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Dragons and Bulls by Stanley Kroll
"The art of consistent gain."
The first thing that impressed me was how much Kroll's Dragons felt
like and reminded me of Jessie Livermore's How to Trade in Stocks.
Memoirs
I knew for sure this would be something special because Stanley was
not trying to make a textbook or have somebody else write it for him.
Unlike many books written for no one in particular, Kroll assumes
readers know how to read charts and has had some experience
speculating. This book is inner Kroll. Dragons supplements
Reminiscences.
Risks
Not written to praise the market or pay homage to his experiments with
technical analysis. Dragons covers the essence of speculating whether
it is securities that require the greatest risk margin like stocks,
minimum margins like futures, or practically no margins at all like
calendar spreads.
Strategies
It is clear that Kroll dabbled with fundamentals. He got over that.
Then he may have gone a little to far with technical analysis. But it
is clear that he honed in on his true contribution to trading with
Dragons. Stanley finely figured it out. He had to draw on none other
than Sun Tzu to pull it all together with a little help from
Partridge. Traders should be more concerned with an overall
profitable operation than catching tops and bottoms. The most
expensive loss effecting success, is the loss of confidence.
Mort
Dragons is light on Livermore the trader, heavy on Sun Tzu the
philosopher. It is not so strange that many people expound on a
philosophy as life itself draws to a close. Do you suppose this
acceptance precedes death?
Forces
The long shot pays better, but the favorite is the way to bet.
Presuppose that every with-the-trend trade will be the big one. You
maintain your potential for profit when you hold on, build positions,
and sell your losers. Buying strength and selling weakness applies to
portfolio management, right thru selection of markets to the time
differences between contracts. Buy what's going up, sell or even
short what's falling.
Oscillator/ Indicators
Stochastics - entry
Parabolic - pyramid and stop
Macd - trend confirmation
Bollinger Bands - volatility
Moving Averages
Kroll suggests that moving average crossover systems, combined with
the slope of the moving average are good enough to confirm a trend.
Stanley reinforces a theme that has made has been taught before by Joe
Ross in his excellent "Trading Spreads," and by Wells Wilder in "New
Concepts," by Jake Bernstein probably in "Seasonality," and spread
guru Jerry Toepke of "Moore Research." It does not matter what
technical studies that you use, as long as you are comfortable and use
them regularity.
Control losses and allow profits to run
Limit risk - percent of exchange margin
Avoid overtrading - churning or too large a position relative to
capital
Cut your losses - advance your stops
Parabolic
The most difficult part of developing a trend following system is
fine-tuning your stops. Using a percentage of exchange margins has
the advantage of being related to the volatility, risk, and the profit
potential of each market. Another strategy is to advance your stop
after each week. You have to develop a method to reenter lost
positions as well as build your position in a trending market.
Spreads
In the early 80's Stanley told me that he did not specifically trade
spreads, but sometimes they showed up to advantage requiring fewer
margins. Kroll notes that Spreads advantages include higher profits.
Here Kroll shows spread charts from the mid eighties and has a whole
chapter on spreads in Dragons. Kroll suggests traders watch spread
differences as an accurate indicator for managing positions.
Spread Orders
Stanley does not mention market on close spread orders (MOC),
preferring instead to leg in and out. But he does suggest giving your
broker the spread order. Stanley details the three reasons that you
might want to place a spread, switch, or straddles order.
Entering a new trade,
Shifting forward (rollover)
Spreading a losing position
Wisdom
Kroll's tactics remains about the same as he marketed a decade before
with Wells Wilder. You can see this in his long-term winners, short-
term losers philosophy.
Tactics
Kroll sets up for a major move entering with-the- trend positions, and
try's to stay with them as long as possible. Diversification with the
addition of China stock indexes. Price based entry signals, no longer
optimized. No long side bias. Stop placement that allows time &
space for long-term trades to develop. Kroll may get in late on an
entry signal that is showing a loss, but when he gets stopped out
prematurely he would get right back on board a day or two later, when
the trend resumed.
Regardubg Oruce Keveks?
Just as Stanley likes to quote Jessie, following are some quotes from
Kroll's Dragons:
I am a long-term trader on my winning positions and a short-term
trader on my adverse ones.
The traders who make money on a consistent basis are the long-term
position traders.
One of the traits of successful operators is to close out losing
positions and stay with, and even add to, the winning ones.
In two related markets, you should buy the strongest acting one and
sell the weakest acting one.
The most important tactic for consistent and successful speculation is
to control losses.
A long-term holder speculating with the trend should not try to
capture small counter-trend profits by trying to get in and out.
I might lose my position, and with it the certainty of making a big
killing with the big move. It is the big swing that makes the big
money for you.
If you exit a trending position, regardless of the reason, and on the
close of the next two days the trend is still in the original
direction, you should get back on board.
The most damaging loss, and the one to be avoided at all costs, is the
loss of confidence and belief in your ability to trade with consistent
success - you must avoid that loss at all costs.
Dragons - ISBN-10: 0201420848
Spreads, Futures, Speculation, China, Sun tzu, Philosophy, Strategies,
Tactics, Spread Orders, wisdom, Livermore, Parabolic, Joe Ross, Wells
Wilder, Jake Bernstein, Jerry Toepke, -oo0(GoldTrader)0oo-,
Shortly after Mark Mobius, Kroll moved to China years ahead of Jim
Rogers. Kroll said the real major beneficiaries of China's growth
could be companies in Japan, Korea, Hong Kong, and Taiwan.
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