The Art Of The Trade

Major Move - Bear With Me

2008-06-26T23:44:00.000-07:00

I've making the biggest move of my life. I'm relocating to Winston-Salem, North Carolina after living in and around the San Fernando Valley for nearly 14 years. I originally imagined I'd only remain in the Los Angeles area for a short stint after college but now I've lived here nearly twice the amount of time I originally imagined. Nothing really wrong with that, my future has rarely ended up as dull as I imagined it. :)

I've been working on this move since the beginning of the year but have been quiet about this on the blog while quietly making my preparations. I'll be owning my first home (assuming the funding doesn't blow-up). A professional has inspected the property, my purchase offer has been accepted, and I've initiated the loan process. I'm moving two doors down from some very dear friends. I'm very excited for the relocation, but there's a ton of work to do. I'll tell you much more about it when I'm there. I leave Los Angeles on Monday morning (June 30).

Here's all the news in brief:
I'm moving to North Carolina
I put my dog down last Saturday. She was 14 and we spent the vast majority of the moments of our live over the past 8 years together.
I was down ~9.3% on the 15th of June but am currently up ~1.6% on today's market action.

This is the first time I've been back in the green for the past couple weeks. The emotional stress of the move and the decision to put my dog down played into that a bit, but I've also learned a lot. I was up nearly 20% on June 6, but watched the market take it and more back. I'll share more about what I've learned in the process later. I'm glad to be back to the green. I closed most everything for the week of travel but my double diagonal on RIO is currently in a nice place so I'm keeping it open for now. Today's decline has taken my Iron Condor on DJX uncomfortably close to my short put strike.

Anyway, I've got to get back to packing. Thanks for checking in. I have some drafts written of all the Advanced P.I.T. classes, but I've been rather busy with the move.

May 15th Progress Update

2008-05-15T18:28:00.001-07:00

I'm starting a new regular segment to my blog, don't you special for being here at the inception? Since I started trading my Roth IRA with tos (thinkorswim) on April 15 I thought I'll give you my net liquidation progress on the 15th of each month.

Currently my net liquidation is +12.5% in 1 month.

I've been trading Iron Condors, OTM Credit Verticals, Calendars and Diagonals mostly on index products (SPY, IWM, QQQQ, etc...). I also have a double diagonal on RIO which has been working quite well. As I've shown previously on my SPY position, I favor balancing Delta to my outlook. If I feel that the market will be more likely to go up, I balance my portfolio with positive Deltas to the degree of my conviction that the markets will go up. I'm still learning which strategies are most agreeable to me, but I know I like having a positive Theta (benefit from time decay) and spreading positions across time is an interesting way to have many features working for me. I can get a benefit from increases in volatility, while still having a positive Theta. Options are very interesting, but it can get a little complicated.

For continuity's sake I've decided to throw in a snapshot of that same SPY position I showed you last week. You can see we've moved right up into the middle of my profitability range. The three red dotted lines represent breakeven on 6/21 and the current price. According to thinkorswim's analysis page (which I believe is based on "normal" distribution of price), I have about a 57% chance of keeping some money, a 15% chance of making a over $400, a 19.5% chance of losing over $200 if the markets sell off down to below $136 and a 23% chance of losing less than $100 if we continue on up above $148. Please note, I don't do the calculations, it's one of the many cool features that thinkorswim offers, I'm simply reading them right off the following risk graph:

Tom Sosnoff - Triple Witching Tips

2008-05-15T14:11:00.000-07:00

I've mentioned previously that I switched my brokerage to thinkorswim (tos). I will tell you more about why in a full feature post, but for now, I want to share with you one of the many reasons. I've been listening to their free Wednesday chats during my commute and am picking up interesting bits of market knowledge from Tom Preston, Tom Sosnoff, Joel Blaum, Tim Knight, and other contributing members of the thinorswim family.

Tom Sosnoff tends to bring in fairly advanced topics when he presents on the Wednesday chats and the subject of Triple Witching is a rich point of departure. What is Triple Witching? It's a magical time that comes 4 times a year. I like investopedia's definition: An event that occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December.

Tom Sosnoff has talked about triple witching on a few chats throughout the archive but so far the September 12 chat (download the mp3) is the densest I've heard. He covers many ideas about volatility and how to strategically position yourself to place the odds in your favor at a triple witching expirations. I find the information Tom Sosnoff presents very interesting and worth the time it takes to grok. I'm excited about this particular chat session even though I haven't heard all 15 points he presents yet. I've only heard the first 20 minutes or so, but recommend having a listen if you're prepared to delve into such dense subject matter.

The complete archive of Wednesday chats is available by clicking here.

Turtle Review Correction

2008-05-13T16:44:00.001-07:00

After reading my 2fer Turtle Book Review, Michael Covel, the author of The Complete TurtleTrader has inquired about my source regarding his status as a Trader. In the introduction to his interview on wallstrip, Lindsay, the then host of wallstrip (very entertaining, nicely produced video podcast), states that he's not a Turtle (clearly he's human, but not one of the few "Turtle Traders"), nor a Trader. Michael has emailed me to inform me that, while he's not a hedge-fund manager, he does trade his own account. I stand corrected by the source himself and I think it speaks well of his credibility.

I'm as surprised as anyone that the author would read my little review but now I fear I may have stepped into a feud that I don't fully understand. From Michael's copious references, I believe that he put a lot of time and effort into researching his book. It seems the controversy stems from the inability to verify Faith's trading record while a Turtle because the records are missing. If memory serves, Faith's are the only missing records out of the entire Turtle experiment. Without such verifiable proof, the only source for Faith's record is his own version of what happened in Way of the Turtle.

Credibility issues aside, I found both books enjoyable and worth reading and while I'm critical of Covel's technically correct "zero-sum game" claim, his book is an interesting and rather comprehensive journalistic look into the famous experiment and I'll add Covel's Trend Following to my ever expanding list of reading materials.

To Michael Covel: thank you for stopping by and correcting my error and feel free to leave a comment. Also, thank you for your hard work in bringing together so many people's stories to get a more complete picture of what actually happened back when Richard Dennis decided to run this now famous experiment.

Michael Covel's website is: www.michaelcovel.com
Also check out the related sites: www.trendfollowing.com and www.turtletrader.com.

2fer Turtle Books - Reviewed

2008-05-10T20:17:00.000-07:00

Warning, this developed into a rather lengthy review.
Proceed with caution.
You have been warned ;-)

I have much to share with you and I've been having a little difficulty getting back into the groove of posting about my progress, so I thought I could continue my way back into regularly posting with this book review. Actually this is a 2fer book review. Recently I read both The Complete TurtleTrader: The Legend, the Lessons, the Results and Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders. I found both to be well written and easy to read even though the two told rather different stories in different ways. I particularly enjoyed Curtis Faith's style as it was clear, to the point, and well communicated. It practically reads itself and that's quite a feat for the subject matter. Covel's Complete TurteTrader was more of a journalistic look into the primary player's lives. Rather than a traditional review, I'm intending this to be a journey of my discoveries from reading these books, a what I learned, rather than a what they said.

