Lake Livingston - Dry Lake

Lake Livingston - Dry Lake, originally uploaded by TaylorTree.

Another picture of the effects of the water release. This area was a nice little cove where shad would get driven into by the thousands. Great place to cast for bait. Now high and dry.

By the way, had a great idea over the weekend on a topic for this blog. I'll need a little time to research just how I'm going to handle it. But, once the research is complete...I'll share it with ya'll. Should be fun!

Have a great week!

MT

Lake Livingston - Dry Lake II

Lake Livingston - Dry Lake II, originally uploaded by TaylorTree.

Took some pictures of the lake to showcase just how much water has been released from the Lake Livingston Dam. Refer to this post for the before pictures of the lake.

Serenity Now

"Fishing is much more than fish. It is the great occasion when we may return to the fine simplicity of our forefathers." -- Herbert Hoover

daughter_1stfish, originally uploaded by TaylorTree.

Figured this picture was most appropriate for this week's Serenity Now since my daughter's birthday is this weekend.

This pic was taken while catching her first fish, a little largemouth bass. She actually caught two fish that day. The other one was a crappie. Okay, enough bragging. :)

Have a good weekend!

MT

Reversion to the Mean

Interesting post from Michael Covel titled Reversion to the Mean. Thanks to Ugly Chart for the FatKat link which triggered a search for James Simmons (Renaissance Technologies) which then guided me to Michael Covel's post. Funny where someone's post will take you. :)

Back to Covel's post. This talk of the next landing likely to be average in regard to pilots garners the question...will your next trade likely be average? Is there some dependency out there to explore in your trading system's position sizing methods? By following the Martingale method, am I rewarding my perfect landings (increasing size of next position) and ridiculing my bad landings (decreasing size of next position)? Oh, ideas to test...

Side Note
We were without power today and this hundred degree weather was a killer. I'm writing to you with a big smile on my face because just after FEMA came around my neighborhood bullhorning that they have no idea when power would be restored...the power was restored! Yeah! Having electricity never felt so good. Even if it's only for a short-time until the next rolling black-out.

Wanted to share a memory I have of my mom that might prove insightful. My mom lived through a lot...but I think the top two things that really put the fear in her were the hurricanes and gas crunch of the late 70's/early 80's. Know what I remember? She never allowed her car's gas tank to get below half a tank. Never. She would keep that sucker topped off every opportunity she got. Kinda like my grandpa after farming through the Great Depression...never kept money in the bank. I wonder, has a whole generation of people passed through these 25 years not understanding what a precious and valuable thing commodities can end up being? Only to experience it first hand over these past few months?

Know what my wife's worry is now? Someone stealing gas out of her car. Not stealing her car...but her gas! Remember when it used to be a big thing to have a lock on your gas cap? To be honest, I grew up never understanding why you'd need a lock on your gas cap. Now, I do. Another story for you...

While waiting in Houston evacuation traffic...everyone was running on gas fumes. The longer it took, the more gas it ate up. One woman was in her car staring off into space, frustrated with the hours she had spent in this traffic, only to witness someone beside her car syphoning off her gas. While she was driving it mind you. She immediately got out, yelled at the guy, and he ran away...cut short of his objective...but with a little more gas than he had before.

Have these past 20 something years been a perfect landing in commodities?

Are we headed for a Reversion to the Mean? Something I speculated back in March in my Canary in a Coal Mine post?

Finally, please keep all the people who still do not have electricity due to Hurricane Rita in your thoughts and prayers. We are having heat records blown out of the sky this week (100+ degree days), no breeze, nothing. And thoughts and prayers for all the men and women of the utility companies who are working around the clock to get power restored.

Later Trades,

MT

Update: Wanted to clarify a bit on the term Martingale. When I referred to Martingale in the above post, I was referring to a specific type of Martingale commonly known as Anti-Martingale. Where you increase bet-size based on winning and decrease bet-size based on losing. The conventional Martingale often referenced in the BlackJack world back in the day increases bet-size on losing.

A few links to explore on Martingale...
Position Sizing by Michael R. Bryant
The Truth About Betting Systems
Betting Systems and the House Edge
Exposing the Gambler's Fallacy

A few links to explore on the Law of Averages and Gambler's Fallacy...
Law of Large Numbers and Gambler's Fallacy
The Law of Large Numbers

Serenity Now

pre_rita_calmbeforestorm, originally uploaded by TaylorTree.

Testing the flickr service out. I think I'll try to post a picture each week titled Serenity Now (possibly on Fridays). Just trying to figure out the easiest way to do this.

MT

Lake Livingston Dam Update

I'm powering down for the night but wanted to post a few links to information on the Lake Livingston Dam release currently in progress. First here are the links: Engineers rushing to inspect dam damage, Residents May Have to Leave Because of Worries about Dam, Emergency release of water begins from Livingston Dam.

Note, I checked on the lake levels tonight and it is true...the lake is dropping fast. So, be careful out there...especially if you live in the Liberty County area. When water is released from the dam...the Liberty area will not actually see the full impact until 5 days later. And speaking of Liberty...apparently all power is still down in that area as well as Dayton.

And to my regular readers...please be patient with my current posts. I promise I'll get back to writing about trading and systems very soon. Just feel an obligation to get the word out especially since most of the hurricane coverage is centered around the bigger cities such as Houston and Beaumont.

Take care,

MT

Hurricane Rita - Good site on getting back home

This Houston MetroBlogging site posted a great link to a blog that focuses on The Road Home.

MT

Livingston / Onalaska Hurricane Status

I'm getting quite a few emails concerning people who hunkered down in the Livingston / Onlaska area during hurricane Rita's attack. They're in the same boat as much of this area: telephone lines down, cell towers down, no power, no gas. These people are very worried because they have not heard anything from the people who stayed in this area since the storm hit. With the news of the Lake Livingston Dam evacuation...I'm sure their fears have only increased.

So, please, if you know anything or you're from the Livingston / Onalaska area...leave a comment on this post giving information on the status of this area. My power keeps coming up and down...so by leaving a comment it will be there for all to see who's desperately looking for information on their loved ones. Plus, it will email me and when I can check...I can email those people looking for answers to let them know the status of things.

Again, if you're in the area please let us know...what's the damage like?, where they're any tornadoes that hit?, what cities/towns/areas are being evacuated due to the release of the Trinity River waters from the Lake Livingston Dam. Where are they locating the evacuees from this area? Any numbers to call to get this kind of information? Any information will be greatly appreciated.

Please keep these people in your thoughts and prayers.

MT

Hurricane Rita - Post-Update

The good news is we're okay. But, it was rough. The winds started picking up over 40mph sometime around 2:00am Saturday morning and by 4:00am they were at least 75mph with some gusts well over 100mph. Several points in my area have reported wind gusts as high as 117mph. What really sucks (there is no better word for it) is our largest, prettiest tree collapsed. Literally split into two. Here's a picture of the damage.



I want to thank everyone for keeping us in your thoughts and prayers. We really felt it because the winds were literally howling and miraculously the trees held up to them...actually providing a buffer between us and the winds. We drove around the neighborhood today and most homes are without power but nobody had any serious damage. So, thanks again for the prayers and wishes.

Speaking of fallen trees...really only one other home had tree damage similar to ours.


Now the concern has turned to the Lake Livingston Dam. Read coverage here and here. Apparently the high winds have caused stress on the dam and they need to release water out of the lake in order to assess the damage. We just found out about this a few hours ago and they have ordered a flood evacuation from all the areas surrounding the Trinity River which includes us. But, thankfully, we should be okay since we're north of the Dam. The people who will encounter the released waters will be south of the dam. In fact, everyone north of the dam should see their lake water levels reducing. Here's a pic of that process:


But, just to be safe I'm going to check on the progress of the dam release in my area every hour on the hour. So, please, keep the people south of Lake Livingston Dam in your thoughts and prayers...they're going to need them.

