MakerMovers

Your Brain's the Grail. How to Make It Holy

Wed, 27 Aug 2008 08:41 GMT

Ok. Let's do something really crazy. I've something big to confess. I've been hiding it for months because I don't want the headlines, I don't want our servers to crash, I don't even want the private island and the jet to take me there. But now, I can't hold it in any longer, so here goes:

We have the holy grail -

it's a strategy that, when used, is a guaranteed huge money pile maker. It's one strategy and it's never changed. It tames every: market situation, scenario, big news event/disruption, slow day, or fast day into a consistent winner. And it requires no spark of creativity or original thought from you. Pull it out, unleash it, and collect the money.

It is, indeed, a one size fits all strategy.

How much more in detail do I need to go to test the limits of credibility? Gullibility?

For you, dear reader, not another millimeter. And yet there are would-be traders out there in search of this kind of silver bullet - throwing money away at something that will not reward them. Example:

A Whopper of a Letter

I must share this surprising email I received the other day (name changed to protect identity):

From: JOHN C.
Sent: Friday, August 22, 2008 8:38 PM
To: david@trade-ideas.com
Subject: Nrrd help on TI

David,

I am a subscriber of TI. Username is xXxX.

My question is what is the best strategy for day trading?

Also, How do you setup to dedect ADX>40? as this question was asked by bkk.

I interested to hear your answer to bkk.

Thanks, John.

Here is my reply. One that would allow me to sleep at night:

-- On Fri, 8/22/08, David M. Aferiat wrote:
From: David M. Aferiat david@trade-ideas.com
Subject: RE: Nrrd help on TI
To: JOHN C.
Date: Friday, August 22, 2008, 11:06 PM

Dear John,

Your question on what’s the best day trading strategy is such an open ended question that it’s impossible to honestly answer. Suppose I said, sure John – it’s this strategy: XYZ.

How could I know it was the right strategy for you and your style?

Maybe it does or doesn’t make money the way you feel comfortable doing it (i.e., too much risk, etc.) Besides if it were the best strategy, wouldn’t everyone else be using it? Why would you assume that only one strategy is the best one and not the existence of several best suited to profit from several market situations.

I’m kind of surprised to get such a question.

Trade-Ideas and our event-based backtesting tool, The OddsMaker, help you discover your best strategy that’s personal to you – that represents your trading plan and all the hard-knocks and education that went into it. The best aspect of our tools is that they allow you to ask the best QUESTIONS and receive the answers that will help you confirm or disprove any advantage you see in the markets.

Take fencing or chess or water polo or college basketball and ask yourself, what’s the best strategy in this tournament to win it all? Maybe there are several strategies to win against various opponents that have to be applied at the right time or not at all.

The better approach to winning is getting the best coach and the best training so no situation that presents itself isn’t faced without the best reaction.

Substitute coach and training for real-time scanning and event-based backtesting. Trade-Ideas’ tools will not only answer the question, What should I be trading today but the equally important one, How should I be trading it?

I apologize for the long-winded response but you touched a deep well of reasoning and passion about trading and how to help others trade. It’s not by just giving the person the fish, but teaching them how to ask better questions about fish and ultimately provide the means of letting them answer their own questions about
fishing.

Visit our blog to start on your path of finding your own strategy that, when backtested, provides you with edge. Read our posts under the category of ‘Strategy Sessions’ and read the people we put on our blogroll. There’s a wealth of information there.

Currently we do not have a ADX indicator in our inventory – but it’s on our
list.

Best regards,

David

Is There a Pill I Can Take to Start Trading Better?

Some people wander the desert looking for external fixes (a lamp, an oasis, a pill, an order from somebody) to change their situation. It doesn't exist or rather it doesn't come that easy.

Good news however: The path to riches is inside you - no need to look too far. Getting at those riches means alot of work and training - more than just rubbing yourself for the genie. The genie comes out when you've learned how to read market signals, maintain an evolving trading plan, control your reactions and emotional responses, and applied cutting edge technology to leverage your size and capabilities into profitable trades. Want a sherpa to take along with you? I'd start with the insightful works of the 3 wise men: John Forman, TraderMike, and Dr. Brett Steenbarger.

