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.
Friday, July 29, 2005
Thursday, July 21, 2005
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
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
Wednesday, July 20, 2005
Part II: Automated Trading Tools
Here's a follow-up to the first email I sent regarding automating trading tools...
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
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.Just a few more comments before signing off.
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.
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
Tuesday, July 19, 2005
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!
Later Trades,
MT
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.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.
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.
Later Trades,
MT
Tuesday, July 12, 2005
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
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
Monday, June 27, 2005
Position Sizing Trials
I've been experimenting off and on with different position sizing methods for years now. One of those things that are always on the back burner, so to speak.
And since sizing techniques by and large are not giving away an edge...I figured I'd write a bit about techniques I use. Especially since John Tait over at Fickle Trader wrote a nice little post about small positions and their effect on trading. Read the post and comments here.
I use a baseline of 10% for my weekly system testing and sometimes will drop down to 5% if the number of trades generated become too large. That 10% is what I call my Equity Risk (ER). Now, that's just for a system testing baseline. What I typically use for my actual Equity Risk (ER) in live trading is much lower. Usually around 2% of equity risked.
I then apply a Stock Risk (SR) of some percentage point or range of price of the stock I'm trading. This Stock Risk can actually be quite high at times...up to 17% on some positions or systems in fact. Which is better here? Range or percentage? Ah, depends on the system traded. I'll sometimes even use a combination where the percentage acts as a maximum stock risk and then adjust downard for the volatility of the stock.
Now, from here I can go real simple and just use the standard formula most people use: trunc(ER / SR). For example, if my total equity is $50,000, I'm willing to risk 2% of equity, current stock price is $25.00/share, and I'm using a percentage stop of 10% then...
ER = $50,000 * 0.02 = $1,000
SR = $25.00 * 0.10 = $2.5
Number of shares = trunc($1000 / $2.5) = 400 shares
Dollar Amount = num shares * share price = 400 shares * $25 = $10,000
If cash on hand is less than this amount then I will just take the cash on hand and divide it by the price of stock. Let's say my cash on hand was only $5,000 then I would buy: $5,000 / $25 = 200 shares of stock. Simple enough.
Now, to get a little more complicated we can go with adjusting the size of the shares purchased by the volatility of the stock. Take the same logic above but now we calculate the current range of the stock and compare it against the historical range.
I use various methods to calculate the range of a stock. Sometimes just taking the high minus the low of the past x days and divide by the historical max. Another way is to use the average true range. Regardless of the method, the point is to reduce size when stock is volatile and increase size when quiet.
Here's one of the many formulas I use:
Current Range (CR) = 10 day high - 10 day low
Maximum Range (MR) = highest value of the (10 day high - 10 day low)
Shares = trunc((1 - (CR / MR)) * ER) / SR)
Example:
Equity Risk (ER) = $50,000 * 0.02 = $1,000
Stock Risk (SR) = $25.00 * 0.10 = $2.5
Current Range (CR) = $30.00 (10day high) - $20.00 (10day low) = $10.00
Maximum Range (MR) = $60 back a few years ago.
Shares = (1 - ($10 / $60)) * $1,000) / $2.5 = trunc(336) = 330 shares
Dollar Amount = 330 shares * $25 = $8,250
Now, what's the advantage of using volatility to adjust your positions? Well, for one, it does help in evaluating systems from one time period to another. But, that's a whole nother story. The key for me is it usually smooths out my equity curve. In other words, reduces drawdowns which can lead to an increase in totals profits for the system. Just depends on how the volatility is used and the nature of your system. And for how aggressive you want to get.
There are others ways to adjust your positions that involve the overall market volatility. And if you want to get real fancy you can play with your equity curve. But, it's late and I'm sure you're bored to tears already.
For those who are interested, Stephen Vita posted a few weeks ago the position sizing he uses. Check it out.
Good Night,
MT
And since sizing techniques by and large are not giving away an edge...I figured I'd write a bit about techniques I use. Especially since John Tait over at Fickle Trader wrote a nice little post about small positions and their effect on trading. Read the post and comments here.
I use a baseline of 10% for my weekly system testing and sometimes will drop down to 5% if the number of trades generated become too large. That 10% is what I call my Equity Risk (ER). Now, that's just for a system testing baseline. What I typically use for my actual Equity Risk (ER) in live trading is much lower. Usually around 2% of equity risked.
I then apply a Stock Risk (SR) of some percentage point or range of price of the stock I'm trading. This Stock Risk can actually be quite high at times...up to 17% on some positions or systems in fact. Which is better here? Range or percentage? Ah, depends on the system traded. I'll sometimes even use a combination where the percentage acts as a maximum stock risk and then adjust downard for the volatility of the stock.
Now, from here I can go real simple and just use the standard formula most people use: trunc(ER / SR). For example, if my total equity is $50,000, I'm willing to risk 2% of equity, current stock price is $25.00/share, and I'm using a percentage stop of 10% then...
ER = $50,000 * 0.02 = $1,000
SR = $25.00 * 0.10 = $2.5
Number of shares = trunc($1000 / $2.5) = 400 shares
Dollar Amount = num shares * share price = 400 shares * $25 = $10,000
If cash on hand is less than this amount then I will just take the cash on hand and divide it by the price of stock. Let's say my cash on hand was only $5,000 then I would buy: $5,000 / $25 = 200 shares of stock. Simple enough.
Now, to get a little more complicated we can go with adjusting the size of the shares purchased by the volatility of the stock. Take the same logic above but now we calculate the current range of the stock and compare it against the historical range.
I use various methods to calculate the range of a stock. Sometimes just taking the high minus the low of the past x days and divide by the historical max. Another way is to use the average true range. Regardless of the method, the point is to reduce size when stock is volatile and increase size when quiet.
Here's one of the many formulas I use:
Current Range (CR) = 10 day high - 10 day low
Maximum Range (MR) = highest value of the (10 day high - 10 day low)
Shares = trunc((1 - (CR / MR)) * ER) / SR)
Example:
Equity Risk (ER) = $50,000 * 0.02 = $1,000
Stock Risk (SR) = $25.00 * 0.10 = $2.5
Current Range (CR) = $30.00 (10day high) - $20.00 (10day low) = $10.00
Maximum Range (MR) = $60 back a few years ago.
Shares = (1 - ($10 / $60)) * $1,000) / $2.5 = trunc(336) = 330 shares
Dollar Amount = 330 shares * $25 = $8,250
Now, what's the advantage of using volatility to adjust your positions? Well, for one, it does help in evaluating systems from one time period to another. But, that's a whole nother story. The key for me is it usually smooths out my equity curve. In other words, reduces drawdowns which can lead to an increase in totals profits for the system. Just depends on how the volatility is used and the nature of your system. And for how aggressive you want to get.
There are others ways to adjust your positions that involve the overall market volatility. And if you want to get real fancy you can play with your equity curve. But, it's late and I'm sure you're bored to tears already.
For those who are interested, Stephen Vita posted a few weeks ago the position sizing he uses. Check it out.
Good Night,
MT
Thursday, June 23, 2005
One of the Greatest Threads in History
Just a quick post. Now, that I'm able to read a bit on the web I explored some threads on the EliteTrader forum. Came across possibly one of the greatest threads I've ever read. Anyone in the trading system development world should read this thread....each and every post. I'm just in awe that something like this has been posted and as you will soon see was closed forever due to the amazing amount of profitable information given by one acrary.
Maybe I have been too quick in my judgement on media/bloggers/etc being relevant. Or possibly in order to find great posts such as acrary's...you have to know what you're looking for. Hmmm....
Check it out: Here!
MT
Maybe I have been too quick in my judgement on media/bloggers/etc being relevant. Or possibly in order to find great posts such as acrary's...you have to know what you're looking for. Hmmm....
Check it out: Here!
MT
Monday, June 20, 2005
Self-Exile is Over
Well, the self-exile is over. I can now read/watch media/bloggers/tv etc. in regard to the markets. And as I promised, I will now read/watch with an entirely different mindset.
Currently, my time has been spent testing new strategies and adjusting old ones. I'm also in need of some help. If anyone out there knows of a broker that offers trade triggers that are not tied to your cash balance...please let me know. Ameritrade Apex currently offers this and their max offered is 40 triggers. I don't believe this will be enough and plus their commissions have always been a bit high especially when you up your trading frequencies.
Interactive Brokers does not offer this and that really sucks. Cause that's the brokerage I was wanting to use. I have an email out to MB Trading but waiting to hear back. Also, looks like CyberTrader might offer such a service but not sure what their max is. Waiting on an email back from them as well.
