Tuesday, March 30, 2010

Scanning Stocks with Breaking News? A Broken Idea


The world has changed for those trading on news and even stock scanning services that incorporate breaking news into their offerings. News just broke.

The recent injunction by a judge against news headline distributor, flyonthewall.com, ordered it to delay disseminating the stock recommendations of financial services firms long enough so that the firms can alert their clients first.

Flyonthewall.com argued they publish recommendations only after they become "public" and free for the taking because they emerge through other media, chat rooms, "blast IMs" or other sources. This argument was rejected by the court: just because others do it doesn't excuse the rights the authors and owners of the original research have to inform their clients first.

The order reveals what most veteran traders know - a key to their longevity:

News will always chase the tape.

News is just one way to filter market activity and direct a trader to where interesting activity occurs the same way a foghorn is one way to get the teacher's attention in a classroom. Stock scanning tools like Trade-Ideas PRO offer a more refined way to get you in front of news (one example). Squawk boxes and services come close but don't offer the customization of modeling a trader's particular stock pattern like Trade Ideas.

Let's face it : News was old even when it was redistributed in real-time. Now by court order you'll be waiting 30 minutes - 2 hours.

And Trade Ideas delivers a head start by turning statistically relevant analysis of the market's activity into a game of whack-a-mole: only showing a trader what's unusual right now and scanning for stocks impossible to find and track on one's own - or via the news.

Sunday, March 28, 2010

Does your Trade-Ideas T-Shirt fit?






















Did you get the wrong size?
Did you wear out your shirt?
Did someone "borrow" it from you?
Let us know if you need a new one!

Wednesday, March 24, 2010

Stock Scanning to Make Opportunity Out of the Market's Traps

Here's the beginning of a correspondence with Dr. Brett Steenbarger who wisely suggested that the exchange would make for a good blog post. That's why he's the PhD.
From the Desk of Trade Ideas
March 24, 2010

Dear Brett,

I just read your quick post regarding the "traps" the market can play on intraday traders and was inspired to model how a trader might separate real directional moves from mean reversion where stocks rise with momentum but retrace back to their previous levels precipitously.

One approach is to start with the assumption that mean reversions are the opportunity and not the trap. As a reliable stock scanning tool for recognizing custom patterns in price, volume, and volatility, Trade-Ideas is ideally suited for finding such moves:

Here's a strategy that looks for moves beyond a stock's standard deviation of volatility. It looks for upward thrusts defined as a price move of $0.50 or higher in the last 5 minutes on 250% higher than normal volume for a 5 minute candle in that stock.


(Note: to import this into TI PRO copy the link address and paste it into the Collaborate dialog box when you right-click inside any TI PRO Strategy Window)

Using the OddsMaker, Trade Ideas' event based backtesting tool, I realize the best way to trade the strategy is to short it and exit under either of 2 conditions: 1. if the stock goes up (against my position) more than $0.50 or 2. after a hold time of 45 minutes. I trade this strategy during the entire market session as opportunities arise.



Here's the OddsMaker output from the last 15 days (picture attached). I create an additional measure from the report to evaluate a strategy and the trading plan associated with it: the ratio of the average winning trade over the average losing trade. I like to see at least a 2:1 ratio like I do with these results.

The second approach is to find the sustained movers and avoid the traps as you originally intended to define as opportunity.

Here's a strategy that looks for moves where stocks are either out performing the Qs or increasingly diverging (upwards) from their VWAP, or the 5-period SMA crosses above the 8-period SMA using 10-minute candles. These alerts are subject to a universe where most notably the NASDAQ and the S&P are both up at least 0.1% over the last 15 minutes and that all opportunities shown are up at least 5% from yesterday's close.


Using the OddsMaker I realize the best way to trade the strategy is to go long and exit under either of 2 conditions: 1. if the stock goes down (against my position) more than $0.50 or 2. after a hold time up until 5 minutes before the day's close. Notably I only begin trading this strategy 60 minutes after the open and enter no more trades 60 minutes before the close.


