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Pre-Market Planning = Successful trading

Today, prior to market open, we went through the stocks that Mark trades. We matched the moving averages to the S4 S3 & R4 R3 Camarilla Pivots. We also discussed getting flat around noon, due to the mid-day reversal which he identified as an unsuccessful time for him to trade.  Following these plans we were able to identify stocks that were good shorts or longs as well as; book some nice profit before 12:30 came around.  Through out the course of the day we kept a close eye on the stock we identified levels and placed trades accordingly. Today turned out to be a successful P&L day for Day Trade Well. Due to proper planning, staying disciplined and executing the plan.

-Justin Valle

-Justin Valle

Perspective from an online poker player

Being my first blog post, the first thing that I want to touch upon is my experience as an online poker player and the comparisons I’ve drawn to trading. I’ve had a strong prior interest in poker, and this has developed into an interest for trading and the markets in general. I should note however, that I have close to no practical experience in trading so thoughts I have on this are based on the research I’ve done. If I come off as naive then this would be the reason why.

The main thing that stands out to me is that both poker and trading are, at its core, a game. Specifically, it seems that both are games where volatility is prevalent but having the right skills can allow a player to have positive expectation in the long-term. I’ve read a few books on how trading has evolved over time, from the frenetic chaos in the pits where brokers and dealers met eye to eye to the computer screens made up of numbers and graphs, and it’s interesting to me how greatly technology has influenced the advancement of strategy in both. In both poker and trading, the old days were dominated by those who went with their gut instinct and fearlessness.

What a Badass

However, technology has significantly changed the landscape. For trading, this has resulted in faster execution times and the advent of computer-driven trading strategies as well as a way to crunch huge amounts of data. The amount of data that can be displayed in real time must be staggering compared to the old times and it makes me wonder just how profitable a trader could have been if he had access to current technology in the past.

This is what I imagine when I think of day trading

The face of poker now

Poker has been influenced in a very similar fashion. It seems that the majority of casual players still play in the traditional brick & mortar casinos, but for the enthusiasts, the action has certainly moved to online. From my own personal experience, I would say that online has accelerated the learning curve tremendously. Just to put this in perspective, playing a live hand typically means that you’ll see an average of 20-30 hands / hour. Online, this amount is typically between 70-80 hands / hour but a person can also play up to 24 tables! I typically have 8-10 tables playing at once, which would result in ~560-800 hands / hour. That’s about 30 times the volume of sitting in a casino for one hour! I would say both poker and trading require a lot of hands on experience, so playing online results in a person gaining experience at a much higher rate.

What has also had a big impact on poker is the influence of mathematical models and statistics. Most certainly strategies based on equity calculations and odds existed before poker went digital, but combining the sheer volume of hands that can be played within a short period of time with statistical software has meant that strategies can be analyzed and dissected in a much clearer manner. Not only that, but real time data of all sorts of poker-based analytics can be displayed in real time on each specific opponent which makes it significantly easier to come up with an optimal strategy versus each specific opponent. I understand that in trading, it seems something similar has happened, with more and more traders learning about mathematical concepts to aid in trading such as stochastic calculus and numerical analysis.

Keeps track of important poker statistics. Won't keep track of how many times you've gone on tilt and thrown the keyboard at the wall. Just kidding

In both cases though, a pure mathematical / statistical approach won’t do it. If that were the case, we could just have computers run all the strategies and sit back while we printed money. Definitely there’s a a very delicate balance between the models the strategies are based upon and how it pertains to the current environment. No day ever looks the same and it requires the players to always learn and evolve.

I guess the last point I’d like to leave is this evolution and its affect on competition. Once more and more people begin to learn how to implement technology and a more quantitative analytical approach to both games, profit margins will keep shrinking. Will something new show up to change all of this? Who knows, but right now it’s the best thing available.

Day one

Hello.  Let me introduce myself as the new intern for the winter.  My name is Alex and I’m currently a Junior at Cornell University.  My major there is Industrial and Labor relations, which is a nice mix of law, government, history, and economics.  Most aspects of classes focus on the organized labor movement and management’s responses to labor, which acts as a unifying theme throughout the curriculum.  Now that finals are done for the semester, I’m happy to be home for break.  Outside of academics, I enjoy playing basketball, running, and going to concerts.