Funny thing about the self-exile from financial media. It reminded me of my return to the Days of Our Lives soap opera. Back in college, one of my roommates was hooked on this soap opera. I mean so hooked that he would cut classes just to catch this show. I can still hear the immortal words of "STEPHANO!!!!!". Anyway, that was a long time ago and thank goodness I haven't watched that show since college. But, back a few years ago, I caught the show and watched a few mintues of it just for kicks. And you know what? It didn't even skip a beat. It was like I hadn't missed a thing. Everybody was still talking about the same old crap. And that's what I felt like on my return to the media. I guess the more things change the more they stay the same.
If you can do it and I mean really do it...you will be amazed at what avoiding the financial media will do for you. Cutting the financial soap opera ties could just change your life. :)
Later Trades,
MT
Currently, my time has been spent testing new strategies and adjusting old ones. I'm also in need of some help. If anyone out there knows of a broker that offers trade triggers that are not tied to your cash balance...please let me know. Ameritrade Apex currently offers this and their max offered is 40 triggers. I don't believe this will be enough and plus their commissions have always been a bit high especially when you up your trading frequencies.
Interactive Brokers does not offer this and that really sucks. Cause that's the brokerage I was wanting to use. I have an email out to MB Trading but waiting to hear back. Also, looks like CyberTrader might offer such a service but not sure what their max is. Waiting on an email back from them as well.
Funny thing about the self-exile from financial media. It reminded me of my return to the Days of Our Lives soap opera. Back in college, one of my roommates was hooked on this soap opera. I mean so hooked that he would cut classes just to catch this show. I can still hear the immortal words of "STEPHANO!!!!!". Anyway, that was a long time ago and thank goodness I haven't watched that show since college. But, back a few years ago, I caught the show and watched a few mintues of it just for kicks. And you know what? It didn't even skip a beat. It was like I hadn't missed a thing. Everybody was still talking about the same old crap. And that's what I felt like on my return to the media. I guess the more things change the more they stay the same.
If you can do it and I mean really do it...you will be amazed at what avoiding the financial media will do for you. Cutting the financial soap opera ties could just change your life. :)
Later Trades,
MT
Thursday, May 26, 2005
Be Water My Friend...
"If you want to understand the truth in martial arts, to see any opponent clearly, you must throw away the notion of styles or schools, prejudices, likes and dislikes, and so forth. Then, your mind will cease all conflict and come to rest. In this silence, you will see totally and freshly."
"If any style teaches you a method of fighting, then you might be able to fight according to the limit of that method, but that is not fighting."
Any idea as to the origin of these quotes? None other than the great Bruce Lee. I find these quotes most useful in my approach to understanding the markets. And I'm using these quotes to respond to a recent comment from my post that asks the question, "Are Bloggers Relevant?"
The readers responds, "As long as you can articulate any useful observation on the area of interest there is relevance. It may not be relevant to some -- only the ones who want to learn more."
I agree with the responders point but my true question lies in are we indeed sharing useful observations in regard to the market. More importantly are we enabling our readers with the insights needed to truly make money from the market? Or are we just frothing at the mouth espousing generalized concepts and ideas with no true tests or experiences backing them up?
Again I will say, it's a great question. And I'm afraid of the answer. You see, people get blinded by rules, methodologies, and logic. There are many things in this world that make perfect sense. But, when tested against real data are found wanting. Why is this so? I believe its due to the ever changing nature of the markets. It's a game. And being a game...the players are constantly evolving their strategies. Much like the differences you see in the first episode of Survivor versus the Survivor All-Stars.
They played the game for the first time with one set of rules (to be honest they had no rules)...and then learned and revised and when the time came around to play again...the game was different. Reminds me of the Ultimate Fighting Championship. A real walk-forward test if you will.
I can still remember watching the first UFC. I was so excited because I would finally get to see all these different martial arts forms compete against each other in a real fight. Nothing scripted...nothing expected...and the outcome completely unexpected. It must have been humbling to so many practicioners of the traditional arts. I watched as Karate-Do, Tae Kwon Do, and yes even Jeet Kun Do fighters get taken down hard and fast. In the end it was an opponent so small and seemingly harmless that put the fear of God into his opponents and won the championship hands-down. This fighter, Royce Gracie, excelled in ground fighting...something almost all of the traditional martial arts avoid in their practice. And soon ground fighting took the world by storm and everyone was doing it. Several of the great fighters incorporated ground fighting into their practice. The UFC evolved and the game changed because the fighters changed.
That's what happens with the market. Investing styles are much like those traditional martial arts. They look good and sound good on paper and in a controlled setting. But, out in the real world...they just don't cut it. Because somebody always has some edge to exploit the weakness of the players. Once this weakness is shown for the world to see much like Gracie showing the world the arts of ground fighting...the fight changes.
I think this ever evolving nature of the fight is what Bruce Lee was after in his quest to develop the ultimate fighting art. All the traditional disciplines failed him when tested in actual fighting conditions against worthy opponents. So, he developed Jeet Kun Do...one of the first modern form of mixed martial arts. The basic JKD theory is to do whatever is necessary to defend yourself. Break down the limiting factors in the traditional styles and use only those elements that could be found in a fight. Hence the quote by Lee, "The fancy mess solidifies and conditions that which was once fluid, and when you look at it realistically, it is nothing but blind devotion to the systematic uselessness of practicing routines or stunts that lead nowhere."
But, back to offering value. If we do indeed offer value to our readers...does that value instantly become worthless as the opportunity is showcased and known by the public to exploit? Much like Gary B. Smith has found in his original GBS Breakout Method? Or do we hold back some of the vital pieces to the puzzle from our readers much like the following story illustrates...
Bruce did not even show all of his students every way that he himself trained, or present all skills that he himself developed or advocated. Besides the reason of every person having their own "way", there is the following:
Another example of this phenom is Warren Buffett. So, many investors have tried to emulate his investing style...when in actuality...his investment style is a farce to the general public. How he really generates his billions does not resemble anything close to what he espouses to the investing public.
So, what do we do? Continue to listen and follow the traditional investing arts? Or forge ahead and create our own JKD? Discard anything that does not work in the real world of the market and keep only those things that do. Follow the philosophy of Lee's in response to a question of "What would you do if a skillful wrestler pinned you to the floor? Lee replied, "I'd bite you, of course." May not be pretty...might not fit all the teachings the great masters have given you...but works nonetheless.
Creating our own JKD would mean giving up many of the lessons and teachings that we investors have spent many years learning. Throwing away that 200 day moving average, breakout to new highs, low PE's, overbought, oversold, cut losses short and let your profits run. And only add to your style what works after they are thoroughly tested in the only arena that matters...the true fight...the market.
This would also involve reading media differently. Instead of reading bloggers and the financial media to learn principles and rules to follow...we'd cast a skeptical eye...always looking for the latest weakness to test. Watching and waiting for popular techniques to catch on and giving us opportunities to take the other side. Observing, Testing, and Revising all in the hopes of adding another piece to our arsenal of fighting styles.
That is my quest anyway.
"Empty your mind, be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot it becomes the teapot. Now, water can flow or it can crash. Be water my friend." -- Bruce Lee
Later Trades,
MT
"If any style teaches you a method of fighting, then you might be able to fight according to the limit of that method, but that is not fighting."
Any idea as to the origin of these quotes? None other than the great Bruce Lee. I find these quotes most useful in my approach to understanding the markets. And I'm using these quotes to respond to a recent comment from my post that asks the question, "Are Bloggers Relevant?"
The readers responds, "As long as you can articulate any useful observation on the area of interest there is relevance. It may not be relevant to some -- only the ones who want to learn more."
I agree with the responders point but my true question lies in are we indeed sharing useful observations in regard to the market. More importantly are we enabling our readers with the insights needed to truly make money from the market? Or are we just frothing at the mouth espousing generalized concepts and ideas with no true tests or experiences backing them up?
Again I will say, it's a great question. And I'm afraid of the answer. You see, people get blinded by rules, methodologies, and logic. There are many things in this world that make perfect sense. But, when tested against real data are found wanting. Why is this so? I believe its due to the ever changing nature of the markets. It's a game. And being a game...the players are constantly evolving their strategies. Much like the differences you see in the first episode of Survivor versus the Survivor All-Stars.
They played the game for the first time with one set of rules (to be honest they had no rules)...and then learned and revised and when the time came around to play again...the game was different. Reminds me of the Ultimate Fighting Championship. A real walk-forward test if you will.
