Wednesday, January 31, 2007
It has been much easier making money on the long side lately than trying to find that jewel of a short. The purpose of this post is to just let our readers know that there is no need to swim upstream. Listen to what the market is telling you. It may change and that's OK but the path of least resistance has lately been UP!
So if you want to get better and not fight the tape. Take a little time to read about a tool that can really help you get there.
The Odds Maker FAQ
Tuesday, January 30, 2007
- The Fed Watcher - uses the unusual number of prints trigger to pinpoint key activity and incorporates some advice dished by TheKirkReport and Toni Hansen; the link describes the Bull version of the strategy, here is the Bear version of The Fed Watcher
- The News Watcher - similar to above but more emphasis on volume surges (this configuration can be used long or short)
- How to Hunt with the Pack - "go with the flow", here's how to find it (both sides are modeled in the post)
Several of the past strategies were modified in their original post to better model the intended behavior. These can certainly be improved upon even further. Use them as a starting point to your own ideas and interpret them according to your own trading plan.
Friday, January 26, 2007
- Read Ugly's progress on his creative, quixotic quest to barter and trade his way to one share of Berkshire Hathaway stock. He's got a 1-year subscription to Trade-Ideas on the block (valued at $495 but worth so much more!). Everyone check your eBay listings and see if there is a match to be made.
- Jan. 27 UPDATE! The Trade-Ideas subscription traded for quite possibly the last thing I would ever have thought of!! Really, I don't know who came out better from this deal: Ugly's 3R on the TI annual subscription or the many more that winner 'Perry' will generate with his subscription. Perry: Welcome to Trade-Ideas!
- I answer a question from one of Trader Mike's readers about the set-up used on his daily Watchlist posts.
- Merrill Lynch Japan demurs, "Let's share in the dream of the Wii." Is It Safe to Declare the Winner of the Latest Game Console Battle?
- The Kirk Report asked in its 2007 membership survey, "What did you learn from your best and worst trade or investment in 2006?" The answers surprise and get your head nodding.
Wednesday, January 24, 2007
The event begins Saturday, February 17th and ends Tuesday, February 20th.
Here is a rough schedule of Trade-Ideas appearances at the conference:
- Sunday, Feb. 18th: 9:00 AM EST - until? Exhibit Hall: Scottrade Booth (6th Floor) or Trader's Bookstore (5th Floor)
- Sunday, Feb. 18th 11:45 AM EST ScottradeELITE Software Presentation
- Monday, Feb. 19th: 8:00 AM EST Panel Discussion: When Trading Styles Collide: Technicians and Fundamentalists Go Head-To-Head - get there early!
Outside of the Traders Expo there will be meetings with our institutional clients but we plan to stay close to our booth host, Scottrade and/or the Trader's Bookstore.If 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 firstname.lastname@example.org 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 my visit.
Come to the Traders Expo if you are in the area regardless of your trading level or affiliation. Please let us know you're coming! We welcome the chance to meet.
Monday, January 22, 2007
StockTickr, the social networking site for traders' stock picks, continues to make improvements to its free service with the addition of free Stock Research reports from Trade-Ideas. This follows a recent successful collaboration with Trade-Ideas for StockTickr's PRO service.
Trade-Ideas joins the comprehensive list of additonal resources displayed with all stock symbols mentioned on the site (the list includes others such as Google Finance, Yahoo Finance, and Instant Bull).
Here is an example of StockTickr's analysis of INTC featuring Trade-Ideas (click on the TI icon).
There's plenty of other free information offered by Trade-Ideas including custom scans, stocks by alert type, and recent alerts by stock symbol (e.g., INTC).
StockTickr's great interview series gives excellent insight into the approach many well-known traders are taking in the market. It's an essential read. The latest interview is with Joey Fundora, aka DownTownTrader - finally getting the 'street cred' he deserves!
"I use Trade-Ideas as my real time scanner, and it is awesome. I mainly use it when I am daytrading, which unfortunately hasn’t been that frequently lately. It is also very good for end of day scanning."Here's our StockTickr interview.
StockTickr is a free portfolio tracker that organizes and tracks the watchlists of a trader and other networked colleagues. The PRO version contains a journal for calculating expectancy, recording charts at the moment of trades, and reports on what's working (or not) in the execution of your trade ideas.
