While we are talking about diversification, The Ivy Portfolio is a good book about how top Ivy League endowments invest by diversifying across asset types as well. They tend to use a relative strength approach: only hold positions in sectors or types that are performing the best of the past x days, then re-adjust every y days, switching into other asset types if something else emerges stronger. This approach is hard to backtest with Ninjatrader since NT doesn't support portfolio features in their backtesting, so I had to do it all with SQL
"Every edge we have is driven by an imbalance of buying and selling pressure. From a technical perspective, every edge we have is generated by a disagreement between buyers and sellers. When they are in balance (equilibrium), market movements are random.
The job of traders is to identify those points of imbalance and to restrict their activities in the markets to those times.
Since we cannot profit consistently (i.e., above the probability of a coin flip) in random markets, it makes sense that we should limit our exposure to times where there is a clearly-defined imbalance of buying and selling pressure. When this occurs, which is often visible in certain patterns in prices, we now have the possibility of creating trading profits. Thus, identifying the imbalance, is the first step in any technical trading.
So, ask yourself some hard questions: Do you understand how to identify points of imbalance in the market, and do your trading patterns respect this reality? Do you believe that markets are usually random? Do you understand that no profits are possible in random marketsóthat nothing will help? Not money management, exit strategies, or positions sizing. You must wait for an imbalance to emerge on your timeframe, and, only then, take action in the market.
What is your edge in the market? How do you know? If you are going to be successful trading, you absolutely must have an edge in the market. Money management is not an edge. Psychology is not an edge. An edge is something that lets you pull profits out of an extremely competitive market environment, that gives you some edge over the randomness that dominates price movements. How do you know what your edge is? If you canít answer these questions, you donít have any business putting risk on in the markets. You do not have an edge because you bought a book or took a training course, no matter how much money you paid or who taught you. You must have sufficient math skills to understand probability and randomness and truly understand your edge in the market."
I have no connection to the author.......i have read much and this felt a little bit good.
The following 4 users say Thank You to phip for this post:
@phip >Probably the most useful technical book i have read in 20+ years:
Amazon.com: The Art & Science of Technical Analysis: Market Structure, Price Action & Trading Strategies (Wiley Trading) eBook: Adam Grimes: Kindle Store author's blog gives an idea of the tone:<
+1 on above comments. i did mention this book earlier but was too lazy at the time to grab the Amazon link!
Anyone into Al Brooks' PA and similar will enjoy the writing style here as book is really, really clear and easy to read. A most impressive range of topics, and likely the only book most may need.
Well done Adam Grimes. Mike would do well to entice him onto a webinar here.
The following user says Thank You to RichardHK for this post:
I am new to trading, but was an investor for years. I am a big fan of daytradingradio.com which provides a simple way to trade. Anyway, I started studying like a madman about a year and half ago and only started trading recently to pretty good profits --- who cannot make money in this market, I am no genius ---. I read a lot of different authors, elder, williams, person, .... I read a lot of esoteric, very technical stuff from wiley publishers. I have come back to re-reading some of these books, and find that the jesse livermore book, pesavento trade what you see, are good. For the most part, though you just have to put the time in watching the markets that you trade. Like today, there was a trade at 9:45 in the es. I got almost 4 points. It was simple, oversold stochastic, in a rising market. I did not have to read a lot of books to understand that. There is no holy grail.