6/30/2009
Happy Day
Yes I would like to super size that.
1 Minute Soybean Chart
So what did I learn in June?
Trading is simple. Humans are stupid. The two have difficulty mixing well.
Speaking of McDonalds (if you got that joke) how did Ray Kroc build a multi billion dollar franchise that can be run by high school kids?
He built systems, tested the systems, revamped the systems, and documented the systems. Then he handed the system, for a small fee, over to someone else and let them run the system. If they did not follow the system he fired them.
Systems, run by high school kids, sounds simple enough. The system and the kids produced net income of 4.3 billion dollars in 2008.
Maybe I should go on holidays and pay some kid $10.00 an hour to trade my system.
Hmmmm.
McDonalds 5 Year Net Income (dollars in millions)
2008: 4,313
2007: 2,395
2006: 3,544
2005: 2,602
2004: 2,279
1 Minute Soybean Chart
So what did I learn in June?
Trading is simple. Humans are stupid. The two have difficulty mixing well.
Speaking of McDonalds (if you got that joke) how did Ray Kroc build a multi billion dollar franchise that can be run by high school kids?
He built systems, tested the systems, revamped the systems, and documented the systems. Then he handed the system, for a small fee, over to someone else and let them run the system. If they did not follow the system he fired them.
Systems, run by high school kids, sounds simple enough. The system and the kids produced net income of 4.3 billion dollars in 2008.
Maybe I should go on holidays and pay some kid $10.00 an hour to trade my system.
Hmmmm.
McDonalds 5 Year Net Income (dollars in millions)
2008: 4,313
2007: 2,395
2006: 3,544
2005: 2,602
2004: 2,279
6/26/2009
Patience
"Patience (pā-shəns) is the state of endurance under difficult circumstances, which can mean persevering in the face of delay or provocation without becoming annoyed or upset; or exhibiting forbearance when under strain, especially when faced with longer-term difficulties. It is also used to refer to the character trait of being steadfast.
In evolutionary psychology and in cognitive neuroscience, patience is studied as a decision-making problem, involving the choice of either a small reward in a short span of time, or a more valuable reward after a long period of time. All animals, humans included, discount future rewards—the present value of delayed rewards is viewed as less than the value of immediate rewards.
In a 2005 study involving common marmosets and cottontop tamarins, both species faced a self-control paradigm in which individuals chose between taking an immediate small reward and waiting a variable amount of time for a large reward. Under these conditions, marmosets waited significantly longer for food than tamarins. This difference cannot be explained by life history, social behaviour or brain size. It can, however, be explained by feeding ecology: marmosets rely on gum, a food product acquired by waiting for exudate to flow from trees, whereas tamarins feed on insects, a food product requiring impulsive action. Foraging ecology, therefore, may provide a selective pressure for the evolution of self-control.
Patience is often described as a core virtue in religion or spiritual practices. For example, Job is a figure that appears in the Hebrew Bible, Christian Bible and the Qur'an; his story is considered a profound religious work. At its core, the theme is the co-existence of evil and God and the application of patience is highlighted as the antidote to the earthly struggles caused by that co-existence. The plot of the book is that Job endures near-apocalyptic calamities without losing his patience or reproaching Divine Providence. In the Qur'an, the person of Job is actually known as Ayyūb (Arabic: أيوب ), which is a name that is symbolic of the virtue of patience (although it does not mean patience in itself)." Source Wikipedia
Hmmmmm.
Charts with no trades. Or should I say no signals.
Hmmmmm.
Crude Oil
Soybeans
In evolutionary psychology and in cognitive neuroscience, patience is studied as a decision-making problem, involving the choice of either a small reward in a short span of time, or a more valuable reward after a long period of time. All animals, humans included, discount future rewards—the present value of delayed rewards is viewed as less than the value of immediate rewards.
In a 2005 study involving common marmosets and cottontop tamarins, both species faced a self-control paradigm in which individuals chose between taking an immediate small reward and waiting a variable amount of time for a large reward. Under these conditions, marmosets waited significantly longer for food than tamarins. This difference cannot be explained by life history, social behaviour or brain size. It can, however, be explained by feeding ecology: marmosets rely on gum, a food product acquired by waiting for exudate to flow from trees, whereas tamarins feed on insects, a food product requiring impulsive action. Foraging ecology, therefore, may provide a selective pressure for the evolution of self-control.
