The Holy Grail Of Trading Is Within Us
Chuck Dukas Of Trendadvisor.com
by Jayanthi Gopalakrishnan
Chuck Dukas is principal in a hedge fund and president of Trendadvisor.com, a website that provides trading recommendations and educational and training services to better equip the trader to understand the markets and prepare traders to trade independently. He is the author of The Trendadvisor Guide To Breakthrough Profits: A Proven System For Building Wealth In The Financial Markets, which is a comprehensive guide to trend analysis and how it relates to trading and investing plans, published by John Wiley & Sons. This interview combined phone and email questions and answers, starting on April 10, 2006, conducted by STOCKS & COMMODITIES Editor Jayanthi Gopalakrishnan.
Nobody is going to replicate the market as an algorithm since it's all about human behavior.
Chuck, how did you get interested in trading?
From the time I pursued graduate work in finance in the early 1980s, I spent every moment I could working on technical analysis. I spent endless hours and years developing and testing algorithms. I was looking for the holy grail of trading. I know now it exists, but not as a trading system. It lies within us. The holy grail really is the discipline to follow a plan or methodology.
From that I developed the diamond analysis, which was a result of my desire to develop a system with repeatable success for any skill level. Soon I realized I had to record the methodology, which is why I wrote the book.
What, in your opinion, are the most important decisions any trader has to make before placing a trade?
There are some questions you have to answer before you place any trade. The questions are:
1. Do you have a plan for that trade?Success comes with a blueprint, and the more times you duplicate that design, the more dependable the outcome.
2. Will the trade be a long-term trade or swing trade?
3. Will your stop be a hard stop or a mental one?
4. What would the trade look like if it fails?
5. If you're going long, do you have a first objective where you will harvest a portion of the profit?
6. Think of a trader as being a builder of a home. Would that builder construct that home without a set of plans?
You encourage traders to trade trends. By trends, do you mean long-term trends or short-term trends or both?
Let's assume it is a long-term trade. First, I would establish my risk based on the quality or strength of the trend. What I mean is that if the market is in a bullish phase, the price has to be greater than the 50-period moving average, and the 50-period moving average has to be greater than the 200-period moving average.
What if it's in a bearish phase?
The converse would be the case for a bearish phase. What I found going
back 80 years in the Dow Jones Industrial Average (DJIA) is that price
stays within a bullish or bearish trend about 67% of the time. I also found
that the DJIA is in a bullish phase 45% of the time and 23-24% of the time
in a bearish phase. From the weekly chart of the Standard & Poor's
500, I can see that the index went into a bullish phase in January 1995
and stayed there till August 1998, and it occupied that phase for 193 consecutive
weeks.
...Continued in the June 2006 issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the June 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2006, Technical Analysis, Inc.
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