Improvements ain't all that!

How's that for a title? Well, that's something I've always ranted and raved on for years and years. My contention has always been...this world we live in is zero-sum. You can't improve anything without taking something away. So, improvement is dependent upon which person you talk to.

Corporate farms have enabled us to consume our milk, eggs, bacon, hamburgers, steaks, etc. all at a price that is easy to stomach since we never have to step foot onto a farm or ranch. Especially considering John F. Kennedy's quote, "The farmer is the only business man who buys at retail, sells at wholesale and pays the freight both ways."

But, this improvement on farming came at a cost...to the cottage farmer. Gene Logsdon brilliantly highlights these costs in his classic book, The Contrary Farmer.

So, what's my point? Not much...just trying to find a nice little segue into the following article I found over on DeepWealth. Read here. It's an extract from Charlie Munger's speech on what technology improvements can do to a company...person...a commodity. Favorite part?

And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.

That's such an obvious concept - that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy.The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers.

The great part about that statement is just how true it is. I have witnessed this effect time and time again in regard to technological improvements made in business. The crazy part...besides myself?

Most people never hit the conclusion that Buffett came to so quickly. Is it really worth doing if I have to invest all this capital only to keep up? Now, I'm not saying we should halt all progress...Close the mill...so to speak. Just trying to make the point that improving our lives...our businesses...the world, comes at a cost.

High-speed Internet? How's that family you never see?

Great investing tools...clean reliable stock data feeds...real-time scan streamers? How's the hunt for those market inefficiencies coming? And at what cost? Only to keep up?

Nice car? Yeah? How's that 45 minute commute?

Nice house? How's that mortgage?

My dad used to mention how it took him 25 to 30 hits to find oil back in the day...now it takes only 2 or 3. But, the cost is the same if not higher.

So, what to do...what to do? To me, I've always thought you should take into account all costs of the improvement (both real and lost) and figure out if there's a way to break off from the pack and create value in a different area and with that capital from the so-called "improvement".

How does this relate to trading? Hmmm...Let's see...if everyone is focusing on short-term returns and investing more and more capital into trading technologies to generate those returns...then how are you ever going to get ahead? Cause let's admit it...the margins are pretty crummy anyway. Technology is only going to reduce those margins further. So, maybe we need to do as Gene Logsdon suggests and break away from the pack....if everyone is going short-term...go long-term baby! Maybe Buffett said it best...

"Someone's sitting in the shade today because someone planted a tree a long time ago."

Just maybe we need to look into the tree business. That is after all one of the top search hits on this site. :)

Later Trades,

MT

Quote of the Week

This week's quote comes from a great find by The Buffett Blog. An interview with Charlie Munger from Kiplinger.

The quote?

"If the price of automobiles were going up 40% a year, you'd have a boom in auto stocks. But if you stop to think about it, of the companies that you could have bought in, say, 1911, to hold for a long time, one of the very best stocks would have been Rockefeller's Standard Oil Trust. It became almost all of today's integrated oil companies." -- Charlie Munger

Wow! Munger has given us all something to chew on for awhile. What will fuel the next 100 years?

Later Trades,

MT

Quote of the Week

"When there are no fish in one spot, cast your net in another." -- Chinese Proverb

How many of you get stuck in your trading? Can't seem to make progress? Well, sometimes the fish just aren't there to catch. You can work as hard as you want and still catch nada. The key is to cast that net until you find fish.

What happens when no more fish are caught? You must move on...because the fish already have.

Later Trades,

MT

Taylor Turkey System

Once again it's that time of year...time with family, counting of blessings, stuffing your face...and most of all...the Taylor Turkey System!!! For those unfamiliar with the system you can read the original post here and the follow-up here.

Under the system, you purchase the index on Wednesday (day before Thanksgiving) and sell the Monday after Thanksgiving. How will it perform this year? Ah, should be interesting. Will I invest my hard-earned money? No, probably not. While it's a fun little system showcasing the holiday effect...just too few data points for me. But, with a quick and dirty test on the current Nasdaq 100 stocks...you earn a profit factor of 3.15. Of course, that's not counting commissions and slippage. Still, not too shabby for turkey lurkey day.

Well, gotta get...some more system work to do. Just what kind of stuff am I working on? Hmmm...let's see...it involves a bit of Bill Cara's Value Line Research, Victor Neiderhoffer's Triumph of the Optimist, Michael Covel's Trend Following post, and Ben Bernanke's MO.

