Trade-Ideas Software

Strategy Session: Find the Move During the Pause that Refreshes

2008-05-20T06:26:00.000-07:00

I received a good question from our support forum that I want to repeat here. It's a simple request about how to model a pattern that this customer wants to see in the market.

Question: Stocks Taking a Breather

What filters or alerts can I use to finds stocks that are, "taking a breather"?
I.e. it is in a daily uptrend, but volume slows and price drops; OR, it is in a
daily downtrend, but volume slows and price rises slightly.

Tip: Understand the Left and Right Side of the Chart

Here's a modeling tip. When I start out modeling an idea or pattern I want all my stocks to exhibit, I start with the filters. The filters in Trade-Ideas are great for describing the left hand side of the chart - i.e., everything that's happened leading up to today or this minute (depending on what increment of time you are using on the horizontal axis). The Alerts in Trade-Ideas describe the first point of the right hand side of the chart - i.e., what happens the moment Trade-Ideas alerts you. Ok. Let's give this a shot.

Answer: Stocks Taking a Breather

Good question. I'd put together the following FILTERS:

Daily Uptrend = Min Up Days, 2
Daily Uptrend = Min Up Candles (15 min), 2
Daily Uptrend = Min Up from Close, .01 $
Daily Uptrend = Min Position in Range, 75%
Volume Slows = Max Current Volume, 1

and then I would choose my trigger with the following ALERT:

Price Drop = Running Down Intermediate, 1 or leave the ratio blank AND/OR
Price Coiled (buyers and sellers evenly matched - consolidation) = NR7

See if that works for you. To get the opposite view, configure this and then use the "Flip" button.

Footnotes and Related Articles:

Here's another article we wrote about lite volume moves called, "What to do When You're Suspicious of Low Volume Rises in the Market"
Check out the whole category of articles written about patterns we've modeled from various other authors and articles we've come across called: Strategy-Sessions
Use The OddsMaker to further understand what trading rules would produce the optimal trading outcome for this strategy in the recent market. Trading rules would include the answers to these questions: How long to hold each opportunity? When during the market session should this strategy be traded? Where should the stop loss be set?
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
See this video on our Collaborate function to learn how to open these strategies inside Trade-Ideas PRO

It's the Pattern, Not the Stock that Makes the Mad Money

2008-05-12T06:10:00.000-07:00

Disclaimer: The article mentioned below mentions Trade-Ideas as an 'industry standard' and sprinkles a bit more praise on us but was written unsolicited by a former trader, Dave Goodboy, turned writer for TradingMarkets.com and other outlets.

"How To Use A Stock Screener"

Goodboy's article addresses the most basic of scanner and screener tools available to the new trader/investor. Much of what he describes are the free tools available to help define the appropriate environment a trader has learned or researched to trade. I am only adding the following footnotes:

"What's Free at Trade-Ideas"

Don't forget about the free data Trade-Ideas provides in the form of End-of-Day data and even delayed intraday data. The cream rises to the top when we compare this data to what else is out there (many companies even charge for less quality data than what we give away)

"Scanning Patterns Will Set You Free"

Scanning for stocks will only get you so far - it often leads to chasing stocks and mounting frustration. Ever been there? Think instead about screening for patterns - the pattern -that a trader believes consistently yields a positive outcome. If its a technical pattern, then I submit there's no better tool than Trade-Ideas for finding it in real-time as it's happening

Which brings me to this question I answered on the public forum regarding the Equity Markets found on LinkedIn.com.

A better strategy than Dogs of the Dow?
Asked by Paul Zabin 5 days ago in Equity Markets, Personal Investing Open
My public answer:

“The DoD (Dogs of the Dow) strategy evolved into something unintended in my view: a focus on the stocks. The strategy's real benefit is to call attention to a group of stocks that would exhibit the same pattern; namely, responsible management, good dividends, and a strong upward trend pattern. The pattern and the way to trade it have become my preferred way of discussing winners and losers. For example I speak fondly of "rubber band" moves that stretch a stock several standard deviations away in price from its norm, and ride the move back to the average. How long I hold these opportunities, stop loss targets, and when during the day I'll trade them are equally important parameters.

I've even developed a method of backtesting these events to determine how successful they are in the recent market. Notice I mention the event and how I trade it that's backtested - not the basket or list of stocks. This form of backtesting focuses on the event a priori - not relying on knowing the specific stocks themselves beforehand. The DoD strategy has never been loyal to the stocks that rotated in and out - we should be the same way.”
Messages about this question (1):
RE: A better strategy than Dogs of the Dow?

The LinkedIn article and my footnotes to Goodboy's article refer to the growing importance of the pattern when discussing trades. Everyone at the water cooler will recall fondly how Stock 'XYZ' paid for that vacation or was responsible for my biggest gain last month. What they really mean and what will be evident more in the future is how fondly Pattern XYZ worked in their favor.

Related Articles

Check out the whole category of articles written about patterns we've modeled from various other authors and articles we've come across called: Strategy-Sessions

Dark Pools Looking More Like the Kiddie Pool: Shallow and Smelly

2008-05-09T06:48:00.000-07:00

2 interesting articles this week from WSJ and Reuters on the untamed and unaccountable dark pools in the market.

What are dark pools?

The WSJ defines them as "the secretive electronic trading networks that match buyers and sellers anonymously." These trades are done outside of the traditional stock markets like the NYSE and NASDAQ.

The WSJ journal points to the dark pools at failing on their promise of making it easy to move large shares without affecting price. In fact with more dark pool firms competing for volume and their share of the business, the consulting firm TowerGroup reports that the average trade was just 260 shares at the beginning of 2008. A decade ago it averaged over 1,400 shares. Ugly shrinkage.

