Thursday, July 31, 2008

The Zig-Zag Method for Trading Profitably and Maintaining an Edge Forever

I've never seen such an avalanche of ad campaigning for a single week of TV programming: it's Shark Week on the Discovery Channel. If you've been to New York anytime over the last 4 weeks, you've been flooded with all forms of print ads everywhere. It's so saturated that all the shows that tape in NYC can't help to make mention of it during their small talk. So now America knows its Shark Week.

Am I watching any of this as a result?

No.

If I see everyone doing something, I get interested in doing something else - if everyone is zigging, it's time to zag into another direction. I've recently been reminded of this and how it affects my trading.

Zig-Zag for a Trading Edge

Traders express frustration when a strategy used for a profitable length of time stops working. The worst cases are when traders keep trying to apply the strategy in the face of continued losses: the round peg in the square hole phenomenon. There is no one holy grail in trading or one silver bullet.

There's a collection of them.

Knowing which one to use at the right time is the difference between making you or your broker richer.

Dr. Brett Steenbarger, an expert in the field of performance enhancement for traders, astutely observes:

"Even the best-researched mechanical trading systems degrade over time. For this reason, traders are continuously learning, unlearning, and relearning market patterns. Their survival crucially depends upon their ability to sustain states of enhanced learning."

Source: Interpreting the Personality Questionnaire for Traders, 1/27/2007


Ways to Zig-Zag Your Trading
  1. If you can't think of your own, borrow ideas from the thought-leaders you follow. Be just ahead of the pack but right after the early adopters. If you understand the concepts of a thought-leader quickly enough, you can put into practice key learnings and generate your own conclusions. With blogs and Twitter this is an easy tip. For example, I'm never far from the brain droppings of TraderMike, or Downtowntrader, or WallStreetWarrior, and for a multitude of reasons, Howard Lindzon.

  2. Live and trade in the previous cycle. Everyone seems to live and die on being up-to-date, in the now, and constantly on top of the latest pronouncements that it's easy to forget what gems were said just a few months ago (let alone a year or a decade). What comes around, goes around - if you can reread and understand what was learned the last time, the chances are you'll be ready when the 'last time' comes around again.

  3. Let's get practical: Flip the Chart. It's a simple and powerful concept borrowed from Charles Kirk and a great trading technique that we wrote about 'the last time around'!

  4. Automate key strategies that begin under predefined market conditions or time periods. I can't overemphasize the importance of keeping a log of every single trade you make. There are tools out there that make this easy, so there's no excuse not to do it. (Try the backtesting tool, The OddsMaker by Trade-Ideas and/or the recordkeeping abilities of StockTickr which now offers it's automatic trading journal in combination with Trade-Ideas' automation via Interactive Brokers). For example, you discover that one strategy really only makes profitable trades in the afternoon. Another strategy works well only when the S&P is on an uptrend. Who can keep all these external variables in mind all at once? Automating under what conditions strategies trade and at what times removes the mistakes possible under manual trading. It's accessible now to the active trader and moving through the first wave of early adopters. Years from now we'll look back at the way people traded today in much the same way we now look back at the way people used to call their broker to make a trade: ancient.

Be strategic about the way you'll employ these tactics for keeping your trading edge. It's no use being an 'also-ran' to these thought leaders without coming up with your own conclusions. Tools like Trade-Ideas with The OddsMaker and certainly the Automated Trading Bot will keep you learning where the next step lies and will keep you aware when shifts in the market render one strategy less effective and another more so.

Note: Thanks to an outside the box source for the zig-zag concept.

Wednesday, July 23, 2008

Markets Don't Fit Your Trading Style? Engage with Better Odds of Winning

Our audience for the blog consists mainly of potential customers, returning customers, and existing subscribers. Really informed traders come here for market insight and working strategies that we model in a category of posts called, Strategy Sessions. A lot of product information and other nuggets appear here on the blog first.

Occasionally however we actually communicate to our existing subscribers with an email.

A Letter to our Existing Customers About The OddsMaker

Read the letter below that our Senior Managing Partner, Dan Mirkin, penned and watch a recent video of the tool in action (you can also check out the more 'action' vids on our Facebook page). If you can't see directly how The OddsMaker will save you hours and provide you a new trading edge, then I'll figure out how to condense the same message onto a wet T-shirt contest to get your attention. I'm open to slogan suggestions.

Fellow Trader,

You can beat today’s market. You just need the right tools. How long would it take you to look at 3 weeks worth of trading data on every single stock out there to see if there are any real patterns that can be traded to an advantage? What if I said 2 minutes!