I hope all is great with you and yours. Everyone have a wonderful Thanksgiving.

P.S. TraderMike needs to start working on those New Year's Resolutions for 2006! Time is a tickin! Ha ha!

Later Trades,

MT

Quote of the Week - Decision

Analysis of over twenty-five thousand men and women who have experienced failure disclosed the fact that lack of decision was near the head of the list of the thirty-one major causes of failure.

Procrastination, the opposite of decision, is a common enemy which practically every man must conquer.

Analysis of several hundred people who had accumulated fortunes well beyond the million-dollar mark disclosed the fact that every one of them had the habit of reaching decisions promptly, and of changing these decisions slowly, if and when they were changed. People who fail to accumulate money, without exception, have the habit of reaching decisions very slowly, if at all, and of changing these decisions quickly and often.

I believe these quotes are from Think and Grow Rich by Napoleon Hill. But, found them in the MasterMind Forums here.

These quotes are the type that should be read more than once. Allowed to soak in your brain. Stew over. Or as they say where I'm from, "Chew on for awhile."

And one last one from Hill for dessert:

"You must get involved to have an impact. No one is impressed with the won-lost record of the referee."

Later Trades,

MT

Quote of the Week

"Try a thing you haven't done three times.
Once, to get over the fear of doing it.
Twice, to learn how to do it.
And the third time, to figure out whether you like it or not."
-- Robert Evans (creator of Godfather)

Great words of wisdom. Especially for ADD'ers like myself. Easy to get frustrated with something and cross it off your list forever without ever taking the time to find out whether you truly like it or not.

The quote was from Robert Evans. Ever heard of him? I hadn't before I found this quote a few years back. Evans has lived quite an interesting life. Read this interview for some particulars, and don't miss out on how Evans discovers "The Smile"....aka Jack Nicholson.

New Blog Find

Found a very interesting blogger, Arpit Ranka via The Learning Blog's links.

Check out his post on The Reminiscences of an Infant Investor. I quite like his behavioral bent to investing/trading.

Favorite lesson from his post? "Lesson 2: You are not as smart as you think you are."

Ain't it the truth.

The site also has several great quotes sprinkled throughout. Such as this one from Pascal: "Heart has its reasons, that reasons don't understand." Nice!

MT

Serenity Now

oil_rig_net, originally uploaded by TaylorTree.

Well, this might not give the old oil rig workers much serenity now...more like the bad memories, nightly sweats from before. :)

Seriously, this is what you had to climb in on if you wanted to do offshore work in the gulf.

My dad is the 2nd on the right. Picture taken in 1954.

MT

Nassim Taleb Interview

Weird that I checked Taleb's site the other night and found the Notebook. And then noticed I'm ranking #1 on blogsearch.google.com and #2 on Technorati.com for "Nassim Taleb" searches. From Technorati I found a recent interview with Taleb from SmartMoney.com here. Great interview by the way. Here are some of my favorite parts:

Psychologists ran experiments to see how people absorb information. In one experiment they found people who work with racehorses, and asked them to name up to 50 pieces of information they would need [to determine if it was going to be a winner]. They ranked them by order of importance. They took the 10 most important ones out of 50 and looked at the prediction of accuracy to determine if a horse will win a race. Then they took the 20 most important pieces, then the 30. In the end, you had no gain in predictive power beyond the first 10 pieces of information, but a huge gain of overconfidence...

It's the market that creates the indicator, not the indicator that creates the market.

To become Bill Gates you need more luck than skill. But to become a prosperous person, you need more skill than luck.

I believe Warren Buffett has skills, but probably two-thirds of it comes from an environment that helped him.

I am unable to predict markets, but I know it.

The favorite quote being the Bill Gates more luck than skill. I've referenced that type of thinking back in this post on Relativity by Dr. Mike Ott here. I strongly believe that environment makes up at least 2/3 of a person's success. The other 1/3? Ah, that's your edge.

Got Edge?

MT

Random Markets?

Check out the Coin Toss Simulation - Visualizing Randomness from this link. Enter an amount in the Number of coin tosses box and press the "Simulate" button. Go ahead...enter 500000. Hmmm....

MT

Taleb's Notebook

Occasionaly, I peruse Nassim Taleb's site just to get a reality check on my system development activities. Tonight, I noticed Taleb has setup a Notebook that he notes is not quite a blog (funny). Read it here.

