Friday, April 3, 2009

Closed

Sorry to keep the page blocked for so long. I'm reopening the content but not the site. Thank you to everyone who visited while I was open: a lot of you have helped me grow.

If you want to visit another trading site, check out riding the noise. Also, every site to the right has enough good information to keep you occupied for weeks (if not months).

Thank you and take care,

CP.
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Tuesday, March 17, 2009

Side Project

Two people wanted a newsletter or newsletter-like service. Even though that is a relatively small number, I’m going to give it a shot.

If you would like to join, for $1 you will be given access to view CP's Letters from Wednesday until Saturday (March 17th – March 21st). Also, you can view next week from Sunday until Saturday (March 22nd – March 28th) for $2.50 more. If you want to see all of the posts and information up until March 28th, you can subscribe for a total of $3, a savings of $.50 (that would otherwise probably go to paypal; hence the encouragement to purchase all $3 worth at once).

What you receive:

- Morning “Coffee” Talk: By 9:00 AM EST, I will post some notes. I’ll talk about market developments, what I see as likely scenarios, economic news items to be aware of (numbers, businesses, government), and an S&P 500 chart (might be SPY or the ES emini, but they’re largely interchangeable).

- My real-time trades: I buy and sell stocks and futures.

- Technical analysis of stocks you choose (probably not more than 10 charts a day max, but it depends on what you desire).

- Technical analysis of intraday ES (S&P 500 emini) charts. Largely 5, 10 (sometimes), and 15 minute charts. This will be updated throughout the day.

- Intraday charts of several stocks I am following (plus one to three outside suggestions).

- Chat box (a la jabify) to ask questions in real-time.

- An analysis of the close.

This week and next week are preliminary weeks. I do not know how long I will run this side site, but I wanted to give it a try, especially with a break from school next week and limited stress (I have A’s!) this week.

If at any time you want a refund, let me know. No explanations are required. I’ll just tell paypal to put the money back in your account right away.

If you would like to see something else on the site, let me know.

Suggestions, Questions?


FORM CLOSED
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Monday, March 16, 2009

A Check Up

I think it is partially luck, a bit of excess caution, growing confidence, psychological development, and some nice charts, but I haven't had a losing trade since I tried to trade the after hours emini market several weeks ago (I wasn't used to the speed and the limited liquidity). All trades since then have been winners with the exception of one break even trade in the futures market. I don't mean to brag, I just want to say that it is possible. Enough of the horn tooting (watch me screw up tomorrow's trades =D)

On to some charts (all continuations of yesterday's postings):


Look at that beautiful shooting star, the turning stochastic, the decent volume, the RSI bouncing off of 50, the resistance at ~775 (look back to late February), and the shitty news, and I'd just about want to buy a put or two. Be careful of good news, and as always, watch the financials for hints as to the strength of any rally or pullback.



I shorted this today. It held on stronger than I would have ever expected, but I came out profitable (my highest yield with real money yet). While the S&P500, GS, and APPL all broke down, JPM held on until the end of the day. Look at the resistance formed by the previous gap down around 25. I used that as an entry point.



GS had the perfect opening. Gap up, easy short. Unfortunately I was in class, but one days like today (short term overbought) a gap up is definitely suspicious, especially if there wasn't any news to justify such a blip. I could see this continue downward tomorrow.



I don't really know what to say about GDX. Looks like it's having trouble getting above its 50-day MA; but its stochastic is not in overbought territory. I'd be extremely careful, but I'm still looking for a pullback.



I didn't jump on this ride, but some lucky bastards did! =D As long as the market continues down, I like this. But my disposition wouldn't allow me to hold this overnight. I'm just too scared. It really looks like a good deal though.



I like trading AAPL. I always get an image of unsophisticated (trading wise) fanboys/girls who do not know the difference between an MA and a Stochastic. This could be completely incorrect (I wouldn't doubt that most of the trading is done by institutions through bots), but AAPL still has beautiful range. I tend to keep my eye on it for a good entry.


Take care.
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Sunday, March 15, 2009

A Few Charts

Check out Trader Mike for several good charts as well.





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Friday, March 13, 2009

Velocity, Acceleration

It's really hard to show the "speed" of stock movements without recording trading in action. I'm guessing that's why most sites don't talk about the speed of a movement very much. For those without trading software (it's a necessity for serious trading), you will have an even harder time getting a feel for the speed of whatever stock, future, whatever you're following. Yes, I used to constantly refresh the charts at Zecco and Sogo Trading when I had a small account size. It helps, but the lack of streaming updates detracts from your ability to feel things in action. And, it limits your ability to quickly enter an order.

Scott of Fear and Greed Trader used to talk about getting a feel for the markets--learning to ride the "waves," getting in and out as movements started and finished. I like to imagine that he was talking about what I am feeling during my trading sessions right now.

What do I mean by the words "velocity," "acceleration," and "speed?" I think of it in terms of physics (using calculus, you could probably write some pretty spiffy trading indicators). Velocity and speed are similar. Both basically tell you how fast you're going (velocity gives you direction too: for our purposes, positive or negative). Applied to trading, velocity would probably be something like +/- $.03 per second. Acceleration is how fast the velocity is changing. If the velocity is at a constant +/- $.03 per second then the acceleration will be zero (velocity/speed is unchanged). This is rarely the case in real life. Instead, the velocity may be something like -$.01 per second meaning the velocity is decreasing at one cent per second (i.e. +$.03/sec, then $.02/sec, then $.01/sec...). And, of course, the velocity and acceleration are in a constant state of flux--all of which depends on the entries and exits of many, many traders and the direction the vast majority feel to be profitable.

How does this all fit in with successful trading? Well, I suppose you don't really need to understand things in the form of exact numbers like I wrote out above. The examples are just to give you an idea of what I'm talking about (and quite possibly encourage someone to write an indicator!).

It can all be done without the above. Just look at the chart (it really needs to be streaming) of the security of your choice and watch the candlestick movements. If things are moving pretty fast and begin to slow down, speed is waning and there could be a possibility of a reversal (depending on the location in relation to resistance/support/etc) or consolidation (look for maintained price, uncrossed MA's).

How fast are people bidding up the price? How fast is it falling? If the price is slowing, that means one side is gaining power over the previously dominate side (either through a diminishing faith or a ambush in the opposite direction). The speed at which a stock progresses also tells you how the traders are reacting psychologically. Are they hurriedly picking up shares in fear of losing short profits? Perhaps, they are overreacting to good news, or bad.

Speed is something that feels better to absorb while it happens. A bar could be a dollar high, but did it get there in one quick burst, a violent battle, or over a stable ascent? You can't really tell just by looking at a bar chart. Just because it's a 5 minute chart and the bar is $1 high, doesn't mean its speed was a constant $1/5minutes. There's another whole story between the lines (i.e. candles).

Learn to absorb it.
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Wednesday, March 11, 2009

Newsletter?

Anyone interested in purchasing a daily (weekly optional, for a lower price) newsletter? Each evening, before 9PM PST you would receive an email containing a PDF file, the newsletter.

