Trading Software and Books Reviews

Effective tips on how to trade from home

Trading involves a lot of skills and one needs to learn from experience. Talent has its limitations and to cross the final frontier patience is the most important factor. Generally with the advent of the on-line media trading has become very easy and people do not need to physically be present at all the places. All one needs a computer at home and trading becomes a lot easy. Here more light will be thrown on how to trade from home. The most important thing is that the risks are the same always with any form of trading in the overall scheme of things.

In the first place when you are learning how to trade from home assess the stock situation as there are lots of stocks which are volatile in nature and one can loose quick money in the process. Compare the price range before buying any sort of stock and compare the trends of the last few years before purchasing it. The movement of stocks can be seen by having a look at the newspaper, studying the reports of the company and from reliable sources of the company. This is the best mechanism as all of us are living in an on-line age where information is power so people need to take advantage of this option in the best possible way. Always plan for a price target as this means you will not exceed that margin at any point of time whatever be the situation. This helps in drawing a balance between incomes as well as losses. Another step would be to have a well defined strategy in place. Keep on changing the strategy according to the needs of yourself and situations in the market. The major positive impact of a good strategy is that it removes all problems and eradicates along with it all the trouble shooting issues. In this manner continuous profits are made and the risks are reduced.

It has been observed that people who tend to find answers on how to trade from home have certain drawbacks as compared to the people who are employed in financial institutions as they get access to the financial books and constant interactions with people really help them to sharpen their skills in this domain. It has also been observed that people who are employed in the markets tend to take fewer risks as compare to the people operating in the market. It needs to be mentioned that when one trades from he needs to have a mindset to train in a proper way. One thing which has come up is that key market knowledge is the key and one should be clear in that domain. How to trade from home in this subject lot of books have come up and one needs to study all that aspect in details to have a clear picture of the strategies in place. The most important point of consideration is that one should look at short time goals and not far too long ahead. Read this metastock trading software review about one of the best charting software for traders.

The Henry Report

David Burton provides an astrological insight.

The Henry report delivered at 2:30pm on May 2, 2010 has astrological cycles that warrant attention.

The current Australian Government has led the country through the global financial crisis by spending, but astrological cycles suggest that as a result we may be heading into an even more precarious situation, due the large amount of debt they have amassed.

The chart for that time (figure 1) shows many negative planets in houses.

The first house
In the first house Saturn is opposite Jupiter/Uranus in the seventh, which means it will produce much stress, discontent, loss of trade, poverty and general ill-health.

The seventh house
The seventh house governs all matters to do with foreign affairs, disputes, wars and international affairs.

Figure 1: The Henry Report Natal Chart

The fourth house
The fourth house which rules farming, mining and real-estate has Pluto, and the moon present. This is not a good place for Pluto to be and gets aspected badly on the June 26 lunar eclipse. This also triggers the downfall of Rudd’s and the countries birth chart. In my opinion it is very unlikely that the Australian Labour government will get in the next election. Should the Liberals come into power at the next election they will face a massive debt, which will take decades to pay off, see www.laborwaste.com.au.

Figure 2: The Henry Report Natal Chart with June 26 Eclipse Chart

The fruits of one man’s labor
In my opinion there is an issue when you tax one man who works and runs a successful business and give money to another who fails in business. You can’t take fruits of one man’s labor and give it to another.

The mining industry
Taxing the mining industry would mean an increase in the goods we buy. For example cars, computers and electricity as the prices of steel, coal etc go up – simply passing on the cost.

Spending
It is becoming increasing apparent that the government must stop spending. Then the increase in taxes would no longer be required.

The Emissions Trading Scheme (ETS)
If the current government were to curb their spending we would not have the situation arise as it is with the ETS outlined below by the Daily Telegraph (April 29, 2010).

“TAXPAYERS will fork out $90 million a year to keep more than 400 public servants employed within the Federal Climate Change Department – despite most of them now having nothing to do until 2013

More than 60 of these employees are classified as senior executive staff on salaries between $168,000 and $298,000 a year. Their salary bill alone will cost an estimated $12 million every year.

A further $8 million will also be paid in rent for plush offices at Canberra’s Constitution Place until 2012, where it is believed 500 new computers will be delivered this week.

It can be revealed that despite Prime Minister Kevin Rudd’s decision on Tuesday to suspend the failed Carbon Pollution Reduction Scheme until at least 2013, the department has ruled out plans to cut back staff.

A formal response by department secretary Martin Parkinson to a Senate estimates hearing on Tuesday – the same day as the scheme’s suspension – claimed the department would not offer redundancies.

The formal response, obtained by The Daily Telegraph, said there were no plans for “the immediate future” of any scaling back of staff, despite the agency losing its core function..”.

Changing Markets

by Joe Ross.

The markets have changed and are still changing. Whenever I say that, I’m asked: “How have they changed? In what ways have they changed?”

A trader today can trade in a variety of markets and nations and at numerous exchanges.

When I began trading there were only eight to ten truly tradeable futures markets. For me these were in the United States, one of the two nations that actually had futures markets. The others were in the United Kingdom, but I had no access to those markets.