Patience is often described as a core virtue in religion or spiritual practices. For example, Job is a figure that appears in the Hebrew Bible, Christian Bible and the Qur'an; his story is considered a profound religious work. At its core, the theme is the co-existence of evil and God and the application of patience is highlighted as the antidote to the earthly struggles caused by that co-existence. The plot of the book is that Job endures near-apocalyptic calamities without losing his patience or reproaching Divine Providence. In the Qur'an, the person of Job is actually known as Ayyūb (Arabic: أيوب ), which is a name that is symbolic of the virtue of patience (although it does not mean patience in itself)." Source Wikipedia
Hmmmmm.
Charts with no trades. Or should I say no signals.
Hmmmmm.
Crude Oil
Soybeans
6/24/2009
6/23/2009
Floored
I've been waiting a long time for this documentary. It's not here yet but I thought I would bring it up again so you could wait with me.
The only other documentary on trading that I know of is Open Outcry. I own it and it's pretty good. If you trade for a living or are at all interested in this business these two films are a must see.
Open Outcry
I wonder how many more years the floor trading will last?
The only other documentary on trading that I know of is Open Outcry. I own it and it's pretty good. If you trade for a living or are at all interested in this business these two films are a must see.
Open Outcry
I wonder how many more years the floor trading will last?
6/22/2009
Sigh
1 Minute Soybean Chart
One signal, four trades.
One winner for full target, one break even, and two losers. The signal trade was the winner.
Of course.
If only there were a trading blog dedicated to trading your plan with proper risk and money management. If there were such a thing I would read it every day. I would offer to send the owner of such a blog all my money to mentor me on a daily basis. I would wash his car and mow his lawn on weekends.
If only.
One signal, four trades.
One winner for full target, one break even, and two losers. The signal trade was the winner.
Of course.
If only there were a trading blog dedicated to trading your plan with proper risk and money management. If there were such a thing I would read it every day. I would offer to send the owner of such a blog all my money to mentor me on a daily basis. I would wash his car and mow his lawn on weekends.
If only.
6/19/2009
What Happened?
Crude got whacked, that’s what happened. Bloomberg and Reuters say it was due to gasoline inventories rising and demand falling.
Solfest says it was traders taking profit before the weekend.
I did not trade well today and was on the sideline as the bottom fell out.
C'est la Vie.
5 Minute Crude Oil Chart
1 Minute Crude Oil Chart
Solfest says it was traders taking profit before the weekend.
I did not trade well today and was on the sideline as the bottom fell out.
C'est la Vie.
5 Minute Crude Oil Chart
1 Minute Crude Oil Chart
6/18/2009
We the Living
Should live life to the fullest and die with our boots on.
Photograph by: Walter Tychnowicz, Edmonton Journal, file
"Douglas Matheson took to the skies countless times after his career as a Second World War fighter pilot because he loved the feeling of freedom that flying gave him, friends say." By Cigdem Iltan, Edmonton Journal
While I'm still here I might as well trade some oil and beans.
1 Minute Crude Oil Chart
1 Minute Soybean Chart
Photograph by: Walter Tychnowicz, Edmonton Journal, file"Douglas Matheson took to the skies countless times after his career as a Second World War fighter pilot because he loved the feeling of freedom that flying gave him, friends say." By Cigdem Iltan, Edmonton Journal
While I'm still here I might as well trade some oil and beans.
1 Minute Crude Oil Chart
1 Minute Soybean Chart
6/16/2009
6/15/2009
Stop
I'm reading Martin Schwartz's book, Pit Bull. His advice on capital preservation is reinforcing what I have been writing about in my last few posts. Here is some of his advice.
Pretty simple stuff.
So simple you could ignore it as you continue your hunt for the holy grail. I would advice you not to ignore it. I would advise you to read it again. I would advise you to take a look at your trading records. See any blow up days that ruined your day, week, or month? Would Marty's advice have been any help on those days?