I can still remember watching the first UFC. I was so excited because I would finally get to see all these different martial arts forms compete against each other in a real fight. Nothing scripted...nothing expected...and the outcome completely unexpected. It must have been humbling to so many practicioners of the traditional arts. I watched as Karate-Do, Tae Kwon Do, and yes even Jeet Kun Do fighters get taken down hard and fast. In the end it was an opponent so small and seemingly harmless that put the fear of God into his opponents and won the championship hands-down. This fighter, Royce Gracie, excelled in ground fighting...something almost all of the traditional martial arts avoid in their practice. And soon ground fighting took the world by storm and everyone was doing it. Several of the great fighters incorporated ground fighting into their practice. The UFC evolved and the game changed because the fighters changed.
That's what happens with the market. Investing styles are much like those traditional martial arts. They look good and sound good on paper and in a controlled setting. But, out in the real world...they just don't cut it. Because somebody always has some edge to exploit the weakness of the players. Once this weakness is shown for the world to see much like Gracie showing the world the arts of ground fighting...the fight changes.
I think this ever evolving nature of the fight is what Bruce Lee was after in his quest to develop the ultimate fighting art. All the traditional disciplines failed him when tested in actual fighting conditions against worthy opponents. So, he developed Jeet Kun Do...one of the first modern form of mixed martial arts. The basic JKD theory is to do whatever is necessary to defend yourself. Break down the limiting factors in the traditional styles and use only those elements that could be found in a fight. Hence the quote by Lee, "The fancy mess solidifies and conditions that which was once fluid, and when you look at it realistically, it is nothing but blind devotion to the systematic uselessness of practicing routines or stunts that lead nowhere."
But, back to offering value. If we do indeed offer value to our readers...does that value instantly become worthless as the opportunity is showcased and known by the public to exploit? Much like Gary B. Smith has found in his original GBS Breakout Method? Or do we hold back some of the vital pieces to the puzzle from our readers much like the following story illustrates...
Bruce did not even show all of his students every way that he himself trained, or present all skills that he himself developed or advocated. Besides the reason of every person having their own "way", there is the following:
This is an excerpt from a letter from James W. DeMile to the editor and staff of Inside Kung Fu, and Hawkins Cheung. The latter who had a series of articles published on Bruce and JKD, to which resulted in the following reply.
"What Sifu Cheung did not feel when he touched hands with Bruce's second- and third-generation students is some key elements that Bruce left out in his later teaching. Bruce made a statement to me that made everything clear as to why he changed certain aspects of his teaching. Jessie Glover, Bruce's first student and probably the best fighter in our group, and I were visiting Bruce when he was teaching a Jun Fan class in a Chinatown basement (Oakland). We noted that Bruce was teaching some things that seemed incomplete. We asked Bruce about this and he said, "Why should I teach someone to beat me?" It was true. Why should he spend all his time developing his personal style and then give it away to someone else who might one day challenge him."
Another example of this phenom is Warren Buffett. So, many investors have tried to emulate his investing style...when in actuality...his investment style is a farce to the general public. How he really generates his billions does not resemble anything close to what he espouses to the investing public.
So, what do we do? Continue to listen and follow the traditional investing arts? Or forge ahead and create our own JKD? Discard anything that does not work in the real world of the market and keep only those things that do. Follow the philosophy of Lee's in response to a question of "What would you do if a skillful wrestler pinned you to the floor? Lee replied, "I'd bite you, of course." May not be pretty...might not fit all the teachings the great masters have given you...but works nonetheless.
Creating our own JKD would mean giving up many of the lessons and teachings that we investors have spent many years learning. Throwing away that 200 day moving average, breakout to new highs, low PE's, overbought, oversold, cut losses short and let your profits run. And only add to your style what works after they are thoroughly tested in the only arena that matters...the true fight...the market.
This would also involve reading media differently. Instead of reading bloggers and the financial media to learn principles and rules to follow...we'd cast a skeptical eye...always looking for the latest weakness to test. Watching and waiting for popular techniques to catch on and giving us opportunities to take the other side. Observing, Testing, and Revising all in the hopes of adding another piece to our arsenal of fighting styles.
That is my quest anyway.
"Empty your mind, be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot it becomes the teapot. Now, water can flow or it can crash. Be water my friend." -- Bruce Lee
Later Trades,
MT
Wednesday, May 25, 2005
A Great Dog and Price Slopes
My dad called tonight with some sad news. Seems our family dog, Roxie, has developed a very serious tumor in her stomach area and it's preventing her from eating, moving, living to tell the truth. Not sure how many readers out there have had to deal with aging pets and the toughest of decisions when it comes to their life and health. But, I'm afraid that's what my dad will have to debate over the next few days.
Roxie is a Chesepeake Bay Retriever and her temperament and character are Chesepeake to the core. Extremely hard-headed, loyal, smart, and most of all loving. I can still remember when we picked Roxie up from her litter for the first time. It was my first year of marriage and my wife and I were still living in College Station and I was hacking away at my final year at A&M. She was a fun pup and gave my mom and dad quite a delight over the years. My family has had many dogs including labs, goldens, boxers, heelers, etc. But, for some reason Chesepeakes just take the cake. Having a Chesepeake is like owning a dog for the first time all over again. Because they do some many things just bassakwards. And they're BIG. Big enough to truly help when you're clearing timber. Picking up big logs and carrying them around like little sticks to the far woods. Funny.
Anyway, back to the market. While on the phone my dad mentioned I haven't written much in the blog. He's right. I haven't had a whole lot to say. Most of my energy has been focused on studying the market and I haven't lifted my head up to do much else. Sorry about that.
I've been bound and determined to come up with a general market trend detector. Basically, an indicator that would answer the following questions: 1) Are we in an uptrend? 2) If so, are we in the beginning stage, middle, or topping? 3) Are we instead in a downtrend? 4) If so, are we in the beginning stage, middle, or bottomming? 5) Or are we stuck in congestion?
I agree it's complicated. But I'm breaking the development into little steps and attempting them one by one. As Charles Atlas says, "Step by step and the thing is done."
The first step I'm tackling is answering the question "#1 - Are we in an uptrend?" I've been working on this step for about 2 weeks now and tonight I believe I'm close to the answer. Surprisingly, there was a fairly simple solution. It involves the slope of the price average. It seems the slope of the average works much like price volatility in that it being a leading indicator.
If the current slope is positive then the future slope is likely positive. Sounds simple doesn't it? Anyway, by just testing this indicator alone it turns out to be a pretty good system. But, more development to come. My next step will be tackling question #2 - Are we in the beginning, middle, or topping process of the uptrend.
Later Trades,
MT
Roxie is a Chesepeake Bay Retriever and her temperament and character are Chesepeake to the core. Extremely hard-headed, loyal, smart, and most of all loving. I can still remember when we picked Roxie up from her litter for the first time. It was my first year of marriage and my wife and I were still living in College Station and I was hacking away at my final year at A&M. She was a fun pup and gave my mom and dad quite a delight over the years. My family has had many dogs including labs, goldens, boxers, heelers, etc. But, for some reason Chesepeakes just take the cake. Having a Chesepeake is like owning a dog for the first time all over again. Because they do some many things just bassakwards. And they're BIG. Big enough to truly help when you're clearing timber. Picking up big logs and carrying them around like little sticks to the far woods. Funny.
Anyway, back to the market. While on the phone my dad mentioned I haven't written much in the blog. He's right. I haven't had a whole lot to say. Most of my energy has been focused on studying the market and I haven't lifted my head up to do much else. Sorry about that.
I've been bound and determined to come up with a general market trend detector. Basically, an indicator that would answer the following questions: 1) Are we in an uptrend? 2) If so, are we in the beginning stage, middle, or topping? 3) Are we instead in a downtrend? 4) If so, are we in the beginning stage, middle, or bottomming? 5) Or are we stuck in congestion?
I agree it's complicated. But I'm breaking the development into little steps and attempting them one by one. As Charles Atlas says, "Step by step and the thing is done."
The first step I'm tackling is answering the question "#1 - Are we in an uptrend?" I've been working on this step for about 2 weeks now and tonight I believe I'm close to the answer. Surprisingly, there was a fairly simple solution. It involves the slope of the price average. It seems the slope of the average works much like price volatility in that it being a leading indicator.
If the current slope is positive then the future slope is likely positive. Sounds simple doesn't it? Anyway, by just testing this indicator alone it turns out to be a pretty good system. But, more development to come. My next step will be tackling question #2 - Are we in the beginning, middle, or topping process of the uptrend.
Later Trades,
MT
Wednesday, May 18, 2005
Bloggers Relevant?
