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Oct 202014
 

“If you are unwilling to fail, sometimes publicly and even catastrophically, you will never be rich. ” -Felix Dennis

#Short /ES average 1896.70, Target: test the recent lows 1812, Soft Stop close above 1915. Risk 19 to gain 84? All day, every day.

Trade well, my friends.

Stock Market Ebola

felix dennis quote

Trade Well

Scridb filter
 Posted by at 5:25 pm
Oct 052014
 

Life (trading) Parable: A woman moved to India to study with a guru in order to know everything in the universe. The guru supplied her with stacks of books and left her alone so she could study.

Every morning, the guru returned to the cave to monitor the woman’s progress. In his hand, he carried a heavy wooden cane.

Each morning, he asked her the same question: “Have you learned everything there is to know yet?” Each morning, her answer was the same. “No,” she said, “I haven’t.” The guru would then strike her over the head with his cane.

This scenario repeated itself for months. One day the guru entered the cave, asked the same question, heard the same answer, and raised his cane to hit her in the same way, but the woman grabbed the cane from the guru, stopping his assault in midair.

Relieved to end the daily batterings but fearing reprisal, the woman looked up at the guru. To her surprise, the guru smiled. “Congratulations,” he said, “you have graduated. You now know everything you need to know.”
“How’s that?” the woman asked.

“You have learned that you will never learn everything there is to know,” he replied. “And you have learned how to stop the pain.”

____

As traders, one of the most important lessons you can ever learn is how to stop the pain. Go to a Casino and sit at a Blackjack table long enough and you will eventually hear a sad story about a losing player that keeps coming back. He boldly says that “the casino has been built on money that was won from me,” as if that is a badge of honor. Clearly this man did not know how to make the pain stop.

When a trade is going against you, you have options. You can immediately start reducing size or you can take the trade off. You do not have to sit there and watch money leave your account. You don’t even have to trade later in the day or even the next day. There will be opportunities next week or next month. Learning to stop the pain is indeed an invaluable lesson. Patience is of course a virtue.

As traders, we have to accept that we cannot know everything. We cannot follow every single stock. We cannot beat ourselves up for not buying the hot IPO that just won’t stop going up (thanks GPRO, you are giving traders serious regret ;] ). We lie to ourselves, “I knew I should have bought that!” We cannot take advantage of every opportunity. We cannot sell the tops and buy the bottoms with consistency. We cannot know everything about trading. Face it.

GPRO: Causing Traders Regret since 2014

GPRO: Causing Traders Regret since 2014

I’ve read over 100 trading books. I cannot estimate how many scholarly papers and news articles I’ve read but I’m way up there too. I’ve interacted with other traders on social media. I’ve worked for a mutual fund and hedge fund. And guess what… I will never discover the holy grail of trading. I will never “perfect” this craft. I need to be okay with that if I am to be successful and happy trading.

Many of us traders love the pursuit. It’s fun to wake up and try to be 1 percent better than we were yesterday. It’s what man has always done. It’s fantastic we found something to keep us engaged and mentally stimulated. It’s fascinating to study the market from all the different perspectives. But in the end we need to be humble to the markets. We need to respect the money, the process and not break our own rules. If we can do this over a long enough period of time the success will come.

 

Scridb filter
 Posted by at 5:37 am
Sep 282014
 

I’m not a big fan of the fundamentals in my trading strategy. However, it is important sometimes to step back and get the broader view. In the past two weeks traders (and I) have been surprised and hurt by the sharp sell off and increased volatility. As a result, they searched for answers, “WHY?!”

It’s not all bad, the trend is still up. Christmas is coming up and surely some retailers will excel. Oil is down and might sport a “2” for a gallon at pumps which has to be great for the consumer. There are always opportunities on the horizon. Top calling has been a bad game to be in for many years and I continue to think that will be the case going forward. Have a plan, trade with the risk managed.

When volatility increases, trade smaller otherwise you risk getting stopped on the swings.

