Craving the High That Risky Trading Can Bring
Are You Suffering From Day Trading Addiction?
Trading Addiction Linkfest
Showing posts with label traderfeed. Show all posts
Showing posts with label traderfeed. Show all posts
Saturday, 30 January 2010
Trading Addiction Links
Craving the High That Risky Trading Can Bring
Are You Suffering From Day Trading Addiction?
Trading Addiction Linkfest
Trading Addiction Links
Friday, 19 June 2009
The cancellation betting system and trader capitalization
An Excerpt from a recent post at Traderfeed-
Summary- Most traders have less then 1 year of experience, are under capitalized, and end up losing there money.
This is not a big surprise. For example, compare trading to roulette, you have a 50.5% chance of losing against the house and given a long enough time (considering the houses' pockets are larger than yours), you will go broke.(with the exception of those physicists that cheated with the computer).
How does capitalization make any difference in trading? Take a look at the Cancellation Betting System. The smaller your starting bank roll, the faster you will go broke, obviously, but the odds are much higher against you because your average betting unit size is a much larger percentage of your starting bank roll compared to that of a well capitalized trader.
This leads to the question, if in gambling, the house has 0.25-0.5% edge over the players with essentially limitless capital and time, what edge does Mr.Stock Market have over Joe Trader?
While there are many similarities between gambling and trading, the stock market has many other variables to consider; moreover, there are certainly setups in the stock market statistically shown to have a much higher favor in one direction, but it is still up to the astute trader to take advantage of such trading opportunities.
The turning point for me came several years ago when I had a heart to heart and confidential conversation with the founder of a large retail brokerage firm. He expressed interest in my work, because he wanted to see more small traders succeed. He stated, based on his company's research, that over 80% of all traders blew out their accounts well within a year of opening them up. That percentage, moreover, was much greater for small accounts, he pointed out, because those accounts took on too much risk in an effort to generate financially meaningful returns. When I asked the brokerage executive how many small traders (i.e., those with less than $100,000 of cash in their accounts) sustained a living from trading, he said he had never encountered such a situation. Yes, there will always be outliers who make outsize returns for a year or two, but sustaining such performance is far, far, far from the norm.
Summary- Most traders have less then 1 year of experience, are under capitalized, and end up losing there money.
This is not a big surprise. For example, compare trading to roulette, you have a 50.5% chance of losing against the house and given a long enough time (considering the houses' pockets are larger than yours), you will go broke.(with the exception of those physicists that cheated with the computer).
How does capitalization make any difference in trading? Take a look at the Cancellation Betting System. The smaller your starting bank roll, the faster you will go broke, obviously, but the odds are much higher against you because your average betting unit size is a much larger percentage of your starting bank roll compared to that of a well capitalized trader.
This leads to the question, if in gambling, the house has 0.25-0.5% edge over the players with essentially limitless capital and time, what edge does Mr.Stock Market have over Joe Trader?
While there are many similarities between gambling and trading, the stock market has many other variables to consider; moreover, there are certainly setups in the stock market statistically shown to have a much higher favor in one direction, but it is still up to the astute trader to take advantage of such trading opportunities.
The cancellation betting system and trader capitalization
An Excerpt from a recent post at Traderfeed-
Summary- Most traders have less then 1 year of experience, are under capitalized, and end up losing there money.
This is not a big surprise. For example, compare trading to roulette, you have a 50.5% chance of losing against the house and given a long enough time (considering the houses' pockets are larger than yours), you will go broke.(with the exception of those physicists that cheated with the computer).
How does capitalization make any difference in trading? Take a look at the Cancellation Betting System. The smaller your starting bank roll, the faster you will go broke, obviously, but the odds are much higher against you because your average betting unit size is a much larger percentage of your starting bank roll compared to that of a well capitalized trader.
This leads to the question, if in gambling, the house has 0.25-0.5% edge over the players with essentially limitless capital and time, what edge does Mr.Stock Market have over Joe Trader?
While there are many similarities between gambling and trading, the stock market has many other variables to consider; moreover, there are certainly setups in the stock market statistically shown to have a much higher favor in one direction, but it is still up to the astute trader to take advantage of such trading opportunities.