What Einstein and The Untouchables Say About Trading

Don’t bring a knife to a gun fight, said Sean Connery in a line from 'The Untouchables'. Yet that is exactly what most investors and traders are doing. The institutions employ very sophisticated camouflage to make their buying and selling look as random as possible. In general, individual investors tend to make their decisions somewhat arbitrarily. Traders spend hours upon hours poring over candlestick charts looking to find that magic pattern that will make them money. Albert Einstein once said “The definition of insanity is doing the same thing over and over again and expecting different results.” Does this quote applies to the way you trade?

The human brain and eyes are built for generalization. You drive in the desert and look forward and it looks like there is water ahead because your eyes are being fooled, the water is a mirage. In the market your eyes are being fooled by chart patterns. We know this because we crunch the numbers, a lot of numbers. It takes a lot of data crunching to find the tells of the market. We have the tools that can show you when a tell is present.

A Pair of 5s Won't Cut it - Engage with Better Odds of Winning

Think of this great lyric from Kenny Rogers as it applies to today’s trading environment. “You got know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.” If the market was a poker table, many traders would find themselves going all in on a pair of fives over and over again. Stop it.

The OddsMaker™, like a Poker odds calculator, looks at all the stocks throughout the trading day. It archives a continuous run of trading data for 3 weeks and allows our customers to see exactly what is or is not working in the market right now. You can answer the following questions in minutes.

If you are interested in getting more out of your trading and want a private one on one demonstration of the OddsMaker™ we would be happy to set you up with a complimentary training session at your convenience.

Best regards,

Dan Mirkin
Senior Managing Partner
Trade Ideas LLC

Friday, July 18, 2008

Trade-Ideas in Your Town: Chicago


I'm headed to Chicago for the weekend and then until Tuesday to meet several hedge funds and pal around with a long time group of subscribers/traders.


Chicago is such a great place - and it is at its peak in the summertime. We've lined up a great stay and a wonderful hotel too. Should be fun.


If you are in the area, dear reader, leave a comment and let's meet up. We take these offers seriously. I met a reader of the blog in NYC and answered many questions about the use of Trade-Ideas as an input into the quant fund he manages. Good stuff.


Wednesday, July 16, 2008

New Alerts from Trade-Ideas Create Opportunity with NYSE Imbalances


Trade-Ideas expands the list of alerts with a unique NYSE-only alert related to buy and sell imbalances.

What's an imbalance and why is it only on the NYSE?

The NYSE imbalance alerts only happen near the end of the trading day. These are based on the specialist's market on close orders. If there are more people trying to buy a stock than are trying sell the stock, then we call that a "buy imbalance." If there are more people trying to sell, then we call it a "sell imbalance." The description of the alert includes the size of the imbalance in shares.

So we say, for example, in a NYSE sell imbalance:
"HLX 07/15/2008, 03:40:52 PM: Sell Imbalance. 190200 shares."

When there are more buyers than sellers, that often pushes a stock price higher. When there are more sellers than buyers, the pressure goes in the other direction. The imbalance data speaks directly to these facts. That's why we use green to show buy imbalances, and red to show sell imbalances.

Source: Trade-Ideas.com Online Help, All copyrights reserved. Used with permission.

There's a great way to customize this alert: You can filter the NYSE imbalance alerts based on the size of the imbalance. We don't filter these based on the raw number of shares in the imbalance. Instead, we look at the size of the imbalance for a stock as a percent of the total number of shares traded today for that stock. So you can say, for example, "Show me imbalances that are 20% of the total shares traded today". For different stocks that size of the imbalance in shares will mean different things, but a percentage let's you define what an important amount is for all the stocks you want to see.

Here's the latest list of alerts we're reporting for NYSE buy imbalances.

Here's the latest list of alerts we're reporting for NYSE sell imbalances.

We'll post some strategies using these alerts soon!

Footnote:

  • No matter which platform you use (e.g., browser, TI Pro), you can already access the new alerts - new alert and filter innovations like these are automatic to subscribers because both applications make a "call" to our servers for the latest list whenever someone interacts with our alert window settings via 'Configure'. When we add them, you receive them instantly.
  • Trade-Ideas pricing plans and subscription rates here.
  • Users of Trade-Ideas Pro are encouraged to download the latest version of the application. This is unrelated to the new alerts or filters. Rather, a download of the latest version of the application is necessary to benefit from other aspects of the service, like minor visual enhancements and background "plumbing" maintenance that keeps the service as fast as possible.