Note: Don't go rubbing them either.

Good luck!

Trade-Ideas 'Fundamentally' Changed: Why It'll Never Be the Same

Fri, 22 Aug 2008 09:16 GMT

Change is good. Especially the incremental improvement change work we do to Trade-Ideas on a constant basis. For those of you who are new and see the large inventory of alerts and filters - sorry. The list is long but well organized and only meant to appeal to the wide variety of traders and trading styles that can be modeled using the tools - it doesn't mean pick everything.

So What's Changed? The Fundamentals

I told you about the recent and upcoming alerts and filters that were coming. They are here.

Leave it to good friend and surprisingly effective gumshoe journalist, Dave Mabe, at Stocktickr.com to get the jump on the release of our latest filters:

Click on the picture here to see the complete list of fundamental filters and their definitions. The colors may have changed to match the rest of the filters - this was an alternate color scheme for these filters. State your preference in a comment.

The Bottom Line: How This Impacts Your Trading

Some traders are not purely technical but feel they can find advantages (especially lowering risk without affecting return) by including some fundamental filters when defining their universe. That's now possible.

For example, you could design a strategy that trades new highs from stocks with earnings per share of at least X. Or with a market cap of at most Y. Imagine backtesting events that are also defined by fundamental conditions - I anticipate a lot of winning strategies with high odds thanks to these filters.

As StockTickr points out, this also adds new possibilities to automated trading and the partners through which we offer it.

If you don't see the fundamental criterion you're looking for on the list, here's an effective workaround:

Find the fundamental filter elsewhere and perform your scan. With the resulting stock list, copy or import it as a Trade-Ideas Symbol List in TI Pro. Then use this list in your strategy along with the filters we do have and voila! Problem solved.

Feel free to suggest what additional filters like these we should add (and the arguments for having them).

What Else Is New? What Have I Missed??

Visit this place often: http://www.trade-ideas.com/WhatsNew.html

Customers Talking, Trade-Ideas Listening: Upcoming Features

Fri, 08 Aug 2008 08:16 GMT

We are making continued additions and improvements to our service. In the spirit of the summer movies, below are the upcoming attractions to the Trade-Ideas PRO platform:

Coming Very Soon: Wide Range Bar

Wide range bar (WRB): The range of the bar is much greater than the average bar. This alert, recommended by one of the trainers, has been on our list for a while. It’s also a commonly discussed pattern in other places too. Consider it a contrasting alert to NR7.

Coming Soon:

Bullish trend alert: (The name has not been finalized - if you have a suggestion, please comment!) Rising stock above a rising 20 period SMA. The stock is rising if ((there are at least 3 consecutive green candles) or (there are at least three consecutive candles with higher highs and higher lows)).

Bearish – same thing flipped over.

New filters – how much were we up or down yesterday.

We will let you know as these become available.

Weekend Reading: Follow the BRICs

Sat, 02 Aug 2008 14:14 GMT

Thanks to Dr. Brett for bringing attention to this article on the BRIC nations:

Global Investing, BRIC by BRIC

I am reminding readers of a post we made about the BRIC nations that features primary sources developed by Goldman Sachs.

You Don't Have to See the Future, to Know We'll Be Watching These Markets One Day

The link we mention in the article is a page I refer to every couple of quarters to see what additional information's been added.

The Zig-Zag Method for Trading Profitably and Maintaining an Edge Forever

Thu, 31 Jul 2008 07:52 GMT

I've never seen such an avalanche of ad campaigning for a single week of TV programming: it's Shark Week on the Discovery Channel. If you've been to New York anytime over the last 4 weeks, you've been flooded with all forms of print ads everywhere. It's so saturated that all the shows that tape in NYC can't help to make mention of it during their small talk. So now America knows its Shark Week.

Am I watching any of this as a result?

No.

