Wednesday, May 26, 2010

Derek Jeter and Successful Trading

Derek Jeter, of the New York Yankees, does a commercial for Ford. In it he says that you need an edge in order to get ahead in life. Well, I don’t think I need a Ford Edge, but it does bring to mind that I need a trading edge. Without a trading edge one can never succeed.

An edge is not only the win-loss percentage of a system, but its expectation. Successful trading requires positive expectancy. That is where the edge lies--and how you can get ahead in life.

Tuesday, May 25, 2010

World in turmoil and the Flight to "Quality"

With uncertainty rising, and confidence falling around the world, we see world markets in currencies, stocks, gold, and bonds in chaos. Increased tensions in Korea, financial reform bills pending in Congress, environmental disaster in the Gulf, and the European debt situation turning worse by the minute, has led to higher volatility and increased uncertainty in all types of markets.

When uncertainty rises this usually leads to the "flight to quality" syndrome seen in 10 year U.S, notes. The rally in the notes has been impressive, but it is all a question of perceptions and confidence. The U.S. is still viewed positively in the markets. This is ironic, given that the U.S. financial position is no better than many bass-ackwards countries in Europe. Investors still perceive U.S. government debt as "safe." I have my doubts. My concern is what happens when and if world perceptions and confidence change about the U.S. financial position and its securities.

Monday, May 24, 2010

Nouriel Roubini's New Book

Mr. Nouriel Roubini is a professor and economist from my grad school alma mater, Stern-NYU, who is fondly known as Dr. Doom. You probably have heard of him by now, given that he is regularly quoted and interviewed by all the major news organizations.

Mr. Roubini has just published a new book with Mr. Stephen Mihm, “Crisis Economics – A Crash Course in the Future of Finance.” This is what economists do when they become famous; they hurry up and publish a book, while their popularity stock is rising.

I have not yet read the book, but I have read a quote from it that I would like to share with you regarding the financial crisis,

“the crisis was less a function of subprime mortgages than of a subprime financial system. Thanks to everything from warped compensation structures to corrupt ratings agencies, the global financial system rotted from the inside out. The financial crisis merely ripped the sleek and shiny skin off what had become, over the years, a gangrenous mess.”

The only thing I would like to add is that it still is still a mess--and even more rotten than when this was written…

Saturday, May 22, 2010

Wednesday, May 19, 2010

SP500 Emini Trading - Why Understanding Time Can Make You Money Daytrading

As traders we analyze price action, but we tend to forget how important time is to our overall trading success. This article will discuss some perspectives of time which can be used to trade successfully.

The saying “patience is a virtue” is very true in regards to trading. Time is closely related to patience, and patience is essential to successful trading. Patience is required for entries, exits, length of time in a trade, and for allowing trading opportunities to unfold.

The time frame a trader chooses is also important. This will reflect the personality of the trader. Traders who need a lot of action will usually trade lower time frames. Those who trade less, usually move up the time scale. In general, the lower the time frame, the more trading; the higher the time frame, the less trading.

Traders can use multiple time frames to set-up a trade. Trade setups that involve two, or even three, time frames can be useful. I prefer two time frames because I think it keeps things simpler and a little less complicated. Better trading decisions can be made by analyzing the market with multiple time frame perspectives.

Time frames also contain a mix of information and noise. The lower the time frame, the more noise that exists in the data. Trying to separate the noise from the actual information, or the signals that the market is sending, is another key to trading successfully. My own opinion is that it is easier to analyze the market on higher time frames, because there is less noise in market prices. Once I have a directional understanding from a higher time frame perspective, I use a lower time frame for my actual entries and exits.

Time is also useful to consider as a stop. I use both a price and a time stop. Most traders use a price stop, but I wonder how many actually use a time stop? If a trade does not work out within a certain amount of time, I get out of it--no questions asked. Why? Because as traders we need to minimize risks. When we are in a trade we are exposed to market risk. The less time we spend in the trade, the less risk we are taking.