The Complete TurtleTrader was a fun read. It seems to be rather well researched and has plenty of reference materials quoted to support it's voracity. Michael Covel does impress upon us an interesting view of Richard Dennis, of whom Covel seems especially fond. While I felt it was entertaining, it was not very educational for learning the turtle trading system. One thing that spoiled my experience of Covel's clean prose is the multiple times that he referred to trading/the market as a "zero-sum-game". I can't let someone get away with that. After all, even if a stock moves in your direction you could still lose money between slippage and commissions, aka Cost of Trade. Do you think Cost of Trade = Free? I could have let it go if he didn't repeat it at least 3 times. How can one have done such a brilliant job everywhere else in his research, yet still believes the myth that the markets are a zero-sum-game? This gives me pause. Yes, there are arguments to support the concept of the markets as a zero-sum game, but practicality and the experience of losing on Slippage and Cost of Trade tells me: while the markets may be a zero-sum game on the whole, individual participants don't share this benefit.

I was sucked in by Covel's representation of Richard Dennis' personality. He sounds like a friend that you think is either brilliant or crazy or some combination of both. An admirable quality. I like people who shake things up. The brave souls that go against the current way of doing things in order to bring everyone into a future where it can be done better are a valuable dissonance. The descenting voice almost always has something to say that is a benefit to hear. I have an outlook in which I want to improve the quality of life for everyone to whatever degree that I am able. This tends to bias me towards thinking that others have similar motivation. It may not be the truth, but if I can lead the way in what I do, maybe others can too. We're in this thing together whether wanted or not. Why not work together to improve it for everyone? Dennis' actions could certainly be interpreted as an act of giving back what he'd been given but I can't speak for another man's motives. The Turtle experiment created something for the record books and broke down some of the walls that separate the people from the market. It makes for a good story and I think Dennis may have simply done the experiment for the publicity and the sheer fun of doing something destined to become legendary.

Although citing the Turtles experiment is often used as proof that anybody can become a successful trader, there are too many unacknowledged points that don't provide support. You can get closer to the truth if you state what happen. Those few individuals (about 10% of those interviewed) hired based on Richard Dennis and William Eckhart's criteria had mixed results both during and after the program. Some of those became very successful traders, much of which could be attributed to their experience as a Turtle. So, if you define anyone as "a few out of a selected few" then yes, anyone can become a successful trader. Personally, I believe in the power of belief. If you believe you can become a successful trader than you will do so.

Despite Covel's criticism and denouncements of Curtis Faith's claims, Way of the Turtle made for a worthwhile read and was more educational than The Complete TurtleTrader. Covel goes out of his way to speak ill of Curtis Faith. While preparing this review, I discovered that Michael Covel isn't currently a trader and never was. Does that invalidate his writing? Certainly not, but it may help explain his adherence to the zero-sum-game dogma. While Covel may have collected a lot of information about trend following from others who are successful traders, it undermines his credibility as an authority on the subject. It's like a way of saying: while I know this works and you can get really great results, I don't do it myself because I don't believe it. What reasons can excuse a non-practitioner to sell you on something he doesn't do and hasn't ever done? While Faith no longer trades and seemed to have eventually wiped out, at least he actually did it. (see: Turtle Review Correction)

I say that Faith's book was more educational because he talks in depth about the actual rules, explains risk better than anyone else I've read, and supports his information with math. Yes, it is more technical than Covel's book, but the reader reaps the reward for the intellectual effort exuded. Faith successfully brings home some valuable aspects of risk and an interesting argument about efficient markets. One way to make money in the market is to exploit an inefficiency also known as finding an edge. If the markets are efficient, where could we find an inefficiency that could give us that edge?

Faith proposes that the inefficiency is the perception of the market participants and lays a foundation for psychology as the inefficiency. After all, why is AAPL trading at $183.45 a share? Because someone who owns a share of AAPL is willing to sell for $183.45 and someone else is willing to buy for $183.45. All market participants collectively agree that it's worth $183.45. This agreement is based on the participant's viewpoints about AAPL. If you're buying, you do so expecting it will go up. We're all in it for the money. Why would you buy something if you thought that it's overpriced? All of these competing interests have different expectations. Because group behavior is more primitive than an individual's behavior, you can profit from understanding how the group behaves as a whole. This is the realm in which you can have your edge as a trader.

It is also a strong statement for the ability of technical analysis to uncover certain patterns of behavior that result in the ability to choose a direction with a certain percentage of confidence for a profitable trade. A price chart is the history of each day's agreements amongst all market participants. Past price data is the agreement paper-trail. With that in mind, can we make money by looking for previous situations that are similar to current market condition? I believe that there is room to find an edge by looking at the past price data. Have you felt the pain of a trade go against you? Have you felt the joy of a trade that worked perfectly? I have. It could be stated that price is a gauge of the emotional response exhibited by market participants. The explanation of why "buy on misery and sell on euphoria" works is in the domain of behavioral psychology.

Faith's writing has helped me understand how a trader makes money. It's as if my job as a trader is to exploit the nature of group behavior. Will this make my trading perfect? No way, but it does give us a starting point. The rest is setting up a system that makes more money that it loses and leaves me with money to continue to stay in the game even in the event of the inevitable drawdowns. Any profitable system must mitigate loses and therefore employ risk management. Faith's explanation about risk is really eye-opening. It still gives me pause and forces me to look into how I diversify my strategies so no single event or risk will take me out of the game. It's not just a matter of diversifying the types of products traded, it's a matter of diversifying strategies.

Certain risks (directional, time-sensitive, etc...) are inherent in certain strategies (selling stock, buying options, etc...). Balancing these risks using multiple strategies with different risk profiles is an invaluable way to mitigate risk. This is also known as hedging and is a smart practice when you understand the kind of risks we are exposed to in the markets. Hedging strategies have overhead, but many can balance your portfolio in a way that is both profitable and not overly exposed to any single type of risk or risk element.

The Turtle trading rules wouldn't be described properly as employing hedging strategies, but the nature of the way Faith explains risk makes me feel more comfortable using hedges to mitigate risk. That's the opposite of what the Turtles were doing. They were going for high risk, high reward. You can capture big moves with a trend following system and when you do, you make big bucks but the contained drawdowns are more frequent. One reason it can work is because most people can't deal with losing that often and eventually less people are competing with your trading system. If your trading system has truly stood the test of time it will begin to work again because similar market conditions will return and there will be less competition. It may be more or less effective in the future than in the past. If you've tailored your system for a short sampling of time, you can become quite vulnerable to the kind of excessive repetitive drawndowns and be wiped out before more cooperative market characteristics return. The Turtles managed risk by having set units that would represent the same amount of money risked in each of the products they traded.

Another key distinction Faith brings is the tendency for outcome bias which helps to explain how recent outcome tends to color your view. For example, how do you feel if the last 7 trades went against you? 5 consecutive winners? You get the point, but a string of losses that are perfect executions of your system is the sort of thing that can cause you to bail on a system that will start working again. This is why any system you choose should be thoroughly backtested using robust statistic (another point Faith explains quite well) over a long enough period of time to weed out the noise and for you to get a better idea of how this holds up to many different market conditions.

