Tuesday, November 27, 2012

Baader-Meinhof Phenomenon & Patterns

You know when you stumble upon some obscure piece of information (like you learn a new word) and then afterwards you encounter it over and over?  Apparently there’s a name for these seemingly amazing coincidences: The Baader-Meinhof Phenomenon.  It turns out our brains are hardwired for pattern recognition.  In fact, we often place too much importance on repeating patterns.  With so much data flying around, it would be surprising if we didn't find “patterns” that on the surface look significant.  Humans are full of biases (for example, a ridiculously large percentage of people think they’re above average drivers), so here’s another one to add to the list.

So what does this mean for us as traders?

It means we should be skeptical of chart patterns we think we see or the “sure fire” trading strategies that some guru is promoting.



Cup & Handle?
This is what makes backtesting so powerful.  Instead of relying only on what we think we see or the dozen or so charts we've reviewed for “patterns”, we can backtest our theories and see what the data actually says.  Traders who are new to backtesting are often disappointed that their theories don’t immediately pan out, but backtesting lets you delve deep into your ideas and with some practice you’ll end up with more reliable and robust trading strategies.


The OddsMaker backtest results

Visit the Strategy Development section of our website to learn more about our backtesting tool, The OddsMaker, and our unique Execution Consulting services.

Monday, November 26, 2012

The Grammar of Trade Ideas Filters & Alerts

I was talking with a GUI consultant recently.  We typically do not use GUI consultants, however, she sparked an interesting discussion about the use of "Grammar" for our icons.  She had brought up a great point.   Though it may be a bit redundant on our Alert & Filter definition page, we did agree that it would be helpful to offer a breakdown of the various meanings of the symbols used on the icons.  Just like the use of grammar in sentences, we have a structured set of rules for each type of alert and filters.  So, with that said, we decided to provide a summation of the icons with their rules and/or meanings.

Things to notice with our icons are the different sizes and shapes of the symbols/numbers/letters and the positioning of them.

FILTERS:

Whenever you see a number in this size, it means that number of minutes. This , for example, is the range in dollars over the last 5 minutes.  Hours are similar, but we add the "H."  For example,  is the range in dollars over the last 2 hours.  Days and months will be marked similarly.  This  is the range in dollars over the last 10 days (or two weeks).

The SMA filters are more complicated.  Here, , the 2 is in the same font and size as before, so it still means 2 minutes.  This icon means that we are looking at a chart with 2 minutes per bar or candle.  The smaller numbers say how many candles (or bars or periods) we are looking at.  In this case, we are asking how far the 8 period SMA is above the 20 period SMA.

These small arrows always refer to stock options: , and .

Compare those to these larger arrows: , and .  These filters all talk about the position in range.

These are similar to position in range: .  But they only look at the top of the range or the bottom of the range.

This font and size is used for fundamental data: , and .  Notice that some of these include a triangle pointing up.  That triangle always means growth.  Some of them have a tilde (~).  The tilde means estimation or approximation.

These vertical lines should look familiar: , and .  These represent volume.  Sometimes they are drawn bigger than others.  That's only because we had limited space, and it doesn't have any other meaning.

Some icons look exactly like the chart pattern we are describing, i.e. shows a stock gapping up, shows a stock where several candles in a row are going up, shows a stock that is consolidating.  The corresponding filters help you find stock charts like look like these icons. Most of the time "D" means day, as in  is the daily RSI or the daily Bollinger band.

However there are a few exceptions, like , which tells you how much the DOW has moved in the last 30 minutes.  ( says how much the DOW as moved for the day.)

Of course, you never have you guess what an icon means.  For our Alert & Filter Definition Help page,  Click Here and it will give you all the details.  In most cases, you can click on an icon to take you directly to our help page.

Wednesday, November 14, 2012

New Data – More Data – Better Data

Slicing Fundamental Data with a Quant Knife

Our development pipeline is an open book found on the "What’s New" page of our site. We recently added a new complement of fundamental filters that add balance and flexibility in designing trade set-ups.

Our What's New page displays the new fundamental filters

What type of data yields the best results for investing and trading: fundamental or technical? It's not even a trick question anymore. Designing a profitable approach to the markets requires technical and fundamental parameters. It’s just that simple.

The market, as a remarkably efficient mechanism,  discounts both types of data. At times the market is focused on fundamental data, other times the market shifts focus to price action.

Instead of guessing what is important at any given time, Trade Ideas studies which parameters in a set-up contribute the most towards the profit of a given trading plan.  The indicator is sometimes price related e.g., position relative to a moving average, other times it's volume related or even social and fundamental data. Often it is a cluster of 2 - 3 indicators that are clear determinants of a trading plan's rate of return.

That is why it is important to have all the arrows in your quiver. Trade Ideas recently added the following fundamental data points to help find even more interesting alpha generating signals.  To some clients adding more options for designing trading set-ups can add more complexity.  That's what makes our Execution Consulting business the most exciting business opportunity in the last several years.  We assess a customer's trading preferences with a short questionnaire and transparently build a custom set-up and trading plan based on how a customer expects to invest in the market.

The newest filters added November 9th and available to all Trade Ideas subscribers include:
  • Enterprise Value
  • Revenue
  • Short Float
  • Up Since January 1st
  • Held by Institutions
  • Held by Insiders
  • Quarterly Revenue Growth
  • Quarterly Earnings Growth
  • Cash
  • Short Growth
  • Estimated Quarterly EPS Growth
  • Estimated Annual EPS Growth
  • PEG Ratio

Top List using fundamental filter data: high value companies sorted by revenue

Clients who’ve tried Execution Consulting, appreciate the value it provides: fully developed strategies crafted to succeed in current market conditions.  We work with you and formulate the strategies to best fit your specific portfolio, account size, preferred hold time, and risk tolerance.

Read more about Execution Consulting and sign up to schedule a consultation to see exactly how Execution Consulting from Trade Ideas will bring stability and predictability to your trading.