Trade-Ideas Software

A Thousand Paper Cuts

2009-12-07T17:22:00.001-08:00

Winning is not easy. It is not easy in professional sports and it certainly is not easy as a professional or active trader. When you hear people telling you that they have no losing trades this year, you should be careful.

In trading winning is process of managing losses. When we use our software to help us trade, we know that just because we see all of these great set ups, does not necessarily mean that we are going to make money.

In order to make money a trader has to learn how to lose. You have to learn how to lose and how to lose well. The problem with losing well is that it is very difficult. You can lose poorly in obvious ways like getting into a trade long or short and then just letting the trade go against you. That is the easy way to lose poorly, but the scientific way to lose poorly and something that we see happen to smart people all the time is the dreaded death by a thousand paper cuts.

Notice the wide angle wedges on the daily chart of the SPY. What that mean is that any technical trader that is trading this is easily prone to getting stopped out in either direction. It is a very tricky type of trading environment. The best advice to avoid the dreaded death by a thousand paper cuts is to divide your positions into 3's if you are trading 300 shares separate it out into 3 lots of 100 and slowly scale in. Often time you have to do the opposite of what is termed correct technical trading.

Using the OddsMaker we know that right now the strategy is to fade the high volume spikes, especially on the downside. There is good money to be made in either direction, just don't put all of your eggs in one basket let the market show you the path of least resistance!

Tooltip: Spank Father Time While Improving Your Trades

2009-11-05T07:22:00.000-08:00

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

One from the vault (link): http://marketmovers.blogspot.com/2008/04/tooltip-spank-father-time-while.html

Format and Themes for Upcoming StockTwits Episodes & Videos

2009-10-27T17:32:00.000-07:00

[Queue the Rocky theme song]

We're getting in fight shape as we practice several pilot episodes for our eventual debut on StockTwits.tv. Believe me - we need the practice. But in the end it will benefit you, dear reader & viewer.

Here's our current format for a 15 minute show. When we start taking tweets, we'll grow to 30 minutes:

Intro - Market summary
Strategy in Automation - description of pattern we're hunting in realtime; odds of our trading plan
Charts! - what trades we've done, we're in, and what might pop up during show
P&L Update - where we are today and how we are managing the trades

Several themes will be recurring in our episodes. These are the touchstones for the way we trade. It's not the only way to use the Trade Ideas tools (goodness knows there are better traders using our technology), but this is how we use "the scalpel" to heal and grow the patient (our P&L).

When trading try and let the P&L speak to you. Be less concerned about what will or might happen; just focus rather, on P&L in the now
So much time is spent on looking at charts not realizing that it is where YOU are in the trade (i.e., the plan/expectations you set before the trade) that is most important
This is what separates great, good, average, and bad traders: The ability to see the relativity of price action to your entry (i.e., what's your stock's wiggle?)
Trader as scientist. One of the most critical points as a trader: How does one know whether to keep doing what they are doing or change tactics (i.e., hypothesis and assumption testing)

Have a preference for what you'd like to see in an episode? Leave us a comment about format or topic you want to see covered.

Stay tuned.

Signposts: A Method of Market Forecasting Which Strategies to Employ

2009-10-26T15:02:00.001-07:00

3 Roadsigns popped up today from 3 different people whose opinion and calls on the market activity I respect.

These people aren't market timers - if anything they're probably early with their calls, but when I hear or read people I respect offering these types of market forecasts, I pay attention and start to pull up previous strategies I think might be appropriate - in this case Bearish.

Here's the evidence:

@steenbab 11:25 AM CT - Midday briefing shows significant selling pressure in the wake of USD strength: http://rurl.org/223v
about 6 hours ago from web

@AnnMaries2006 So many failed breakouts...sure sign of resolution to the downside for now $$
about 3 hours ago from Seesmic

@TradeIdeas1 http://chart.ly/2ang29 $SPX - One of the ways that helps me know which way I should be trading is illustrated in this picture
about 3 hours ago from Chart.ly

Signposts can come from anywhere. The reason for them is simple: to understand with more clarity what's coming ahead. Devise your system of signposts - of places that will deliver the information you'll use to understand the larger, dominant themes in the market, so you'll know whether your swimming upstream or with it.

Related Articles:

FEEL THE BOTTOM? SEE THE SIGNPOST

JUNKIN' NARROW RANGE BARS IN THIS MARKET

New Version of Trade-Ideas iPhone Application is Now Available through iTunes

2009-10-14T09:44:00.001-07:00

iTunes has just released the latest version of our iPhone application. This version fixed several of the previous bugs our users reported. We would really appreciate if our users who also had iPhones downloaded and rated the free application.

We want to add more functionality to this iPhone application. One thought is giving users the ability to monitor and interact with automated robot trades through the application. Another thought is having cool automatically updating top 10 lists. We also encourage users to give us ideas of what they would like to see in an iPhone app.

Thank You!

Like Gump But Without The Smarts: More SOES Stories & Trading Lessons

2009-10-13T09:47:00.000-07:00

I have the unfortunate luck of having been in some of the best, upwardly mobile stocks of all time, and not taking advantage of it.

