Friday, December 28, 2007

The Justin Timberlake-ification of Stocks and Other Feedback We're Getting

The close of the year is as good as any for some introspection and review - whether it's a trader's business plan, P & L for the year, or a company's dashboard of metrics and goals.

On a trip to New York earlier this month, we had amazing conversations with current and potential customers representing the biggest of the insitutions and the modest of active traders.
Feedback like this is crucial to learning where customers want us to go and whether what we currently do delights them. Can a trader take a similar approach? Who are a trader's customers? (e.g., spouse, family, mentor, other traders)? Can any of these individuals provide valuable feedback? I think so. If you're not getting access to this kind of information unsollicited (and constructively), go out and ask for it.

Many of these comments will get heard again and internalized at our upcoming Trade-Ideas Annual Planning Meeting (details and an invitation to interested readers TBD), but I thought I'd share with you a list I call,

Things I Learned from our Recent NY Dog and Pony Show and Why That’s Important to our Customers
  1. Trade-Ideas and its product suite, which includes The OddsMaker and Automated Trading Bot, are equally valuable among institutional traders as they are to the individual trader.
  2. The ability to back-test your strategies and automate those results is invaluable in maintaining a competitive edge in today’s market environment.
  3. Our technology continues to be validated by the top prime brokers and technology providers. Back-testing, for example, is becoming an increasingly more important part of the value of our product when looking for new business.
  4. Trade-Ideas is bringing the ‘sexy-back’ to equities. Call it the Justin Timberlake-ification of stock trading. This makes sense. The same asset class can be entirely reinvented with better technology – better tools – that enable a trader to see opportunities more clearly and in more places of volume and volatility than before as well as assess the risk of such strategies with more accuracy.
  5. Now that real traders are test-driving our automated capabilities, important feedback and better questions to solve are improving the way we think about automation. For instance the new limit price order intelligence allows our traders to let the momentum of the extended trades to come to them and have then not be worried on losing a lot of money on wide spread stocks. What was once a danger is now an opportunity.
  6. Continue to clarify the value proposition to different customers. It is easy to get confused by industry jargon like “conditional orders” versus “idea generation automation”. Understand that they can be the same thing.
  7. Futures and Options are in demand and coming!

Friday, December 21, 2007

How the Rubberband Man Improved Automated Trading

Market Orders?!
Automated trading functionality introduced by Trade-Ideas only had market orders for initiating and covering positions. Market orders?! The first version of the software was more proof of concept than anything else. That's why the ones using it were kept to a bare minimum.

Much is about to change. After analyzing trader feedback and internal data of the automation's performance compared to the OddsMaker event back-tested results, it was clear that in order to take advantage of the most potent strategies, we had to implement limit orders.

The Goods on 'Mean Reversion': The Rubber Band Man
As it turns out the most profitable strategies in the recent markets are ones known as "Mean Reversion". Think of this style of strategy as the opposite of momentum trend strategies. Mean Reversion strategies look for stocks trading significantly beyond their mean (average price range) and look to capitalize on the "snap" back - picture a rubber band and you'll understand.
However when we compared the results of the OddsMaker event back-test to the actual results we saw that there was a considerable amount of slippage - we couldn't get the prices that the OddsMaker said we could. We looked to find out why and discovered an interesting if not common behavior.
When a stock triggers an event that warrants a mean reversion buy or short the spread at the time of the event is usually larger than normal.
Sending market orders to take offers or hit bids was causing these traders to lose too much money on the entry to make the strategy profitable.

Enter the limit orders and limit +/- Delta

This addition allows our traders to let the momentum of the extended trades to come to them and have then not be worried on losing a lot of money on wide spread stocks. What was once a danger is now an opportunity.
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Wednesday, December 05, 2007

Trade More Profitably: 9 Effective (and Slightly Badass) Ways to Just Do It

Whoa! We're alive! It seems the booze and turkey from Thanksgiving knocked the lights out on the blog for a bit. We're back and in a market that still acts like the other shoe is going to fall. In fact with a Bloomberg/Los Angeles Times survey now saying Americans are expecting a recession within a year by a margin of 71% to 23%, NY AG Andrew Cuomo serving subpoenas to Wall Street's tallest over the sub-prime mess, and (most interestingly) a Hedge Fund Research Report that says hedge funds are set to record their worst returns since 2000, it's a wonder the sky isn't falling.

"So how you doin'?"

Today I'm offering the advice from 2 of the most veteran traders that first envisioned Trade-Ideas so that you can filter what the Chicken Littles are crying about and better navigate the market's waters. The 2 traders are Dan Mirkin (aka TI Maven on this blog), Senior Managing Partner of Trade-Ideas (and former SOES bandito) and one of our first and long-time customers, DiamondTrim (aka Brad Williams).

Let's call it a wake-up call checklist. For the math whizzes - the list is really 18 - plus a bonus. Where's my list? Hey, I wrote the article so I will reserve the right to pick my preferences from what's here - that's what is in bold).

Dan goes first:
  1. Money Management, Money Management, and Money Management
  2. Don’t be fooled by randomness
  3. React and then refer to number 1
  4. If it seems too easy it is (Green lights and red lights are for cars)
  5. KISS
  6. Better to be lucky than smart
  7. If you are short stacked don’t bother trying
  8. Run it like a business
  9. Don’t fall in love
DiamondTrim weighs in next.
  1. Find a badass mentor
  2. Let your profits run
  3. Use stops (protective and trailing)
  4. Use Trade-Ideas Pro
  5. Use the OddsMaker and the Autobot
  6. Have a game plan and trading objective
  7. Don’t trade scared
  8. Find a broker with good technology and "cheep" commissions
  9. Trade without emotion
EDIT: I also gave this to our Director of Education, Jamie Hodge, who is always available to schedule a 1-hour training session with any subscriber to Trade-Ideas. Take advantage of Jamie's experience and his ability to get you started with a strategy that models your trading plan. His thoughts:
  1. Begin every trading morning with a pre-defined lists of actions that will be executed when certain catalysts dictate.
  2. Do Not Deviate from Rules (Actions)
  3. Be Consistent
  4. Try and kick pre-conceived notions to the curb.
  5. If the market isn’t lining up and your signals aren’t coming – Don’t force trades
  6. Do your after market scanning religiously
  7. If the market is dead, it’s dead. Take the rest of the day off.
  8. Use the Odds Maker
  9. Open an account at Assent or OptionsXpress and use the revolutionary Auto-Bot powered by Trade-Ideas (Ed. Note: these are the first two brokers to partner with Trade-Ideas in offering automated trading based on Trade-Ideas strategies backtested via The OddsMaker - more are on the way. Please contact Jamie Hodge for more details.)

Shop from this on what works best for you. If even one of these reminds you of the discipline you should have while trading or actually matches a long-held belief of yours - your trading day just got better odds.