Interesting Tidbits from Hurricane Rita

JLP from AllThingsFinancial shares his evacuation story through the Corrigan/Livingston area that I reported problems on in a prior post. Take note...his story is very similar to several I have heard that had to evacuate through that area. I'm glad JLP and his family made it through.

I was interviewed by SkyNews UK about 5:00am Saturday morning. One of the producers found my blog and they wanted to hear my story on hunkering down in the storm. It just so happened that they called just as the storm was really coming through...winds were at least 70mph...a transformer blew about 20 feet from my house...and it was 5:00am in the morning! In fact, the power went out during this first phone call with them. Needless to say, I was a bit excited. My wife and I keep laughing over and over at one of the comments I made during the live TV interview. They asked me if I was well-stocked for the storm, able to make it through a few days to a few weeks without power. My answer was, "I hope it's not that long...but we're well stocked...I have a garage filled with buckets full of water in case we need to flush." I'm laughing right now as I type that. Where did that come from? Funny the things you say when under stress and being interviewed. Well, at least I gave the nice people over in the UK something to laugh about during this stressful time. One last thing, everyone I talked to at SkyNews was incredibly nice, understanding, and sincere. Good people.

In addition to the falling tree there was a fire just a block in front of my house. It started from the electrical lines getting hit by the trees and got big enough that I could start to smell it. I was frantically throwing on work boots in order to get over there and help but almost as soon as it started it sputtered out. Thank goodness for that.

Here's some links to pictures of the evacuations through Huntsville that are simply incredible. This is what I was witnessing in my Grapes of Wrath post.

A couple of news sites made note of my hurricane coverage.
Netscape News with CNN listed it as an Editors' Web Picks on What People are Saying.

The Guardian Unlimited quoted several of my comments on the evacuation and hunkering down for little Rita.

That's it for now. Time to check on those lake levels.

MT

The winds and rains have arrived...

Well, the weather has turned. The winds and rains are here...so I'm signing off. Unplugging all the electronics and sitting tight.

Take care and I'll see you on the other side.

Later Trades,

MT

Pre Rita

Well, looks like this hurricane is moving more east of us and might not be as bad as previously believed. That's the good news for us. Bad for Louisiana.

Also, there's hundreds of people stuck in Corrigan for hours (14+). The friend I was referring to in my previous post who's waiting on his family is still waiting. They left Port Arthur early yesterday and they've been stuck in the Corrigan area all day, all night, and now all of today. Nobody has any gas and they're really going through the ringer.

Another update. Apparently there are 20 to 25 tankers of gas heading from Fort Hood to the Huntsville/Riverside/Trinity area to deliver gas. That's the good news for all of us. But, that doesn't help those Corrigan people. Someone needs to get them gas and fast.

Well, I promised some pics and here are a couple of the lake taken approximately 1:00pm central standard time.

Calm waters


Another pic where you can view the water level in relation to the pier.


I'll post a follow-up to these pictures post Rita.

Wind right now just picked up pretty good. This could get interesting. I'll be disconnecting shortly after the market closes (3:00pm central standard time) and moving my PC to a safer location. Here's a view outside my home office.



As you can see...plenty of trees which should act as a buffer from the wind. Let's hope they can stand up to this wind.

Might be my last post for the day. I've got some more rat-killing to do in order to be ready for this hurricane. And family to take care of.

Take care,

MT

Rita and the Lake Area

You'd never imagine a hurricane was coming sometime today. The skies are clear, just a slight breeze, and finally the heat from yesterday has dissipated a bit.

I've gotten a few emails on the area I live and blog about. So, I've included a picture of the lake and surrounding areas in relation to the Gulf Coast and little Rita.



As you can see, we should be okay. It's far enough away from the coast that we hopefully will be able to avoid much of the damage little Rita is sure to cause. The concerning factor is which side of the hurricane will we be? If to the west...the winds and possible tornadoes spinoffs should be somewhat limited. If on the dirty side (east of hurricane)...then we'll be in for some very strong winds (75mph+) and the worst part...tornadoes. When hurricane Carla came through years ago...the dirty side spunoff over 100 tornadoes. Pretty scary if you ask me.

Please keep the people evacuating Houston/Beaumont area in your thoughts and prayers. There are many families still stuck in their cars. Two friends of mine are still waiting on family to get to their houses. Those families started driving early yesterday morning. It's a real helpless feeling when you're only an hour away from your destination and you're out of gas, water, food, and your stuck in a traffic for hours on end. Worst part about it is it's very difficult to bring anything to them even if you could get your hands on some gas...which is almost impossible.

Finally, take a look over at Bill Cara's site. He has covered Rita and its economic impact very well. Take a look at all the oil rigs that are likely to be hit from Rita this time around. I cannot imagine the damage this will cause.


Source: Rigzone via Bill Cara

As I'm finishing up this post...you can hear and feel the winds are growing stronger. Take a look at the recent satellite image of Rita and you can see it's coming. I'll post some pics later.

Take care,

MT

Hurricane Rita

Houses were shut tight, and cloth wedged around doors and windows, but the dust came in so thinly that it could not be seen in the air, and it settled like pollen on the chairs and tables, on the dishes. -- The Grapes of Wrath

The mass exodus from Houston and Beaumont areas are causing all kinds of problems. Gas raids in particular. In my area today there were only 2 gas stations with gas and those stations looked like a Super WalMart parking lot. And you gotta realize...I'm talking small small towns. The type of towns where you blink and you miss em'. These towns haven't ever seen these type of crowds in their entire history. You're talking about a standard deviation breakout on the town populations.

And you definitely get a Grapes of Wrath sense while driving the roads. Families carrying their house in their cars & trucks. Not just one car but a caravan of cars traversing the highways. Moms following Dads, Aunts, Uncles, etc. All their belongings crammed into their trucks, uhauls, horse trailers, and cars. Kinda scary. Keep these folks in your thoughts and prayers.

Experiencing all this takes me back to my childhood days when we lived some miles north of Galveston off I-45. I cannot remember the name of the hurricane that hit...just remember my dad was gone (offshore oil drilling) and my mom and I were left to face the storm alone. That was back in the day when you were told to open up all the doors and windows in your home to allow the winds to pass through your house. Mom threw me into the bathtub and took my mattress and covered us with it. Yes, empty bathtub, mattress, all the doors and windows open...hurricane hits. Sounded like a freight train when it came through. I wanted to look so bad but mom just about smothered me trying to keep me safe.

The only other memory I have of that event was what it felt like to be in the eye of the hurricane. I can still remember the smell of the air...clean...distinctive. Of course, the sky was clear. Got a sense of awe for sure. That's about all I remember. I do think my dad was finally able to get back home and had to swim from I-45 to our neck of the woods to get home. Yes, I did say swim. Not sure, but think he just left his car on the side of the road. Funny the things you remember.

Other interesting things...I live a block or two from a lake. This community consists of lake homes (wood siding, pier&beam). About half are residents and the other half weekenders. Today when I drove home I took a look at who was home...almost every weekend home had at least 10 to 15 cars/trucks at the house. I guess, some have escaped up here. But, the reports on the news say this area will still get up to 100 mph winds from little Rita. So, say a prayer for these folks as well...and that includes me & my family.

Yes, we're hunkering down and going to tough it out. I spent the afternoon battening down the hatches, backing up my computer equipment, securing the boat, and smoking some briscuit for the storm ahead. Yes, every good Texan knows you gotta do some grilling during hurricane time. And a Corona or two to keep your sanity or lack thereof.

I'll try to post some pics of pre-Rita and post-Rita for ya. And keep you updated on the progress in hurricane central. In the mean time, you can check out another blog covering the hurricane.

Last but not least check out the FundAlarm site. Take note of the experiment they're doing with a market-timing newsletter. I think it'll be interesting to see how this unfolds.