There - I said it.

Like Forest Gump - wherever I live, the craziest bullish stock of all time happens in the same place.

Case 1: DELL

This stock was the best stock to buy and hold for 5 years straight in the 90s. I was living and trading in Austin and traded in and out of DELL countless times. I discussed the problematic nature of my DELL trading in previous blog posts. Suffice it to say I left about $15 million on the table with that one :-(

Case 2: QCOM

When I moved from Austin to San Diego in 1998, QCOM was in the mid forties. A year or so later: the cellphone boom. QCOM went from a regular stock to something just insanely bullish. I finally figure out that I should get long around $187 :-).

I bought 200 shares during a breakout and held on. QCOM went and went and went. I was still long my 200 shares at 440 dollars. This is where my DELL memory really played havoc on my finances. I remembered how I failed to buy and hold DELL and thought this time I finally did it right. I was up over 200 points on 200 shares and was ready for the split and continuation of the run up. This was going to be my million dollar stock...

QCOM pulled back, and then it pulled back some more. I held on tight and it continued to pullback. I finally sold my position at 192. The desire to be right and make money was so bad that it blinded me to any kind of money management rules which would have gotten me out much much sooner with a ton of profit. It was crazy how I just let all that money get away from me, but people do the same thing all the time. It is so difficult to catch yourself in the act.

Avoiding These Mistakes

Since then I have devised a couple of great ways to avoid these types of mistakes. One is a mantra of knowing that tomorrow is another day and anything can happen. Treat today like it is your last trading day, do the right thing. I don't focus on the future because I came to realize that it is impossible to predict. There are just to many variables out there that can impact a theory. The most important part is that the market does not have to make sense to you. I learned the very very hard way that a market can stay irrational much longer than you or I can stay solvent fighting it.

Another method of keeping yourself honest is to look at your open positions during the day and hiding the symbol column so you don't know which stock is doing what, you just know the P/L and act accordingly. This last exercise was one of the best I had ever come up with in helping to free myself from the bind of needing to be right. Give it a try and watch how your discipline takes over!

Photo credit: http://www.flickr.com/photos/hulk4598/3459718843/

Make the Market Work for You

2009-10-06T13:41:00.000-07:00

Counter Trend Trading: Inviting Your Ego to Trade

Today while trading and discussing trading on Stocktwits, I came across a very interesting article written by Dr. Brett Steenbarger. This article discusses the compulsion some traders have to counter trend trade. Traders who counter trend trade are sometimes called contrarians. The reason I wanted to blog about this article is that when I first started trading this was a mistake that I made often and it was costly.

I want to give a personal spin on what this is like as well as explain when being a contrarian can work to your advantage. Click here for the complete article.

I started trading in the early nineties, using the SOES and Select-Net systems to get in and out of Nasdaq stocks. It felt really good to be doing something that most people could not even remotely understand. It was an ego boost. Back then the high flyers were stocks like DELL, and CSCO, and INTC and my favorite INTCW. We would see the sellers stack up on level II and watch as momentum slowed and just when we thought the time was right we would hit bids, get short against our boxes and look to make a quarter or fifty cents on 1000 shares. It was awesome, especially if you were half way decent. But, as we worked the mechanical magic of trying to get short into the momentum and bid in a quarter later for our $250 dollars we were completely blind to the fact that these stocks were tearing the hell up. There was no sexiness to buying these stocks and holding them, yet at that time that was really all that you needed to do. Our super smart SOES system was state of the art and it made us money, but we lost countless millions in opportunity cost. I was living and trading in Austin, Texas at the time and there were many low level DELL employees driving Ferrari's around all because of their stock options. All the while, we the trading experts, just could not see it. We were blinded by our ego's, the speed, and how cool it all seemed at the time.

The Power of Right Now - Not I'm Right

As I got older I realized that being a good trader had nothing to do how fast I could punch keys, but rather it was about simply making as much money in the market that I was able to make and most of all making sure that I managed my exposure and risk in a way that would allow me to milk a trend but not put me out of the game should something not work out. It is not the stock or the market type I realized that makes you money, but it is how you manage a trade. Many traders and pundits attempt to guess what the market is going to do tomorrow, but nobody knows. You might guess right but you certainly will be wrong at some point. When you are counter trend trading as a habit, you are focusing on being right, you are not in the present, but rather in the future that has not happened.

There is a more scientific type of contrarian trading. This contrarian trading uses the power of statistical analysis as an edge. It is often called mean reversion and in our experience, is most effective when used with an automated trading system. This type of trading requires you to be in several positions at the same time and it is almost impossible to do it by hand. This is where technology really can help the trader. Our automated trading software and our OddsMaker analysis software combine to allow trader to take a quantitative spin on contrarian trading. We have several videos showing this type of trading in action on our YouTube page.

Kick the tires. Evaluate this approach. You'll be a calmer, data-driven trader who only plays the odds as a result.