The turning point for me came several years ago when I had a heart to heart and confidential conversation with the founder of a large retail brokerage firm. He expressed interest in my work, because he wanted to see more small traders succeed. He stated, based on his company's research, that over 80% of all traders blew out their accounts well within a year of opening them up. That percentage, moreover, was much greater for small accounts, he pointed out, because those accounts took on too much risk in an effort to generate financially meaningful returns. When I asked the brokerage executive how many small traders (i.e., those with less than $100,000 of cash in their accounts) sustained a living from trading, he said he had never encountered such a situation. Yes, there will always be outliers who make outsize returns for a year or two, but sustaining such performance is far, far, far from the norm.
Summary- Most traders have less then 1 year of experience, are under capitalized, and end up losing there money.
This is not a big surprise. For example, compare trading to roulette, you have a 50.5% chance of losing against the house and given a long enough time (considering the houses' pockets are larger than yours), you will go broke.(with the exception of those physicists that cheated with the computer).
How does capitalization make any difference in trading? Take a look at the Cancellation Betting System. The smaller your starting bank roll, the faster you will go broke, obviously, but the odds are much higher against you because your average betting unit size is a much larger percentage of your starting bank roll compared to that of a well capitalized trader.
This leads to the question, if in gambling, the house has 0.25-0.5% edge over the players with essentially limitless capital and time, what edge does Mr.Stock Market have over Joe Trader?
While there are many similarities between gambling and trading, the stock market has many other variables to consider; moreover, there are certainly setups in the stock market statistically shown to have a much higher favor in one direction, but it is still up to the astute trader to take advantage of such trading opportunities.
Sunday, 1 June 2008
The Energy and Oil tanker Play
Remember when you would watch CNBC or open your newspaper and the only thing would hear was the word SUBPRIME. Well, here's a nice little cartoon story about the Subprime mess.(Just click to view each slide, its funny I think)
I've been looking at several stock screens trying to come up with stocks with good fundamentals and technical setups. I'm surprised to find that many of the stocks with big gains make less than 100mil a year. Also, I found that Oil Tankers have a high profit margin and have some technical momentum.
Here's one of my scans with the 20 top stocks in the Transport sector-
Transport Stock Scan
Here's a chart of FRO- looks like its got some good momentum...
Some of these stocks I don't like because there net profit is weak. I like to see stocks with net profits over 100 mil. You'll notice a lot of the shipping stocks pay a nice dividend too. There is some concern when looking at the Shippers. I was looking at the Baltic Dry index and we are about to make new highs and go on a momentum run or we are at a double top and the Shippers are going to....TANK.
Also, there is some concern that if oil drops back to $100 dollars that the whole Oil play could get hit hard. As noted by TradersFeed, the energy trade may be slowing. Dr.Brett noticed lower peaks in money flow as we make higher highs in the XLE sector.
Perhaps looking at the relationship between Oil, Airlines, and the inverse XLE ETF "DUG" will help us make a better call on this trade.
Airlines have always been crappy stocks plain and simple. I'm sure some people have read that stocks like LUV have an oil hedge for the next 3 years;however, I still find it hard to invest in a company that is losing money and has its future directly tied to whether the price of oil goes down.
DUG- You'll notice volume is getting pretty heavy in DUG, but we have yet to make a bull setup. You can try to bottom fish, but I would prefer a better setup personally.
Oil- For some reason I felt that Oil would drop when BUSH left the whitehouse. Maybe I should just wait until November and then decide whether we have made a top or not in oil.
With Hurricane season coming up, the new energy play has shifted to Natural Gas. As you can see, stocks like NGAS have already run up ahead of hurricane season.
Perhaps the new energy trade idea is to short Crude oil and go long Natural Gas in a hedged trade. I'll have to track this trade idea.
I've been looking at several stock screens trying to come up with stocks with good fundamentals and technical setups. I'm surprised to find that many of the stocks with big gains make less than 100mil a year. Also, I found that Oil Tankers have a high profit margin and have some technical momentum.
Here's one of my scans with the 20 top stocks in the Transport sector-
Transport Stock Scan
Here's a chart of FRO- looks like its got some good momentum...
Some of these stocks I don't like because there net profit is weak. I like to see stocks with net profits over 100 mil. You'll notice a lot of the shipping stocks pay a nice dividend too. There is some concern when looking at the Shippers. I was looking at the Baltic Dry index and we are about to make new highs and go on a momentum run or we are at a double top and the Shippers are going to....TANK.
Also, there is some concern that if oil drops back to $100 dollars that the whole Oil play could get hit hard. As noted by TradersFeed, the energy trade may be slowing. Dr.Brett noticed lower peaks in money flow as we make higher highs in the XLE sector.
