Complacent Panda

Closed

2009-04-03T13:43:00.000-07:00

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.

Side Project

2009-03-17T17:08:00.000-07:00

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

A Check Up

2009-03-16T18:43:00.000-07:00

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.

A Few Charts

2009-03-15T22:30:00.000-07:00

Check out Trader Mike for several good charts as well.

Velocity, Acceleration

2009-03-13T15:25:00.000-07:00

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.

Newsletter?

2009-03-11T21:25:00.000-07:00

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.

He Hit the Number, and So Quickly...

2009-03-11T15:25:00.000-07:00

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.

Historic Chart

2009-03-09T16:51:00.000-07:00

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.

Motives.

2009-03-07T19:32:00.000-08:00

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.

Another Poker Analogy

2009-03-06T14:21:00.000-08:00

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?

Surrendering to Gravity and the Unknown

2009-03-05T16:08:00.000-08:00

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.

Fear

2009-03-04T17:10:00.000-08:00

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

Nap

2009-02-25T15:07:00.000-08:00

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)

Panda Love

2009-02-21T22:47:00.000-08:00

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 =)

Another Look at Three Charts from Last Week

2009-02-21T11:02:00.000-08:00

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.

On Scalping

2009-02-20T12:45:00.000-08:00

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.

Contest Ranking as of February 19th

2009-02-19T15:51:00.000-08:00

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.

144 Trading Blogs Online!

2009-02-18T16:53:00.001-08:00

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!

Busy; Blogs; Computer Setup; and, Free Culture

2009-02-17T21:14:00.001-08:00

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.

Trading Blog List

2009-02-16T12:33:00.001-08:00

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

2009-02-15T21:33:00.000-08:00

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.

S&P Earnings and Implications

2009-02-14T19:35:00.000-08:00

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.

Trading Setup -- Beauty is in the Eye of the Beholder

2009-02-14T12:25:00.001-08:00

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.

A Little Restless -- Three More Charts

2009-02-13T20:10:00.000-08:00

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.

SPY Support

2009-02-13T19:07:00.001-08:00

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.

Supply and Demand

2009-02-13T15:46:00.000-08:00

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.

Mother

2009-02-12T20:45:00.000-08:00

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.

Back from the Bahamas

2009-02-11T12:55:00.000-08:00

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.

Short Hiatus

2009-02-04T12:42:00.000-08:00

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.

Fear of Success

2009-02-03T17:46:00.000-08:00

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.

After the First Day--

2009-02-02T18:19:00.001-08:00

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.

Stock Contest Signup

2009-01-30T13:43:00.000-08:00

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!

Reader Email: Backtesting Software

2009-01-30T11:35:00.000-08:00

Reader Email: Setting Up a Forex Account

2009-01-29T20:35:00.001-08:00

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.

Goldbugs

2009-01-28T20:32:00.001-08:00

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.

Charts -- Double Tops, RSI, Multiple Time Frames

2009-01-27T16:21:00.003-08:00

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".

Why the DOW is a Poor Measure of the Stock Market

2009-01-26T20:03:00.000-08:00

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.

Two Experiments

2009-01-25T16:09:00.000-08:00

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!

List Update and a Short Clip on Odds

2009-01-24T19:44:00.001-08:00

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.

Bruce Kovner: Risk and Personalization

2009-01-23T19:51:00.000-08:00

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.

Stock Contest Update

2009-01-22T15:58:00.000-08:00

I wrote a lot below, hope that didn't deter you from joining the contest. Here is the jist of it:

- The contest is free.
- The more people, the better the prizes (see below for the list of prizes).
- We'll be using Wall Street Survivor's group contest thingy.
- I'm thinking Feburary 2nd will be a good day to start. I'll post registration info on that day.

Here's who has signed up so far:

Rob
fiandola
Charlie G (sorry if I misinterpreted your comment)
Flip
Chuck

Including me, that's 6 people, meaning we'll definitely have a contest for the book and if we get four more people we'll have some money prizes.

If you'd like to compete (and I think there's a good distribution of the prize money) then please leave a message below. Any ideas are welcomed.

PS: Many thanks to Trader-X. Not only does he publish a kick ass blog, but he's sent quite a bit of traffic. If we do make the 10 people, remember to thank him for the traffic. I'd also like to thank Rob for, not only his promotion of the contest (which is much appreciated), but for being the first to sign up.

Thank you.

Stock Trading Contest!

2009-01-21T12:58:00.001-08:00

A few days ago I received an email from Wall Street Suvivor. They are offering group sign-ups that allow traders and investors to compete in contests. The cool thing is WSS will pay the group to sign up. The group gets $50 if it has 10 members, $100 if it has 25, and $200 if it has 50.

Now, I don't want the money. Instead, it is going to be part of this contest. The more people who sign up, the bigger the prizes. I haven't decided exactly what the prizes are going to be yet, and would appreciate some input. While I won't be competing for the prizes, I will be competing--more on that below. Also, if you would like to participate, please leave a message in the comments. We need at least 10 people in order to take advantage of the $50 offer. If there are fewer than 10 people, and it still makes sense to have a contest, I'll put up a copy of Liar's Poker for the winner.

Here are some prize ideas:

Less than 10 people:

1st place - Liar's Poker
Anyone who beats me - Linkage, plus a review of your site posted to my main page. (I'm trying to think of something equivalent for those who do not have blogs)

If we have 10-24 people:

1st place - $20
2nd place - $10
3rd and 4th place - $5
Anyone who beats me - Your choice of either an entry into a randomized 'lotto' for Liar's Poker or a review of your site posted on my main page.

If we have 25 - 49 people:

1st place - $35
2nd place - $20
3rd place - $15
4th and 5th place - $10
6th and 7th place - $5
Anyone who beats me - Your choice of either an entry into a randomized 'lotto' for Liar's Poker or a review of your site posted to my main page.

If we have 50+ people:

1st place - $50
2nd place - $35
3rd place - $25
4th - $20
5th and 6th place - $15
7th, 8th and 9th place - $10
10th and 11th place - $5
Anyone who beats me - Your choice of either an entry into a randomized 'lotto' for Liar's Poker and Beating the Market (by Charles Kirkpatrick) or a review of your site posted to my main page.

Again, I am not competing for the money and am competing merely to reduce the amount of front page reviews I will have to write (or whatever prize we happen to think of). That means that all of the money is for you (well, you in its plural form).

There are a few rules that Wall Street Survivor requires everyone to follow:

- Each of the participants must make at least 10 trades in order to count towards the money.
- You will not be able to spend more than 25% on any one stock.
- You get 100% margin.
- I think they have delayed prices, so please use Google Finance or some other real-time service to get your quotes.

My own rules:

- No resets! (Not sure if it will be turned on or not. But you will not be able to do it without making me, and the other contestants, very angry!)
- One account per trader! (I don't want the same person winning all of the prizes; any extreme similarities between account trading styles will be investigated, and I'm definitely not dumb enough to send two cash prizes to the same paypal account).
- PayPal charges and shipping costs will be covered by me. After I receive the check from WSS I will deposit it and send you the money through paypal (or some equivalent service). You'll receive all of your prize with nothing subtracted by the paypal monster.
- I may insert more rules before we start. Please help me out here. I want this game to be fair and fun.

Last, but not least: If you have any ideas or think that the prize ratios should be restructured, let me know. Comment, comment, comment. And, of course, let me know if you want to participate. I'm not going to start the competition by myself.

