Thursday, March 29, 2007

5 Modeling Techniques of Any Decision Support Tool


This past Saturday I was in Chicago for, among other things, to present at the inaugural Scottrade User's Summit. I was invited to talk about modeling techniques and features of Trade-Ideas as it exists in the Scottrade ELITE platform - thanks to our integration over a year ago. The Summit's agenda covered about 5 hours and featured myself, members of the NASDAQ exchange, and the product development team from Scottrade. It gave the 250+ attendees a chance to get personal questions answered and see first hand how the platform performs in the hands of its custodians.

I want to share with you the essentials of what I presented to them; namely, what challenges Trade-Ideas resolves for traders and what modeling techniques consistently yield the best results in Trade-Ideas or any other tool.

Common challenges facing traders – in their words:

(Note: these are culled from our customer support experiences and testimonials)
  • “I’ve been taught a certain method of trading, but it’s hard for me to find the stocks in terms of time and the effort it takes”
  • “I’m looking at the same information everyone else is – often times I’m shaken out of a trade”
  • “Keeping track of just the 10+ stocks I follow means I miss some opportunities with a stock while I’m watching another”
  • “I need something to help me find some good trades that I will like, as well as keep me out of bad trades”
  • “I am limiting myself by trading the best of what I am watching, which on some days was not worth waking up for”
Other trading challenges:
  • Information overload: like having 500 channels and nothing to watch
  • How much research has to be done ahead of time to prepare for a day of trading?
  • How many analysts exist doing the same thing for institutional firms?
  • How can an individual really compete with large hedge funds that pay thousands of dollars for such analysis and research?
Any of these resonate with you? If it's not Trade-Ideas helping with these challenges, keep looking for the tool or approach that will.

Modeling Techniques - Rules of Thumb

These techniques work in any other decision support tool. Let me know if others come to mind as well.
  • Don’t start from scratch at the beginning; Do modify an existing strategy to fit your trading plan
  • Articulate clearly the pattern you wish to idenitfy – writing it down first (like a grocery list) can clarify your purpose (vs. shopping while hungry)

  • Draw your best trade on a chart and clearly label each axis – this works in selecting the correct alerts and filters for your timeframe

  • Separate bullish or up-trending strategies from bearish or down-trending strategies – this allows for more ways to ‘stack the probabilities’ of movement in a certain direction

Tuesday, March 27, 2007

20-Day Stock Gainers & Losers: Maximizing Buying Power

If you don't already read Charles Kirk's The Kirk Report, you should. It's a bevy of information very relevant and useful to the active trader.

Yesterday and today The Captain describes a source for finding 20-Day High Percentage Gainers and Losers.

Because Kirk regularly mentions Trade-Ideas' scans as a good resource, I don't think it's stretch to say he would second the motion to include our versions of the same 20-Day High Percentage Gainers and Losers into the Trader's Toolbox:

20-Day High Percentage Gainers

20-Day High Percentage Losers

Description

These lists show which stocks have moved up and down respectively the most over the last 20 trading days. Because these lists are organized by % change, they show the best opportunities to make a profit with a fixed amount of buying power.

The formula for these lists are (yesterday's close - 20 day SMA of the closing prices) / yesterday's close. The highest values are shown at the top of each list.

Filters

To see similar trading opportunities in our real-time product, use the filters listed below. Click on an icon for more information.

Min Up from 20 Day SMA
Max Up from 20 Day SMA

Monday, March 26, 2007

Strategy Session: Finding Consolidation Breakouts

Question from IM Support today:
Subscriber: (3:47:59 PM): do you have any scans for setups that have like a 30 day high, then consolidates for about 5 days and then breaks out of that consolidation?
Some of the details of his request are changed to protect his idea. The tricky part of this request is the 30-day high requirement before the real pattern he's looking for happens. My solution forces all the stocks in the strategy to be a minimal amount above the 20-day moving average.

The Strategy: "
5-Day Consolidation Breakouts Above the 20-day SMA - Long on the Dip"

The Odds Maker Results
The Odds Maker provided this analysis as of the close on March 23rd 2007:
48 / 109 = 44.04% up $0.01 in 120 minutes; Average winner = $0.1626, Average loser = $-0.0537, Net winnings = $5.0671, Best = $0.70, Worst = $-0.23; Casino Factor = 99.18%
What do these results mean? What's nice is the approximately 3 to 1 ratio between the average winner and average loser - this can allow for items not modeled in The Odds Maker like commissions, slippage, etc. Our 2x2 Decision Box will let you decide just how good these results are.