The Market Sneezes, but Trade Ideas Never Catches a Cold: Data Variances

2009-10-09T09:27:00.000-07:00

Editor's Note: The following post is from our Chief Technical Officer, Philip Smolen. In it he points to a rather frequent occurrence of the data inconsistencies that plague the tape and which, if left unchecked or not addressed, can seriously affect real-time sensitive tools like Trade Ideas.

Fortunately for us and for those of you who are subscribers, our team at Trade Ideas works tirelessly and with great precision to engineer such errant data out of our systems - as they happen.

Here's a peek behind the kimono . . .

I was looking at a suspicious price. Our primary data feed had a questionable price. When I checked other data feeds, they disagreed with each other. Here are three free examples. Look at the price of the open.
http://www.google.com/finance?q=ntap

http://finance.yahoo.com/q?s=ntap
http://moneycentral.msn.com/detail/stock_quote?Symbol=ntap&getquote=Get+Quote

This, and variations on this, happen a lot. People don't always realize it. If they hurry, they can see this example for themselves.

We also have a video tutorial highlighting this issue.
http://www.trade-ideas.com/VideoHelp/Menu.html?video=Configuration%20Window%3A%20Bad%20Market%20Data.

A lot of people try to be very precise. At one price they buy, at a penny less they don't. Some people scour the charts, and get excited when we don't match exactly to what they were expecting. Here's the reality check. Here's one I just happened to run into. I'm sure if I spent the time I could find a lot more. If you deal with market data, you have to understand the limits.

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/yyyy|hh: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 on Your Kindle

2009-09-18T11:59:00.000-07:00

Trade-Ideas Mobile works on the Kindle.

Add a bookmark for http://mobile.trade-ideas.com. Make sure to turn on "Advanced Mode" in your Kindle browser to get the formatting right.

Of course, we're always pushing the limits. You can get streaming stock alerts on the Kindle. But Trade-Ideas works best if you request historical stock data for your strategy - a leisurely way to read and review the tape. Then you can scroll through the alerts one page at a time, just like an ebook. That will minimize the amount of flickering present in the real-time mode.

Trade-Ideas mobile gives you the same access to realtime stock market information on the Kindle as it does on the Blackberry and other mobile phones. But TI Mobile can take advantage of the Kindle's bigger screen.

If you were having trouble logging in, please try again. Our apologies. There's a bug in the Kindle's experimental web browser.

It doesn't handle cookies right. We have fixed Trade-Ideas Mobile to work around that bug. If any Amazon programmers are reading this, let us know, and we'll give you more details.

Steenbarger Inspired Strategy: Trade the Transitions

2009-09-08T19:10:00.000-07:00

Great strategies align themselves with vetted and observable themes in the market.

Strategy comes from taking a stand based on what you perceive are demonstrative behaviors in the recent market and then submitting that position to the market's cross examination - you'll come out smelling like a rose or its fertilizer. The nice thing with The OddsMaker backtesting tool, is that you'll know this without risking a penny of capital.

Don't know which behaviors to identify? What cause to fight for? Adopt someone else's opinion - preferably someone you may regard as a mentor or at least a trusted interpreter of the market's various and many signals.

I haven't had an original thought since I named our second daughter 2 years ago. So when I want some heavy theme action, I look to another doctor who's good at midwife-ing ideas through delivery and into the world: Brett Steenbarger.

Yesterday the good doctor produced a beauty.

Theme: "buying strength and selling weakness has led to consistent, short-term underperformance."

Strategy:
Trigger 1 occurs when stocks close above or below a defined distance from their moving averages. This captures relative strength or weakness.
Trigger 2 occurs when stocks lose upside or downside momentum after the first signal has occurred and after stocks have continued their move to new price highs or lows. This captures a loss of momentum to the upside or downside.
Trigger 3 is an execution signal [sic] that looks for buying that makes a lower high (if one is going short) or selling that makes a higher low (if one is going long).
Trading Plan:
The stop loss occurs when Trigger 3 is violated; i.e., stocks make a higher high after having seemed to have topped out.
The average holding period for the trades is 2-3 days.
Source: http://traderfeed.blogspot.com/2009/09/developing-trading-system-to-support.html

Ok. So here is the strategy I developed from the description above. Subscribers will see this in real time, everyone will see the delayed 20 minute data.

LONG The Transition Pattern Reverting Back Up

Type or copy/paste this shortened string directly into a browser then copy/paste the full length link into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window):

http://bit.ly/abNgY (case sensitive)

The strategy uses 3 alert triggers subject to 7 filters:

25% Pullbacks from Lows
Positive VWAP Divergence
10 minute Bullish Engulfing

Min Price = 5 (Dollars)
Min Daily Volume = 500,000 (shares/day)
Min Above Low = $0.10
Min Position in Previous Day's Range = 50% (Percentile)
Min Position in 5 Day Range = 40% (Percentile)
Max Position in 10 Day Range = 25% (Percentile)
Max Up from 20 Day SMA = -5 (Volatility Bars)

Click on the icons to see a definition of each of these indicators.