Later Trades,

MT

Quote of the Week

I find the The Kirk Report's quote today very appropriate:
"What we anticipate seldom occurs; what we least expected generally happens." - Benjamin Disraeli

MT

Hope, Prayers, and Position Sizing

This Rita stuff looks pretty bad. From the looks of it...the path of the hurricane will come blowing right through my locale. I have several family and friends vacating the area just an hour south of me. We're told that everything should be okay here especially considering we're the first place you're able to stop when evacuating Houston/Galveston.

So, my wife picked up some essentials at the store today in case we stay. Speaking of stores and essentials...it is clear people are panicking. There are stories of people fighting over the last can of tuna and bottled water. As of now, all batteries, candles, water, and many other supplies are gone from the stores. My wife commented that she has never had so many people look in her shopping cart before. Seeing what she was buying...do they need that...this...etc. A bit of the sky is falling feeling seems to be happening. But, like I said, this Rita looks pretty bad. Last hurricane that blew through this way was Alicia and it was "only" a category 3.

We've decided to wait til' late Thursday night/early Friday morning to decide whether we stay or go. I figure by that time, the path will be a sure thing and hopefully the streets will be a little less congested up north of here. Of course, we'll follow the path less travelled. So, stay tuned. If we stay, I'll keep you posted on what kind of winds/rains we see up here. If not, I'll report what kind of damage happened when we return. Keep everyone down here on the Gulf Coast in your thoughts and prayers. Also, here's a couple of blogs (1, 2) from the Houston Chronicle that fills in some of the Rita details.

Before I get out of dodge, I wanted to leave you with a great little pdf on position sizing from Breakout Futures. I'm currently trying out the Adaptrade product, Market System Analyzer. They provide a free lite-version download to the product where you can load up to 15 trades to experiment with. The full version allows unlimited number of trades to analyze. I'll let you know my thoughts on this product once I test it a little more. Also, here's some great articles from Dr. Bryant covering Position Sizing to Monte Carlo Analysis to Trade Dependency to Equity Curve Trading. Read here. You can sign up for Dr. Bryant's free newsletters here as well as peruse the archives. Enjoy!

Later Trades,

MT

GoDaddy.com's BlogFest!

Never heard of Bob Parsons before today. Came across his blog via MyYahoo.com's neat little Daily Picks feature. Usually, I just give the sites listed a quick glance. And proceeded to do the same with Bob Parsons site. But, his words caught my eye. And they should catch yours as well. Some wonderful stories of how to make it in this world...starting from scratch and propspering in your chosen endeavors. Something all of us traders should read, learn, and do.

Start with this great post, Parson's rules for survival. This post briefly discusses his background but more importantly the rules that have become the foundation for his success. My favorites?

1. Get and stay out of your comfort zone. I believe that not much happens of any significance when we're in our comfort zone. I hear people say, "But I'm concerned about security." My response to that is simple: "Security is for cadavers."
Parson dives deeper in this post and makes the claim, "I would have accomplished nothing had I not stepped outside my comfort zone." How many of you are unhappy with what you've got and afraid to risk what you've got to get something better?

3. When you're ready to quit, you're closer than you think. There's an old Chinese saying that I just love, and I believe it is so true. It goes like this: "The temptation to quit will be greatest just before you are about to succeed."
Read further into this rule here. I really love this rule. I cannot tell you the number of times I have almost given up only to dig deeper and realize success was just around the corner. Or as my mom used to say when I was about to give up on something as a kid..."Climb that Mountain! You're almost to the top. Don't give up now."

9. Measure everything of significance. I swear this is true. Anything that is measured and watched, improves. Parson explains further in this post.

14. Solve your own problems. You'll find that by coming up with your own solutions, you'll develop a competitive edge. Masura Ibuka, the co-founder of SONY, said it best: "You never succeed in technology, business, or anything by following the others." There's also an old Asian saying that I remind myself of frequently. It goes like this: "A wise man keeps his own counsel."
Wish I understood this 10 years ago when I began my school of hard-knocks in the trading world.

The above articles and quotes are included with the permission of Bob Parsons (http://www.bobparsons.com) and is Copyright 2005 by Bob Parsons. All rights reserved.

Some true words of inspiration for us all...by none other than the founder of GoDaddy.com? Wow, who woulda thunk it? :)

Later Trades,

MT

Larry Connors Link Fest

Larry Connors needs no introduction. The CEO and Co-founder of TradingMarkets.com. And the co-author of the ever popular Raschke book, Street Smarts. I noticed Connors has setup a blog here. He mentioned he wrote a Connors Weekly Battle Plan that I have clearly missed in my Internet readings for the past 3 years. Luckily, the articles are still available here. So, check em' out while you can...

Connors performs an interesting test on buy and hold, buying everyday on the open and selling on the close (no overnight risk), and buying everyday on the close and selling on the next morning's open (only overnight risk). The results? Never forget we get paid by taking risk...not by avoiding it. Read here.

The Month-End Effect. I've tested this system idea before. I believe the recent tests are aimed towards the small-cap & micro-cap market. Basically buying at the end of the month and selling at the beginning to capture the big boys in action. Theory is that hedge funds now report their performance numbers every month instead of every quarter. Connors gives a good breakdown of his tests on this idea here.

Excellent piece on NOT buying breakouts. I have to admit, several of my long-term system setups are breakouts to new highs. Buying breakouts does work...but don't be afraid to explore the dark side...buying breakdowns. Read Part I and Part II. Also read the follow-ups here, here, and here.

Interesting little edges shared. Fans of the consecutive closing highs will enjoy this little tidbit. Read here and scroll to bottom where it discusses Finding the Best Opportunities In a Declining Market.

Great post on what happens when you buy what the general public believes. Believers in the 200 dma may want to read a bit of this article. Also gives away an interesting system idea. Read here.

Fantastic interview with the great Nelson Freeburg. Nelson challenges the view that money management is the vital ingredient to success. Entry and Exit are the key. And I tend to agree. Read Part I and Part II.

This piece is for the discretionary traders out there. Insight into how buying panics are created and the possible ways to take advantage of them. Read here.

Later Trades,

MT

ADD and Jay-Z

I came across this forum on Traders having ADD tonight and thought I'd share. Take note of acrary's post on keeping a small notebook with you in order to record the multitude of ideas popping through your head (I do this). Also pay attention to his NLP technique to clear the mind before the trading day. I use a variation of this method each and every day. My variation is instead of one blank sheet of paper...I use several. Ha! One look at my desk and you'll see scratch paper everywhere. All wonderfully organized by my dyslexic brain. :)

Keeping focused has always been one of the main problems in my life with ADD. I'm sure you can tell that from the wide ranging topics my blog has covered. :) One of my top coping mechanisms is music. After writing down all the things I'd like to accomplish for the day...I start up my music shuffle and get on with my rat-killin'. My song of choice to start the day? Oh yeah, there's nothing like starting the day with Jay-Z's U Don't Know...

Open the market up...$1 million, $2 million, $3 million, $4...18 months, $80 million more.

Later Trades,

MT

Larry Williams Interview and Templeton Insight

First check out Maoxian's Wise Words from John Templeton here. Oh yeah, I was truly scared when putting on the QQQQ option trade back in April. But, you can't beat an average profit of over 200% from that one trade. To be honest, made my year. Templeton's words ring true, "The art of successful investment is counterintuitive."

Next take a gander at RealWorldTrading's recent interview of Larry Williams (father of the Michelle Williams) Interesting tidbits from the interview?

Larry's daughter, Michelle, won the World Cup trading championship at age 16 following one of his systems turning a $10,000 account into $110,000. Aye-chewowa.

Larry disses Gann charts, Fibonacci, and TA concepts but has seen a relationship between stock prices and the new moon cycle (astro-finance).

I like his thoughts on the 50 lowest priced stocks, seasonality of the different sectors, and trading with the insiders.

