Saturday, March 30, 2013

Meta-Trader - Mind the Gap

Welcome back, Meta-Traders.

One of the more reliable behaviors I have seen in price action lately in the stock market is the Gap Fill.

On your left find a 5 minute chart of Boeing (BA) from this past Wednesday, March 27, 2013.  Pretty much every other stock and the indices had the same gap down as indicated by the almost pattern matching action of the white line which represents the SP-500.

Since we were in the middle of a bullish period caused in part by end of quarter window dressing, this gap down was a gift for the bulls.  After the first few 5 minute bars, it seemed clear that the price was going to fill the daily gap, so I did a trade in a very similar chart QCOM, and bought the Weekly 60 call at 6.22 looking for a move back up to yesterday's close at about $6.60.  I ended up closing the contract at $6.58, not bad for a days work.

I recall Hubert Senters saying recently that about 85% of all all gaps are filled, and I believe it based on what I have seen lately.

For another example, take a look at luxury goods retail Michael Kors KORS on the daily chart.  This stock gaps a lot both up and down as you can see on the daily chart.  Notice that about every gap is filled with 2-3 price bars.  Also note that most of the gaps occur within the context of previous price action.  Those gaps have a higher tendency to fill than those outside recent price action.  For an example, of that, take a look at the highest price bar on the KORS  chart which is gap into new territory.  I actually bought this gap and ended up losing money on that trade.

Finally, there's one last type of gap example which would be consider the "runaway" gap.  This is gap which is outside recent price action or even outside of the historical price action of the chart itself.  For an example of that, take a look at the chart of Biogen Idec BIIB.  If you examine this chart carefully, you will see there were 2 runaway gaps on this chart this year.

Runaway gaps have much less of a chance of getting filled particularly of they occur on some type of important fundamental news such as was the case with Biogen Idec.

So pay attention to price gaps since they provide some very reliable setups for trades as follows:

  • For a gap fill on a daily chart if the gap occurs within the context of recent price action
  • For a gap fill on an intraday chart where you are expecting the stock to close the gap and return to the prior day's close by the end of the day.
  • For higher prices ahead if the gap occurs outside of recent price action.  And if the gap is into new all-time high territory, expect higher prices ahead.
So Mind the Gap and enjoy your weekend.

Thursday, March 28, 2013

Meta-Trader - More New Highs

Welcome back Meta-Traders.

Just a quick note to mark the end of Q1 2013.  It has been an incredible quarter with the SP-500 and Dow-30 up over 10% each.  After the past few years, a 10% gain for the entire year would be quite respectable.  Now we have had that in just the first 3 months of 2013!  So much for 13 being an unlucky number.

The chart on the left is the Vanguard Midcap ETF (symbol VO) which has been outpacing the SP-500 which is indicated  by comparison in in white.  Very few ETF's have outperformed SPY so far this year but VO is on that short list.

My overall portfolio made another new all-time high, but has not done quite as well as the indexes.  But  that's okay since its part of my trading plan which is to keep some cash on the sidelines to take advantage of special situations when the occur.  I might be able to make more money generally by just buying SPY and walking away.  But where's the fun in that?

And speaking of trading opportunities, I had a beautiful day trade in Biogen Idec (BIIB) on Thursday.  This was your classic Oliver Velez style day trade where you buy the first 5 minute bar of the day in the direction of the bar. There was news released yesterday, but it didn't matter since it was so big. So I bought the BIIB April 180 calls at $10 even.  I ended up flipping them out later in the day at $13.  Execution was good also with limit orders on both sides of the trade which was necessary since the spread was pretty wide.  Anyway, that's about a 30% gain in less than one day, before commissions.  I just don't know of any other asset class that offers those types of returns.

Is this a great time to be a trader or what?

Come back on Saturday for a weekend update and take care.

Saturday, March 23, 2013

Meta-Trader - Your Inner Millionaire

Welcome back, Meta-Traders.

Well I finally got my hands on 'The Instant Millionaire" by Mark Fisher.  Recall that this book was personally recommended to me by Mr John Carter during our hallway conversation at the New York Trader's Expo in February.  The book tells the story of a young man who seeks the advice and counsel of an old millionaire about how to become a millionaire himself.   The story is told so simply and so beautifully, we don't even learn the names of the characters, and indeed their names are not important.

Anyway, the book is full of so many profound yet simple truths, I don't want to take away from the book itself.  Its easily worth the $10 you pay for it on  But here are a few important truths I took away from the early chapters:

1) You have to want to be wealthy

2) You have to believe that you can become wealthy, otherwise what chance to you have to actually become wealthy?