If I see everyone doing something, I get interested in doing something else - if everyone is zigging, it's time to zag into another direction. I've recently been reminded of this and how it affects my trading.

Zig-Zag for a Trading Edge

Traders express frustration when a strategy used for a profitable length of time stops working. The worst cases are when traders keep trying to apply the strategy in the face of continued losses: the round peg in the square hole phenomenon. There is no one holy grail in trading or one silver bullet.

There's a collection of them.

Knowing which one to use at the right time is the difference between making you or your broker richer.

Dr. Brett Steenbarger, an expert in the field of performance enhancement for traders astutely observes,

"Even the best-researched mechanical trading systems degrade over time. For this reason, traders are continuously learning, unlearning, and relearning market patterns. Their survival crucially depends upon their ability to sustain states of enhanced learning."
Source: Interpreting the Personality Questionnaire for Traders, 1/27/2007

Ways to Zig-Zag Your Trading

If you can't think of your own, borrow ideas from the thought-leaders you follow. Be just ahead of the pack but right after the early adopters. If you understand the concepts of a thought-leader quickly enough, you can put into practice key learnings and generate your own conclusions. With blogs and Twitter this is a easy to follow tip. For example, I'm never far from the brain droppings of TraderMike, Downtowntrader, WallStreetWarrior, or Howard Lindzon.
Live and trade in the previous cycle. Everyone seems to live and die on being up-to-date, in the now, and constantly on top of the latest pronouncements that it's easy to forget what gems were said just a few months ago (let alone a year or a decade). What comes around, goes around - if you can reread and understand what was learned the last time, the chances are you'll be ready when the 'last time' comes around again.
Let's get practical: Flip the Chart. It's a simple and powerful concept borrowed from Charles Kirk and a great trading technique that we wrote about 'the last time around'!
Automate key strategies that begin under predefined market conditions or time periods. I can't overemphasize the importance of keeping a log of every single trade you make. There are tools out there that make this easy, so there's no excuse not to do it. (Try the backtesting tool, The OddsMaker by Trade-Ideas and/or the recordkeeping abilities of StockTickr which now offers it's automatic trading journal in combination with Trade-Ideas' automation via Interactive Brokers). For example you discover that one strategy really only makes profitable trades in the afternoon. Another strategy works well only when the S&P is on an uptrend. Who can keep all these external variables in mind all at once? Automating under what conditions strategies trade and at what times is great way to remove the many mistakes possible under manual trading. It's now accessible to the active trader and moving through the first wave of early adopters. Years from now we'll look back at the way people traded today in much the same way we now look back at the way people used to call their broker to make a trade: ancient.

Be strategic about the way you'll employ these tactics for keeping your trading edge. It's no use being an 'also-ran' to these thought leaders without coming up with your own conclusions. Tools like Trade-Ideas will keep you learning where the next step lies and will keep you aware when shifts in the market render one strategy less effective and another more so.

Note: Thanks to an outside the box source for the zig-zag concept.

Markets Don't Fit Your Trading Style? Engage with Better Odds of Winning

Wed, 23 Jul 2008 11:00 GMT

Our audience for the blog consists mainly of potential customers, returning customers, and existing subscribers. Really informed traders come here for market insight and working strategies that we model in a category of posts called, Strategy Sessions. A lot of product information and other nuggets appear here on the blog first.

Occasionally however we actually communicate to our existing subscribers with an email.

A Letter to our Existing Customers About The OddsMaker

Read the letter below that our Senior Managing Partner, Dan Mirkin, penned and watch a recent video of the tool in action (you can also check out the more 'action' vids on our Facebook page). If you can't see directly how The OddsMaker will save you hours and provide you a new trading edge, then I'll figure out how to condense the same message onto a wet T-shirt contest to get your attention. I'm open to slogan suggestions.

Fellow Trader,

You can beat today’s market. You just need the right tools. How long would it take you to look at 3 weeks worth of trading data on every single stock out there to see if there are any real patterns that can be traded to an advantage? What if I said 2 minutes!