The Reuters article observes that as a result of the competition for liquidity and volume, many dark pool firms are falsely boosting their trade volume numbers. With no standards among these market players, many are knowingly double counting attempts to fill blocks as new and reportable volume.

I mention the articles because this has been a recurring theme when I speak with our Director of Trader Education, Jamie Hodge. He shared his observations in his recent interview with StockTickr:

StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Jamie: The biggest issue has been the systematic retooling of the trading network over the past 7 years. In 96 when I first started trading there were 0 ECNS, it was just all market maker’s thick bids and offers and you could see exactly who you were trading against. It’s quite the opposite today, no liquidity and you can’t see anything. Take all of your ecn books, level II, and any other feed you can pay good money for and you’re lucky if you’re seeing 10% of the real order flow. Just like casinos have banned card counting at black jack the big boys have taken every advantage away from the small day trader. Now more than ever, you need to fight algorithms with algorithms.

Our point? The larger market participants play their games at the expense of those not armed with better or equalizing technology and analytics. They prey on the regular investor/trader unequipped to react. The technology is here. It's available to our subscribers and traders who recognize they need real-time analytics. Whether you use Trade-Ideas or not, it's time to make software work for you and your trading plan.

Strategy Session: Automation for Swing Trades

2008-05-07T07:21:00.000-07:00

The fast paced world of trading excites us - buyers vs. sellers, large capitalized players vs smaller and quicker/nimble players, etc.

However we at Trade-Ideas recognize that for many in the investing public, trading twenty or thirty times a day is a lot - completely alien. That's why our tools are also made for longer-term traders.

Let's define some terms first.

The difference between day traders and swing or position traders is length of trade: the day trader exits position by the end of the trading day. Longer-term traders ride the position for a couple of days or weeks.

How can a real-time intra day scanner be used to find longer term trades?

We asked them (our surveyed customers) and they responded. Trade-Ideas focuses on getting the longer-term trader through the best initial entry point and getting him/her to the next day and beyond. That's when risk management takes over. In their words, "Trade-Ideas puts you in front of a tail wind so that hopefully you can ride the longer term trend."

How? Let's use the intra day scanner to set up the entry and then test a set of trading rules with the OddsMaker to make sure that it works. We can then put it on autopilot (via controlled automation) with our brokerage partners supporting this automation at TD Ameritrade, InteractiveBrokers, and OptionsXpress.

So here we go. One of the easiest tells in terms of supply versus demand is something that is also often overlooked: Gaps - specifically Gaps to the upside. In this strategy we are going long.

First let's find stocks on the NYSE, AMEX, and NASDAQ Gapped up over $2 USD today. That is done by going to our Window Specific Filters tab and putting a 2 next to the Min Gap Up filter.
Second we add a market direction filter just to make sure we are not buying or even looking at opportunities when the market is really heading south. In Trade-Ideas we have market direction filters for the S&P requiring it to be up a certain amount in the last 5, 10, 15, or 30 minutes. In this case the S&P must be up .01% in the last 30 minutes. That gives us just a bit of an insurance that there has been some positive action.
Third we do something a bit counter-intuitive. This is a bit like poker. We are assuming that the the Gap Up is the tell. So we actually wait for a signal showing some weakness in the stock. This weakness signal is when the stocks crosses below the Opening Price.

Basically we'll see and do the following: if the stock Gaps Up, trades and falls back to just below the Opening price assuming the S&P was up .01% in the last 30 minutes, we are going long.

Then we hold at least until the Open tomorrow. Here is the set up with more of the details.

Strategy Session: Gap Retracement Play Hold till next Open

When we start this strategy we wait for the first 30 minutes of the market to give the S&P a chance to see where it is going. Then after the first 30 minutes we enter positions. Our stop for this strategy is 1 dollar + the wiggle which is our custom volatility based stop-loss number.

Here is the overview: In the last 15 trading days this system had only 3 losing days and they were pretty small, while on the upside it was able to rack up 51 points in 76 trades.

OddsMaker Summary:

45 / 76 = 59.21% up $0.01 at next open; Average winner = $1.7813, Average loser = $-0.9264, Net winnings = $51.442, Best = $7.59, Worst = $-3.186; Casino Factor = 99.88%
Daily summary:
4/15 : +18.0100 /7
4/16 : +5.9600 /7
4/17 : +0.9900 /1
4/18 : +4.4134 /13
4/21 : +2.9400 /1
4/22 : +9.1300 /4
4/23 : +11.4244 /11
4/24 : -(1.8327) /3
4/25 : -(0.8600) /7
4/28 : +0.5800 /3
4/29 : +0.5300 /2
4/30 : +1.1405 /5
5/01 : +0.8965 /6
5/02 : -(1.8800) /6

(to fully understand what all the numbers mean, refer to The OddsMaker Manual)

Remember that this type of strategy can be automated using our integrated brokerage partners mentioned earlier. This is the trend in trading. Institutions run their algorithms - and now the "instividuals" such as yourself have the same capabilites only with much better analytics and backtesting features.

Related

Interested in automating a trading strategy like this one or one that you design with even better odds? Consider one of the brokers mentioned above that offer automated trading of your Trade-Ideas strategies. Details can be found be clicking on their links in this post or simply email us at info@trade-ideas.com and tell us you are interested. There are also great discounts available from these brokers.