3) You can trick your subconscious mind into believing things that may not actually true into order to get what you want.  And once you achieve that, favorable circumstances can manifest themselves almost by magic.

Now there's a lot here so just bear with me while I deal with these points one a time.

As for the first point - who would not want to be wealthy?

Well the Christian Bible has a line where Jesus says "Its easier for a camel to go through the eye of a needle then for a rich man to enter the kingdom of heaven". Also statements in the bible prevent charging of interest in the spirit of not making a profit from other people's misfortune.  Now certainly many fortunes have been made by exploiting the misfortune of others.  But in the modern economy, we don't need to do that.  Point is that your attitude toward money influences whether your get it.

Poverty is not a virtue. Wanting to have money is not about arrogance, or power or greed.  Its about getting what you want out of life and enjoying all it has to offer. You deserve to be wealthy, and your not going to get there unless you want it and expect it.

As for second point, you have to believe you can become wealthy.

This one pretty much speaks for itself, if you don't believe it can happen it most likely will not happen.  Make it So! as captain Jean Luc Picard would say.

As for the final point, the subconscious mind is very powerful and not entirely rational.  The subconscious mind reveals itself in dreams and I have had the dream many times that I can fly.  Call it an out of body experience or what, I don't know.  It even got to the point that my subconscious mind was mocking my conscious mind saying "See, and you thought you could not fly ha ha."  Then I woke up and, I was disappointed to find out that I could not fly after all.

Anyway the term Manifest is used to describe a situation where you think about something, and magically appears.  There was a scene in a movie called 'Sphere' where an alien presence was causing the worst fears of the human crew members to turn into evil and deadly sea creatures.  In this case, the alien presence was giving the humans the super-human ability to manifest objects through the power of their minds alone.

Well as it turns out,  you too have the ability to Manifest.  And once you decide what you want, turn it into a mantra and repeat it out loud many times a day for several days.  Sooner or later, your subconscious mind will get the hint and find a way to get it done.  The message is not much different that those taught by motivational speakers such as Dr Wayne Dyer and Tony Robbins and others. You can change your life by changing your mind.

One final point in the book is that I have always thought my interest in getting wealthy and my interest in spiritual advancement were somehow at odds.  In other words, to develop spiritually you have to some how take a vow of poverty and renounce all your worldly possession.  But now I see now that the millionaire himself is a deeply spiritual man and that the millionaire is me.

Go figure out what you want, and manifest it.  And enjoy your weekend.

Saturday, March 16, 2013

Meta-Trader - A Story of Spam

Welcome back Meta-Traders.

Sometimes trades come from strangest places. A case in point is a trade closed this past week in food products company Hormel. Hormel is best known for Spam, which is canned meat product made of pork that comes out of the can in a "gelatinous glaze". After the classic Monty Python spam sketch in the 1970's spam became both a noun and a verb referring to all the useless extra junk on the Internet.  So what does this have to with with trading?

Well back on 1/18/2013 this stock showed up on my new all-time-high scan.  It had already had a pretty good run up, but since then hardly a down day.  As it cleared the recent top, I picked up 100 shares at about $35.80 (first purple bar).  It ran up immediately, then pulled back and I was briefly in the red on the position.  But soon after, it broke out and headed steadily higher.  I picked up another 100 shares (second purple bar) on Feb 22 and a final 200 shares at the final purple bar shown on the chart on March 7th.

At this point I was "fully loaded" in the stock and felt that I was pushing my luck on the last 200 shares and didn't want to press my luck.  So I closed all 400 shares at about $39.21.  I don't think the stock is finished going up in fact I am eyeing the April 40 calls at about 45 cents.  If Hormel breaks the $40 mark, it could move significantly higher and those April 40 calls could be a great trade.

I can't find any news to explain the price action.  I think is a potential takeover candidate since Warren Buffett's Berkshire Hathaway recently bought Heinz ketchup.  I don't have any other information to offer. In this case, we'll let the stock do the talking.

Enjoy your weekend, spend some time and money with your loved ones.

Sunday, March 10, 2013

Meta-Trader - Death of Forex?

Welcome Back Meta-Traders.

On yesterday's post Feast for the Bulls my friend Edward asked a question whether I have given up on Forex. This is an event in and of itself since I don't get many comments, much less from someone interested in what I'm doing!  Anyway, I found that I had enough to say for its own blog post, so here goes:

Hi Edward-

Thanks for reading and for the question.