Day one at Hedge Fund Live was an engaging and challenging day.  I spent my morning editing and compiling elearn notes and trying to acclimate myself to the structure and pace of the desk.  Listening in to the conversations of the traders was immensely educational.  The world of technical trading is replete with completely unique terminology.  What little market knowledge I possessed previously paled in comparison to what I’ve already learned.  So day one was a success and I look forward to doing it all tomorrow.

Day one

Trading Plan Continued: Rules for Trading

Today I continued on my quest to outline a comprehensive plan for my trading.  Once this document has been completed it will be posted to the website; hopefully our members can benefit from the knowledge I have gleaned in my short, yet dense career.  The excerpt below is from a section that outlines several cardinal rules for trading.

1.1.    Plan every trade: Before executing a trade, know exactly what prices you plan to enter and exit.  Know exactly how much money you are trying to make for every trade and how much money you are willing to lose.  Properly planning a trade and executing within the parameters of that plan demonstrate discipline, the most important quality for a trader to possess.  Remember, he who fails to plan plans to fail.

1.2.    Always trade according to the pivot signal: When trading to the long side, the equity must be on an S3 or R4 buy signal.  When trading to the short side, the equity must be on an R3 or S4 sell signal.  If you are trading on a signal, you should stop out as soon as the opposite signal is confirmed.

1.3.    Every trade must have a risk to reward of at least 2 to 1: Knowing your risk to reward ratio is an important part of rule number 1, planning your trade.  By achieving a risk to reward of 2 to 1 or greater on every trade, over time you will be able to be profitable by keeping your winning trades greater than your losing trades.  Remember, your risk to reward is greatest the nearer you are to your stop and least the nearer you are to your exit point.

1.4.    Space out your entries: By spreading your entries over a greater price range, you will be able to improve your average cost and maximize your risk to reward ratio.  Sometimes, traders are tempted to build into large positions quickly believing that they are right.  The market has a tendency for inflicting the maximum amount of pain and will almost always squeeze these traders out of a winning trade because they are forced to cut their positions to limit P&L losses.  By spreading orders, you avoid this pain when the trade is working against you and maximize your winnings when the trade eventually moves in your favor.

1.5.    Stick to your stops: If you follow rules one through three, you will always have a chosen stop out price.  Remember that this price was chosen for a reason and falls within the guise of your plan.  Changing your stop once it has been set shows lack of discipline and will almost always lead to failure.  If you believe that you are being stopped out too frequently, consider revising the way you plan your trades rather than changing your plan once it has been set.

1.6.    Be aware of external forces: Before entering a trade, be aware of any external forces that may cause the trade to behave in an unexpected manner.  These forces include economic numbers, earnings reports, M&A activity, major news, and unexpected exogenous factors.  When planning a trade, be aware of these forces and be prepared in the event of an unexpected shock.

Journal Entry: Market Recap

The following is my entry from today’s trading journal:

  • Names like SNDK, ATI, X did not perform well after weakness yesterday.  RIMM was the outlier and closed up 4.4% after a weak performances when the market was up yesterday.
  • Book P&L closed down approximately $15k with the biggest losers in ATI, X, and SNDK…Winners in RIMM, IMAX, and YHOO
  • Market spiked down a quick 14 handles after the FOMC decision and retraced approximately 70% of the move
  • Doji on the daily chart today.  Tomorrow we will see if we can push higher of if the last few sessions have simply been a shakeout move through 1125.
  • My P&L was up $52, extending my streak to 5 days but I closed well off my high print of $350.  I should have recognized that today would not be a grind higher like yesterday given Dean’s early comments on the market.  Should have booked profit early; instead I spent the entire day fighting the trade.

Economic Info Galore This Morning, But Futures Not Reacting Much


Morning Notes

-       Futures are flattish this AM

-       S&P futures up about 4 handles from FV

-       1080 level clearly is heavy resistance right now (e.g., 50d MA)

-       Asian mkts up solidly o/n

-       European mkts not as strong, but still up slightly, due to eurozone GDP release- came in at +1.0%

-       Also, at 7:45a today ECB announced it will leave lending rate unch’d at 1%, as expected

-       Initial Jobless Claims: 472K vs. 475K; prior revised to 478K from 473K

-       Continuing Claims: 4.456M from 4.479M

-       Q2 Nonfarm Productivity: final number revised to -1.8% vs. -1.7%; Q2 prelim-0.9%

-       Q2 Unit Labor Cost: final number revised to 1.1% vs. 1.1%; Q2 prelim 0.2%