Finished my computer project. The computer build went smooth as glass. Had a slight conflict problem after the first set of tests. But, the problem was quickly solved. Overall, I'm extremely pleased with the new computer. And the first test of my weekly system simulations were amazing. Took a job that ran over 6 hours down to 1 hour. Not too shabby. If I had to do it over again...I would probably go with a stronger AMD cpu. That's just because the rest of the system is so high-performance. And I didn't take that into consideration with my cpu considerations. But, hopefully due to purchasing the 939 board...I can pick up a dual-core sometime in 2006 after prices drop somewhat.
Portfolio updates...
My Dow trade is still under water. No fun there. But, my Nasdaq system trade is doing wonderfully. I knew the trading system would kick my tail. :-)
As far as the oil service stocks...I'm taking it on the chin. And almost sold them all on Monday. But, if you take a look at the price declines from their recent highs...you can see their recent downward move is extreme and we should get some upturn soon. But, if not...asta la vista to those babies! And if we do get an upturn, I'll look to liquidate close to break-even on those trades.
What's next? Well, the media-avoidance experiment is still on-going. Has it been hard to avoid all financial media? You bet. What has my performance been like since the experiment? I hate to say it...but much better than when I followed everything. Will I make this experiment a habit? I find the following quote most appropriate...
I have found from this experiment that my time is now focused on studying the market and its behavior versus listening and reading to what others pontificate. And really, isn't that the most important job of all...studying the market? Rolling up our sleeves and getting our hands dirty by using our own brain to decide what the market is doing versus synthesizing gobs of information thrown at us from pundits and prognosticators alike?
What does that say about us bloggers? Are we relevant? Are we truly helping investors out there? Or are we just giving our readers something to do? Or more importantly...giving ourselves something to do? Great question.
Later Trades,
MT
Portfolio updates...
My Dow trade is still under water. No fun there. But, my Nasdaq system trade is doing wonderfully. I knew the trading system would kick my tail. :-)
As far as the oil service stocks...I'm taking it on the chin. And almost sold them all on Monday. But, if you take a look at the price declines from their recent highs...you can see their recent downward move is extreme and we should get some upturn soon. But, if not...asta la vista to those babies! And if we do get an upturn, I'll look to liquidate close to break-even on those trades.
What's next? Well, the media-avoidance experiment is still on-going. Has it been hard to avoid all financial media? You bet. What has my performance been like since the experiment? I hate to say it...but much better than when I followed everything. Will I make this experiment a habit? I find the following quote most appropriate...
"My views on markets always seem to be completely against the weight of the best academic research and the most astute political commentators. Invariably, I find these learned commentators know infinitely more about the subject at hand than I do. I find their views compelling but, invariably, a ticket to the poor-house. That's why I tuned out of all media except the National Enquirer..." -- Victor Niederhoffer in The Education of A SpeculatorI think not only do we typically fall prey to someone else's argument...but find ourselves lodging a stand against the person stating the argument as well. Or we take the other side and move like sheep in our desire to belong with others of our own viewpoint. All this clouds the mind and takes our eyes off the ball.
I have found from this experiment that my time is now focused on studying the market and its behavior versus listening and reading to what others pontificate. And really, isn't that the most important job of all...studying the market? Rolling up our sleeves and getting our hands dirty by using our own brain to decide what the market is doing versus synthesizing gobs of information thrown at us from pundits and prognosticators alike?
What does that say about us bloggers? Are we relevant? Are we truly helping investors out there? Or are we just giving our readers something to do? Or more importantly...giving ourselves something to do? Great question.
Later Trades,
MT
Monday, May 09, 2005
The Perfect Computer
Here's some more info on the computer I'm building. Please note, the computer parts have just been ordered. I have not received all the parts and thus will not begin building the computer until all components are received. I expect to start in the next week or so. Now here are the parts I selected and the reasons why...
AMD Athlon 64 3000+ 512K 90nm (939) CPU
I decided to go with the AMD chipset mainly due to the upgrade path the 939 chipset provides. Most of the applications I currently use will not take advantage of the 64-bit performance. But, when spending the kind of money I'm spending on this computer I do want the widest upgrade path available. Plus, my Wealth-lab software does not take advantage of Intel's Hyperthreading but does take advantage of AMD's memory controller being built-on to the board. Also, if you're going to choose AMD...might as well go with the hottest chipset which is the 939. That's where everything is going.
MSI K8N Neo4 Platinum SLI Motherboard
It really was a toss up between this board and an ASUS A8N-SLI Deluxe nForce4. And to be honest, I went with the MSI because it was available. Currently, most of the online stores were out of the ASUS boards. No doubt, there seemed to be a feeling out there in the building community that MSI is the better board. And the more reliable. But, from what I could tell...you really couldn't go wrong with either. Like I said in the previous post...I don't give a rat's a*s about SLI...but if you want the latest and greatest bells & whistles you've got to go with the SLI boards. Especially since I will utilize the built-in RAID controllers.
2 GB (2pcs 1GB) DDR (400) PC-3200 Corsair (TWINX2048-3200PT)
There's no doubt that the most important purchase for my system was memory. Because my applications use lots of it. I spend more time waiting for simulations to run mainly due to memory and hard-drive bottlenecks in the current system. So, I decided to go with 2 GB's and chose memory designed for large memory arrays. Hoping this will improve the speed and more importantly allow me to work with larger data sets in my trading simulations.
Western Digital Caviar RE WD 1600SD 160GB 7200 RPM Serial ATA150 Hard Drive
I chose this hard-drive mainly because of Western Digital's reputation and also because the RE version of this drive means it's built for high duty cycle environments. I almost chose the 10,000 RPM drive but decided against mainly due to some reliability issues I have read about. I'll probably purchase another one of these RE drives and RAID 0 them. And then I hope by that time the reliability issues of the 10,000 RPM drives will be worked out and I'll purchase one of those for my system drive. Then I'll have my applications running on the 10,000 RPM drive and store my data on the RAID 0. That should be FAST!!!!! Could it be overkill for what I'm doing? Maybe...but who cares.
XFX GeForce 6600 GT 128 MB DDR3/PCI-E/TV-OUT/DVI
Okay, okay, this graphics card is way to much muscle for my needs. But, since I spend large quantities of time sitting in front of the computer I wanted dual-DVI hookups for two LCD monitors. And truth be told, this was the cheapest dual-DVI graphics card I could find.
Antec Performance TX1088AMG SOHO File Server 480W Power Supply
I went with this case for two reasons. 1) The power supply was included and its one heck of a power supply. The True Power II that is built to handle SATA and PCI-E. 2) The case has capacity for expansion and fans galore. From the reviews the case has good airflow to keep things cool during those high power all-night simulation runs.
Dell UltraSharp 1905FP 19-inch Flat Panel Monitor
I went with this monitor mainly because its the one everyone has at my dayjob. So, I knew it performed well. Plus, Dell was having a 40% off sale and so I couldn't refuse. If I wouldn't have chosen this bad boy I probably would have gone with the Acer AL1912B 19" 16ms LCD Monitor. Don't have any experience with this monitor but the reviews were pretty good.
Lite-On SOHW-1673 16X8X16-DVD-RW/48X24X48-CD-RW Black
Didn't want to spend too much on the CD/DVD burner...and this received some great reviews from the builder community. Nuff said.
NEC FD1231H-302 Black 1.44MB
Floppy drive mainly to install SATA RAID.
Best Data 56FW-92 56kbps Modem
Well, gotta have a phone modem for backup purposes on your Internet Connection and this modem by Best Data fits the bill. If your Internet provider supports v.92 standards you should connect and download faster. Whether this is the case...I cannot comment...since I haven't tested it out yet.
That's pretty much my purchases. I did pick up a few more fans for my case but overall that was it. I'll use my current keyboard and mouse and install Windows XP Pro. Just a few more words about computer parts shopping. If you're really interested in going this route check out the product reviews over at NewEgg.com. Then after you decide on your components...search for the best price between MonarchComputers.com, ChiefValue.com, and of course NewEgg.com. And don't forget to include shipping costs in your comparison.
I'll post a follow-up on this project once I get the system built, tested, and run a few simulations. Wish me luck!
Later Trades,
MT
AMD Athlon 64 3000+ 512K 90nm (939) CPU
I decided to go with the AMD chipset mainly due to the upgrade path the 939 chipset provides. Most of the applications I currently use will not take advantage of the 64-bit performance. But, when spending the kind of money I'm spending on this computer I do want the widest upgrade path available. Plus, my Wealth-lab software does not take advantage of Intel's Hyperthreading but does take advantage of AMD's memory controller being built-on to the board. Also, if you're going to choose AMD...might as well go with the hottest chipset which is the 939. That's where everything is going.