I'm realize I didn't say much about what the authors actually said, but I did warn you that this is a personal account of what I walked away with. During this time I've also been listening to the thinkorswim Wednesday chats and I've also more recently finish Mark Douglas' Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude. No doubt that both of those will influence everything I just wrote about. You could be wondering: how did he get that from those books? The answer: I may not have, but I think I've fairly characterized my opinion of these books. I think they're both a good read, but now you know which one will deliver the kind of story that suits your interest.

Aside from the books themselves, this review: On The Turtle Myth: Michael Covel vs. Curtis Faith and the referenced materials it incorporated aided my research about the Covel/Faith argument.

SPY Position

2008-05-08T00:46:00.000-07:00

I thought I'd share with you one of my current positions and thanks to the selloff today, my IRA account is currently up 5% in 23 days. I funded this account for 2007 taxes and first traded it on 4/15/2008. I'm referring to my account's net liquidation value, so of course this is comprised of currently open trades. No guarantees. I have a variety of positions and I thought I'd show you the current risk graph for my open positions on SPY:

I switched brokerages to thinkorswim a few month's ago. I didn't share the news with you at the time and I apologize. Part of the reason why is because of the risk graph you see above and I'll tell you more about it in another post.

If you're having trouble decoding the graph, the price of SPY is along the bottom and my profits and loses are on the left side. The white line is today's value and the green line is the value at expiration in June. It doesn't look like a "standard" position risk graph, does it? That's because it's a combination of 2 spreads: a Skewed Iron Condor and a Put Diagonal (aka Diagonalized Put Calendar). You can see that I'm profitable at June's expiration if SPY is between $135.64 and $148.80 and reflects my current market outlook which is mildly bullish.

Mildly bullish? Everything has been going up like gangbusters but I don't quite understand why. I think a little hysteria could enter at any time, and we could see another drop, but the trend is up and a lot of news items are "softly" positive. It seems the market is reacting too positively and I think there's a good chance of getting hung up in this range for a couple weeks if not more.

The trend is up and as you can see I have very little to lose to the upside even if the bulls stampede to a new high before 6/21/2008 (I'd lose merely ~6% of risk). But come now, we're heading into summer which often softens the markets, in an election year which seems to have boosted volatility, and in a year where January closed down. The saying is: As goes January, so goes the year (it's not true, but often the things people believe, especially when enough of them believe it, will cause it to come true -- commonly known as a self-fulfilling prophecy). The three may just form a trifecta that blows the top off the market, but I doubt it. Those are my thoughts and I'm willing to place some bets in that general direction via a combination of option spreads. What do you think?

My TV Broke

2008-05-07T00:01:00.001-07:00

After 8 years, 3 moves, and $60, my ancient Zenith Sentry 2 Television died this weekend. I think this is great news for all of us. I've been having a raging TV addiction to the point where I just would have it on like a comforting voice in the silence and emptiness of my room... Well, my dog is here, and cat, so it's sorta hard to consider my room "empty." And this doesn't begin to explain the plethora of random objects occupying every square centimeter of surface that, if my room truly were empty, would be exposed in all their cold barren glory. But no, alas, I keep my surfaces covered so they don't have to be alone all day while I'm out.

... Back to the focus of this blog... So, as I was saying... My TV died and I consider this great news. Why? Because now I can write my "what I learned today" from the markets for fun and entertainment. With the trusty Internet at my side, I'll now have to entertain myself somehow :).

I've been hesitant to post regularly because I don't want to promise that I'm going to post regularly. I feel the pressure of the previous promises weighing on me. I don't want to promise regular posts. I'll either post regularly or not, but here's a quick heads up. I'm enrolled in their upcoming advanced Option Trading class "Advanced P.I.T." and I think it's likely that I'll do at least 1 write-up a week to share some of the class that I'm attending. It begins next Monday and I'll tell you more about it while attending.

I want to continue to share with y'all because the story is just now starting to get interesting again. I'm proud to say that I'm up approximately 3% on my account in about 3 months. I know, that may not sound like a big deal, but I believe I can maintain or improve upon that return as I become a smarter trader. If I maintain the same results throughout the year, that's not too bad of a percent return while continuing to learn and refine my perceptions and abilities to read the market and trade according to what it offers. It's like being paid to learn. Not bad.

I'm also attempting to bring in the voice of fellow fledgling trader who's attended InvesTools training for you to have a sampling from another student's perspective of a different program. Leave a comment to encourage him to contribute to a wonderful audience. Just refer to him as the InvesTools Student.

I mean that about you being a wonderful audience. It is a pleasure to write to you. I've had encouraging comments, honest, useful feedback on some of my mistakes along the way. So we're off. Come back soon for a book review on a couple Turtles books.

SEC Filing Re: TMTT / David Gengler & Linda Woolf

2008-03-12T14:13:00.000-07:00

Though I'm not really pleased to be providing you with bad news about TMTT on my first post back in nearly 9 months, I felt this bit of news was too important to not respond to. I've been stingy with y'all by not giving you some updates as I go. I have been back in the markets and have many updates about how it's going and will bring this blog back to life. For now I'd like to address this information that's hot-off-the-presses, so to speak.

An anonymous user posted a link to the comments section of the previous post (June 11, 2007). It refers to a SEC filing that doesn't seem to favorable for TMTT sales people. It's currently alleged that the personal claims both Linda Woolf and David Gengler made on an infomercial seem to have been false. I had not seen these infomercials nor have I heard of nor had any interaction with David Gengler and Linda Woolf. You certainly can read the SEC filing for yourself, I know only as much as the SEC Press release. I've also glanced through the actual filing document (it's available from the Press Release in PDF format).

While the marketing for TMTT can be characterized as absurd, hyperbole, or even misleading, my experience with the classes, coaches, and mentors doesn't reflect this same sentiment. The individuals that teach the classes and take the time to coach and mentor do seem to care for my knowledge and financial well-being. They're there to teach what it takes to stay in the game and to become good at trading. They're not teaching any magic no-losses guaranteed strategies. Trading is risky, but can be rewarding. TMTT's training can be tailored to an aspiring trader's needs and styles. There's not just one way to make money in the markets and I've learned a variety of strategies from TMTT. You can learn these strategies elsewhere, but I've learned them with TMTT and supplemented my knowledge with books and other resources.

I'm still a fledgling trader and am finding my personal style of trading. TMTT has offered me a large variety of ways to trade and I'm discovering my psychological tolerance levels for the differing risk and reward profiles. It's an adventure that I'm glad I began to share and am looking forward to continuing to share with you.

And I'm Back...

2007-06-11T01:24:00.000-07:00

Hello again friend. Yes, it's been a long time since my last post and no, I'm not dead. Although I could go into great detail about what's been going on for the past few months, and trust me, it's been an exciting time, the details are tedious at times, boring and rather unrelated to the purpose of this blog. In short, I allowed many pursuits of varying importance take me away from trading. However, I'm back and am moving forward with renewed energy and a modicum of wisdom.