In addition, winning trades generally work out right away and within a certain period of time. In general, the longer a trade takes to reach its objective, the less the chance of a winner. This is my general opinion; others may disagree. My suggestion to you is to analyze your winning and losing trades. Time stamp your entries and exits and go back and look at how much time you were in your winning trades compared to the amount of time in the losers? You may be surprised by what you discover.

Time and hope are also closely related. Many traders when they are in a losing trade begin to “hope.” By analyzing your trading statistics you may notice how much hope you had as your loss was growing. Get rid of the ego and hope, and get out of the trade if it is not working out within a certain amount of time. It is as simple as that if you want to have a chance at trading successfully.

The last concept I would like to discuss is the frequency of trades within negative time periods. All system traders rely on their trading strategies and trading models. All system traders also have drawdown periods. Traders who trade frequently, though, can incur many losses in a very short amount of time; especially if they are trading during market conditions that are unfavorable to their style or strategy of trading.

I too have drawdowns. These can last a long time and are painful. But I also avoid many losses that can occur when the market is not favoring my style of trading by trading infrequently and letting time pass. Markets are ever-changing and have cyclical qualities. As I allow time to pass, I know the market’s condition will change, and once again become more favorable to my bottom line.

I hope this article helped you better understand how time is closely related to trading successfully and if you have any questions please feel free to contact me.

Tuesday, May 18, 2010


The ancient Greeks used the term hubris to describe the quality or aspect of someone who challenged the gods and their laws. Hubris would lead to the downfall of the person or persons and it usually occurred in Greek tragic plays.

Well, nowadays, a modern tragedy is taking place. I am not sure which side to favor, or which argument is more or less correct, but I do know that quotes like these…

“Doing God’s work.”

Mr. Lloyd Blankfein, of Goldman Sachs

“Well, what if we created a thing, which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?"

Mr. Fabrice Tourre, of Goldman Sachs

…are the stuff of hubris. Is the downfall of these gentlemen next?

Monday, May 17, 2010


I cannot understand the rating agency game. Standard and Poor’s and Moody’s executives and analysts need to be questioned, just as much as the people in the investment banks. Although these firms supposedly provide independent opinions, they are anything but independent. These are dependent opinions. The rating agencies depend on the income that the investment banks provide to them for their blessed ratings. The term “junk” not only refer to bonds, but to the opinions that these firms provide.

For example, in the past few weeks I have read that more than 93% of the sub-prime bonds rated AAA in 2006 are now junk. More than 75% of the securities in the Goldman Abacus fiasco were also given AAA ratings. Greek bonds, and bonds of other European countries, are downgraded when the crisis occurs-- not before the problems arise. What is truly scary is that these are just a few examples. Imagine the bigger picture...

These agencies are supposed to provide independent opinions on the securities they evaluate. The problem is that they are paid by the parties who create these securities. This creates a conflict of interest. Solving this conflict of interest problem would help create a better system. The problem, however, is that there are no good solutions at the present time. Meanwhile, investors in securities rated by these agencies should heed the rule, CAVEAT EMPTOR.

Thursday, May 13, 2010


Frederic Bastiat believed in looking at the big picture. Bastiat was a French economist in the middle 1800’s who promoted the idea that the role of government is to defend life, liberty, and property. He is also considered to be one of the forerunners to the Austrian school of thought. All decision-makers, economists, and government policy makers would be well-served to consider some of his ideas right now, or perhaps it is already too late.

I have become more and more skeptical and much more cynical in regards to recent economic decisions. The policies that are being adopted, and the decisions that have been made here and in Europe, will affect us forever. Have policy makers really considered the big picture? Are they looking at the long run effects of their decisions? And whom they are affecting and in what way?

Bastiat also believed that there are the seen and unseen effects of decisions;

"In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause - it is seen. The others unfold in succession - they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference - the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil."