Well, everyone have a great weekend. Tomorrow is Father-Daughter day for yours truly. A day filled with getting doughnuts, watching movies, working in the garage, eating popcorn, and just chillin' like a villain. Or as my daughter puts it, "Chill like a Vill."

Later Trades,

MT

TraderMike's Survey Results

Check out TraderMike's Survey Results. Interesting stuff. What I found most interesting is he liked two of the comments I made on the survey:

Don't care anything about watchlists and stock ideas. I care about the process of being a trader, methods and mechanics used, and styles followed and observed. Any content focused on those guidelines I would enjoy reading.

More background on how you became a trader, what enabled you to trade for a living, and how easy/hard it is to trade for a living. Trials and tribulations, my friend, trials and tribulations.

Kinda cool that he found my comments interesting. Guess we have more in common than the name. :)

Speaking of surveys...I'm too lazy to put together a great survey like TraderMike's. But, if you have any ideas...something you'd like to see...other topics you're interested in...please leave a comment or drop an email (mike@taylortree.com).

System Update
I'm in the process of researching another system idea. This one's a bit of a departure from my normal system development. It involves more of a fundamental approach than technical. And truth be told, the gathering of data for testing the idea will be challenging. But, as they say, the harder you work the luckier you get.

Later Trades,

MT

A little Humor

A coworker sent this site to me today. Thought I'd share it with ya'll considering the recent rant about Catching Fish. See lures & jigs here.

Later Trades,

MT

Catching Fish

I received a rather funny comment last night from my post, "New Broker and Atlanta."

Here's the comment:

Do you realize that using an Ameritrade company that you're doing nothing more then emailing your orders in and they're pooled against other client orders? Amazing the lack of knowledge.

I guess the anonymous fellow didn't like my recent choice in brokers. Ha! And don't you just love the final stab, "Amazing the lack of knowledge." Since the pooling of client orders are just one of the many reasons why I've always liked Ameritrade as a broker. As I've mentioned in several of my posts...I don't require direct access and the like to trade my systems. Like Livermore who grew up and prospered in the bucket shops...I've learned to trade in the Ameritrade-type environment. I'm comfortable there and all my systems are geared to that environment. When I step away from that environment...many of my advantages are gone. And perhaps like Livermore's return to the bucket shops to rebuild his grubstake...I've always returned to the Ameritrade's of the world.

Could I do better with learning direct access? Changing my style and systems up? Perhaps this article by Scott Barrie will better address the question. Read Wonderful Fishing here.

My favorite quotes in the article?

I took my trusty fly rod, my brother used a spinning rod and a spoon as did my son. However, my daughter Katherine (aka "Kallie Pally") was set up with her little $5/Barbie fishing rod (a pink push button caster with pictures of Barbie on it, reminiscent of an old Zebco), a bobber and a worm... really to include her and keep her busy while the boys fished. Well, after about 20 minutes of getting nothing - in one of my favorite childhood holes - her bobber went under water, while the boys had not even gotten a strike. She reeled in a beautiful 13" brown trout, and taught the rest of us to fish. She taught us a lesson... not the tackle but the tactics (bait) which makes fish bite.

The lessons learned fishing in a river or on the world's bourses are similar, but the one I walked away with this time is that the tackle and equipment is not that important as long as one can find the right bait and present it where the fish are.

Perhaps I'll explain a bit more as to the type of fish I'm trying to catch in regards to trading. I'm not looking to throw myself into the pit where people are smarter, faster, and frankly more talented than I am. And more importantly, have more money and better resources at their disposal than me. My goal is to avoid those crowded stomping grounds. I'm constantly in search of the places the big boys and girls can't get to. That's why I trade low volume stocks which are often times low priced stocks. I only trade the Nasdaq stocks because of the type of orders I enter. Then I develop & trade strategies that take advantage of the conditions present in these types of stocks. After many years of trading this way you begin to see all the different things an Ameritrade type of environment will present and you learn and adapt. You also discover new strategies to take advantage of this limited environment.

So, if I liked Ameritrade so much why did I switch to a direct access broker? The reason? A new system and the need for less than $5 commissions to trade it. With my Ameritrade commissions above the $5 mark and with a failure of them to come down to reach that area...I was forced to switch. I didn't know about Izone at the time and the only places I could find that would reduce my commissions were direct access brokers like IB and MB Trading. But, at a cost...at least half of my orders would be filled at the same cost Ameritrade was charging in commissions. I was hoping some would be charged below Ameritrade due to the share price and quantity bought/sold.

After real-world testing the system I quickly began to see that #1 the system's performance depended more on the commission costs than my backtests showed, and #2 the majority of my commissions were pretty close to the Ameritrade cost level. So, I was forced to decide...shut the system down or find cheaper commissions. Luckily I found Izone and after trading with them for three weeks I'm happy to report my system is back to profitability.

Here's my equity curve showcasing the effects commissions and trading environment can have on a system:


As you can see, once I switched...profitability returned. Not because the market improved or better fills. But, because commission costs were reduced significantly.

Again, this is not a diss on MB Trading. I was treated very well by MB Trading and I strongly believe they're one of the good guys in this industry. Perhaps one day I shall return to direct access and if I do I would choose MB Trading again. But, for now I'm content with my current fishing equipment. As the article I linked to above mentions...the tools aren't as important as catching fish. And I'm catching plenty of fish...despite the amazing lack of knowledge. Ha!

Later Trades,

MT

New Broker and Atlanta...

I've switched brokers again about 3 weeks ago. MB Trading was great but the per share pricing was beginning to hurt the performance of the new system I'm trading. So, had to act fast and switch to a broker that was #1 cheap and #2 priced commissions based on trade not shares. I chose Izone. They're an arm of Ameritrade and their trading interface is one and the same. That's a good thing since I'm very familiar with the interface and thus no learning curve to overcome.

So far so good. They integrate very well with QuoteTracker software. Fills have been very good. Overall, I'm pleased. And have to add that QuoteTracker is really the driving force behind making everything I'm doing work.

I'll continue to monitor Izone's performance and let you know of the good and bad.

Update on my day job projects. The majority of them are complete, in production, and being used like there's no tomorrow. So far so good. The real test will be this Friday when they run final payroll. Cross your fingers.

I've also discovered an EDI conference I'll need to attend in Atlanta this coming October. Should be a fun trip. Have some family in the area so plan to learn a lot and do some visiting. After all the hard work I've put in and more importantly number of hours...I think I'll extend my stay and make a vacation out it. If anyone has any good recommendations for places to stay & vist in and around Atlanta...please let me know. Last time I've been in the area was back in my AT&T days when I did a brief teaching stint at the Alpharetta location. I saw very little daylight since I ended up taking the graveyard shift in training the job operators. Hopefully, on this trip, I'll have a little more time to see and do.

By next week, I should get back to the normal grind again and start writing better more content-filled articles.

Until then...

MT

Sad Times

Today was a rough day as a father. My city is one of the cities accepting the Louisiana flood victims. In addition to donating money...I'm hearing and seeing many children in need of toys, coloring books, crayons, dolls, cars/trucks, and school supplies that they lost in the flood. These children are really in bad shape...taken out of their homes, nothing to do, faced with attending new schools with none of the comforts of home.

So, I figured this would be a great opportunity to get my daughter to help out by giving up some of her toys, books, crayons, and paper to these children in need. Needless to say her reaction to hearing about the children losing their homes and belongings and the subsequent abundant giving up of her favorite toys broke my heart. Something I thought would take up just a short amount of time ended up being an all night event. I actually had to stop her from giving away everything. Then spent the rest of the night explaining who took their toys away and who took their homes away. She didn't want to go to bed because she was worried about these children. I wasn't prepared for this.

I cannot, for the life of me, imagine what questions the parents who lost their homes and possessions to Katrina are having to answer to their kids this week. My heart goes out to them.