The main thing I've been confronted with is the idea of finding a way to create a sustainable schedule. You may have noticed, wondered or otherwise mused about my ability to sustain such a full schedule. Between full time work, music gigs and teaching, a failed love interest, learning about Trading, Stocks, Options, Market Theory, and blogging multiple times a week I was on a quick path to burnout. Eventually all of it caught up to me and I found myself spread too thin, out of energy, in poor health, mentally and physically exhausted and otherwise not leading a healthy, balanced life. I've rearranged my schedule, learned how to say no to competing interests and am holding myself to a schedule with blocks of time dedicated to trading. And not to worry, I'll continue to add to this blog at least once a week to keep you kind folks abreast of what's current.

For those of you who have been longtime readers of my blog, I feel I need to give you an update on the trade journaling software that I've dubbed ScoreCard. The vision is not dead, far from it. The vision is even clearer than ever. Unfortunately the first team of software developers I was working with fell apart. This did cause a bit of angst on my part and has certainly contributed to my silence on the subject. I've managed to regroup and establish new connections and a new group of talented programmers to make this vision a reality. ScoreCard is much more than a glimmer in my eye, stay tuned for future postings.

Thanks for sticking with me, audience. I will continue to bring you as much insight as I can. The story is definitely not over, and the best is yet to come.

Re: TMTT

2007-02-21T13:39:00.001-08:00

On 2/20/07, LR wrote:

Hello, my name is Luis, I 'm interested in taking the 3 days class to learn to trade stocks and options, but i was wandering if i can get an Honest opinion from you, Is the tree day class is all you need to successful in trading stocks and options or is it just a hook to try to sell more expensive classes.

an honest opining will be appreciated.

I don't think there's any 3-day course that will teach you to successfully trade stocks & options. TMTT's 3-day course is a crash-course introduction to trading. It will teach you what you don't know, and will give you enough knowledge to be dangerous. Part of the 3-day introduction course from TMTT is a sales pitch for more expensive classes. If you're really interested, start with a book (such as: "Trading for a Living"). Books are cheap, you won't need to take a loan out to read one. You don't even have to pay a cent if you get it from your local library.

Trading isn't for everyone. It is not fast and easy money. It is true that once you're proficient and are making a consistent return in the market, it's not as difficult as many other investment and money-making systems. However, professional traders work for their money. They are disciplined, intelligent individuals that spend a lot of time learning, seeking more knowledge and refining their techniques.

After you've increased your knowledge about what it means to be a professional trader, consider getting a private coach, either thru TMTT or independently. TMTT brings all the pieces together, but you may be able to find a reputable mentor to help you on a one-on-one basis if you are diligent in your pursuit. Having a personal mentor will ease your learning curve.

Best of luck in all your pursuits and come back here to check out ScoreCard, especially if you decide to become a professional trader.

Mark

Questions from a Novice

2007-02-16T23:52:00.000-08:00

On 2/11/07, JT wrote:

I don't quite remember how I surfed to your blog, probably as a result of looking for info on TMTT. Your blog seems to be well written and informative. If you have time to respond, I have a couple of questions about your experience.

My background:

I'm 46 year old surgeon in lower Alabama fighting the dueling demons of spiraling overhead costs and plummeting re-imbursements from Medicare and third party insurers. While my income level is satisfactory (for now), it requires ever increasing productivity on my part; more patients in clinic so that I can schedule more surgeries; longer hours in the office and at the hospital are the result. My satisfaction with my profession is diminishing. I would like to develop an alternative source of income that would allow me to return to a reasonable life in my chosen profession (orthopaedic surgery). There are several choices, one of which is stock trading. (others include real estate, business franchises, sending my wife out for a job, etc)

My question(s):

What sort of time investment (on my part) would be required to first, become proficient in stock trading (based on your experience) and second, what would the ongoing requirement (on a daily or weekly basis) be. I am willing to create time by adjusting my practice schedule but, I can't walk away from my practice as it provides the income for everything else I do (including trading stocks, if that's what I choose to pursue).

Finally, If I decide to pursue this avenue, I would like to gain some working knowledge of the "language" and principles of stock trading. Is there a book or group of books you would recommend for the absolute novice in this area?

Thanks in advance for any advice.

JT, MD
Daphne, AL

Hi John, quite a pleasure to hear from you and thank you for the nice comments about my blog. I'll be returning to regular postings as other pursuits wrap up. I've most recently found myself on a bit of a spiritual quest. I've hesitated to post to my trading blog recently because all the latest activities haven't had much to do with trading.

Trading does take time. About 2-4 hours each day. There is a lot of terminology that is specific to the domain, but it shouldn't be too difficult a stumbling block. I have recommended a few books on my blog which will help get you started. Just getting the " Trading for a Living" book alone will help you understand a bit more about what you will be getting into. It's truly not easy in the beginning. The best place to start is to learn your own style and what strategies appeal to your risk tolerance, time commitment, etc...

The truth about trading is that you only need to be really good at 1 strategy (though knowing other strategies will allow you to make money in a variety of market conditions). Something else to be aware of is that many professional traders only make 20-80% APY. Oh sure, an individual trade now and then will yield amazing returns, but the "expense" trades (losses) will average out to something more reasonable APY-wise. Even 20% APY is still pretty amazing, and certainly something you can't get consistently in other investments. Of course it is not exactly a passive investment strategy (depends somewhat on the strategy employed and time-frame).

Allow me to plug the trade journalling program that I have in the works. The preliminary name of this product is ScoreCard and I hate to refer to it as simply trade journalling software. After my development team gives the green light for beta testing, I'll extend a few offerings for some select people to help work out the final kinks. We're expecting to be ready for beta testing in just over a month. ScoreCard will be a tremendous aid to burgeoning Traders and veterans alike, as it includes simple and powerful features to help Traders get feedback about their trading style and the effectiveness of the various strategies, evaluation criteria, etc...

Mark

Where I've Been

2006-12-17T00:40:00.001-08:00

I know I've dissappeared recently, at least as far as this blog is concerned. I've been reflecting. I've also been making plans. But first, I think you should know on what I've been reflecting. As a few estitute readers have mentioned, I can be a little hard on myself from time to time. I have quite a lot of drive and desire to be the best, yet I know I'm new to trading and therefore am the worst I will ever be. That's the good news. The bad part is that it can be a bit frustrating & discouraging.

I have not been placing trades (not even virtual) for the past couple weeks. Why not? Good question. It's not that I'm that discouraged, it's just a matter of me wanting a better trade journaling platform in order to get quantifyable, objective results. I was using Trade Tracker Online (www.TradeTrackerOnline.com) to journal my trades, but the free 30 day period expired. I was introduced to TTO by Jordan Stokes. It's a decent trade journaling/tracking program and I was excited to use it because I haven't found any other worthwhile pieces of software or services out there for trade journaling.

As you know from reading my previous posts, keeping a trade journal is an essential habbit of a professional trader. I started with free-form text & chart captures (in Microsoft Word) but now find it too limiting because it lacks an easy way to quantify the trades. I can also maintain a spreadsheet with my entry & exit numbers and get some basic metrics of my success rate. Unfortunately that means entering the data twice. I don't know about you, but I hate double data entry, not to mention the fact that this still only offers a very broad indication of the results of your trades. Trade Tracker Online does a much better job by offering a platform which helps you evaluate a trade and record entry, stop adjustments, profit taking & exit. This avoids double data entry, and gives you the benefit of looking through your journal for you best & worst trades helping you to fine-tune your trading rules and trading style.

