Wednesday, June 28, 2006

Strategy Session: Which Strategies Are Most In-Tune with this Market?

We recently developed a tool in our lab called the Odds Maker. (There's an update to the Odds Maker's status). It's purpose is to provide a trader with probabilities for winning trades given:
  1. a particular Trade-Ideas alert window set-up wherein each alert is considered as an entry to a trade
  2. specific exit instructions wherein the trader reports in advance whether s/he is long or short, the length of time they remain in the trade (up to the following day's open), and whether or not they set a trailing stop and if so, by what dollar amount, percentage, or volatility factor.

The Odds Maker extends the market scanning capabilities of Trade-Ideas' already advanced Idea Generation Technology because it looks for positive correlations in recent historical patterns between alert configurations and the overall market to find a trading edge. In other words it asks the question, "Which alert set-ups are the most in-tune with the market?"

As we prepare the Odds Maker (not its final name by the way - got a better suggestion? Leave a comment please!) for its beta release, I've turned its critical eye on our list of Samples included on our website and in Trade-Ideas Pro. What got me to organize the results for this post was something Dr. Brett Steenbarger said on Monday.

Brett discussed 4 explanations why trading sometimes doesn't work out. Phenomenon #2 describes the condition the Odds Maker is built to remedy:

"Problems of changing markets - When traders have had consistent success, but suddenly lose money with consistency, a reasonable hypothesis is that markets have changed and what once was an edge no longer is profitable. This happened to many momentum traders after the late 1990s bull market, and it also has been the case for many scalpers after volatility came out of the stock indices. Here the challenge is to remake one's trading, either by retaining the core strategy and seeking other markets with opportunity or by finding new strategies for one's market. The answer to these problems is to reduce your trading size and re-enter a learning curve to become acquainted with new markets and methods. Figuring out how you learned the markets initially will help you identify steps you need to take to relearn new patterns."

The table below (click to enlarge) shows about half of the sample strategies that appear in Trade-Ideas. These are the green-shaded or upward indicating (Bullish) set-ups we offer as starting points for further modification. The two columns of percentages tell us what the probabilities are for winning trades using these strategies when a trader decides to go long with every alert OR decides to fade and go short with every alert - all under the following conditions:

  1. Each alert generated by the strategy is an entry
  2. Each position in the 'Long' column is exited 60 minutes after the entry (trades entered during the last hour are not considered)
  3. Each position in the 'Short' column is exited 30 minutes after the entry. This was done to see if better results than simply 1-Long could be achieved. That's why each row does not add up to 100%.
  4. No trailing stops are used in this example

The list is sorted by the side of the trade that produced the highest probability of a winning trade, in this case that's the short side. In other words given our current market conditions, the Odds Maker suggests that "Bullish Stocks Under $20" aka "Under $20, Moving Up Fast" is a good strategy to fade - producing a 68% chance of a winning trade when the position is entered and exited after 30 minutes. Note that percentages above 60% (or below 40 in which we would simply reverse the exit strategy) are what we look for - results around 50% indicate that the strategy does not fit the current market conditions.

Remember these results do not guarantee a trader's success even if you could enter and exit with the precision with which we base our results. It's a guide to help determine which approach to the market currently produces a greater chance of success. We'll look at the downward indicating (Bearish) category of samples a bit later. Now if only the Odds Maker could generate probabilities for Blue-ray or HD DVD ...

Tuesday, June 27, 2006

Critics Corner: Reviews from the Recent Seminar

The feedback from our 1st Annual Learning Curve Seminar was digested over the weekend (find the recap here). Lots of positives to report. There's not a lot of cherry picking here - everyone has very positive things to say - for that we are grateful and committed to doing the seminar again next year.

Here's our 7 question feedback form along with some of the comments (66% of attendees responding):

1. Did you feel the information covered during the 2-day seminar was valuable?
A: 100% Yes; "Fantastic information - cutting edge"

2. What part of the seminar did you feel was the most valuable to you?
A: By a 3:1 margin (surprisingly) the alerts/filters discussion was preferred to the strategy development discussion. Everyone expressed that both parts were indeed valuable.

