brownsfan019

Good job being quick on that exit swans. I know what you were referring to and I was actually long through there but I wasn't going to mess around - it was either this worked quickly or it did not. If you aren't already, make sure you are aware of 830am EST news that will move the EC. You don't want to be caught off guard when that news is released. In case you do forget something is going on, the dom will alert you quickly - you will all of a sudden see very few buyers/sellers (almost like everyone went home all of a sudden) and then bam, move takes place. But that 30 seconds or so of basically no buyers/sellers is a big hint that something is coming soon.

6-5-09 And for the boneheaded play of the day: I was short on bonds into the AM news (as I was long EC at same time). Both trades were gorgeous - instant +$300/ct. See a difference in the end result? :doh: EC trade nice and easy winner. ZB trade - somehow I butchered that into a loss... I got in and the trade was stuttering as everyone was waiting for the 830am news. I saw a small profit at one point and grabbed it. Trade then gave me a 2nd chance to short before the news. I took it, but this time I was going to be smart and put a snug stop on.... Meanwhile I was comfortable letting my EC trade just go. Really dropped the ball here, should have just been 2 trades for +300/ea trade vs what I created there. Live and learn. Always doing the 'learn' part though w/ trading...

Hal - please consider starting w/ something that we discussed here. I would like to see how you develop w/ something so simple. It may not end up there, but worth a shot.

I also do not monitor volume at all. No clue what it's doing intraday or bar to bar.

I think part is why do you need a prop to trade futures w/ the leverage already available? If you can open an account for $5000 and get $500 margins on the indexes, what use is the prop providing? I don't think you can get much lower than $500 per contract and keep your risk in check.

There is not right answer here. There is no one size fits all. And contrary to the prevailing current trend around here, you can use indicators and make money. Of course the key is making it work. Having 5 indicators all showing trend strength won't cut it. Having 5 that show reversal strength won't work either. You just have to find what you are comfortable with. The options as I see it are: 1) Trade w/ the trend 2) Trade against it 3) Take little trades here and there So you have to define yourself as a trader. Trend traders can make a killing when right, but as you've seen, can get ugly when wrong. Reversal guys love picking off the highs and lows, but can get beat up during a strong trending move. Taking little trades throughout the day is fine as long as your risk management works. Good luck and click around the forum as there is info all over the place. Just requires time and patience to weed through it.

Avoiding the chop basically comes down to defining yourself as a trend trader. Once you have decided to be a trend trader then you need to define when there is a trend and when there is not. I'll tell you this - there are many, many ways/ideas to identify trend vs. chop, but nothing is perfect. There is no magical bullet to IMO to make this work, your risk management and money management will be vital. Some ideas in regards to this and also looking at your chart: 1) If you can buy your first green arrow and ride that to the top, obviously a nice trade. I see your first red arrow which could signal to get short so there's a potential issue there - your first long on the green arrow is a great entry, the first red is a terrible exit and also a terrible place to go short b/c you then either get stopped or reverse long (which you were already long from before). If you a trying to follow the trend, there's gotta be a way to not have the first red arrow show up. That arrow to short appeared in an obvious uptrend (after the fact of course). 2) Your chart has plenty of trend following indicator - moving averages, ADX, etc. Might want to consider something that is non-trend following and see if you can get it all to line up. In other words, if your moving averages + your non-trending marker are both saying get long, might be a good area to get long. 3) Along those lines you might want to define support/resistance somehow. For example, could use pivots, fib retracements/extensions, etc. When you get a trend signal to get long & it's just above your support or resistance, I would take it. If you are buying right into strong resistance, could spell trouble. 4) I've never found any value of CCI. It can hang in oversold/bought conditions for awhile. Good example here on stockcharts actually. Look at the chart at the bottom - that CCI is held up in 'oversold' conditions for awhile. Knowing when to use CCI as a reversal vs. continuation play is not easy. 5) In your indicator at the bottom, when there is a strong trending move, your indicator appears to produce taller lines; whereas the lines are much smaller during the chop. If there's a way to quantify that, you could find what you are looking for. Visually it's easy to see now, after the fact, so you'd need to quantify it somehow. 6) You'll also need to identify what kind of 'trend trader' you are trying to become - in other words, if you believe you have identified the trend of the day, week, etc. then you should really only be taking trades that direction - meaning if you believe we are bullish, I would only be taking longs. That could be a great filter for you here if you can identify the bullish/bearish bias ahead of time. If you pull up a daily ES chart (with nothing on it but candles) are we in an up-trend or down-trend? Personally, I'd say up. If that's the case, maybe there's a way to only take your long(s). 7) Also, you'll want to research how many of these trending moves occur per day. There will be days of monster moves that go in 1 direction, but those are rare. Knowing that, not sure how many trades you should be taking per day if working a trend following system. For example, in your chart if your bias was to get long, then you have your long at green arrow 1. Whenever you get out, you should either a) be done for the day or b) looking for another way to get long again. But again that requires having your bullish/bearish bias ahead of time. 8) Research time of day movements as well. I have a post here somewhere talking about this, but basically the market has 3 stages as far as I am concerned: a) AM b) lunch c) PM. AM = volume and moves. lunch/pm = 50/50 shot if there will be volume present to provide moves. Good luck in your quest. If you are serious, you got your work cut out for you but the reward is well worth it if you get there.