MSI K8N Neo4 Platinum SLI Motherboard
It really was a toss up between this board and an ASUS A8N-SLI Deluxe nForce4. And to be honest, I went with the MSI because it was available. Currently, most of the online stores were out of the ASUS boards. No doubt, there seemed to be a feeling out there in the building community that MSI is the better board. And the more reliable. But, from what I could tell...you really couldn't go wrong with either. Like I said in the previous post...I don't give a rat's a*s about SLI...but if you want the latest and greatest bells & whistles you've got to go with the SLI boards. Especially since I will utilize the built-in RAID controllers.
2 GB (2pcs 1GB) DDR (400) PC-3200 Corsair (TWINX2048-3200PT)
There's no doubt that the most important purchase for my system was memory. Because my applications use lots of it. I spend more time waiting for simulations to run mainly due to memory and hard-drive bottlenecks in the current system. So, I decided to go with 2 GB's and chose memory designed for large memory arrays. Hoping this will improve the speed and more importantly allow me to work with larger data sets in my trading simulations.
Western Digital Caviar RE WD 1600SD 160GB 7200 RPM Serial ATA150 Hard Drive
I chose this hard-drive mainly because of Western Digital's reputation and also because the RE version of this drive means it's built for high duty cycle environments. I almost chose the 10,000 RPM drive but decided against mainly due to some reliability issues I have read about. I'll probably purchase another one of these RE drives and RAID 0 them. And then I hope by that time the reliability issues of the 10,000 RPM drives will be worked out and I'll purchase one of those for my system drive. Then I'll have my applications running on the 10,000 RPM drive and store my data on the RAID 0. That should be FAST!!!!! Could it be overkill for what I'm doing? Maybe...but who cares.
XFX GeForce 6600 GT 128 MB DDR3/PCI-E/TV-OUT/DVI
Okay, okay, this graphics card is way to much muscle for my needs. But, since I spend large quantities of time sitting in front of the computer I wanted dual-DVI hookups for two LCD monitors. And truth be told, this was the cheapest dual-DVI graphics card I could find.
Antec Performance TX1088AMG SOHO File Server 480W Power Supply
I went with this case for two reasons. 1) The power supply was included and its one heck of a power supply. The True Power II that is built to handle SATA and PCI-E. 2) The case has capacity for expansion and fans galore. From the reviews the case has good airflow to keep things cool during those high power all-night simulation runs.
Dell UltraSharp 1905FP 19-inch Flat Panel Monitor
I went with this monitor mainly because its the one everyone has at my dayjob. So, I knew it performed well. Plus, Dell was having a 40% off sale and so I couldn't refuse. If I wouldn't have chosen this bad boy I probably would have gone with the Acer AL1912B 19" 16ms LCD Monitor. Don't have any experience with this monitor but the reviews were pretty good.
Lite-On SOHW-1673 16X8X16-DVD-RW/48X24X48-CD-RW Black
Didn't want to spend too much on the CD/DVD burner...and this received some great reviews from the builder community. Nuff said.
NEC FD1231H-302 Black 1.44MB
Floppy drive mainly to install SATA RAID.
Best Data 56FW-92 56kbps Modem
Well, gotta have a phone modem for backup purposes on your Internet Connection and this modem by Best Data fits the bill. If your Internet provider supports v.92 standards you should connect and download faster. Whether this is the case...I cannot comment...since I haven't tested it out yet.
That's pretty much my purchases. I did pick up a few more fans for my case but overall that was it. I'll use my current keyboard and mouse and install Windows XP Pro. Just a few more words about computer parts shopping. If you're really interested in going this route check out the product reviews over at NewEgg.com. Then after you decide on your components...search for the best price between MonarchComputers.com, ChiefValue.com, and of course NewEgg.com. And don't forget to include shipping costs in your comparison.
I'll post a follow-up on this project once I get the system built, tested, and run a few simulations. Wish me luck!
Later Trades,
MT
Tuesday, May 03, 2005
Market Experiment
In the process of building a new computer for my trading platform. And let me tell ya, it will be sweet. It has taken me about a week to figure out all the components I wanted. Decided to go with an AMD 64 platform using the 939 socket infrastructure. Chose the new SLI type boards. Not so much for the SLI but for all the built-in RAID features that I will soon take advantage of. Also loading 2 GB of dual-channel memory from Corsair. Chose memory designed for large memory array applications such as my Wealth-Lab software simulations.
My next post will be a breakdown of all the hardware purchased for the system and I'll share with ya'll the places I purchased the components. And give reasons for choosing what I did.
And for those interested...I'm still long the market. I did take advantage of the new price highs in land drillers early last week and sold. Mostly just because I figured earnings would be about as good as they could get for the next few quarters. The subsequent quarters most likely will begin seeing capital expenditures eating into some of their recent blow-out profits.
I'm still long a few oil service plays. Mostly because they haven't done anything and are typically late to the stock market party. Also, their strong season is the summer. So, I'll hold until I see new highs or until I get stopped out. Or if they don't respond well to the summer season like I expect.
The rest of my money is in the S&P 500, Nasdaq, and the Dow. And lots of it. I just hope this bucking bronco keeps bucking and doesn't turn up dead on me. Ha!
And lastly, I'll share with you a recent experiment I've been carrying out. I have cut-off all market related news and commentary. The Fox morning Stock Market shows are gone. My daily blog readings...gone. Investors Business Daily, Wall Street Journal, newspapers from around the world? Gone. Yahoo Finance? Gone. The only thing I'm allowed to see are my stock charts. I cannot even follow world events such as economic and political news. Since these can and will affect my trading perspective.
I bet you're asking, how does it feel? Oh man, it's rough. Finally in the second week of the experiment and I'm beginning to see the power behind being cut off from the rest of the world. I guess Darvis was on to something. Anyway, I expect to carry out the experiment til at least the end of May. Based on the results I may continue this path. To be honest, it does focus you. Forces you to see the market for what it is instead of what everyone else is saying it is. For a contrarian like me who is always ready to take the other side of someone's opinion...this might actually be the way to go.
I'll keep you posted.
Later Trades,
MT
My next post will be a breakdown of all the hardware purchased for the system and I'll share with ya'll the places I purchased the components. And give reasons for choosing what I did.
And for those interested...I'm still long the market. I did take advantage of the new price highs in land drillers early last week and sold. Mostly just because I figured earnings would be about as good as they could get for the next few quarters. The subsequent quarters most likely will begin seeing capital expenditures eating into some of their recent blow-out profits.
I'm still long a few oil service plays. Mostly because they haven't done anything and are typically late to the stock market party. Also, their strong season is the summer. So, I'll hold until I see new highs or until I get stopped out. Or if they don't respond well to the summer season like I expect.
The rest of my money is in the S&P 500, Nasdaq, and the Dow. And lots of it. I just hope this bucking bronco keeps bucking and doesn't turn up dead on me. Ha!
And lastly, I'll share with you a recent experiment I've been carrying out. I have cut-off all market related news and commentary. The Fox morning Stock Market shows are gone. My daily blog readings...gone. Investors Business Daily, Wall Street Journal, newspapers from around the world? Gone. Yahoo Finance? Gone. The only thing I'm allowed to see are my stock charts. I cannot even follow world events such as economic and political news. Since these can and will affect my trading perspective.
I bet you're asking, how does it feel? Oh man, it's rough. Finally in the second week of the experiment and I'm beginning to see the power behind being cut off from the rest of the world. I guess Darvis was on to something. Anyway, I expect to carry out the experiment til at least the end of May. Based on the results I may continue this path. To be honest, it does focus you. Forces you to see the market for what it is instead of what everyone else is saying it is. For a contrarian like me who is always ready to take the other side of someone's opinion...this might actually be the way to go.
I'll keep you posted.
Later Trades,
MT
Wednesday, April 20, 2005
Keep It Simple Stupid!
Listen to the what the market is saying about others, not what others are saying about the market. - Richard Wyckoff
Sorry everyone for the lateness in posting. Some big things have been going on here at the TaylorTree. One, my 34th birthday was this weekend and my wife and daughter gave me a wonderful birthday. Just wonderful.
Secondly, some real interesting and a bit troubling news came this weekend. I have briefly mentioned my recent evolution in systems trading and promised I would share. So, here's the deal...
After you develop and trade a few systems, pop your cherry so to speak, you then begin to experience the battle to keep up with the market. You think developing more systems will do the trick but in some ways only worsens the problem. Why? Because many of the systems you trade share similar characteristics and begin to overlap with each other. That leaves a whole world out there in the market that you can't trade or have yet to capture in system logic.
For some system traders that is okay. They did not come from trading backgrounds. Their love is in finding logic to the market and exploiting it via their systems. Then you have rascals like myself that evolved from daytrading into system trading. It's very very hard to turn off the trader in me and sit back and let my systems do the work. Luckily, I have fought the battle and won for the past 4 years. But, these past few months have been extremely hard.