Scridb filter
 Posted by at 4:56 pm
May 182014
 

I have been lucky enough to work with and network with some amazing traders. Here are 7 things these winners do in the market to pull out millions.

1. They are patient with their setups and exits.
If what they are looking for is not there, it’s just not there. No need to argue with yourself and put on a small position or get sucked into coming into a position too early. They have seen enough moves to know when to get in and they are very patient for the right setup.
If a position has moved against them, they aren’t freaking out. Sometimes they trade around a loser as long as overall risk parameters are still in place and there is a real opportunity in the chart and not revenge trading or trading to “get back to even.”

2. They move on very quickly from losses.
There is nothing to revenge or avenge against, since they pull money out of the market. There is nothing to get back from that one stock they lost with. They have the tools, skills and confidence to not fret over the losses. It happens and is part of the plan.

3. They are contrarian.
Yes, that means when everyone sees an obvious chart pattern that sucks in the shorts and scares out the retail money for the imminent crash, they are long in size. Sorry, but if CNBC knows about it, it’s not likely to happen. They know when to trade against the sentiment and emotions of the market. It’s not hard to understand, if you do the same things everyone else does, you will get the same results as everyone else. You must be different to outperform.

4. Their emotions are in check.
Sure they can celebrate a win or a streak and be proud of their trading results but compared to newer traders swearing at their screens, or turning away because positions are moving against them and they have no exit plan, these big time winners know that controlling your emotions is huge in this game. There’s no room for an emotional error.

5. They have winners that greatly outpace their losers.
If you are scalping ES futures for 1-2 points and then take a 10 point loser your risk reward is skewed heavily out of your favor. You need to have big winners and hold onto them in this game. If you find yourself taking small winners and holding onto losers stop and regroup. Maybe the emotions are beating you into thinking you are winning taking these small profits, but over the long haul you will lose unless your win rate is extremely high. Reading Market Wizards, you find the same optionality across many different types of trading masters.

6. They adapt to what the market is showing them.
If the market is less favorable, they might still find trades but do it in smaller size. When volatility is increasing, most of them are trading smaller. The huge momentum winners of 2013 got whacked. People who only knew that one trade are now just figuring out that they need other types of trades. Big time traders adapt to what the market is showing them.

7. They are humble and generous.
The people that think they are something special get wiped out. Keeping the ego down is necessary. If you do your homework and approach these traders in the right way, and respect their time, they are more than willing to share a few things with you or answer a (relevant) question or two.

Scridb filter
 Posted by at 11:45 pm
May 182014
 

I really enjoy sharing my analysis because it keeps me engaged, keeps me honest and humble (I reserve the right and expect to be seriously wrong sometimes. That is fine and to be expected. However huge losses greater than my system permits is not acceptable under normal circumstances.)
Here are my Elliott Wave counts on the correction in OSTK from $35. The bigger waves (Green ABC) are broken down into subwaves (fractal nature of the markets. Most Elliott Wave traders would be looking for an end of the 5th wave, a turn back up and an ABC correction, 3 waves up to terminate in the area where the 4th wave terminated around $21-22

Elliott Wave Counts OSTK

Also if you measure the Green A wave, the current green C wave is 127% extension of A. It also coincides with the 200 day daily SMA. It is also oversold and acting well last week. Anything can happen but I’m long OSTK. For me if I am wrong my account will not lose more than 2%, so keep that in mind.

OSTK is currently trading at the 21 SMA which has been resistance on the way down. A nice close above that gets me more bullish.
18.08 is some natural resistance which might also coincide with the 50 SMA currently at 18.29

Now, if we can just keep the CEO Bryne from doing anything rash…

He and the Company have had their fair share of criticism, especially from former CEO of Crazy Eddie’s (corrected upon request), white collar criminal Sam Antar. Antar hates him and accuses OSTK of accounting fraud online and on seekingalpha articles. I wasn’t quite sure if I wanted to share that noise, but it is part of the story. I just trade the charts.