-       Initial claims have been stuck in 450k-500k range since November 2009; looks like we will not break out of this range for a while

-       ECB Press Conference going on this morning (started 8:30a) to see if ECB will extend emergency lending measures

-       Other economic data out today: Factory Orders and Pending Homes Sales at 10a

-       Also, Bernanke to testify before commission for fin. crisis at 9a

Another Merger Monday Moving Stocks Pre-Market


Morning Notes

-       S&P futures flattish this morning

-       Asian markets showed strength o/n- attributed to credit easing measures in Japan

-       Japan whose central bank held an emergency meeting and voted to keep the key lending rate at 0.1% and to expand credit to banks by 10-30TR yen

-       Japan’s central bank vote pushed yen lower

-       European markets down small along with euro being down

-       FTSE closed today for holiday

-       Weakness in Europe attributed to weaker than expected eurozone business climate indicator

-       USD down small this morning

-       Another Merger Monday:

  • PAR accepted HPQ’s offer for $30/share over DELL’s offer for $27/share
  • INTC to acquire wireless unit of Infineon Technologies for $1.4B; recall, INTC announced weak rev. guidance on Friday
  • SNY offered to pay $69/share for GENZ, which GENZ has rejected as they believe the offer undervalues the company
  • MMM to acquire COGT

-       July Personal Income: 0.2% vs. 0.2%

-       July Personal Spending: 0.4% vs. 0.3%

-       July PCE Core Prices m/m: 0.1% vs. 0.1%

-       Futures up slightly after above economic data release, although they are now sliding as of 8:52a

Another Quiet Day Ahead After Rally Off Claims Number


Morning Notes

-       S&P futures up small, about half a handle from FV

-       Quiet overnight with European and Asian markets up small

-       Successful 600M EUR Irish debt offering adding strength in Europe

-       Initial claims out this morning will be focus today, especially in light of last week’s disappointing 5 figure number

-       7-yr note auction at 1p today

-       Initial Claims: 473K vs. 485K; prior revised to 504K from 500K

-       Continuing Claims: 4.456M from 4.518M

-       Futures rallying off the claims data release

-       Futures up about 6 handles from FV now

-       Today’s action might play out to be another quiet day- may trade in a narrow range after reaction to claims number

Durable Goods Number Adding Further Pressure to the Market


Morning Notes

-       Fear is cloaking the market

-       S&P futures down about 3 handles from FV

-       Weakness in overseas mkts with Shanghai dropped about 2%

-       16 month lows for Nikkei while yen is near 15 year highs

-       Japan’s export data adding concerns about yen’s strength

-       European mkts down less than 1% attributed to Ireland’s downgrade:

-       Ireland’s long term rating downgraded to AA- from AA by S&P

-       German IFO Business Climate Index for August rose, slightly better than expected

-       USD up small

-       Today: durable goods orders and new homes sales numbers will be focus

-       July Durable Goods: 0.3% vs. 3.0%; prior revised to -0.1% from -1.2%

-       July Durable Goods, ex Transportation: -3.8% vs. 0.5%; prior revised to 0.2% from -0.09%

-       Futures selling off on durable goods numbers

-       Silver futures spike to new highs

-       In other news, credit card debt drops to its lowest level in eight years, per Transunion; BHP out saying the company continues in bidding war for POT

Monthly Lows Ahead of Existing Home Sales Number


Morning Notes

-       S&P futures down about 13 handles from FV

-       We are well below S4

-       Weakness extending into overseas market

-       Consequently, strength in dollar, yen, treasuries (flight to safety plays)

-       Treasuries: 10-yr note yield at 15 month lows

-       2-yr notes out this afternoon

-       Largest item on agenda for today: July existing home sales at 10a

-       Weakness prominent in Japan in Asian markets

-       Japan’s finance minister did not comment on currency intervention at a press conference

-       European markets down about 1% across the board

-       BOE policymaker made cautious comments, further adding weakness to the market

-       M&A headlines still in focus: RTP may partner with a Chinese firm to bid for POT; DELL preparing to increase its bid for PAR

-       BAC’s CEO purchased $391K worth of shares yesterday: this marks his first open mkt purchase of the year

-       S&P at monthly low as well as DAX after Q2 GDP report that showed German economy grew 2.2% q/q

-       Oil price at monthly low as well

-       Weakness across commodities