The Trend is Your Friend (and most likely a demi-god, so be nice)

2009-01-20T20:59:00.000-08:00

Odds of 58.2% with equal downside and upside is a bet you would want to take, especially if you could take it again and again. Although the edge may look insubstantial, no casino you go to or lotto you participate in is going to give you such an edge. If you're relatively patient, I'm certain you'll be somewhat pleased over time (unless you were looking for a rush).

The screenshot clip is from a new game at Wall St Survivor that allows you to bet 50 "loyalty points" on the next tick on a random stock. What I did for 122 times (I had to get to class, but I did this last week too, with similar positive results) was place my bet on whatever direction the stock was heading at the time. Basically, I was following an extremely short range trend. If the line chart was heading up, I bet up; and, vice versa. Not bad for little effort (albeit, you need 50,000 loyalty points to trade for $5...if only I could develop a cmoputer program to do it for me).

You may be thinking: hey this is cool, but I don't think it will work on a larger scale. Well, I beg to disagree, and so do many influential and successful economists, traders, and investors. Here is my theory--derived and distilled from such brilliant minds as Robert J. Shiller, Charles Kirkpatrick, and Michael Covel, among many, many others:

Trend following works on the large scale because when companies are successful (or percieved to be successful) people will continue to invest in them, pushing stock prices up. Most people are not going to put their entire savings into a stock and never invest in it again. Many people are going to put some money into a stock, wait for their next paycheck and put more money into it as long as the stock continues in a positive direction. They may also tell others about their success, increasing the demand for the shares, further strengthening price. This is what Shiller refers to as a postive feedback loop. As money experiences success, more dollars will follow.

The same works for the downtrend. If people are panicking around you, you (maybe not you but the statistically average person) are also going to panick. The process feeds on itself driving prices further downwards. People will probably tell their friends about their lack of success in the stock market and warn them to stay away. People may also feel sick to their stomach continuing the optimistic investment process they had performed up until then, further reducing demand.

So, why does this work in the short term? Well, in order for the line chart to be driven upwards, greater demand than supply must be present, meaning more buyers than sellers (i.e. a greater chance for an uptick). When there is a greater supply than demand, you will have the opposite.

Put your bet where you have the greatest odds.

Seven Important Candlestick Reversal Pattern Pairs

2009-01-19T12:43:00.000-08:00

Candlestick reversal patterns can be a boon to any trader's repertoire. Combining them with support/resistance lines and other indicators can increase a trader's edge substantially. Each set below contains both the bearish and bullish counterparts. These are ideal setups that require directional movement (i.e. nothing range bound). The more volume at the given point, the more strength each of these patterns portend.

Bearish and Bullish Harami -
Identified by a long bar followed by a very short one. Harami signal a loss of momentum and a possible reversal.

Dark Cloud Cover and Bullish Piercing Pattern - The dark cloud cover and bullish piercing patterns reveal weakness in the current trend and emerging strength in the opposition.

Shooting Star and Inverse Hammer - Both the shooting star and the inverse hammer have a small body with long upper wicks. THe shooting star shows the failed attempt of the bulls at maintaining control over higher price levels, while the inverted hammer is like a spring ready to pop.

Bearish and Bullish Engulfing Patterns -
In the bearish and bullish engulfing patterns, the opposing side's strength overwhelms previous advancement. These tend to be stronger than the dark cloud cover and the bullish piercing patterns. Make a note of the difference: in the engulfing pattern the second candle completely overtakes the first.

Hanging Man and Bullish Hammer - Both the hanging man and bullish hammer resemble the shooting star and inverted hammer, however they are flipped. The hanging man and bullish hammer display a struggle between the bears and the bulls. In the first, the bears are beginning to gain traction against prior bullish strength. In the second, any movement downward has been stalled, signalling a possible bullish reversion.

Southern and Northern Dojis - The southern and nothern dojis are some of the most watched patterns in the candlestick charting world. The both signal a parity between the bears and the bulls. At the moment a doji forms, and as with all these signals increased volume strengthens the pattern, momentum has been prevented from continuing. Sometimes this signals confusion, sometimes this signals a stronger opposition with increasing attrition of the side previously in control.

Morning and Evening Stars - The morning star and the evening star do not necessarily have a doji as pictured here. The top candlestick will be shorter and if it is a doji, signals increasing odds that a reversal will take place. These two patterns, though rare, give the highest odds of reversal. Strength goes in, it faces stiff resistance, after which control shifts hands.

For Your Enjoyment

2009-01-19T06:12:00.001-08:00

Two sexy pandas.

Quote

2009-01-18T20:40:00.001-08:00

"To those human beings who are of any concern to me I wish suffering, desolation, sickness, ill-treatment, indignities - I wish that they should not remain unfamiliar with profound self-contempt, the torture of self-mistrust, the wretchedness of the vanquished: I have no pity for them, because I wish them the only thing that can prove today whether one is worth anything or not - that one endures."

- Nietzsche

not much

2009-01-18T18:12:00.000-08:00

I don't feel like posting much tonight, although I did began writing a candlestick reversal pattern article today. In the trading world, my stubbornness has gotten me in trouble; I'm down quite a bit on a trade that I have yet to close. Stubbornness is something that I definitely need to work on.

I did make my own resolutions chart, as the Happiness Project suggests. All six of the goals are nothing too complicated--I just want to be able to do each one every day for at least 30 days. Two focus on physical well-being. Two focus on relationships. And the last two focus on trading.

Saturday Night Live Speaks the Truth About Brokers

2009-01-17T21:11:00.001-08:00

Straight Talk - Stock Market
by senatork

Saw a link to this clip on Twitter.

PS: Reading and playing Inspectd. Trying to get my equity up to $500 million. Might be a little too ambitious. I got up to $10million, but then got destroyed. Some people on there have $100 Septillion. I really need to work on my technical analysis skills. =)

The "W" Formation

2009-01-16T15:10:00.000-08:00

This is the first pattern that I ever learned. It signals bullish action. What you're looking for is one candlestick that looks almost like a cross (these are called "doji"). If the stochastic is low, the RSI isn't too low (not less than 30) and volume (in the chart here there's no volume because volume doesn't function the same way in the forex market) is high, then you're on your way to forming a "W". What you want to look for next is a burst of strength to the upside; this will form your center point. Eventually you will use this as a confirmation. And you will need Surety Bonds. Watch for another pullback creating a higher low point. This candlestick will likely be shorter than the previous base, although this too could be a doji. Look for the stochastic to be oversold again, but not quite as low as before. As the chart shifts off the low look for an increase in the RSI that surpasses the previous reading. It's good if this continues going up--the stronger the better, until somewhat over 70 (then the chart may be getting top heavy). In any case, the "W" formation is confirmed as long as the RSI continues upward and the candlesticks pass the mid-point in the "W". In my experience, it tends to be a reliable indicator. Again, the more volume on the two bases and the stronger the RSI the better.

PS: My links are nearly all cleaned up and the post labeling is done on all back posts! Something to be proud of =) I am developing my own resolutions chart (a la Happiness-Project) and have come up with several ideas to improve the blog. More later.

Doji with Volume

2009-01-15T21:53:00.001-08:00

Volume significantly picked up today on all of the indices, plus dojis formed on, at least, the DOW and the S&P500. Dojis accompanied by heavy volume tend to signal reversals, which, at 820 on the S&P or ~8000 on the DOW (both areas of previous resistance) makes sense. While a rise isn't guaranteed, this setup certainly increases the odds, as does anticipation of Obama's inauguration next Tuesday.

