Attitrade-Proactive Trading

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Darren Miller — Sat, 24 Dec 2011 13:19:36 +0000

Ah yes, Virginia was not disappointed this week. Now if it could only snow here in Dallas this weekend. Of course the real test will be what the market brings next week and perhaps even more important 2012. This slow upward grind on low volume was a classic Santa Claus rally so it will be interesting to see if it continues into Tuesday. One interesting observation from Friday was the $VXX performing the way it did. Bill Luby suggests it has to do with the futures (I’d consider him an expert).

For those of you visiting for the first time you may be wondering why a collection of links like this. The reason is simple. I went to school for a very long time and plan on teaching at a university again some day. I do my best to keep abreast of what’s going on in the psychology/counseling profession and share some of the links of things I read during the week. Enjoy the links, your families, the holidays and the extended weekend!

Steve Jobs on Why Computers Are Like a Bicycle for the Mind [Brain Pickings]
Hard economic times and increased suicide [Brain Blogger]
Is 27 really a dangerous age for famous musicians? [BMJ]
Brain strain: We’re not really wired to cut back on shopping [Bend Bulletin]
Habit formation is enabled by gateway to brain cells [Georgia Health]
The science of Santa [NCSU]
What defines our perception of time? [Daily Maverick]
The quest to understand consciousness [Integral Options Cafe]
America needs more geeks: How to make science cool [Time]
How do we split our attention? [McGill]
Social networks matter: Friends increase the size of your brain [The Creativity Post]
An objective measure of consciousness? [Neuroskeptic]
What makes someone an angry drunk? [MSNBC]
Usain Bolt and the end of the world [The Guardian]
The psychology of taste [Creative Loafing]
Give yourself the gift of a healthier you [News Times]

On Average True Range (ATR)

Darren Miller — Wed, 21 Dec 2011 17:12:22 +0000

The average true range (ATR) is a measurement of volatility based on price action moving beyond a defined average (the default is 14 periods and what I’m using for now). In a sense, the ATR is telling us that something is afoot about the stock/sector/etf/market. I recently started tracking the intraday movement of the ATR for each component in the S&P 500 out of curiosity. I calculate the ATR two different ways; one based off the opening price and the other from the prior day’s close. Here’s a few uses of this data that I see fitting into my market participation.

Intraday:

Fading a stock that is approaching intraday support/resistance with an extended ATR. Support/resistance could be in the form of pivots, price, fibonacci and RSI to name a few.

Swing:

Could sell put spreads against a stock that has extended its ATR and is approaching significant support (the inverse is true on the call side/resistance). I prefer to use the weekly pivots (either traditional or Woodie) as significant levels. I see this working well with weekly options and using RSI(2) as a confirmation of a pending pause or pullback.

Sentiment:

Tracking the percentage of SPX components exceeding their ATR to gauge accumulation/distribution days.
A gauge for underlying strength, like breadth, of overall market moves.
Can quickly see leaders/laggards in sectors by sorting via ATR

Overall:

Compare the Beta of the stock to it’s ATR to assess potential for continuation in direction thus expanding the range (volatility).
Could be helpful in gauging implied volatility in option chains to see if it’s increasing as ATR is expanded.

I believe one of the first things to do is determine what the catalyst was for the expansion in the ATR. Find out whether it was specific to the stock (upgrade, downgrade, earnings, etc.) or a market wide move. Then, according to the way you participate in the market, craft a strategy around it all the while managing risk. I’ve just started watching this data and I’m excited about the potential opportunities. There are no doubt tons of other ideas/uses for this data so I’d love to hear any that you have in the comments section below.

ShrinkyLinks

Darren Miller — Sun, 18 Dec 2011 14:53:51 +0000

2011 is nothing but a memory for me as far as trading is concerned. With Friday’s expiration I’ve decided to take the rest of the year off to recuperate and replenish my psychological capital. I do have January orders working and, as most of you know, we truly never completely leave the markets so I’ll be writing/tweeting interesting things I come across just not on a daily basis.

It’s important to take breaks every now and then and unplug from the day-to-day grind. Enjoy the links and your weekend!