Tomorrow I will post the trading instructions I used to produce these results:

86 / 198 = 43.43% up $0.01 at close after 2 days; Average winner = $0.777, Average loser = $-0.3204, Net winnings = $31.90, Best = $3.17, Worst = $-2.89; Casino Factor = 99.86%
Daily summary:
8/14 : 0.7400/14
8/17 : 1.3300/3
8/18 : 3.6500/33
8/19 : 13.6800/33
8/20 : 7.5700/25
8/21 : 4.3200/13
8/24 : 0.7200/9
8/25 : 0.3100/7
8/26 : 2.7500/14
8/27 : 0.6800/7
8/28 : 2.0300/11
8/31 : 1.1100/7
9/01 : 2.6400/7
9/02 : 0.6900/5
9/03 : 5.0000/10

Understand these backtest results from The OddsMaker in more detail by reading the User’s Manual: http://www.trade-ideas.com/OddsMaker/Help.html

Trade-Ideas Yearbook Picture: Our 1st Homepage

2009-09-02T17:17:00.000-07:00

Some fun from the Twitter stream.

Always interesting Howard Lindzon posted this tonight,

howardlindzonhow 20 popular websites loooked like when they launched http://bit.ly/SsPi0 ...always be evolving...
Source: http://twitter.com/howardlindzon/status/3722169552

Very interesting to see great sites at their beginnings - it's like looking at yearbook pictures from those of us painfully transitioning through adolescence and puberty. I could go on . . .

But this picture is priceless and worth a 1000 words - mostly full of profanity.

We've come a long way, baby . . .

Fibonacci Long 1st 30 Minutes = 88% Odds in Your Favor: TASC Trader's Tip September

2009-08-24T08:30:00.000-07:00

Traders’ Tips: September Issue

"Now, you listen to me! I want it reopened right now. Get those brokers back in here! Turn those machines back on!" Mortimer Duke, Trading Places (1983)

This month’s Traders’ Tips concerns pivot points. While researching an appropriate strategy for this month, we discovered a stock trading strategy based, in part, on Fibonacci values. We liked the results as reported by our event-based backtesting tool, The OddsMaker, so much that it's the basis of this month's strategy and our proxy for pivot points.

This month’s strategy is a long strategy, but because it produced only 34 trades in the last 30 days, our recommendation is to also run the flip of this strategy with the same trading rules modeled in The OddsMaker. The 'Flip' feature is a button found in the Trade-Ideas PRO configuration window. The results of this flip strategy appear in Figure 4.

Description: “Fibonacci Long First 30 Minutes”

Provided by:
Trade Ideas (copyright © Trade Ideas LLC 2009). All rights reserved. For educational purposes only. Remember these are sketches meant to give an idea how to model a trading plan. Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for trading and investment results.

Type or copy/paste this shortened string directly into a browser then copy/paste the full length link into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window):

http://bit.ly/sjNIE (case sensitive)

You can build the strategy from Figure 1 below.

Figure 1 shows the configuration of this strategy:

Where 1 alert and 7 filters are used with the following settings:

Fibonacci 79% Buy Signal Alert
Max Price = 40 ($)
Min Spread = 50 (Pennies)
Max Spread = 200 (Pennies)
Min Daily Volume = 50,000 (Shares/Day)
Max Volume 5 Minute Candle = 150 (%)
Min Today's Range = 40 (%)
Max Distance from Inside Market Filter = 0.1 (%)

The definitions of these indicators appear here: http://www.trade-ideas.com/Help.html.

That’s the strategy, but what about the trading rules? How should the opportunities that the strategy finds be traded?

To recap briefly The OddsMaker doesn't just look at a basket of stocks, à priori, to generate backtest results. Rather it considers any stock that matched a desired pattern in the market, finds that stock, and applies the backtest's rule set before summing up the results into a detailed set of totals: win rate, average winner, average loser, net winnings, confidence factor, See Figure 3.

In summary this strategy trades the first 30 minutes of the market buying Fibonacci 79% signals. We evaluated several time frames, but were ultimately led to a hold time of just 15 minutes with a $0.40 stop and no pre-determined profit target.

Here is what The OddsMaker tested for the past 30 days ending 7/14/2009 given the following trade rules:

On each alert, buy (long) the symbol (price moves up to be a successful trade)
Schedule an exit for the stocks after 15 minutes
Trade only the first 30 minutes of the market session

The OddsMaker summary provides the evidence of how well this strategy and our trading rules did. The settings are shown here in Figure 2.

The results (last backtested for the 30 day period ending 07/14/2009) are as follows:

The summary reads as follows:

This strategy generated 34 trades of which 30 were profitable for a win rate of 88%. The average winning trade generated $0.45 in profit and the average loser lost $0.24. The net winnings of using this strategy for 30 trading days generated $12.48 points. If you normally trade in 100 share lots, this strategy would have generated $1248. The z-score or confidence factor that the next set of results will fall within this strategy’s average winner and loser is 100%.

As mentioned earlier you can also deploy the flipped version of this strategy to trade stocks in the opposite pattern. Here successful trading means selling short each opportunity. The backtest results of this approach appear in Figure 4 below.