Please do what you can for the flood victims. And please, please do what you can for the communities supporting them. Many of the communities across Texas are taking in way more than they can handle. This will effect schools and teachers which are already maxed, budget-constrained hospitals, and small churches hosting them. Money is always good but get creative with your help. Often everything goes to the food, clothes, water area. But, there are kids that will need lunchboxes, backpacks, and other school supplies that will begin starting a new school from kindergarten up to college. Think also of the teacher's needs...teaching and supporting more kids. Some of these schools already don't have enough money for textbooks, computers, etc. The list goes on and on.

Realize most of the people are staying in large stadium-like places, sleeping in cots, with little to no privacy. While it's better than nothing...local hotels would surely be better. In fact, I'm amazed at the random acts of kindness going around where the local people are buying a few day's hotel stay for the people they meet. Doesn't sound like much...but think about it...after what they've been through...wouldn't you want a nice warm shower and soft pillow to lay your head? In privacy? Even if it's just for a night or two.

Take care,

MT

Interview with Andy Beyer

Check out the recent interview of Andy Beyer via TradingMarkets. A truly insightful interview with a gambling legend. Some of my favorite quotes in the interview:

It was a tremendous edge to have the figures at a time when most people didn’t use them or even believe in them. I can only draw an analogy to the stock market – if the concept of the P/E ratio were unknown to, or its importance was disbelieved by the majority of people buying stocks, and you were about the only guy who knew what the P/E of different stocks was, it would be a tremendous advantage and I had that advantage for many years.

So a lot of my emphasis now is on watching races and taking notes on all the horses and you’re trying to see things and spot subtleties that other horseplayers may not see -- to try to get an edge that way.

I think that most horseplayers will tell you they’ve had a successful year, it’s not because they have been brilliant at grinding day-in and day-out profits, but because during the course of that year, they have made a certain number of big scores that more than compensate for all the inevitable losses along the way.

Read more of this great interview here.

Later Trades,

MT

Link Fest!

Very sorry about this folks...but I'll be light on posting this week and next. I have 3 major projects that just landed on my desk that will require almost all my time. Like I said in a prior post...August is my busiest time of year...and this year is proving to be no exception. So, please be patient with the lack of my usual content.

To keep it light and to give my aching brain a break from all the programming I'm doing...let's have a link fest post. Here are some posts that caught my eye recently. Enjoy!

Take a dig through Niederhoffer's Daily Speculation site. Pay particular attention to the following articles:

Relativity, by Dr. Mike Ott - I found the discussion on whether things considered popular at the time would have been popular regardless of the time most interesting. Examples given are Einstein and music. This little post hits right to the core in my overall view on life: Don't pay so much attention to the person and their abilities...the key is the application of an idea or philosophy that fits the surrounding environment. Would Jim Rogers have been so wealthy if he hadn't caught the commodity bull of the 60's and 70's? How about John Henry? Would he own the Red Sox if he implemented his simple little trend following system with a rather scary drawdown money management formula in the 90's versus the commodity bull of the 60's & 70's? Better yet...dig deeply through the Market Wizards books and you'll notice a very common theme. Most of the wizards found success at a critical point in the trading landscape. Marty Schwartz and the trading of the financial futures is just one example. So much attention is focused on the greatness of a person when much of their success came about due to being able to take advantage of the landscape. Of course, the other side of the coin is that's the greatness of the person...having the insight/luck/guts to recognize and take advantage of the changing landscape and opportunities it brings. Ha!

Also check out Lobster and Trading Gangs, by Victor Niederhoffer. Interesting insights into the protection of territory whether it be lobster spots, the trading floor, or the general public.

And finally, read The DailySpec Dept of Education Continues, With a Second Market Tutorial, by Phillip J. McDonnell. Gives away an interesting little way to determine the optimal trade size. Don't miss this one...especially if you're a believer in the Kelly Formula for trade size.

TraderMike has a great article on his Thoughts on Day Trading.

One of the best parts of his post is the discussion on commissions. Mike mentions this was one of his biggest changes and I definitely agree. Failure to focus on commission costs in regard to your trading is just asking for trouble. And more importantly asking to be sent to the poor house. What most people out there don't realize is you can take an extremely profitable trading system and apply a small increase in commission costs and go broke trading it. Trading capital is also an extremely important but often neglected topic. Most traders will fail simply because they're trading capital is too small. Or let's put it another way...you pretty much have to be perfect in order to profitably trade with a small amount of capital and high commission costs to boot. And to show you just how neglected trading capital is...look no further than Trader Eyal's Weekly Poll. And yes, I'm the only person who voted that Trading Capital was the most important success factor in Trading.

And that's it from the TaylorTree...where my brain hurts...I'm tired...need rest...but I must go on like a good soldier and knock this code out! Do I feel a vacation coming on after all this is over? Hmmmm....

Later Trades,

MT

The Rising Tide

I'm busy to say the least. One of those times where your mind is on a million things and you can't rest. Even when you're resting...you're working. Thinking scenarios out in your mind. And I'm getting hit on all fronts. My day job has just entered the scary busy season. You know, the time when you do whatever it takes to get the job done...even if that means no sleep, no lunches, nothing. Just get it done. Hopefully, in after a few more weeks I'll go into the scary support season. That's when you sit on pins and needles hoping and praying all of what you've done works! Ha!

I've also been plenty busy implementing all the new technology changes I've introduced into my trading environment. I've got so many things to do now each night...I can barely keep up. First there's my data source updates via TC2005. Then Wealth-Lab Multi-Scans. Then R batch jobs. Then loading symbols lists into Trade-Ideas Pro. Then wake up the next day and submit orders and quickly configure Medved QuoteTracker's Trade-Ideas integrated window. Whew! That's enough to confuse even a full-time trader, I'd think.

I don't really have much to comment on this week...mainly because time is of the essence. But, I wanted to give a quick update on how MB Trading, QuoteTracker, and Trade-Ideas are working together. One word, AWESOME! I'm serious. I cannot believe how seamless the whole process is. With QuoteTracker you can create several different Trade-Ideas windows to choose from. And you can configure these windows to submit Trade-Ideas alerts into a portfolio you created in QuoteTracker. From there you can right-click or Ctrl-T on the symbol and trade it. That's where the built-in MB Trading stuff works like a charm. You can submit your orders, watch the order log, and check on your fills and positions all from within QuoteTracker. Not too shabby.

So, so far...so good.

Also, I haven't really posted much about my R work. I've been planning too...but until then you really should check out The Learning Blog's R post. Dan is much more advanced than me in R. Heck, cracking open the badboy and tweaking it to your liking is definitely beyond my skill levels. So, if you have any R questions...especially in regards to econometrics...check him out.

My use of R? Mostly just creating methods to analyze my trades and ascertaining patterns in the data. Kinda like Mark Cook's use of trading journals in the Market Wizards interview. I especially liked the part where he helped one trader become profitable simply by eliminating Fridays from his trading regimen. So, instead of writing my trades down on paper...I enter them into comma-delimited files via Excel and load into R and perform various analysis. I will also take my backtests from Wealth-Lab and analyze via R. The great thing about R is that you can run it interactively and batch. The batch mode is what I use the most. Again, hopefully I'll write a post about some useful R commands and scripts that help analyze trades. Until then check out this baseball article to get you started. Heck, that's what got me started.

Side Note:
I recently purchased a Dewalt 10" Heavy-Duty Compound Miter Saw from Home Depot. No, I'm not spending more money. I received a $200 gift card for my John Deere L111 purchase. And there's nothing better than getting a gift card to Home Depot!!! The grown man's candy store! :) Now, my next project is building a miter stand. Oh yes...there's always something at the TaylorTree. Ha! And yes, then I'll have to spend more money. :)

Last and certainly not least...this is something for you parents out there. My daughter is having a little trouble with her letters. So, I created a game tonight that was a lot of fun and hit on various aspects of learning. I cut up 7 pieces of construction paper into 4 squares each. Then I grabbed a marker and wrote the letters A, B, C, and D on the squares of paper. In the end, I had 7 A's, 7 B's, 7 C's, and 7 D's that totalled 28 squares of paper.

