The New Paradigm in risk and opportunity management

Posted by on Feb 24, 2018 in Be a Trader | 0 comments

When a developer sets out to design a trading system, a comprehensive system, he needs to have a clear objective in mind.

With trading for a consistent profit the goal the end product, the strategy, still has a problem. Van Tharp pointed out that no strategy can do well or at least weather all market conditions.

Here is the same limitation of all trading strategies put a different way. The approach of traders like Jesse Livermore is grounded in a first principle that “big money is made by the sitting and the waiting — not the trading. Waiting until all the factors are in his favor before making the trade.

Take that same point of view into modern-day hedge fund wizardry like Ray Dalio and
Stanley Druckenmiller who control risk by not taking a risk, but once everything looks correct based on their comprehensive system, they enter the markets and in their words, go for the jugular. Leverage up and maximize profits.

I created along with the help of my team at Thinking Mans Trader an all-embracing model, a macro filter called The Technical Event Model to do just that, to avoid taking a risk until the opportunity is as perfect as it can be. I do not gamble.

The Technical Event Model is this type of risk and opportunity management model. My team has designed it based 100% on price, not money. In other words, the filtering comes from the left-hand side of the black box system before the fact, not post hoc or analyzing the P&L trail.

Today the educated consumer, the analyst, and the traders understand that directional market forecast makes the markets. They are nothing more than branding techniques.

Through direction forecast speculators, who feel they must trade, who are simply laying the foundation for an objective analyst and a disciplined traders strategy to take advantage. To take advantage of them trading a directional forecast.

The key rule of risk management is to avoid risk, do not take on a position until everything in your model is in your favor. A key rule of opportunity management is once you are in a position, you go for the gusto; you leverage up to mamaximize yourrofits.

The Technical Event Model is an objective tool that gives you this ability and the confidence to act.

The nucleus or central formula is a switching mechanism that dictates when to use and when not to use particular types of trading strategies for the duration of the event.

TMTs models are composed of several indicators when they all reach an extreme in the same time window it is a technical event, such events anticipate a change in the context of the markets, which creates a strategy bias for the upcoming period or cycle.

Understanding what the forthcoming market backdrop or condition is likely to be independent of direction – can help the trader determine what market strategy is best to use.

On the flip side, the model can keep traders from implementing a strategy that will likely be entering conditions that are not suited for its style of trading.

What the new paradigm is about is knowing when a particular style trading model is likely to perform above average or when it is about to go into a drawdown or worse yet a max drawdown. TMTraders Technical Event Model provides these indications.

The model is the combination of my %C- the range dynamics indicator (1998), and my Historical Volatility directional force indicator (2009.) The Technical Event Model (TEM) empirically discovered in 2011, coded by my Team Level One members and tested 2015 on a wide range of trading robust strategies.

In 2017 an MTA colleague capital manager Andrew Trasher was given the Charles H Dow award for the grounding observations of the above idea.

My group programmed TEM into popular trading strategies like Aberration and Turtle Trader. TEM codes were also inserted into our proprietary trading strategies.

The computer test validates the TEM proprietary model anticipates the context of the market regarding range and direction dynamics of the markets to create a strategy bias for the upcoming period, until the next technical event.

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Great and Many Thanks,

Jack F. Cahn, CMT

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