Early this year I re-cast my blog from "Automated Forex Trading" to "Money and Markets".  After last year's fiasco (see results above),  I considering ending the blog and doing a post indicating that my Automated Forex Trading experiment was a failure.  But since I had already blown up in Forex twice before (once with FXCM and another time with Zulutrade) I was not anxious to admit defeat.

So instead I changed the mission of the blog to explore what is working in Money in Markets generally, and what I found to be successful.  Besides,  I make trades and investments which go bad all the time, and I don't throw myself on my sword when that happens, I just take the loss and move on.  But in this process I have learned something so I might as well take the time to share it with my readers. 

When I started this blog, I considered trading to be an intellectual exercise that (if I applied enough screen time), I could solve.  After all, I have a Master's Degree in Computer Science, and I know how to program and I am keenly interested in Trading Systems.  Sounds like a perfect fit, right?

So I started this blog and tried all the ususal suspects, moving average crossovers, Donchian Breakouts, Volatilty Expansion Systems, Candlestick Patterns, Neural Networks, you name it.  I spent many, many hours doing research, writing code and back-testing systems.  But I found that none of my systems were worth trading with real money.

In the process I came across Asirikuy. Unlike my efforts, Daniel's systems were well coded, well researched and showed positive 10-year back-tests.  Plus, Daniel's worked seemed to bring a level of scientific rigor that I could not produce given the fact that his efforts were on a full-time basis and mine were part-time at best.  So I started down the road to building my wealth through Automated Forex Trading and made a 5-year plan found here.  Armed with all the trading systems, I went ahead with full confidence that there was a better than even chance that I would come out some type of positive return.

The 2nd full year of my Automated Forex Trading experiment (2011) went pretty well, and I turned in nearly a 17% annual return described here. So far so good.

The 3rd full year of my plan (2012), turned out to be somewhat of a disaster. The story is best told though the performance of the account Atipaq Full Portfolio. After peaking with a spectacular 96% return in 14 months time, the account went into a death spiral and gave back all the profits. Not only that, it also went into a drawdown from the opening levels from which it still has not recovered. Every other account did the same with the sole exception of Atinalla No 1 which is the only account still in the positive. By the end of 2012, I had given back all of the profits from Forex Trading any the entire business was now a money-losing enterprise!

So in the process I asked myself, what am I doing wrong?  Well much learning is done by observing people who are successful and learning from them. In the process I found people such as Oliver Velez, Hubert Senters and John F Carter all of whom I have introduced on this blog.  And here's what I found out:

  • None of these guys use fully-automated trading systems although they do have trading systems with setups, take profits and stop losses
  • None of these guys back-test
  • All of these guys trade a combination of markets, Stocks, Futures and Options
In a recent live event with John F Carter someone asked him, "Do you back test?"  His answer was "No, I only forward test. If it makes money I keep doing it going forward, otherwise I stop."  And bear in mind that John F Carter is younger than me, many times more successful than I will ever be, and probably never wrote a line of code in his life!

Revelation #1

Trading is not an intellectual exercise, it is an activity.  Good trading is a set of behaviors that are learned and developed over time.  And one key aspect is selectivity.  Much of the profits from day-trading are made in the first 2 hours of the trading day.  In fact, the first few 5-minute bars of the trading day are the key times where money is made.  Most of Oliver Velez's traders only trade the first few hours of the day.  Same with Hubert Senters, he is mostly done for the day by 11:30 AM.

Revelation #2

Trading is not that hard.  Sure there is the psychology, the give and take, the fear and greed.   Trading is not that hard, but writing a program to trade is hard.  Trying to find a program that works works 24 hours a day, 5 days a week over a 10-year period is hard.  Trying to figure out what price is going to do in the next 10 minutes is not that hard once you know the tricks (time of day).

Revelation #3

Stop trying to be so smart and just live your life.  Once I stopped trying to solve the Forex puzzle, I found a better life balance.  Work and watch the market all day, but trade actively from 9:30 until about 10:30 or 11:00.  Take a break and come back and trade the close from 3:15 until about 4PM.  Forget about what happens in between (which is usually not that much) and focus on the active times. 

John Carter indicates most people make money in the morning, then give it back in the afternoon simply because humans are not patient enough to sit in front of a screen for 6.5 hours straight.  So get up and leave the screen and do something else.  And go easy on yourself, don't force the trades, wait for them to come to you. 

The last part of the work-life balance is now that I don't have to spend my weekends trying to be smarter than everyone else.  Instead I can just enjoy what life has to offer and trade when its time to trade.