Now, for the fun stuff. I told her this was the ABC game. And she has to hide in her room...then I'd hide all the pieces of paper in the living room for her to find. The key to the game is she can only find the letter I said. So, when she first came out I told her she could only get the letter B. But, before she could get the papers...she had to tell me something that started with the letter B. Of course, this was the hardest part...so I ended up telling her and then she raced like a rabbit hunting the letter B. Then after she found all the B's....I told her she had to lay out all the papers she found and count them so we'd know if she got them all. If she found them all then we'd proceed to the next letter I chose. As you can see...she ended up learning letters, meanings, counting, and the best of all...treasure hunting. :) A pretty fun and inexpensive game to play with your little toddler.

Later Trades,

MT

Too Busy to Post

Sorry everyone. No post this week. I've got a major project on my hands and doing everything I can to finish it.

Hope everyone has a great weekend. See you next week.

MT

Part II: Scale Fish not Trades

In part I, I mentioned how scaling into trades ends up increasing the complexity of your system while reducing the edge and thus your profitability. Now, on to scaling out of trades.

Scaling out of trades is pure magic. Yes, magic. The more I think about scaling out of trades...the more I realize how powerful this technique is to your system. Think of it this way. Scaling out of your trades gives you the chance to create trading systems that are 100% profitable. How in the world can you beat that? :)

Let's get to work. Here's the 1st example we'll work with:
Full Deck Method
Starting Equity: $35,000.00
Symbol: XYZ
Shares: 1,000
Entry Price: $35.00
Exit Price: $52.50
Gain/Loss%: 50.00%
Gain/Loss$: $17,500.00

Results:
New Adjusted Equity: $52,500.00
Net Profit%: 50.00%
Net Profit$: $17,500.00
Win Ratio: 100.00%
Number of Trades: 1

Not too shabby for an old dog like yourself, eh? Keeping your deck fully loaded throughout the trade thus capitalizing on the big 50% move.

Now, what happens when you attempt to scale out instead? Let's keep it simple, we'll break the scales into quarters and scale out at the 6%, 18%, 32% profit mark, and then let the remaining quarter ride. So, here's what the trade looks like:
Scale Out Method
Starting Equity: $35,000.00
Symbol: XYZ
Shares: 250
Entry Price: $35.00
Exit Price: $37.10
Gain/Loss%: 6.00%
Gain/Loss$: $525.00

Symbol: XYZ
Shares: 250
Entry Price: $35.00
Exit Price: $41.30
Gain/Loss%: 18.00%
Gain/Loss$: $1,575.00

Symbol: XYZ
Shares: 250
Entry Price: $35.00
Exit Price: $46.20
Gain/Loss%: 32.00%
Gain/Loss$: $2,800.00

Symbol: XYZ
Shares: 250
Entry Price: $35.00
Exit Price: $52.50
Gain/Loss%: 50.00%
Gain/Loss$: $4,375.00

Results:
New Adjusted Equity: $44,275.00
Net Profit%: 26.50%
Net Profit$: $9,275.00
Win Ratio: 100.00%
Number of Trades: 4

Wow! That's rough. The Scaling Out Method cut our profits almost in half when compared to the Full Deck Method. What kind of magic dragon you've been puffing Taylor? But, there's another layer hidden behind these numbers. This hidden layer is a roller coaster filled with ups, downs, and a whole lotta nothins that earning 50% on your investment requires.

What if I told you that in order to achieve that 50% return you had to witness a run-up to $46.20 (32% profit) then a fall back down to $37.10 (6% profit)? That's a 20% drawdown in the trade or $9,100.00 in paper profits just wiped away.

Now, you're probably thinking...no way! I have trail stops buddy! I'd never trail my stops 20% or more from the high/close/whatever. If that's true then you'd never achieve that 50% profit for this particular trade example. And since trail stops are a whole nutha beast let's move on.

So, back to the example. If you scaled just like we discussed before...instead of $9,100.00 paper profits vanishing along with your hopes for the trade...only $2,275.00 is lost (4th scale still open) while $4900 (3 scales sold) in actual profits are locked-in. This Scaling Out Method works to lock in your profits but more importantly reduce the drawdown in the trade.

Let's keep testing. What if in the example above we had another trade after the XYZ stock. This new trade was in the ZZZ stock and believe it or not lighting does strike twice in the same portfolio because this trade worked just like the XYZ stock. Hit every mark...but instead of climbing back from that 20% drawdown from the peak of 32% profit...it never came back? And instead you were forced to close out with the paltry 6% profit. What kind of details would that give us...

Full Deck Method
Starting Equity: $35,000.00
Symbol: XYZ
Shares: 1,000
Entry Price: $35.00
Exit Price: $52.50
Gain/Loss%: 50.00%
Gain/Loss$: $17,500.00

New Adjusted Equity: $52,500.00
Symbol: ZZZ
Shares: 1,000
Entry Price: $35.00
Exit Price: $37.10
Gain/Loss%: 6.00%
Gain/Loss$: $2,100.00

Results:
New Adjusted Equity: $54,600.00
Net Profit%: 56.00%
Net Profit$: $19,600.00
Win Ratio: 100.00%
Number of Trades: 2
Max Equity Drawdown: -19.69%

Scale Out Method
Starting Equity: $35,000.00
Symbol: XYZ
Shares: 250
Entry Price: $35.00
Exit Price: $37.10
Gain/Loss%: 6.00%
Gain/Loss$: $525.00

Symbol: XYZ
Shares: 250
Entry Price: $35.00
Exit Price: $41.30
Gain/Loss%: 18.00%
Gain/Loss$: $1,575.00

Symbol: XYZ
Shares: 250
Entry Price: $35.00
Exit Price: $46.20
Gain/Loss%: 32.00%
Gain/Loss$: $2,800.00

Symbol: XYZ
Shares: 250
Entry Price: $35.00
Exit Price: $52.50
Gain/Loss%: 50.00%
Gain/Loss$: $4,375.00

New Adjusted Equity: $44,275.00
Symbol: ZZZ
Shares: 250
Entry Price: $35.00
Exit Price: $37.10
Gain/Loss%: 6.00%
Gain/Loss$: $525.00

Symbol: ZZZ
Shares: 250
Entry Price: $35.00
Exit Price: $41.30
Gain/Loss%: 18.00%
Gain/Loss$: $1,575.00

Symbol: ZZZ
Shares: 250
Entry Price: $35.00
Exit Price: $46.20
Gain/Loss%: 32.00%
Gain/Loss$: $2,800.00

Symbol: ZZZ
Shares: 250
Entry Price: $35.00
Exit Price: $37.10
Gain/Loss%: 6.00%
Gain/Loss$: $525.00

Results:
New Adjusted Equity: $49,700.00
Net Profit%: 42.00%
Net Profit$: $14,700.00
Win Ratio: 100.00%
Number of Trades: 8
Max Equity Drawdown: -5.33%

Now where getting somewhere. The Full Deck had 2 winning trades, $19,600 profit, and a -19.69% system drawdown. Scaling Out had 8 wins, $14,700 profit, and -5.33% system drawdown. So, who's the winner?

Well, the Full Deck Method still earned almost 10% more in profits than the Scaling Out Method. But, with 300% more in system drawdown I think it's fair to say the Scaling Out Method provides the better return for the amount risked. Throw in just one more trade that is a loser to boot and the whole ball games changes. Currently, the win ratio on both systems are 100%. But, with a loser added to the mix the Full Deck Method would drop down to a 67% win ratio. While the Scaling Out method at a worst case scenario would still achieve an 89% win ratio. And could be better if just one of those scales were made before the trade turned into a loss.

What do you think? A way to lock in your profits, free up your money quicker, let some profits ride, reduce your system drawdown, and increase your win ratio to boot. Not too shabby, eh? But, what I like even better is again...where else do you get the chance to create new trading systems with guaranteed profits?