In the newsletter:

- I'll discuss what happened in the markets that day and how I interpret the price movement (e.g. was it a short covering rally?, the start of a bear market rally?, a potential short, long).

- I'll focus on various points throughout the day on the S&P500 and occasionally the DOW (I prefer trading the S&P500 eminis and find it to be a better representation of the market). I'll touch on where ideal points of entry are and how I would identify them before price reaches that point (it does you no good to identify good points of entry after you can enter at the identified point).

- I'll also suggest possible scenarios for the following day. Sometimes it is easy to point out the most likely scenario. Sometimes having a few in your mind is necessary to stay on top of the game.

- With each newsletter I'll point out a few stocks that I am currently following. For instance, I followed AAPL for the last two days, successfully trading it a couple times for nice profits. I'll let you know what I am looking for and what ideal entry points are or are not. I'll list some trades I took, and why I took them.

- Furthermore I'll update you on possible news and developments (oversold or overbought conditions, etc) that you should keep in mind and what to expect should more information be released.

Also, I will make a deal that anyone who does not recoup the costs of the newsletter (assuming a reasonable beginning account size) will get a refund. Of course, you have to actually utilize the information in the letters. I'll have to consider exactly how we will quantify this, but I don't aim to rob you of your money. I want you to be successful, as it will reflect well on me.

Furthermore, despite limited time during the day to actually trade the markets (which is why I hope to make a little cash by writing information for others who can trade all day), I have made my friend 6% in overall profits in the last three weeks or so. It's not much, except when you consider the short bursts of time I actually have during market hours to trade (I love making $200 in 20 mins or so =)).

Let me know what you think.

Not sure about prices yet...would require PayPal payment as well.
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He Hit the Number, and So Quickly...

I posted a quote from a newsletter two weeks back (link) that I find rather amusing at the moment. Here's a section of it:

"For those looking for a silver lining, at least we are going to have a deeper bottom to bounce off. Applying a classic recession-trough multiple of 12x against a forward EPS estimate of $55 would imply an ultimate low of 666 on the S&P 500, likely by October if our estimate of the timing for the end of the official downturn is accurate."


Other parts of the letter suggest a lower P/E which would definitely disqualify the 666 number as the ultimate low (at least from my understanding). What I find amusing is not that the analyst happened to pick the current low right on the number (I'll forgive the lack of fractional accuracy), but that he suggests we will reach the low by October. We did. We also reached his suggested ultimate low two weeks after it appeared in print.

If the market continues to do crazy things, like today, I wouldn't be surprised to see it collapse lower and, as of today, think it will go lower. I just do not like the action, and do not feel as though it is rallying action. Follow the financial stocks, though. They will lead the way. Any more good news (such as the Citibank news) will cause euphoria, but as soon as they lose steam, they'll come crashing back down.

Something to keep on your bullish radar is Trader-X's recent post on the reinstatement of the uptick rule. Such a change in how the game is played may cause more euphoria than any banking news could possibly hope for. Be careful. That has possibility of rekindling strong bullish sentiment.
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Monday, March 9, 2009

Historic Chart


I found this on my hard drive the other day, and I thought I would share it. If you go to the site mentioned on the image, you'll find an even more recent chart showing the current decline of the S&P500 P/E ratios (not yet below 10).

This chart will hopefully give you an idea of where the current market stands. There have been "double tops" before that have not signaled the end of the market, something pointed out every now and then by the doomsayers. Also, there are other times where we have dipped below the outlined consolidation levels. While the chance for a Great Depression like dive exists, I personally think we'll get some movement towards the upside as soon as P/E ratios dip below 10. According to the data I find at Shiller's website, the S&P500 P/E ratio is about 12 as of March 3, 2009. In order to get real bullish sentiment, I think we'd need to fall to ~7 or so. We could fall lower, but that level 5-8, is probably as good as it will get for buyers.

Then again, the doomsayers could be right: the United States could just burst into flames.
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Saturday, March 7, 2009

Motives.

Motivations, as a friend once told me, are what you need to figure out if you want to understand people. To begin the process ask, "What does this person want?" The benefit of knowing what the other person (or group of people) want is that you can use this information to collate your own wants and desires and see if they are opposed or in congruence. The difficulty in doing this, is that many people will not state their motives up front, or, often, they do not understand or want to understand their true motives.

This can hurt you if you choose to take the person's words at face value. For instance, if someone says, "I want to make you a better person," but constantly performs actions to the contrary (e.g. beating, name calling, neglect) then taking them at their word will lead to confusion: "This person is trying to make me a better person, but I keep feeling terrible and getting worse." The symbols (words) used to convey reality conflict with reality. Obviously, this is going to end terribly for the person who continues to believe the person performing the abuse.

Perhaps even more insidious is when the abuse is not overt. Take CNBC. They state that their aim is to help the investor better understand investing and to make money. However, the views presented are often conflicting (even from the same source, day to day), and since most people cannot or do not record the shows for future reference and reflection, they forget the advice that has hurt them and end up assigning much of the guilt of poor performance to their own misunderstanding.

The base of this problem stems from the misrepresentation (whether intended or through a lack of self-understanding on the hosts) of motive: "We are here to help you invest." If this were the case, why so many ambiguous or outright incorrect statements? It is because their true motive conflicts with your motive to be a better investor through a better understanding of the business world. They are reflecting your motive back onto you. But that is not their motive.

CNBC's motive is to profit from advertising. As many know (whether or not they act upon the information) biased, skewed, exaggerated, "yellow" journalism attracts a larger audience than fact-based, "boring" analysis. People like watching arguments between people who share extreme and conflicting views. It is exciting. CNBC's motive is to provide you with this entertainment. It is how they increase their viewer base and how they increase advertising revenue.

Providing their motives to the viewer (or helping the viewer better understand him or herself), however, would hurt their bottom line. It's not in their best interest.

But it is in your best interest to look at the motives (and even the general world view) of those who you read, watch, and follow. If you take people at their word without confirming their word with action and outcome, your successes will be hit and miss.

----- In Relation to This Site ------

The above can stand on its own, but I wanted to post my own motives for maintaining this site (at least my best understanding of what my motives are). As many of you may have noticed, I no longer have advertisements on the right hand side of the site. I'll be receiving my check from Google soon and have decided not to continue placing hope in profiting from advertisement. I guess, the amount of time I dedicate to thinking about how I can get traffic up and clicking on ads is just not worth the amount of return I can get. I'm much happier dedicating my time to in depth analysis of economics and markets (and whatever else interests me! This is my site) and making money through the markets themselves using the knowledge I gain through the maintenance of this site.

Yeah, the last sentence was a little convoluted, but the main point is: I want to focus on what makes me happy. If you haven't heard, most major sources of journalism are in the red. Although I'm sure there are blogs that make enough to support a human life, I think many do it with other products (Tim Syke's alerts/videos/etc or WeeklyTA's advisor service). I may do that at some point in the future, if anyone wants to follow me throughout the day. But, at the moment, I don't have enough time to be online throughout every trading day, and I doubt enough experience to confidently direct beginners; not to mention, I am having enough success making money trading that I really don't need those extra sources of income. Eventually, I hope such sources will pale in comparison to what I make trading.