As you may recall, I'm a computer programmer and naturally I'd already been mentally designing a trade journal database. Initially when I saw Trade Tracker Online I thought: Cool! A solution that I can put to use today, rather than having to spend the time to develop my own. After all, my goal is to be a professional trader, not a computer programmer or database designer. I've been programming professionally since the turn of the century and I'm a little bored of it. Trading is more interesting to me, not to mention that the income from trading is scalable based on the amount of money you have in your trading account, not on the amount of hours you can sell of yourself in a given day (assuming you're an employee or contractor, of course).

As nice as Trade Tracker Online is, it doesn't offer the level of insight that I'd like to see. I have some very specific ideas of how to create a better trade journaling platform and have assembled a team of programmers to help me create my vision. I don't want to give away too much about what we're developing before it's ready for public release, but it will provide a trader with far more insight than anything else out there that I've seen. I'm very excited to be creating this solution and can't wait to tell you more about it. Until it's finished with the phase 1 release I won't have time to be trading. It is a related discipline though, and I won't be far from the markets.

Merry Thanksgiving & Happy Black Friday!

2006-11-23T22:29:00.000-08:00

In the spirit of Thanksgiving I want to thank you for your continued interest and support. I have some wonderful readers; your comments recently have really lifted my spirits. Combined with a rejuvenating visit with my family for Turkey, now that the Tryptophan has worn off a bit, I'm feeling great. I've quietly been getting my way back into the markets this week, maintaining my watchlists and looking for setups to put my plan into action. I just need to get back into the practice of writing things up for your reading pleasure.

I began this post last night, hence the title, and was going to make a smart remark about whether or not the markets would see the same black balance as retailers today or if they’d be marked down to red tag sale prices. The new questions are now: will today’s shortened and lightly traded day see a follow-thru day in the red on Monday? Will traders and investors go on another buying binge, or will they need to close some positions to pay for the door buster deals they bought this morning? The trend does not seem to be in Jeopardy, so I don’t have to state my answer in the form of a question, but hey I've already gone this far: What is profit-taking? Alex? Judges?

Before I go further with the Jeopardy parody, let’s take a look at the (paper) trades I opened this morning: GT $17.89, ACN $34.32, AGR $17.86, and BAC $54.56. As I’m sure you recall, my goal is 25 flawless trades with 10 in a row before I go back to live, real money trades. I’m off to a pretty good start; however I need to refine one aspect in order to have a clearer policy on managing entry on a stock that gaps down. I watched these develop during the first couple hours at market open and decided to make entry based on the 5 minute intra-day chart. I haven’t nailed down my exact trading policy for such entries, and will review the materials, knowledge base and TMTT resources in order to nail down this gray area of my trading plan.

Feeling Pavlovian

2006-11-16T13:56:00.001-08:00

Dear readers, as you know I've been having a difficult time of things lately. I haven't been secretive about it, but I have been keeping the full magnitude of the recent events out of my blog. I've been in a period of introspection. I do try to bring you the unvarnished truth behind my personal journey here, not only for you to understand what Teach Me To Trade/EduTrades teaches, but also for you to understand my perspective of the journey to becoming a professional trader. I'm attempting to bring you the trials, tribulations, joys, sorrows, successes, failures, mental & emotional adjustments to name a few. So it would be wrong of me to withhold the negative experiences along the way, wouldn't it?

Of course I want to be able to report all the things I'm proud of here, all the happy news of my successes, and no, I don't enjoy bringing bad news to you. I'm sure there will be better news to report to you in the future, the near future, certainly, but you must know just how trying the last few weeks have been on me personally. Not everything is directly related to the market and my pursuit of becoming a professional trader, but since putting in the time takes away from other activities that I'd like to partake in, the personal aspects are inextricably linked. I consider the time spent trading as a short-term sacrifice for a long-term goal. As I become able to live off of my trading profits time will become less of an issue considering that I won't need to devide it up between 2 jobs. It's an investment, but this time commitment has created a terribly difficult strain on me personally.

As you know from reading previous posts, I finally became ill about a month ago. The time burden of the schedule was certainly a large contributing factor. This then led from one thing to another, including a break-up with a girl that I loved very dearly. Yes, even though that relationship started a mere couple months back I really loved her. Why does that break-up have anything to do with the Trading? Simply put, I created a situation that she could not have in her life because of my commitment to trading. I put the market and trading ahead of her and her interests (at least in the short-term) and I don't blame her for deciding to end things based on that. Now, that is a much simplified version of how things ended, but it's at the core.

You must also understand that my actions were actually a consideration of the future with her and that I wanted to be a successful trader in order to provide for both of us. It stung even more to have the market destroy the relationship I was hoping to provide for via the market. So the very actions I was taking for the long-term destroyed part of the reason I wanted to be a success. Is it odd to link the two together? Maybe, but it's the truth of the matter for me personally. Call me traditional, but I still hold to the ideal that I should be the primary provider in a family and I have a strong desire to be able to provide financially, as I know that I already have much to give personally. It would appear that I prematurely invested too much of my emotions in a future with her. The fact that she was unable to forgive me for the single failure on my part, which is really as simple as an adjustment of priorities, is a clear indication that she's not the right person for me. I can't be held to perfection, that's too much pressure for me, and I already have enough pressure from my own expectations of myself. Not to mention that holding someone to perfection isn't something that a loving partner does. I recognize my shortcomings and failures and strive to do better, but in the end must forgive myself of my faults. I do the same for everyone else on the planet, and especially for those I love. I need the same understanding and forgiveness from a loving partner.

It seems that, at least for the near-term future, romance & relationships are not possible. Between work, music and the time it takes to become a successful trader, I don't have time for such pursuits, not to mention the pain and emotional trauma brought on by this most recent experience.

The worst part is simply the timing of it all. I finally, after several months of diligent study and practice, including time with Coach Rob and Mentor Jordan, enter real money trades and get a series of losers immediately followed by my girlfriend dumping me. Talk about a low point, and of course it's become a Pavlovian response for me to simply avoid the markets for the past couple weeks. Think about it, at the moment, the markets have brought me very little more than pain. Pain financially and emotionally. Rationally and logically I realize that I'm letting my emotions get in the way of my success, and of course that realization makes me feel worse because I want to be able to put all of that aside and just do what I need to do. I will.

I have no change of plans for my future and I am, at my core, a resilient optimist. I will be a successful trader, and these events will simply add to my experience to make me better at what I do. I appreciate your interest in my journey and hope that you continue to find my trading blog interesting and compelling enough to be worth your time. We will get back to our regularly scheduled broadcast after this week. I've been working full time and rehearsing & performing everyday this week, accounting for approximately 15 hours of each day (including the commute time), leaving very little time for anything else.