-That Which is Seen, and That Which is Not Seen, the Introduction

This quote makes me shiver. What do you think?

Wednesday, May 12, 2010


In the beginning of April I discussed the VIX and MOVE indices and the complacency that was evident in both the US stock and bond markets. Read my earlier post. Since then, the Greek debt crisis unfolded into a confidence crisis in other Eurozone countries, and led to the May 6 crash of the US stock market. The situation has been temporarily calmed with the announcement to throw more money at the situation. The Europeans have decided to do what the Americans have already done. Handling debt problems by borrowing more is not only ironic, but moronic. In my opinion the piper is waiting to get paid.

Monday, May 10, 2010


This past week has been a wild one. Taleb's Black Swan event on Thursday, May 6, 2010 was fascinating for students of market history. What a fiasco! I was looking at a one minute and hourly chart of the S&P 500 emini market. On a minute basis, the 2:42 pm est. bar opened at 1114. In the next four minutes it dropped 58 points, or -5.21%. On an hourly basis, the 2;00 pm est bar opened at 1142.25 and reached the low of 1056 for an 86.25 point loss, or -7.55%. Put those moves in the record books.

Now everyone is trying to figure out what occurred. There are reports of fat fingers, blaming of high frequency trading strategies, electronic trading glitches, fault with the exchanges, and strange individual stock behavior. Let me also point out that the blue line you see on the charts was the S&P 500 Cash opening price for the year, 1116.56.

Sunday, May 9, 2010


Free trials to our emini daytrading systems will help you understand how we do business before investing in US and our programs. We are very different from other online trading firms and we would like the opportunity to show you why.

First, we offer automated buy and sell signals in the SP500 emini market (ES contract on the CME) with three historically backtested and proven intraday trading models. The historical data begins in 1998. Each trading day that passes adds to our historical study.
Our models are highly accurate, with very high win rates, and they generate positive expectancy.

We also take the guesswork out of position sizing for the next trade by providing you with a disciplined money management system. Our money management program will optimize the number of contracts you should be trading on the next trade according to the risk level you have selected. In general, the program will help you maximize profits, minimize losses, and manage drawdowns.

Our general philosophy is to minimize all our risks as best as we can. We put a big emphasis on controlling risk. Some of the ways we do this are by using a money management system, using price and time stops and disciplined entries and exits, trading infrequently, and not holding overnight positions.

For institutional trading firms we also offer the ability to program into our systems through our web service. In addition, we can black box our trading systems for your futures trading customers.

Our trading methodology is not a get rich quick scheme. We are very patient daytraders that follow a disciplined and quantitative trading system. We trade very infrequently, approximately 35-45 times a year.

We also realize there is more to life than trading. We have purposely designed our systems with living a higher quality of life. Some of the ways that we achieve a higher a quality of life are by:

1. Not trading frequently,

2. Not trading in August and December,

3. Knowing if we have the possibility of trades from the day before. If there is nothing for tomorrow than the day is yours.

4. When we do trade it is not for the whole day. A majority of our trading takes place in the morning and is completed by midday.

We invite you to a FREE TRIAL. You will get access to all our programs and services, in addition to receiving five real-time trading signals. You will also have access to our brokerage confirmations which back up everything we say. We invite you to take a test drive today.

Saturday, May 8, 2010

May 6, 2010

What a day and week !!


Friday, May 7, 2010


Yesterday's price action was "ridiculous," it reminded me of 1987 when I had my first job out of college and watched our portfolios melt in value...anyway here's a joke...

Two boys are playing hockey on a pond in a Chicago park when one of the boys is suddenly attacked by a crazed Rottweiler. Thinking quickly, the other boy takes his hockey stick, shoves it under the dog's collar, twists it and breaks the dog's neck, saving his friend.

A reporter is standing by, sees the incident, and rushes over to interview the boy.
"Young Cub Fan Saves Friend From Vicious Animal", he starts writing in his notebook.
"But I'm not a Cubs Fan," the little boy replies.