Thales - when did you trade the mini's and why did you stop (if you did stop trading them)? Would love to hear the story there.

Keeping with our discussion of comparing stocks to futures - I don't think this strategy would work that well in futures, esp the indexes and bonds. Again, another reason why trading stocks is advantageous. You already know Thales that what you are buying or selling has some serious momentum w/ it. In a broad based stock index or bond market, just buying new highs or shorting new lows could be treacherous since there's so much influencing it. It's very common to see the ES or NQ peak it's head through for a new high or low, quickly retrace and then try again. Could take 3 or 4 times before it works. IMO many are fading the new highs or lows in futures that can send it back down/up, even if just momentarily (usually enough to grab a few stops of the breakout guys).

If you are profitable, futures taxation will beat all other factors IMO. If you are not profitable or minimally profitable, could be a wash either way.

:applaud: Nice job Thales. Clean, easy chart and trade to understand.

6-4-09

I picked up a TL polo recently from cafe press & just giving a plug to James & cafe press as it's a nice polo shirt. STORE LINK If you are looking for a TL shirt, hat, etc. take a peak!

Commissions is one part of the equation. Taxes are a HUGE part of the equation as well. You can't beat futures taxation (currently). Also, 1 tick on the ZB or ZB is $15.625.

Great post Thales. There's a lot of little gems in there if you read it closely. I don't nominate posts that often, but I really like this one. It's been great to have you on the forum. You've renewed my interest in stock trading or at least being aware of what some stocks are doing.

I found this post on "Re: A Look at a Stock Trader's Day" interesting and have nominated it accordingly for "Topic Of The Month June, 2009"

Yeah, basically the same thing although it seems easier on bonds many days. If I had to pick one market, I'd probably just trade bonds. The reason I don't do that now is that I just don't know day-to-day which of my main ones will be the better one to trade.

One of my faves to trade Abe. If that is too jumpy, also look at the ZN or ZF.