Site Crap, Ideas

2009-01-15T21:16:00.000-08:00

I really need to research and understand rollovers in the forex market. I got raped by one today because I was short EUR/USD around 4:00PST. The position wasn't awful when I left, but when I got back my P/L was up quite a bit. But the price hadn't moved much at all. I got hurt by the rollover. I'll put it all into an article and explain how you can use it to your advantage, basically setting up your own carry trade. But, doing the opposite of the carry trade will get you hurt.

On a different note, I have been clearing out my offsite link section. I decided to make it a little more like a community, linking people who link me, comment here and who I talk with on twitter. I'm sure you can find links to The Big Picture and Abnormal Returns elsewhere, and I'd be surprised if you found my site without stumbling across those earlier. There's no real reason to have them on the sidebar. Another thing that bothered me was that I only get so many hits. I figure I might as well give those who contribute and support me better odds at getting more traffic for themselves.

Another thing that I have put off too long is labels. So I have been working on adding labels to my old content.

Basically, I am trying to spruce things up a little, change things around to make the site more helpful and useful. I have quite a few ideas for articles that I'd like to put together--seems like the articles generate the most interest and attention. I also want to develop some other novel content ideas. Maybe a historic chart of the week, a random trading fact, a weekly economic quote/excerpt with commentary, or an interview of some of you traders out there; something of that sort. I enjoy the writing and, now that I have near-daily postings down, I would like to cultivate and nurture the content somewhat. Any ideas are welcomed.

Forex, Poker, Chicks, Beer, Drugs, Sans the Last Three

2009-01-15T10:32:00.000-08:00

After closing out my big trade yesterday morning, I took a break from trading. Even though it would take quite a bit of effort to blow my entire gain, whenever my emotions swing towards euphoria or desperation my rationality tends to withdraw. This morning I did a little work on my risk management. No big trades or anything, but if I can keep the losses down pips start to grow like I fucking planted them.

For the EUR/USD pair, I have a short entry order in at ~1.314. Another good entry point is ~1.309, for the short. Seems like the general consensus is this is going to retest its lows.

The deal is, I tend to play some longs and shorts throughout the day using a variety of support/resistance, trendlines, and indicators (MACD, RSI, and Stochastic). But I put in some entry orders at ideal locations. Sometimes I can't wait and I put in an order early, which tends to get mauled until the ideal levels get hit. Of course, that doesn't always happen, which is why I'll probably continue to do it. As my dad would always say, "If I were I doctor, I'd go out of business." (Refering to his lack of "patients.")

Yeah, everyone knows that's a terrible joke. But the man is fucking scary. So it was always in our best interest to at least force a smile.

In other news, I played some poker last night and had a 50% return while my brother took off with 400% on a single hand. Shit. And the thing is, he rarely bets past the flop. Fucking dead giveaway. Oh well. We were playing with a dollar buy in, so maybe I can get him to buy me some tacos.

PS: Sans means without or lacking, hence, sadly we had no chicks, drugs, or beer while playing poker. Such is the life of a beginning trader. Maybe next year...maybe next year.

Trading Advice from Michael Marcus

2009-01-14T11:21:00.000-08:00

Q:Having been through the whole trading experience from failure to extreme success, what basic advice could you give a beginning trader or a losing trader?

A:The first thing I would say is always bet less than 5 percent of your money on any one idea. That way you can be wrong more than twenty times; it will take you a long time to lose your money. I would emphasize that the 5 percent applies to one idea. If you take a long position in two different related grain markets, that is still one idea.

The next thing I would advise is to always use stops. I mean actually put them in, because that commits you to get out at a certain point.

Q:What other advice would you give the novice trader?

A:Perhaps the most important rule is to hold on to your winners and cut your losers. Both are equally important. If you don't stay with your winners, you are not going to be able to pay for the losers.

You also have to follow your own light. Because I have so many friends who are talented traders, I often have to remind myself that if I try to trade their way, or on their ideas, I am going to lose. Every trader has strengths and weaknesses. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach. When you try to incorporate someone else's style, you often wind up with the worst of both styles. I've done that a lot.

- Both excerpts from the first chapter of Jack Schwager's Market Wizards. Remember to check out DT's site on Tuesday to discuss. The book is elucidating, entertaining and enlightening. (And there's your weekly alliteration fix).

Determination Pays Off: 211.7 pips

2009-01-14T05:26:00.000-08:00

Hope someone else used the daily chart I posted yesterday. Awesome setup, very nice overnight trade =)

Take care and good luck.

Kurt Vonnegut on the Stock Market

2009-01-13T16:49:00.000-08:00

"The name of the book was The Big Board. . . . It was about an Earth-ling man and woman who were kidnapped by extraterrestrials. They were put on display in a zoo on a planet called Zircon-212.

These fictitious people in the zoo had a big board supposedly showing stock market quotations and commodity prices along one wall of their habitat, and a news ticker, and a telephone that was supposedly connected to a brokerage on Earth. The creatures on Zircon-212 told their captives that they had invested a million dollars for them back on Earth, and that it was up to the captives to manage it so that they would be fabulously wealthy when they were returned to Earth.

The telephone and the big board and the ticker were all fakes, of course. They were simply stimulants to make the Earthlings perform vividly for the crowds at the zoo—to make them jump up and down and cheer, or gloat, or sulk, or tear their hair, to be scared shitless or to feel as contented as babies in their mothers' arms.

The Earthlings did very well on paper. That was part of the rigging, of course. And religion got mixed up in it, too. The news ticker reminded them that the President of the United States had declared National Prayer Week, and that everybody should pray. The Earthlings had had a bad week on the market before that. They had lost a small fortune in olive oil futures. So they gave praying a whirl. It worked. Olive oil went up."

—Kurt Vonnegut Jr. Slaughterhouse Five

This was quoted in The Market Wizards by Jack D. Schwager and the reason I am posting this--besides the fact I love Kurt Vonnegut--is because DT is hosting a book club next Tuesday, and he chose The Market Wizards for the first book. I just started reading it (d/led it) and am enjoying it immensely. I'm sure DT wouldn't mind if I invited you to join, so please feel free to click here or on any other links to his site, check it out, and begin reading.

On a side note, somewhat related, I suggest you also check out The American Ruling Class, a movie/documentary with an appearance by Kurt Vonnegut. It follows two ivy league graduates who seek advice on how to live their lives. Anyway, read more about it here or watch it here. I strongly recommend it.

Some Charts for Tuesday

2009-01-13T14:24:00.000-08:00

I commented directly on each of the charts. I'm trying to take more screenshots as I trade the market so that I can see what I was looking at after the trade is completed. Attitude Trader talked about using X-trader's journal suggestion for the New Year, and I want to give it a try as well. Feels like it is helping me out so far. (Didn't realize I hadn't labeled the currency charts. They're all EUR/USD and mostly from the 15 minute perspective. The first is the daily outlook for the EURUSD pair.)

70+ Pips

2009-01-12T22:03:00.000-08:00

This is my first decent return in my Forex account. I have gained enough confidence that I no longer worry about letting my trade mature, despite all of the fluctuations in the market.

The Death of Capitalism? On the Contrary, the Death of Socialism.

2009-01-12T20:17:00.000-08:00

While I have some charts from last week and a few from my forex trading today that I’d like to post, at the moment I’d like to discuss something else: The Death of Capitalism; or, on the contrary, the possible renaissance of Capitalism that will be born from the ashes of Socialism.

Over at ContraHour, the most recent post on Martin Armstrong’s work piqued my interest. It focuses on the question often asked in the media: Does the current crisis suggest that Capitalism is dead?

He argues that this is not the case—far from it.