Instead, what I hope to gain from this site is a few new friends, an increased depth of knowledge about economics, trading, human psychology, and politics (or whatever floats my boat--such as terrible cliches), and a better understanding of the English language. Truth is, I enjoy to write. Always have, always will. The creative process stimulates me, keeps me alive, and provokes another activity I love: thought.

I'm sure there are other reasons I continue posting. But without ads to the right or a detailed record of my successes (while it may help some bloggers to present this information--and I do not judge them, and enjoy many of their straightforward p/l and goal charts--it tends to hurt me, puff up my sense of superiority or inferiority, and detract from my learning/trading) or a trading service, I thought some may be wondering why I am writing. Well, the above gives some idea.

I'm no CNBC. I hope I am not abusing any of you either. But, my motives, while far more complex than I can really understand (just like everyone else's), are important for you to know while reading my posts and important for you to consider. They'll change with time. And I'm definitely no selfless, savior figure: I don't intend to make you a trading or investing God.

But, then again, CNBC doesn't aim to either.
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Friday, March 6, 2009

Another Poker Analogy

In online poker, all the chips on the table have been paid for, and with each subsequent pot the house takes its "rake" (i.e. a small fraction for hosting the game). Any money you make in online poker comes out of the pockets of those who you are playing against, and even if you were the best poker player on the table and looted all the stacks, you still wouldn't leave with all of the money that had been on the table. This is because of the rake fee.

The stock market is similar. All of the money you make comes from the pockets of the other participants. After each trade a commission fee takes place to cover the transaction between the two individual traders/investors (players). At the end of the day, even if you were the best trader in the world and were able to drain the participants of all their capital (impossible for many reasons, but for theoretical purposes--) you would still walk away with less money than had been put into the market (sans dividends, should the stocks have any) because of broker fees.

I guess the message I am trying to get across here is that for every winning hand or profitable trade, there will be a losing hand or a losing trade on the other side, at least when markets grow faster than the underlying companies and economy. Those who come out on top are relatively few, because they tend to obtain the "stacks" with their confidence, skills, and eventual ability to buy the pot. The others who come out on top (assuming they have a good business model and aren't wasting money on excess people/equipment) are those who bring the transactions together.

Oh, and another thing: on average, people like to think they are better than average poker players. I think the same goes for the financial world.

Thoughts?
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Thursday, March 5, 2009

Surrendering to Gravity and the Unknown

Shorting is a necessary tool for any serious trader. Gravity--i.e. entropy--will always take hold, and things will eventually fall. Furthermore, things fall faster than they rise. How much more needs to be said in favor of shorting?


"Gravity" off of Thirteenth Step by A Perfect Circle.
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Wednesday, March 4, 2009

Fear

Fear is always the result of your beliefs about the threatening nature of the environment. What could be threatening about the market? Nothing, if you had the confidence and completely trusted yourself to act appropriately under any given set of market conditions. Essentially, what you fear is not the markets but rather your inability to do what you need to do, when you need to do it, without hesitation.

- Mark Douglas, The Disciplined Trader
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Wednesday, February 25, 2009

Nap

The site has been put on the back burner for the last few days, and it looks like it may have to stay there for a while. I have my final "midterm" tomorrow, but with public transportation (in Southern California) and dedicating my time to trading my friend's account, I am struggling to find time for the site. While I still try to keep a journal of my trades (riding the bus is good for that and reading), I tend to crash when I get home. Naps are the fruit of the Gods.

I really need to spend some time outside as well. With my brother or with friends. I may come back, and I hope I do (I enjoy you people); and I definitely won't stop reading your sites (whether or not it's healthy, I spend quite a bit of time reading blogs). I just don't know exactly when I can update daily again, or if it is even a good idea to utilize my time that way.

I won't hold it against you if you take me off your blog lists. Actually, if I'm not back and posting within a week, I'd recommend it. I'm tired. And I think I need a long nap.

The contest finishes up on Friday. The results are below and it looks like Charlie's goal is so far achieved =). Whoever wins, send me an email with your address and I'll get your copy of Liar's Poker sent off to you. I'll still be doing the lottery for The Losing Game if anyone is interested in it (it's probably a little too gloomy, angry, and not backed up with many facts for most of you; at least for me).

As always, check out the links to the right. Those are some high quality blogs over there.




Thank you for reading my blog. Take care,

Ryan (aka Complacent Panda)
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Saturday, February 21, 2009

Panda Love



Panda cubs certainly look ugly by most standards. The same could be said of fledgling traders. But both have the potential to turn into such beautiful creatures.


Here are two, one helping the other make it up a tree, or something, perhaps to get a warm apple pie. With the help of others (or as John Lennon said, with a little help from my friends) perhaps the arduous journey can be accomplished.


But, breeders have so much difficulty with the pandas. The process of getting them to, uh-cough, mate with one another is frustrating and time consuming. Many processes are tried. For instance, the one to the left is watching pr0n.


Moral of the story: I have too much time on my hands and have begun accumulating far too many panda pictures on my hard drive.

Stay Tuned =)
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Another Look at Three Charts from Last Week

Last week we had a good discussion on a few charts (link). I thought it would be nice to see what our volume and price analysis yielded and where one might proceed given current charts.


GDX held its own with quite a bit of strength. As I said last week, it will have trouble breaking above 37 because that is the price level where the 50 and 200 are crossing in a bearish manner. Although gold may be showing strength, or at least verbal strength among the media (we are headed towards an apocalypse, no?), gold mining companies are not the same thing and don't react the same way.

With the high volume giving a, what looks like, perfect doji on the weekly, I'd be surprised if this didn't pull back during the next week. It's a possibility, but odds point towards some downwards movement.


Last week I said, "RIMM is flirting with its 50 day moving average" and that a "break below the 50 is not a good sign" for the longs. Looks like RIMM took the flirting to the next level. I drew some possible support lines. I think it's good that the volume is picking up again, but I wouldn't consider going long until there was some serious buying. Not sure if that will happen. An interesting stock to day trade.

On the huge downward movement last week, I was worried that COH might break. It held up nicely, though--just as many predicted would happen last week (check the comments). Even with the strength I'd watch for the downward movement of the MAs and make sure the bottom in the RSI doesn't break.


Here's a perfect example of how a point and figure chart should be used (and how it can help "support" an interpretation of a candlestick chart, or vice versa). I drew a support line across the bottom, right above $13 or so. You want to watch levels like this (especially when you have three definitely rows using it as support) because the level often leads to a breakdown or a intermediate bottom. You can also use it as an excellent entry position. For example, you could purchase a share at a recent low (somewhere above $13) and place your stop below support. This creates a nice low risk entry point.


As always, take responsibility for your own trades, and take care of yourself.
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Friday, February 20, 2009

On Scalping

After watching Jules scalp the S&P500 emini, I figured I'd give it a try. Here are some of my thoughts:

I am convinced that successful scalping, while possibly profitable with a quick trigger finger and minimal technical skill, is predicated upon the development of solid chart analysis and a healthy dose of mental discipline.