Footnotes

Link to other Strategy Sessions
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
See this video on our Collaborate function to learn how to open these strategies inside Trade-Ideas PRO

Interview with J. Hodge, Director of Education, Trade-Ideas

2008-05-05T07:34:00.000-07:00

I am back from some good times in Chicago that included events for TD AMERITRADE and optionsXpress. There's plenty new strategies and insights to tell you, but I want to bring to your attention this interview of Jamie Hodge, our Director of Trader Education and long-time trading veteran, by Dave Mabe of StockTickr.com.

Interview with Jamie Hodge, Trade-Ideas - May 5th, 2008

Jamie tells us what "gimmick" trading is all about and how the ability to recreate your trading plan with the market's changes makes or breaks your success as a trader - a good read.

Related Links

The StockTickr Interview with Dan Mirkin
The StockTickr Interview Series (RSS feed)

Trade-Ideas In Your Town: Chicago

2008-04-30T18:27:00.000-07:00

Here in Chicago it's a double-header in the windy city.

Tomorrow is the TD AMERITRADE event followed on its heels with an optionsXpress event over the weekend.

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.

TD AMERITRADE Event

The TD AMERITRADE event will showcase our new trading automation application we make available for TD AMERITRADE customers. You can create a strategy, backtest and determine probabilities for its success in the market right now, and then automate the strategy based on the next alert that comes through. It is easy to use tools that are institutional-caliber tools in their innovation and levels the playing field that many, larger market participants have enjoyed in the past (some of which are now using Trade-Ideas for this reason!)

Here are the details to learn more of our partnership with TD AMERITRADE: http://www.trade-ideas.com/TDAmeritrade/TD_AMERITRADE_and_Trade_Ideas.html

optionsXpress Event

The optionsXpress event will showcase the same automation tools but with execution through optionsXpress lightening fast execution engine. Plus it's in the company of some great partner companies like Tom Busby and the DTI folks (the Fed Day event that DTI organized and that optionisXpress sponsored was a great event - thank you for the speaking opportunity!) More details on the follow-up from that event in a future post.

Here are the details to learn more of our partnership with optionsXpress:
http://www.optionsxpress.com/trade-ideas/index.aspx

Have a great rest of the week!

Learn How to Trade the Breaking News on Fed Day

2008-04-29T07:28:00.000-07:00

As a result of recently adding new filters and alerts to Trade-Ideas, I learned new tricks on helping others get their ideas from their head and into Trade-Ideas much more easily.

Turns out the good folks at DTI and Tom Busby are providing a platform from which to discuss how we are using the new alerts and others during their very popular Fed Day Live TradeRoom sessions tomorrow, April 30 beginning at 8:15 AM CST. I have the honor of speaking at 12:00 PM CST - just an hour before the time that the Fed is expected to make its announcement at 1:15 PM CST (2:15 PM EST). My topic will therefore be:

Trading the Breaking News with Trade-Ideas

If you are new to Trade-Ideas or an old hand in need of a fresh pointer or two, please register for this free event by clicking on this link:

Reserve Your Place - Register (free education with David Aferiat and Tom Busby!)

I hope to see you there!

Related Articles:

Does Your Trading Plan Benefit from Continuing Education?

ToolTip: Spank Father Time While Improving Your Trades

2008-04-28T06:57:00.000-07:00

Add seconds to the Time column display on your Trade-Ideas Alert window

Take a look at Figures 1 and 2 below:

Figure 1 on top (or on the left) shows the standard display of time in TI PRO. Figure 2 (on the bottom (or on the right) shows the display with seconds added. How did we do it?

To display the time in seconds on your Trade-Ideas Alert window please add the following line to the bottom of the local.ini file (be sure to save file).

TimeFormatList=hh:nn:ss M/d/yyyyhh:nn:ss

You can find that file in the same directory as the TI Pro exe file. By default, it will install in the following directory:

C:\Program Files\Trade-Ideas\Trade-Ideas Alerts

This will display the time in seconds; it will be followed by the date if there is room in the cell. You will need to restart TI Pro for this to take effect.

Now if reversing time were only this easy . . .

Trade-Ideas in Your Town: NYC!

2008-04-21T12:39:00.000-07:00

Fresh from the west coast, it's off to the east coast. NYC.

It will be a busy week with travel, meetings, and the TD AMERITRADE ApexLIVE event taking place at the Marriott Marquis on Tuesday (tomorrow).

I've already met with the folks at Minyanville and Knight Capital Group. I'll have more to say about the innovative ways that each of these groups are preparing to use Trade-Ideas - and how you can learn from them how to use the tool with more clarity, better results.

If you are in NY, dear reader, and would like to meet up, please let me know in the comments.

The TD AMERITRADE event will showcase our new trading automation application we make available for TD AMERITRADE customers. You can create a strategy, backtest and determine probabilities for its success in the market right now, and then automate the strategy based on the next alert that comes through. It is easy to use tools that are institutional-caliber tools in their innovation and levels the playing field that many, larger market participants have enjoyed in the past (some of which are now using Trade-Ideas for this reason!)

Here are the details to learn more of our partnership with TD AMERITRADE: http://www.trade-ideas.com/TDAmeritrade/TD_AMERITRADE_and_Trade_Ideas.html

Trade-Ideas in Your Town: San Francisco

2008-04-14T12:21:00.000-07:00

Time to saddle up and fly west to San Francisco to meet with the development team of a very large online broker - I can say no more.

Flying a MD-80? Why yes, I am, but it's with Delta - wish I knew how to play those odds in The OddsMaker.

Outside of these meetings I'll be visiting some institutional clients but we plan to stay close to Menlo.