Not much happening on the homefront. Busily evaluating a trading idea....while the list of new ones rapidly pile on my desk. Speaking of desk notes...I have to really thank one of the commentors on this blog for recommending EverNote. I was very reluctant at first especially since it involved organizing my thoughts from the scattered scraps of paper and journals to a forum that's neat, tidy, and structured. But, I've really grown to like this little product. I'm slowly but surely beginning to keep everything stored in EverNote and the pile of notes are becoming electronic in form. Kinda cool. At least my wife thinks so. :)

This weekend? Somehow got wrangled into installing ceramic tile in my dad's kitchen. Hows' that for a howdy-do? But, it should be fun and filled with adventure. I'm just afraid the rest of the family will see the results and want more of the same. They'll just have to wait because dad has bigger plans for this computer geek...hardwood flooring!

One last thing...check out the movie Dreamer with Kurt Russell, Dakota Fanning, and Kris Kristofferson. I was really surprised...my wife and I saw it on our date night and I thought it had chick flick written all over it. That might be...still a good heart-warming movie that showcases the struggle of safety and stability against risk and opportunity.

Enjoy your weekend!

MT

Quote of the Week - Einstein

"It's not that I am so smart, it's just that I stay with problems longer." -- Albert Einstein

Boy, Albert, I sure hope you're right. Cause I've been trying to figure out this market for a heck of a long time!

Question is...how long should you stay with the problem versus cutting your losses and moving on to something else? How many other Einstein's have stayed with the problem til' their dying day...never solving the problem?

To test this theory out...

Try picking stocks and setting a profit target of 50% and don't sell until they hit it. Only two possible outcomes to this test: Stock will hit the profit target Or it won't. Time is removed from the equation except for the length of your lifespan. If the profit target is hit...you'll have found an Einstein.

Same Test as above but exit the stock if 50% target is not reached within a year. Same possible outcomes as the prior test but Time is added to the equation.

Are you better for your Sticktoitiveness or for Cutting Losses Short?

P.S. Would be interesting to see how many stocks bought the day of their IPO acheive their profit target and go on to become Einstein's? Would we consider 50% gain worthy of Einstein status? 100%? 300%?

Later Trades,

MT

Quote of the Week

Since I couldn't find a picture for this week's Serenity Now...I've decided to post a Quote of the Week. I actually thought of today's Quote of the Week from a discussion I've had with Jon Tait (FickleTrader) in regard to burning the midnight oil in an effort to build our systems.

"The Heights by Great Men Reached and Kept were not Attained by Sudden Flight, but They, while their Companions Slept, were Toiling Upward in the Night." -- Henry Wadsworth Longfellow

Maybe I'll try to post a Quote of the Week every Monday.

Have a good weekend everybody! My plans? Well, I plan to put my daughter to work. She received a rocking chair from her Papa on her birthday. And she would like it finished the color purple. So, her and I will sand and prime the chair this weekend. Should be fun.

MT

System Analyzer and Y2K

I've been working on a heck of a project. I'm trying to create my own System Edge Analyzer using a bit of Python and mostly R. I still have much work ahead but thought I'd give you a preview as to the initial output of the project. And no, the FathersDay Edge is not about trading on Father's Day. I named it after the day I stumbled upon the edge which happened to be Father's Day.

Also, check out Jon Tait's discussion on Profit Factor and his sneak peak of his backtesting project.