6-3-09 boring day

Diversification Is Not Enough June 2009 By Daniel J. Haugh Ever have a “friend” whose house was broken into and then realized he or she did not have replacement insurance? Or had a tree fall on his or her car resulting in damage that ever so slightly exceeded the ever-so-large deductible? The thought of being uninsured or underinsured for the one event that in retrospect was likely to occur is not a good feeling. Americans, for the most part, do insure their cars, homes and even their lives, but the biggest asset most Americans leave uninsured is their investment portfolios. TYPES OF RISK A stock investor’s portfolio has three types of risk: 1. A specific company having a problem. 2. A sector having a problem. 3. The overall market having a problem. For years, investors, brokers and financial planners have looked to diversification to lessen these risks. Owners of bigger accounts have sought to possess a large number of stock positions. Some even say no single position should account for more than X percent of an account—usually around 3 percent to 5 percent. Other investors have sought diversification through the purchase of a single vehicle (the unit investment trust of years ago), then the closed-end funds, the open-end funds (the mutual funds we still seem to relish) and, most recently, exchange-traded funds. These solutions are neither inherently good nor evil, but the problem is how they are portrayed to the public. If you were to ask people on the street who manages the risk of a fund in their 401(k), just about every person would respond with “the fund manager.” However, the fund manager’s response would be “I am paid to buy stocks.” He or she assumes that the risk management is administered by you—the person who decides how much money to place in that fund. Each party believes that the other is doing the risk management, and that means no one is taking care of it. Portfolio managers are graded on a curve and are compensated on the basis of how they did relative to their specific fund’s benchmark index. If you were lucky enough to be in a large-cap fund last year that only lost 35 percent, not only were you “fortunate” (since the S&P 500 lost 38 percent), but the fund expenses probably reflected a good bonus for performance. In fact, Morningstar’s Manager of the Year lost 20 percent, and if you were lucky enough to be in that fund, you should feel really good that the benchmark index was thoroughly throttled. MORE THAN DIVERSIFICATION Diversification is a desirable goal; it does an excellent job of reducing account risk due to specific company problems or specific sector problems. In essence, diversification significantly reduces two of the three types of account risk. However, the more diversified your account is, the more market risk your account has, and the more your return is correlated with one or more of the benchmarks in Figure 1. Uninsured market risk in an investor’s account is not something typically discussed by brokers or financial planners because they avoid using the tools that could significantly lower market risk, hence it is a taboo subject. But most of the investment problems people have had in the past were due specifically to market risk. For instance, the 38 percent decline in the S&P 500 last year, the NASDAQ’s fall of 78 percent from top to bottom in 2001 to 2002 or the first Resolution Trust Corporation in the early ’90s—all market risk. And let us not forget the crash of 1987 or the implosion of the Nifty Fifty for the old-timers. These events all have one thing in common: Before each event, all the talking heads declared it was “a stock picker’s market” and excused that statement after the fact by saying, “There was no place to hide.” A true measure of market risk might be a comparison of what return you would have received, if in Q1 2008, you or your portfolio manager saw a downturn coming and moved into defensive positions at the end of that quarter and held them throughout 2008. Typical defensive positions include such sectors as defense, consumer staples, health care and utilities. So how did some of those areas fare? Well, in 2008 PowerShares Aerospace & Defense Portfolio declined 39 percent, along with many other defense stocks. What about household goods such as Consumer Staples Select SPDR? It was also down by 23 percent. And Kimberly-Clark, parents buy diapers no matter what, right? Apparently not as much; the company was down 24 percent. What about Healthcare Select SPDR? Of course, health care is not cyclical. Actually, it also took a beating with a decline of 22 percent. Since defensive stocks were all significantly down (true, there was no place to hide), that indicates a high level of market risk. The only way to avoid this risk would have been to have no market exposure at all—or have price insurance. If you ask investors, especially individuals in mutual funds, why they are still in the market, the general response would be “After all I lost, I am afraid to miss the up move.” In that response, there is no indication of any research or specific market opinion that communicates anything other than investors are frozen in place. Thankfully, exchange-traded funds on major indexes and some minor indexes, as well as S&P 500 sector indexes, all have very liquid options traded on them, which allows individual investors to select a risk profile other than “all in” or “all out.” LEAP FORWARD Another way for individual investors to manage their risk was introduced by the CBOE in the early ’90s with products called LEAPS (Long-term Equity AnticiPation Securities). These are options that extend the expiration date up to three years in the future. More than anything else, LEAPS changed the option user and allowed the investor to use the option product. Prior to LEAPS, most of the options traders tended to be