If you'd like a little one-on-one assistance with Trade-Ideas or learn how we keep the ship afloat, please let me know via the comments section or at info@trade-ideas.com

Subject: Menlo RoadTrip

If there is a good response we'll set up a convenient time for everyone to meet. If it's just one or two that are interested we'll still meet or at the least schedule a phone call during my visit.

1 Stock's Collapse Reveals a Pattern Others Might Follow

2008-04-07T07:46:00.000-07:00

As many of our subscribers confirm - our technology works - really well. Here's an example that features option filters recently added and Bear Stearns. I think this example is more relevant as we prepare to absorb one of the last of the giants in the financial sector that's been exposed to the sub-prime mortgage disaster: Citibank (its earnings are scheduled for release on April 18th).

Let's review the timeline that was the BSC collapse - as summarized by our friends at FierceFinance:

Wednesday, March 12 – ALSO NOTED: Rumors about Bear Stearns liquidity heat up
Friday, March 14 – What’s up with Bear Stearns?
Monday, March 17 – Update: Bear Stearns finally falls
Tuesday, March 18 – JP Morgan bets big on Bear Stearns

I recall CNBC's Fast Money talker, Jon Najarian, talking about put option contracts valuing BSC at $20 - shocking at the time when BSC was trading in the $60s. That was crazy talk! Or was it?

A Startling Case of Foreshadowing

Source: Trade-Ideas data

Take a look at the raw data Trade-Ideas' servers were recording during this fateful week for BSC - pay notice to the 'Prev Put Volume' column:

From Monday, March 10th to Tuesday, March 11th (a whole day before the rumors started flying), Trade-Ideas picked up a 5-fold increase!!!

I don't care about who knew what before the official news - if this is a pattern that can alert me to future massive sell-offs before they happen, then I'm simply letting Trade-Ideas be my eyes on the market - looking for previously unseen patterns and bringing them to my attention for action.

Specifically: Can a higher than usual spike in put-option volume lead to a significant drop-off in price? How large must the unusual volume be? How long is the optimal time to hold a possible short position?

I plan on putting together a strategy that answers these questions for us and watch as we approach the Citibank earnings release. Until I post that strategy, here are the raw ingredients I will be using to build it: http://www.trade-ideas.com/Help.html#wsf_MinPCAV

Related Article:

Option Traders Will Love These New Filters in Trade-Ideas - http://marketmovers.blogspot.com/2008/02/option-traders-will-love-these-new.html

So Long Everyone, It Was Fun

2008-04-01T08:06:00.000-07:00

Sorry, no time for explanations. The best I can do is this video.

If we’re not back again this time tomorrow, carry on.

StockTickr Interview Reveals How We Use Automated Trading

2008-03-27T07:34:00.000-07:00

I'm sliding under the table to you some excerpts from a recent interview that our Director of Trader Education, Jamie Hodge, gave to our good friend Dave Mabe of StockTickr. You'll understand after reading the entire interview how to win against today's market that's eliminated many of the information advantages traders used to have and how to trade where the greatest odds of winning exist - below is a slice of the interview.

Reprinted with permission:

Q: What single lesson did you learn along the way that has helped you the most in your trading?

Never become complacent – especially when you’ve been "gimmick trading" all of your career. I refer to any trading practice that can become extinct from a rule change or system replacement as gimmick. The prime example was SOES (Small Order Execution System). Once the SOES phenomenon started taking root, the big boys were already laying plans to do away with it and replace it with a “better” system. One that would allow more shares and faster executions, one that would put the advantage back into their hands. They succeeded in ’01 when they replaced it with the supermontage, and thus SOES became relegated to the history books.
The gimmicks were fun, but I feel that with my current style, there really isn’t anything that could impact it adversely (barring me breaking all of the rules and/or the market just sitting there). In other words, as soon as I was hitting my stride with one of my old styles, then it would end and you’d have to start all over with something different. What I’m doing now has longevity, and so over time, as I improve I should really be able to achieve some nice velocity.
Q: What's your exit strategy for winning and losing trades?

Anything that I trade these days is generated from alerts fabricated thru Trade-Ideas with the use of The Odds Maker. Not to say that I won’t trade anything else, but I’d say 95% of my signals originate from the TI engine. Most of my hold times are short, my typical hold time is probably 20 minutes. As far as exit strategy it’s pretty simple, once I’m in a position, I stay in it until it’s time period has expired or I get stopped out. If a poiion is approaching its time limit and it’s still moving for me, I’ll tell the Bot (Trade-Ideas Automated Trading System available through select brokers like Assent, TD AMERITRADE, and optionsXpress) to ignore the exit signal and then manually adjust my stop.

In addition to StockTickr's main service as an online trading plan journal and trader networking site, Dave's very popular interview series lets you peek over the shoulder of some very successful and well-known traders to see their daily routine in detail. He's managed to land quite the A-list of interviews with some special people indeed. A major 'get' for him was certainly Dan Mirkin, our own Senior Managing Partner.

Want to read the rest of the interview that asks such questions as, How do you recommend established discretionary traders get their feet wet in automated trading? How many strategies do you have and how many do you deploy on a given trading day? How many automated strategies are you comfortable trading simultaneously??

Be sure to visit StockTickr and sign up for his interview RSS feed or make the site a regular visit in your internet travels.

Strategy Session: You Rob a Bank Cuz That's Where the Money Is

2008-03-25T17:35:00.000-07:00

The same principle applies to the market: Trade where the odds are.

Last week I discussed a unique approach to determine where trades with the highest winning percentage exists.

