Wednesday, December 29, 2004

Is Day Trading Bad?

Motley Fool Staff published an article yesterday about why Day Trading is bad. http://news.yahoo.com/news?tmpl=story&u=/fool/20041227/bs_fool_fool/1104160020
I feel it's important to give both sides of the story. After reading the article I came to the conclusion that it was not much more than a promotional piece for their type of service and method of interaction with the market. Motely Fool advocates long term investment strategies. That is for sure the more popular approach to investing and for good reasons.

1) Up until recently individuals had very little access to sophisticated data analysis
2) Only in the last 5 years has technology made it possible for the average investor to really see market data in an cost effective way (i.e., without paying in the 000s/month for the access)

One major flaw with the Motley Fool article is the assumption that research from them or anyone else makes you a more informed investor. That seems very foolhearty. Why would a rational individual investor believe that they can do better research then analysts at Goldman and various hedge funds that specialize in the subjects?

The truth of the matter is that good investing and trading require some good luck, but aside from just dumb luck you have to have a differentiator that gives you an edge. In the markets just like in life, patterns repeat themselves. You drive home from work at 5:00 pm you are expecting to hit traffic. Why? Because you have seen this happen over and over again. The market behaves in much the same way with different types of patterns. A personal anecdote: I bought SIRI in my IRA at 3.50 noticing the momentum come into the stock. It ran up to 7.50 in one week and I sold. It continued higher but I made over 100% in just about a 2 week time frame. Of course this is very rare, but time and returns are not necessarily correlated. As Neo did in the movie, "The Matrix", if you can open your eyes and see what is happening, you can take advantage of the situation. How? Whether performing martial arts after downloading the skill or spotting ripe, predictive patterns - both activities require the right tool and technology for the task.

Monday, December 20, 2004

The 3 Floor Elevator Pitch: Marketing Communications

Every prepared candidate comes to an interview ready to answer at least the one obvious question that will be asked, "Tell me a little about yourself". Every business owner seeking venture capital also prepares a quick summary of what the company does. These opening remarks must be catchy, informative, and had better get others excited to know more. The time people have for you or your product is so small - first impressions are huge. After all I know there are some products and services I avoid simply because I find their commercial(s) too annoying.

Reader, my reason for sharing this with you is because I am tasked with coming up with the latest version of our company's "elevator pitch" or soundbite. In January we begin appearances on major radio shows throughout the country designed to inform listeners and potential subscribers about our company and its technology, Trade-Ideas.

If the name doesn't tell you enough of what we do - then I ask you to read a moment further and help me evaluate if any of the following taglines and explanation resonate with you. Consider yourself in the comfortable environs of the Trade-Ideas Focus Group on Marketing Communications. Thank you for your time and welcome.
  • Topic A: The tool that defines an activity or the individual that defines a team. Trade-Ideas is the first tool traders use to get themselves to the top in performance.
    Tagline: "Trade-Ideas: Direction - when you need it most"
  1. Where on the mountain would you be without your sherpa? Basecamp
    Where would you be with Trade-Ideas? At the peak
  2. What would Caruso be without his Friday? Lunch for the cannibals
    What could you be with Trade-Ideas? Survivor: Wall Street (Executive Producer)
  • Topic B: People often settle for less unknowingly or because they don't have access. Trade-Ideas provides access to the best view of the market: yours.
    Tagline: "Trade-Ideas: Why settle for any other view but the best?"
  1. Why settle for this view? (One apartment window looking into another apartment's party)
    When you can have this view (Inside the party, everyone toasting their glasses)
  2. Why settle for this view? (nosebleed seats at Lambeau Field - winter)
    When you can have this view (High-fiving Michael Vick along the sidelines - Superbowl, Miami)

I will add some additional candidates, but I would like to structure this like elimination rounds where these two topics face off and the winner takes on a third topic I'll post later.

Thanks for any and all input.


Good Article about return of Day Trading

Profession trading is making a comeback, there was a good article about it in Reuters.
Reuters News Article

One of the key aspects is the sophistication level of traders. We strongly believe that this new sophistication is in part because of advancements in technology such as those provided by Trade-Ideas!

Wednesday, December 08, 2004

The Key to success is stacking the Deck!