Perhaps looking at the relationship between Oil, Airlines, and the inverse XLE ETF "DUG" will help us make a better call on this trade.
Airlines have always been crappy stocks plain and simple. I'm sure some people have read that stocks like LUV have an oil hedge for the next 3 years;however, I still find it hard to invest in a company that is losing money and has its future directly tied to whether the price of oil goes down.
DUG- You'll notice volume is getting pretty heavy in DUG, but we have yet to make a bull setup. You can try to bottom fish, but I would prefer a better setup personally.
Oil- For some reason I felt that Oil would drop when BUSH left the whitehouse. Maybe I should just wait until November and then decide whether we have made a top or not in oil.
With Hurricane season coming up, the new energy play has shifted to Natural Gas. As you can see, stocks like NGAS have already run up ahead of hurricane season.
Perhaps the new energy trade idea is to short Crude oil and go long Natural Gas in a hedged trade. I'll have to track this trade idea.
Sunday, 25 May 2008
Meditation and correcting bad trading habits
TraderFeed has a good post on using meditation to help deal with loses and help with emotions from taking over. Another post on changing yourself as a trader is also good.
In other news, I saw the new Indiana Jones movie this weekend, and I think it was a great movie.
In other news, I saw the new Indiana Jones movie this weekend, and I think it was a great movie.
Friday, 21 March 2008
Good Friday Links
Denial as trading motivation (Excellent article by Dr.Steenbarger -regarding traders in denial of trading with no edge and ways to help solve the problem.)
More links to come....
More links to come....
Monday, 5 November 2007
RESEARCH, LEARN, GET SMART!
The Three Essential Keys to Successful Trading
Trading Techniques: A Collection of Articles (TRADERFEED) AWESOME!!!
Thursday, 29 March 2007
HIGH PROBABILITY TRADE SETUPS
In this post I will be going over my typical trading day from the night before, to premarket, and to market close. I will discuss how I use the bond futures, the VIX, NYSE advance/decline line, NYSE tick, and block trades as a way to trade in conjuction with my volume based market profiling.
Volume based market profiliing-
First and foremost I look for trade signals in relation to the market profile. When price is away from the Point of control POC(highest volume area of the day) I look to take trades that would move back to the POC(like a mean reversion approach). To become familiar with market profile I suggest checking out Trading Naked's large number of educational links found at the bottom of his main page. Here are a couple charts which show what a market profiler looks for on a range bound day and a breakout day.(courtesy IOAMT.com)
My Trading methodology-
I look for short trade signals more so when price is above VAH(Value Area High), and I look to go long when the long signal is below VAL(Value Area Low). When trade entries are made with regard to volume profile on a range day, profit targets should be set to the POC, VWAP, or an exit based on a tick extreme. Entry points are based around block trades seen in IWM and SPY, with the prefered entry made at a tick extreme. When trade entries are made with regard to volume profile on a breakout day then I look to exit when there is heavy volume at a tick extreme.
The Night before the trading day-
What happened yesterday? Did we have a breakout trend day or a range bound day? If the previous day was a bullish breakout day, then I would have a bias to take trades based off my trading method that would be buying VAL and vice versa if the previous day was a bearish trend day. If the previous day was a range bound day, then I would be looking to short VAH and buying VAL normally; however I will also be looking for breakout trend days driven by catalysts such as economic news and in some cases breakouts based on technical analysis like having a 3-7 day narrow trading range(NR3-7). Below is an example of how I charted my volume market profile forecast for the next day.
(NOTE: All of my charts are set to Pacific Time, because that is the time zone I live in.)
Also in my research the night before I like to look at the daily, weekly, and monthly volume profile for the markets I follow by going to Chart-ex.com. By checking out the volume profile on a weekly and monthly chart, you can see volume gaps; which are areas that I typically expect to be filled. Here is an example of the volume profile charts from chart-ex on ER2 taken February 23, 2007. In the chart you can see price is trading at VAH on the weekly and monthly time frame, with a volume gap to the downside.
The start of the trading day-
Premarket: What is the news for the day? What could be the catalyst for a breakout trend day? In order to be prepared for pending news events I checkout the forex factory calendar, which gives pending news events for not only the US, but for all of the world; with regards to the currencies, bonds, and stock markets of the world. Rueters market calendar and Econoday,
are good as well for tracking US specific pending news.