Re: Thanks for the blog

2006-11-10T15:29:00.000-08:00

On 11/9/06, CV wrote:

I’m also a TMTT student. As of now we (wife also) just started and completed the master trader on demand and will go next to covered calls. We are also taking a trip to UT in Dec and spend back to back weekends for the master trader and covered calls. We are also reading a lot to try to keep just above water with all the information the academy has. We have a mortgage and 2 kids, so time is in short supply every day. We took the package with 6 classes and extra mentor days (don’t remember but may have been the elite package). We to have signed up for the coaching and additional class and mentor time. We did put a lot of money in, but as for education…they have a ton of stuff to become proficient in trading. Although thinking of the money we let go still gives me a tightening felling in my head and chest; my wife and I have come to a crossroad. We have to be proactive in our future, it’s just a little scary when all you life you grow up thinking that if you just work till you retire (so far it’s 75 they way I’ve calculated it) you will be just fine. I have to consider what I need to do for the future in terms of cash flow, not to mention having 2 kids and how much that will cost in college alone.

I think I’m rambling on so, fell free to contact me. I sit in front of the computer all day long (yes my dreaded J.O.B.). We’ll it’s not really bad here but I really don’t see them planning for MY future as much as they plan it for the executives. So I’m on my own….

Thanks
CV
South San Francisco

I hear you loud an clear CV. I have enough trouble keeping my head above water between work, markets & music, and the money spent on training certainly feels like a lot today. I look forward to the day it seems like pennies. The folks at Teach Me To Trade are as dedicated as you are to your success, you really are not alone. Granted, they're not there to suggest trades or advise you on a specific trade. No, they're there for something far more powerful: to teach you to trade in order for you to be able to take control and be a success.

I've needed a break from everything market related for the last couple weeks, and knowing my schedule will put me at a severe time disadvantage for getting back in. I've already learned the lesson to not jump back in after a break (see: Discipline, Patience & Timing). I have rehearsals and performances starting yesterday for 11 days straight. I have much to say and do with the markets and will be posting in updates and clearing out the blog-webs (think cob-webs... I know my blog has been attracting dust & lint lately). I need to find some way to balance it all out... I feel like I binge on one thing and then another, when I really need to find a way to balance out each week (and probably each day).

In other news, I purchased: taotrading.biz (nothing there yet) which I plan to put a discussion board for others that are interested (amongst other pursuits relative to trading). I'm looking forward to having more of an open discussion rather than the one-sided leaning blog.

Thanks for saying hi, I look forward to hearing from you again soon.

Mark

Moving to TradeStation, too

2006-11-07T00:22:00.000-08:00

Hi Mark,

Sorry to read about your tribulations. Hang in there.

I went to my mentor last week. Sam showed me Fibonacci and gap strategies. He showed me several stocks he thought would go down and a few bullish ones. I played several. I didn't play CMI (coulda made a bundle) and I did play GS and MRO. So far, they don't look good, especially after today's rally. I'm ahead in more spreads than I am behind in but GS and MRO have me in the red.

...

I sent a check to Interactive Brokers a day before I saw your post about TradeStation. I looked at the TS web site and liked it. IB returned my check because it had my old address. I felt so happy about the returned check that I knew I really wanted to try TS. Did you know there are third party plug-ins that you can use to automate your trading? All I would need is a computer and a Doberman. I would feed the dog and the dog would keep me from touching the computer. Anyway, I'll fund the account after my options expire on 11/17, if I have any cash left. -- GG

He who has injured thee was either stronger or weaker than thee.
If weaker, spare him; if stronger, spare thyself. --Seneca

GG, thank you for your support. I'm making a comeback from the recent emotional and trading lows. I just needed a little time to mourn. I can't afford any more mourning, so it's time to move on. That's over and aside from having an over-extended schedule, I'll be back in the markets soon enough (later this week for paper trading at least).

It seems like we'll be on the same timeline for funding our TradeStation accounts. I'm looking to TS to leverage my time a bit better. From my understanding you can program in automatic trading without 3rd party tools by simply using EasyLanguage. As a programmer, this should be fairly natural for me to write out my trading rules and then I won't mis-manage nor micro-manage my trades.

Of course the thought comes to mind that there is no "black-box" trading system that will work, which puzzles me a little, I must say. Since, logically, if you are strictly trading by your rules, you are essentially being your own black-box system. I imagine my entry rules will be pretty simple, but my exit rules will be a bit more interesting when I get around to programming them into TradeStation. It's all very interesting and I don't know exactly what to make of it. I'm most certainly going to be more involved in choosing which trades to enter, but even that will be honed down to a strict set of explicit rules that should be able to be described in TradeStation's EasyLanguage. It's a head-scratcher for now.

Aside from EasyLanguage, TradeStation's charts are top-notch and, along with a 22" ViewSonic widescreen display that I recently purchased, ought to save me some time in evaluating any given chart. Yes, that's right, I'm beginning my equipment upgrades with a rather large second flat-panel display. Eventually I'm sure I'll have about 4 or more displays working for me, but 2 will have to do for now.

Mark

Tough Times

2006-10-31T12:29:00.000-08:00

Hi all. There are a number of things going wrong in my personal, professional and trading life at the moment. Much of it is related to the aftermath of the illness I suffered from a couple weeks ago. I've been falling behind on pretty much everything and on a highly personal note, my heart has been broken.

This blog is not about such matters, but please bear with me while I regroup. I have already written up the blog postings about my time with Mentor Jordan and the final call from Coach Rob, so come back soon. I should publish them tonight after I review for content, spelling & grammar.

Back to the Drawing Board

2006-10-25T15:06:00.000-07:00

Although this week's trading has been better, I've been making mistakes and they're costing me money. I still have 4 open positions (long on USB, UARM, CVA and short on FDG) that could earn some money to offset the losses, but if you looked at my trading journal you'd think that I was addicted to giving the market my money. Granted, the bulk of the losses came last week primarily from bad entry strategy, but I'm still seeing flaws in the entry and management of my trades, so it's time I take a step back and test my trading rules in the sandbox again. This decision is primarily based on my failure to consistently apply my rules, not because I've incurred losses on the trades. Losses on trades are going to happen, but without consistently, flawlessly applying my trading rules, I have no way to know how successful my rules are and therefore I don't know how to systematically improve my results. The reason behind my failure to do so is because my trading rules are not explicit enough; they have too much gray area that's open to interpretation which makes it difficult to apply them. It's disappointing and I know you, my father and everyone who has helped me along the way are all interested in hearing of great success from me, but such is the current status of things. I'm implementing the following plan of action to get me back into live trades:

Finish my business plan.

Includes my very specific, explicit trading rules. These are an adaptation of both Coach Rob's and Mentor Jordan teachings & thoughts on trading. It's an amalgamation of the two that I find appropriate for my risk tolerance, and burgeoning trading style.

Trade 25 flawless paper trades with 10 in a row flawless before going back to real money.

Flawless only means I don't make any mistakes according to my trading rules.
I will evaluate my rules after 25 trades to see what rule changes could net me a better return.
If, after 25 flawless paper trades, I'm not seeing a net positive, I will apply some changes to my rules and retest on the next block of 25 trades and will repeat the process until I'm getting a net positive result.

Set up an account with TradeStation.

TradeStation comes with very sophisticated tools for programming and evaluating rule-based trading including back-testing a strategy against up to 20 years of intra-day historical market data. I'm looking to TradeStation instead of Interactive Brokers because of these advanced features which should help with consistency and aid in reducing the time trading will require, making it more scalable and manageable on my time budget. I'm deciding to take this action now because it's the direction I'm planing to go, and while I'm tabling my money I may as well make the transition concurrently. TradeStation has great appeal to me because I'm a programmer and this sort of logical evaluation of a trade strategy based on my custom rules is pretty much a fantasy come true.