My systems continue to do well (some have had their problems like the Penny Weekly system) but for the most part they have performed very well. In fact, I've even had a revelation or two with the Penny Weekly system and some of my older private systems that have made them even better than ever. But, as I mentioned above, the trader in me yearns to trade.
So, I've embarked on a journey recently in my trading. Instead of using the sheer audacity of intuition/gut to trade the market like my President Election fiasco...I have decided to combine my intution/gut, analysis, and programming experience together and you have followed the transformation in the recent blog postings. I have to admit, it sounded great! Heck, I go back and read the posts and I'm like, man...that's good. You're a smart cookie. And you do not even know the half of it. The amount of data crunching, chart analysis, correllation analysis, historical studies, etc. performed was mind boggling. All to hit the big trade. And when it all fell into place in my Moment of Clarity...I felt good. Relieved! I knew I hit the mark and just had to take action and I did. After that...wait.
Waiting is what I've been doing. No doubt the market has been like a bucking bronco ever since I initiated my position. Well, let's be honest...a dying horse is more like it. But, I've been holding strong...proud of the fact I'm trading a portion of the market that I have yet to capture in 100% system logic. A bit of my gut...a bit of my mind...is in this trade. Something to be really proud of. And then low and behold what happens this past weekend?
A system trigger to go long the Nasdaq! Can you believe it? All that work, struggle, keeping up with everything and anything. Using every last ounce of myself and one of my systems not only picks up the trade but actually enters at a much much better price. And you wanna know the most frustrating part? This system truly follows the KISS dogma...
Keep It Simple Stupid. Let me say that again so I won't forget. Keep It Simple Stupid!
Yes, it's true. I'm not afraid to admit it. A very simple system that I created almost 3 years ago most likely in a few days time has beat me. So, after a defeat of this magnitude, what did I do?
I quietly took the Nasdaq trade with my tail between my legs. Yes, I'm massively long the market. Both in the Dow and now the Nasdaq. And I have no doubt the Nasdaq system trade will indeed perform better than my Dow trade. Heck, it already has.
Just wanted to give you the spill. Let you know what's going on. And let you know that even more changes are brewing down at the TaylorTree. I'll share more with you in coming posts.
Later Trades,
MT
Sorry everyone for the lateness in posting. Some big things have been going on here at the TaylorTree. One, my 34th birthday was this weekend and my wife and daughter gave me a wonderful birthday. Just wonderful.
Secondly, some real interesting and a bit troubling news came this weekend. I have briefly mentioned my recent evolution in systems trading and promised I would share. So, here's the deal...
After you develop and trade a few systems, pop your cherry so to speak, you then begin to experience the battle to keep up with the market. You think developing more systems will do the trick but in some ways only worsens the problem. Why? Because many of the systems you trade share similar characteristics and begin to overlap with each other. That leaves a whole world out there in the market that you can't trade or have yet to capture in system logic.
For some system traders that is okay. They did not come from trading backgrounds. Their love is in finding logic to the market and exploiting it via their systems. Then you have rascals like myself that evolved from daytrading into system trading. It's very very hard to turn off the trader in me and sit back and let my systems do the work. Luckily, I have fought the battle and won for the past 4 years. But, these past few months have been extremely hard.
My systems continue to do well (some have had their problems like the Penny Weekly system) but for the most part they have performed very well. In fact, I've even had a revelation or two with the Penny Weekly system and some of my older private systems that have made them even better than ever. But, as I mentioned above, the trader in me yearns to trade.
So, I've embarked on a journey recently in my trading. Instead of using the sheer audacity of intuition/gut to trade the market like my President Election fiasco...I have decided to combine my intution/gut, analysis, and programming experience together and you have followed the transformation in the recent blog postings. I have to admit, it sounded great! Heck, I go back and read the posts and I'm like, man...that's good. You're a smart cookie. And you do not even know the half of it. The amount of data crunching, chart analysis, correllation analysis, historical studies, etc. performed was mind boggling. All to hit the big trade. And when it all fell into place in my Moment of Clarity...I felt good. Relieved! I knew I hit the mark and just had to take action and I did. After that...wait.
Waiting is what I've been doing. No doubt the market has been like a bucking bronco ever since I initiated my position. Well, let's be honest...a dying horse is more like it. But, I've been holding strong...proud of the fact I'm trading a portion of the market that I have yet to capture in 100% system logic. A bit of my gut...a bit of my mind...is in this trade. Something to be really proud of. And then low and behold what happens this past weekend?
A system trigger to go long the Nasdaq! Can you believe it? All that work, struggle, keeping up with everything and anything. Using every last ounce of myself and one of my systems not only picks up the trade but actually enters at a much much better price. And you wanna know the most frustrating part? This system truly follows the KISS dogma...
Keep It Simple Stupid. Let me say that again so I won't forget. Keep It Simple Stupid!
Yes, it's true. I'm not afraid to admit it. A very simple system that I created almost 3 years ago most likely in a few days time has beat me. So, after a defeat of this magnitude, what did I do?
I quietly took the Nasdaq trade with my tail between my legs. Yes, I'm massively long the market. Both in the Dow and now the Nasdaq. And I have no doubt the Nasdaq system trade will indeed perform better than my Dow trade. Heck, it already has.
Just wanted to give you the spill. Let you know what's going on. And let you know that even more changes are brewing down at the TaylorTree. I'll share more with you in coming posts.
Later Trades,
MT
Friday, April 15, 2005
If it feels good, don't do it.
"Dennis used to say, somewhat fecetiously, "If it feels good, don't do it." In fact, one rule we taught the Turtles was: When all the criteria are in balance, do the thing you least want to do. You have to decide early on whether you're playing for the fun or for the success." -- William Eckhardt
Maybe I was right after all about the oil plays hitting a soft spot. This is good. Means we still have more room to go with these guys. Unless of course our economy falls off a cliff. In the mean time, I'm feeling the pain, baby.
The Dow call? Oh, yes, I'm feeling the pain with that one as well. Hurting bad. So, with that hurt I'm going to go out on a limb even more. Tomorrow we rally. The Dow will experience a move up of 1% or more. Next week? A +2% up move.
What crystal ball am I looking at? The 70's correllation. And according to my studies the Dow rallies from here. If I'm wrong...then I'm afraid I'll have to look into liquidating my positions. I still have a little leg room on the downside...but not much. If the Dow moves down more than 2% from here...I'm out. Then papa will have to find a brand new bag. Ha!
Everyone have a great weekend!
MT
Maybe I was right after all about the oil plays hitting a soft spot. This is good. Means we still have more room to go with these guys. Unless of course our economy falls off a cliff. In the mean time, I'm feeling the pain, baby.
The Dow call? Oh, yes, I'm feeling the pain with that one as well. Hurting bad. So, with that hurt I'm going to go out on a limb even more. Tomorrow we rally. The Dow will experience a move up of 1% or more. Next week? A +2% up move.
What crystal ball am I looking at? The 70's correllation. And according to my studies the Dow rallies from here. If I'm wrong...then I'm afraid I'll have to look into liquidating my positions. I still have a little leg room on the downside...but not much. If the Dow moves down more than 2% from here...I'm out. Then papa will have to find a brand new bag. Ha!
Everyone have a great weekend!
MT
Tuesday, April 12, 2005
Dow Teaser
Wanted to post a link to a chart I've created comparing the 1970's on the Dow versus our current timeframe. So, please check it out here. I'll post my explanations later this week in another post.
Please note, the chart is a very rough comparison. Let me say that again...a very rough comparison. :-)
Oh, and pay special attention to how the Dow flirted with the 1,000 level back in the late 60's and 70's and how we are flirting with the 11,000 level now.
Later Trades,
MT
Please note, the chart is a very rough comparison. Let me say that again...a very rough comparison. :-)
Oh, and pay special attention to how the Dow flirted with the 1,000 level back in the late 60's and 70's and how we are flirting with the 11,000 level now.
Later Trades,
MT
Monday, April 11, 2005
Echo Bubbles?
I have a great little treat for everyone coming this week. I have been performing further studies on the 1969 - 1975 market versus the current market we are in. I'll post a great chart possibly Monday of my research.
To give you a brief hint of what my study is pointing to...I'll leave you with this: We should see an explosive move occurring within the next few weeks. In fact, my bet is on this week or the very next week of this move occurring.
Also, someone posted an anonymous comment on the A Moment of Clarity post. I wanted to thank that person for pointing out the errors in my article. I was blending the business cycle dates and stock market cycle dates together. The person also made a great comment in regard to echo bubbles. And provided some great examples. So, thank you for your comments!