Friday, January 19, 2007
- WallStrip, "Stock Tips For Generation YouTube", reviewed favorably in Newsweek - no, wait - Businessweek! We're big fans of their version of Wall-ywood.
- NR7s Provide Market Clues - Online Stock Trading spots what items exhibited this pattern recently. If MrMike only knew about the free scan we offer for NR7. Better yet he can subscribe to Trade-Ideas to get the same information but in real-time - without having to refresh. Here's our definition of NR7, fyi.
- What comes after Narrow Range days? Dr. Brett Steenbarger grades the market's performance after a NR5 pattern. We modeled our version of this alert, in part, on the NR7 teachings of TraderMike. We even created a sample strategy that compared the NR7 pattern to that of a jungle cat on the Discovery Channel. So Gentlemen: let the debate begin.
- The Real Odds Maker: In the Flesh - Read how incredibly good this man is as one of the world's most influential sport handicappers. He's peerless when it comes to predicting the outcomes of college football games. This fellow is unreal and has Vegas scheming against him.
- Inspired is about the last word I use after hearing Steve Ballmer from Microsoft anxiously defend his turf in anticipation of Apple's IPhone. Second video shows how the device can also be used for almost everything - will they have the IPhone/Taser version soon?
Have a great weekend.
Tuesday, January 16, 2007
Honestly I thought the response was kind of low - I can count the entries on fingers and toes. However this made for some high odds of winning!
The Odds Maker judged the results using this criteria and produced our 3 winners.
Please note only 2nd and 3rd place winners agreed to share their strategies here:
FIRST PLACE: T. Brooks of Bend, OR(Note: another review of the book, from a self-proclaimed new trader, writes a insightful summary of how ETP is correcting his approach to trading)
Strategy: a variation of 40+ and Going
Prize: 1 IPod Nano (Black)
SECOND PLACE: Roger Champagne of Rochester, NY
Strategy: Intra-Day Rounded Bottom
Prize: 1 IPod Shuffle
THIRD PLACE: Frank Frueh of Vaud, Switzerland
Strategy: 40 Days Breakout inspired by one of Mr. Van Thorpe's approaches to the market
Prize: 1 copy of Dr. Brett Steenbarger's latest book, Enhancing Trader Performance
Be sure to check out our collection of winning strategies developed for Trade-Ideas and your trading plan's consideration at: http://del.icio.us/tag/strategy-session?setcount=25
Thanks for playing!
Monday, January 15, 2007
Today we focus on taking and holding a position and present an advanced method of determining stop losses and price targets for short-term trades. An alternate method of finding price targets using VWAP and pivot points is the topic of discussion at TraderFeed today.
1.0 Take the Position:
A trader should follow a trading plan criteria for determining position size and expectancy for his/her trades. (We refer to some excellent articles on these subjects written by TraderMike).
There are many ways to enter a position - all in, piecemeal, etc. Our recent conversations with an institutional customer (from which this series of articles is based) focused on the following approach: Split the entry position into any number of equally divided segments (e.g., 2).
For example consider the goal of getting into 2000 shares. Start with 1000 to initiate the position and manage the risk of the trade. It is not necessary to jump right in by hitting bids or taking offers. Adding liquidity helps reduce the trade-impact of a position.
For the subsequent segments of a position, determine whether or not to add to this position or cut losses. An input into this decision comes from knowing the value of a strategy's average loser. The Odds Maker readout provides an Average Loser value for strategies developed in Trade-Ideas. This number is a good basis for risk management. Avoid taking losses that are bigger than the Average Loser for a strategy.
Figure 1.1 In this example (Short VWAP) a trader ends trades and avoids losers bigger than 40 cents.
Initiating a position at half size or in multiple segments allows a feel for the trade without committing all the capital at once. If, once entered, the trade starts to immediately go against you, consider not adding to the position but merely managing the risk. However, if once entered, the position turns positive quickly, consider adding your other segment(s) shortly afterwards (e.g., 10-15 minutes). Look for a small pullback or other indication to get into the other segment(s) of the position.