There were just a few thousand traders in the futures markets, and for the most part what I did was called ‘commodity trading’. Furthermore, there were only about 20,000 traders of all kinds in the entire world, including those who ‘traded’ – as opposed to those who invested – in the stock markets.

Today there are hundreds of thousands, perhaps even millions, of traders in all markets, and the number is increasing. The changing composition of the group of traders who are trading the markets is what changes the markets themselves. After all, a market is made up entirely of its participants.

There are also a considerable number of markets from which traders can choose. Markets are no longer limited to consumable commodities. We now have financial markets of all kinds; these include bonds, notes and currencies. Currency trading has become so common that national currencies are now traded via a cyber-world that is called ‘Forex’, a market with no regulated exchange and very few rules.

In addition to financial markets, we now have stock index trading. In fact there are all manner of indexes being actively traded today. Exchange Traded Funds are increasingly popular among traders, as they allow for a trader in one country to trade the best companies in another country using a single index. There are also at least two commodity indexes that are traded: there is growing participation in the CRB and the Goldman Sachs commodity indexes as commodities begin to challenge financial markets as a venue of choice. Recently, Gold Tracks became available, traded under the symbol GLD. It is now possible to trade physical gold in the form of index shares or ‘I-Shares’.

Single Stock Futures are slowly but surely coming to the fore. They promise to replace much stock market trading by making it possible to trade an index of stocks within a certain market sector using the futures markets.

Many commodities have come into being that were not there when I began trading almost 48 years ago: gold, unleaded gas, natural gas, and fertiliser, to name a few. Many nations now have futures markets that never had them before.

To go along with changes in those who participate in markets we have seen changes in the way markets move. Such changes have been caused by:
• traders who use computers and trading models;
• fully-electronic trading platforms;
• day traders.

Computerised trading models
For the most part, the people trading large pools of money are the people who use mechanical trading systems, also known as computer-driven trading models. Trading pools of money using computerised models can cause the markets to explode or melt down rather than to trend. Models are either trend following or value-oriented. There is not much else they can be. Let’s first look at trend-following models.

The problem is that there are only a few variables that can be included in a mechanised mathematical system. How many ways can you combine or evaluate the Open, the High, the Low, and the Close? Will it make a huge difference whether you use simple or complex moving averages of these four variables? Will it matter significantly whether or not you add volume into the equation? Just how many ways are there to determine the trend? Virtually every method for trend finding is based on some sort of moving average of prices, is it not?

All moving averages, when de-trended and presented as oscillators, are an attempt at measuring momentum. Is the market trending up or down? Then which direction best represents the pressure in the market? Is there more buying than selling? If so, prices should be rising. If there is more selling, then prices should be falling.

The net result of all these models attempting to discover trend is that they are all going to find the same trend at approximately the same time, literally within moments of each other. The models are, in fact, correlated.

What takes place when all of the models suddenly discover that prices are trending upward? They all give buy signals. What happens when all the models suddenly discover that prices are trending downward? They all give sell signals. What happens in the market when people who have huge pools of money suddenly decide they need to take action with regard to the current trend? The market begins to trend more steeply. It may even explode upward or melt down, depending on the newly discovered trend.

There is only one factor that can mitigate the absolute dynamics of an explosion or a meltdown. That factor is size.

The trading pools have so much money that they cannot afford to put on their entire position at once. If they do so they will shoot themselves in the foot.

If people in a pool buy too much all at once, they will drive prices substantially higher, thus having to put on their position at an increasingly higher price. They may even cause prices to explode upward. Their buying activity will appear to be real demand, but in fact the demand in the market is partly real and partly false. The false demand is caused because the pool’s computer is indicating that the market is trending and therefore they should buy. But the computer-generated demand is artificial, and may have nothing whatsoever to do with real fundamental demand for the underlying.

The same principles apply to selling. If people in the pools try to sell too much all at once they will drive prices substantially lower, and have to sell at a lower price than they want to. Their selling may even cause a price collapse. Their selling looks like there is too much supply of the underlying, but much of the downtrend will be due to pseudo oversupply, that is, the pool’s computer-generated selling causes the market to go down more steeply and possibly more quickly than would natural market forces.

So, we find the large pools having to ease their position into the market. The result is an enhancement of the trend, but the trend will tend not to last nearly as long as if the pools were not involved. What is really happening is that the real trend, caused by real demand or real oversupply, is now being accentuated by the buying and selling of the trading pools, simply because their computers have told them that the market is trending.

Pools dominate the futures markets
Before there were such things as commodity pools (they should be called futures pools), commercial traders dominated the markets. The commercials knew how to keep a trend going, and milk it for all it was worth. But today the commercials face a serious challenge from the commodity pools as to who will dominate the futures markets. The pools do not have a clue as to how to maintain a trend. They all rush into a perceived trend when their computerised models tell them that there is a trend.

The trading actions of the pools actually kill the trend.

There is another way in which trading pools destroy the trend, with the result that markets trend a lot less and for a shorter period of time than they ever did before.