3. What part of the seminar could you have done without?
A: "Shorter breakfasts of 30 minutes vs. 60 minutes", our keynote speaker and panel discussion

4. Was there additional information that you wish we had covered?
A: "More insight on Market mechanics", "More time on the stocks alerted within each strategy to better evaluate the results"

5. Did you enjoy the guest speakers and feel they added to the overall experience?
A: 60% completely favorable; some preferred specific speakers over others

6. Would you recommend the Learning Curve Seminar to fellow traders?
A: 100% Yes; "Absolutely, first rate."

7. Additional comments: "Holding advanced user seminars could be useful", "Spend more time on alerts and apply them in various classroom based strategy discussions", "Longer and more programming", "When's the next class!?"

Monday, June 26, 2006

Trade-Ideas Releases Version 1.9

Many have asked us to add key features such as window specific sounds and better linking capabilities with the Trade-Ideas Pro application. As of today these features are now available in Trade-Ideas Pro Version 1.9 via the Trade-Ideas Pro download page: A big thank you to those who downloaded and experimented with version 1.9 in its beta form. Your comments and use of the beta are appreciated. We'll continue to announce new beta versions here first.

The list of major improvements includes the following:

  • Each alert window can now be attached to a different sound.
  • Each alert window can now be linked to a different set of external windows.
  • Trade-Ideas Pro now detects and recovers from network problems more quickly.
  • This version fixes some obscure problems which caused TI Pro to lock up for a small number of users.
Go to our developers' page if you have integrated Trade-Ideas into your own application. To safely upgrade other applications using Trade-Ideas inside, go to our 3rd party upgrades page.

NOTE: ScottradeELITE users are not affected and do not need to do anything.

On another note, we want to thank all the bloggers who continue to add our ticker to their financial blogs as a way to add real-time content to their site and support our Idea Generation Technology - the list keeps growing. If anyone wants to join our affiliate program and get credit for customers they send our way please send us an email to

Monday, June 19, 2006

Letter from the LCS: Rewinding the Tape

The 1st Annual Learning Curve Seminar (LCS) contained many of the same emotions and activities as a baseball pennant-league champion series. Next year we're scheduling the F-15s to scramble overhead when we throw out the first pitch! But I'm getting ahead of myself. An enormous effort by the grounds crew at the Del Mar Hilton got everything in place - led by Moses himself. He, in turn, took orders from a higher authority: Heather, our event coordinator, who without her touch and deft hand at the details, this event could not have happened.

The free-wheeling sights and sounds from the San Diego Fair, installed at the Del Mar Racetrack across the street, enhanced the 'Stadium Arcadium' feeling around the LCS. The gorgeous weather consisting entirely of sunny, cloudless skies and cool breezes impressed even the natives among us who reminded each other of the usual "June Gloom" in San Diego marked by cloudy, hazy days and cold nights.

By the time it was ready to yell, "Play Ball!" attendees arrived from both coasts and points in between to soak up the plain spoken teachings of our fearless but 'shiny' leader, Dan Mirkin. Dan walked everyone to a clear understanding of Trade-Ideas and its many alerts and filters with 'in the trenches' explanations of real-world trading scenarios. Dan got many assists and a few slam dunks from our resident genius and technician, Philip Smolen. From the dugout I noticed that subscribers of all stripes - rookie and veternan alike - experienced several 'Ah-ha' moments. There was resolve among all to try some new things as a result of Dan's performance. A lead-off home run to start the ballgame.

We took our seventh inning stretch on the patio to grab a lunch buffet and fuel up for a second, shorter session of guest speakers from the stellar bullpen. Attendees got to pepper the panel consisting of Steve Walkenbach and Kevin Dodson from Scottrade, Mike Kestler from Evolution Capital, and Brad 'aka DiamondTrim' Williams, with questions on trading tools, trading styles, and the need Trade-Ideas fills within their arsenal. We didn't stop there. Our keynote speaker was saved for last - to give us alot to chew on during the cocktails that followed. That's normally a tough time slot to be in but Julia Bussie, CMT, a portfolio manager for alternative investments and a hedge fund advisor for Western Pacific Capital Management in Del Mar, delivered the go-ahead runs of the game. She talked commodities, particularly relevant in this market, and offered some amazing correlations between the markets' activity and key trends on the international macro-economic stage. Let's just say that everyone will be keeping an eye on Japanese Money Supply numbers to predict where the U.S. markets go next.

It was a toss up among the group for the evening activities during our happy hours over cocktails: the San Diego Fair, a dash to the beach for a surfing lesson, or best locations to prepare for sunset. All of the above got done it seems, but what happens in Del Mar, stays in Del Mar!