2.0 Hold the Position:
As mentioned in Figure 1.1 above, avoid taking losses that are bigger than a strategy's Average Loser. However each stock appearing in that strategy has its own natural volatility and distinct way of trading. A trader may leave an unecessary piece of return on the table if a stock's own natural volatility is a large portion of the strategy's average loser value. To adjust your risk tolerance we strongly suggest that you look at the 15-minute volatility for any stock in which you take a position. This is easily done via the Trade-Ideas Stock Research Page http://www.trade-ideas.com/StockInfo/.
Go to that page and type in the stock in which a position exists where it says Stock Symbol Lookup. From the "Short VWAP" strategy in Figure 1.1 above let’s take a look at the volatility for symbol AZ.
Figure 2.1 Trade-Ideas Stock Research page
Press the Find button to view the Company Information page for AZ. Scroll down to the Technicals section to see the Volume Weighted Volatility (VWV) for any company.
Figure 2.2 The Technicals section of the Company Information page
Figure 2.2 shows the Volume Weighted Volatility (VWV) for AZ as $.0225 as of end of day 7 January 2007. That means that on average this stock moves around randomly about 2 cents in any given direction every 15-minute time period. This value is calculated every night and takes an average over the last 30 trading days of activity.
Add the VWV for the particular stock to The Odds Maker’s Average Loser for the strategy to get any stock’s total risk tolerance value in a position. In this case 2 cents added to the 40 cent average loser yields a 42 cent downside for AZ.
Volatility-Adjusted Average Loser (Stop Loss) = Strategy's Average Loser + Stock's Volume Weighted Volatility
Another stock in Figure 1.1, NYX, is much more volatile than AZ. According to the Company Information page NYX’s Volume Weighted Volatility (VWV) is $0.61 per 15-minute time period as of end of day, 7 January 2007 . For NYX add the stock’s 61 cents to the strategy’s 40 cent Average Loser for a total of $1.01 in ‘wiggle room’ or roughly $100 dollar risk per 100 shares before you exited the trade.
The Volatility-Adjusted Average Loser (and the same for the Average Winner) represents a important method for optimizing a trader's calculations of expectancy. It is a way to focus on exits (and targets) once you've determined a good strategy. Position management requires a knowledge of expectancy, position sizing, position segmenting, and price targets. These elements are more important than a strategy's fleeting success in the market. The market can evolve and render a strategy of indicators and entry signals less effective - forcing a trader to move onto a new method of engaging the market. The principles of position management do not change as a function of the market's behavior - they are always in effect.
Thursday, January 11, 2007
Yesterday I wrote about two key elements every successful trading system has and then provided benchmark values as a sort of standard to judge everything. John Forman correctly described in his article today an alternate and even more profitable scenario featuring a trading system with different values than I used. First John's bio:
John Forman, author of The Essentials of Trading, is a near 20-year veteran of the financial markets. He has traded just about everything an individual trader is likely to trade. He has worked as an analyst in the foreign exchange, fixed income, and energy markets, and has published literally dozens of articles on market analysis and trading methods.Below then is an actual big picture that serves to frame the points John and I are making - I'm also throwing in Lord Tedders' imperial and sanguine comments into the mix. It's a great way to finally figure out when a trading system is good or great.
Currently, John is a principal of, and the Managing Analyst & Chief Trader for Anduril Analytics. He is a contributor to Trading Markets and posts regular comments and thoughts on both the Trading & Investing Essentials and Time Crunch Trading Report blogs.
Figure 1: The 2 x 2 Decision Box for determing a good trading system
Source: Trade-Ideas.com, D TradeIdeas
This is a tired but true consultant's tool for understanding the relation of two elements and their possible outcomes. The square above consists of 4 quadrants that are numbered in descending order of preference. Box 1 is the upper right quadrant ("Ideal"), Box 2 is the upper left quadrant ("Bigger/Better"), Box 3 is the lower right quadrant ("Beware"), and Box 4 is the lower left quadrant ("Quicksand").
Boxes 1 and 4 are easy enough to understand. If a trader finds a system that exhibits a high win rate (e.g., 80%) and a large enough spread (e.g., an average winner to loser ratio of 2:1), trade it for all its worth and make hay while the sun shines. Conversely if a system produces low win rates and small/thin spreads, it's time to keep testing and remain grateful that this knowledge was received before any precious capital was committed.