Trading is exhausting and stressful, especially in this environment. Utilizing a poor understanding of the market to execute your trades will deplete your mental stamina quickly, perhaps faster than your competition's. Without a clear, clean, crisp mental image of the market, you will find yourself wasting precious processing power on tasks that others, better disciplined, can execute more efficiently and thus more effectively.

In the short amount of time that makes up a scalp, instances of waste or conservation can make the difference between a gain and a loss. Practice with chart analysis will increase your efficiency and make you more competitive. Learning to watch your "mental" stamina will get you in the game when you're at your best and get you out when your accuracy starts to fade.

And, yes, I did fairly well today =D I'm happy and so is the owner of the fund I manage.

Take care.
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Thursday, February 19, 2009

Contest Ranking as of February 19th


Looks like the market blood bath took quite a bit of the paper profits made in the last weeks. I'd be proud with my position, but it betrays my lack of participation. I traded GOOG just so that I would be listed as ~0% gain. But my position does not matter. Basically, whichever one of you manages to protect and/or grow your money the best will receive a copy of Liar's Poker in the mail*! I received a complimentary copy of a book called The Losing Game in the mail just this week and will be raffling it off to one of you as well (completely random, so any of you could win).

The contest finishes next week. Good luck!

*You will have to give me your address or a PO Box. I know, privacy. But don't worry. I won't be delivering it to your home personally, and I have no history of stalking people.

As for those of you who would want me to show up with the prize and feel somewhat disappointed, let me assure you that it would be nothing like the Publishing Clearing House give-a-ways. It'd be terribly anticlimatic.
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Wednesday, February 18, 2009

144 Trading Blogs Online!

I'm probably nowhere near done compiling the list of trading blogs that I began two days ago. Yet, it already holds 144 blogs. If you don't see yours on there, or if you have a favorite that is missing (currently updated or not), then feel free to send me a line. I know there are quite a few missing, and I will get to them soon. For now, enjoy all of the information and personal experiences given by these bloggers!
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Tuesday, February 17, 2009

Busy; Blogs; Computer Setup; and, Free Culture

I have had and still have a lot of school work for this evening. It's going to be a long night. But I wanted to say that I have received a few emails about trading blogs to be added to the list. They've been added and I will try to add anymore that I receive as soon as I can. Feel free to send yours in; otherwise, like I said before, I'll be adding a large amount very soon. Tomorrow will be a more lenient day (well, after the early morning).

Today was exciting in the market! Hope everyone of you came out alive. Personally, while I didn't have but a half hour at most to dedicate to trading, I did get the setup I talked about a few posts ago completely working. Because the account I'm trading is still short the day trading requirement, I got the screens running futures. It's pretty sweet how IBCharts allows connection to IB's TWS over a lan.

On a continuation of a former tangent, here's a quote from an amazing book called Free Culture by Lawrence Lessig. It's about intellectual property rights, so those of you only interested in trading will may want to call it quits for the evening on this page =) Check out some of the links below or to the right. Otherwise:

"For some films, the benefit of releasing the film may well exceed these costs [lawyer fees to clear rights]. But for the vast majority of them, there is no way the benefit would outweigh the legal costs. Thus, for the vast majority of old films, Agee argued, the film will not be restored and distributed until the copyright expires.

But by the time the copyright for these films expires, the film will have expired. These films were produced on nitrate-based stock, and nitrate stock dissolves over time. They will be gone, and the metal canisters in which they are now stored will be filled with nothing more than dust."

Please stand up against the insanity that our copyright laws have become. Patents expire after 20 years, while copyrights after the 1920's go on, currently, practically indefinitely. It benefits a few large corporations who have control of old icons that still make them money, but it also destroys a good portion of the history of our culture. Copyright is supposed to encourage innovation, not destroy knowledge.

Don't let the talking heads dumb the debate down. I'm not advocating pirating or copyright infringement of new works. I'm advocating the preservation of culture and spread of knowledge that no longer needs protection, as the innovation it contributed to society has long since been compensated.

Freedom is one of my passions...take care everyone.
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Monday, February 16, 2009

Trading Blog List

I will update the below; I know it's not complete. My goal is to compile a list of links to current and old trading blogs. I have a few things I have to do today, and I have already dedicated too much time to the below =) If you really want your blog added right now, send me an email (comments will be turned off). Otherwise, be assured, I will get to you soon.

Last update on February 19, 2009

10kthrownaway
59 Cedar Street
Abnormal Returns
AC Investor
Action Points
Active Traders
Afraid to Trade
The Aleph Blog
AlphaTrends
Am I Bald?
Anarco's Blog
Anne's Forex Blog
Apex Trader
Attitude Trader
The Balance Sheet
Beanieville
Between the Hedges
The Big Picture
Big Trend Trader
Biiwii.com
The Bonddad Blog
Buy on the Dip
bzbtrader
Chicken Smith
Chris Perruna
Closet Daytrader
Cluster Stock
Clueless Q Trader
Cobra's Market View
cogTRADER
Critcal Mass Blog
Crude Oil Trader
Daily Options Report
The Daily Speculator
Danny's Blog
DehTrader
Dematties [dot] com
The Denarii Trader
Dinosaur Trader
The Disciplined Investor
The Dogwood Report
Don Miller Trading
Downtown Trader
Dummy Spots
Emini Addict
Est. 2007
Fallond Stock Picks
Fear and Greed Trader
The Financial Ninja
The Fly
Forex Intraday Trading
Formerly ADD Trader
Fresh Salt Water
Gaming the Market
Gio
The Gold and Oil Guy
Green on the Screen
Had Enough Therapy?
Hawaii Trader
Hector Trader
HeadlineCharts
High Probability Trading
The Housing Time Bomb
How I Daytrade
Howard Lindzon
The Impatient Trader
Infiniteyield Forex
Jules in Jumbles
Just Charts
Kevin's Market Blog
The Kirk Report
The Lauriston Letter
Leonard the Monkey
little2rich4u
LOLFed
The Lonely Trader
Luna $ Ticks
The Macro Trader
Maoxian
Market Monk's Musings
Market Rewind
Market Roll
Market Time
Master of the Universe
Match Point Trader
Mish's
Miss Trade
Momo Stock Trader
Move the Markets
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Sunday, February 15, 2009

These Guys are from England and Who Gives a Sh*t?


I Still Haven't Found What I'm Looking For - Negativland on their album U2 (that is, the letter U and the numeral 2).

I don't know how many of you out there will appreciate the above. Probably few. But I thought I would post it anyway, given that copyrights and the laws that govern them were brought up over at Dinosaur Trader (CLICK IT, you know you want to!). The above is the main song from Negativland's (I wouldn't be surprised if you've never heard of them; they sell very few CDs) album that was sued out of existence by the corporate owners of U2's brand and discographia. Casey Kasem of American Top 40 also wasn't too happy, having several out takes with angry cursing (e.g. "These guys are from England and who gives a sh*t?") about a new band called U2, "that is the letter U and the numeral 2."