How It's Modeled


The full set-up consists of 1 alert:

25% pullback from highs "25% pullback from highs" - Buying on a small retracement or breather can serve as a good entry point. The Odds Maker tells me what the average loss for the strategy is so I don't stay with a loser. I combine that with the individual stock's natural volatility ("Volume Weighted Volatility") found in our Stock Research Center and then I have my stock-specific statistically proven stop-loss target.

The alert occurs only after passing the following filters:

Max Position in Year Range=45 (%) "Max Position in Year Range" - Set at the 45th percentile, this just tested well using The Odds Maker. I can't explain why.

Min Up from 20 Day SMA=0.01 (%) "Min Up from 20 Day SMA"

Min Consolidation=5 (Days) "Min Consolidation" - Set at 5 days

Min Position in Consolidation=95 (%) "Min Position in Consolidation" - Set at the 95th percentile of the range

Saturday, March 24, 2007

One Way to Win It All on CNBC

I am in it to win it - the CNBC Million Dollar Portfolio Challenge. I got hooked.

Since Thursday I've been in Chicagoland making plans with new partners and a presentation for Scottrade's User Summit. One of my visits took me to the offices of Kingstree Trading LLC to see Charles McElveen, its gracious and amiable owner, and Dr. Brett Steenbarger - only hours before his Friday evening appearance on CNBC. Brett's advice in the CNBC segment prompted me to enter the contest with the words, "think independently".

So here goes.

My choices reflect my thinking. Using Trade-Ideas only points out exactly what stocks match that thinking. Of course if I win I'm going to give Trade-Ideas all the credit. If I fall to the bottom of the pack then of course it was my own inane fault. I took a quick look to see what sectors are up in the last few days from the tools found on the CNBC site. I then created the following free scans in the Trade-Ideas Research Center.

Up 3% 20,50,200 MA
Edit the scan

Although the scan is sorted by the maximum number of days up on top, I scrolled down the list to the mid-point or so and chose from there - specifically:

WallStrip's mission of documenting the cultural impact of certain stocks at all time highs inspired my next scan. Scroll to the bottom of the site and you'll see our widget.

Stocks at All Time Highs
Edit the scan

Here's what I added to my CNBC Portfolio from this list:

We'll see what damage I've done on Monday!


UPDATE - April 12, 2007:
I bought more stocks with this scan

Tuesday, March 20, 2007

Is Time Your Friend or Foe?

Our Chief Technician is a man of few words but many strong opinions. With Spring in the air he's focused on one area that needs some cleaning up.
A few people have reported trouble with the time in Trade-Ideas recently. This was caused by the recent changes to the rules for Daylight Savings Time. If you correctly adjust your computer, Trade-Ideas will continue to work.

Some people have just manually changed the time on their computer one hour. This is not a complete fix. It will cause problems with Trade-Ideas and other programs. The most talked about example is when you use Outlook to schedule meetings with other people. But even email is affected; sometimes people will see the wrong time on messages you send, even though your clock appears to be correct. You need to update your computer to make these programs work.

If you are running Windows XP, you should download all of the updates that are available for your computer. The process may take some time, depending on how long it has been since the last time you updated your computer. But the process is straightforward. There are several ways to start this process, including going to http://update.microsoft.com.

For older computers, such as those running Windows 2000, you will need to do something more specific. http://support.microsoft.com/gp/dst has instructions. Sometimes it’s a little tricky; if you need help, let us know.

Monday, March 19, 2007

Brokers Better Know This If They Want to Keep You

A majority of customers expect to change brokers within the next 6 months. In fact 2007 may be know as the "Year of the Switch".

That's the premise of an eye-opening article published over the weekend from the Aite Group LLC, "What Really Matters to Retail Consumers of Online Brokerage? Who They Are and What They Value". Note: If you are not a subscriber, you can read the informative article summary.