attracted to the product primarily by the leverage aspect and were mostly young with high-risk profiles. LEAPS changed that, and typical clients now use the option product as a risk-reduction tool. For example, PTI Securities’ current investors’ average age is double that of clients from 15 years ago, and their average account size is significantly higher, while their risk profiles are much lower. In essence, the age of using the option product as an investment risk-management tool is upon us. Because LEAPS options have a long time until expiration, there is less time decay (or cost to hold the position if you were to own the option). Because the cost of insuring a stock position per day is significantly decreased using LEAPS puts, it has now become cost effective for investors to have price insurance in place. The main problem with these management tools is that the majority of professional money managers still do not use them or offer a risk profile that contains them. It is hard to imagine why there has not been a regulatory or market-driven push to provide this risk profile to low-risk investment accounts as exchange-traded options have been around for 36 years and are certainly not new or untested tools. The fund managers are right about one thing, though: It is the responsibility of account holders to select how much money they decide to place in the market and how much they would like to have in different risk profiles. So individuals who want protection need to search for money managers who provide this type of risk profile. INSURANCE PLAN To manage your risk and price protection, look for a plan such as the Protected Index Program®, which PTI Securities has designed and implemented since the late ’90s. This entails purchasing a diversified ETF, buying put protection on that ETF with LEAPS and selling a covered call. By selling covered calls, additional cash can be generated, helping to offset the cost of put protection. Individual investors can select the benchmark index in which they desire to invest, the level of price protection (puts) they require for their situation and how much upside they are willing to forgo (what level of covered calls they are willing to sell). Once again, because the time decay or cost of owning an option has been more dramatic in the past several months, buying long-dated put protection and selling short-dated call options (where time decay is greater) is advantageous. This strategy has resulted in a more than 10-year track record that shows a much higher return than the market, along with considerably less market volatility (see Figure 2)—a protected account not participating in some of the dramatic peaks of the market but also not participating in the dramatic valleys. The net result is significant outperformance primarily due to dramatically lower drawdowns in market pullbacks. This is a risk profile that is much more in line with the expectations of longer-term—especially retirement-focused—investors. It has been my experience that most of these type of investors have little if any desire for more than a 10 percent to 12 percent drawdown in their accounts, as their timeframe just cannot support much greater. So, for these investors and many others, failing to use the available risk-management tools would be a total disservice. Investors need to ask the important question, “How much of my nest egg needs to be insured?” Gone are the days when clients’ only alternative was unlimited and uninsured downside risk if they wanted to invest in the market. For all who desire less volatility in their investments, the understood constant should be price insurance in place for every share of stock owned in the safe investment allocation. Are these choices more difficult than mutual fund investing? Yes, but isn’t the security of price protection and an absolute dollar amount of identifiable risk worth the extra time and effort? Daniel J. Haugh is president of PTI Securities & Futures L.P. and has five years of experience as a floor trader on the CBOT and as a CBOE member. ================= Personal view: normally articles talking about buy and hold lose my interest quickly but this one really stuck out. I put it in the 'investing' forum b/c this is more about your long-term investments and not daytrading. I have no idea if the writer and/or his firm is any good, but the article main point of using options to protect your downside is good. It wouldn't be terribly hard to mimic what they are doing in their PIP program on your own if you study options a bit. As w/ anything, do your homework before considering either doing it on your own or sending these guys your money.

Fair enough. But I also don't appreciate you trying to moderate my thread. If the thread is of no use to you, let the moderator moderate it and don't waste your time there.

Go ahead and post here Kevin - you can upload a wide variety of attachments to the forum. No need for personal emails to be sent. thanks

Yeah, how someone can open an account for $5000 (or lower) and trade futures contractS is beyond me. Yes, plural - multiple contracts. You can get $500 margins and trade TEN ES contracts with 5 grand... No clue how that is able to happen yet you need $25k to trade stocks.

Hal - that first chart is nice (and clean). I agree w/ Thales that some stuff jumps out at you... 1) I am not sure how these are color coded, but could something work with buying new blues and selling new reds? 2) Consider shorting new highs when turns red, buying new lows when turns blue. Again, not sure how you are color coding these, but on this chart it provides some timely entries after a base has been put in. That is a clean chart Hal and could be something to work with IMO. Consider starting a new thread dedicated to it as many on the forum won't see this one post.

Good luck, not sure that exists...