Understand these backtest results from The OddsMaker in more detail by reading the User’s Manual: http://www.trade-ideas.com/OddsMaker/Help.html

-- by Jamie Hodge & David Aferiat, Managing Partners, Trade Ideas LLC

www.trade-ideas.com, david@trade-ideas.com

In Response to Trusting Market Moves: Why Relative Volume is Important

2009-08-19T08:25:00.000-07:00

Let's start with my comment first and then the excellent post this AM from the ever astute and keenly insightful Dr. Brett Steenbarger:

Glad to read your emphasis on the importance of 'Relative Volume' in determining how trustworthy market moves really are.

It's the bedrock of much of our analysis at Trade-Ideas as you know. We express the concept as a ratio, placing the current accumulated volume up to any given point in the day over the historical average volume of the same period. A reading such as 1.5 means therefore that a particular issue is 50% above its normal volume. A reading of 7 means its trading 7x more than usual; and so on for readings of 0.6, etc.

Full definition of Relative (aka Current) Volume.

Source:
http://traderfeed.blogspot.com/2009/08/trusting-market-moves-why-relative.html?showComment=1250691755319#c4900951752302019060

Here was Brett's original post:

http://traderfeed.blogspot.com/2009/08/trusting-market-moves-why-relative.html

A 1-hr Visit Can Improve Your Trading Plan

2009-08-03T13:21:00.000-07:00

The good folks at DTI and Tom Busby invite Trade-Ideas to present during their very popular Live TradeRoom sessions tomorrow, Tuesday, August 4 beginning at 9:15 AM EDT.

Here is the agenda for tomorrow. Note: I will be speaking at 12:00PM EDT.

9:30am - 12:00pm EDT
"Live Trading and Education: Futures First: Using the Indexes to Get the Trend"
DTI Team

12:00pm - 1:00pm EDT
Topic: Modeling IntraDay Breakouts
David Aferiat, Managing Partner, Trade Ideas LLC

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
I hope to see you there!

Related Articles:

Does Your Trading Plan Benefit from Continuing Education?

200 Day SMA Good Support for a Swing Trade: August TAS&C Traders' Tips

2009-07-23T05:50:00.000-07:00

Traders’ Tips

August Issue

"It's not being wrong that kills you, it's staying wrong that kills you." Jeff Macke, Trader

For this month’s Traders’ Tips, we offer a stock trading strategy based, in part, on the position of a stock near its 200 day Moving Average. Specifically this strategy discovers that in today’s market the 200 day SMA offers a good support price for a small swing trade. We asked our event-based backtesting tool, The OddsMaker, to evaluate a strategy that buys new multiday lows.

To recap briefly The OddsMaker doesn't just look at a basket of stocks, à priori, to generate backtest results, it considers any stock that matched a desired pattern in the market, finds that stock, and applies the backtest's rule set before summing up the results into a detailed set of totals: win rate, average winner, average loser, net winnings, confidence factor, See Figure 3.

This strategy owes it’s high percentage win rate, in part, to a decision to set the Days Up/Down in a Row filter to only show us stocks that are down 5 days in a row or more (Max Days Up = -5).

Description: “New Low Right Above the 200 Day SMA”

Provided by:

Trade Ideas (copyright © Trade Ideas LLC 2009). All rights reserved. For educational purposes only. Remember these are sketches meant to give an idea how to model a trading plan. Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for trading and investment results.

Type or copy/paste this shortened string directly into a browser then copy/paste the full length link into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window):

http://bit.ly/16eHIM (case sensitive)

Figure 1 below shows the configuration of this strategy:

Where 1 alert and 3 filters are used with the following settings:

· New Low Alert

· Max Up Days = -5 (Days)

· Min Up from 200 Day SMA Filter = 0.01 (%)

· Max Distance from Inside Market Filter = 1.0 (%)

The definitions of these indicators appear here: http://www.trade-ideas.com/Help.html.

That’s the strategy, but what about the trading rules? How should the opportunities that the strategy finds be traded?

In summary these are stocks that are being sold off aggressively right into the 200 day SMA. We evaluated several time frames, but were ultimately led to selling at the open after two days. Note that we did not check the box for setting a profit target or stop loss. The OddsMaker results provide good guidelines, however, using the average winning and average losing trade.

Here is what The OddsMaker tested for the past 30 days ending 6/09/2009 given the following trade rules:

On each alert, buy (long) the symbol (price moves up to be a successful trade)
Schedule an exit for the stocks at the open after 2 days
Trade any time during the market session

The OddsMaker summary provides the evidence of how well this strategy and our trading rules did. The settings are shown here in Figure 2.

The results (last backtested for the 30 day period ending 06/09/2009) are as follows:

The summary reads as follows: This strategy generated 49 trades of which 36 were profitable for a win rate of 73%. The average winning trade generated $0.74 in profit and the average loser lost $0.25. The net winnings of using this strategy for 30 trading days generated $23.22 points. If you normally trade in 100 share lots, this strategy would have generated $2322. The z-score or confidence factor that the next set of results will fall within this strategy’s average winner and loser is 100%.