Now, please don't get picky on me. I'm not counting slippage and commission costs into the mix. Feel free to do that when analyzing your own trades. And the 6%, 18%, 32%, and let it ride scale is just an example. By all means, test out different combination of scales in your own trades. Should be enough to keep you busy for a good long while. :)

Rants:
I've been a programmer for 10+ years now. This has involved working with many other programmers both old and new. Know what the most common fault I have witnessed over these 10 years? The failure to test ideas. The failure to test programs. We think it should work, so it must. Ha!

Just what do we have against testing? Why do we feel the need to pontificate on things that can easily be tested? It's a really strange phenomenon that even I'm guilty of from time to time. And I know better!

I think the key is this: Avoid trying to prove an idea with logic and speculation. Use logic and speculation to create ideas and use testing to prove whether those ideas are indeed valid. Maybe logic is not the correct term here. But, I hope you get my meaning.

Side Note:
If you've had a good day, week, month, or year...do you reward yourself for trading well? I haven't really done this before but I'm beginning to think this is a good idea. If all you do is roll the profits back into the business then where's the reward for all your efforts? Usually, my reward or gratification comes from the creation of new systems or learning of new tools/ideas/methods. And of course, writing this blog helps to communicate my thoughts to an audience that can understand and appreciate what I do. That's a reward in itself. But, maybe Rod Tidwell is seeping into my brain and a little part of me is shouting...SHOW ME THE MONEY! Ha ha.

Anyway, upon this theme...I'm thinking about getting a Kodak Digital Camera (EasyShare DX7440 4MP with 4x Optical Zoom for a little reward. I'm a photo-taking newbie so if anyone has any comments on this camera or any other good digital cameras in the $200 - $300 range, please let me know.

Scale Fish not Trades

I have from time to time worked on different scaling into methods for my trading systems. For those not familiar with scaling into trades it involves adding to an existing position based on some condition met. The condition could be a new equity high, a new break-through in the price of the security, or whatever you can imagine. But, aye, there's your first clue.

Condition? Entry? Why this sounds like a new trading system to me. And that's just exactly what this is. Anytime you add a position...you are initiating a brand new trade. With new conditions, rules, entries, exits, etc. Let's put this into system terms.

You are trading one system and enter a trade for 100 shares of stock XYZ. If you want to scale into XYZ again with another 100 shares...the first thing you should ask yourself is what condition will need to be met in order to buy another 100 shares? And with this means testing different entry methods. Seriously, what are you doing when you begin to explore entry methods? You got it...creating a new system. Sure, you may be using your original system as a filter for the trade. But, don't limit yourself to the same exit and position sizing rules as the original system. And don't limit your original system to the position sizing rules of this new one. If it's true you're finding success with scaling into a stock 2 or 3 times. Maybe, just maybe, you need to rethink your existing system's entry rules.

Think about it. If you're creating a trading system and you have thrown the kitchen sink at testing different entry methods to obtain the best possible entry point in the stock. Then why would you short-change yourself with your position sizing strategy by cutting it in half, thirds, or worse yet...quarters? If you honestly think you're served better by not loading the full deck at the first entry point and better waiting to get fully loaded at the 2nd, 3rd, or 4th entry point...then possibly you'd be better off just using those conditions as filters to your system and wait to pull the trigger until all those conditions are met. Understand?

Don't get your feathers ruffled by my comments. I have heard from countless traders that scaling into positions changed their lives and they found great success this way. And due to this I have tested and retested scaling into trades in all my systems. And on every system I have created...scaling into a trade produced mixed results. Not one garnered better results than the original non-scaling method. But, like I said, my original method was already tested for the optimal entry point. So, it's safe to assume that cutting my position size would only worsen the performance of the system. And add a 2nd, 3rd, or 4th level of complexity.

Let's get serious about this...look at the trades you scaled. Put the pencil to the paper and determine what scaling did to you and your money. Don't pick just one trade that was a winner. Pick several...at least 25 seperate trades. 50 trades would be even better.

Calculate what would have happened if you didn't scale at all and had your full position on from the first entry. If you did better then you're trading the best entry and why short-change? If you did worse then go a step further...calculate what would have happened if you didn't take the first entry at all...just used that as a filter for the 2nd entry and that's where you had you're full position on. Yes, this would mean some trades from that series wouldn't have been taken due to the filter. That's okay...that's just what a filter is. Screens your entries for the best possible point. Take this exercise as far as your scales go.

One last thing in regard to the exercise I gave you. You may well find that you have two or three valid systems on your hands rather than just the one after analyzing your past trades. If this is the case...spend some time seperating these systems, devising new exit rules & position strategies for each. And retest your past trades with the new rules applied.

If after all this, you still find that scaling into trades works better...then more power to you. JKD, dude.

Now, I will tell you where I have found success in scaling. Scaling out of trades. Aye, that's where the true magic lies. Stay tuned to Part II where I discuss how scaling out of trades can improve winning percentage, drawdown, net profit, and more.

Are you wondering where the Aye's are coming from? Well, I've read a book recently that is off the hook. Hawke by Ted Bell. One of those novels that grab you in the first few pages and don't let go! It's about a bad-ass British dude that is a descendent of Blackhawke, the pirate. There's boats, treasure, sharks, the Caribbean, nuclear submarines, Navy Seals, and even Castro himself. It'd make a great movie.

Another good summer read is a book I bought my wife a few weeks ago. The Summer I Dared by Barbara Delinsky. Again with the ocean stuff but this time covers Maine and the lobstermen, father and son, mother and daughter, and I'll admit some more sappy stuff. But, hey, it's good. I really enjoyed the description of the lobster business and the people who live up in Maine. My wife's favorite passage in the book is the following: "Real intelligence is like a river; the deeper it is, the less noise it makes."

My favorite passage was when father was speaking to son, "Barely a third of my high school class went to college, and none of those applied to the ones I did. That gave me an edge in the admissions process. Apply to different schools from those your friends choose. Pick ones you like. Don't be pressured by anyone else, not by me or your mother or the college counselor, and certainly not by your friends. Here's your chance to do what you want, for a change. Go for it." Yep, that's me...always looking for the independent view...even in a sappy novel. :)

And last but certainly not least. Get a load of this...the 2006 Dodge Charger! Talk about American marketing hard at work! And the worst part??? I want one!!! Ha ha.

Later Trades,

MT

Part II: Automated Trading Tools

Here's a follow-up to the first email I sent regarding automating trading tools...

Just another follow-up to the last email I sent you. I think I might have found the answer to my search for stock alerts. The software is from Trade-Ideas.com. Just an unbelievable product. They offer a web-based product and a stand-alone version. The Trade-Ideas product allows you to set server-side alerts on the US Equities market for unlimited symbols. You can use your own symbol lists or choose to select symbols based on the exchange traded.

The only downside I see is they don't have the capability built into the web-based or stand-alone product to email or page the alerts. But, do offer a way to write your own script to connect directly to their server and stream the alerts. Which you then could add code to email or page the alerts to you. If this could be done...something like the tradebullet software I discussed in my previous email could then be used to automate trading signals.

Just a few more comments before signing off.

One, what's the deal with CyberTrader? Their trading platform seems really interesting but their customer support is for the birds. I have placed two emails to support asking them general questions about the tools they offer. What response do I get? Just the standard "a real person will reply soon" email by their server and then nothing. I have yet to receive one reply from a real person over at CyberTrader. CyberTrader, what's the deal?

On the plus side is Interactive Brokers and MB Trading. Both of these brokers responded well within 24 hours to all my emails about their tools, order types, etc. I have test drove their platforms for a few days now and slowly but surely I'm beginning to drift towards one over the other. But, it's really close. Interactive Brokers no doubt offers a world of choices in trading and as a result their platform takes some time to get used to. MB Trading seems more streamlined in their offerings. Their trading platform feels a little more intuitive to me. I don't plan to get real creative in my systems trading. Plain and simple is what I stick to. So, MB Trading is getting the edge here. Plus, the ability to place trades over the phone for the same costs as the web. That's a big plus for me especially considering the reliability of my cable connection.