Market open: Is there a gap up/down at market open, and if so, why? Most of the time the gaps in the morning are due to economic news being released before the morning bell around 8:30am EST. Most traders know that morning gaps are good trading opportunities because they have a high probability of being filled or at least partially filled within the first hour of trading. Here is an example from March 29, 2007 of a morning gap due to the GDP # being released before premarket, with the result of a 9pt gap on ES being filled with the first 2 hours of trading.
I will now discuss how I use the bond futures, the VIX, NYSE advance/decline line, NYSE TICK, and block trades as a way to trade in conjuction with my volume based market profiling.
Bond Futures-
Starting during premarket of the stock market I track ZN, which is the most heavily traded bond futures contract(I also track ZF and ZB contracts as well). When watching ZN I look to see if there is heavy volume being traded and if there are any correlations or inverse correlations between ZN and ES. Some days you can see an inverse relationship between ZN and ES and other days you will see no relationship at all. The relationship between ZN and ES is a more advanced trading method that should be used in conjunction with other intraday market breadth indicators as a way to help confirm your trading signals. Here are some examples of the inverse relationship seen between the bond futures and ES, ER2, and SPY.
Sometimes you can see a positive correlation between ZN and the VIX, seen more so during the first 2 hours of trading. Here's an example.
The VIX-
Sometimes you can see divergences between ES and the VIX. Here are some chart examples.
NYSE Advance/Decline line-
By watching the NYSE A/D chart you can stay on the right side of the trend and see where possible breakouts in volatility may be placed. Here are some chart examples compared with ES and SPY.
NYSE TICK-
The NYSE TICK is one of the best intraday market breadth indicators for gauging short term price movements as noted by the NYSE TICK expert Dr. Brett Steenbarger. Some of Dr. Steenbargers articles on trading with the NYSE TICK can be found at Traderfeed. Here are some of my chart examples using NYSE TICK.
ER2 example.
YM example.
This tick chart of SPY highlights block trades as red dots compared to NYSE TICK.
Here is an example of NYSE TICK compared to NYSE A/D.
Block Trades-
I filter for block trades(50-200,00 shares) on the ETF's of the underlying stock indices as a way to track large traders. I particularly look for these block trades around NYSE TICK extremes as signals for short term scalping opportunities and places to exit if I'm already in a trade. I do this because I don't have software like marketdelta, and I like looking for large volume trades in the ETF's because these block trades are seen as better signals when compared to ES and ER2 block trades. Here is a great article from Traderfeed on Tracking Large Traders. Here are some chart examples showing block trades highlighted as red and green dots on the ETF's I follow.
Here is a chart of ER2, NYSE TICK, and IWM showing block trades near NYSE TICK extremes.
Trade examples-
Here are a couple of my trading days taken from my journal that show my trade executions posted above the chart.
Here is an example of one of my trading days where I used a tick chart of SPY showing block trades for guidance in trading ER2 and YM. I looked for short signals because we were trading near VAH and there was no sign of a catalyst to turn the day into a breakout trend day.
On this day I saw a double top on NASDAQ A/D and NYSE A/D, with the NASDAQ A/D line being the more bearish of the 2 charts. Also we were trading in the VAH, so based on my volume profile trading methodology I used this as a way to confirm my short trade signal.
Volume based market profiliing-
First and foremost I look for trade signals in relation to the market profile. When price is away from the Point of control POC(highest volume area of the day) I look to take trades that would move back to the POC(like a mean reversion approach). To become familiar with market profile I suggest checking out Trading Naked's large number of educational links found at the bottom of his main page. Here are a couple charts which show what a market profiler looks for on a range bound day and a breakout day.(courtesy IOAMT.com)
My Trading methodology-
I look for short trade signals more so when price is above VAH(Value Area High), and I look to go long when the long signal is below VAL(Value Area Low). When trade entries are made with regard to volume profile on a range day, profit targets should be set to the POC, VWAP, or an exit based on a tick extreme. Entry points are based around block trades seen in IWM and SPY, with the prefered entry made at a tick extreme. When trade entries are made with regard to volume profile on a breakout day then I look to exit when there is heavy volume at a tick extreme.