Personally, I love the track and all it represents. Much of what Negativland aims to do is comment upon and use the culture around them in order to critique and create new things. They're obviously not trying to steal U2's content. They completely reformatted anything that U2 may have ever put together. It's obvious they aren't trying to ride U2's success anymore than I am trying to ride the success of whoever created the English language. Hell, Negativland probably wouldn't have made much money if they had been allowed to sell the record, and not only that, they agreed to donate all the money to whatever charity Casey Kasem and U2's label wanted.

I don't know. My train of thought is slipping. But I do know that this is not piracy. And if it is, what do you call Disney's use of Sleeping Beauty, Cinderella, Alice in Wonderland, etc? Also, it feels like corporate America is trying to silence a group of people who have different opinions about how corporate America operates. You shouldn't be able to shut someone up just because their opinion of your actions doesn't make you look good. That goes against the first amendment. And where would we all be without being able to critize politicians and government that we don't like?

Perhaps I am wrong. But, really, if I had enough money, I bet the courts and House would rule me right. Such is, at times, the American system of law.
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Saturday, February 14, 2009

S&P Earnings and Implications

The following is from John Mauldin's Weekly e-Letter, Thoughts from the Frontline:
Earnings Will Get Even Worse

Last week I said that 2009 as-reported earnings estimates for the S&P 500 would be dropping. 2008 earnings had dropped to $29.57 as I wrote the letter. They are now down to $28.60. One of my favorite analysts is David Rosenberg of Merrill Lynch. His forecast for reported earnings for 2009 is now down to $28. That puts the P/E for the S&P 500 at 30.

He also projects "operating" earnings to be $55 for 2010. And, as he writes today:

"For those looking for a silver lining, at least we are going to have a deeper bottom to bounce off. Applying a classic recession-trough multiple of 12x against a forward EPS estimate of $55 would imply an ultimate low of 666 on the S&P 500, likely by October if our estimate of the timing for the end of the official downturn is accurate."

That is a 20% drop from today's close of 829. That is not what you will hear from "sell-side" managers who want you to invest in their mutual funds and long-only management programs.

I noted the problem with the rest of the world earlier. 40% of the earnings for the S&P 500 are from outside the US. It is hard to see how those earnings are not going to be deeply affected. Let me reiterate my continued warning: this is not a market you want to buy and hold from today's level. This is just far too precarious an economic and earnings environment.

Given the probable ongoing bad news from financial and consumer stocks, plus the depressing news on bank losses coming down the road, why take the risk?

Be aware of the high chance for further downside.
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Trading Setup -- Beauty is in the Eye of the Beholder

I took a picture, but I can't find the cable to put it onto my computer. While I'm looking for that, I wanted to post my developing computer setup. Interactive Brokers has a built-in API feature that allows multiple computers to connect to a single client and access the quote data without additional charge. I figured that working from multiple computers would reduce any bottleneck I might experience on the CPU side of things, especially when running multiple screens.

Anyway, here's the general setup:

- Old Athlon 1.2ghz (or so) computer with 1.25 gb of ram
-- Connected to one 17" monitor.

- Apple iBook G4 1.2ghz with 768mb of ram and 12" screen.
-- Updated device software to allow multiple screens.
-- Connected to one 17" monitor.

- 2.4ghz Atholon X2 laptop with 3gb of ram and 17" widescreen.
-- Connected to a 17" monitor.

With quotetracker or ibcharts I should be able to run all three, over the same network and connected to the same IB client. I'll post more information (and a picture or two). Maybe it will inspire some more cool setups.

The cost of this setup is relatively inexpensive. All three of the 17" monitors are at least 6 years old, if not 8; they're all CRTs. I got one for free a year ago from a friend, and I'm guessing that you could probably find someone wanting to get rid of CRTs in order to replace them with LCDs (which, I would eventually like to upgrade to). I put together the Athlon tower 6 years ago. It still works nicely, especially with the amount of ram it has; you could probably get the equivalent (or better) at Fry's for $300, new. The iBook is 4 years old and can be purchased off eBay for around $300. It serves its purpose fairly well. The dual core, 17" widescreen, laptop is the newest piece of equipment. Maybe a year or so old. It's some off brand, but works nicely. I'd say $600 or so, used.

All in all, the setup is nothing pretty to look at; but, I'm hoping it will do its job of giving me a wider view of the market.
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Friday, February 13, 2009

A Little Restless -- Three More Charts

These are just a few charts that I found interesting. I probably wouldn't do anything long term in any of them. I like the day trades. But it is kinda nice to have a long term image in your head when you pull the trigger. Resistance and support, volume trends, and moving averages can always help in determining a safe place of entry.


All of that volume on the weekly chart, contributing largely to a series of small candles could signal indecision. When coupled with the high stochastic and the descending 50 week and the nearing 200 week resistance, I'm going to say there's a chance for a pullback. Especially as it reaches 37 or so.


RIMM is flirting with its 50 day moving average after posting earnings. With so much volume on the first gap down, I'm going to say that there is a good chance it won't be able to break that day's highs. A look at the intraday would help determine the likelihood of that statement. A break below the 50 is not a good sign. Well, for the longs that is.


Looks like COH is coming up to its lows. I'd be careful, as retail sales are likely to continue sucking. But, with the declining volume over the last few days, I wouldn't be surprised to see this turn upwards. Then again, just because it hasn't gone lower, does not mean to hold onto a stock while it continues lower. Bail this shit if it break down on heavy volume. I never understood $400 purses for women who make that much, after taxes, in a week, anyway.
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SPY Support


I'm guessing that trading was light today because traders weren't quite sure how the market would react to the bill. It was passed and the markets don't seem to be too happy. Afterhours looked fairly bad.

The above shows support at 81/80. Should that break on heavy volume, I'd look out below.
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Supply and Demand

It took me a while to think of the markets in this way, but it's all they are: a great big playground for supply and demand. I don't know if the stock you are buying has any intrinsic worth. You're not able to trade it in for a spiffy office chair or a portion of Microsoft's Windows source code. While I understand that a company could eventually be bought out, thus giving you a chance for a guaranteed price on your shares, I don't see this happening very frequently at all. And should a company go bankrupt, the common shareholders tend to get diddly squat; bondholders are given first dibs on property.

When you see a stock priced at a certain value, remember it is at that value because people are willing to pay for it at that value. At the moment, yes, it may have some intrinsic worth. You own a part of the company and, depending on the stock, you may even get a portion of their earnings. But what happens to that share in time? I would argue that every company submits to entropy.

In any case, if you were to learn any one thing, I would suggest you learn how to trade based on supply and demand. That means, basically, trading through charts. If there's buying pushing the stock up, ride it up until the buying begins to dwindle.

Today I was watching bid and ask sizes. Bid sizes indicate how much of a stock the buyers want. From what I have seen (and from my intuitive understanding of supply and demand) if this size is bigger than the ask sizes, then the price eventually goes up. Same thing works in reverse.

Don't get me wrong, fundamentals are necessary. Who's going to buy a company that has no growth possibilities and doesn't sell anything? Just remember that the price is determined by what people are willing to pay and willing to accept. And if you're trading, understanding this will get you onto the right side of the market.
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Thursday, February 12, 2009

Mother


Mother by Pink Floyd.