The next day opened with some hands on demonstrations of getting every advantage out of Trade-Ideas PRO as possible. The tool was verbally disassembled and put back together again in front of the attendees. Anything that could be changed or modified in TI PRO for the best view was done to show how versatile the tool really is. Dan then got around to revealing what else is behind the curtain at Trade-Ideas: The Odds Maker. We already discussed this upcoming add-on feature to Trade-Ideas in a previous post. The full demonstration that shows a subscriber plainly what the odds are that a certain strategy will produce winning trades under current market conditions, left everyone visibly moved and excited at the possibilities. The rest of the second day was dedicated to requests from the attendees on two topics: new feature requests (the next version of TI PRO will be called the 'Cash machine!') and examples of how to model different strategies - topics that were back to back home runs.

We concluded the session with a universal feeling of gratitude. Everyone had come together, broken bread, shared some libations and shared a common experience - the first of more to come. This first class of Del Mar '06 knew that it was special.

Heartfelt appreciation to everyone at LCS — Heather, Meyer, Moses, Philip, Shari—many thanks to our special keynotes—Julia Bessie, Steve Walkenbach, Kevin Dodson, Brad Williams—and professor Kestler—and, of course, many thanks to each attendee who found their way to Del Mar. It was an event beyond description and we look forward to exceeding your expectations again in 2007!

Want to see more photos? Take a look here.

Thursday, June 15, 2006

Trade-Ideas In Your Town: The LCS is Here!

The year is almost half-over! Too fast! We are already in the middle of a very busy month of events and activities for our subscribers. At this year's Annual Partners Meeting way back in January we produced a list of scheduled conferences and shows that key personnel from Trade-Ideas will be attending. If your city is listed and you'd like a little one-on-one assistance with Trade-Ideas or learn how we keep the ship afloat, please let us know via the comments section or at Subject: RoadTrip. If there is a good response we'll set up a convenient time for everyone to meet. If it's just one or two that are interested we'll still meet or at the least schedule a phone call during our visit.

Upcoming Events 2006 (June is a BIG, BUSY month)

Del Mar, CA: The 1st Annual Trade-Ideas Learning Curve Seminar (LCS), June 16-17, 2006 - it's finally here!

New York, NY: SIA Technology Management Conference, Hilton New York, June 20-22, 2006
Las Vegas, NV: The Traders Expo, Mandalay Bay Resort, November 16-19, 2006
International Conference: TBD
Atlanta, GA: Our East coast office all year round
San Diego, CA: Our West coast office and Data Center all year round

Past Events 2006

Ft. Lauderdale, FL: The Traders Expo, Broward County Convention Center, June 7–10, 2006
New York, NY: The Traders Expo, Marriott Marquis Hotel, February 18-21, 2006 (Read our RECAP)

More events will be added as needed. The June SIA event in New York City will also feature our Press & Partners Event. Last year's success guaranteed we would do it again. All of the Trader's Expo events will feature our partnership with Scottrade and their Scottrade ELITE platform - a powerful combination.

Last year's list of events is here.

Thursday, June 08, 2006

Calculating the Odds in Real-Time

There are a lot of things happening behind the scenes at Trade-Ideas this summer. One of the more exciting developments is a new premium product that we are planning to release in the next few months.

This new product is right now being called our "Odds Maker". The idea is this: Take an alert (e.g., Running Up) set up for one direction, long or short (not both at the same time) and apply the "Odds Maker" to it to see how many stocks triggering the alert were up 5, 10, 15, 20, 30, or 60 minutes after the alert took place. You can of course calculate the odds of a stock being down any amount as well. You also have the capability to use the close as well as the next day's open as possible exits. Trailing stops are an option to protect gains and minimize losses. In effect see how well alerts predict future movements. Wait until you see when we are done with it.

The "Odds Maker" works in real-time and continuously updates statistics based on new data that is coming in to the alert window. We make some simple assumptions: 1) You are buying the first alert for any symbol that comes through your configuration. 2) You are only getting into one symbol one time during the day.

We believe that this add on will really give our customers the ability to get solid feedback from any strategy and help them design alerts that give high odds trades.

Here is a sample from our lab that has had high odds of closing higher. This strategy is looking for a big volume move up through the 200 Day Moving average.

Odds Maker Example

Sound interesting? All feedback is welcome.