System Analyzer - FathersDay Edge

Sector Return Trades WinPct AvgPL AvgWin AvgLoss PFactor Sharpe 1 Overall 20375.77 9510 78 2.14 5.3 -8.91 2.11 0.3 11 pyAerospaceDefense 50.2 15 73 2.6 4.56 -2.81 4.39 65 12 pyAutomotive 267.02 71 63 0.39 5.93 -9.21 1.1 4.33 13 pyBanking 298.85 74 86 3.08 4.67 -7.11 4.03 34.22 14 pyChemicals 235.89 48 85 3.23 5.75 -11.58 2.81 46.14 15 pyComputerHardware 1825.94 432 79 2.5 5.35 -8.18 2.46 11.9 16 pyComputerSoftware 5378.91 1333 79 2.13 5.14 -8.86 2.18 6.09 17 pyConglomerates 0 0 18 pyConsumerDurables 789.88 196 77 1.98 5.27 -8.73 2.02 14.14 19 pyConsumerNonDurables 411.83 112 75 1.62 4.9 -8.23 1.79 14.73 110 pyDiversifiedServices 2194.29 522 77 2.19 5.44 -8.85 2.06 9.52 111 pyDrugs 6024.43 1418 79 2.03 5.38 -10.54 1.92 5.64 112 pyElectronics 4420.77 1123 78 2 5.06 -8.7 2.06 6.25 113 pyEnergy 1109.56 245 80 3 5.69 -7.5 3.03 18.75 114 pyFinancialServices 350.55 97 74 1.99 4.87 -6.29 2.2 19.9 115 pyFoodBeverage 194.33 47 79 2.41 5.25 -8.1 2.44 34.43 116 pyHealthServices 3606.47 863 78 2.23 5.37 -8.82 2.16 7.69 117 pyInsurance 360.69 104 65 0.79 5.3 -7.73 1.27 7.9 118 pyInternet 2702.58 622 79 2.22 5.48 -10.25 2.01 8.88 119 pyLeisure 513.61 125 75 1.81 5.46 -9.28 1.77 16.45 120 pyManufacturing 1344.04 307 80 2.6 5.49 -8.78 2.5 14.44 121 pyMaterialsConstruction 452.44 92 86 3.99 5.73 -6.54 5.38 39.9 122 pyMedia 694.87 174 72 1.53 5.56 -8.74 1.64 11.77 123 pyMetalsMining 396.86 94 78 2.75 5.44 -6.59 2.93 27.5 124 pyRealEstate 82.87 28 64 0.27 4.6 -7.53 1.09 5.4 125 pyRetail 566.23 130 78 2.4 5.61 -8.75 2.27 20 126 pySpecialtyRetail 632.62 145 74 2.56 5.86 -7.07 2.36 21.33 127 pyTelecommunications 3063.99 775 76 1.81 5.19 -8.99 1.83 6.7 128 pyTobacco 64.03 13 100 4.93 4.93 123.25 129 pyTransportation 204.06 55 71 1.63 5.23 -7.14 1.79 20.38 130 pyUtilities 138.81 26 92 5.09 5.78 -3.29 20.2 101.8 131 pyWholesale 845 224 76 1.96 4.94 -7.66 2.04 13.07

Funny, how it has taken many hours/weeks and brain-fried late nights in order to input, process, output into the simple little HTML table above. Reminds me of a story about the Y2K problem.

I was working around the clock for hours, weeks, and months on end in order to get our administrative systems ready for Y2K. For those few who don't remember...the Y2K issue centered around the fact that legacy systems used the 2 digit years instead of the 4 digits. And year calculations and comparisons drive a multitude of systems. So, if you compare the year 05 against 99...you get issues. Capisci?

Anyways, while I was burning the midnight oil getting everything in order...either converting everything to 4 digit years or windowing the problem...I got a call from a friend of mine.

Friend: "Hey, have you heard about this Y2K crap? Everybody is just making this Y2K stuff up, I tell ya. You watch...when January 1, 2000 gets here...nothing will happen."

Me: "You're right, nothing will happen because programmers like me have been working our butts off trying to make sure nothing will happen."

Friend: "Huh?"

Me: "Listen, it works like the George Soros Reflexivity theory. If all the programmers know there's a Y2K problem then the Y2K problem grows less of a problem as more of the problem is understood and worked on by those programmers. So, you are correct, when January 1, 2000 gets here...nothing will happen."

Friend: "Huh? Are you telling me Y2K is or isn't a problem."

Me: "Ah, Forget it. I gotta get back to work."

Friend: "Whatcha working on?"

Me: "The Y2K problem...[hangup]"

Six months later my friend calls me up on January 1, 2000 after I had stayed up all night to ensure our batch systems ran correctly and was still in the process of verifying their results.

Friend: "Hey, Happy New Year! I don't mean to rub it in...but I knew it, I knew it, I knew it! That Y2K was just a bunch of mumbo jumbo! Like I told you before...here it is Jan 1, 2000 and nothing...NADA...happened!"

Me: "Happy New Year yourself. And yes, there was a Y2K problem and we fixed it so nothing happened like I told you before!"

Friend: "Huh? Now, Mike, how can it be a problem if nothing happened!"

Me: "Ah, forget it...go watch your football games...I gotta get back to work"

Friend: "Work? Work? On New Year's Day? What the heck? What they got you working on now?"