Many pools use valuation models for trading the markets. The models compare today’s price with what the computer determines is a relatively overvalued or undervalued price. The computer looks back historically over several months or years and comes up with what the price should be. Therefore, when a trend really gets going, and prices are much higher or much lower than the computer thinks they should be, the commodity pool receives a buy or sell signal.

Let’s say that the commercials are very nicely moving prices up. They are in no hurry. All of a sudden the pool computers decide that prices are too high compared with the past. The pool computers issue a sell signal. Being correlated with one another, the pools all begin selling. Prices start to fall, or they stop going up and enter into a trading range top. The reverse is also true when prices are deemed by the computer to be too low. The computer issues a buy signal and a lot of pool buying comes into the market. At that point you will see a 1-2-3 low and possibly a ‘v’ bottom. Usually, there will be a 1-2-3 low and then a trading range.

In either case, the valuation models have killed what was previously a trend. Unless there is either massive buying or selling coming in from the public that might cause the trend to continue, the trend will end.

Day trading history
So far I’ve shown how trend-following models and value models affect the markets. Now let’s take a look at day traders.

Day trading began to be fairly common in about 1980. Most day traders traded the full S&P 500, the currencies, or the bonds. The only decent day trading took place in those three markets, with ‘Swissie’ being called the ‘day trader’s market’, though there were a few who attempted other markets.

When day trading became available to traders who had live data and a computer, the exchanges, along with the brokers, began heavy marketing of the availability of rapid trading, claiming traders could make big money in a matter of minutes. Commission rates dropped dramatically. Word got out and the number of traders attempting to day trade increased rapidly.

Discount brokers sprang up. Discount brokerage firms took out huge ads in The Wall Street Journal and Investor’s Business Daily. They also advertised in a variety of trading magazines. These magazines were full of ads promoting mechanical trading systems, low commission brokerages, day trading software and various data feeds.

As the number of day traders increased, so did the noise in the markets. Short-term trading was all the rage. Intra-day prices chopped up and down as day traders bought and sold for only a few ticks. Markets went mostly sideways until either real supply or demand, or someone with enough clout to move the market came along. What at one time were beautiful intra-day trends gradually became chopping intra-day trading ranges.

During the 1990s currencies lost their attraction for thousands of day traders. At the point that banks were trading over $1.4 trillion daily there were not enough currency traders in the pits to handle the huge currency trades that were needed. For a while the price for a seat at the Chicago Mercantile Exchange (CME) increased geometrically. Entities that needed to hedge in the currency markets were hiring ex-football and basketball players to stand in the pits to trade. Their physical size gave them an advantage in the push and shove of the trading pits. Anyone under 6’ 3” tall was at a disadvantage. Their bids and offers simply could not be seen because of the behemoth-sized ex-athletes standing in front of them. Nevertheless, there were not enough locals and floor brokers in the pit to take the other side of the mega-million currency trades that needed to be made.

Those entities needing to buy or sell huge amounts of currency could not find satisfaction in currency futures. Banks began to call each other and do off-exchange trades. These trades among banks are called ‘currency swaps’. And the environment in which they are made is called ‘Interbank’. Those who didn’t want to bother with making deals directly with other banks chose instead to use Forex brokers to handle their currency trades. In Forex there were no commissions and no fees to be paid. Forex brokers made their money on the spread between the bid and the offer. The result was that there were fewer traders in the currency pits. The volume plunged like a rock. Formerly liquid markets gradually became illiquid. The price of a seat on the Chicago Mercantile Exchange dropped to a quarter of what it had been. Did the drying up of the currency markets affect day traders? It sure did. It sent them scurrying for the bond pits and the S&P.

What happened in the S&P is a story in itself.
To be continued in the Sep/Oct 05 issue of YTE.

This article was originally published in the Jul/Aug 05 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

Trading Systems – Part 1

Gary Stone provides a practicable insight into designing, developing and building a trading system.

Over the next few weeks I would like to focus the steps and processes involved in designing a trading system. Whilst by no means an exhaustive list, it will provide an insight into the process for those interested in designing their own trading system and for those who are weighing up either developing their own system or purchasing an existing mechanical system with a positive edge over the market.

I will provide a practicable insight into designing, developing and building a trading system or more correctly, a trading methodology. This is a general overview rather than an exhaustive coverage of the subject but should be sufficient for a potential system designer to get a good idea of the processes involved. I trust it will assist you in either embarking on the journey or accepting that it is one that you would rather not make. For those of you who already know that designing a system is not for you then this chapter will give you a greater understanding of how to evaluate any system when you are considering a purchase. My goal is that regardless of whether you choose to pursue the development of your own trading system or purchase a proven methodology from a reputable system vendor you will be more knowledgeable about avenues for profitable trading by grasping the content of the blog over the next few weeks.

Generally the purpose of developing an edge is to trade the edge in order to make money with it. Whilst this statement may seem obvious, the majority of people who embark on the system development journey don’t complete the journey and hence don’t achieve the purpose.