The first time I ever heard the echo bubble term was back in the early 90's. The news was all a buzz in regard to Japan and how several economists believed Japan was experiencing an echo bubble. I was just a young pup back then so girls were my focus instead of the market ..thus I have no idea why I remember that discussion...but I did. In fact, I haven't heard that term written or spoken since...until the anonymous poster brought the term back to my attention.
So, are we in an echo bubble? I believe so. Stay tuned for the chart I'll post this week to explain why I believe we're in an echo bubble.
Later Trades,
MT
To give you a brief hint of what my study is pointing to...I'll leave you with this: We should see an explosive move occurring within the next few weeks. In fact, my bet is on this week or the very next week of this move occurring.
Also, someone posted an anonymous comment on the A Moment of Clarity post. I wanted to thank that person for pointing out the errors in my article. I was blending the business cycle dates and stock market cycle dates together. The person also made a great comment in regard to echo bubbles. And provided some great examples. So, thank you for your comments!
The first time I ever heard the echo bubble term was back in the early 90's. The news was all a buzz in regard to Japan and how several economists believed Japan was experiencing an echo bubble. I was just a young pup back then so girls were my focus instead of the market ..thus I have no idea why I remember that discussion...but I did. In fact, I haven't heard that term written or spoken since...until the anonymous poster brought the term back to my attention.
So, are we in an echo bubble? I believe so. Stay tuned for the chart I'll post this week to explain why I believe we're in an echo bubble.
Later Trades,
MT
Monday, April 04, 2005
Brief Update
Between a sick daughter, taxes, and daylight savings time...I haven't had time to write a post this week.
Just wanted to share a few thoughts on the markets. In my previous post, I discussed my bet on oil/gas stocks being soft and going long the Dow. Funny how oil/gas stocks surged and the Dow dropped even further. But, that's what the market does...makes it tough on ya.
This week will prove to be a key week in my Dow trade. I have placed a line in the sand and if the market doesn't live up to my plan...I'll have to adjust the plan. Meaning, by my plan the Dow should begin a turn and reverse very soon. In fact, if I do not see the Dow begin an advance this week...I'll get worried. Not until then.
In fact, based on the data I'm seeing...oil/gas stocks are where my worries are. I wanted...no I needed to see a continued soft spot for these stocks. The Goldman Sachs call....all that changed. I'm seeing new equity highs due to that call. Something I didn't think would come until the first quarter numbers begin to come out. If we continue to see strength in these stocks heading into earnings...the earnings announcements may prove to be an intermediate top in this sector. And I really hate to say that considering the long-term fundamentals of the sector. So, watch out...if you're not in this sector...it may pay to wait several months before stepping a toe in.
Pay attention out there. Things could get interesting.
Later Trades,
MT
Just wanted to share a few thoughts on the markets. In my previous post, I discussed my bet on oil/gas stocks being soft and going long the Dow. Funny how oil/gas stocks surged and the Dow dropped even further. But, that's what the market does...makes it tough on ya.
This week will prove to be a key week in my Dow trade. I have placed a line in the sand and if the market doesn't live up to my plan...I'll have to adjust the plan. Meaning, by my plan the Dow should begin a turn and reverse very soon. In fact, if I do not see the Dow begin an advance this week...I'll get worried. Not until then.
In fact, based on the data I'm seeing...oil/gas stocks are where my worries are. I wanted...no I needed to see a continued soft spot for these stocks. The Goldman Sachs call....all that changed. I'm seeing new equity highs due to that call. Something I didn't think would come until the first quarter numbers begin to come out. If we continue to see strength in these stocks heading into earnings...the earnings announcements may prove to be an intermediate top in this sector. And I really hate to say that considering the long-term fundamentals of the sector. So, watch out...if you're not in this sector...it may pay to wait several months before stepping a toe in.
Pay attention out there. Things could get interesting.
Later Trades,
MT
Thursday, March 31, 2005
A Moment of Clarity
Just a brief update on what's been going on in my trading mind. I've been spending lots of time digging through websites, newspapers, old magazines, data tables from obscure economic sites, and books...books....books. Trying to wrap my mind around just where we are in the market cycle. But, I've only shared with you, my reader, the information I have found. Information that I believe is important in meandering through this confusing market. I have failed to share with you my true insights as to what this information means to me as a trader. What I'm going to do with this information. Truth be told, I couldn't share my insights because I was still processing the information through this slow brain of mine.
But, today, all that changed. Someone asked me after reviewing the business cycle chart posted on Sunday and Monday what I thought this meant for the market going forward. That was a great question and maybe because someone else asked me instead of myself...I was actually able to answer. Something I have not been able to do for about a month of processing. After answering the question...I received a moment of clarity. You know, when everything you have been trying to put together just clicks. So, I wanted to share my answer with you.
Part 1 of the reply to the question:
Part 2 of the reply:
After writing those two replies my moment of clarity has come to this:
How's that for putting it out there? Could I be wrong? Yes! Any number of things could derail this plan of mine. The number one thing being Greenspan and a 50 basis point rate hike. But, trading is about putting a plan together and taking action. Then adjust as the action unfolds.
One last item. If there are any long-time readers of my blog...you're probably asking why I'm trading out of my systems so blatantly. I promised not to do that after the President Election fiasco. And you're right, I am breaking my promise. But, not how you think. My system trading has evolved and will continue to evolve. This is part of it. I will share more with you in coming posts.
Later Trades,
MT
* Note: the Dow lost over 40% in the 1974 - 1975 Bear Market from the 1973 all-time high.
* Note: the WLI is the Weekly Leading Index and the FIG is the Future Inflation Gauge. For an explanation of these indexes please check out ECRI's website and even read the great book, Beating the Business Cycle.
Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.
But, today, all that changed. Someone asked me after reviewing the business cycle chart posted on Sunday and Monday what I thought this meant for the market going forward. That was a great question and maybe because someone else asked me instead of myself...I was actually able to answer. Something I have not been able to do for about a month of processing. After answering the question...I received a moment of clarity. You know, when everything you have been trying to put together just clicks. So, I wanted to share my answer with you.
Part 1 of the reply to the question:
Thanks for the reply. Take a peek at another article I wrote, Canary in a Coal Mine. In the article, I'm attempting to paint the picture that we're in a boat similar to the 1970's. In particular I feel we're very similar to the 1973 - 1974 time frame. If you notice on the business cycle chart the contraction that followed the 1973 expansion lost approximately -9.33% in the Dow. I could see us losing about that much this time.
In fact, take a strong look at the business cycle chart. Take notice of just the 1969 peak through the 1973 peak. The 2001 peak through the current 2005 expansion is almost mirror image. What also has struck me lately is the similarity in the way stocks performed during those time frames. If you remember the late 1960's was the time of growth stocks. I believe small caps did very well (although I have yet to find performance statistics to support this). Then tough times and all that was left was the Nifty Fifties in the early 70's that then proceeded to finally kowtow to the bear in the 73 - 74 bear market.
Check out the Nasdaq composite and S&P 500 monthly charts and notice the strong sell-offs from the 2000 high. The Dow's plunge was relatively mild during the bear . In fact, during this recent expansion we almost hit new all-time highs in the Dow. The only difference between the 73 market and now is the 73 market did indeed hit all-time highs in the Dow before plunging into the bear.
Based on just this information...looks like tough times ahead.
Part 2 of the reply:
Another point I'd like to make in regard to the 1973 - 1975 contraction that
took the Dow down almost 10%. The Dow actually went lower than the 9.33%
figure. That's just where the Dow stood at the 1975 trough in relation to the
1973 peak. I figure we'll see something similar...in fact we've already
dropped almost 5% from the March closing high of 10,940.55 in the Dow.
What I'm trying to wrap my mind around is just exactly where we are in the
comparison. Is the March closing high the climax of this recent expansion?
Was the record company earnings in the last quarter of 2004 the peak? If so, I
believe the NBER will mark December 2004 as the peak for this current business
cycle expansion.
But, it does concern me that we haven't hit a new all-time high in the Dow. And
also concerting is the noticeable strength in the WLI from the ECRI. Along with
the somewhat flattening of the FIG. It could just mean the current expansion
has another year to go especially if inflation begins to stall here.
After writing those two replies my moment of clarity has come to this:
- I believe we will see a new all-time high in the Dow this year. In fact, it could even be as early as May. This new all-time high will mark the peak of this current expansion and the bear will take us down much like the bear took down the 1973 all-time high and corresponding business cycle peak. 2006 could prove to be a great year to begin shorting the market.