To understand the reasoning behind his conclusion, we should turn to Armstrong’s main contentions:

1) “Vote for me and you will get something for nothing” is a central tenet of our current government doctrines (socialist).

This is the steal from Peter to pay Paul idea, except at the moment, the politicians are stealing from a Peter who has yet to be born to pay for a Paul who may never die (I exaggerate, albeit people are living much longer than expected). People aren’t being encouraged to work at developing new skills in order to obtain better health care or a higher standard of living; instead, they are obtaining a higher standard of living and longer life spans funded by debt.

2) We cannot spend our way out of a crisis that stems from excessive leverage and debt, but government is definitely going to try.

Armstrong discusses the collapse of the Spanish, the Romans, the French, and how all of these collapses were caused, fundamentally, by excessive debt. Each of these entities failed to understand the importance of maintaining their credit. If we do the same, and we are on are way, we too could face collapse as we struggle with untenable debt to foreign entities.

Armstrong argues that, of course, the government will try to spend its way out of the mess it has created for itself (e.g. Obama’s stimulus plan, bank bailouts, auto bailouts, etc). This is done so that those in positions of government power can retain their power. However, such spending can only go so far before it begins to oppress the members of the union, leading to revolt or extreme discouragement.

3) Communism and socialism centralize power in the government, not in the forces that increase wealth, forge progress, and enhance life in the long-term.

Because of the tendency for government to misallocate resources (refer back to point number one for the reason this happens), the centralization of power can stifle progress and harm citizens. While communism and socialism redistribute wealth in order to more equally equip members of society, capitalism distributes wealth to those who develop skills and towards that which allows progress.

4) “Where in a normal economic model, to earn more one improves his skills, the Communistic model promotes advances income without improvement in skills” = Unions stall growth and causes skill to remain stagnant.

Currently, one of major strongholds of a union (the Detroit automakers), is displaying its own ineptitude. Compared to the non-union production models of automakers in the South, Detroit is failing miserably.

Teachers’ unions are perhaps an even better example of the failure of the union. Instead of making the educational environment more potent, it enables many teachers to continue work that they may not be suited for simply because of the difficulty in firing them. Through the collective, those without the necessary skills can impede the functioning of the education system. This happens in any business that is forced to use a "one size fits all" approach.

5) Unfunded state promises will collapse. It is helpful to understand them as an attempt to impose a Marxist-like (i.e. Utopian) environment on society.

Social Security, Medicare and Medicaid, are unfounded liabilities. The government cannot maintain these promises for very long, especially with the mounting economic crisis, the baby boomers coming retirement, exploding debt, increasingly expensive health-care, and more.

Yes, without these promises our union will not be as utopian-like as it would be with them. However, remember what the word utopia actually stems from: the Greek for “not” “place,” or a nonexistent place. While the homophone eutopia in Greek means “good” “place,” it is much more likely that when Sir Thomas Moore wrote his book he intended for the former to take precedent over the latter, as his vague explanation of the perfect society is oftentimes humorously naïve and at others satirically unbelievable.

It is time to stand back and look at what the current situation is telling us.

The Correlation of Happiness and Success

2009-01-11T21:48:00.000-08:00

Someone posted a link to my site on the Google Finance message boards over the weekend. I guess quite a few people found the image below fairly humorous, which makes me happy (while many may not appreciate the XKCD humor, if you have ever had an interest in math, science, or computers, it may be just for you). Actually, every time I find Google has directed someone to my site because of something I wrote or posted I feel fairly good about myself. While this tends to lead to an anxiety about whether I can continue to provide content in an interesting manner and a consistent basis, I will push myself to get over it and test and play with ideas. Failure isn't failure unless you let it be.

And I suppose that is partly where I intend to go with this post. Last night, a friend who is living in Spain for the next six months or so sent me a link to check out. She said it was kind of corny, but when I got to the site, it was anything but. With sites dedicated to the attitude aspect of trading (there are many, because it contributes a large portion to being a successful trader, but I am mainly thinking of Attitude Trader), I thought it might be beneficial to post the link she sent: Happiness-Project.

While the entire site is full of useful information for maintaining a good attitude and alleviating stress and escaping feelings of failure, a link to one article struck me as particularly important in the realm of trading (and the economy, for that matter): Does Money Buy Happiness? The conclusion is that many wealthy countries self-define as less happy than certain poorer countries. The reason for this is because happiness is not defined by money, despite what popular culture may have us believe, but instead by success and perceptions of success. The article delves into many reasons why this is, but for the most part it has to do with feeling valuable. Yes, being in a job that makes you money can make you feel valuable, but if you do not participate in other social or intellectual pursuits that may not directly make you money, you lose out on certain value components that will weigh on any feelings of success you may derive from work.

Even instances of failure can be used as stepping stones to success. Embrace the failure and the possible loss of money (whether real or imagined) and proceed. It takes more than two steps to get from wherever you are to the top of the world. Learn to treat each step as a success, whether you find yourself retracing or tripping, climbing or falling.

The Good About Steve Jobs' Weight Loss

2009-01-10T08:33:00.000-08:00

(Comic from XKCD)

Notable Posts

2009-01-08T19:52:00.000-08:00

Trying to gather some of my more desirable and encompassing information here:

A Simple Use of Moving Averages: Trend Determination - In this post, I strive to set forth one of the simpler methods of trend determination I know.

Practice Makes Better - You've heard it a million times before--it's a cliche that is worth its weight in gold (not that it makes any sense to weigh a cliche...).

Why a Plan is Pertinent - Short and sweet advice for the impulsive types.

How to Play Liar's Poker - Another relatively popular article that explains the subtleties of this bluffing game (Michael Lewis named his famous book after this game).

34 Steps to 25,000 - My optimism overtook me here. But, at least this gives some idea as to how much effort it would take to get from $1,000 to $25,000.

Making Money with Simple Point and Figure Support and Resistance Trendlines - Probably my most popular and helpful article. Gives a primer on some techniques any trader can use to determine relatively clear support and resistance lines.

Zen Poetry - Somewhat enigmatic, I'd probably stick with the "Stock Club" rules below; however, these ideas have helped me.

WSJ for Free - My attempt to flee the poverty that oppresses me (i.e. How to get the Wall Street Journal for free; legally!)

Mr. NYSE BPI and Mrs. VIX - A post discussing some basic ways to interpret and understand the NYSE Bullish Percent Index and the VIX.

Triangles - Good example of triangles on point and figure charts.

Strangle LEH/WM? and In times of turbulence, Options are a good Option - An experiment with straddles and strangles on LEH/WM before each of their collapses.

I can't do that, Dave - My first attempt at making a program to help me with technical indicators.

First rule of Stock Club... - A list of rules that (in my opinion) a successful trader will take into consideration.

Fruit ripe for the picking - My (as it turns out, prescient) first post and a good example of resistance and oversold stochastics.

"So Sick of Complacence Now"

2009-01-08T07:35:00.000-08:00

"Know thy Enemy" by Rage Against the Machine.
I've got no patience now. So sick of complacence now.

2.50 Feb SOL Calls @ 2.55

2009-01-08T07:15:00.000-08:00

I like that burst of volume just a few days ago. As long as SOL can hold above its 20 day EMA, I'm happy. I may have gotten in a little early. Looks like it may pull all the way back to 4.21, its 20day EMA. Still love the price/volume action.

PS: Got out of my COST Puts @ .60 for a loss.