Many forces in the industry contribute to this era of switching we're about to enter:
  1. Broker consolidations of 2004-2006 are over and now that the mergers of systems and accounts is complete, firms are now facing their customers for the first time - for better or worse
  2. New entrants now seek to serve unserved markets - one large and significant, another new and untested. Bank of America in one move is suddenly a powerful competitor with more branch offices than you can shake a stick at. The jury is still out regarding Zecco.com with its promise of limited, but free trades.
  3. The Tabb Group reports buy-side traders and hedge funds continue to value broker relationships, specifically these services: idea generation and research (26%) then execution quality (23%) - many brokers are still figuring out what they have in the stable or know that their offerings need a boost.
The Aite Group paper also outlines what it's going to take to keep online brokerage customers from making the move: a combination of price and the online tools offered.

I'll add one more item to this short list: customer education - I don't what form it takes, but the more engaging and imaginative the better. Make videos with trained monkeys or spook Borat; present context-sensitive help with plenty of examples at the click of a mouse; organize seminars, happy hours, whatever - just do it.

These top the list of why customers are attracted elsewhere and what will keep them with their existing broker. We're partial but we like the steps that Scottrade takes with regard to retaining as many customers as possible while attracting new ones. Their upcoming Users Summit in Chicago this weekend is a perfect example.

Friday, March 16, 2007

200-Day Winners by Volatility

This list shows which stocks have moved up the most over the last 200 trading days. Because this list is organized by the size of the price change relative to the stock's volatility, it shows the most statistically unusual price increases. This list compares the 200 day moving average to the volatility over the last 10 days, so this list shows stocks which made a big move in the past, but aren't likely to move that far in the near future.

The formula for this list is (yesterday's close - 200 day SMA of the closing prices) / volatility. The highest value is shown at the top of the list.

Filters

To see similar trading opportunities in our real-time product, use the filters listed below. Click on an icon for more information.

Min Up from 200 Day SMA
Max Up from 200 Day SMA

Stocks - as of March 15, 2007:

See the latest update.

PSBC - PACIFIC STATE BANCORP CA
MNNY - MERRILL LYNCH & CO INC MITTS NIKKEI 11
KNVS - KNOVA SOFTWARE INC
TBWC - TB WOODS CORP
DSE - MERRILL LYNCH & CO INC NT LKD INDL 07
ISRL - ISRAMCO INC COM NEW
DBZ - MORGAN STANLEY STRTG TTLRET11
OFBS - OLD FLA BANCSHARES INC
RNI - MERRILL LYNCH & CO INC NT LKD RUSS 07
LBTYB - LIBERTY GLOBAL INC COM SER B
MFBC - MFB CORP
TNTU - TENGTU INTL CORP
MKH - MARKET 2000+ HOLDRS TR
CHMG - CHEMUNG FINL CORP
IAL - INTERNATIONAL ALUM CORP
EMV - STREETTRACKS SER TR DJ WL MDVL ETF
BNP - BNP RESIDENTIAL PPTYS INC
FMBL - FARMERS & MERCHANTS BK
PRCS - PRAECIS PHARMACEUTICALS INC COM NEW
SWRG - SMITH & WOLLENSKY RESTAURANT
TASA - TOUCHSTONE APPLIED SCIENCE ASS COM NEW
TRMAZ - TRICO MARINE SERVICES INC WT B EX 031508
ELK - ELKCORP
AMPH - AMERICAN PHYSICIANS SVC GROUP

More...



Tuesday, March 13, 2007

Trade-Ideas in Your Town: NY and ATL

Busy rest of the week with travel. I am headed to New York for the next 2 days to meet with several trading organizations looking to use Trade-Ideas.

If you are in NY, dear reader, and would like to meet up, please let me know in the comments. I'll tell you everything we plan for San Diego.

Upon my return I'm participating in the Wealth Expo here in Atlanta on Friday and over the weekend. The Friday, 2pm workshop features yours truly: "Getting Rid of the Guesswork and Opinions in Trading".
Description: You know by now the ability of Trade-Ideas to generate ideas based on a trader's ideal set-ups and trading preferences. Our latest innovation, The Odds Maker, statistically tests whether those trade ideas and risk management rules are currently being rewarded in the market using statistically relevant backtesting methods. The Odds Maker is to your trading what the probability of winning the hand numbers are to ESPN's Poker coverage - only you can use our tools legally and fully to your advantage. This 1-hour workshop will explain how your best trades arrive from odds-based trading and how to leave opinions and guessing to the talking heads.
If I get time I'll mention some of the strategy themes we see working in the market and who we read that gives us a lot of ideas.