Box 2 describes the point John Forman makes in his article - one that I missed in mine yesterday. It is possible to be very successful with a system that offers a low win rate but more than compensates with a significantly large spread (e.g., average winner to average loser ratio of 5:1).
Box 3 represents an unenviable situation: you produce a system with a high win rate - nice. However the thinness of the spread between average winner and loser actually creates a negative outcome when you consider your cost of doing business (e.g., commissions, slippage, etc.).
You can approach modeling one of two main ways: You can whip out the micronmeter to measure the mudpuddle and zealously account for minutae like commissions, print errors, etc OR you can shoot for a large enough spread to account for these items - and then some. Different backtesting applications use different approaches. If you don't know how The Odds Maker does it, read how.
Wednesday, January 10, 2007
- How will your system react to drawdowns?
- Is your trading system practical? (i.e. do you have time to use this system?)
- Can you tolerate inactivity if your system suggests doing so?
Yesterday we outlined steps for taking backtesting lessons into the real trading world using The Odds Maker as an example (the steps, in general, can be applied to other tools). Today we focus on two necessities of a good backtesting result: the win rate and the presence of a large spread between average winners and losers.
Here's an apt analogy about backtesting any system:
Location, location, location : Real Estate :: Spread, spread, spread (between the system's average winner and average loser) : Relevant Backtesting (in the real trading world)This applies to any backtesting method - whether you are evaluating how an individual stock performed or a entire strategy performed.
Keeping the spread wide enough is a cushion against the other trading parameters that over complicate most systems (e.g., slippage, commissions, etc.). These are important elements to the success of a system, but avoid taking a micronmeter to a mudpuddle and focus more on finding a spread (or ratio) good enough to account for them.
Elements of good backtesting results:
- A success rate of over 55% in either direction (i.e., Long/Short)
- A significantly large average winner to average loser ratio (i.e., a ratio of 1.5 or more where, for example, winners average $1.50 and losers average $1.00)
For an excellent example of this read John Forman's response to this post. His point is that there is a bigger picture to consider and that the suggested values above are not to fixed at a set point. Rather they relate to each other in different ways. More about this in our next post.
Here's a clear picture of what mean in a strategy summarized by The Odds Maker:
Tuesday, January 09, 2007
Here's our report on AAPL's technicals.
Pretty slick at just 11.6mm thick, 2.4-inches wide, and 4.5-inches tall.
But hey, 2 pictures are worth 2-thousand words:
Trade-Ideas is on the road again today performing a dog and pony show on The Odds Maker for one of our large customers and their trading desk. The goal for the visit is to do some personal demonstrations and hand-holding on how to trade using The Odds Maker.
Great. But what happens 24 hours after we leave? To help those who attend our meetings retain the knowledge and spread the wisdom to others, we developed a short set of guidelines called,
Step by Step Trading with The Odds Maker
Even if you don't have The Odds Maker these rules still serve as a reminder what data points to know as you enter a trade. Instead of The Odds Maker calculating a strategy's average winner/loser, a trader defines his/her own risk threshold from experience, self-defined rules, or gut instinct (and Trade-Ideas' free stock research reports don't hurt). The Odds Maker simply plays the role of your very own trading analyst - or bookie.
This week we'll post the contents of this leave-behind. Today we share the overview:
- Find the best strategy using Trade-Ideas’ alert and filter combinations and determine the best way to trade it with The Odds Maker’s trade management results summary.
- Get ready for a trade: confirm which direction the success trade will be and enter only on the strategy’s first alert for a particular stock.
- Take a position by segmenting it to manage risk – never all in and always know the value of your strategy’s Average Loser.
- Hold a position by looking for pullbacks to enter into the rest of the position and add the value of each stock’s Volume Weighted Volatility to the strategy’s Average Loser.
- Exit a position by following the time-based constraints or if a profit target/loss target is reached
Tomorrow: 1.0 The Odds Maker Set Up
Friday, January 05, 2007
The life of a trader can be a solitary one against the market. Many belong to forums/chat to swap trading tips or simply participate in the sense of community. Now there's a new innovation from StockTickr and Trade-Ideas fueling the trend towards networking among traders. On the heels of a recent WSJ article discussing this Trading 2.0 phenomenon, StockTickr Pro now offers seamless synchronization of any list of stocks in StockTickr with symbol lists in Trade-Ideas PRO.