The system design paradox

Before getting into any detail I must uncover a paradox that is one of the main reasons why most who start the journey of system design do not complete it.

Most people generally wish to avoid the pain associated with losing. Unfortunately this paradigm (avoiding loss) will, by default, be used to evaluate the edge the individual is attempting to design.  This is a Catch 22 situation as the system designer needs to have learned to think in probabilities with a market paradigm in order to evaluate and hence complete the design of a system. I covered many of these topics in last year’s weekly blogs. You may wish to refer back to them to refresh your knowledge or to read them for the first time if you are unsure of some of these terms.

The operative word in system design is ‘complete’.  If some degree of a consistent mindset has not been achieved, then the designer will not know when to stop researching and start trading. Typically the results of the research will continue to be evaluated from the paradigm of trying through analysis and further research to eliminate losing. This means that the individual will be thinking like an analyst rather than a trader.

The analyst’s mindset attempts to analyse away losing. Even though the analyst will admit (using the logical left brain) that analysing away these situations is impossible, his/her subconscious, having been trained by society to avoid these situations, will rule the roost and lead the analyst to continue research, attempting to analyse losing, being wrong, missing out and leaving profits in the trade out of the system.

The trader’s mindset, achieved through reprogramming the subconscious, is to trade an edge and totally accept the losses an edge generates. Therefore, if you have an analyst’s mindset when trying to design an edge, the probability of completing the development, let alone trading it successfully, is very low. In fact, an analyst will have a difficult time trading any edge, let alone one they have developed themselves.

The successful researcher must have a degree of successful trader in him/her, and must know what a practicably profitable system looks like to know when he/she has completed the research journey and can begin the trading journey.

By definition, an edge will make money over a large sample of trades.

I know that my comments on this paradox may be contentious amongst readers but successful system designers and system traders who have completed the journey or part thereof will agree with me. In next week’s blog I will take a look at the tools and resources required to begin the journey of designing your own trading system.

Gary Stone founded ShareFinder in 1995 and is responsible for the ongoing research of existing methodologies and new trading edges.

2010: Not Out of the Woods Yet

Moorad Choudhry says tread carefull in 2010.

Investors worldwide would do well to be wary of the stock market rise since March 2009. One only has to look at the continuing virtual zero rate on 3-month US Treasury Bills to realise that substantial institutional investor cash remains firmly parked in the risk-free asset.

The “China effect” was in evidence this week, as both the Shanghai Composite Index and equity markets around the world fell in reaction to the Chinese government’s directive to its banks to reign in lending. Plainly the administration there is concerned about a growing asset price bubble and, given that cheap money is a prime driver of such bubbles, this makes sense. A slowdown in the Chinese economy would have knock-on effects around the world; it has become apparent that the linkage to Western economies is an influential one. We disagree with those who think that there is no asset bubble risk in the Chinese economy, the huge government fiscal stimulus in the wake of the global recession has done its job, but then pushed on and risks creating trouble of its own.

Will a reduction in liquidity caused by a slowdown in domestic lending have a negative impact on Western economies’ revival? The answer is most probably yes. But one can understand the administration there being concerned about the impact of too much cheap credit. Looking at the problem more analytically, we recommend that if the government is worried about overheating, an interest rate rise and an appreciation of the Renminbi would help just about everyone, but with these measures there’s politics involved…however an interest rate rise soon is not to be ruled out, although we don’t expect it this quarter. China is one more reason we expect a market correction…if there’s a slowdown there, it will be felt here make no mistake.

Lets discuss two issues of relevance for investors.

USD weakness…and strength
Recently the USD has become the “carry-trade” currency of choice, due to the virtually zero interest rate policy applied by the Federal Reserve. Right now the USD is the preferred funding currency for the carry trade, whereby it is borrowed and then sold against other higher yielding currencies with rising interest rates, such as the AUD. Falling dollar value against those currencies enhances the profitability of such trades as well.

However, at some point USD rates will rise. And at that point, the USD will start to appreciate.  We need to remember that the dollar remains the world’s reserve currency and safe haven, and will remain so for the foreseeable future, regardless of any geo-political commentary from the Russian and Chinese governments. That does not mean that foreign investors will not switch part of their reserve holdings into other currencies, such as the euro. But we will not see the USD replaced as the unofficial reserve currency, for the simple reason that there is no alternative.

In 2010 the euro will start to show some weakness, against both USD and GBP, as the continuing problems in its peripheral member countries start to bite harder. We noted Greece and its public sector debt problem last week. In addition to Greece, euro-zone members Portugal, Italy, Spain and Ireland also have significant debt concerns. None of them can follow an independent monetary policy, and their fiscal stimuli and government borrowing are in danger of becoming unsustainable. Ireland and Spain have already suffered sovereign debt rating downgrades, which increase their borrowing costs, and more are likely. All this will only heighten speculation about a sovereign default or possible withdrawal from the euro-zone. While this is very unlikely, mere talk of it will depress the euro against the dollar.