I haven't been able to compile my words like I would like this evening. I figured it'd be best to bring up a quote from one of my favorite philosophers, Nietzsche (On a side note: I love the saying, "Nietzsche took a sh*t, and that sh*t turned out to be Ayn Rand." But that's probably not appropriate...oh well.)

"Without music, life would be a mistake.... I would only believe in a God who knew how to dance." - Nietzsche.
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Wednesday, February 11, 2009

Back from the Bahamas

I'm back, back into the world of 0's and 1's. As DT (please click my sponsor!) said, you'll feel a hell of a lot better after a break. Unfortunately, I'm not as much of a communist as him. He took off an entire month (remember that when someone tells you that commies don't have it better; they do).

I started trading today. My account is setup and I have access to my friend's funds. It's short the day trading requirement, but we're going to try to boost it up to it. I put in a few practice trades today because the IB software takes a little getting used to. It's much better than browser based trading like Zecco or Sogo, but it leaves something to be desired. Perhaps, I should read the manual. Unfortunately, I stubbornly refuse to read manuals.

Both trades (only two because I wanted to save my third for Friday, when I have the day off) were positive, despite my difficulty with the program. On a side note, I enjoyed using ToS's software. I'm thinking about suggesting some new software for my friend to purchase. He's actually been bugging me about doing it.

Hmmm. There's not much to say today. Looks like the market finished up; but, it's a sad finish on low volume. Beware of today's low. Further downside may be imminent.
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Wednesday, February 4, 2009

Short Hiatus

I love that word. Hiatus. It makes me sound all intellectual and sophisticated, even a bit artistic.

It's what I am going on. I need a short break, a defined one week break in order to put things back together.

I got an offer from one of my brother's friends to manage his IB account, which is just $5k short of $25 (he lost $8k using 4x the margin for each one of his trades). I'm excited. I get 10% and can put some money into the account myself. I don't have much, but if I skimp here and there I might be able to muster together a few bucks.

I also need to get some things together at school. I did get guaranteed admission to UC Berkeley, whenever I want to go. Yes, like this Fall or next Spring or the following Fall. Whenever. I'm somewhat stoked, but stressed out too.

Which is why I need a break. And a defined one so that I don't spend all my time feeling guilty that I haven't updated. Now I can feel guilty when I think about updating: "You should be focusing on other things right now," is what I'll say.

The contest is still running. Check out this post for the signup info, and this post for a list of the prizes.

Website, take care. I'll be back in a week.
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Tuesday, February 3, 2009

Fear of Success

You may think that it is a little peculiar, a fear of success, that is. But it is what I have. For the last week or two, I have been intensely anxious when I write or comment on my site, or anyone else's for that matter.

I still have an intense fear of failure, even though I had to fight it in order to trade. I don't like failing. It feels invalidating. But it comes with the territory. You have to be able to say, "I was wrong," and let go in order to succeed at trading.

But fear of success, that's outlandish. Why have a fear of succeeding? There is literature on it. I probably would have never figured it out myself if someone wiser and more perceptive in the psychological realm hadn't told me. It seems so counter-intuitive. Who could fear being good at something?

I suppose it's not the fear of being good at something. It's the fear of the consequences. The hatred, the height, the unpleasant reactions of others. The bullying, the guilt. And, quite possibly the worst, feeling like you have succeeded only to be called an idiot for having ever tried. Having your success undermined and disparaged.

What goes into making this site must first overcome those feelings. I struggle to keep posting, to keep my thoughts positive and encouraging. I can't even believe that so many people who I admire have linked to me. It's overwhelming. It makes me happy.

But it also scares the living shit out of me.

And it's not only online that I have these feelings. I experience them frequently in other parts of my life.

Such irrationality needs to be addressed;

I need to let go and take care of myself.
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Monday, February 2, 2009

After the First Day--


Here are the results of the first day of trading. Looks like everyone is managing their risk well. If you haven't put in a trade yet, you won't be listed above. I tried to get a trade in, but am suffering a head cold and had obligations to get to throughout the day. I feel like a terrible contest host! But I am still here.

Congratulations to Rob of Stock Insight. He's kicking all your butts (including mine) right now! Remember this is a competition! AND that I like exclamation marks!

Let's get some good trades in before the benefits of his surgery fully kick in*.

Everyone, take care.
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Friday, January 30, 2009

Stock Contest Signup

IMPORTANT: If you already have a Wall Street Survivor account, you need to sign up for a new one! After your name please put _cpcontest so that I know you have a new account.

Trading begins on Monday. Prizes are explained here. As mentioned before, the more people, the better the prizes.

Sign up by clicking here. (put _cpcontest after your name!--for those of you who didn't read the first part of this post...)

If you have any questions, leave them in the comment section.

Good luck!
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Reader Email: Backtesting Software

I figure that posting the email conversations I have with readers may help other traders out there. I know that websites and blogs don't always answer all the questions you may have. While I don't have a fraction of all the answers to each question out there, I'll do my best to give whatever of my experience I think may help. Feel free to send emails or post comments. Grab my contact info here.

(Note: If I post something you send that you'd rather not have posted, let me know, and I'll remove it. Also, if you'd rather not have a question posted, give me the heads up in the email itself.)


Flip

Hi,

My name is Flip, I'm going to compete with you in the trading competition
you're setting up.

I'm interested in backtesting some strategies in both (single) equities and
in index futures. Do you recommend any good (and cheap) software for this.
I got some of my data from Bloomberg and used Matlab to program, but the
major problem I have is:

- programming is matlab is not the quickest way to get things done!
- if I want to make a backtest on the S&P 500 stocks I have to take into
account all the changes made to the index over time (thus avoiding
survivorship bias). I have tried doing this using Bloomberg but it is
extremely time consuming to fetch the companies that went bankrupt or
merged...

Looking forward for the competition!

Regards

Flip

Reply:

Hey Flip,

I've used Ninja Trader (http://ninjatrader.com) to do backtesting.
It's free to use for backtesting historical information (it costs
money if you want to use a strategy in the open market). From what I
remember it will actually download whatever historical information you
ask it to from Yahoo Financial (daily historical information only).

I know Dogwood uses Stock Fetcher
(http://www.stockfetcher.com/ui2/index.php) for some of his
backtesting. For free they let you test out some of the features. For
a reasonable price they give you access to many more features. I know
he's also started testing out Wealth-Lab
(http://www.wealth-lab.com/Home/Default.aspx) and I think there's a
way to get a free demo. Otherwise I think the software costs quite a
bit.

Good luck to you in the contest! =D

-CP

PS:

I have also used MetaTrader 4 and your standard programming languages (C++ and Python mostly) to do backtesting. I wouldn't recommend those to the beginner because of the extra effort and programming required, but they are also an option.
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Thursday, January 29, 2009

Reader Email: Setting Up a Forex Account

I figure that posting the email conversations I have with readers may help other traders out there. I know that websites and blogs don't always answer all the questions you may have. While I don't have a fraction of all the answers to each question out there, I'll do my best to give whatever of my experience I think may help. Feel free to send emails or post comments. Grab my contact info here.

(Note: If I post something you send that you'd rather not have posted, let me know, and I'll remove it. Also, if you'd rather not have a question posted, give me the heads up in the email itself.)