NYSE Bullish Percent Index

2009-01-07T21:52:00.000-08:00

At least since '00, there hasn't been such an extreme and direct rise in the $BPNYA. Moving from below 30% to above 30% is considered a bullish signal. Going from above 70% to below 70% is seen as a bearish signal. I don't know exactly how to read the signal at the moment. But from the way I understand it to work, I think there are two good interpretations, that might be useful when combined with other indicators:

1) The market was so oversold that everything is registering bullish signals. Because of this, it is the time to buy, buy, buy.

2) The market is being irrational. This many bullish signals cannot be supported given the current economic environment. The BPNYA index is due for a pullback.

The second is more along my line of thinking. Check out the Chart Addict's newest post. He points out a rising wedge, a bearish signal. Actually, most of the site's I read and follow are currently bearish and, at most, considering a bear market rally before bearishness resumes.

I agree. But I am wondering if the government/media/someone will find a way to present the unemployment numbers on Friday as better than expected and representing a "bottom." In other words, I'm watching my back.

PS: Been doing a lot of digging and twittering. Working up my accounts and actually making some money on twitter (a pittance, but that's to be exptected). I am slowly edging myself away from those time sinks...

200th Post

2009-01-07T13:34:00.000-08:00

I updated the site a bit for its 200th post birthday. The layout is definitely improving ever since I embraced the ideation of sexing things up.

What I really wanted to say was that I appreciate everyone's support, all the comments I have received, the suggestions, the tips, all of your sites, the visits to my sponsors, the camaraderie and so much more. I can't believe I have come this far. For all of you thinking about making your own blog: it isn't easy--but, it is worth it.

Here's to a good 2009 and another 200 posts.

You Think Housing is Bad Now? Just wait...

2009-01-07T11:13:00.000-08:00

- "The problem now is that the insanity didn't end with the sub-primes...there were other exotic loans: alt-A's and option ARMs."
- "The teaser rates will go up. A mortgage payment of $800 a month could easily jump to $1500."
- "70% of these option ARMs will default."
- "We're looking at about 3 to 4 to 5 years."

(h/t Chicken Smith)

Some PnF Ideas

2009-01-06T21:16:00.001-08:00

I thought it might be beneficial to show those interested one of my methods for finding playable stocks. This method involves going to Stock Charts' Stock Scan (link also in the sidebar under 'Important Technicals') and scrolling to the bottom, in the Point and Figure section. It doesn't really matter which filter you choose. Make sure you're shorting bearish stocks and buying bullish stocks, though. In this instance, I chose 'Descending Tripple Bottom Breakdowns.' It'll give you some stocks that show this pattern, and I chose a few that had a price over $10. You can go with the penny stocks, if you like, just be aware of their risk, and the fact that you may not be able to short something under $5 if you do not have sufficient capital.

Grab a few of those stock tickers, put them into the Candlestick Chart form. Add some useful indicators like RSI, MACD, Full Stochastics, 20/50/200 EMA, etc. Then do a comparison between the PnF and Candlestick charts. I've done most of the work directly on the charts below. My favorite out of the three is probably UTI. But I would be careful with any of them, as the market is in bear market rally mode. All three definitely look good for a short on overall weak market days.

Use caution. Take responsibility for yourself. Remember risk management is number one!

PS: Downloaded Think of Swim's software to do some paper trading practice. Looks solid. Thinking about posting some results as I progress.

Tres Charts

2009-01-05T09:41:00.000-08:00

Look at the MACD slowly edging towards a positive divergence on the SPY's weekly. Signals an increasingly bullish outlook.

Charles Kirkpatrick

2009-01-04T23:30:00.000-08:00

Three charts that I found using a slightly modified version of the relative strength method described in Charles Kirkpatrick's new book Beating the Market:

Some Updates

2009-01-04T16:06:00.000-08:00

Been updating the page to make it somewhat more professional. Added an about, contact, FAQ, and disclaimer page which will be linked to from the righthand side. Also, I have added a "delicious" bookmark app to the right-most sidebar, underneath the google ads. I'll add what I am reading at the moment over there.

More updates shortly.

Disclaimer

2009-01-04T16:03:00.000-08:00

I'm an amateur day and swing trader. I get my information from many talented people on the web (some shown in the links section), and through my own blood, sweat, and tears. Because of that, and the fact that I have only been doing this since March 2008, I strongly encourage you to do your own research before placing any money into the stock market. Unless of course you want it to be like roulette (Russian, perhaps?); in which case, ignore my posts and welcome to Vegas!

Basically...
Take responsibility for your own investments and trades. I am an amateur and make no guarantees and give no advice. This is for my own education and entertainment. If you want to use any information found here, please ask an acredited financial adviser who can legally suggest strategies. Thank you.

About

2009-01-04T16:02:00.002-08:00

I go by the moniker Complacent Panda. I discuss topics, largely, in the economics field, with some tangents into politics, art, philosophy, or whatever I find myself interested in at the moment. I am a full time student, who does part time tutoring (math, science, english, whatever).

Goal
The goal of this site is to guide and develop the skills necessary for trading in the stock market, the forex market, or on the options exchange. When I started, I felt that trading was quite possibly my best bet for making money based on a reward system.

'Blogging' History
I have been on the internet since I was in 7th grade and have been making websites since shortly thereafter. I began with a video game site which slowly developed into a rom/emulation site. At 13 I received my first advertisement check. After that I made myriads of small blog-esque sites that never developed into much. Before developing Complacent Panda, my last success occurred during high school. I designed a simple backend that allowed a group of friends to post random, original articles to a central location.

Investing History
Even before '08, back in '99/'00 I started a project in class on investing in the stock market. I chose to invest my virtual $100,000 into Cisco. At the end of the project I had more than doubled my money, planted the psychological seeds for future interest in investments, and was in first place for total profits. While the .com bubble would pop shortly after, because of my age (8th grade or so) I was largely unaware of the consequences--what really stuck in my mind were all the people around me making fortunes in Qualcom and other technology companies.

Most Recent Impetus
It wouldn't be until March of '08, during the Bear Stearns collapse, that I would become intensely interested in investing (talk about alliteration). After watching the disconnect between televised analysts (i.e. Jim Cramer apparently misleading people about Bear Stearns' solvency, Ben Stein stating the problems should be ignored due to their relatively small and insignificant size) and those on the internet (i.e. several competant people pulling large profits by shorting Bear Stearns, and purchasing it or strangles on it when it was around $2, and reaping large profits); I decided to do some research.

The Conclusion I Made
There had to be a way for people to have some idea of where the market was going. Despite my grandfather's constant warnings and televisions dramatic idiocy, someone out there had to know where the market would likely head. And if I could find those people, perhaps I could reap some profits of my own.

Final Summation
That's why I developed this site: to develop ideas that will assess the probability of the market moving in a certain direction and use those ideas to reap monetary rewards.

Contact Information

2009-01-04T16:02:00.001-08:00

You can contact me via any of the following:

email: complacentpanda at gmail dot com (make the necessary substitutions)
twitter: http://twitter.com/complacentpanda

If a post focuses on what you'd like to discuss, please comment there. I receive an email whenever someone comments and will try to get back to you as soon as I can.

Thank you.

FAQs

2009-01-04T16:01:00.000-08:00

As I get asked more questions, I will update the below. Feel free to ask whatever is on your mind!

Q: Why the moniker Complacent Panda? Will you rename yourself when the market turns bullish?

A: I came up with the name one day and mentioned it to my brother. He liked it. I liked it as well, so I came up with several (yes, ad hoc) reasons as to why it is appropriate for a trading website.