Equities…be careful
The irresistible bull run in equities since March took some by surprise, but also led to some excess profits being generated by investment banks. Right now indices on both sides of the Atlantic are trading at very high P/E ratios, and this despite that corporate earnings, with the exception of certain sectors such as mining and commodities, have still not been restored to pre-recession health. What does this suggest? We believe that allied with a potential slow-down in China, it serves warning that a correction is due, perhaps in Q2 this year.

Bank stocks also look vulnerable. With certain notable exceptions such as Australian and Canadian banks, they are still repairing their balance sheets and this process is by no means complete. Add to that the higher cost of new regulations on liquidity and capital, and it implied that investors must be prepared for a changed bank business model. Restrictive bank regulation is replacing the laissez faire model. Higher capital requirements and other limits on risk-taking can be expected to curb bank profitability. So either way, as an investment sector banks are only a medium- or long-term play.

Moorad Choudhry is Head of Treasury at Europe Arab Bank plc in London, and author of Bank Asset and Liability Management, published by John Wiley & Sons (Asia) Pte Ltd.

Stock Trading Software Programs That Make Money

Jumping into the stock market to create wealth and a revenue stream is something that many people aspire to yet very few actually achieve. The stock market can be a difficult and confusing place, however, with the help of stock trading software programs that basically do everything, more and more people have been getting into the stock market than ever before. Instead of relying on local stock trading brokers and other experts to make money, stock trading software programs are usually simple to use for the end user and allow anyone to be able to understand how to make money and profit from stock trading.

MarketClub Software

One of the very popular stock trading software programs on the market today is the MarketClub investing software that has really made it pretty simple for anyone to profit while stock trading. The MarketClub software is an investing tool that demonstrates how to make money by using such techniques as technical analysis and charting. It uses predictions about the stock market to determine which stocks should be invested in, and spots those big moves before they actually happen so investors have a chance to make money.

With the MarketClub software program, it’s been demonstrated that a 50% return in gold is possible just by using their investing software. In addition, it has been reliable in crude oil market trading and has proven itself in the foreign exchange market as well.

OmniTrader 2009

This is another program that’s similar to MarketClub. However, many people have actually reported that OmniTrader 2009 is more profitable because of their proprietary trading simulators, easy-to-use investing charts that are configurable to each end user, and because it’s fully automatic.

The fully automatic feature of the OmniTrader 2009 stock trading software is actually what many investors rely on to have their money managed right. Since the program is automatic and is able to help investors trade the moves immediately, the program also comes equipped with a money management system that takes the risk of investing out of the equation. This is a major advantage to most people as it is very easy to lose in the stock market if you don’t know what you’re doing.

Wizetrade Software

A third stock trading software that is really great for the beginning stock market investor is Wizetrade. This is a program that helps stock market traders make money through a system of red and green lights that indicate when the individual should start and stop the trade. It breaks down all the complicated information about each part of the stock market and visually shows it to the trader. In addition, many people love this stock trading software because they have a chance to interact and speak with a Wizetrade orientation trader who can help them understand how to use the software to their advantage.

All of these stock trading software programs are popular for both the beginning investor and the seasoned one. They help investors understand how the stock market works by showing which trades to make and when, and all of them are capable of generating a steady, long-term income over time.

Trading Systems Performance Updates

Results through September 30, 2009.

3-Month Performance Ranking

BEST					WORST
1.	Gina (ES)	70.42%			1.	Guru Gene (ES)	(127.75%)
2.	CoreDuo (S)	58.63%			2.	Impetus (ER)	(41.92%)
3.	Axiom Swing (NQ)	37.34%			3.	Early Bird II (ER)	(41.74%)
4.	STCStemwinder2 (ES)	27.37%			4.	1 Day Russell (ER)	(38.60%)
5.	Black Gold (CL)	23.71%			5.	AdvantageDT(ES)	(32.97%)

6-Month Performance Ranking

BEST					WORST
1.	Delphi II EM Swing	109.92%			1.	Impetus (ER)	(145.33%)
2.	Gina (ES)	90.62%			2.	Delphi II (ER)	(109.81%)
3.	Black Gold (CL)	74.00%			3.	Early Bird II (ES)	(95.75.%)
4.	Axiom Swing (NQ)	69.26%			4.	1 Day Russell (ER)	(95.30.%)
5.	Maxim (ER)	32.63%			5.	SITA (ES)	(86.93%)

12-Month Performance Ranking

BEST					WORST
1.	Charge WS (ER)	168.64%			1.	Crossbow (ES)	(179.74%)
2.	Charge Indices (ER)	89.09%			2.	SITA (ES)	(159.53%)
3.	Brigade (ES)	74.80%			3.	Meteor (ES)	(74.98%)
4.	Saturn (ES)	73.99%			4.	Turbo Ultimate (ER)	(71.19%)
5.	Axiom Swing (NQ)	63.11%			5.	1 Day Russell (ER)	(62.20%)

Life Performance Ranking

BEST

1.	Compass (SP)	401.68%	$30,000 Acct Size	Since 01/10/2000
2.	Charge WS (ER)	222.64%	$10,000 Acct Size	Since 07/21/2008
3.	Brigade (ES)	201.57%	$7,500 Acct Size	Since 06/21/2008
4.	Crescendo (ER)	177.03%	$8,000 Acct Size	Since 05/02/2007
5.	Compass (ES)	170.98%	$5,000 Acct Size	Since 01/03/2005