"Sorry but since we're in Chicago, I just assumed you were," says the reporter and starts writing again.
"Sox Fan Rescues Friend From Horrific Attack", he writes in his notebook.
"But I'm not a Sox Fan either," the little boy replies.

"Sorry but since we're in Chicago, I just assumed you were," says the reporter and starts writing again.
"Bears Fan Rescues Friend From Horrific Attack", he writes in his notebook.
"I'm not a Bears Fan either," says the boy.

"Oh...... I assumed everyone in Chicago was either for the Cubs, Sox or Bears. What team do you root for?" the reporter asked.
"I'm a Packers fan." the boy replies.

The reporter starts a new sheet in his notebook and writes: "Little Bastard From Wisconsin Kills Beloved Family Pet..."

Tuesday, May 4, 2010

14 ways to reduce daytrading stress

Do you stress too much when you day trade? Here are 14 ways you can relieve and lower the stress that occurs while day trading. They are in no particular order of importance.

1. Reduce the number of trades you make in a day. Are you overtrading? Studies have shown that more trading does not necessarily lead to more profits. It usually leads to more risk and losses. More risk is equal to more stress.

2. Trade on a higher time frame. There is noise in market prices. The lower the time frame, the more noise that exists. Noise to me is similar to uncertainty. More uncertainty leads to more stress. Perhaps you should consider trading on a higher time frame where there is less noise in prices; less noise, less uncertainty, less stress.

3. Use stop loss orders and limit orders. One mistake traders make is that they do not minimize their losses. By using stop loss orders and limit orders you will reduce the stress that comes from taking large losses and making real-time trading decisions.

4. Have predetermined exit points, and ACT on them. Not only should a trader know what the profit objective is BEFORE the trade is placed, they need to ACT on it when prices get there.

5. Have predetermined entry points, and ACT on them. Not only should a trader know what the entry price is BEFORE the trade is placed, they need to ACT on it when prices get there.

6. Are you a discretionary trader or a systems trader? My opinion is that discretionary traders have to handle more stress in trading markets. This is because they have to make a decision. Making decisions in real-time trading creates a certain amount of stress. Systems traders, however, usually do not have to make a decision about entry or exit. It has already been programmed into the system.

7. Your position size on the next trade will also create stress. How do you make the decision on what size to trade? Understanding volatility, and having a way to quantify it, will allow you to adjust position sizes accordingly. For example, if the market’s volatility has increased, it may be reasonable to decrease position sizes, and vice versa.

8. Do not trade news releases. I trade the SP500 emini market. This market is considered more volatile relative to other markets. Nonetheless, when news items are released, the market will react. You may think the market will react in a certain way, and you may be right, but the problem is that the market can overreact to news. This can lead to losses because your stops will be hit; just before you are right. It is very difficult and stressful to trade news.

9. How many markets do you trade? Perhaps you are trading too many markets and creating unnecessary stress. Sometimes it is better to specialize than generalize. Reducing the number of markets you are trading will certainly reduce the amount of stress you are experiencing. Perhaps an analysis of your trades will reveal that you are more profitable in one market than another. Use the information to reduce your stress.

10. Similar to how many markets you trade is how many securities do you trade? Are you watching too many stocks? Do you have too many positions on at once? Reconsider these ideas.

11. Do you have a disciplined money management plan or money management system that you are using? If not, how are you determining position sizes? Perhaps using a disciplined money management system will decrease the stress that comes from position size uncertainty.

12. Have you done your homework? Are you trading a proven and historically backtested system? If so, then it is easier to trade the probabilities, and easier to handle losses when they occur.

13. Eat well, sleep well, and exercise. Stress comes from a variety of sources and can be reduced by eating well, sleeping well, and exercising. Perhaps meditating can be helpful.