The Night before the trading day-
What happened yesterday? Did we have a breakout trend day or a range bound day? If the previous day was a bullish breakout day, then I would have a bias to take trades based off my trading method that would be buying VAL and vice versa if the previous day was a bearish trend day. If the previous day was a range bound day, then I would be looking to short VAH and buying VAL normally; however I will also be looking for breakout trend days driven by catalysts such as economic news and in some cases breakouts based on technical analysis like having a 3-7 day narrow trading range(NR3-7). Below is an example of how I charted my volume market profile forecast for the next day.
(NOTE: All of my charts are set to Pacific Time, because that is the time zone I live in.)
Also in my research the night before I like to look at the daily, weekly, and monthly volume profile for the markets I follow by going to Chart-ex.com. By checking out the volume profile on a weekly and monthly chart, you can see volume gaps; which are areas that I typically expect to be filled. Here is an example of the volume profile charts from chart-ex on ER2 taken February 23, 2007. In the chart you can see price is trading at VAH on the weekly and monthly time frame, with a volume gap to the downside.
The start of the trading day-
Premarket: What is the news for the day? What could be the catalyst for a breakout trend day? In order to be prepared for pending news events I checkout the forex factory calendar, which gives pending news events for not only the US, but for all of the world; with regards to the currencies, bonds, and stock markets of the world. Rueters market calendar and Econoday,
are good as well for tracking US specific pending news.
Market open: Is there a gap up/down at market open, and if so, why? Most of the time the gaps in the morning are due to economic news being released before the morning bell around 8:30am EST. Most traders know that morning gaps are good trading opportunities because they have a high probability of being filled or at least partially filled within the first hour of trading. Here is an example from March 29, 2007 of a morning gap due to the GDP # being released before premarket, with the result of a 9pt gap on ES being filled with the first 2 hours of trading.
I will now discuss how I use the bond futures, the VIX, NYSE advance/decline line, NYSE TICK, and block trades as a way to trade in conjuction with my volume based market profiling.
Bond Futures-
Starting during premarket of the stock market I track ZN, which is the most heavily traded bond futures contract(I also track ZF and ZB contracts as well). When watching ZN I look to see if there is heavy volume being traded and if there are any correlations or inverse correlations between ZN and ES. Some days you can see an inverse relationship between ZN and ES and other days you will see no relationship at all. The relationship between ZN and ES is a more advanced trading method that should be used in conjunction with other intraday market breadth indicators as a way to help confirm your trading signals. Here are some examples of the inverse relationship seen between the bond futures and ES, ER2, and SPY.
Sometimes you can see a positive correlation between ZN and the VIX, seen more so during the first 2 hours of trading. Here's an example.
The VIX-
Sometimes you can see divergences between ES and the VIX. Here are some chart examples.
NYSE Advance/Decline line-
By watching the NYSE A/D chart you can stay on the right side of the trend and see where possible breakouts in volatility may be placed. Here are some chart examples compared with ES and SPY.
NYSE TICK-
The NYSE TICK is one of the best intraday market breadth indicators for gauging short term price movements as noted by the NYSE TICK expert Dr. Brett Steenbarger. Some of Dr. Steenbargers articles on trading with the NYSE TICK can be found at Traderfeed. Here are some of my chart examples using NYSE TICK.
ER2 example.
YM example.
This tick chart of SPY highlights block trades as red dots compared to NYSE TICK.
Here is an example of NYSE TICK compared to NYSE A/D.
Block Trades-
I filter for block trades(50-200,00 shares) on the ETF's of the underlying stock indices as a way to track large traders. I particularly look for these block trades around NYSE TICK extremes as signals for short term scalping opportunities and places to exit if I'm already in a trade. I do this because I don't have software like marketdelta, and I like looking for large volume trades in the ETF's because these block trades are seen as better signals when compared to ES and ER2 block trades. Here is a great article from Traderfeed on Tracking Large Traders. Here are some chart examples showing block trades highlighted as red and green dots on the ETF's I follow.
Here is a chart of ER2, NYSE TICK, and IWM showing block trades near NYSE TICK extremes.
Trade examples-
Here are a couple of my trading days taken from my journal that show my trade executions posted above the chart.
Here is an example of one of my trading days where I used a tick chart of SPY showing block trades for guidance in trading ER2 and YM. I looked for short signals because we were trading near VAH and there was no sign of a catalyst to turn the day into a breakout trend day.
On this day I saw a double top on NASDAQ A/D and NYSE A/D, with the NASDAQ A/D line being the more bearish of the 2 charts. Also we were trading in the VAH, so based on my volume profile trading methodology I used this as a way to confirm my short trade signal.