WORST

1.	Katana (ES)	(151.38%)	$5,000 Acct Size	Since 10/07/2005
2.	Meteor (ES)	(136.82%)	$5,000 Acct Size	Since 07/09/2007
3.	Guru Gene (ES)	(127.75%)	$3,000 Acct Size	Since 07/27/2009
4.	Axiom Swing (ER)	(122.96%)	$8,000 Acct Size	Since 06/15/2004
5.	SITA (ES)	(91.53%)	$5,000 Acct Size	Since 02/20/2000

The trading performance cited in the table above represents actual trading history of day-trading and swing trading systems at Striker, commissions included. For all trades listed, Striker holds the actual trading tickets. Reporting actual results of trading activity is a long tradition at Striker, and one that sets us apart in the industry. Our clients know they can view actual performance of trading systems, commissions included, in the client section of our web site. In the case of “split fills”, we always report the worst fill. The percentage returns reflect the inclusion of commissions. Please note that past performance is not necessarily indicative of future results.

Copyright © Striker Securities, Inc. All rights reserved.

Trader's Story

Phillip McGregor lives with his wife Susan in North West Sydney. They have five children and grandchildren, who are a very important part of their lives. Most of Phillip’s working life has been spent in senior management in industrial distribution and manufacturing. Susan often worked with Phillip, allowing them to travel and spend a lot of time together. For the past seven years Phillip has worked as a consultant/accountant. They mainly trade Australian equities with a medium-term time frame.

How and when did you first become interested in the markets?

Around 1991 my wife and I realised we needed to start planning for our financial future and we began considering our options. In May 1992 we decided on direct investment – mainly because we could have greater control over the investments and use negative gearing (a lot of negative gearing, since savings, if any, were earmarked for the mortgage).

And then what happened?

Our initial strategy was long-term buy and hold based on companies that we knew and whose products and services we used. Our exit criteria were when we no longer used the products or services – we didn’t ‘like’ the business. Our original investments were made in Commonwealth Bank, Woolworths Limited and Westfield Trust. All performed exceedingly well, which gave us confidence that direct investment was a workable strategy. After several years we realised there was more to stock selection than ‘liking the company’. Several other shares on our shopping list had not performed so well – although they continued to be well regarded by analysts and had very sound fundamentals.

How have you been able to learn and to educate yourself about the markets?

I started with fundamental analysis, a logical choice given my business background. However, we had already determined that too many of the well run, fundamentally sound companies, which were almost always a ‘buy’ recommendation, did not show consistent growth in share price.

In 1998 I tried to apply technical analysis to fundamentally sound shares. I say “tried” because it all seemed obvious only after the pattern had completed. I felt much more comfortable with indicators than with chart patterns and trend lines.

Did you make mistakes when first starting out?

One of the first books I read was by Daryl Guppy. Daryl thoughtfully provided a list of common errors that new traders make. I was forewarned – so could avoid such obvious errors. I soon discovered it was more a checklist of things that I ended up doing! Thankfully Daryl did not update and extend the list in his later books.

Would you define yourself as a discretionary trader, a mechanical trader or a combination of both?

I use a combination of both methods of trading. There is always an element of discretion. When you first enter the markets is discretionary (and many people start closer to a market top when it all seems exciting). Second, you always have to choose between various potential trades. It’s rare that you have only one entry signal when you are looking to fill a position. And third, the elements of your trading system are discretionary. You have to select the elements and parameters you are going to apply. So even if someone claims to be a purely mechanical trader, they are really a combination of the two.

However, the execution of your system needs to be mechanical – especially the exits.

Who have been some of your mentors and role models? What impact have these people made on you personally as well as on your trading style?

The pivotal point in my learning came when I read Alan Hull’s ‘Active Investing’ and attended several different weekend workshops run by Alan. During 2002 and 2003 I quickly saw how Alan looked at fundamentally sound companies and identified those with a high probability of gaining value. I also learned I was managing a portfolio, not just buying and selling shares. The individual trade was less important than the portfolio value over time.

This was quickly followed by a rediscovery of Daryl Guppy through his excellent newsletter, Tutorials in Applied Technical Analysis, which exposed me to a wide range of trading styles and trade-management techniques. It helped me discover what appealed to me and where I ‘fit’ in the spectrum of available trading styles.

This introduced me to Jim Berg’s methods. By the time I had finished reading a short article Jim had included in one of Daryl’s newsletters I knew this was where I wanted to be in trading style. I ordered Jim’s book (pre-release) that afternoon. Jim’s original Metastock Training Course taught me as much about how to get the most out of Metastock as it did about his trading strategy.

In 2005 I read ‘Adaptive Analysis’ by Nick Radge, which has an excellent chapter on having making money from trading as your objective, as opposed to being ‘right’. If you’re interested in charting or Elliott Wave, then you should check his site at www.thechartist.com.au. I have found it a useful learning tool.