1) On a long enough timeline, everyone's (including corporations, as they have been ruled to be entities) life expectancy drops to zero. While that could be interpreted as rather morbid or pessimistic, from my experiences with life and science, it does appear to be the truth. For instance, GE (General Electric) is the only company of the original thirty to still remain on the DOW. Or, in my general terms, think about all of the people you know over the age of 120. If you're like most people (or all), you do not know anyone. Well, corporations, while longer lasting, are similar to people. And similar to most all things. Everything submits to gravity, entropy affects everything.

Because of these "facts," I figure a bear would be a good moniker. Of course, it is nice when the market rallies, and things grow, develop, and evolve. So, I figure the bear must be pretty damn complacent most of the time. Hence, my choice of Complacent Panda. Because of this, no I will not change the name during bull markets. During bull markets, the panda is mostly sleeping and eating delicious bamboo.

2) I thought it would be a fairly ironic name. Mainstream media often associates Pandas with the Chinese. MSM also likes to say the Chinese will take over the world (and maybe they will; they do own a good portion of our debt--then again, that could work in our favor). Who would ever consider the Chinese to be complacent? Not I. On a side note, no, I am not asian.

3) I don't know. I like the first one the best. Maybe I will remember or think of some other reasons for the name at a later date.

Q: I have a question, how can I get a reply?

A: You can find my contact information on the contact page.

Stumbling Around

2009-01-03T20:47:00.000-08:00

I'm still here. Been somewhat bummed by the rally (I should've listened to myself; I posted some comments in my COST puts post). It may not hold, but I definitely would not be surprised to see it do so. Quantifiable Edges has a post on how 1st weeks after a terrible year tend to do well.

I have some charts on my other computer that I will post and comment on later. For the moment, I thought I would post this lovely picture. Ever since Dinosaur Trader brought StumbleUpon to my attention, I have been completely addicted. It offers much better content than any social internet program or site I have seen. I used it back in 05 or so, and it has definitely improved--not that this picture represents its best content =).

Calvin and Hobbes - Subsidize Me

2008-12-30T15:41:00.000-08:00

Been out most of the day. Got a new book, though: The Coming Generational Storm. Talk about a bleak looking 2030 for a good portion of the baby boomers. Hopefully I'll be on a beach somewhere drinking a martini. Otherwise, I'll probably be making a shitty wage in the nursing business.

~22 Pips

2008-12-29T13:57:00.000-08:00

I have trouble holding onto a trade after I hit 10 pips. I get a little anxious, even though, as with these trades, I could have easily combined the two into one and held out for another 10, perhaps even 20. With the spreads being 3.2 or so (what happened to my 1.8-2.5?; I rarely can get filled at those spreads anymore) I have a major incentive to setup and hold on. For those two trades I basically paid a 6.4 pip, or a 30%, commission. Positive, yet awful.

42.50 Feb COST Puts @ .85

2008-12-29T11:52:00.000-08:00

Bought some puts for Costco. Read the Buy on the Dip post and agree with him. If it can break 50 there's a good chance it will hit 43 or lower.

Been posting on Twitter and messing around. I can't believe how tired I am at the moment. Been doing some workouts to get into some sort of physical shape. Hoping it will help keep my mind and emotions in shape as well. Trying to think of ways to make a little money on this site, which rarely pan out. Few people, very few people, click on the ads which is understandable--I don't get that many hits. I am going to increase my participation in other sites. I know I how rewarding it is to get a comment on a post; I'll try to do that for others. I've been looking at some of the twitter ad services, and seeing what type of deals they offer. Twittad and Magpie seem to be the way to go. Not sure if you can really make any decent money, but every dollar builds confidence levels.

Take care everyone.

PS: Might head off to see a movie later in the afternoon. Milk looks like an interesting flick. Gus van Sant is a veritable indie god, and while some may poke fun at his movie Last Days, Elephant and his main stream Good Will Hunting certainly make up for any of his more experimental films (to those who do not like the experimental).

Predictions Based on Demographics

2008-12-29T10:34:00.000-08:00

"Booms like this happen every other generation."

"Worse of the Stock crash will happen late 2010 mid-2012."

(h/t The Housing Time Bomb)

Dinosaur Trader's Best of 2008

2008-12-28T21:07:00.001-08:00

Ready to read a kick-ass compilation of the internet's best 2008 stock market posts? Click here to savor the prime rib, first tier work of DT as he strives to make sense out of the universe--or something like that.

Predictions for 2009

2008-12-28T19:56:00.000-08:00

Many people are interested in what will happen tomorrow, because if you know what will happen tomorrow you can profit from that information. While difficult to predict what will happen in the time ahead (e.g. flying cars, anyone?) a general idea of the future can be generated. And, at the very least, reading other people's predictions gives you insight into their preceptions and how successful businessmen think. Here are several lists of predictions for 2009:

- Many people have been waiting for the Fly's '09 predictions. The man runs a successful site, trades well, and is generally entertaining (first tier shit, baby). Check out his predictions here.

- CNBC has an entire section dedicated to '09 predictions. With two [1, 2] optimistic articles and a single slightly pessimistic one, CNBC appears to have a bright slant. While a view into where a good portion of the United States will get their economic information, I would take anything at CNBC with suspicion, especially Jim Cramer.

- Corey Rosenbloom, at Afraid to Trade, posted on Buffett's 2008 predictions, which include some all-around good advice. It is safe to say many anticipate Buffett's 2009 predictions.

- There are the very pessimistic views of Celenate, given in the post below.

- John Cassidy at Portfolio.com wrote a fairly bleak 2009 outlook, saying, "Most economists predict a recovery late next year. Don’t bet on it." He also mentions several polls with this as the highlight: "...people working in the finance business are even gloomier: 77 percent of them say their industry is in a state of crisis, and 50 percent say the economy is the worst it has been in their careers."

- Barron's has an interesting article parsing the views of a handful of economists: Troubled Waters.

- And Seeking Alpha has a rather interesting, reasonable, outlook on 2009 here. There's no prediction of sunny day's ahead there.

Feel free to post other predictions below.

Good luck in 09.

Construction: Working on Design

2008-12-27T20:18:00.000-08:00

Hope the new design is a little easier on everyone's eyes. It isn't complete but I am hacking away at it piece by piece (I'm not familar with blogspot's code; I know enough HTML to work through it, though). The goal is that it will develop into something that doesn't look half bad.

Here's to goals.

Gerald Celente Interview: He says, and I paraphrase, Be happy to receive food for a Christmas present in 2012; what?

2008-12-26T21:46:00.000-08:00

Here are three youtube “videos” (basically mp3’s) of a Gerald Celente interview. From what I understand, this man works as CEO for The Trends Research Institute. He forecasts trends and has been rather successful at doing so. You’ll hear all about that in the interview. If you want something that claims to counter some of his claims, click here.The blogger edrants does not do a very good job at debunking Celente’s claims. He doesn’t really point to any false forecasts, but instead aims at saying Celente is a generalist and says things that anyone on the street could say.

Now, while I do not think Ed did a very good job of pointing out Celente’s missteps, I do think you should do some research on your own, maybe take a breath or two, before breaking into a panic and having a fallout shelter built in your backyard. Yes, our economic outlook appears gloomy, but he does mention certain things, albeit subtly and almost as unlikely, that could prevent an all out depression. In any case, never take anyone’s word for what they are saying. My dad would always say, believe a fourth of what you hear, a third of what you read, and half of what you see. I think he stole it from an Almanac he had around the house.