Me: "Y2K...[hangup]"

Later Trades,

MT

Serenity Now

Driving in the Georgia Mountains, originally uploaded by TaylorTree.

Picture taken with my head out the car while driving through the beautiful Georgia Mountains.

MT

Coastline by Major Hurricane Strikes by State

Coastline by Major Hurricane Strikes by State, originally uploaded by TaylorTree.

Thought the graph above would better reflect which states receive the most hurricanes per coastline miles. As you can see this is quite different than the original graph showcasing states and their respective hurricanes hit. The prior graph showed Florida, Texas, and Louisiana being the top three. Those are now replaced by Mississippi, Alabama, and Rhode Island. Rhode Island? Say what? Okay, this chart is definitely more interesting than the last one.

Heck, according to this information...Louisiana is in the bottom 6. Also, interesting that Louisiana has more coastline than Texas.

MT

Hurricanes by State

StateHurricanes, originally uploaded by TaylorTree.

Working with the R project's barplot function and decided to play around with some hurricane data. The chart above reflects the number of hurricanes (major) making landfall by state. Nothing too surprising in the numbers.

The mean of the #of hurricanes by state is 22 while the median is 12. Which makes sense due to Florida being hit 5 times more than average. And Texas and Louisiana being hit more than 2 times the average.

MT

Rumor of reduced commissions at Interactive Brokers...

Rumor is that IB dropped commission rates for US Equities to $0.005/share all-inclusive. Read this thread from EliteTrader for more details on the rumor.

Not sure if this is true or not...but if so...might need to re-evaluate my broker choices. Hmm....

Later Trades,

MT

Moneyball the Market

"Baseball - of all things - was an example of how an unscientific culture responds, or fails to respond, to the scientific method." -- Michael Lewis

The two sides are, on the one hand, the old scouts and, on the other, Billy Beane. The old scouts are like a Greek chorus, it is their job to underscore the eternal themes of baseball. The eternal themes are precisely what Billy Beane wants to exploit for profit - by ignoring them." -- Michael Lewis

"By analyzing baseball statistics you could see through a lot of baseball nonsense. For instance, when baseball managers talked about scoring runs, they tended to focus on team batting average, but if you ran the analysis you could see that the number of runs a team scored bore little relation to that team's batting average. It correlated much more exactly with a team's on-base and slugging percentages. A lot of the offensive tactics that made baseball managers famous - the bunt, the steal, the hit and run - could be proven to have been, in most situations, either pointless or self-defeating." -- Michael Lewis

"tinkering with the records of baseball games to see how the machinery of the baseball offense works. I do not start with the numbers any more than a mechanic starts with a monky wrench. I start with the game, with the things that I see there and the things that people say there. And I ask: Is it true? Can you validate it? Can you measure it? How does it fit with the rest of the machinery? And for those answers I go to the record books...What is remarkable to me is that I have so little company. Baseball keeps copious records, and people talk about them and argue about them and think about them a great deal. Why doesn't anybody use them? Why doesn't anybody say, in the face of this contention or that one, "Prove it"?" -- Bill James

These are some of my favorite quotes from the book, Moneyball by Michael Lewis. I especially like the Bill James quote basically asking why if we have the data and are asking the right questions...why oh why don't we use them in our strategies? Instead we focus on arguing our point with opinions. Enjoy reading books where the author makes the case to invest in stocks because Echo Boomers are an emerging powerful consumer and a host of other dynamics that can't be tested nor quantified on enough data points to matter.

This is why I like the recent Larry Connors book, How Markets Really Work. No opinions or pithy remarks. Connors instead focuses on Moneyballing the Market. Taking commonly held beliefs and turning them upside down and exposing them for what they truly are...eternal themes of the market sung by the Greek chorus of brokers, analysts, and media pundits.

Questions are asked and data is analyzed. And this analysis of data is what triggered this review. It changed the way I create, test, and design my systems. Before I would come up with an idea and immediately run a template system with my idea to expose the common statistics I look for...win%, avg gain, max drawdown, etc. From there I would begin filtering to improve and refine.

But, I really like the Connors method instead. He asks a question like is it true that new short-term highs are a sign of a healthy market? Then collects data on short-term highs and corresponding returns and short-term lows and corresponding returns into table form. Then he creates bar charts and equity curves of the comparison between the two to aid in visually analyzing the results of the study. I can see all kinds of possibilities with this method. It feels like more of your original edge is maintained instead of getting bogged down into filtering down the edge into the statistics you are trying to achieve. Plus, via the bar charts and equity curves you can really see whether the edge you think you have is true and robust against a benchmark and opposite view. One of the possibilities of this method is throwing in acrary's random trades from the Edge Test into the mix.