The final pieces fell into place when I came across Jim Berg’s and John Atkinson’s newsletter at www.sharetradingeducation.com. Aside from the various articles there is a section showing examples of trades. For me, the newsletter is an ongoing mentoring program. Week after week the same trading processes are applied to various lists of stocks – some trades produce small losses, some produce gains. A worthwhile rate of return is generated on the portfolio.

When you do it right, trading is boring. Many newer traders, or those that do not trade at all, think it is exciting. If you are not doing it right it can be exciting, because you are trading on emotion. The flip side is depression. I have been through the excited and depressed phase. It is not the way to trade.

Once you reach the ‘mechanical execution’ phase you tend to want to find ways to keep it interesting. This promotes the urge to ‘fiddle’, especially during the extremes – when the market is ‘hot’, or when the number of consecutive losing trades is climbing – and your plan starts to unravel. I have been known to fiddle in my time.

Using www.sharetradingeducation.com helps keep me focused on what really matters – sticking to my plan. Great strategies or plans should be simple: the simpler, the better. It takes someone with a keen intellect to understand that simple strategies have a much greater chance of still remaining valid as the market changes over time. Jim Berg uses sound logic and applies ‘been-around-for-a-long-time’ indicators to capture a visual representation of that logic.

After finally getting around to reading Van Tharp’s ‘Trade Your Way to Financial Freedom’, I understood the importance of John Atkinson to the Berg-Atkinson partnership. John is all about risk. I started using the Atkinson Portfolio Planner to monitor my portfolio’s performance, especially portfolio valuation. I realised that a portfolio valued at today’s close is incorrect. I am not a seller at today’s price unless today’s price is below my stop loss. Valuing my portfolio using my stop loss (actually five per cent below the stop loss) produces a more realistic equity curve without the volatility generated using current closing prices. Those awful equity curve drawdowns are bringing the price closer to the ‘real’ exit value.

My learning is continually supplemented by reading YTE magazine.

Can you give us a brief overview of your trading style?

I aim to be a minimalist. I have been through the “you are not really a trader unless you do lots of analysis” phase. With the help of Jim Berg, John Atkinson and Alan Hull, I now understand that more analysis is not necessarily better analysis. Keep it simple and keep it focused. Execute as per your plan. Then take your wife out for lunch. I have a much better time taking my wife to lunch, or visiting our family and friends, than trying to second-guess what the market might or might not do.

Is there any one trade (win or loss ) that sticks in your mind that had a profound effect on your development as a trader ? If so, what did you learn from this trade?

It was shortly after modifying my trading plan to incorporate management of on-going position risk (individual shares, sector risk and total portfolio risk).

I was holding a position in FMG, which had performed well – around 100 per cent gain. Around May and June it began to become exceedingly volatile, with closing prices exhibiting movements of 20 per cent or more over a few weeks. Several times during these fluctuations the risk profile exceeded my maximum for any one position, requiring a partial sale. After three weeks I had sold off 50 per cent of my position. At a time of high market volatility with a downside risk increasing, I found I had to hold more cash. It now seems the logical thing to do, but before then I would not have recognised the potential for loss and that one of the star performers had now become the single largest potential risk to the portfolio. Until this change I was not one to hold much in cash. I always reasoned you could not make money unless you were close to fully invested. Of course, the market goes down as well as up, so sometimes holding more in cash is better.

FMG may well continue its spectacular growth – or it may have a deeper retracement. However, my portfolio’s risk profile is kept within my parameters and is still showing acceptable growth. And I am far more relaxed, and sleep much better.

Can you tell us about your best and worst trades?

The ‘worst trades’’ list goes on for so long it would double the size of this magazine! What would probably seem unusual is that many of these trades were profitable. Some were very profitable. What puts them in my worst trades’ list is that I did not exit according to my trading plan. Had I stuck to my plan, some may have been more profitable, some less. More importantly though, had I followed my plan, I would have ended up in much the same position – but with much less stress! And considerably fewer trades.

Being able to stand up and admit: “My name is Phillip McGregor – and I do not always follow my trading plan,” was a major turning point. I could seek help. In my case it was Jim Berg and John Atkinson. There are many excellent educators – the list of contributors to YTE is a great start. For example, Tom Scollon’s book ‘Fair Share’ not only offers some sound advice, it’s also a good read. However, the real change has to come from within.

Would you classify yourself as a short-term or a long-term trader? What advice would you offer to people getting started as traders on the relative merits or otherwise of each?

I trade several portfolios. In my superannuation fund I take a medium- to long-term view, using a combination of Alan Hull’s and Jim Berg’s trading strategies.

The shorter-term portfolios use strategies modelled on Jim Berg’s short-term methods plus one using a strategy modelled on Nick Radge’s methods.

These are all long strategies – although with different time horizons and entry/exit criteria. I plan on adding additional strategies that offer a much lower correlation in outcomes, such as short selling.