So there you have it. I'm putting myself back into the sandbox so I can play without further harming my account balance. You're probably thinking: Haven't you been paper trading and haven't you already seen success there? Answer: Yes, I have, but I made the mistake to not have more explicit trading rules and it was without the goal of flawless application of trade rules as I described above. I need to prove that I can consistently put in trades that follow my rules before I can go back into the market with real money. It's a bit of 2 steps forward 1 step back, but that's better than 1 step forward and 2 steps back. Who knows, maybe it is 2 steps backward, but they are much needed steps to take. Hang in there with me, it may take more time than I originally anticipated but I'm going to be a successful professional trader that will make a living trading the markets.

Real Trades Week 1

2006-10-21T21:02:00.000-07:00

Yes, there are some posts that I owe you, but I thought you might be interested in how trading went my first week. In short: Ouch! I entered and exited 6 straight losers! Yes, you heard that right, after all the practice, all the effort you know I put in, last week cost me some money.

Bad news, I know; trust me, I felt that. I have found that most of the trades could have been avoided, but they weren't an embarrassment, they just were less than ideal. I entered pretty much all of these on the day of using an hourly intraday chart. It's a good tactic to reduce risk & increase reward, but I was getting better trades from the more pure daily entry model so I'm going to be a bit more judicious when entering these sorts of positions on the intraday. It's not as if I was chasing these stocks, the entry wasn't bad, the setups weren't bad (save for a couple described below), but the trades, never-the-less did not work for me.

It's an odds based business and there's no reason to micro-manage each individual trade. These hurt, but they're part of the game. So I'm feeling slightly discouraged today, but that's no reason to abandon my trading plan, nor ignore or deny the skills I've been working so hard to acquire over the past 5 months. I am looking forward to breaking this perfect streak next week.

Here's the quick list of what happened:
Stock, Long/Short, Entry Date, Entry Price, Exit Date, Exit Price, Comments

NYX, L, 10/17, $74.01, 10/17, $73.12, This could have been avoided by waiting for upward movement. There was a gap up, in the desired direction, but that's not a good reason to jump in. I now have a rule to wait for a Higher Swing Low if I see a similar gap. This could have been avoided based on this simple rule.
PEG, S, 10/17, $60.70, 10/18, $60.98, Put in a Lower Swing High, and I jumped in on the intraday (hourly) and initially it looked good. Here's where the daily entry would have kept me out of this loss.
UNT, S, 10/18, $45.19, 10/19, $45.80, Jumped in on another Lower Swing High on the intraday (hourly) but it faked me out and found support where it found it before.
GRP, S, 10/18, $37.33, 10/19, $38.14, Entry was another intraday Lower Swing High (hourly), which initially looked good. Honestly this wasn't a bad entry, but I don't particularly like the range of the trading days relative to the direction. Looking at it now makes me think: I don't like the way this chart is looking at me.
LYO, L, 10/19, $26.08, 10/19, $25.94, Took the gap down entry, which initially looked brilliant, but very soon after fell enough to trigger my stop. Not a bad idea, just didn't go this time. Good news is the stop kept me from losing more as it's still trading lower today.
ABT, S, 10/19, $47.82, 10/19, $47.83, I was looking for entry on the reversal pattern, but didn't see it happen. My entry was aggressive based on the up-gap. Once again, not a bad idea, however being more judicious about the intraday entry, especially on a potentially new direction seems appropriate.

Did I say that would be a quick list? The great thing about trades that don't work is you get to learn something from them almost every time. Of course hindsight is 20/20, and what may seem obvious today certainly wasn't as obvious then; based on the available information & charts at time of entry there are a couple that I could have avoided. You may have noticed that I was favoring the bear side of the market, and that's against the general market direction. It's not that I didn't factor that in, it's just that these individual stocks looked like good opportunities on the short side. I'm making some small adjustments and next week will be better.

Yes, you're right, I'm going to have to learn how to be brief if I'm going to have time for this blog!

Sick!

2006-10-18T20:28:00.001-07:00

Ack... cough... sputter... I've got a cold that's really beginning to hurt... I have much to tell you so come back soon for my account of my 2 days with Mentor Jordan Stokes and the final wrap up call from Coach Rob Craig. I Promise I will post when I've got the time & energy, but for tonight I'm going to run my scans and manage my positions. I'm trading real money now, watch out!

A Lesson in Liquidity & Execution

2006-10-12T14:00:00.000-07:00

I have to share this with you. If you've been paying attention to my current position updates you knew that I entered a short position on SVN on Monday. You may have also noticed Trader Charlie's question about volume on his comment and read my response to his comment (check out the comments on: Re: Mark I like your BLOG! - Trade Seeker Question...). Good, I'm glad you're paying attention.

Aside the scant volume SVN sees, I followed my trading rules. I got stopped out today and bought back the short sale (sold for $6.73 on 10/9) for $6.708. You must be wondering why I'm excited about getting a mere 0.18% gain (after Cost of Trade). Take a look at this single-day 2-minute interval chart on SVN for today:

The black line is where my stop was located at $6.70 (3 cents better than break-even). And, yes I could have been justified in lowering my stop a couple more pennies based on this intraday chart and bailed once it violated the previous high after all that consolidation/no movement. I actually put some limit orders in to scale out of the position yesterday and today, but I was a little too optimistic and set the price too low to execute. There's a ton of what-ifs. I chose to set my stop at $6.70 and was waiting until I saw today's closing price to adjust from there. Anyway, let's move on...

Notice the volume, it is appalling. I did say I may live to regret this trade because of the thin volume. Given the complete lack of volume when the stock crossed the black line (my stop) I was convinced my order would be filled for a loss and I'd be buying back the stock at the blue line for ~$6.80. However, when I pulled up my Interactive Brokers account, I could see that IB filled my order for an average price of $6.708 (it executed across 3 exchanges, one at $6.70, and two at $6.71) which turned what I was certain was a loss into a gain.

Once again, I'm asking myself: What have I learned? ... Liquidity is good, learn to love it and don't be sucked in my a low volume stock just because it has a few higher-volume days under it's belt. Turn up the volume! The other thing I learned is that Interactive Brokers has terrific execution. Any questions?

Stoked About Upcoming Mentoring

2006-10-11T16:21:00.000-07:00

Monday & Tuesday of next week will be spent in Las Vegas with my father and TMTT Mentor Jordan Stokes. I'm going to be sitting down with a professional trader, during market hours and let me tell you, I'm getting very excited about it! I'll blog about the experience, so be sure to check back next week. In the meantime check out Coaching Call Week 15; it's new! It's quite a read (so much for my new short-post policy) and is only back-dated for timeline consistency.