Schwartz tells a story in the book of a day he was trading S & P futures and he kept adding to a losing short position. His wife, who normally worked with him, was not there that day as she went shopping for a mink coat. :) Marty stated his wife (risk manager) would never have let him get that far out on the wrong side of the market. After conferring with her and his mentor that night he closed out his losing position the next day for a loss of $800,000. He told his wife she better enjoy that $800,000 mink coat.
You cannot trade your way out of a losing day, week, or month. All you can do is limit your losses and wait for your set ups. Stop and wait, maybe the two most important words in trading.
Stop and wait.
Humans don't like to stop and wait. We want to go, and now.
I think the best quote from Marty is "take time off and let your intellect take charge of your emotions; the market will be there when you return."
The best way to end a losing streak is to cut your losses and divorce your ego from the game.Pit Bull: Lessons from Wall Street's Champion Day Trader
The best way to stop a losing streak is to STOP!
STOP THE LOSSES, STOP THE BLEEDING. Take time off and let your intellect take charge of your emotions; the market will be there when you return.
You can never shift from reverse to first gear without first going through neutral.
YOU MUST CHANGE THE DIRECTION OF BAD TRADING BY FIRST SHIFTING TO NEUTRAL.
YOU MUST STOP.
The most important thing is to protect your trading capital until you can regain your equilibrium.
Pretty simple stuff.
So simple you could ignore it as you continue your hunt for the holy grail. I would advice you not to ignore it. I would advise you to read it again. I would advise you to take a look at your trading records. See any blow up days that ruined your day, week, or month? Would Marty's advice have been any help on those days?
Schwartz tells a story in the book of a day he was trading S & P futures and he kept adding to a losing short position. His wife, who normally worked with him, was not there that day as she went shopping for a mink coat. :) Marty stated his wife (risk manager) would never have let him get that far out on the wrong side of the market. After conferring with her and his mentor that night he closed out his losing position the next day for a loss of $800,000. He told his wife she better enjoy that $800,000 mink coat.
You cannot trade your way out of a losing day, week, or month. All you can do is limit your losses and wait for your set ups. Stop and wait, maybe the two most important words in trading.
Stop and wait.
Humans don't like to stop and wait. We want to go, and now.
I think the best quote from Marty is "take time off and let your intellect take charge of your emotions; the market will be there when you return."
6/12/2009
The end of civilization as we know it
I caught the tale end of a conversation on television the other day as the commentator was quoting someone who roughly said that democracy eventually destroys all civilizations who embrace it because politicians figure out the only way to get elected is to continually lower taxes while increasing spending.
I tried many searches but could not come up with the exact quote or author. Let me know if you know who it is.
It's not the politicians fault, they just feed us the lines we want to hear. The problem is they have stopped lying about it. They used to make these ridiculous promises and then renege on them once they got into power. Now they seem to actually do what they promise.
Taxes are collected on a percentage basis of gross income for individuals and net income for businesses. In a booming economy those tax breaks add fuel to the fire and government revenue can actually go up for a while in spite of the smaller percentage of income collected.
But, what happens when our income shrinks? The government still takes the same or smaller percentage of our income (smaller cause they keep cutting taxes to get elected or "stimulate" the economy) and governments continually spend more to get elected or "stimulate" the economy.
So the question is how long can this continue? It leaves me to ponder what rational mind can see a good outcome in this.
Think.
If it continues it will be the end of us all.
When this movie was made the American national debt was 8.7 trillion, it's now 11.4 trillion. The projected 2009 annual deficit is almost 1.4 trillion
Good luck with that.
I tried many searches but could not come up with the exact quote or author. Let me know if you know who it is.
It's not the politicians fault, they just feed us the lines we want to hear. The problem is they have stopped lying about it. They used to make these ridiculous promises and then renege on them once they got into power. Now they seem to actually do what they promise.
Taxes are collected on a percentage basis of gross income for individuals and net income for businesses. In a booming economy those tax breaks add fuel to the fire and government revenue can actually go up for a while in spite of the smaller percentage of income collected.
But, what happens when our income shrinks? The government still takes the same or smaller percentage of our income (smaller cause they keep cutting taxes to get elected or "stimulate" the economy) and governments continually spend more to get elected or "stimulate" the economy.