Nine Stubborn Brain Myths That Just Won’t Die, Debunked by Science [Lifehacker]
The 20 unhappiest people you meet in the comment sections of year-end lists [NPR]
Brain Waves 4: Neuroscience and the law [Royal Society]
In gift giving, more is not always better [Psych Central]
Chemical and social mechanisms of self healing [Deric Bownds]
Young, Canadian and on antipsychotics [Neuroskeptic]
Inverse zombies studied using anesthesia [Research Digest]
Alter ego: portraits of gamers next to their avatars [Brain Pickings]
Can we be born with psychopathology? [Neurocritic]
Neuroscience, free will and determinism: ‘I’m just a machine’ [Telegraph]
Most of what you know about divergent thinking is wrong [The Creativity Post]
Post-booze blackout, how people fill in the blanks [MSNBC]
‘Brainlink’ lets you remotely control toy robots and other gadgets [Kurzweil]
Smart Drugs “As Common As Coffee”: Media Hype about Neuroenhancement [PlosOne]
A brain’s failure to appreciate others may permit human atrocities [Duke]
Is sexting cheating you out of real intimacy? [PsychAlive]
Was Darwin wrong about emotions? [APS]
Age of criminal responsibility is too low, say brain scientists [The Guardian]

Don’t Be A Jack

Darren Miller — Tue, 13 Dec 2011 21:43:03 +0000

I have a guy that lives down the street from me that I’ve used to tack down loose floorboards, repair cracks in my driveway, clean the gunk out of my gutters and much more. He makes a decent living doing such odd jobs and has a vast knowledge of many things. However, depth of knowledge in any one area is lacking. When I recently had a water heater die on me I thought about calling him then realized I’d need a professional–someone who specialized in water heaters who new exactly what needed to be done to meet city codes. I knew I’d pay more for such a person but I also knew the job would be done correctly.

This is a great analogy of market participation. It’s no secret that I believe we function best in the markets when our trading style matches our personality. I further believe that if you really want to have longevity in the markets you need to specialize in an area. I’m not saying you can’t have multiple strategies that you employ, depending on market conditions, but rather a specialization that is your main source of income.

For me it’s selling premium on the SPX. I know the vehicle inside and out, have a good understanding of how it trades and don’t have to stare at screens all day. I have gigabytes of data that I run analysis on, both in price and the option chains, that help me make informed decisions. That is how I make my living in the markets. It matches very well with my personality. However, that doesn’t mean I don’t trade the occasional $AAPL or $IBM for a swing or trade a few $ES_F on a scalp. My point is that those other trades are but a small fraction of my overall market participation.

If you’ve found a way to trade multiple markets in a variety of ways all while managing risk and being profitable for several years, congratulations. You, however, are not the norm. For the vast majority out there that try to trade someone else’s system or strategy may find short-term success but longevity will be unattainable. They’ll soon abandon that strategy and move on to the next only to repeat with similar brevity. They become a jack of all and master of none either losing their trading capital or, like my handyman, grinding out a decent living.

Don’t misunderstand me, there is nothing wrong with making a decent living. But if the handyman isn’t busting his hump at someone’s house he’s not making money. Being successful in the markets is about so much more than the money itself. It’s about freedom and self-reliance as well. Strive to find a system that fits well with your personality and risk tolerance. Become a master at executing your plan. Like a machine!

Once your trade metrics suggest stability over an extended period of time you can move on to other strategies. Build a foundation in order to have longevity in the markets. There’s no better place to make a living than in the markets.

ShrinkyLinks

Darren Miller — Sat, 10 Dec 2011 12:50:00 +0000

I’ve always wanted to visit Europe but right now I’m so sick of it that you probably couldn’t get me on a plane over their if the trip was free. Don’t get me wrong, as an option trader I love the volatility but too much of anything isn’t good. I’d venture to say we break the 200-day early next week heading into the FOMC. After that it’s anyone’s guess because of opex. Once we clear that I think we make higher highs for the year.