Enjoy the ride and Manage Risk.
@tpavlik

Scridb filter
 Posted by at 6:23 pm
May 112014
 

-eat tacos
Tacos Rock
-go for a hike
Hike

-do yoga
Yoga

-play checkers
Checkers

-watch Curb Your Enthusiasm… all of them

LD is the man

-write music
Write Lyrics
-share information and knowledge (as best you can)

8.) Eight, Just the number eight is pretty cool. Who designed this thing and why is “8” so much better than all of the other numbers? Research that and report back if you find out.

-Go on Lifehacker and figure out what the next thing that you just HAVE to HAVE is that is going to make your life SOO much more efficient. After you throw away your Vibram Finger shoes that make you look like a real freak and come to terms that you are tired of standing at your expensive standing desk
Finger Shoes

-Figure out a better way to educate the masses about the benefits of free markets and how today’s crony capitalism is not a great example of how capitalism should work.
CronyCapitalism
Markets sometimes suck. It’s best to have some hobbies to avoid the Summertime Sadness. Enjoy!

Scridb filter
 Posted by at 12:19 am
Apr 022014
 

I’m not a HFT guy but in case you are feeling angry/scared/sick from hearing about Virtu HFT firm having only one losing trade per four years of trading, then consider this simple model of a market maker from MC Notes.


A simple model for the P&L of a Market Maker (how many losing days in a year?)

  1. Say that there’s a probability p of making one unit of P&L (e.g. 1 tick = 1 cent) and a probability 1-p of losing the same amount of money
  2. Draw n samples of a Bernoulli distribution with probability p, subtract 1 and multiply by 2 to get a coin toss mapped into the P&L distribution above
  3. Let’s have n equal to something like 7*60*x, where we have x trades every minute over 7 hours of trading
  4. We then accumulate the P&L (assuming no further risk measures that would stop trading if the accrued loss was too high) for each run.
  5. We look at the distribution of accumulated P&L to estimate how many losing days such a trader would have

If we have p equal to approximately 52.5%, and 10 trades per minute, it looks like this trader would have one losing day every 8 years.

Check out the download link below the blog post for more on this author’s Mathematica model.

Quite simply, if you have an edge and you exploit his edge over many, many times per day, your probability of losing is not very great over a day. Don’t be mad, model bro.

Don't be mad, bro

Don’t be mad, bro

Scridb filter
 Posted by at 2:49 am
Mar 302014
 

1. The Wantrepreneur. Noah Kagan of AppSumo coined this term, so props to him. He works with entrepreneurs every day. In his dealings he noticed that a lot of people actually want to play business (form an LLC, print and design business cards to hand out, create a logo, change their LinkedIn title to “CEO”, write business plans, etc..). Real entrepreneurs want to do what real businesses do: sell products, serve customers and grow the bottom line. Sure you want to own a coffee shop one day but what is stopping you from right now from getting clients in your local area with no shop at all? You could deliver the coffee to them. You wouldn’t be playing business, you would be running one with little startup costs. Eventually, you might have some clients, know your market and the consumers better and open up a store. But before pumping $100k minimum and hoping customers show up, this is a viable alternative. Be aware how much of your time is focused on getting real business done and how much is the pretty fascia.

2. The Engineer. I want to build a really cool product and see people use it. I want to share something that I build and it’s going to be fruitful. Well, is that really an entrepreneur or isn’t that just an engineer, or really an engineer who has the freedom to work on what they are interested in? Either way, you don’t need to form a business to build and distribute a product. This person might not be all that interested in the full spectrum of expertise that an entrepreneur might need: marketing, sales, talking with investors, accounting etc… They are usually good at breaking problems down and systematizing processes.

3. The Hustler. Probably the best chance for success. “The natural,” if there is such a thing in business. Maybe they have been selling since they were 8. They sometimes come from less and are all about the Dollar. Hustlers know how to put in the hours and perspiration. He/she is not one to over think things and they are not afraid of failing. This is a great advantage. As the name implies, they are able to push through, grind and hustle.

