with large volume. Some one mentioned that futures were good to trade because they were not so 'knocked about' like stocks by news. In the CCI forum, it was interesting to watch the live process of watching a trade unfold which is useful but I apply a grain of salt to most methods to check reliance. I will use the forum you mention to ask questions. Again, thank you for your attention.

Globetrader said...

1. Futures react usually even more violent to news than stocks. What they don't do is expose you to individual Stock risks (unless these become Market risks).
2. Relying on a Newsletter is ok, but it sure would be better to learn to fish, instead of buying the fish. On the other hand, as long as it works, why change something?
3. If you can identify prices moving up and draw the correct conclusion, that if prices move up, you best would be long, then you can close all the books on TA or Fundamentals. You have already learned all that is necessary to learn. But like most of us, you don't have that wisdom yet. As we all you will look for the Holy Grail, the Answer of all answers in Oscillators, in patterns, in TA. Maybe, if you are lucky, you will in 2 or 3 years come to the conclusion, that all you need to know is: Do prices move up or do prices move down.
4. It's good to be sceptical. Rely only on your own statistics. Apply one pattern to your charts and mark every occurence and look for the results of these trades. Would you be able to hold them or would you have been stopped out, would they have shown a profit and what profit would that be. Only use the Bar-Close price as Entry and Exit, because only then the signal is present and will stay.
5. You have a lot to do and learn, if you embark on this journey to become a futures-trader. Good luck.

bbc said...

Clearly I have a lot to learn so I am cautious with money mgmt.
1. I will paper trade futures until I understand more what is happening.
2. About the newsletter I use, all methods have areas of weakness, so one thing I am trying to do it have more tools. Also my sucesss was tied to the large flows of money into emerging markets, maybe some luck. I have a very pro-international slant on the world economies. I think being successful with the newsletter meant that I chose a good vehicle (confirmed by Mark Hulbert's review of newsletters) and that I used it well - with focus and yes, it might still be the best way for me to invest. It surely requires less time than more active trading.
3. TA has been helpful to me to identify more closely where to enter and exit to maximize gains, how to define risk. TA have given me more feel for the life of the markets and of particular vehicles.
4. I do have a lot to learn, but I think trying things, judicious risks, is good. I have a degree in mathematics and am trying to use my analytical skills in trading. Also I am very interested in global economics - I see your link to the wonderful Roubini website which I have followed since the Asian economic crisis in the late 90's. So I have decided to try. Your helpful comments are much appreciated as is your honest blog.

Instructor_Al said...

If you take stats on Woodies CCI Basic Classic Patterns...ZLR, Ghost, Tony Trade, Vegas Pattern, GB100, and Famir (I dont take trend line breaks), the winning % of trades is in the neighborhood of 70% + or minus 5%. You are correct that unless you put in plenty of screen time, employ solid money management, and trade a plan, you will not be successful with Woodies or any other system for that matter. No system is 100% and you will have losing trades. It is how you manage those losers and how you manage your winners that will determine your ability to succeed with any system. Woodies CCI is a system better than most providing you "trade" it with consistency.

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