In any case, I am posting the videos because they point out some of the problems I see with the American system. Our economy is based largely upon consuming and services. We do little production. This seems somewhat unstable to me given the makeup of our population (e.g. fewer high school graduates, less emphasis on education, many taking easy college majors and large amounts of disdain towards intellectualism). But what seems even more unstable to me, and has seemed unstable to me for a very long time, is summed up in the fact that we, as a nation, are willing to pay $4 for a cup of coffee. Yes, it is delicious, but doesn’t this say something about how we value money? We are losing touch with reality and paying far more than we should for things that we give too much importance to in our lives. And you will find this in other areas of our economy as well: McMansions, impractical automobiles, unsustainable growth, pay scales that fail to reward in a sane manner, attraction to glitz, the superficial and the glib. Watch most any television show on business and you’ll see unhealthy decadence and outright misinformation.

Now, whether this leads to food riots, is something else entirely. But, I enjoyed the videos nevertheless:

A Simple Use of Simple Moving Averages: Trend Determination

2008-12-26T19:59:00.000-08:00

This isn’t going to be a long post. The method is fairly simple and the idea behind it just as simple. This will not make you large amounts of money instantaneously, but may help you determine a strengthening trend or a weakening trend.

All this technique requires of you is a chart of the stock or currency you would like to analyze and the overlay of three moving averages: the 50 period simple moving average (SMA), the 100 period SMA, and the 200 period SMA. Nothing else is required. Because you can use this on any type of time frame (e.g. 1 minute, 15 minute, daily, weekly, etc), I call the moving averages 50 period, or 200 period, rather than 50 day.

Once you have this information on your screen take a look at the location of the moving averages. Based on the following list, you will be able to ascertain important pieces of information from this chart:

- If the 50 period is below both the 200 period and the 100 period, the stock is trending relatively hard to the downside.

- If the 50 period is below the 100 period but not the 200 period, the stock is trending with some strength to the downside.

- If the 50 had recently been above the 100 and the 200 but is slowly converging with one or both, then the uptrend is losing steam. It is becoming relatively neutral.

- If the 50 is above the 100 but not the 200, then the stock is beginning to regain momentum to the upside. It is relatively bullish.

- If the 50 is above both the 100 and the 200 period moving averages, you have a stock that is strongly bullish.

As you can see above, the main goal is to compare the average strength of the past shorter period with two longer periods. Seeing the average increase or decrease in value tells you quite a bit. Remember that just because the trend is bullish or bearish based on the above, that is not enough information to put on a trade. While it is often smart to put a trade on in the direction of the trend (stocks tend to move in the direction of strength), you want to watch for weaknesses in the trend.

Feel free to play with other lengths of moving averages. EMAs (or exponential moving averages) often aid in short term trend direction. They react to the underlying prices faster, although, that can lead to whipsaws. The smart thing to do is practice and experiment on your own. Having some understanding of the current trend will definitely aid you in your stock trading endeavors.

Ozymandias

2008-12-26T18:55:00.000-08:00

I met a traveler from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert ... Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them, and the heart that fed:
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works ye mighty and despair!"
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.

-- Percy Bysshe Shelley

Was watching the new Watchmen trailer, which reminded me of this poem.

Reasons Not to Listen to the Media

2008-12-26T10:43:00.000-08:00

At the very least, aim not to get your stock tips and information from the likes of Jim Cramer, MSNBC, Fox Business, or your local news channel. None of these outlets strive for excellence. None of them aim for much more than a glitzy story to draw in the viewers. If you have some method of using the information as a contrarian indicator, then by all means, go right ahead. Many, on the contrary, will find the sources muddying their thought and clouding their profit potential.

Albeit much more helpful, use caution when reading The Economist, Bloomberg, WSJ, and even the technical analysis journals at your local bookstore. You will find many of these sources of use, at times, especially if you work at ferreting out the useful and shifting through the misleading or unpredictable; but, many of these outlets will be at least a day behind and sometimes more than a month. The monthly magazines can be particularly disappointing. Use them for their technical ideas, their intellectual side, but not for current market information.

What I am trying to say, I suppose, under my warnings against the media is to find another way to analyze information. You will often find the media utilizing data to serve their interests, whether that is to say what you want to hear, sell advertising to mutual fund companies, or any number of other things.

When Cramer screams at you to buy because the fundamentals are strong, take a step back, look at a chart, look at several sources for a likely fundamental scenario, and make your own decision on the data. It may be hard at first, but in the long run, you will thank yourself for putting in the effort.

SPY Puts

2008-12-26T08:58:00.001-08:00

Scalped some Jan 80 SPY Puts for a +2.3% gain. 1.29-1.32.

Practice Makes Better

2008-12-25T22:43:00.001-08:00

I don’t know how many of you have read Outliers by Malcolm Gladwell, but one of the main points definitely needs to be repeated here: practice makes better.

Sure, if you have some sort of disability or innate inability to do something, practice may not help. But, given you have some ability, and if you are reading this site you likely have some ability to trade (or you got here completely by accident and probably have no idea what the hell I am talking about). You have some ability to trade. Say it to yourself and own it.

Now you need to practice. If you are reading this article, you likely are searching for ways to improve your skills. Most likely, you aim to improve your trading abilities, but it is not like this works only in the market.

In Malcolm Gladwell’s book he states that 10,000 hours is a well accepted number for achieving a high level of strength in a certain skill. Bill Gates had access to a computer in high school, a good computer for the time, and racked up more hours of programming than nearly any college student would have had at the time, and more than most any public high school students. Those extra hours gave Gates a push. And any extra time you put into trading will give you an edge over the competition.

There is tons of competition, but do not let that frighten you. Opportunities abound. With practice you can hone your skills, reduce your losses, maximize your gains, and skip trades that have a tendency not to succeed for you. With practice, you will know your game like the back of your hand.

So, how do you practice?

Read trading books. Look at the charts. There are a lot of free ebooks on the internet, and a lot of blogs that post analyses of charts. Read along or make an analysis and then compare your thoughts on the chart to the blogger’s. Write some entries on stock forums, or in the comments of blogs. See if your theories pan out.

If you do not have enough money to constantly trade the market, or if you have fear of losing money, there are many online stock trading games. Most of them are free as well. Try inspectd.com for a stock game that can be played at any hour of the day or check out wallstreetsurvivor.com to get a free paper trading account. Either way, you’ll build up your skill.

If you want to put some real money on the line, but nothing significant, why don’t you try a micro forex account? FXCM.com has, in addition to a paper trading account, a micro forex account that allows you to trade in the real markets, using their software, for a minimum opening price of $25. I’m not sure if they are doing it anymore, but you may be able to find a link to their account promotion through google where they even give you the $25 just to open an account.

What was the point of this article?

You need to practice. People do not get better at doing without doing. It would seem to be coming sense, but sometimes we have these magical images in our heads. Sometimes the media, or our crazy uncle, or someone ranting in a chatroom leads us to believe that Warren Buffet got to where he is as though he were a successful businessman without any work at all. It is just not true. He puts in a lot of effort, a lot of work.

And if you want to get better, you will have to do so too.

Why a Plan is Pertinent

2008-12-25T17:28:00.001-08:00

No matter what type of market you may be in, you need a plan. It should outline how your actions should develop within the market. The stronger your plan, the more likely you will be able to maximize gains and limit losses.

If you jump into a stock with no outline describing where to purchase and where to sell, you will likely find yourself in a less than desirable situation. You want to have set arrangements in order to increase your odds of coming in and out of stocks with an overall gain. You need to have an outline, whether on paper or in your mind, that tells you not to buy when the price is overextended and volume is decreasing, or to tell you to sell when the price falls beneath a set support level.