Here's the quick list of my current open positions:
Shorts:
SVN - opened on 10/9 for $6.73; unrealized gain: +2.6%
CRDN - opened on 10/10 for $41.75; unrealized gain: +0.7%
MO - opened on 10/10 for $77.97; unrealized gain: -1.1%
The Altria (MO) trade is a bit experimental and one I'm playing with only for paper trade study. This isn't one that I'd enter with my live account quite yet. Some justification seems in order, no? Well I was interpreting an Island reversal pattern with a bit of a head-and-shoulders thrown in. My read of reversal patterns isn't really strong yet, so I'm using this trade as a study, hence why I'd only do this with my paper trading account until I have reasonable results over the long-term for similar plays. The good news is that I did nail the initial direction and just didn't see enough of a gain to adjust my stop and lock in the profits from yesterday's decline. I'm not out of this trade yet, though I did scale out half of my position as a way to reduce the possible loss. Tomorrow will tell if today's gains can be erased and I can possibly see some profit. These aggressive bulls need to rest sometime!

Longs:
ALL - opened on 10/11 for $62.52; unrealized gain: -0.35%
JNJ - opened on 10/11 for $65.09; unrealized gain: 0%

Re: Mark I like your BLOG! - Trade Seeker Question

2006-10-10T05:28:00.000-07:00

On 10/7/06, TG wrote:

Hi Mark,
It looks like we are all learning the same way, through a bit of study and trial & error. I really enjoy your posts!
I recently took the TMTT 3 day class and learned about the use of technical indicators and TMTT philosophy of not making a trade until 3+ "high probability indicators" signal getting into a position. In looking at some of your trades, I am not sure I have been able to discern your signals to get in or out based on the technicals, but I do see you using the technicals to set up your stops. Do you use the 3+ high probability indicator approach?
Also on that note, do you use the "Trade Seeker" software? Is it worth the purchase price or can i get as much using say stockcharts.com's scans?
Just would ejoy another enthusiast's thoughts!
Hey, keep on having fun and best of luck in your trading!
Regards,
T

Hi, thank you for your compliments on my blog, I'm glad you're finding it interesting. It seems that all indicators are almost always lagging and give the signal late. I focus heavily on the source of those indicators: the price action. I look at what institutions are doing and volume characteristics for confirmation. I also prefer to see the Stochastics hitting stronger peaks or valleys on the previous swing highs or lows. I glance at Chaikin Money Flow, but it generally only reflects the price action and doesn't offer much actual insight into where the stock is going. I look at the broad market charts to help me determine if I should be selling, because the market is at retail price, or buying because it's at wholesale price. The broad market charts factor in heavily to individual stock price movement. I also look at where the stock is on it's weekly chart (retail or wholesale) as that time-frame also helps determine how likely the expected move may be.

There are various strategies and approaches to trading. The one thing that I completely understand at this point is that you must have a trading plan and you must trade the plan. Having a system will give you consistent results. If the results are consistently bad, then the system must be tuned. Emotions are a battle, one that I think I'm gaining control of. Even though my trades have been virtual trades, I'm mentally coming from a position of "that's my money!" and although I don't think the pain on the losses is quite the same on paper trades, it is with the intention of using real money that I practice systematic trading.

All systems must be evaluated based on current market conditions and this is where black-box systems will all eventually fail. The hard part is that just about when you think you've found a really great system to rely on, the market changes enough to cause your system to no longer be as valid. I know, it seems like a contradiction in and of itself, but one thing in your system must incorporate is the idea that "anything can happen" and you should be prepared for anything. Playing both sides of the market, keeping your cool when others are panicking (read: systematic approach) and having the patience to enter the trade you want -- not feeling the urgency to place trades just for the thrill of doing so. Patience, discipline, and a consistently calm approach with a plan will do wonders.

With all that said: part of the reason you've been having trouble figuring out what system I've been using is that I've been a bit inconsistent. My exits are based on price-action. If the trade has made the initially anticipated move, then I'm likely to put a reasonably tight trailing-stop. I'll definitely do this if I think I'm seeing an exhaustion gap. Also, on extended range candles I'll look for some sort of intraday support or resistance to set my stop. Exiting is something that I let the market do for me, when the trade is showing signs of weakness.

Now, for your question about Trade Seeker. I don't know what scans are available on StockCharts.com. I just now took a quick glance to not have to speak to something I know nothing about :-P. I find Trade Seeker to be very easy to use, especially in combination with The Trade Center, since it flows the symbols over into The Trade Center software and I find it very easy to sort, scan and otherwise go through a list of thousands of charts a week (> 100 every night and more on the weekends). I'll probably end up settling down on my watchlist maintenance routines eventually as I get better at everything. It seems StockCharts.com has some good things going and I think the custom scans could probably be used to emulate Trade Seeker's built-in facilities. I really do like Trade Seeker, and it is the source of my watchlist (of course I filter it down from the original scans).

Coaching Hotline Call Re: Short Sale

2006-10-09T17:05:00.000-07:00

Curtis from the TMTT called me back today after I left a message on the coaching hotline. The question I left on the hotline was essentially: I've received the following message: "XYZ stock is not available for short sale." What's up with that? (BTW the two that I've received this message for are: NURO & NTES).

The answer is in the error message, thems the rules. Apparently there can be a variety of reasons and I should talk to my brokerage firm about finding a way to display the status of whether or not the stock is available for short sale. Curtis also clued me in that there are some stocks that only allow certain amounts or percentage of margin, with some stocks that can't be traded using margin at all.

With that answer we kind of flowed into a couple other questions that have been on my mind. One was about stocks gaping at opening, how and when do I know if a stock is going to gap at opening? The answer is simple enough. If the Bid & Ask straddle the last price, there's no gap at open. The question about when is a bit more difficult. There's both post- and pre-market trading that can affect the opening price based on news reports, etc... Because of pre-market trading, the only time you can really know is just before market open. I'm interested in managing open positions that gap against me, not in playing gaps at this point in time. I am aware of some gap based strategies, but primarily I'm wanting to see if I can reduce my losses by managing the gap by hand instead of just being stopped out for maximum loss. Gaps do often fill, but not always. Let's take a long position, for example. If I'm going to be stopped out because of a down-gap, what's the harm in setting a new stop just below the opening price? If the gap just continues down then I loose a bit more, but if it begins to fill the gap I can manage the trade by following the swing lows and adjusting my stop to follow the gap being filled in until it shows weakness and goes against me, possibly turning a loser into a winner, or at least take less of a loss. Granted this is a more active management strategy and means I'll need to be in front of the market for such management decisions, but it's a likely management tactic that I will employ when possible.

I then asked about Curtis' trading style and asked how he managed trades. He manages his trades based on the daily chart. Other strategies take more time. Curtis also shared with me that he doesn't really worry about gaps. They're going to happen and they'll either work for him or not. First, they're not that common and it's just part of trading. It's an odds based business and even though those occasional losses may hurt, they won't take you out of the game if you're managing your money properly.

Curtis was also able to field a question I've had about determining the number of option contracts. This has everything to do with money management. His answer is he purchases the number of contracts that will only lose him the amount he's willing to give up. So if he's able to take a $500 loss on any given trade he calculates the number of options that will give him a $500 loss based on the initial stop with the cost of the spread (which is 5 to 20 cents) factored in. That's smart money management. You only risk what you can afford to lose, which could mean that you'll only be trading a handful of option contracts on any given trade.

So we had about a 1/2 hour long conversation which was quite pleasant and I'll be calling the coaching hotline when more questions arise.