To go along with option expiration this coming week we have quite a few economic reports that could act as catalysts to get us over that 200-day. Tuesday we get retail sales along with the FOMC statement, which could definitely move this market. Thursday brings with it the Producer Price Index (PPI), weekly jobless claims and the Philly Fed manufacturing index. The week closes out with the Consumer Price Index (CPI) and triple witching. The economic data has been improving here in the US of late and maybe once we get through opex we get that Santa Claus rally. Then again, maybe not.

Enjoy the links and your weekend!

The brain basis of “unrealistic optimism” [Research Digest]
Feeling of power influences how we think [PsychCentral]
Oxytocin makes you feel more extroverted [MNT]
The power of smart listening [Time]
Europe and investor behavior [Forbes]
‘Tis the Season for Nostalgia: Holiday Reminiscing Can Have Psychological Benefits [APA]
How preferences affects quick choices [Scientific American]
Vision scientists demonstrate innovative learning method [NSF]
Bee swarms mimic human brain neurons to make decisions [Cornell]
Psychology researcher finds that power does go to our heads [Queens University]
Why people secretly fear creative ideas [PsyBlog]
Sound and vision work hand in hand [UCLA]
Watch a live feed of Saturday’s lunar eclipse [Wired]
Empathic rats spring each other from jail [Discover Magazine]
Research on thinking explains why we make bad decisions [Boston Globe]

Las Vegas Money Show

Darren Miller — Thu, 08 Dec 2011 01:11:42 +0000

I recently had the opportunity to present at the Money Show in Las Vegas. Below is a brief clip of me rambling about whether or not good traders are born. If you found this clip helpful there are others on the site, just search for my name. My presentation at the conference was webcast and recorded. The recording can be seen here.

ShrinkyLinks

Darren Miller — Sat, 03 Dec 2011 13:22:17 +0000

For those that have just started trading you should know that V shaped moves like we’ve seen the past two weeks are perfectly normal. In fact, this high level of volatility is exactly why those of us who’ve been in the business so long love the markets. Not really. In fact it’s becoming tiresome to many, myself included.

If you’re like me you are holding your breath until December 9th when the EU either magically fixes itself or explodes into a billion shards. There are many events this coming week across the pond that will no doubt continue the overnight swings we’ve all grown accustomed to. Enjoy the links and your weekend!

Men really don’t think about sex all day long [Ohio State]
When errors improve performance [LMU]
How rationality can make your life more awesome [Rationally Speaking]
Creative excuses: Original thinkers more likely to cheat [APA]
Are doing harm and allowing harm the same thing? [Brown]
Swearing reduces pain – but not if you do it every day [Keele University]
Guiding lights: Harvard researcher creates neurons that illuminate as they fire [Harvard]
How box scores are like gene sequences: The geek path from baseball to bio [Wired]
Neural (MRI) correlates of effective learning [Deric Bownd]
Do nice guys & girls really finish last? [Notre Dame]
Color is not a black and white issue [Hull]
The neurocognitive connection between physical activity & eating behavior [BMR]
New research distinguishes roles of consciousness and subconscious awareness [Neuroartes]
The concern with self-confidence [Brain Blogger]

On Nonfarm Payrolls

Darren Miller — Thu, 01 Dec 2011 23:00:24 +0000

It’s no secret that one of the most volatile economic reports out there is the BLS’ nonfarm payrolls report. Probably one of the most studied and gamed report but I don’t have the data to prove it. I thought I’d share how I use the report to manage risk.

It’s good to know the history of market reactions leading up to the NFP data. Earlier this week Dynamic Hedge posted an excellent article on some historical tendencies of the fourth quarter. Those that read/knew what to expect and were prepared as such have been rewarded. It’s also good to know what the consensus is to gauge market reaction after the data is released.

It’s always good to understand the underpinnings of the report itself. I’m talking about data points like average hourly earnings, revisions, seasonal adjustments, etc. You don’t need to be an economist to understand the report but know it’s important to form your own opinion of what could/should happen then compare that with the actual reaction. You should already have a plan in place to manage risk ahead of the report, that’s what a proactive trader does.