Understand these backtest results from The OddsMaker in more detail by reading the User’s Manual: http://www.trade-ideas.com/OddsMaker/Help.html

-- by Dan Mirkin & David Aferiat, Managing Partners, Trade Ideas LLC

www.trade-ideas.com, david@trade-ideas.com

Like "Kobe Doin' Work", To Get Great You Gotta Watch the Tape

2009-07-13T04:47:00.000-07:00

Here's one in an occasional series of posts highlighting the growing number of our partners who's adding value to the trading community. Today we highlight an educational service that leverages the use of realtime video to provide insight on the decisions of an experienced trader reacting to the market's opportunities.

TodayTrader

The educational service is run by two professional traders known to us at Trade Ideas for over 10 years: Steve Gomez and Andy Lindloff. Both can show trading scars since the mid 90s and continue to profit from the experience in any market. That kind of longevity by itself is a testament to their skills. But great traders are not always good educators. Additionally as in sports a player and his/her coaches must appreciate each other's style and method for playing the game. Fortuntately TodayTrader's unique spin on a trading service means you know upfront whether or not this method is for you.

The Method

Traders watch via video as Steve and Andy trade during the day. It's like the process in medical school regarding procedures: see one, do one, teach one.

In my own experience starting out, it was critical to be in a trading group where people made money so that you could watch and see what was working. Learning through imitation. Today good trading floors are hard to find especially if you are not in a big city. That is where TodayTrader really helps the novice. You can log in and watch what Andy and Steve are doing in real-time day to day and learn from their mistakes as well as from their success.

Steve and Andy both use Trade Ideas to help them isolate good trading opportunities. This video channel on YouTube showcases how Steve trades opportunity and uses Trade Ideas to find them.

Watch the video, get familiar with Steve and Andy, and determine if their's is a method of learning from which you can benefit.

Trailing Resistance & Support Stops: TAS&C July Traders' Tips

2009-06-27T17:21:00.000-07:00

Traders’ Tips

July Issue of Technical Analysis of Stocks & Commodities

“Eventually, luck runs out; skill does not.” Scalper68 (AlexD)

In this month’s Traders’ Tips, Sylvain Vervoort offers a 3rd trailing stop method, called a trailing resistance & support stop, which evaluates price movements or ‘turning points’. This 3rd trailing stop method most closely resembles the Trade-Ideas concept of automating the creation of a custom trailing stop based on a stock’s natural 15 minute volatility. Therefore our strategy this month, retains all of the settings from last month and an updated set of backtested results. Only a few additional filters are applied to make sure the strategy trades with good volume. Subscribers to Trade-Ideas PRO who use our event-based backtesting tool, The OddsMaker, already understand the different premise these tools use to find high probability winning trades.

To recap briefly The OddsMaker doesn't just look at 25 stocks, à priori, to generate backtest results, it considers any stock that matched a desired pattern in the market, finds that stock, and applies the backtest's rule set before summing up the results into a detailed set of totals: win rate, average winner, average loser, net winnings, confidence factor, See Figure 3.

Description: “Modified ATR Volatility Stop Part 2”

Provided by:
Trade Ideas (copyright © Trade Ideas LLC 2009). All rights reserved. For educational purposes only. Remember these are sketches meant to give an idea how to model a trading plan. Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for trading and investment results.

Type or copy/paste this shortened string directly into a browser then copy/paste the full length link into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window):

http://bit.ly/19DiKt (case sensitive)

You can also build the strategy from Figure 1 below.

Trade-Ideas approached the Average True Range stop loss using a modified ATR, called ‘Trailing stop, volatility down’, based on the average 15 minute volatility of a stock. The modified ATR is similar to ‘The Wiggle’ we discussed in last month’s article.

Entry signals were created that went short any time a stock between 5 dollars and 50 dollars moved up 75 cents or more in 1 minute or less.

Figure 1 below shows the configuration of this strategy:

Where 1 alert and 4 filters are used with the following settings:

• Running Up Now (in 1 minute or less), $0.75

• Min Price Filter = 5 ($)

• Max Price Filter = 50 ($)

• Max Distance from Inside Market Filter = 0.15 (%)

• Min Daily Volume Filter = 300,000 (shares/day)

The definitions of these indicators appear here: http://www.trade-ideas.com/Help.html.

That’s the strategy, but what about the trading rules? How should the opportunities that the strategy finds be traded? For the stop loss we used one of the more advanced options available in the OddsMaker. Instead of using a traditional stop loss we selected ‘Another Alert’ as the exit condition called ‘Trailing stop, volatility down’. This alert is triggered when a stock moves down an amount equal to the average 15 minute volatility multiplied by the number of 15 minute bars we decide – in this case 2. For example if the average 15 minute volatility is 10 cents, this alert would not trigger until a stock moves down at least 20 cents.