Read here to fully understand this approach which relies on the power of The OddsMaker to determine whether going Long or going Short in the market makes the most sense.

My purpose here is to dig deeper into the strategy I started in the previous post and show you in simple steps how I got to a very good strategy with high odds of winning in the market today.

A Strategy's Ingredients

Let's recall what basic strategy I described last week:

a Min Price of $10
a Max Spread of 25 pennies
a Max Distance from Inside the Market of 0.1% (helps avoid the presence of trading on bad prints when backtesting)
a Min Daily Volume of 250,00 shares/day
a Min Current Volume of 3 (meaning stocks should be trading 3x average volume at the moment of the trigger event/alert)

Recall that this strategy, as is, was not practical in real life - it traded over 1500x in 3 weeks!

So we add additional filters based on a theme we want to test in the market. The purpose of the theme is to further discriminate against the stock opportunities and arrive at a clear - biased result that contains a high winning percentage.

Stating Your Theme and Adding to the Mix - The Strategy

My theme is simply: Does fading uptrending stocks after a short-term price and volume 'pop' produce winning trades?

To test this theme I added the following additional alerts to my strategy:

a Min Volume 5 Minutes filter of 200% (i.e., 200% higher than usual)
a Min Up 5 Minutes filter of $1 (i.e., up at least $1 in the last 5 minutes)
a Min Up from the Open filter of 5% (i.e., up from the Open by at least 5%)

Ok. So then I run The OddsMaker with the following position management rules (the same ones I used last week); namely,

Go Short with each alert opportunity
Exit the position if it goes against me $0.40
Trade anytime during the market session
Hold each trade for no more than 20 minutes

The alert I've chosen in my strategy is a simple Heartbeat alert that simply tells me the moment all of the filter conditions are met - nothing else required.

The OddsMaker Results

Here's a picture of what I saw when I ran the results:

(to fully understand what all the numbers mean, refer to The OddsMaker Manual)

From these results I observe first that the overall number of trades is manageable at 36. Next I see that 20 of those trades achieved success (the average winner being $1.0395/share!). What's nice is that there's a healthy ratio of my average winning trades over my average losing trades - an almost 2.5x difference! This explains why my net winnings over the 3 week timeframce are so good at $15.00.

The daily log of my P&L tells me which days were profitable and how many trades I made each day of the test. The only dark cloud I see is the last day of the backtest results. Does this red day indicate a turning point in the usefulness of this strategy? Could it continue or go back to green like it did on March 18? If I decide to trade the strategy then my position rules still apply and I know clearly what my stop loss (i.e., average loser value) will be!

That's an example of how to test a theme with such a revealing tool like The OddsMaker. Test your themes in the market, know their odds of winning based on your position management rules, and get better answers and better trades out of your precious capital and time!

I look forward to reading your about your experiences in the comments!

Related

Interested in automating a trading strategy like this one or one that you design with even better odds? Consider opening an account with optionsXpress and fully automating these strategies with the specialized application for OXPS by Trade-Ideas called the Robot. Details on the tool and OXPS' special pricing can be found here: http://www.optionsxpress.com/trade-ideas/index.aspx

Footnotes

Link to other Strategy Sessions
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
See this video on our Collaborate function to learn how to open these strategies inside Trade-Ideas PRO

The Key to Finding a Winning Strategy in Any Market

2008-03-20T10:14:00.000-07:00

Are you tired of being spoon-feed trades without knowing how to come up with the ideas on your own? Many traders fall into the trap of being fed the fish but never really knowing how to go about fishing on their own. This post and next week's aim to fix that.

The Words that Would Not Go Away

I've had a mental breakthrough recently about something that Dr. Brett Steenbarger lodged into my mind during one of my Chicago visits at his office. How could he have known that this thought would percolate in my head for so long?

Well I finally am able to pour it out by applying his trading approach to the suite of tools we offer here at Trade-Ideas - using The OddsMaker.

Creating and Testing Themes in the Market

The market is always giving answers to traders. If you don't ask the right questions, it sounds like gibberish. It's just like the scientific method of problem solving. Create a hypothesis and test to see if it is correct - in a trader's case it's about creating an opinion about certain patterns and testing if the market is rewarding such patterns. For example I might have the opinion that jittery market conditions brought on by the fear of investment bank failures means that normally positive, momentum like moves will revert back to the mean. I therefore will look and see if fading 30-day highs with certain position management rules (e.g., hold time, stop loss amount, etc.) is being rewarded by the market. But I'm getting ahead of myself.

The First Step

The first step in testing such a theme means starting with broad questions and eventually adding layers to get to specific biases that (when tested and backtested) reveal advantages and odds for profitable trading - like the example above. Using a tool like The OddsMaker makes this exercise much easier in time and capital saved. I start with a description of a trading universe extremely general but with high volume and:

a Min Price of $10
a Max Spread of 25 pennies
a Max Distance from Inside the Market of 0.1% (helps avoid the presence of trading on bad prints when backtesting)
a Min Daily Volume of 250,00 shares/day
a Min Current Volume of 3 (meaning stocks should be trading 3x average volume at the moment of the trigger event/alert)

This strategy represents a large universe of stocks. Using The OddsMaker lets me trade all of them using data from the last 3 weeks, so I decide to see which side (Long or Short) is more profitable to trade under the following position management rules:

Exit the position if it goes against me $0.40
Trade anytime during the market session
Hold each trade for no more than 20 minutes

Here's what The OddsMaker reported for each side (to fully understand what all the numbers mean, refer to The OddsMaker Manual):

SHORT: 792 / 1500 = 52.8% down $0.01 in 20 minutes; Average winner = $0.3099, Average loser = $-0.2391, Net winnings = $94.34, Best = $4.79, Worst = $-0.40; Casino Factor = 100%
LONG: 579 / 1500 = 38.6% up $0.01 in 20 minutes; Average winner = $0.295, Average loser = $-0.2492, Net winnings = $-42.44, Best = $3.98, Worst = $-0.40; Casino Factor = 0.01%

From these results I observe that the net winnings over the last 3 weeks are greater on the SHORT side. The market is telling us the path of least resistance (i.e., to profits) rests with the shorts. But this strategy still needs work. We cannot expect to trade 1500 times as the denominator above records.