14. Take a deep look at yourself and realize if you have any dependencies or problems. Drugs and alcohol can affect your stress levels. Perhaps you have some internal situations, or areas of your life that need attention. These need to be worked out. Seek help if you need it.

Thanks for reading this. I hope it helps. Feel free to contact me.

Monday, May 3, 2010

Some tips on building winning trading models and trading systems, part 3

This is the third article in a series on how to build profitable and winning trading models and trading systems. The topics to be discussed include: drawdowns, the number of models used, correlations, hedging, and money management.

Let us begin with the negative and inevitable; drawdowns. In my opinion, no system trader uses models that do not experience drawdowns. All trading models have drawdowns. Nonetheless, what is important to consider is the length and depth of the drawdowns, in relation to the type of trading model they occur in. For example, models that trade very frequently may have a larger number of occurrences of drawdowns, than models that trade less frequently. One should also have a good understanding of how long drawdown periods last. Answering the following questions when building trading models will help you understand the risks that exist. What was the longest drawdown? The shortest drawdown? How deep did it go? How long does it take to come out of a drawdown?

My best advice in regards to understanding drawdowns is to completely analyze each and every drawdown period that has occurred in your system. It is also very important to understand what the underlying conditions of the market were when the drawdowns occurred. In this regard, I like to look at the drawdowns in relation to a mix of direction and volatility of the market. For example, try to understand if your drawdowns occurred in bearish, volatile markets, or bullish, quiet markets, etc.

The next topic I would like to address is the trading system. When we say trading system we may define it as only one trading model, or the system can be comprised of a number of different trading models. What is important with trading systems is to analyze the combined effects of adding more trading models to the overall system. It is not necessarily true that adding another profitable model will make you more money. The risks, drawdowns, gains, and losses have to be analyzed of all the models together. This can become very complicated if one keeps adding more and more models to trade. I believe there is an optimal point and number of models to trade, and once a trader crosses that point, the utility of adding another model can drop off significantly.

Adding more trading models to your system can, however, be of value from the perspective of understanding and minimizing overall risk. This is where correlation and hedging need to be considered. For example, if a trader is using two trading models, it is very important to understand how the returns from those models are correlated. Not only is the general correlation important, but the correlation in relation to the general underlying conditions of the market. For example, how do the correlations of your models’ returns change in relation to a bullish, volatile market or a bearish, less volatile market? Understanding these kinds of risks can be useful.

Adding more models to your trading system can also be useful in terms of hedging your returns. Hedging, in general, is a two edged sword. Hedging can help minimize losses, but it can also reduce gains. Nonetheless, by trading multiple models, one can hedge themselves if one model is performing poorly, assuming the other models are performing well.
I saved the best, and most important topic for last; money management. I figure if the reader does not remember anything I wrote above, then maybe he or she will remember the last point I make. No matter how good your trading models or trading systems are, you will never succeed in trading if you have poor money management. A good trading system must include a disciplined, money management system. Disciplined money management is even more important than the trading models you are using.

Good luck in your endeavors, and if you have any questions please feel free to contact me. Thanks for taking the time to read my article.



GLW Corning Inc
AMD Advanced Micro Devices
ADBE Adobe Systems Inc
NVDA Nvidia Corp
ADP Automatic Data Processing
HPQ Hewlett-Packard Co
JBL Jabil Circuit Inc
CSC Computer Sciences
MA Mastercard Inc A
MU Micron Technology Inc
TDC Teradata Corp

Sunday, May 2, 2010

Warren Buffett

Mr. Buffet's interview....

is Berkshire's stock a leading economic indicator?

Goldman Sachs - Blankfein Rose interview

Here's Mr. Blankfein on Charlie Rose:

Is Goldman's stock a leading indicator of morality and business ethics? :)

April Performance

We had one X sell trade this week for a .75 gain.

For the month of April we were down 5.25, and year to date we are down 10 points.

This drawdown is a tough one. Its length is now approximately five months long.