Monday, July 14, 2008

Two Different Make-overs on the Virtual Trading Floor Will Impact Your Trading

Quick Assessment

Are you taking advantage of internet communications to speak/talk/converse with other traders of significantly more experience on a regular basis?

If you are not a "Jedi" master trader, where are you getting additional, one-on-one help? Who is enabling you to achieve better insight into your trading?

How does ongoing training and/or lessons learned in trading loop back into trading plan revisions and updates?

The approach to training and the use of virtual trading floors by two companies will soon change the way traders improve themselves and are described below:

Background


It helps being in the right place at the right time - part of the "it's better to be lucky than smart" chapter in the book of life. I graduated the University of Texas in Austin in 1994. A year and half later and I was completely immersed in the day trading revolution. At that time there was a mechanical advantage involving two NASDAQ networks: SOES and SelectNet. The early technology improvements to the centuries old method of trading really made it possible to make some serious money. Our Director of Trader Education, Jamie Hodge, also speaks about this topic with authority from experience.

Austin, Texas had one of the highest number of day trading firms in the country during the mid nineties:
  • Block Trading
  • Momentum
  • Cornerstone
  • CyberTrader

There were great trading floors to sit in on and learn the game. You came in and learned from traders making serious money daily.

"Being there" used to be the only way to learn how to trade - an informal apprenticeship/trial by fire - often using the apprentice's money. As one of those traders, I was able to hone my skills and gain an understanding otherwise impossible to get by myself/on my own. There was no alternative for getting fast Internet and direct connections to the markets. The trading office was the only place to learn.

Things have changed. The exchanges removed the mechanical advantages SOES traders had in the 90's and put into slow decline the existence of trading floors with the right combination of good traders, good management, and a committment to training. So it comes as no surprise that long-time traders understand how to adapt their trading plans to market fluctuations as well as to exchange-driven, structural changes in the way the markets operate.

Thanks to our customers we see many ways that traders associate themselves with other traders in order to receive invaluable, ongoing training and learning - a crucial input towards creating sustainable, profitable trading. Below are a couple of standouts I'm highlighting - I'll recap more innovative firms in future posts.

Today Trader

Online: http://www.todaytrader.com/
Physical Locale: CA

Two of my good friends, Andy Lindloff and Steve Gomez, are professional traders with whom I cut my teeth trading since 1998. Recently they decided to start a virtual trading floor. Their growth admist this wild market stems from innovative methods they use to give access to fellow traders to their live trading. We think there are few substitutes to being able to watch pro's from the comfort of your own home and see how they utilize the tools of the trade (They continue to be some of the first full-time users of our Trade-Ideas software). This is not a chat room - while you can chat with others in the room, but rather a virtual desktop where you see the trading screen of either Steve Gomez or Andy Lindloff trading live. They talk you through the genesis of the trades, risk management tactics (e.g., stop loss, hold time, key trading times, etc.) and how they utilize Trade-Ideas software to help them spot the trades.

Another interesting innovation: if you can't see the live sessions, edited and condensed versions highlighting some moments of the session exist on YouTube for review.

Trading impact: See the trading instincts and trading plans of the more experienced traders in action. Watch virtually to internalize how their reactions can improve your trading plan.


SMB Capital LLC

Online: http://www.smbtraining.com/
Physical Locale: NYC

David visits NYC quite often and first bumped into Stephen Spencer years ago when he was part of a large group of traders trading at the edge of the Garment District. Steven Spencer and partner, Mike Bellafiore, designed a deep, extensive trading curriculum as well as a detailed interview process they use to pick up psychological and behavioral traits they know match well with the trading process. Training videos, audio and written lectures, one-on-one mentoring and virtually there technology round out their offering. The result is that traders they associate with are predisposed to doing well - a function of being able to pass the company's hiring process, follow their training, use the tools (like Trade-Ideas and others - it must be said), and learn from the more experienced trainers.

Trading impact: Trade with other professionals that share similar behaviors and preparation techniques. These similarities can lead to a form of shorthand in communication and trading that may add valuable time when it's needed most.

We suggest that readers of our blog take tours of the sites and see what it is all about, because at the very least seeing a pro doing it live can perhaps give you some valuable insight into what is needed in your own game.

PS - We can't mention everybody but if we did, we'd include those who have been riding this trend for awhile (but who, in all honesty, still gather traders in one physical location for learning) like Bright Trading, Mel Raiman, DayTrader Canada, etc.