What Trade-Ideas does is allow you to stack the odds in your favor like never before. The idea is simple. In blackjack you are going to bet more aggressively when you think face cards are coming. With Trade-Ideas the key is to line up trends ahead of time so that the triggers you see are already all stacked in your favor. Look at the chart of KCI for December 8, 2004. My alert configuration alerted me to a breakout at 7:57:55 right around the time it was trading at 67.88. While the rest of the market was negative this stock was heading above yesterday's highs. We bought at 68.10 with a tight stop at 67.75. Shorly after that the stock moves right to 69. The reason this happened is because of all the filters that we placed before the alert was visible. We said the stock had to be in the top 10% of yesterday's trading range and has to be up at least 50 cents from the close and at least a 1 cent from the open. All of these filters point to a higher probability of continuation. Here is the set up for those interested.
Stacked Deck

Tuesday, December 07, 2004

How Can I use Trade-Ideas to make better trades?

We often receive this question. Although we do not advocate any particular trading strategy, our alerts are used by traders around the globe to improve their performance. The key is automation of the trade identification process. Our alerts perform the mundane tasks of pattern recognition and filtering the noise in order to display significant information to the end user. This makes our users efficient predators. They are able to be in many more potentially profitable trades because they are not spending their time looking for opportunities. Instead they are focusing on rapid situation analysis and risk management. Back in the old days of trading it was possible to get by trading just a few stocks. Today the market is much more competitive and our alerts give traders the ultimate advantage of real time information.How can I use your alerts to make better trades?Although we do not advocate any particular trading strategy, our alerts are used by traders around the globe to improve their performance. The key is automation of the trade identification process. Our alerts perform the mundane tasks of pattern recognition and filtering the noise in order to display significant information to the end user. This makes our users efficient predators. They are able to be in many more potentially profitable trades because they are not spending their time looking for opportunities. Instead they are focusing on rapid situation analysis and risk management. Back in the old days of trading it was possible to get by trading just a few stocks. Today the market is much more competitive and our alerts give traders the ultimate advantage of real time information.

Monday, December 06, 2004

The need for advanced analytics

Why do you need statistical and/or volume confirmations? We often get this question because many traders think that moving average crosses, etc., are deterministic.

Without these confirmations it is too easy to confuse the real market moves with the noise.
If you plot daily candlesticks, you can use an algorithm like a moving average cross-over. However, you might not get the same result as another trader who's using the same algorithm. The biggest problem is that the data can be corrected. If you get your number right after the close, and someone else gets his number several hours later, they will not always be the same. Listen to your favorite market show on TV any time the DOW closes close to an important technical level. They will always make a point of waiting to get official numbers before they say the DOW did or did not break the level.

If you plot intra-day candlesticks, you have the same problem only worse. For one thing, the data changes more often. If you watch closely you will see highs get lower, lows get higher, cumulative volume get lower, etc. Have you ever had your direct access software stop you out, but you couldn't find the print in the historical record? There is no official announcement when these corrections are made. And, if your strategy requires intra-day candlesticks, you probably don't want to wait around to see if something will be corrected.

Have you ever watched your indicators as candles are building in real time? The indicator can change with every print. Most systems traders will only take the value of the indicator when the candle is complete. What makes this value better than the one you saw half a second ago? Do the most interesting trades only happen on 15 minute boundaries? The distinction is arbitrary. Remember, even if your clock is that precise, the people reporting the trades may be working over the phone, so it may take several minutes to report a trade.

Trade-Ideas' proprietary statistical analysis does not give excessive weighting to any one print. It does not arbitrarily select a small subset of the prints to work on. And no one bad print can cause a significant change to the analysis.

Our alerts do not replace the trading systems, candlestick charts, etc. that you are already using. We just provide additional information to help you make your decision. Without our alerts you're just not seeing the whole picture.

Friday, December 03, 2004

Superior Technology for Traders

I recently read a blog from Mark Cuban,

http://www.blogmaverick.com/entry/1234000570021684/.

He is thinking of starting a hedge fund that is just focused on gambling. This is what got me thinking about this blog. The key to any good strategy is to have some tangible advantage that you can take advantage of. In Blackjack you would do a whole lot better if you were able to count cards at the table because that would give you an edge over other players who did not have that capability. The stock market is not that much different. Crunching data is analogous to counting cards. Imagine you are a trader and you know your good set ups, meaning, what they look like on a chart. You wait patiently until you see them and then you pounce. Sometimes you have to wait a long....a very long time.

My company created a tool, http://www.trade-ideas.com/, that makes it possible for you to ask the computer to bring up these set ups to you in real-time as they happen. The best part is that it is very simple to get started, http://www.trade-ideas.com/GettingStarted.html. You do not need to have any programming skills just a basic idea of what it is that you are looking for.