The following Outline of Issues To Be Developed is and will be applied to the following markets that relate to the critical industries, entities, markets and instruments involved in creating and intermediating commerce in the main Global Economic Drivers:
- U.S. T-Bills
- U.S. T-Notes
- U.S. T-Bonds
- Japanese Yen
- Deutsche Mark
- Canadian Dollar
- Swiss Franc
- Australian Dollar
Ouline of Issues to be Developed
There are two basic premises underlying the need to systematically
develop suitable strategies and tactics before the stress of the
risk exposure and/or market conditions create the demand:
- It is too late to develop suitable strategies and tactics
in the midst of adversity - stress has already caused the brain's
synapse to start to malfunction.
- There is no amount of anxious and wishful thinking that can
alter or control the course of a given market. However, the energy
levels typically dissipated by anxious and wishful thinking, when
constructively applied to developing suitable strategies and tactics,
beforehand, can introduce enough flexibility to enable profitable
adaptation to unforeseen events that are beyond our individual
The following outline represents the main issues that will be
developed over the coming weeks:
- Where am I at risk?
- Create "as is" performance profile.
- Study VAR and other risk measurement related issues.
- What are the probabilities of the risk occurring?
- What are the consequences of the risk occurring, regardless
- What are my objectives regarding changes to the "as is"
- What are my alternative methods for managing the risk?
Decision Making Context
- What is the context (swing level) within which I tend to implement/trade
portfolio management and risk management decisions?
- What is the preferred implementation/trading style
- Capital and risk allocation by well defined individual sub-portfolios
or individual positions
- Capital requirements to finance each portfolio or position
- Percent and dollar amount of capital that has been allocated
that you are willing to place at risk (Capital at risk)
- Market volatility (function of the swing context within which
position will be traded) in direction position will be at risk
- Divide the dollar effect of volatility, per position unit,
into Capital at risk to determine maximum number of position units
- Total capital to finance position will be lesser of the amount
required to finance position units resulting from above calculation
or total capital previously allocated for individual sub-portfolio
- Determine underlying bias
- Trade outright positions consistent with bias
- If trade against bias, trade spreads and/or buy options only
- do not establish outright position against bias within which
- Conditions acceptable for trading against underlying bias:
- In window for SP for lesser swing levels
- Either an extreme momentum reading, or divergence
- High volume reversal day
- Tradable correction opportunity
- Markets to employ/trade
- Tradable dimensions
- Absolute price, interest rate, or exchange rate
- Determining underlying bias - different at various perspective
- Conditions accompanying change in direction (underlying bias
or sub-swings) -- Swing Point Window:
- Price, interest rate, or exchange rate level
- Speed (velocity)
- Momentum - how intense is the move?
- Commitment of Traders
- Fundamental information
- Balance fundamental, technical, and psychological
- Risk Management
- Swing Model
- Major tenets:
- No one knows the future
- Nothing is new
- Historical information is available for study, analysis, and
- Human imperfections lead to less than 100% confidence
- Accept the fact that, as humans, we fail more often times
than we succeed.
- In most market situations, for each swing level, we will be
wrong on at least one of five issues:
- Timing (When)
- Magnitude (How much)
- Duration (How long)
- Speed (Magnitude/Duration)
- However, it is our efforts to limit the consequences of our
failures and, equally important, our efforts to recover from our
failures that produce the seeds to our successes
- Need to maintain on-going suitability, by definition, necessitates
periodic upgrades in analysis and classification methodologies
and changes in strategies and tactics
- Ability to analyze and classify historic information is limited
- Availability of information
- Current understanding of appropriate analytic and classification
- Perhaps most important, our willingness to commit to a dynamic
on-going effort to improve our analytic and classification abilities
- As fundamental and important as historic information analysis
and classification is, disciplined application of the results
to the development and implementation of strategies and tactics
is even more important. Our commitment in this regard is to:
- Objectively present our analysis and classification of historical
- Disciplined application of the analytic framework in developing
a probabilistic view of the future
- Develop strategies and tactics that are suitable to portfolio
objectives and market conditions
- Principled flexibility in implementing
- Upgrades to analytic and classification methodologies
- Changes to strategies and tactics to maintain suitability
to portfolio objectives and current market conditions.
- For additional comments related to the foregoing, go back
to the HomePage for listing.
Strategies & Tactics Matrix
Matrix organized by the four basic phases and characteristics of price, interest rate, or exchange rate cycle on the horizontal axis; and, portfolio management and risk management exposure analysis characteristics on the vertical axis. Each Strategies & Tactics cell hot-linked to a written description of the strategy or tactic accompanied by performance profile charts. Additional elements to include:
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- Degree of aggressiveness (from most aggressive to least aggressive).
- Four trading dimensions:
- Price, interest rates, exchange rates.
- OTC vs exchange traded means of executing each individual
piece of the strategy or tactical adjustment. Key considerations
include transaction costs, liquidity, and for options, the purchase
or sale premium.