The trick is to add more filters that further define the profitable universe in which we want to trade.

Next week I'll finish where this strategy is going. Today's point is simple - let the technology work for you in pointing out where the greater odds exist. If a trader chooses to go long, s/he knows their contrarian stance and can adjust risk parameters like stop losses, position size, and other variables accordingly.

Answers from the Many Questions DTI Traders Asked

2008-03-19T05:57:00.000-07:00

Yesterday I participated in a great day of trader education organized by Tom Busby and the folks at DTI and sponsored by optionsXpress.

My presentation discussed the best way to develop a theme about the market and test whether and how much profits can be made using our backtesting tool, The OddsMaker. It was a great discussion and it gave me personal satisfaction that I am finally able to put into practice advice that Dr. Brett Steenbarger gave me many months ago. Tomorrow I will start a small series on how I'm using The OddsMaker in this way.

Below are some of the questions (and my answers) the group asked during the show:

Q: [11:35] Zoo the new guy: If I already just opened an OXPS (optionsXpress) account may I use the discount?
A: You are referring to our special pricing subsidized by OXPS for new customers. If you recently opened your account there, you can also take advantage of the available discounts: http://www.optionsxpress.com/trade-ideas/index.aspx

Q: [11:35] tony ho: Does this system include training?
A: Everyone who subscribes to Trade-Ideas receives a one time training session with our Director of Education, Jamie Hodge, for one hour. To make the best of this hour we always suggest everyone first read the blog and watch our video product demonstrations here (there's even videos specific to the optionsXpress platform): http://www.trade-ideas.com/VideoHelp/Menu.html

Q: [11:36] Morgan @DTI: this can auto-trade a strategy in an OXPS account... correct?
A: Yes, thanks to our partnership you can auto-trade the strategies you develop in Trade-Ideas PRO and backtest with The OddsMaker.

Q: [11:37] Ian N: How fine-grained is your historical data - to the minute?
A: Our data includes all of the tick data for all the stocks on all of the exchanges. We maintain historical databases of this information and add to it every session. We then compare the historical averages for every stock's behavior to the real-time activity of the stock during the market session. http://www.trade-ideas.com/DOSA/

Q: [11:33] John Du: Does your scanner automatically make trades, or just advise about them?
A: The Robot is our application that automates the strategy that you create with Trade-Ideas PRO and backtest with The OddsMaker. Trade-Ideas PRO and The OddsMaker advise a trader on which strategies are performing well in the current market.

Q: [11:33] Mark Jo: where do you get the data feed for your program?
A: We receive all of our exchange data from an institutional vendor - a relationship we've maintained for the last 4 years.

Q: [11:24] John Du: Can you use the OddsMaker to optimize the scanner?
A: Yes you can! That will be the topic of tomorrow's post

Q: [11:20] Steve Th: will it filter the futures market as well as cash?
A: At this time we cover equities and equity derivatives like ETFs, indices, etc. We do not cover the futures however at this time - nor do we cover Forex.

Q: [12:08] burt st: please dont take me as rude but --- why do you mess with teaching this and why are you not rich enough from trading to mess we yahos like me ? thanks.
A: Trade-Ideas tools still promote independent thinking - it does not replace it. A trader still has to uncover what's working in the market by modeling the different alerts, filters, and position management rules. The value comes in the ability to model any pattern and ask better questions of the tools - like: What happens if I hold this stock for an additional 10 minutes? What if I only trade the 1st 30 minutes of the market? Etc.

Thanks Again to DTI

Every day the Fed makes its regularly scheduled announcement on interest rates, Tom holds a free day of education on how to best trade futures, stocks, options, almost anything. His live trading sessions are the stuff of legend - he knows what he's doing. I haven't met someone who has seen him fall flat on his face. That's evidence of keeping losses miniscule more than any evidence of possessing a silver bullet or holy grail.

Improve Your Trading Plan with this One Visit

2008-03-17T08:43:00.000-07:00

I am just back from a great conference in Phoenix sponsored by optionsXpress. I learned alot about Trade-Ideas while interacting with the audience and our Director of Education, Jamie Hodge.

We added so many new filters and alerts to Trade-Ideas recently, I fell behind a bit on everything we can do. I also learned new tricks on helping others get their ideas from their head and into Trade-Ideas much more easily. Even the other sponsors at the conference got excited about the things going on at Trade-Ideas!

So the good folks at DTI and Tom Busby (who were also in attendance at the weekend conference) are inviting Trade-Ideas to present during their very popular Fed Day Live TradeRoom sessions tomorrow, March 18 beginning at 8:15 AM CST.

I will be speaking at 11:00AM CST.

Topic: How to Find a Profitable Strategy in Under 10 Minutes

If you are new to Trade-Ideas or an old hand in need of a fresh pointer or two (like I was), please register for this free event by clicking on this link:

Reserve Your Place - Register

I hope to see you there!