Martin:
First, thanks for blogging. I came across your site from Jules. Great stuff, both of you.

Anyways, I read that you're also into Forex, and I'm also just getting started in Forex. I was just wondering, what service do you use, like FXCM or OANDA, or if you have any good recommendations. Thanks.

My Reply:

I've only been trading forex for about 3 months or so, but I've enjoyed using FXCM's platform. I have a micro account. You can open one for $25 and trade using their software, which isn't bad software at all. I prefer it over any of the web browser based platforms. For the micro world, I'd definitely suggest FXCM (although they do charge $10 if you want them to send you a check) because it's a good place to start; they also offer paper trading accounts, which are good if you'd like to get your feet wet. I know there are many, many options though. I'm thinking about trying FxClub because they offer spreadless trading. Instead of profiting from the spread, they make money by commission only if you profit from your trade. They charge $0.40 for each profitable trade.

Jules has been doing this much longer than me, so she may have some good suggestions. Thank you for reading the blog and I'm glad you like it. If I can help you with anything else, just send me an email.

Take care,

Ryan

Martin:

Hey Ryan,

Thanks for your answer. I have a few more questions if you don't mind. Can you explain the difference between a micro account and a standard account. Is the platform in FXCM the same for both account. And finally, do you know of any hidden fees from FXCM besides the one you've mentioned ($10 charge for check). I really appreciate your answer because sometimes, as you know, these companies don't tell the facts. Thanks.

Martin

My Reply

Martin,

You're welcome. I haven't opened a standard account with FXCM yet, but if I understand correctly they both use the same platform. The main difference between the two is that with a micro account you're trading much smaller lots ($1000 lots) while with a standard account you're trading ($10k or 100k lots). Obviously you don't need that much in you're account because of leverage. I think that the standard accounts get slightly better deals on the spread because you're trading a larger amount and the company doesn't have to skim as much to make a nice commission. I guess that would be another hidden fee. I don't know how much you've learned about forex trading but while there's no commission you're going to be paying a small amount called the "spread." FXCM has low spreads compared to some I have seen, but their advertised spread of 1.8 or whatever it is for the EUR/USD pair averages something around 2.8pips or so. I've seen it as low as .5 but it can frequent the 2.5-3.8 range quite a bit. Other than that, I can't really think of any hidden fees.

If you've read this far (heh, hope I haven't written too much) then you should click the following link (http://www.forexmicrolot.com/cnbc.jsp). Sign up through that form and you should be able to get a free $25 micro account through FXCM. When I did it I didn't even have a CNBC whatever account, and it wasn't that long ago. Hope it works if you try it.

Take care and feel free to email me again,

Ryan

Martin:

Hi Ryan,

Thanks once again.

I'm actually pretty new to FOREX as well, and I only understand the basics. I'm currently deciding which account I should sign up for, the micro or the regular. I'm planning to trade the same lot size and even leverage. The micro would be nice, because it requires less deposit and I can deposit more if I want to. Since I'm new to Forex, I don't want to just put $2,500 (min requirement) for the regular account. You did brought up a good point saying that the standard accounts might slightly get better deals on spread. I will take a look into this. Anyways, thanks for your help. Btw, if you don't mind me asking, are you also new to investing, or just in Forex?


Martin

Martin:

I just chatted with a representative at FXCM. I just learned more about the difference between a micro and a regular account. Just in case you are also wondering,

M: Hi, for micro accounts, can I also trade in 10k lot size?
Deric: yes, you can
Deric: you can type in the lot size in the amount K window
M: so, if my lot size can be adjusted as well as leverage, what is the main difference between a micro and a standard account?
Deric: no customization for Micro accounts since it's a discount account set up
Deric: biggest difference is no restrictions on setting stops and limits, 24/7 live client services, phone in trading
M: what is customization?
Deric: all of the above is for Standard (10k) clients
Deric: standard (10k) accounts can customise the leverage for the account
M: you mean, in a micro account, i cannot adjust the leverage?
Deric: no
M: and what kind of restrictions are you referring to?
Deric: such as stop and limit
Deric: Standard accounts you can place those close to your entry price and you can place trades within the spread
M: but can you still set stops and limits in micro even if they are not close to the spreads?
Deric: no, there are restrictions on the Micro account

So I guess, you can't make stops and limits in micro accounts? Can you confirm this? Thanks.

My Reply:

I'm fairly new to both. Been following the US stock market on and off
since March 2008 and more extensively since I started my site. I've
been doing forex for about three months.

As for your question on stops and limits, you are definitely allowed
to use them on micro accounts. The thing is the program won't let you
put them too close to your entry price. So, say you want to limit your
losses and you put in a stop, you won't be able to put it closer than
~7.5pips (or $0.75) away. Though, you can always trade in and out at
any time manually.

Personally, if you're a little unsure, I'd recommend giving their
demo/papertrading account a try. You won't have to risk any money and
you can see how things work by paper trading. It's the safest way to
learn the ins and outs of the forex market and after that you can
decide how much you want to begin with.

Take care.
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Wednesday, January 28, 2009

Goldbugs



I'm working on a short article about this peculiar fetish (i.e. the gold fetish). The more I read, the more I find statements like "Gold is money, and money retains its value" to be foolish.

Think about it this way: if I were to offer you an ounce of gold (no strings attached), would you take it? Most rational people would say yes. The interesting thing is, most won't take it because they will be able to use it for electronics, jewelry, or dentistry, they will take it and turn it in for fiat money. And the person they give the gold to will likely keep it in a safe somewhere.

The point I'm trying to get at is that gold has whatever value people give to it. Yes, historically gold has been used as a currency. But, and I may be missing something here, it seems like it is all in our heads. Compared to other commodities, gold's current utility (excluding the ability to exchange it for other commodities) is limited.

Its value is based largely on tradition. And, even then, that tradition is mired in all sorts of business failings and market crashes that goldbugs fail to mention. Gold has not prevented inflation, as new gold deposits are found value of current gold holdings drop (although how much gold is left to be found is up to debate). And there have been plenty of depressions and recessions with gold as a standard. Another problem is gold hoarding which reduces the amount of gold (i.e. money) in circulation. Actually, because of gold's inelasticity, a gold standard tends to restrain and even stiffle economic growth. From what I have gathered so far, most people are much better off without a gold standard, despite what Dr. Ron Paul says.

I'm still trying to parse it all; I'll post more later. For now, enjoy:


A highly technical look at the gold fetish: "Leprechaun, gimme da gold" rap video. You have to admit, Mr. T is highly convincing.
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Tuesday, January 27, 2009

Charts -- Double Tops, RSI, Multiple Time Frames

Many, many people will advise against the use of the one-minute chart. And there are plenty of good reasons for such advice, the main being that the one-minute chart has tremendous amounts of noise, is choppy, and encourages overtrading. I agree with all of those points. I would never recommend trading solely from the one-minute chart unless you can mentally compress it into a five or fifteen minute chart (yes, you'll receive an edge from this madness). If you think of every five or fifteen candles on the one minute as a single candlestick, then you can obtain the same level of perspective (which provides stability and less noise) while still being able to see how those candles on the five and fifteen minutes were formed. On this chart it is much easier to see the descending support on the one minute than the five or fifteen (I took the screenshot two weeks or so ago and do not have the five or fifteen). I nearly always give the benefit of the doubt to the larger trend, but sometimes it is nice to see what the underlying trend is in order to supplement your knowledge of the five, fifteen, or longer trends.