Registration is free for this trading event. If you are in the area please come by and visit.

Monday, March 12, 2007

Stocks Fit Enough for a Comeback

I call this custom scan from our free Research Center, "Quality Stocks Down the Most from the 50-Day Moving Average". My latest definition of a quality stock is one that is still in the top half of its range for the year. These stocks took a hit but still have their collective necks above the water.

The scan reduces the universe using the following filters:
  • Min Price: 2 (Dollars)
  • Min Daily Volume: 300,000 (Shares / Day)
  • Min Position in Year Range: 50 (%)
  • Max Up from 50 Day SMA: -0.05 (%)
This last filter translates into how far away the stocks should be from their own 50 Day SMA. In this case the stocks must be down 1/2 a percent or more. It hurts to translate but think of 'Max Up' as 'Min Down' with a negative number.

Once it has this list of stocks the custom scanner allows you to sort on any parameter in the list. I chose to sort based on the Min Up from 50 Day SMA. Again flip this and think of 'Min Up' as 'Max Down'. Sorting by this filter gives those stocks with greatest distance on the top.

Sort options:
Min Up from 50 Day SMA on top

Stock exchanges:
  • NASDAQ
  • New York Stock Exchange (NYSE)
  • American Stock Exchange (AMEX)
Scan results as of EOD March 11th:
(link above updates daily)
  1. ONSM - ONSTREAM MEDIA CORP
  2. STEC - SIMPLETECH INC
  3. TSTC - TELESTONE TECHNOLOGIES CORP
  4. KNOT - KNOT INC
  5. INAP - Internap Network Services Corporation
  6. UAUA - UAL CORP COM NEW
  7. VNDA - VANDA PHARMACEUTICALS INC
  8. ASIA - ASIAINFO HLDGS INC
  9. FMD - FIRST MARBLEHEAD CORP
  10. MENT - MENTOR GRAPHICS CORP
  11. LCC - U S AIRWAYS GROUP INC
  12. CAL - CONTINENTAL AIRLS INC CL B
  13. OMG - OM GROUP INC
  14. NOVN - NOVEN PHARMACEUTICALS INC
  15. BIDU - BAIDU COM INC SPON ADR REP A
  16. WST - WEST PHARMACEUTICAL SVSC INC
  17. TAM - TAM SA SP ADR REP PFD
  18. CPTS - CONCEPTUS INC
  19. NYX - NYSE GROUP INC
  20. More...
More fun with this scan

© Copyright, Trade Ideas LLC. All rights reserved.Questions? Contact us.

Friday, March 09, 2007

The Traders Expo Welcomes Trade-Ideas and the 2nd Annual LCS

We've changed the dates and format of the Trade-Ideas 2nd Annual Learning Curve Seminar!

Yesterday I conferenced with Dan Mirkin and our superb event coordinator, Heather, to plan our annual user's conference set for June. We expected to follow the same format that succeeded so well last year: a June conference in San Diego at a beautiful resort/facility. With the arrival of the Traders Expo in San Diego during the same week, we decided to take advantage of the occasion and put our conference inside theirs. The result should greatly benefit this year's attendees.

Trade-Ideas will exhibit at the Traders Expo this year. We'll also organize workshops, panels and happy hours both part of and independent of the Traders Expo to cover all the topics we're planning:
  • Strategy Development in Trade-Ideas
  • Which Strategies Are Winning Now
  • Removing Opinions from Your Trades
  • Odds-based Trading: Increasing the Probability of Successful Trades in Any Market
  • Case Study: TUCO Trading - Examples of Traders Using The Odds Maker
  • New Features
  • Partners' RoundTable
Have a topic you'd like us to discuss? Please mention it in the comments below - we'd love to hear form you.

Remember the dates of the conference are now the same dates of the Traders Expo: June 20 - 23rd, San Diego, CA. Registration is free. See you there!

More details and a full schedule of events will be coming. Subscribe to this blog to receive email updates first.

Wednesday, March 07, 2007

Think You Know Where the Bottom or Top Is? These Scans Will Help Spot It

Bulls and Bears come to Trade-Ideas to place signposts that point to where certain stocks are headed - this is especially easy because much of the information is free and updated daily. Signposts are like road signs that help traders clue into which direction in which to trade. The more signposts a trader puts on along the path, the easier it is to build a larger picture or scenario of what's happening - something that can lead to a more informed decision vs. an opinion.

Here are some of the signposts at Trade-Ideas used the most to point out where the bottom is:
  1. 20 -Day Losers by %: This list shows which stocks have moved down the most over the last 20 trading days. Because this list is organized by % change, it shows the best opportunities to make a profit with a fixed amount of buying power.
  2. Crossed below 200 day moving average alert
  3. 20 Day Moving Average Crosses 200 Day Moving Average: This list shows which stocks are most likely to have their 20 day SMA cross above or below their 200 day SMA in the next trading session.
  4. Strategy Session: Oversold, Phoenix: A strategy developed as a good method for finding stocks at their bottom OR entries for possible short sales.
Note: Some of the above data is freely accessible and some requires a Trade-Ideas subscription. More free stock research is available on our site.

Monday, March 05, 2007

To Clear a Trader's Head: Just Flip It


On the topic of Perspective:


Lady Astor: "If I were your wife, I would poison your coffee."
Winston Churchill: "If you were my wife, I would drink it."

Captain Kirk reveals a great technique for changing one's perspective that eliminates opinions and sticks to strict objectiveness in trading decisions: flip the chart.


Flip the chart and determine if you made the exact opposite judgement regarding an opportunity. What I love about this tactic is its simplicity and immediacy - i.e., the ability to instantly clear the fog in a trader's thinking.


I also like the feature just added to Trade-Ideas that simply and immediately 'flips' a strategy's configuration to model the exact opposite set-up with a click of a button.


Techniques for eliminating a trader's fog of desires/hopes when trading is one of the themes of our upcoming 2nd Annual Learning Curve Seminar in June. Care to join us?


Click through to hear Dan Mirkin's panel comments at the recent Traders Expo about other ways to clear your head and eliminate guesswork in your trading (video) (or read about the method in Dr. Brett Steenbarger's column).

Friday, March 02, 2007

What's Above the 20 Day SMA and Up 5 Days?

Not everything went off a cliff this week. Some stocks are still above their 20 day moving average and are up each day of the week (as of Thursday's close). TickerSense points out it's important to look for stocks that weather the storm rather than what got hit hardest.

So here is a custom scan from our free Research Center I submit called,

"Above 20 Day SMA and Up 5 Days"

Filters:

Stock exchanges:

  • NASDAQ
  • New York Stock Exchange (NYSE)
  • American Stock Exchange (AMEX)

Scan results (as of close Thursday):

  1. UTL - UNITIL CORP
  2. CLN - CELSION CORPORATION COM NEW
  3. ETP - ENERGY TRANSFER PRTNRS L P UNIT LTD PARTN
  4. HBP - HUTTIG BLDG PRODS INC
  5. AFB - ALLIANCE NATL MUN INCOME FD
  6. HJN - SATURNS GOLDMAN SACHS CAP 1 05 TR UT A 6.125
  7. PAA - PLAINS ALL AMERN PIPELINE L P UNIT LTD PARTN
  8. PTY - PIMCO CORPORATE OPP FD
  9. MIGP - MERCER INS GROUP INC
  10. NRB - NUVEEN NC DIVID ADVANTAGE MUN COM SH BEN INT
  11. RDYN - REPLIDYNE INC
  12. MQT - BLACKROCK MUNIYIELD QUALITY FD
  13. EGF - BLACKROCK ENHANCED GOVT FD INC
  14. XAA - AMERICAN MUN INCOME PORTFOLIO
  15. NSR - NEUSTAR INC CL A
  16. BAF - BLACKROCK FL INS MUN INC TR
  17. MYI - BLACKROCK MUNYIELD INSD FD INC
  18. EIP - EATON VANCE INS PA MUN BD FD
  19. IIM - MORGAN STANLEY INSD MUN INCM
  20. VMO - VAN KAMPEN MUN OPPORTUNITY TR
  21. NPY - NUVEEN PA PREM INCOME MUN FD 2
  22. CRYO - CRYOCOR INC
  23. VPV - VAN KAMPEN PA VALUE MUN INCOME

Extras

Just looking at this list it's interesting to see some stocks in the energy and homebuilding sectors - areas that showed notable weakness in the month of February as The Kirk Report observes.

There's also stocks continuing to make all time highs a la WallStrip (although the list is considerably shorter than last week). Visit WallStrip or view the scan here.