Hustler Entrepreneur

Hustler

 

4. The Intellectual. Oh no, this is the worst type of entrepreneur. I would have to consider myself in this category. Since generally people around you have never doubted your capabilities you don’t have anything to prove. You have a ton of ideas and over think things to death without trying to get the minimum product out and test it. You most likely inundate your friends and family with ideas of businesses. You enjoy the thinking process behind the business. It’s ok, eventually you will find the right opportunity to put all of your resources in or you will not. In which case you will be the guy that likes to tell stories of his great ideas, as if that means something. Also, beware of the Perils of Perfectionism.

The Intellectual Thinker

The Intellectual, The Thinker

5. The Dreamer. The  dreamer doesn’t even get far enough into a business to play business like the Wantrepreneur does. He has great visions but needs help from an executor. It also helps this person to break down their great ideas into actionable steps. They need to stay focused on these individual steps or partner with people that can.

What type of entrepreneur are you? We all have strengths and weaknesses. Identifying weaknesses and staying on top of our own plan to help navigate through them can help you succeed.

Scridb filter
 Posted by at 6:29 pm
Mar 282014
 

Stefan Molyneaux is an internet philosopher, author and anarcho – capitalist (look it up or watch a video, it’s not as scary as it sounds) with a very successful and interesting YouTube channel that is well worth your time to explore. Here, in this video on the Perils of Perfectionism, he shares a great view on the downfall of  being a perfectionist. I self identify as a perfectionist and always have been. I can say that it has stopped me from entering certain endeavors, has inflicted anxiety and certainly has prevented me from learning more about myself.

Perfection in business, life, relationships, trading etc. does not exist. What was Newton or Einstein’s success rate (major breakthroughs)? Not as high as you might think. Embrace failure, cut losses. Get better.

As my friend and author Richard Weissman says, in trading, you must, “Pay the ante.” If you no longer take on risk you are not a trader anymore, you are a spectator. Beating yourself up for not selling the top or buying the bottom or missing trades altogether is not productive means of time or emotional capital. Embrace not being perfect.

” It is incredible how rich you can get by not being perfect. .” -Larry Hite

Scridb filter
 Posted by at 6:05 am
Mar 272014
 

How to Backtest Strategies for Stocks and Futures
So you want to backtest some strategies? Here are some ideas to get going.

Ninjatrader is free end of day (daily) and you can customize, create your own strategies and play around with it a bit more. Ninjatrader has an extensive support community, videos online and you can use their strategy creator tool which is designed for the non-programmer or write your own code.
This way you are not limited to the stocks/strategies that the backtesting sites offer up.

I know guys that use Excel (download free EOD data from yahoo finance, google finance or other sites) and have heard good things about Amibroker and Multicharts if going the paid route. These two should offer more portfolio level options, that are more complicated to execute without custom code. It’s worth mentioning R(see my post about how I plan on learning R), STATA, Matlab are also options but require much more time to get started.
Free Data or Quality Data?
You get what you pay for and quality of data is extremely important. It’s worth paying a bit to avoid mistakes and/or having to clean and go through the data. It might make sense to test using the best free data and then again before you put real money to work. I have heard even Yahoo has messed up data, it’s not worth it if you are really putting money at risk to save a few hundred bucks to get great data.
With stocks, the things to look out for with data are dividends, splits and survivorship bias (you want to have the data on stocks that aren’t around to see how that effects your strategies), depending on what you are looking to test.
Futures
For futures I have heard professionals recommend Unfair Advantage from CSI data. With futures it’s a whole other assortment of problems relating to the roll (front month). Make sure you understand how this works with your data you are working with.

Hopefully this gives you some ideas to start, now get to work and find the holy grail of trading! ;]

Scridb filter
 Posted by at 7:47 am