The downside of the book? I would enjoy more tests! More questions! It's just rare to find someone who asks and tests the questions you've been asking and answering yourself. Only other book like it that I've found is Altucher's Trade like a Hedge Fund book. I would have also enjoyed some discussion on how the questions asked relate to individual stocks within the general market.

Overall a book that can help in your pursuit of trading Jeet Kun Do. With that in mind, I'll leave you with this quote:

"True observation begins when one is devoid of set patterns." -- Bruce Lee

Side Note
What's happening to my Astros? It's the 8th inning and Astros are down by 2. The Sox pitchers seem to have the Astros ticket. Especially last night when we had just a good lineup at bat and the big wide one took em' down...one by one. Ah! The pain of being a Houston Astros fan. :)

C'mon Stros!

Later Trades,

MT

I'm Back!

What a week! I've been through Louisiana, Mississippi, Alabama, Georgia, Tennesse, and Arkansas on my travels this past week. We pretty much stayed in and around Atlanta either at a conference or with family. It has been a great experience. Learned a lot at the conference, spent some quality time with family, and enjoyed some great scenery such as the Appalachian Mountains north of Atlanta.

The difficult part was being cut-off from the Internet for such as long time (1 week). Ha ha. And I'm paying for it with all the emails and blogs to read. The blogosphere has been busy!

I also got a chance to dive into the book, How Markets Really Work by Connors and Sen. A great book and one that triggered several system ideas that I'm anxious to work on. I plan to discuss more on this book later in the week...so stay tuned!

Also, thank you to everyone on the baby news congrats. I really appreciate it.

Well, gotta get back to my rat-killin...so check out these posts that caught my attention and I'll write more later.

Recent interview of Ryan Jones a.k.a Fixed Ratio Jones by TradingMarkets. Read here.

This article by Steven Gabriel shares some of the insights from the book, How Markets Really Work. Read here.

Nice blog by Dr. Wish that I recently stumbled across. Here's one of his posts detailing the Darvis Method of Trading. Read here. There's some great system ideas in this post to test.

By the way, a big thank you goes out to April for introducing me to Ginger Ale on our recent trip. Great stuff. Can you believe I've never had ginger ale before? I know, I know...I'm showing how backwoods I am. April was kind enough to send me home with two bottles. Also, they grilled some steak that was amazing and were kind enough to share their seasoning secrets...Dale's Seasoning. Amazing stuff. And another thank you to Mysti for taking us to the Fair and letting us borrow their MapQuest to get home. I really don't know how we would have gotten back without it. Thanks guys!

Later Trades,

MT

Having a Baby!

Baby2_Ultrasound, originally uploaded by TaylorTree.

Just got back from the doc...it's official...we're having another baby!!!

Enjoy your weekend!

MT

Interview with Hank Camp from TradingMarkets

Lot on my plate tonight but wanted to point you to this great interview of Hank Camp by TradingMarkets.com. I jotted down several notes from the interview...including:

Trading using the PREM. I've actually coded a crude version of PREM in my systems before...but never knew the true technical term until this article.

Nice tidbits on quote services and nomenclature of the PREM series (DTN, Esignal, Comstock, and TradeStation). Check out their website for further detail on quote providers here.

Interesting insights into event trading such as "reverse manipulation" during options expiration, days of the week (option expiration Mondays, unemployment report Fridays, and Friday 13th), and William %R.

By the way, do you keep a trading notebook for articles like these? To jot down notes, ideas, further research topics? I've got stacks of these things. I've briefly addressed this topic before on dealing with ADD and the need to write things down...but I think this would benefit all traders out there. For example, tonight I have my notes from the above interview along with action items to test in my nightly system studies.

Actually, first thing I'm starting off with tonight is testing a volatility stop involving the close divided by a long-term moving average. Call this value R. Then smooth R with a shorter moving average duration. Apply a lower band of 3% to 5% from the smoothed R and if the original R drops below the smoothed R...scale out a portion of the whole position or get out entirely. This vol stop was discussed in the recent AIQ Opening Bell newsletter. You can find several issues of the Opening Bell here. Enjoy!

Later Trades,

MT

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