To wrap up, I'm still going to trade the few Forex accounts left until they blow-up or make some money.  Of all of Daniel's systems Sunqu appears to have some promise. So far its up +5.37% in 2013 and ironically, its one system that does not have clearly explainable rules since its based on Neural Network technology.

Keep coming back to my blog since there is still a lot to learn, some of which has to do with technical indicators.  In particular there's one used heavily by John Carter called the TTM Squeeze.  I expect to code my own TTM squeeze indicator and share the algorithm with you all, so check back for that.

Trade well and have a great week.

Friday, March 8, 2013

Meta-Trader - Feast for the Bulls

Welcome back, Meta-Traders.

It was a feast for the bulls this week with the market screaming higher, particularly the Dow Jones Industrial Average starting with a gap into all-time high territory on Tuesday morning.   From there it was straight up with almost 3 more consecutive daily closing highs.

The SP-500 closed the week a percentage point or 2 short of new all-time high territory.  At the same time, broader market index ETF's representing the Russell 2000 (IWM) and SP-400 Mid-Cap (VO) closed the week at new all-time highs.   All this bullishness sent my net worth to new all-time highs on several days including Friday's close which is a beautiful thing of course.

One particularly memorable trade was Apple.  Recall in last week's post "Crapple," Apple was in a flush to the downside with further downside targets in the 380 area.  On Tuesday March 5th, I was watching the 5 minute bars just after the open, and saw a large bull elephant bar on the 2nd 5 minute bar of the day which had a bigger range than any 5-minute bar the day before.  I figured at about $422 the stock was good for a run back up to $428.  So I picked up 1 of the weekly $420 calls at 10.60 for about a $1060 trade size.  I quickly put a stop in at 9.60 for a max loss of $100.  The stock pulled back somewhat, but kept me in the trade, and from there Apple took off and reached an intraday high of $435 exceeding my own expectations of how high it could go.  I closed the contract out at $14.50 later that day for about a 30% profit on the contract in about 4 hours time!

I had 2 other trades this week in my Tradestation account, both winners.  But I closed both of them at the market price and thus gave back the spread.  Had a been a little more patient and used limit orders, I could have made closer to $100 each, but ended up making only about $70 each. So I need to improve my game there and use the feature of TradeStation where I put a stop loss and take profit order on each position before entry. Once entered, the trade can play out as planned instead of the "seat of the pants" management style I am using now.
In any case, I'm doing well in my TradeStation account and up about 7.8% for the year.

One strange thing that happened this week was that CNBC took over Nightly Business Report, my favorite daily business news show on Public Broadcasting.  As it turns out, CNBC sacked most of the NBR staff including host Tom Hudson and replaced him with Tyler Matheson.  They did hold onto Suzy Garib and she is now co-host as shown in this the shot with Tyler M.

The strange part is that I used to count on NBR to give me an unbiased, non-commercial news of business news.  Now instead I see the same CNBC personalities on NBR that I see all day long on CNBC which feels wierd.  Nothing against CNBC since I get a lot of great information from them.  Its just that another perspective has been lost as NBR has been consumed into the media giant CNBC which is now owned by cable giant Comcast after having been spun off by General Electric last year.

I am not one to complain, since there is more information available now (more every day) than there ever was before in the history of the world and much of it is accessible for no cost over the Internet.  Free is always transformational and the Internet has made new industries and new economies just as old ones (like newspapers and print media) die on the vine.

That's all for now, enjoy your week and get some rest.

Sunday, March 3, 2013

Meta-Trader - Crapple

Welcome back, Meta-Traders.

Its amazing the way things go sometimes in the financial markets.  Since reaching its all-time high of $705.07 back on September 21, 2012, Apple has fallen an incredible 275 points or nearly 40%.  The while line in the chart represents the SP 500 based on an anchor point set back in early 2010.  From there you can see that Apple greatly outperformed the SP-500 and just recently has gone into under performance.

I point this out because my friends over at Simpler Options are heavily short AAPL via long put positions.  They see the next target at $400 and then $380.  And based on Friday's close at just about $430 that represents 30-50 points of potential price action.

At the same time, they are heavily long calls in Google (GOOG) which is just short of new all-time highs.

Its interesting the way stocks trends tend to continue once started.  That's one reason I find trading stocks so much easier than Forex that can't seem to get much of a trend going without a whipsaw-like retracement.

Speaking of trends, I'm still heavily long Catamaran (CTRX).  I also started new positions in this week in Taro Pharamacuticals (TARO).  As mentioned, I also started a new position in Linked-In last week (LNKD) in which I doubled-down on Friday.

As my friends over at Simpler Options say, "the trend is your friend until it ends."

That's all, have a great week.