Here is what The OddsMaker tested for the past 3 weeks ending 5/08/2009 given the following trade rules:

• On each alert, sell short the symbol (price moves down to be a successful trade)

• Schedule an exit for the stocks 30 minutes after entry

• Start trading from the open and stop trading 30 minutes later

• Set a stop using the alert, ‘Trailing stop, volatility down’, with a setting of 2 bars

The OddsMaker summary provides the evidence of how well this strategy and our trading rules did. The settings are shown here in Figure 2.

The results (last backtested for the 3-week period ending 05/08/2009) are as follows:

The summary reads as follows: This strategy generated 228 trades of which 137 were profitable for a win rate of 60%. The average winning trade generated $0.24 in profit and the average loser lost $0.14. The net winnings of using this strategy for 15 trading days generated $21.70 points. If you normally trade in 100 share lots, this strategy would have generated $2170. The z-score or confidence factor that the next set of results will fall within this strategy’s average winner and loser is 99%.

Understand these backtest results from The OddsMaker in more detail by reading the User’s Manual: http://www.trade-ideas.com/OddsMaker/Help.html

-- by Dan Mirkin & David Aferiat, Managing Partners, Trade Ideas LLC

www.trade-ideas.com, david@trade-ideas.com

Other Traders' Tips Articles from TAS&C

http://marketmovers.blogspot.com/search/label/TASC

Improve Your Trading Plan with a 1-Hour Visit

2009-07-06T12:04:00.000-07:00

So the good folks at DTI and Tom Busby invite Trade-Ideas to present during their very popular Live TradeRoom sessions tomorrow, Tuesday, July 7 beginning at 8:15 AM CST.

Note: I will be speaking at 12:00PM 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, 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: Chicago

2009-06-30T17:57:00.000-07:00

Headed to Chicago for the rest of the week and weekend to meet several hedge funds and pal around with a long time group of subscribers/traders.

We're actually meeting at Rivers after the close on Wednesday to hoist a few as part of a impromptu Tweet Up. Hopefully I've got enough T-shirts. http://bit.ly/dhFhO

I'll be looking forward to my meeting with the folks at RealTick and stealing soap from the executive bathroom - a Barclays upgrade I hear.

Chicago is such a great place - and it's 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.

Show Your Colors, Take Some Credit

2009-06-24T05:04:00.000-07:00

With the recent website redesign comes a roll of new banners that hopefully convey the value we bring to the trade decision process. If you agree and one of these banners resonates with you, feel free to place them on your blog or social media outlet. They come in several shapes and forms.

Anyone who agrees to replace their old Trade-Ideas banners (which we haven't discontinued) and/or picks one to use on their site, will receive 200 credits towards the use of The OddsMaker (i.e., 200 x times to hit the 'Backtest' button and see results). If you're not a Trade-Ideas PRO subscriber who can take advantage of this offer:

you should be, but
let me know and we'll send you a t-shirt instead.

Check out the list of what's available here and thank you in advance for your support!

http://www.trade-ideas.com/Banners.html

Just one of the many in the stable:

If you would like information on becoming a more involved affiliate, please email me for the details at david@trade-ideas.com.

Data Traders Who Swing: Rejoice With Longer Term Filters

2009-06-23T12:15:00.000-07:00

Trade Ideas Releases Start of New Filters Aimed at Longer Term Patterns & Trades

We added several new filters aimed at longer term data traders.

As of today you can now:

Filter stocks based on the size of a multi-day range (5, 10, 20 day range)
Filter the stock's position in that multi-day range (5, 10, 20 day range)
Filter the size of the stock's multi-day move (5, 10, 20 day range)

5 Day Range

10 Day Range
20 Day Range

Position in 5 Day Range

Position in 10 Day Range
Position in 20 Day Range

Up in 5 Days

Up in 10 Days
Up in 20 Days

Strategy Example

Here's an example strategy that puts these filters to work. This strategy shorts stocks up a certain amount over the last 5 days.

Short 5 Day Range
Provided by: Trade Ideas (copyright © Trade Ideas LLC 2009). All rights reserved. For educational purposes only. Remember these are sketches meant to give an idea how to model a trading plan. Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for trading and investment results. This strategy's results not backtested.

Thanks to everyone who helped us beta test these filters before their release. Please provide any feedback in the comments. Good luck!

Mailbag: Bot Trading Manages Risk at the Open

2009-06-12T08:28:00.000-07:00

The Open and its frenzied activity can reward as well as punish traders. The difference between these two groups comes down to experience certainly, but also the insight and quick decisions that new tools (especially automation) can bring to bear.

From the Mailbag (Support Forum) came a question about such topics that I want to answer here. First the question then our response:

Mean Reversion and poor fills:

I'm using a mean reversion strategy that looks for stocks with spreads >9c. I have been automatically placing limit orders at bid+1c at the open, and have been getting killed by adverse selection.

If the stock moves up, I only get 1/10 of my order, and if the stock moves down, I get the entire order. I did learn that I'm making my time the order is in force too long (2 min) - losers move down in that time span, and will automatically fill my limit order.

So if I tighten the TIF (Time in Force) to 10 seconds, I probably won't get filled on as many losers.