If you have a diagram of your trade you will be able to get in and out of a trade a predefined level—a level you determined while you were, hopefully, rational and not overly emotional. The plan should limit the effects of wishful thinking, superstition, poor judgment, emotional irrationalities, and other less than desirous obstacles.

This is not to say that your plan should be so rigid that you find yourself acting as a voodoo prognosticator. You do not know how the stock will rise or fall, or if it will do both or neither. But the idea is that you have a plan in place to deal with the fluctuations, so you find yourself holding, selling, or buying at opportune times determined by reason and more thought than you can devote while action is taking place.

You can change your plan mid-way through. Perhaps you did not take something into consideration, or maybe you have to leave the computer for the rest of the day; change your plans, but make sure you do it in as sober a state of mind as you can summon. Cut the hope; cut the gastro-intestinal premonitions; cut the crap, and increase your odds.

No one wins all the time, and no one wins on hope alone either. With a plan you will have something in place to protect your capital and to guide your decisions as you progress in the world of stocks, options and forex.

Yes, Virginia, There is a Santa Claus

2008-12-25T09:41:00.000-08:00

"DEAR EDITOR: I am 8 years old.
"Some of my little friends say there is no Santa Claus.
"Papa says, 'If you see it in THE SUN it's so.'
"Please tell me the truth; is there a Santa Claus?

"VIRGINIA O'HANLON.
"115 WEST NINETY-FIFTH STREET."

VIRGINIA, your little friends are wrong. They have been affected by the skepticism of a skeptical age. They do not believe except [what] they see. They think that nothing can be which is not comprehensible by their little minds. All minds, Virginia, whether they be men's or children's, are little. In this great universe of ours man is a mere insect, an ant, in his intellect, as compared with the boundless world about him, as measured by the intelligence capable of grasping the whole of truth and knowledge.

Yes, VIRGINIA, there is a Santa Claus. He exists as certainly as love and generosity and devotion exist, and you know that they abound and give to your life its highest beauty and joy. Alas! how dreary would be the world if there were no Santa Claus. It would be as dreary as if there were no VIRGINIAS. There would be no childlike faith then, no poetry, no romance to make tolerable this existence. We should have no enjoyment, except in sense and sight. The eternal light with which childhood fills the world would be extinguished.

Not believe in Santa Claus! You might as well not believe in fairies! You might get your papa to hire men to watch in all the chimneys on Christmas Eve to catch Santa Claus, but even if they did not see Santa Claus coming down, what would that prove? Nobody sees Santa Claus, but that is no sign that there is no Santa Claus. The most real things in the world are those that neither children nor men can see. Did you ever see fairies dancing on the lawn? Of course not, but that's no proof that they are not there. Nobody can conceive or imagine all the wonders there are unseen and unseeable in the world.

You may tear apart the baby's rattle and see what makes the noise inside, but there is a veil covering the unseen world which not the strongest man, nor even the united strength of all the strongest men that ever lived, could tear apart. Only faith, fancy, poetry, love, romance, can push aside that curtain and view and picture the supernal beauty and glory beyond. Is it all real? Ah, VIRGINIA, in all this world there is nothing else real and abiding.

No Santa Claus! Thank God! he lives, and he lives forever. A thousand years from now, Virginia, nay, ten times ten thousand years from now, he will continue to make glad the heart of childhood.

- Francis Pharcellus Church (Originally Unsigned), 1897

Quote

2008-12-25T08:48:00.000-08:00

Do not believe in traditions because they have been handed down for many generations.
Do not believe in anything because it is spoken and rumored by many.
Do not believe in anything simply because it is found written in your books.
Do not believe in anything merely on the authority of your teachers and elders.
But after observation and analysis, when you find that anything agrees with
reason…then accept it and live up to it.
-The Buddha

Santa Claus Rally!

2008-12-24T08:37:00.000-08:00

I think that's an appropriate image, given the lack of a Santa Claus rally this year, and whathaveyou (h/t The Big Picture). I'm not doing any trading today. Wish the best of luck to all of you reading this. Take care.

When Is It Going To Break Down? Not If.

2008-12-23T18:27:00.000-08:00

I completely agree.

Pips, well, not many lost

2008-12-23T13:05:00.001-08:00

I was all over the place today.

Major tip: learn and then learn to trust your knowledge and judgement.

Boomboxes and Dictionaries

2008-12-23T09:19:00.001-08:00

The Gaslight Anthem.

/I'm being stupid with forex.

PCU

2008-12-22T20:46:00.001-08:00

Might be a good long if it pulls back to its 50.

I <3 Google

2008-12-22T15:34:00.001-08:00

Oh, how you help me target readers: "http://www.google.com/search?hl=en&q=a line graph of panda bears getting killed each year&btnG=Search"

Head, Shoulders, Knees and Toes

2008-12-22T10:48:00.000-08:00

Not sure if it will breakdown, but a nice setup on the 1-hour anyway.

Look at this mess (luckily, I've just about worked my way out of it). That 25 pip loss was from a scalp gone horribly wrong. Don't trade against the trend without tight stops. And, for me, make sure you use them.

S&P P/E Insight

2008-12-22T06:58:00.000-08:00

While reading through xTrends comments, I found an interesting analysis of the S&P 500 from a fundamental perspective.

Here's a slightly abridged version of eboro's original post:

"According to [Roubini, Shiller, and Shilling], there are essentially 3 types of earnings we should consider when measuring 'market climate' in a bear market. They include: Trailing Earnings, Peak Earnings and Normalized Earnings. The information below was taken directly from the S&P 500 data website:

Trailing EPS: $48
Peak EPS (2007): $84
Normalized EPS (5 Year): $65

Using data compiled by Shiller, let me point out the historic averages of each earnings multiple, as well as the levels they have often reached during cyclical bear movements in secular bear markets (often leading to the “bottoming process”). Note that I have adjusted them based on recent data:

Price to Trailing EPS: historic average of 16.5; bear market low levels of 12
Price to Peak EPS: historic average 13-14; bear market low levels of 7
Price to Normalized EPS: historic average of 15; bear market low levels of 10

Based on our different P/E types, and the levels they most often reach during bear market bottoms, we get the following numbers:

Using Trailing EPS: $48 x 12 = 576
Using Peak EPS: $84 x 7 = 588
Using Normalized EPS: $65 x 10 = 650

I do not think any of these numbers in isolation can effictively predict 'the bottom.' In fact, they are at best 'intelligent guesses' because there is no assurance that past multiples will be witnessed in this bear market, especially seeing as interest rates are so low. The important thing to remember is that they provide a 'probable range of outcomes'; we could see slightly lower earnings with higher multiples or vice versa (for instance, if 2009 earnings were to come in at $40 per share and the multiple was slightly higher around 14 or 15). In any case, if history is any indication, the S&P could reach a low range between 576 and 650, which implies downside risk of 27 to 36% from the current level of 900. Bottom line: the market may still be relatively expensive.

I think the lack of consistency amongst analysts concerning S&P P/E is a result of 'mixing and matching' different earnings with inapropriate multiples. I recently saw an analyst on CNBC claim that the market was cheap by using peak earnings with a bear market normalized earnings multiple. By doing this, she she inputed $84 x 12, thus estimating a value for the S&P around 1000. This methodology seems flawed for 2 reasons: she used only 1 type of earnings, she used the wrong multiple.

Thanks, E"

Thank you, eboro.

Jerk Offs

2008-12-21T16:41:00.000-08:00

Ben Stein is one of the bigger jerk-offs. (H/t xTrends)

Tool's Jerk-Off; "Maybe it takes longer to catch a total asshole."