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John Ehlers is the author of the MESA program, SIERRA HOTEL and MESA BONDS adaptive trading systems and co-author of the R-MESA #1 S&P daytrader. He has degrees in electrical engineering and has retired as a Senior Engineering Fellow with one of the largest aerospace companies. A private trader since 1976, he started with fundamental analysis but, with his engineering training, quickly gravitated to technical analysis. Ehlers discovered Maximum Entropy Spectrum Analysis (MESA) while attending an information theory seminar in 1978 and quickly reduced the theory to a computer program useful for trading, starting with the earliest personal computers and enhancing the program as computers improved. His unique approach involves extensive testing on theoretical waveforms before testing against real-world data is attempted.
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John's Secrets |
Secret 1 |
Expect losses. If you have an excellent system you have a 60% chance of a winning trade. That means you have a 40% chance of a losing trade. Therefore, you have a 0.4^4 = 3% chance of having four losing trades in a row. If you have 33 trades in a year, then the chances of getting four losing trades during the year are 33*.03 = 0.99. In other words, it is almost a promise that you will have four losing trades in a row during the year. Further you will have 13 losing trades during the year. Therefore it is possible to have four losing trades in a row, a small winner, and then five more losing trades in a row - with still four more trades scattered throughout the year. Remember that these events happen with good trading strategies. The secret is to find a good trading system and stick with it. |
Secret 2 |
Use simple trading systems. Trading systems can be robust only if there is a high number of trades in backtest history. You should have at least 30 backtest trades for each variable parameter in your trading system. Use of recent, relevant, data forces the trading system to be simple. |
Secret 3 |
Rely on backtest history, preferably out-of-sample tests, to assess both risk and reward. Monte Carlo analysis is helpful to establish risk and reward probabilities because only data reflecting recent market activity is relevant to trading system rules. |
Secret 4 |
Have sufficient capitalization to support your trading. Your minimum futures account size should be the sum of the required margin plus the expected maximum intraday drawdown. |
Secret 5 |
There is no secret to trading success. It is a matter of having adequate preparation, of applying sound principles, using prudent cash management, and having the fortitude to sustain your trading through adversity. |
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Free Research
Darrell Jobman: Euro/US
Friday, May 16 200810:29:00 EST - The dollar weakened in early Europe on Thursday following the firmer than expected Euro-zone growth data.
The US currency was also unsettled by a renewed increase in oil and commodity prices. The US growth- ... more>
Jim Wyckoff: Energies
Friday, May 16 200810:29:00 EST - June crude oil closed down $0.10 at $124.12 a barrel yesterday.
Prices closed near mid-range in volatile trading. The bulls still have the strong overall near-term ... more>
Robert W. Colby: Growth Stocks and Utilities
Friday, May 16 200810:29:00 EST - Energy and Materials Stock Sectors both rose to a new all-time price highs, driving some, but not all, of the major stock price indexes to new 4-month highs.
Relatively low volume fails to confirm a new Bull Market. The weight of the evidence appears mixed. ... more>
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