So the question is how long can this continue? It leaves me to ponder what rational mind can see a good outcome in this.
Think.
If it continues it will be the end of us all.
When this movie was made the American national debt was 8.7 trillion, it's now 11.4 trillion. The projected 2009 annual deficit is almost 1.4 trillion
Good luck with that.
6/08/2009
Risk Management for Idiots
So as per my last post if traders should not be their own risk manager then who should be?
Your spouse, mentor, or anyone who will take the time to understand what it is you are trying to do. Someone or something must stop you before you hurt yourself. If you can't find another human to stop you maybe you should try the Solfest Risk Management for Idiots System. It's free for all my loyal subjects.
Here it is:
If I have 2 winning trades in the bank I'm done for the day. If I have 2 losing trades in the bank I'm done for the day. Break evens don't count. The risk reward built into my trades handles the rest. In other words I can have a 50% win rate and still make good money.
That's it. I guess I can still break the rules if I want to but it's a very obvious breach of protocol. If I can't follow it I should be fired, or beaten with a stick, or taken out behind the barn and shot, or, you get the picture.
The object of the system is to avoid the blow up days and the give it all back days. Of course I will also miss the I am the greatest trader in the world days. My tendency for revenge trading is my biggest weakness and this system shuts me down before I can hurt myself.
1 Minute Crude Oil Chart
1 Minute Soybean Chart
Your spouse, mentor, or anyone who will take the time to understand what it is you are trying to do. Someone or something must stop you before you hurt yourself. If you can't find another human to stop you maybe you should try the Solfest Risk Management for Idiots System. It's free for all my loyal subjects.
Here it is:
If I have 2 winning trades in the bank I'm done for the day. If I have 2 losing trades in the bank I'm done for the day. Break evens don't count. The risk reward built into my trades handles the rest. In other words I can have a 50% win rate and still make good money.
That's it. I guess I can still break the rules if I want to but it's a very obvious breach of protocol. If I can't follow it I should be fired, or beaten with a stick, or taken out behind the barn and shot, or, you get the picture.
The object of the system is to avoid the blow up days and the give it all back days. Of course I will also miss the I am the greatest trader in the world days. My tendency for revenge trading is my biggest weakness and this system shuts me down before I can hurt myself.
1 Minute Crude Oil Chart
1 Minute Soybean Chart
6/05/2009
Why you should not be a trader
Before I answer that statement let's have a look at why people want to be traders.
1) They can't sleep.
2) They just got fired.
3) They have never been hired.
4) They want to make lots of money.
5) They know a guy and he.......
6) They don't like their boss.
7) They don’t want to be "corporate".
8) They want to work when they feel like it.
9) They can do this work from the beach.
10) Women love traders.
Now let's have a look at what I think it takes to be a successful trader, or more precisely to become a successful trader.
1) A complete understanding and acceptance of risk management.
That's it?
Ok let me flesh that out a bit. I used to work as a lender in a bank. Banks have a department called risk management. The people that wind up there usually did not do so well in the sales (lending) side of the business. I wonder if they still call it sales? Never mind that's another topic.
Where were we? Oh yes risk managers, risk managers are generally men who are old, bald, ugly, have no friends, and don't do all that well in social situations. They are most comfortable in their 17th floor cubicle where they do not see any human life form other than their comrades.
What does this have to do with trading?
Nothing I just like making fun of risk managers.
No no no bear with me here. So I as the lender in the bank meet a client, the client tells me a very long story about why they need money for this great business idea they have. I fall for it hook line and sinker and spend the next 2 days writing up a credit request that I send to risk management.
Now the fun begins.
One of my "partners" in risk calls me up to "discuss" this proposal, they start out nicely enough as they have been taught to do after the Johnson incident. Then they forget all that partner crap and really start laying into me. Insufficient net worth, no current ratio, no experience, tough industry, won't withstand a cyclical downturn, debt service ratio too weak, why would I send this piece of crap down here and waste their time, how long have you been in this business you stupid moron.
All righty then.
Is there a point to all this?
There is, I have to stop crying first. Ok, I'm better now.
Let's get back to trading.