Here's the OddsMaker output from the last 15 days (picture attached). One additional measure I create from the report to evaluate a strategy and the trading plan associated with it is the ratio of the average winning trade over the average losing trade. I like to see at least a 2:1 ratio like I do with these results.

Feel free to try these strategies in real time. Happy to discuss and refine these with your thoughts!

Best regards,

David

Related Articles
Remember that these set-ups are sketches meant to give you an idea how to model your own trading plan. Use this 'as is' or modify it to your own liking as many others do. Know, however, that Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, alerts and all other features are for research purposes only and should not be construed as investment advice

Thursday, March 18, 2010

Reducing Latency and Increasing Bandwidth in Your Trading Environment

Marissa recently created a YouTube video titled "Reducing Latency and Increasing Bandwidth in Your Trading Environment." http://www.trade-ideas.com/VideoHelp/YouTube_Index.html?date=2010-02-19#id36. We've gotten so much response to this, I want to elaborate on a few points.

First, a quick picture will show the path your data takes using HTTP mode vs. a TCP/IP socket. There are more network hops. But more than that, HTTP mode requires your data to be massaged and reformatted. This adds overhead and takes time.

That picture was an ideal case. If you choose to switch between HTTP and the default, high performance mode, that's what you'll see. But if your corporate firewall forces you to use an HTTP connection, it's probably so they can make you to go through their proxy server, as shown below.

The proxy server is another way for the company to monitor what you are doing. It will inspect each message, looking for porn and other things they don't approve of. This proxy server was made for individuals browsing the web one page at a time. It was never designed to support realtime streaming stock alerts. It will get overwhelmed easily. One person monitoring the stock market with Trade-Ideas is like 100 people browsing web pages. You want to avoid the corporate proxy server to maximize performance.

I also want to add a clarification. Marissa pointed to an old video to show how slow HTTP can be sometimes. http://www.trade-ideas.com/VideoHelp/Menu.html?video=Trade-Ideas%20Pro%3A%20Columns%3A%20Charts The stock charts were slow back then for a couple of reasons. That example showed HTTP used in the traditional way. Now Trade-Ideas can provide stock market data much faster, even in HTTP mode. That's because of our proprietary data aggregation and streaming compression technology. That speeds up your internet connection, even when you are forced to use HTTP mode.

A lot of people ask about ping time. As you can see in this picture, pings only give you an ideal picture your speed. They avoid the corporate porn filter and a lot of other things. They are good for measuring ideal network speed, not the actual message traffic. The latency monitor in the Trade-Ideas status bar uses a more accurate measure. We send our test message through the same mechanisms that we use for normal stock alert messages. You need that if you're trying to diagnose any network problems.

At Trade-Ideas we're always striving to make sure you get your stock market alerts as quickly and efficiently as possible. But you might need some help from your IT department. If they ask questions, this page will tell them everything they need to know. http://www.trade-ideas.com/Application/FirewallsAndProxies.html

Thursday, March 04, 2010

Stock Scanner Settings in a Market Going Nowhere

What does one do when it looks like nothing is happening? Traders often find themselves frustrated at times when seemingly there is nothing going on. This is a time that separates the professionals from the amateur traders.

Professionals know first of all that there is no need to push it. Getting frustrated mentally only hurts your own performance. The market could care less. The first step is to get smaller. Trade smaller share sizes to avoid being whipsawed. The second thing is to use a stock scanner to find tops of ranges for stocks and then fade the moves. When it is clear that the market is not following through use the power of analytical software to find those names that are at either the top or bottom of their 10 or 20 day range. Trade Ideas uses these filters to make such a task very easy.

Once you find the stocks the next thing to do is figure out which ones of those are statistically overdone. One great way to do that is to use daily Bollinger Bands this will find the really oversold issues at the bottom and the really overbought ones at the top. Having access to this information gives the trader an edge in an otherwise stale market that can "bleed" the inexperienced trader through frustration.

Finally understand the market is like the ocean: there's more than one current in motion. There may be calm waters at the surface but tectonic, violent activity on the ocean floor. A stock scanner that can comb the depths of the market and 'ping' all the varied activity makes for a vital, essential tool with which to navigate. See our related articles on this very point: