Quote of the Week

"The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts." -- Bertrand Russell

MT

Quote of the Week

"Any time you sincerely want to make a change, the first thing you must do is to raise your standards. When people ask me what really changed my life eight years ago, I tell them that absolutely the most important thing was changing what I demanded of myself. I wrote down all the things I would no longer accept in my life, all the things I would no longer tolerate, and all the things that I aspired to becoming." -- Anthony Robbins

MT

CXOAG System Linkfest!

Did a little digging on CXOAG's blog and found some interesting studies they've performed on the market. Enjoy!

Collective2: A Marketplace of Trading Systems
Culls through the number of systems in Collective2's site and breakdowns the performance of swing trading versus daytrading. Most interesting part? Only 24% of Collective2's systems average 1% or more per week yet all systems exceed winning percentages of 50%.

Update: Cramer Offers You His Protection?
Asks and answers the question, Does Cramer have an edge? Insights shared: There may be some edge in buying the Cramers sells during the immediate negative returns and holding longer than 6 months. And it seems part of Cramer's edge is issuing buys on a rather large number of stocks. This creates a thin red line where the more stocks issued as buys...take him further away from market beating returns.

End-of-Quarter Effect: Window Undressing?
Is there a tradeable event at the end of quarters? This is something I have tested in the past and my results match their findings...expect market strength after the quarter...not before.

A Slinky (Short-term Reversion) Effect?
A study is performed on the cane walkers of Wall Street. After reading this post...I thought why judge the decline absolutely? Judge against volatility instead?

An Out-of-Sample Test
Discusses James O'Shaughnessy's strategies now used by Hennessy Funds. Interesting the Growth strategy beat Value in out-of-sample testing.

Later Trades,

MT

Over My Head...

The article titled, The Use of Hurst and Effective Return in Investing by Andrew Clark, contains much that is over my head. But, that shouldn't dissuade me or you from diving in and learning what we can. Heck, any article that contains the following statement is definitely worth my time...

Ideally, a good performance measure should show high performance when the return on capital is high, when the equity/return curve increases linearly over time, and when loss periods (if any) are not clustered.

In the sentence above, Andrew Clark describes just exactly what all of us are looking for in designing, testing, and evaluating our trading systems.

Sorry for the lack of updates on the Melba Toast System. I've been very busy with other projects. But, haven't stopped dreaming up ways to capture the congestion. Here are just a few ideas that I will test as soon as I get the time:

• What if you count the number of weeks a stock closes above its mean and number of weeks closed below its mean? If the ratio of above to below is close to 1 then does that suggest a congestion range-bound area in the time series?



• Should we look for these congestion areas within a certain percentage from their all-time high? Or all-time low? Or both? Or maybe all-time high is too limited and we just need to look for a certain percentage from their 5-year high and low.



• Could using a stock's beta help identify congestion areas? Does the congestion area exhibit less beta than the market? Speaking of beta...has anyone ever attempted to create an indicator out of beta? Basically, the number of stocks with a beta above 1? If so, please share.

Well, that's it from here...where I'm looking forward to seeing Ricky Bobby on the big screen! Ha ha!

Later Trades,

MT

Quote of the Week

"I'm not smart, but I like to observe. Millions saw the apple fall, but Newton was the one who asked why." -- Bernard M. Baruch

Observation is important but the true key is the ability to open your mind to new possibilities. Without an open mind...you cannot see all that's possible.

Have a great week!

MT

Melba Toast Examples

This page will showcase all stocks that I find exhibiting the Essence of Melba Toast. The more examples I can find of Melba Toast...the better chance I have of identifying the logical conditions present in the pattern. So, this page will evolve as new charts are added.







MT

Quote of the Week

"No question is so difficult to answer as that to which the answer is obvious." -- George Bernard Shaw

Have a great week!

MT

Tom Basso Interview

I haven't fallen off the face of the earth. But, have been extremely busy at my day job. I'm also busy testing various ways to capture the sideways congestion in Melba Toast. The initial rules work to some extent...but after further tests...still don't capture the exact model I'm looking for.

So, I've decided I've got to go old school and start collecting charts of all the sideways congestion examples I'm looking for. I'm going to create a page on the blog and store the charts there. That way I can spend more time checking out the specifics of the moves. And hopefully find a way to logically explain the pattern I'm looking for. I'll post a link to this page in the next few days.

Until then, check out this great little interview of Tom Basso. Read the pdf here. Basso is one of my favorite fund managers in the Market Wizards book series. And in this interview Basso shares some gems.

Back-testing can be useful, but I recommend you go one more step. Print out the gory details.

I look for an indication that a trend either exists or doesn't. I like to look for those markets that aren't currently trending, the ones nobody cares about. Those are the markets that are likely to make a move one way or another.

If you mismatch what you're trying to do to who you are and what skills and resources you have, you're always going to be fighting it and never be in sync with it. If, on the other hand, you match your trading system to yourself, then trading can become as easy as breathing.

And don't miss Basso's famous money management test on a random selection of trades. Profits to losses were setup as a two-to-one ratio and the buys and sells were fed back randomly. The tests showed professionals focused on risk while amateurs focused on gain. Something to think about.

MT