What Einstein and The Untouchables Say About Trading
Don’t bring a knife to a gun fight, said Sean Connery in a line from 'The Untouchables'. Yet that is exactly what most investors and traders are doing. The institutions employ very sophisticated camouflage to make their buying and selling look as random as possible. In general, individual investors tend to make their decisions somewhat arbitrarily. Traders spend hours upon hours poring over candlestick charts looking to find that magic pattern that will make them money. Albert Einstein once said “The definition of insanity is doing the same thing over and over again and expecting different results.” Does this quote applies to the way you trade?

The human brain and eyes are built for generalization. You drive in the desert and look forward and it looks like there is water ahead because your eyes are being fooled, the water is a mirage. In the market your eyes are being fooled by chart patterns. We know this because we crunch the numbers, a lot of numbers. It takes a lot of data crunching to find the tells of the market. We have the tools that can show you when a tell is present.

A Pair of 5s Won't Cut it - Engage with Better Odds of Winning
Think of this great lyric from Kenny Rogers as it applies to today’s trading environment. “You got know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.” If the market was a poker table, many traders would find themselves going all in on a pair of fives over and over again. Stop it.

The OddsMaker™, like a Poker odds calculator, looks at all the stocks throughout the trading day. It archives a continuous run of trading data for 3 weeks and allows our customers to see exactly what is or is not working in the market right now. You can answer the following questions in minutes.
What would happen if I bought a stock between 5 and 20 dollars when it made a new high on very heavy volume and held it the whole day?
What kind of stop loss should I use to keep my profits?
Should I focus on going Long or Short?
If you are interested in getting more out of your trading and want a private one on one demonstration of the OddsMaker™ we would be happy to set you up with a complimentary training session at your convenience.

Best regards,

Dan Mirkin
Senior Managing Partner
Trade Ideas LLC

Trade-Ideas in Your Town: Chicago

Fri, 18 Jul 2008 18:48 GMT

I'm headed to Chicago for the weekend and then until Tuesday to meet several hedge funds and pal around with a long time group of subscribers/traders.

Chicago is such a great place - and it is at its peak in the summertime. We've lined up a great stay and a wonderful hotel too. Should be fun.

If you are in the area, dear reader, leave a comment and let's meet up. We take these offers seriously. I met a reader of the blog in NYC and answered many questions about the use of Trade-Ideas as an input into the quant fund he manages. Good stuff.

NYSE Imbalances Create Opportunity with new Alerts from Trade-Ideas

Wed, 16 Jul 2008 10:22 GMT

Trade-Ideas expands the list of alerts with a unique NYSE-only alert related to buy and sell imbalances.

What's an imbalance and why is it only on the NYSE?

The NYSE imbalance alerts only happen near the end of the trading day. These are based on the specialist's market on close orders. If there are more people trying to buy a stock than are trying sell the stock, then we call that a "buy imbalance." If there are more people trying to sell, then we call it a "sell imbalance." The description of the alert includes the size of the imbalance in shares.
So we say, for example, in a NYSE sell imbalance:
"HLX 07/15/2008, 03:40:52 PM: Sell Imbalance. 190200 shares."
When there are more buyers than sellers, that often pushes a stock price higher. When there are more sellers than buyers, the pressure goes in the other direction. The imbalance data speaks directly to these facts. That's why we use green to show buy imbalances, and red to show sell imbalances.

Source: Trade-Ideas.com Online Help, All copyrights reserved. Used with permission.

There's a great way to customize this alert: You can filter the NYSE imbalance alerts based on the size of the imbalance. We don't filter these based on the raw number of shares in the imbalance. Instead, we look at the size of the imbalance for a stock as a percent of the total number of shares traded today for that stock. So you can say, for example, "Show me imbalances that are 20% of the total shares traded today". For different stocks that size of the imbalance in shares will mean different things, but a percentage let's you define what an important amount is for all the stocks you want to see.

Here's the latest list of alerts we're reporting for NYSE buy imbalances.

Here's the latest list of alerts we're reporting for NYSE sell imbalances.

We'll post some strategies using these amazing alerts soon!