In my opinion it’s what happens after the release that’s most important. The futures market will let you know what it thinks of the data almost instantly and the first move is usually knee-jerk and wrong. As an options trader I can’t trade (my choice) until the cash market opens so I have about an hour to watch in anticipation. Over the past few years the market has reacted positively to good reports and negatively to bad reports. However, those gains are marginal at best. What needs to happen for real movement to occur is a large discrepancy from the expected number and the real number.

This may not come as a surprise but on days where the NFP report is very strong relative to expectations the market has sold off. On the stronger days the tendency is to have a gap higher then fade after the first hour or so. On weaker days the reverse is true where we gap lower then bounce off the lows. Here’s the edge though. If a strong report is faded it’s average loss is minimal (less than -.2%). If the report is weak, then gains are much larger with an average gain of 1.25%.

The market is poised such that a weaker than expected report could lead to a gap lower so I’d be watching for history to repeat itself and trading accordingly. The ADP data on Wednesday has led many to increase their expectations so trade accordingly. I guess the biggest caveat to all this is the macro events that tend to trump any and all economic reports these days.

How Strong Was Today?

Darren Miller — Wed, 30 Nov 2011 22:22:30 +0000

Take a look at the SPX chart below that shows a daily close .42% outside the +2 standard deviation for volatility. Going back 5 years there were five other occasions where SPX closed, on a daily basis, outside the +2 standard deviation. Those dates were 3/23/09, 10/13/08, 9/19/08, 4/1/08 and 3/21/07. Look them up.

As far as the weekly volatility bands go, the +1 standard deviation is sitting at 1269.76 so there’s still room to the upside. Plenty of “reasons” why today was so bullish; the news out of China, The ADP data, front-running the bullish tendency of the 1st trading day of the month, month end window dressing, etc. Take your pick.

Bottom line is that 96% of the SPX components are trading with an RSI(2) greater than 70 while 77% closed above 90. If you’re looking for what to do next, you have poor risk management. Plans need to be in place of where you get out, whether scaling or not and whether wrong or right on direction. I always take some off and protect the rest with stops but stops don’t always work, especially in a market that can gap 3% overnight. Collars work well as do inexpensive calls in $VXX.

ShrinkyLinks

Darren Miller — Sat, 26 Nov 2011 11:57:34 +0000

Not much for the bulls to be thankful for this past week as the broader market turned in its worst performance for Thanksgiving week since 1932. No question that the market is oversold, the question is when it bounces where does it find resistance. The 10/7/11 gap fill is extremely low hanging fruit for next week. What we do beyond that is anyone’s guess as nobody truly knows. Not the quants, fundies or technicians, nobody. At this point I’m not ruling out a test of the October lows.

Some decent catalyst next week as we wrap up November and head into the final month of trading for 2011 (wow, that seems unreal). Tuesday has consumer confidence numbers while Wednesday brings the end of the month along with ADP employment data. Thursday we get weekly claims along with ISM manufacturing PMI while Friday closes out the week with non-farm payrolls. Add to those events the sure to be non-stop rumor mill from Europe and we achieve casino status, once again, for the markets. Enjoy the links and your weekend!

Tuning out: How brains benefit from meditation [Yale]
A computer system allows a machine to recognize a person’s emotional state [UCIII]
Why we forget [Salon]
Quiz: How is your memory holding up? [WebMD]
It pays to be healthier [Springer]
Ignorance is Bliss When it Comes to Challenging Social Issues [APA]
Biased thinking at work is a dangerous thing [GulfNews]
Awareness biases information processing [Radboud University]
High-rez scan of Einstein’s brain [BoingBoing]
Amping Up Brain Function: Transcranial Stimulation Shows Promise in Speeding Up Learning [Scientific American]
Ingrained in the brain [Reasearch Live]
The Psychological Science Behind an Oops Moment [APA]
Does religion make your brain happy? [Science&Religion Today]
The twin perils of emotion and logic [FundWeb]
Keeping one’s eyes on the goal-despite stress [Ruhr University]

Attitrade-Proactive Trading

ShrinkyLinks

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On Average True Range (ATR)

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Don’t Be A Jack

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Las Vegas Money Show

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On Nonfarm Payrolls

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How Strong Was Today?

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