Friday, March 14, 2008

Trade Like a Cheetah


According to Wikipedia, the cheetah (Acinonyx jubatus) is a member of the cat family (Felidae) that is unique for making up in speed and stealth what it lacks in climbing abilities.

What does this have to do with trading? Find out by reading more below...

Cheetahs are outranked by all the other large predators in most of their range. The death rate is very high during the early weeks of a cheetah's life, and up to 90% of the cubs are killed during this time by lions, hyenas or even by eagles. The cheetah has a 50% chance of losing its kill to other predators as well.[6] Cheetahs avoid competition by hunting at different times of the day.

Prey is stalked to within 10 metres (33 ft)-30 metres (98 ft), then chased. This is usually over in less than a minute, and if the cheetah fails to make a catch quickly, it will give up. Running at high speeds puts a great deal of strain on the cheetah's body. When sprinting, the cheetah's body temperature becomes so high that it would be deadly to continue - this is why the cheetah is often seen resting after it has caught its prey.

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The above is taken directly verbatim from Wikipedia. Does any of this sound familiar to you the TRADER?

Here are some points to consider:

1. The Cheetah is smaller and weaker than it's competition. In fact it is smaller and weaker than the prey it hunts.

You the trader have a very small account. You do not have 90 Ph.D financial analysts working for you, a Cray computer, or direct access to a financial exchange. The other "lions" that hunt in your territory are the large institutions, banks, and even larger traders and hedge funds. Given half a chance they will eat you - and not even notice it.

2. The Cheetah is much faster than it's competition and and employs stealth and retreat tactics when necessary.

As a short-term trader you can enter and exit a trade with minimal to no slippage (since you aren't trading 100's of contracts). You can be in and out of your trade in less than 15 seconds. Speed and stealth are your allies.

3. The Cheetah will either quickly catch it's prey or it will break off the chase. It is hunting for the weakest, smallest, most retarded gazelle of the herd. It will not be distracted by other gazelles that happen to cross it's path during the chase. Finally, if the Cheetah cannot catch it's prey (typically in less than 1 minute) then it will break off the chase. After all the Cheetah will die if it continues...

A cunning trader hunts only for the weakest/strongest trades and ignores market times/conditions that they cannot profit from. Lastly, as a trader you retreat quickly if the tides begin to turn against you. After all you're account will DIE if you do not!

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Enough with the hypothetical. How do you actually DO what I've been suggesting here?

First, I would suggest reading this thread that Avery has found and contributed to on Elite Trader - the jjrvat thread.

http://elitetrader.com/vb/showthread.php?s=&threadid=113456&perpage=6&pagenumber=1

Second, I would suggest that you attempt to implement this for yourself on whatever timeframe and instrument that you trade. After all pretty much any trading software is going to have a simple Moving Average in the charting package somewhere. You can use whatever trigger you like with this setup.

Lastly, I would encourage you to think of what I call "Time Stops". I would say that the main reason that most short-term traders get into trouble is that they don't apply their trade to 1 timeframe. For example if you are trading on a 5 minute chart - you should be making money in 5 bars (or 25 minutes) or the trade should be considered no good. If you are trading on a 1 minute bar then your time stop is 5 minutes. You get the idea. Obviously there is nothing magical about 5 bars (it could be 6 or 3 or 17). But you should work with this idea a bit.

Alright Cheetahs - let the good hunt begin!

2 comments:

Kalar said...

This comment has been removed because it linked to malicious content. Learn more.

Rosdi said...

Why didnt you link it to this? http://kreslik.com/forums/viewtopic.php?t=1088&highlight=