So I'm all set up, charts, broker, front end, Mark Douglas in hand, and now I see a "trade", WHAM I pull the trigger, SLAM hits my stop in 3 seconds, WHAM go again, I am a day trader and I am fast baby, SLAM hits my stop in 7 seconds, and on and on we go.
Now let’s add risk management. Remember all those annoying questions? How much capital do I have equals my position size. How many losing trades am I allowed to take? How many winning trades before I stop? What is that based on? What are my stops? When do I stop trading, daily stops, weekly stops, monthly stops, and on and on we go.
This is the reason why you should not be a trader. You are the risk management department. In banking the lender cannot be the risk manager or bad things happen. In our business the trader is the risk manager, and, bad things happen.
YOU MUST PRESERVE CAPITAL.
In my opinion that is the first and last thing all traders must think about. Not charts, not set ups, not what will I do with all my profit.
Capital preservation. It's not sexy, it's not fun, it's not exciting, and it has rules, rules that must be followed or you’re fired. In other words it's everything that you hated about your other job.
If you want a fun, exciting, and sexy job try on line poker.
If you want to be a trader/risk manager shave your head bald, insult all your friends until they leave, stop bathing, wear polyester, and sniff constantly.
There, you're ready to go.
1) They can't sleep.
2) They just got fired.
3) They have never been hired.
4) They want to make lots of money.
5) They know a guy and he.......
6) They don't like their boss.
7) They don’t want to be "corporate".
8) They want to work when they feel like it.
9) They can do this work from the beach.
10) Women love traders.
Now let's have a look at what I think it takes to be a successful trader, or more precisely to become a successful trader.
1) A complete understanding and acceptance of risk management.
That's it?
Ok let me flesh that out a bit. I used to work as a lender in a bank. Banks have a department called risk management. The people that wind up there usually did not do so well in the sales (lending) side of the business. I wonder if they still call it sales? Never mind that's another topic.
Where were we? Oh yes risk managers, risk managers are generally men who are old, bald, ugly, have no friends, and don't do all that well in social situations. They are most comfortable in their 17th floor cubicle where they do not see any human life form other than their comrades.
What does this have to do with trading?
Nothing I just like making fun of risk managers.
No no no bear with me here. So I as the lender in the bank meet a client, the client tells me a very long story about why they need money for this great business idea they have. I fall for it hook line and sinker and spend the next 2 days writing up a credit request that I send to risk management.
Now the fun begins.
One of my "partners" in risk calls me up to "discuss" this proposal, they start out nicely enough as they have been taught to do after the Johnson incident. Then they forget all that partner crap and really start laying into me. Insufficient net worth, no current ratio, no experience, tough industry, won't withstand a cyclical downturn, debt service ratio too weak, why would I send this piece of crap down here and waste their time, how long have you been in this business you stupid moron.
All righty then.
Is there a point to all this?
There is, I have to stop crying first. Ok, I'm better now.
Let's get back to trading.
So I'm all set up, charts, broker, front end, Mark Douglas in hand, and now I see a "trade", WHAM I pull the trigger, SLAM hits my stop in 3 seconds, WHAM go again, I am a day trader and I am fast baby, SLAM hits my stop in 7 seconds, and on and on we go.
Now let’s add risk management. Remember all those annoying questions? How much capital do I have equals my position size. How many losing trades am I allowed to take? How many winning trades before I stop? What is that based on? What are my stops? When do I stop trading, daily stops, weekly stops, monthly stops, and on and on we go.
This is the reason why you should not be a trader. You are the risk management department. In banking the lender cannot be the risk manager or bad things happen. In our business the trader is the risk manager, and, bad things happen.
YOU MUST PRESERVE CAPITAL.
In my opinion that is the first and last thing all traders must think about. Not charts, not set ups, not what will I do with all my profit.
Capital preservation. It's not sexy, it's not fun, it's not exciting, and it has rules, rules that must be followed or you’re fired. In other words it's everything that you hated about your other job.
If you want a fun, exciting, and sexy job try on line poker.
If you want to be a trader/risk manager shave your head bald, insult all your friends until they leave, stop bathing, wear polyester, and sniff constantly.
There, you're ready to go.
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