- I believe oil/gas stocks will continue the soft patch they are currently in. But, this will be short-lived. Oil/gas stocks are now in the sweet spot for investing. Almost a win-win situation. If oil comes down as it has been doing this week...the oil/gas stocks will surge due to their earnings potential in the coming quarter. If oil stays down...the market and this economy (our expansion) will continue to do well...thus setting us up for another run-up in oil prices down the road. Thus, benefitting the oil/gas stocks and their earnings potential even more in the coming quarters.
- When I refer to oil/gas stocks, please note I'm referring to the US land drillers and some oil service stocks. Despite the positive press on the oil tankers...please be careful there. The tankers are facing a new ship supply wave coming in the next 3 to 4 years. In fact, 10,000 ocean-going tankers are due, more than 8,000 new containerships and at least as many standard bulk carriers. Plus, remember, in 1974 despite high and rising oil prices...oil tankers were taking a beating due to fuel costs and oversupply. And yes, I'm talking my book...I am long US Land drillers and a few oil service companies.
- And yes, I'm long the Dow as of 2:00pm Central time today, Wednesday March 30th.
How's that for putting it out there? Could I be wrong? Yes! Any number of things could derail this plan of mine. The number one thing being Greenspan and a 50 basis point rate hike. But, trading is about putting a plan together and taking action. Then adjust as the action unfolds.
One last item. If there are any long-time readers of my blog...you're probably asking why I'm trading out of my systems so blatantly. I promised not to do that after the President Election fiasco. And you're right, I am breaking my promise. But, not how you think. My system trading has evolved and will continue to evolve. This is part of it. I will share more with you in coming posts.
Later Trades,
MT
* Note: the Dow lost over 40% in the 1974 - 1975 Bear Market from the 1973 all-time high.
* Note: the WLI is the Weekly Leading Index and the FIG is the Future Inflation Gauge. For an explanation of these indexes please check out ECRI's website and even read the great book, Beating the Business Cycle.
Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.
Monday, March 28, 2005
Cumulative Knowledge (03/28/2005)
I'm a recent fan of Stephen Vita's Alchemy of Trading blog. What I most admire about the blog is Stephen's ability to write several posts daily, encompassing what all of us traders are feeling, while keeping it fresh and new. The conversations with hedge fund friend, Anthony from Brooklyn, are priceless.
On to the notes...
Inflation effects farmers too. Read here. Despite a banner 2004, farmers are being squeezed due to higher steel, energy, and fertilizer costs. Plus, banks are tightening the reins on lending money to farmers. With irrigation equipment costs rising 20%...farmers are opting out until prices hopefully decline. This hurts LNN and VMI. Despite the rising inflation, farmers still can't resist new tractor purchases.
China has doubled steelmaking capacity since 2000 and now accounts for about 30% of the world's total. In fact, China has become a net exporter of steel for the past few months.
The FAA is expecting the US to exceed 1 billion airline passengers by 2015 from a current 688 million in 2004. Most of the growth will come from regional/commuter airlines and international flights to Latin America. In fact, Latin America travel is slated to grow at a 5.5% annual rate. Read here.
US Drilling hit a 19-year high. Read here. Note most of the growth came from land drillers in North America. The Texas PetroIndex rose to 167.4 in January. Note the 43% increase from the 2002 low versus the 70% increase from the June 1999 low to the August 2001 high. Still more to go? Perhaps that's why Karr Ingham is forecasting the index will reach 182 by December 2005. Nothing like an economist laying it on the line.
For the last time...there is INFLATION! For the past few months I have come across more people than I care to count that do not believe we're in an inflationary environment. BALDERDASH, BALDERDASH, BALDERDASH! Possibly Greenspan's recent federal bank brick has hit most of these people in the heads to realize what's going on. If not, maybe this article on tuition cost increases will help. Reason for the tuition hike? Rising employee benefit costs, utilities, software, and hardware. Yes, software and hardware costs are rising. Have been for the past year. Wage inflation? Yes, via employee benefit costs. Do you realize it costs some teachers in Texas $1200/month to insure their family for healthcare alone? And if it doesn't cost the teachers...its costing the district and/or the state.
Rents low and House payments high? Read here. The differential is at its biggest since 1994 and by some accounts the biggest since the 70's.
Two-thirds of US adults are overweight or obese. Up to 30% of US children are overweight. Childhood obesity has more than doubled in the past 25 years. Childhood diabetes has increased 10-fold in the past 20 years. In other words, life expectency gains could fall dramatically. Read more here.
Speciality hospitals have nearly tripled in number since 1997 according to the Texas Hospital Association. Of the 100+ speciality hospitals...nearly half are in Texas. This article must scare the bonkers out of physicians.
Arizona has won approval from the EPA for a proposed $2.5 billion oil refinery. This would be the first oil refinery built in the America in almost three decades.
Finally a word about the recent American Business Cycle chart I posted on Sunday. You should seriously check out the chart. Notice the most recent expansion/contractions. Definitely it seems the cycles are getting longer. I wonder if that has to do with the greater experience the Fed has with playing with rates in order to govern the business cycle? Anyway, here's a few tidbits from the chart...
And that's it from the TaylorTree where I wonder just what these financial shows are doing to my state of mind. Did I just use the word BALDERDASH?!? Thank you Jim Rogers. :-)
Later Trades,
MT
On to the notes...
Inflation effects farmers too. Read here. Despite a banner 2004, farmers are being squeezed due to higher steel, energy, and fertilizer costs. Plus, banks are tightening the reins on lending money to farmers. With irrigation equipment costs rising 20%...farmers are opting out until prices hopefully decline. This hurts LNN and VMI. Despite the rising inflation, farmers still can't resist new tractor purchases.
China has doubled steelmaking capacity since 2000 and now accounts for about 30% of the world's total. In fact, China has become a net exporter of steel for the past few months.
The FAA is expecting the US to exceed 1 billion airline passengers by 2015 from a current 688 million in 2004. Most of the growth will come from regional/commuter airlines and international flights to Latin America. In fact, Latin America travel is slated to grow at a 5.5% annual rate. Read here.
US Drilling hit a 19-year high. Read here. Note most of the growth came from land drillers in North America. The Texas PetroIndex rose to 167.4 in January. Note the 43% increase from the 2002 low versus the 70% increase from the June 1999 low to the August 2001 high. Still more to go? Perhaps that's why Karr Ingham is forecasting the index will reach 182 by December 2005. Nothing like an economist laying it on the line.
For the last time...there is INFLATION! For the past few months I have come across more people than I care to count that do not believe we're in an inflationary environment. BALDERDASH, BALDERDASH, BALDERDASH! Possibly Greenspan's recent federal bank brick has hit most of these people in the heads to realize what's going on. If not, maybe this article on tuition cost increases will help. Reason for the tuition hike? Rising employee benefit costs, utilities, software, and hardware. Yes, software and hardware costs are rising. Have been for the past year. Wage inflation? Yes, via employee benefit costs. Do you realize it costs some teachers in Texas $1200/month to insure their family for healthcare alone? And if it doesn't cost the teachers...its costing the district and/or the state.
Rents low and House payments high? Read here. The differential is at its biggest since 1994 and by some accounts the biggest since the 70's.
Two-thirds of US adults are overweight or obese. Up to 30% of US children are overweight. Childhood obesity has more than doubled in the past 25 years. Childhood diabetes has increased 10-fold in the past 20 years. In other words, life expectency gains could fall dramatically. Read more here.
Speciality hospitals have nearly tripled in number since 1997 according to the Texas Hospital Association. Of the 100+ speciality hospitals...nearly half are in Texas. This article must scare the bonkers out of physicians.
Arizona has won approval from the EPA for a proposed $2.5 billion oil refinery. This would be the first oil refinery built in the America in almost three decades.
Finally a word about the recent American Business Cycle chart I posted on Sunday. You should seriously check out the chart. Notice the most recent expansion/contractions. Definitely it seems the cycles are getting longer. I wonder if that has to do with the greater experience the Fed has with playing with rates in order to govern the business cycle? Anyway, here's a few tidbits from the chart...
- Average expansion is 4.06 years.
- Average contraction is 1.08 years
- Average gain in an expansion is 64.39%.
- Average loss in a contraction is -3.51%
- The current expansion is working on 3.42 years...just shy of the average.
- And the current gain under this expansion is a paltry 7.53%. In fact, the last time we had an expansion 3 years or greater and below an 8% gain was back in 1973. In 1973 we had a 3 year expansion coupled with a 5.57% gain.
And that's it from the TaylorTree where I wonder just what these financial shows are doing to my state of mind. Did I just use the word BALDERDASH?!? Thank you Jim Rogers. :-)
Later Trades,
MT
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