Happy Holidays!

Twas the night before Christmas, when all through the house
Not a creature was stirring, well, except for TaylorTree.

I wish you and your family a wonderful Holiday Season!

MT

Quote of the Week - Know Thyself

Boy: "Do not try and bend the spoon. It is impossible. Instead, only try to realize the truth."

Neo: "What truth?"

Boy: "There is no spoon."

Neo: "There is no spoon?"

Boy: "Then you'll see that it is not the spoon that bends...it is only yourself."

-- from the Matrix (one of my all-time favorite movies)

Hope all is well. I'm as busy as a bee...buzz, buzz, buzz.

Later Trades,

MT

Thread of the Week - Stock Distributions

Eric Crittenden shared an interesting study of stock distributions over at the Trading Blox Forum.

How many of you look at the Annual Compounded Returns graph and immediately think...man, I gotta get me some of those 3,000 plus 10% to 20% returns! If I can just find an edge, a better indicator, profit targets, something to capture them. Work it like a Casino, baby!

How many view the graph and have the 344 100% or more returns catch your eye? Or better yet...stare in amazement at the Terminal Wealth Relative graph and its 2,000 plus returns of 500% or more. Count me in that camp.

This study really confirms what the market is all about. Unlimited gains and limited losses. If you time the market or cap your profits in order to capture and/or protect those small gains...you'll...as Eric says...

"virtually guarantee to participate fully in the left side of the distribution and not in a positive way."

Really after giving this study more thought...it seems after you set yourself up for success via capturing the right side of the distribution...it is then just a matter of managing risk. Right? And not from the sense of your initial risk in the stock via volatility based position sizing. But, from maintaining a certain risk profile throughout the entirety of the trade. As these positions move further in your favor...I would assume their risk profiles could differ greatly from the original risk set forth.

Again, interesting study. Thanks Eric!

Later Trades,

MT

Quote of the Week

Caston glared. "Observation selection effects are totally commonplace. At the supermarket, have you ever noticed how often you find yourself in the longer checkout lane? Why is that? Because those are the lines with the most people in them. Let's say I told you that Mr. Smith, about whom you knew nothing at all, was standing in one of those checkout lines, and you had to predict which one, based only on knowing how many people were in each line."

"There'd be no way to know."

"But inference is about probabilities. And the most probable outcome, obviously, is that he's in the line with the most people in it." Once you step back and consider yourself from an outsider's perspective, it becomes self-evident. The slowest traffic lane is the one with the most cars in it. The laws of probability say that any given driver is most likely to be in that lane. That means you. It's not bad luck or delusion that makes you think the other lanes of traffic are going faster. More often than not, they are going faster."

Great quote from a great book, The Ambler Warning by Robert Ludlum.



If you haven't read it...you should.

The book, while not about investing or the market, contains two fictional characters who fit well with characters in the investment world. One of the characters lives by gut feel alone. Instinct. The other...100% logic, statistics, probabilities, just the facts ma'm. Interesting to see the development of these characters and how they find common ground.

Later Trades,

MT

First Snow!

Received our first Snow of the year and it is wonderful! For a Texas boy who has never been around snow before...I feel like a kid at Christmas. Fun stuff.

MT