Related Articles:

Does Your Trading Plan Benefit from Continuing Education?

Trade-Ideas in Your Town: Off to Phoenix

2008-03-14T08:06:00.000-07:00

As I mentioned a few weeks ago, the Trade-Ideas 'krewe' will be headed to Phoenix for an Expo sponsored entirely by optionsXpress (details). I am an advocate of these types of get togethers between companies and customers because of several benefits each party receives.

How Attendees Benefit

Attendees get a chance for a deeper dive into a broker's offering, its pricing, its technology, and its partners (like Trade-Ideas! Yo!) - you wouldn't get near the same amount of information in a crowded exhibit hall with dozens of other vendors shouting.
More time is allowed for question and answer both during the session and afterwards
The sponsor is also more attentive of customer suggestions and open to resolving any customer issues - that's what can happen when there are no distractions from the other vendors.

How the Broker Benefits

The sponsoring broker gets to control the message - no competing with dozens of other vendors shouting hysterically for attention.
Brokers report getting better feedback with details covering the good and the bad aspects of their offering

If you are in the area, leave a comment - or stop on by. The drinks, as usual, will be on me. I'll have a recap of how this event and last month's San Diego event went when I get back.

Strategy Session: Best Ways to Find the Tipping Points

2008-03-13T06:49:00.000-07:00

New alerts and filters added recently expand the arsenal of ways in which any trading universe can be modeled in Trade-Ideas. We even created some sample strategies to show you how they are used.

Here's what we did:

Added bottoming tail and topping tail alerts.
Added new filters to find stocks based on how much the price has moved in the last 5, 10, 15, or 30 minutes.
Added new filters to find stocks based on the amount of volume they have traded in the last 5, 10, 15, or 30 minutes.

The tail alerts attempt to find tipping points where movement in one direction is exhausted. Not a bad thing to be looking for in this market. Here's a good definition of a bottoming/topping tail (for our own Glossary): http://www.trade-ideas.com/Glossary/Topping_Tail.html.

The price and volume filters let a trader define, "How much movement or volume?", over specific, short-term time frames.

Combine the new filters with the new alerts and you could model scenarios such as:

Show me stocks that are making a new 15 minute high after running up at least 70 cents or more with a surge in volume (say 200%) during the last 10 minutes: This strategy finds great opportunities for shorting exhausted stocks during a recent run up:

Strategy Session: Fading 15 minute highs 70 cents move up

The strategy below demonstrates the power of Trade-Ideas auto-invert feature known as the “Flip” button. The strategy with a single click shows me stocks that are making new 15 minute lows after running down at least 70 cents or more with a surge in volume (say 200%) during the last 10 minutes: This strategy finds great opportunities for buying oversold stocks during a recent fall:

Strategy Session: Fading 15 minute lows 70 cents move down

Footnotes

Link to other Strategy Sessions
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
See this video on our Collaborate function to learn how to open these strategies inside Trade-Ideas PRO

Coming Back? Returning Traders Guide to Trade-Ideas

2008-02-26T08:37:00.000-08:00

"Yeah we tease him alot
cuz we got him on the spot, welcome back.
Welcome back, welcome back, welcome back." Welcome Back Kotter Theme Song

Often Trade-Ideas and our subscribers resemble the local neighborhood bar. The locals there everyday collecting their mail. The casual drifters. The frequent regulars. Many start as one type of customer and switch to another. We keep the taps clean and the information flowing - whoever we are serving.

Are you a customer coming back to Trade-Ideas after some time off? Could have been with another set of tools; getting more education; raising more capital - we won't ask any questions. Instead here's a guide to help you so you don't skip a beat. It comes straight from a IM session:

Welcome Back! Remember to sign the exchange agreements
(12:13:20 PM) bricerator: hey there. U have time for a quick setup question?
(12:14:30 PM) David: i can anticipate the question
(12:14:34 PM) David: here's the answer: http://www.trade-ideas.com/AdvancedFeatures.html(12:14:46 PM) David: visit the Entitlement section and fill out the exchange agreements to see the symbols on that exchange - that's something new that previous customers did not have to do.
(12:14:56 PM) bricerator: I did that
(12:15:05 PM) David: oh ok. Well done.

Quick Answer to How You Find Fast Moves with Trade-Ideas
(12:15:35 PM) bricerator: I just want a list that shows 1, 5 and 10 minute fast moves
(12:16:04 PM) bricerator: how can I set that up?
(12:16:19 PM) David: look at the intermediate running up alerts
(12:16:42 PM) bricerator: where is the alert section?
(12:17:04 PM) David: http://www.trade-ideas.com/Help.html. You can also use our filters on the 1, 5, 10 minute candles - for instance show me all stocks with a 5x higher than normal volume on the last candlestick
(12:17:20 PM) bricerator: oh I like that too
(12:17:20 PM) David: right click and select Configure - you'll see the series of tabs
(12:17:33 PM) bricerator: oh ok

We're Constantly Improving the Product - How to Catch Up
(12:17:47 PM) David: a lot has changed since you last used the tool
(12:17:54 PM) David: look at our video for some overview
(12:17:55 PM) David: http://www.trade-ideas.com/VideoHelp/Menu.html - new videos get added all the time. For example new videos are there that demonstrate our automated trading capabilities
(12:18:27 PM) David: also glance at what we've added since your last use: http://www.trade-ideas.com/WhatsNew.html
(12:19:29 PM) David: Since you are a paying subscriber, let me also give you an email to our Director of Education, Jamie Hodge. We give a 1-hr, 1 on 1 training session to anyone who subscribes
(12:19:38 PM) bricerator: k
(12:19:45 PM) David: to get the most out of it; you should familiarize your self with the videos first before contacting Jamie
(12:19:52 PM) bricerator: k
(12:19:56 PM) David: his email is tradeideassupport@gmail.com
(12:20:12 PM) David: just give him 2-3 times that are most convenient for you and he'll schedule you
(12:22:38 PM) bricerator: k, I will watch video and get with jamie. Thanks!
(12:22:48 PM) David: ok

Welcome Back!