This next chart is full of all sorts of patterns, as well as a sample of a hedging strategy (I wrote a little about this several posts ago). The main patterns are the double tops that form at least twice. One thing to look for when determining tops or double tops is the RSI. While the RSI can theoretically stay above the 70 point for an extended period of time, on the longer timeframes it typically reverts to the mean (50) fairly fast. Shorting near the peaks, or after the RSI fails to make a new high can be profitable or at least a nice compliment to an already solid system.

The more I have been playing with RSI the more I appreciate it. For more information of the empirical nature, check out The Dogwood Report and Woodshedder and more specifically Dogwood's post Wealth-Lab Developer 5.1 Experiment" and Woodshedder's post "Depressed Relative Strength: Bulls Have the Edge".
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Monday, January 26, 2009

Why the DOW is a Poor Measure of the Stock Market

There are some amazing free trading and investing resources on the internet. If you haven't read John Mauldin you're missing out on fairly frequent insights into the economy. I Mauldin's writings emailed to me whenever he posts something new.

Upside Trader has a weekly newsletter that is not posted on his blog. I've read it the last few weeks and have enjoyed it. He tends to analyze the overall market, putting forth his opinions on what signals and info to look for in the coming week.

This last weekend Upside Trader mentioned one of Mauldin's recent posts. He highlights something that I found curious last week--something that I was going to point out today after reading Mauldin's "Here Comes Tarp 3 and 4". Last week I was surprised when I oversaw CNBC. The ticker for the DOW and the S&P500 was showing something peculiar. The DOW was up ~.5% and the S&P500 was down ~.5%, or something similar. At the time I didn't understand what would cause the divergence; I thought both of the indices monitored similar influences in the stock market. I was wrong.

While the S&P500 is market cap weighted, the DOW is weighted based on the amount a single share costs. When I first heard that, it sort of flew over my head. But what it implies is definitely worth the effort it takes to understand. Here's an example: despite MSFT's larger market cap ($156 billion), IBM (market cap of $123 billion) has a greater influence on the DOW's price. This is because market cap has no influence on the price of the DOW. It is based on share price. MSFT's shares go for 17.63, significantly less than IBM's 91.60.

This really starts to make things look weird when you consider the price of some of the financials on the DOW. They are all very low (e.g. C is 3.33 and JPM is 24.50). Mauldin says all the financials and all of the automakers on the DOW could go to 0, yes zero, and it would have less affect on the price of the DOW than if IBM, all alone, were to go to zero. He adds GE as a financial.

Mauldin goes on to say that there is a tacit rule that anything that falls below $10 is replaced by something else. However, the uproar that replacing C with something else, would be tremendous. Can you imagine the effect it would have on the DOWs price to replace a failing bank with something with a little more perk?

If you want to read his full article, check it out here.

I've heard a lot about why the DOW doesn't matter. Hopefully you now understand that the S&P500 is a better barometer of the stock market (assuming you didn't already grasp that 500 companies would be a better sample than 30).

I'm beginning to wonder how the media may manipulate this divergence to boost the general public's stock market sentiment towards something more positive. Something to look out for, especially considering many, many people use the DOW and not the S&P500 as a measurement of the stock market's health.
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Sunday, January 25, 2009

Two Experiments

Last week I played around with two experiements. Both were performed in the forex markets on the EUR/USD pair. The first one I tried had to do with rollover. It failed miserably. Rollover is a part of currency trading that occurs when the two currencies you're trading have different interest rates. You are either charged or credited depending on whether the difference between the rates is positive or negative.

If you've ever heard of the carry trade, that's basically what I did. I found a currency pair with the highest rollover rate and put on a trade at 4:59pm EST. At 5:00, the rollover rates associated with any pairs you have in your account are either added or subtracted (depending on if they're positive or negative) from your account.

Unfortunately, right when I put on a trade I started losing pips as the market went against me. I held out for the rollover, but it was terrible--a fraction of the spread.

Verdict: Unless you can get a rollover rate of 5pips or more, the trade isn't worth it. Of course, if you were going to put on the trade anyway, you might as well take the extra fractions of a pip. While your broker's rollover rates may be different (they vary), most of the rollovers at my broker are less than 1pip. If the market moves against you, you will get screwed.

The second experiment I did involved hedging a single currency pair. I would buy and sell the EUR/USD pair at the same time. Then I would place limit orders for each at points of resistance. When the pair reached that point the position was covered and, hopefully, the currency would came back towards the purchase point of the other pair. As it did, I would hedge again, locking in any gains I received.

This worked really well for me because the market is entering an area where a lot of retracements are occuring. If the market were trending, I'd do better off riding the trend. But since I don't know if it is going to go up before it goes down, or vice versa, but do have a general idea of where it will find resistance, I can hedge the pair and benefit no matter which way the pair moves at first.

Here are the results (I did this in that $25 free account I got from FXCM a while back):



Disclaimer: Do your homework and take responsibility for your risks. Play with a small amount or with a demo account before putting serious money into the market. I don't want to hear of anyone who was hurt financially by the above experiments. Remember, the first one failed miserably. And just because the second one happened to make me 100% in a week (albeit, that's only $25) does not mean it will work next week.

Take care!
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Saturday, January 24, 2009

List Update and a Short Clip on Odds


A clip from Dumb and Dumber. Also, I picked up a copy of Against the Gods: The Remarkable Story of Risk. I tried to pick up a Michael Covel book (recommended by zentrader and Charlie G.) but they didn't have any in stock.

An updated stock contestant list:
  • Rob
  • fiandola
  • Charlie G (sorry if I misinterpreted your comment)
  • Flip
  • Chuck
  • Afonso
  • Patty


Including me, that's eight. Two more and we'll have our ten necessary for the first round of cash prizes. If you don't want to trade much and still want to participate you can do some quick trades (you need 10 in and 10 out to be counted) and then you can hold onto a static portfolio. If you do that you will be counted toward the above and have a chance at winning some prizes without having to day trade. I won't be able to be at the computer all day to trade (I have class during most of the open market), and I don't think it will hurt you too much to do a more swing trading strategy. Of course, you can trade every ten minutes if you want. Whatever floats your boat (I love terrible cliches).

Add a comment below if you'd like to join. I'll edit the above as soon as I receive the comment.
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Friday, January 23, 2009

Bruce Kovner: Risk and Personalization

What advice would you give the novice trader?

First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. My experience with novice traders is that they trade three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks.

Besides overtrading, what other mistakes do novice traders typically make?

They personalize the market. A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn't care whether you make money or not. Whenever a trader says, "I wish," or "I hope," he is engaging in a destructive way of thinking because it takes attention away from the diagnostic process.

- Interview of Bruce Kovner in The Market Wizards.
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