StockTickr Pro users can now create rules in StockTickr that automatically populate a symbol list in Trade-Ideas PRO in real time.
Let's say you trade in a style similar to a friend. You can use StockTickr Pro and Trade-Ideas to alert each other to setups in real time. For example, if your friend's StockTickr username is tradertwo, you can create a Trade-Ideas Real Time rule such that any stock that tradertwo adds to StockTickr is added to a Trade-Ideas symbol list in real time.
You can also use a Trade-Ideas End of Day rule to synchronize certain lists at the end of the day (for example, the High Alpha stocks or Richard Todd's Best Stocks to Day Trade list or other useful lists in StockTickr).
A short descriptive FAQ provides more details on this very social, very useful add-on tool to Trade-Ideas PRO.
One review of the combined services is already in (dated January 5th). Thanks Brett!
More collaboration with StockTickr is coming. Trade-Ideas' stock reports will join Yahoo! Finance and Google Finance as an additional information resource associated with every stock (e.g., AAPL)
Thursday, January 04, 2007
I am headed to San Diego today for our annual Partners Meeting. The other partners and our staff don't have far to travel as they live in the coastal towns just north of the city. I have to hike it from Atlanta, GA. As a result there won't be too much to post about until I come back with a recap and a head full of steam like last year.
If you are in the area and would like to meet for a drink, please let us know at info"at"trade-ideas.com!
Here's a summary of the agenda we'll discuss:
- Summary of 2006 Accomplishments and Missed Opportunities
- 2007 Themes: Handling Growth from Large Customers
- Industry Outlook
a. Recent articles
b. Discussion of major trends
i. Exchange’s view of derived data
ii. Hedge fund Trading Themes by B. Steenbarger
c. Market size
d. Competitor Update
i. Direct competitors (e.g., Insight, Neovest, StockFetcher, TDA, Whisper, MarketWise Profiler, others)
ii. Non-direct competitors (e.g., anything in our partners’ priority list taking attention away from us)
- Strategy and ’07 Business Plan
DAY 2 – Tour of Data Center
- Staff – Roles, Responsibilities
a. Financial reporting
e. Product Development
f. Organization, responsibilities
- Style - communications
- Recap of TI Partner priorities, initiatives
Wednesday, January 03, 2007
- New Year's Day January 1, 2007
- Tribute to former US President Gerald Ford January 2, 2007
- Martin Luther King, Jr. Day January 15, 2007
- Washington's Birthday (Presidents' Day) February 19, 2007
- Good Friday April 6, 2007
- Memorial Day May 28, 2007
- Independence Day July 4, 2007
- Labor Day September 3, 2007
- Thanksgiving Day November 22, 2007
- Christmas Day December 25, 2007
Monday, January 01, 2007
And with the first bad joke out of the way, I can continue with the second installment of the best (i.e., most viewed) posts of last year. Today we cover the second half of 2006:
- "I am not a big fan of technical indicators in the current form, because I believe most were made before technology got to the point where it is today." Dan Mirkin, Senior Managing Partner, Trade-Ideas gave his explanation and examples from the StockTickr interview
- When the 50 day SMA crosses below the 200 day SMA, it is called a "death cross." When the 50 crosses above the 200, it is called a "golden cross."
- The method for generating a real-time source of gaps above the previous days high (and the opposite too)
- How to trade when The Fed makes news. Here's some more strategies at their best when news jolt the markets
- TraderMike discusses how he uses Trade-Ideas
- The 3-part series on How to Build a Trading Strategy Using The Odds Maker- useful methods regardless of what technology you use
- 6 Ways Your Decision Support Tool Helps or Harms Your Trading - how to judge the beauty pageant
- One good way to polish off an old trading strategy and adapt it to today's market
- Build your Street Cred - make a name for yourself in your forum or chat room
- 10 Trading Commandments - Who Can Follow Them? (if only for the cartoon)
- An explanation of the basis of position sizing, expectancy and how poker makes you a better trader
- It's useful to think of Volume and Time as levels of depth within the sea. Changing the market depth a little can reveal interesting new sea life
Oh, and this post leads by far for the most viewed in 2007 ...