But there's still a big problem here:
Set limit at bid - only fills on losers
Set limit at ask, or market order - Lose 9-19c per trade (1-4% on stocks from 6-9 dollars!)
So if there's a stock with a large spread, how do you trade it profitably?

Our Director of Trader Education, Jamie Hodge (jhodge@trade-ideas.com) responds:

For as long as I can remember, either myself, or other traders I know have engaged in mean reversion off of the open.

Whether it be manual, or robotic, one rule has always held true, the larger the spread, the larger the reward, the greater the risk. There aren’t many trading rules that have stood the test of time in light of recent market activity, but this one has.

As a manual scalper of yester year, I would run from large spread stocks as well as thinly traded issues. Today, with the assistance of robotic execution, I welcome the big and the thin.

Here is a snapshot of one of my strategies that I launch on the open every morning:

For this strategy the minimum spread is set to .40 and the maximum spread is $2.

[Editor's Note: this strategy runs from the open until 388 minutes before the close; each position entered into lasts only for 15 minutes or a stop loss - whichever comes first; Understand these backtest results from The OddsMaker in more detail by reading the User’s Manual: http://www.trade-ideas.com/OddsMaker/Help.html]

Fill rates can average anywhere from 10 to 30% depending on opening conditions, mkt gap, etc.

So, looking at the daily summary, on May 11th, 12 signals were generated off of the open, so I more than likely was filled on 7 or 8 of the 35 possible trades.

From a statistical viewpoint, it doesn’t matter which orders get filled, they all have the same probability of working out.

The same strategy may also be flipped and run for shorts with favorable back test as well. Typically I’m bidding or offering a nickel inside, that’s where you want to get hit on a large spread stock.

I hope this helps.

Automated Trade Ideas in Your Hand: You Set Our Course

2009-06-10T08:00:00.000-07:00

Trade-Ideas on your smartphone: iPhone or Palm Pre or Blackberry

Who wants to trade on such a confined space? On the go . . . making so many decisions with so many distractions?

Trading actively and manually doesn't seem to make much sense. But supervising fully automated trades with automated risk management controls (what we call 'gray-box' trading) does make sense.

We are looking into the possibility of creating a Trade Ideas application for the iPhone and or the Palm Pre. We hesitated at first as we did not see exactly how it would work - and in many ways, it doesn't. But then we thought about automation. Many traders who use our Automated Trading Robot like to track what is going on without sitting at the computer.

No - not the golf course (not necessarily) (and BTW what a cliche!)

Let's start with just the bathrooom, or at the lunch table, or the skilled barista who knows you by name.

Supervising Bot Trading on the smartphone would include the following capabilities:

Alerts when P/L reaches a critical point in either direction.
1-click ability to adjust positions (e.g., 1/2 a position, 2x a position) or slightly modify existing rules from the phone.
Halt trading, automation, and/or completely exit position(s).

So now we're looking at the various development kits. Any suggestions or comments from our customers and blog readers are welcome. Is there something (i.e., feature, capability, platform, etc.) that we overlooked?

This Strategy's Winners Are 5x Greater Than Its Losers - Explanation:

2009-06-09T17:19:00.001-07:00

I gave a solid presentation to traders online in a DTI chat room this afternoon.

DTI offers educational services across all instruments but specialize in equities, commodities, and futures. They are lead by the talented Tom Busby and Jeanette Sims.

The format I used involved soliciting requests for favorite chart patterns ahead of my talk so that I could take such examples and model them during my presentation - very off the cuff and impromptu strategy configuration. Most of the time this usually generates sub-par strategies as measured by our backtesting tool, The OddsMaker - not today. Thanks to the group we stumbled onto unusually profitable strategies that I share with you now.

Here was the chart pattern request:

"buying above price consolidation/selling below -
more powerful off daily time frames"

It produced this strategy that caught $DIN in the mid-morning (a beautiful chart):

"LONG - Above the 20Day MA Just Above 3Day Consolidation"

1 Alert:

11 Filters:

and these backtest results from The OddsMaker:

The trade plan modeled for this strategy consisted of trading from the open until 3 hours before the close and holding each symbol generated from the strategy until the open 2 days later. A stop loss of $0.30 was consistently used.

The results?

The average winner was 5x the size of the average winner (even though the win rate was 1 out of every 4 alerts). That's still a good strategy: when I lose, I lose only $0.30, but when I win, I win $1.50. Hand it over.

Note that the daily summary of results which show the date, the day's P&L total, and the number of trades that day, reveals how the market rewards this strategy more recently than during the first days of the strategy. Viewed as a histogram I might consider being more aggressive with this strategy i.e., with profit targets and number of trades I take from the strategy.

I'll be keeping an eye on this strategy and may tweet some example alerts. Stay tuned and follow me @TradeIdeas.

		5 Day Range
		5 Day Range
		10 Day Range
		10 Day Range
		20 Day Range
		20 Day Range

		Position in 5 Day Range
		Position in 10 Day Range
		Position in 20 Day Range

		Up in 5 Days
		Up in 5 Days
		Up in 10 Days
		Up in 10 Days
		Up in 20 Days
		Up in 20 Days