Another advantage of MB Trading is quotetracker is free for active clients ($7/monthly savings). And apparently Trade-Ideas works with quotetracker by sending Trade-Ideas alerts to a portfolio of your choice on quotetracker that you can then monitor tick by tick. If I persue this option I'll let you know how this process works.

One last thing. Completely off topic...but with all the talk about products I thought I would share. I bought a new John Deere L111 riding mower today. To be totally honest, it's the first time in my life I bought something so outright American branded, marketed...ah you know what I mean. Something that elicits a feeling when you buy it solely from the marketing blitz hitting you year after year after year. I've always considered myself an off-grid type of guy when it comes to that type of stuff...but I'll be the first to admit...those marketing guys/girls are good!!! No doubt. Even though it's just a little riding mower I can't help but feel like my grandfather who was a farmer/rancher would be a little proud. I wasn't kidding when I said those marketing gurus were good...now was I?

Now, excuse me while I check out Harley Davidson's Deuce. Ha ha.

Later Trades,

MT

Automated Trading Tools

I got a question about trade triggers and such by a reader and turns out the reader was looking for a bit different information than the one I offered. I didn't want the information to go to waste. So, I'm sending it your way. Enjoy!

Yes, trade triggers have been an agonizing research experience for me the last few weeks. It's very difficult to find any of the brokers that offer such a thing. And the few that do offer 40 or fewer like Ameritrade.

I have not used trade triggers yet, mostly because I require more than the 40 triggers that Ameritrade offers. And I cannot find any other brokers that offer more. Though, you might check into Schwab's CyberTrader platform. From what I can tell they offer trade triggers but I have emailed their customer support and never received a response.

Interactive Brokers offer conditional orders that work similar to trade triggers. But, yet again, are restricted to around 40 or fewer. And they require for you to have their platform up and running otherwise you will lose your triggers. In other words, it's client-based...not server-based. At least from what I can tell.

MB Trading, from what I understand after speaking with support does not offer conditional orders/trade triggers.

So, from there I had to persue real-time quote monitors that alert you to a price change or level reached and then email/page/sound the alert. There you have another interesting scenario. Most real-time quote providers only allow you to monitor 20 to 50 symbols at a time in real-time. Probably the best source for real-time quote providers and their quote limits is the following site from quotetracker.com: http://www.quotetracker.com/qsources.shtml.

Now, there are a couple that will go beyond 100 symbols and that is Quote.com, Esignal (if you purchase additional symbols), and AIQ Systems (up to 700). I decided to go with AIQ systems because they also offer the alert triggers. I haven't received their software yet...but if interested I can email you what I think after I try it for a few weeks.

There's another step you can take if you decide to automate those triggers. Software like http://www.tradebolt.com/ and http://www.tradebullet.com/ can actually take the trades from your software package and place the trade for you. The tradebullet software looks especially interesting with their ability to handle just a plain text email of the order that can then connect with your broker. If this is the case, I should be able to program something from AIQ in the email alert and then tradebullet will place the trade. Thus, automating my trading. But, much testing will need to take place to see if this really works. Next week, I plan to talk more with tradebullet and really see what they can do for me.

Finally, I use the Wealth-Lab software product extensively and it has the capability to completely automate your trading systems. But, it requires a real-time provider and then you're forced with the maximum symbol limit. But, there are several traders I know that are utilizing IB and Wealth-Lab successfully. Here's a forum dedicated to this task: http://www.wealth-lab.com/cgi-bin/WealthLab.DLL/category?id=14. And another forum that caters to automated trading in general: http://www.elitetrader.com/vb/forumdisplay.php?s=&forumid=48.

On a side note, Wealth-Lab has been bought out in America by Fidelity, so there should be some automated trading capabilities built-in with that version.

One last option I could persue is that quotetracker can handle the real-time feed from AIQ...and wealth-lab can handle quotetracker's feed. This would get me past the max symbol limit and thus causing me to come back full-circle to wealth-lab in automating the trade triggers. Again, testing needs to be done to see if this would truly work.

I will add that from everything I have seen, Ameritrade's trade triggers look like the best package out there if you do not require a multitude of symbols to watch for. The best thing about the Ameritrade package is the trade triggers are server-based and thus you can go out on vacation, have your computer turned off, and Ameritrade will take care of trades and alerts. You can choose to have the trigger send you an email or actually make a trade for you. A trigger expiration date can also be setup. They will also give you the option to be notified a day or so ahead when your trigger is coming up for expiration. You can also base your trigger on an index and then submit an order for a particular stock based upon a condition the index met. Not too shabby. The current indexes offered are Nasdaq, S&P500, S&P100, DJIA, CBOE Volatility, Russell 2000, Amex Networking, Amex BioTech, Phlx Semiconductor, and Phlx Gold & Silver.

Look for Part II tomorrow where I detail a great find with a server-based alert provider. Also, if anyone has any experience in automating their trading with tools/brokers/quote providers such...do share! Leave comments, please.

Later Trades,

MT

Et tu, Time Stops?

I'm still here and busy as a bee. I'm currently knee-deep in research for one of my new trading systems. About all I can disclose is that it requires intraday real-time monitoring of symbols. Not a few symbols but a multitude. And that is where I have spent all of my time. Finding and evaluating the products that offer this type of service. Let me tell you...there aren't many.

Hopefully, in the next few weeks I can cover more on this topic.

One last thing I wanted to bring to everyone's attention. Do you use time stops in your systems? I do and if you don't, you should. Time stops get you out of a losing trade or more importantly get you out of a wash trade. You know, the type of trade that just sits there and wastes your capital? Anyway, how do you set your time stops? Do you use trading days or calendar days?

Recently, I had one of my preconceived notions challenged pretty good by one of the great resources over at the Wealth-Lab forums. My opinion has always been that I can control trading days not calendar days. In essence, I can sell the position on a trading day but cannot sell it on all calendar days such as holidays or weekends. So, my stance has always been that in setting up time stops one should count the number of trading days in the trade...not calendar days. Wrong!

The poster let it be known that holding over the weekend is putting my position at risk and thus those 2 days should be counted along with the trading days of the week. And he was so right. And it was one of those Aha! moments when you finally realize something that should have been so simple all along. Anyway, I went back to one of my short-term daily systems and readjusted the time stops to take into effect the weekend. Here's an example...

If my time stop was 6 days and I initiated the position on Monday. Then I should exit at the close of the next Monday if I was using trading days. But, if using calendar days, when should I exit the position? Next Monday? This coming Friday? Good question. And that's what I programmed and tested for. And it turned out that if the day was Friday and my time stop was going to close on Monday then I should close the position on Friday and avoid extending the risk on the position by 2 days.

Do you understand? This probably makes total sense to traders that do not system test their systems. But, for system traders, most system simulations use trading days in determining the number of days a position is held. So, it is natural, to follow that logic in testing your time stops. But, if it wasn't for the great AutoRun product that works with Wealth-Lab that uses calendar days to determine days held for a position...I never would have questioned this very simple piece of logic.

Some may say what difference does it make...just a few days shouldn't make that much difference to a system's performance. And you're right. There's not that much difference. The system I tested with only reduced the system's max drawdown by a few percentage points while increasing the average profit a few percentage points. Also the average days held in a position was reduced by a few days. A few percentage points here and there and it adds up. Kick in a reduced number of days a position is held and more time is given to trade the edge the system was created for in the first place. Trade the system for several years and those little differences begin to grow.

The devil is in the details...and if you're a system developer like me...you spend hours upon hours digging into those details. And wouldn't have it any other way.

Later Trades,

MT