NY EXPO Attendee? See a Pro Use Trade-Ideas

2008-02-15T08:45:00.001-08:00

UPDATE: Here is Dave himslef talking about his presentation: http://blog.stocktickr.com/2008/02/08/presentation-on-automation-at-traders-expo/

If you are attending the upcoming NY Traders Expo beginning Sunday and lasting until Tuesday next week, you'll want to see one of our subscribers, Dave Mabe of StockTickr, use Trade-Ideas to fatten his portfolio. Dave is one of the nicest guys you'll meet in a place like this or anywhere else. What you see is what you get with this guy. Here's what you'll see:

This session will explore how discretionary traders can use technology to automate much of their trading routine without necessarily automating their actual orders. There are huge benefits to using automation without having a computer actually "pull the trigger" on your trades. Automating your daily trading routine will make you more efficient, allow you to find and trade more opportunities, and give you more confidence in your trading system-all while doing less work. This session will cover various tools and APIs that can be used to let a computer do a surprising amount of your trading grunt work, freeing your time for higher-level pursuits.

#1 reason why Trade-Ideas clients shouldn't miss this:
See how a Trade-Ideas power user gets the most out of Trade-Ideas.

Here are the details on when he'll be speaking:

Monday morning at 8AM - bright and early.

Related Information

Here is the transcript of Dave's conversation with our Partner, Dan Mirkin:
http://blog.stocktickr.com/2006/07/05/interview-with-dan-mirkin/

Option Traders Will Love These New Filters in Trade-Ideas

2008-02-11T13:48:00.000-08:00

Trade-Ideas expands the list of ways to describe an option trader's universe with 6 new filters.

These filters are in their final testing phase and will soon go live. When they do subscribers will simply see them appear in the list under the Filters tab in Trade-Ideas PRO. And you thought you had to download a new version to see them. That's so 90s, dude.

Min Option Volume
Max Option Volume

These filter stocks based on the number of option contracts traded on an average day. This includes both puts and calls.

Units: # of Contracts

Min Option Volume Today
Max Option Volume Today

These filter stocks based on the number of options traded so far today. You can filter stocks based on the exact number of contracts they've traded today. Or you can compare the number of contracts traded today to the number of contracts the same stock usually trades in an entire day.

Units: # of Contracts
Units: as a % (e.g., 400% would mean trading 4x its normal amount)

Icons based on put/call ratio and others we already have.

If you have an idea about a strategy you'd like to see with these new filters, please leave a comment below. We'll add OddsMaker credits to everyone who responds!

Trade-Ideas in Your Town: What Smaller Events Can Teach You

2008-02-07T07:45:00.000-08:00

You have 2 opportunities (one in San Diego and the other in Phoenix) to get some great education and learn not only about how to use Trade-Ideas more effectively with your trading plan, but you'll also have the opportunity to see how our latest tool, the Automated Trading Bot, automates a trading plan with OptionsXpress.

February 23, 2008 9:00 am - 4:15 pm Hilton San Diego Mission Valley
(619) 543-9000 901 Camino Del Rio South, San Diego CA 92108 (FREE workshop)
March 14-16, 2008 Arizona Grand Resort (888) 216-4837
7777 South Pointe Parkway, Phoenix AZ 85044 (fee to attend)

Smaller, Frequent Broker Events Offer More Education than the Big Tent Expos: A Trend That Will Stick?

You and I, dear reader, are in the middle of some interesting, exciting trends affecting ongoing education, good technology and good partnerships.

We are seeing a move away from the big trader's conferences where every large and small broker meets under the tent, throws a booth together, and shouts/hollers/grabs for your attention. In its place are more organized, more educational settings sponsored by the individual brokers. In these settings the brokerage invites its best customers and interested potential customers for a half-day of deeper dives into their offerings, their tools, (and in the case of Trade-Ideas) their partners who offer powerful ways to improve trading and service capabilities.

More and more brokerages are realizing that the best thinking on how to improve their platforms and tools is NOT within the 4 walls of their development team. The best are embracing what smaller, nimbler, more innovative firms are creating and actively reaching out to integrate their capabilities. Let me just say that our "engagement calendar" has been busy lately.

The Brokers Drinking the Right Kool-Aid

E*Trade has done this for awhile; Scottrade did several of these last year and with an overwhelming response are planning many more this year; TD AMERITRADE has begun scheduling theirs for 2008; and OptionsXpress' conferences are already upon us. Want to attend but you are not a customer? Any branch manager or customer service representative always wants a potential new customer. Simply tell them your account balance and ask for an invitation.

My Take

I think this trend of more educational settings will stick because the brokerage ultimately gets to control the message more effectively than under a tent with all the competitors shouting in the background. Additionally these smaller brokerage events are more numerous and spread out around the country. One of these will very likely be within 100 miles of you. This may or may not mean the death of these Trader's Expos like the one in New York later this month, but that's not where the best value for one's time may be.

Here is the link again to the first event in San Diego: http://www.trade-ideas.com/optionsXpress/SD_Workshop.html