Medium- and long-term investing suits me because it takes very little time. Usually a few hours a week, and that’s a busy week. Short-term trading at least gives me something to do – even though most days this seems to be mainly downloading data and seeing everything is going to plan. The important task is selecting the watch list. That takes the real time – at least one hour a month. Actually, it’s more like one every three or four months.

What markets do you trade and which do you prefer? Do you have a favourite, and why?

I trade ASX equities, both direct shares and CFDs. I have considered other markets, for example US and UK markets, but this adds complexity – currency movement – into the trading result. The ASX may only be two per cent of the world market, but it’s still relatively enormous against my portfolio valuation.

What makes your trading style different from others? What sets you apart from other traders?

It is how my experiences and training cause me to react. We all see the same key pieces of data – price (open, high, low, close) and volume. We add indicators and time frames; we put in trend and resistance lines. Then we draw our conclusions, and take action based on our expectations of what those conclusions mean. The difference between all traders is how we interpret the data and how disciplined we are in our execution.

Do you have a favourite trading rule?

Stick to your trading plan. There is no other trading rule.

Ed Seykota says, “Everybody gets what they want from the markets.” What does Phillip McGregor ‘get’ from the markets?

I have learned a lot about myself. How I react when things go well, and when things do not go so well. To be successful you have to learn ways to focus and to manage what you can control – your reaction, and your exposure to risk. If you treat the process as one of self-development, you can become a better person in the process. Learning to trade is not just about learning indicators, chart patterns and fundamental criteria. The answer lies within us. We are the key to our own trading success, and our life success.

How has trading affected your lifestyle?

It has greatly improved our financial security, and we have certainly been able to achieve a better lifestyle, including travel, spending more time with our children and grandchildren, and so on, than we could have expected otherwise.

What books, seminars and courses have you read or attended and which would you recommend?

• Alan Hull: ‘Active Investing’ and ‘Active Retirement’. If ‘active investment’ appeals to you, then definitely attend the workshop.

• Nick Radge: ‘Adaptive Analysis’. The Chartist (www.thechartist.com.au) newsletter is also a great learning tool if you are interested in understanding chart patterns and Elliott Wave.

• Stan Weinstein: ‘Secrets for Profiting in Bull and Bear Markets’. Written in 1988, but only the dates on the examples show its age. Still a great book.

• Jim Berg: ‘The Stock Trading Handbook – Fundamental & Technical Analysis Combined’ (available only as an E-Book from www.sharetradingeducation.com). Jim also runs a weekend seminar/workshop (Boot Camp Seminar) that is very worthwhile. ShareTradingEducation.com newsletter provides ongoing support.

• Van Tharp: ‘Trade Your Way to Financial Freedom’. If you do not understand that the real key to trading success does not lie with your entry and exit criteria after reading Van Tharp, then you should probably stop trading and seek help.

• Daryl Guppy: Take your pick, they’re all good. ‘Trend Trading’ is one I re-read periodically. The Tutorials in Technical Analysis newsletter (www.guppytraders.com) provides a good cross section of trading styles and management techniques. I have also attended Daryl’s ‘Trend Trading’ seminar.

What does the future hold for Phillip McGregor?

Probably more of the same – travel, spending time with my family and friends, taking my wife to lunch (very high on the agenda). And ensuring I do not slip into old bad trading habits. Just like any other ‘abuse’ issue, it takes only one panic attack deviation from your trading plan to send you back to ‘no plan’ trading.

Kel Butcher is a full-time futures, equities and derivatives trader. He also acts as a mentor and coach to other traders. He can be contacted by email at kel@tradingwisdom.com.au

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

Are You Really a Risk Taker?

Very early on, in the first day of any class I teach, I write on the white board these two words in big bold print: EMBRACE RISK. It would seem that everyone looking to get involved in trading, whether on a full-time or part-time basis, understands that trading is a risky business, so embracing risk would be a given. When asked, most of the students will acknowledge that they are indeed willing to assume some degree of risk – some more than others – and that’s typical.

However, when we begin discussing technical analysis and trading set-ups, those same students that assured me that they didn’t have a problem taking losses begin asking questions such as, “How do I know if it will hold that support or resistance level?”, or “What if it doesn’t hold?”. Another one of my favorites is “What do you use for confirmation?”, to which I reply, “I put on the trade, and let it work or fail. Confirmation is the trade working”. This answer always seems to elicit a puzzled look.

Now this last statement flies in the face of what many traders have been conditioned to look for. A large number of new traders seek out multiple technical indicators, in essence, searching for multiple layers of assurances for their trades. The problem I see with this set of criteria is that by the time all the stars line up (so to speak), these traders are usually entering the trade too late, thereby increasing their risk or missing the trade entirely. This inability to pull the trigger when an opportunity presents itself is a direct result of the self-doubt generated when one does not TRULY ACCEPT THE RISK on the trade (I’ll expound on this later).

What I also find interesting is when we start the first trading segment of the class, I begin to hear the sighs of vexation every time a student has a stop triggered (takes a loss). It’s as though they’ve just received a body blow. Some students begin to take every loss personally. While with others, I have to suggest they step back and take a deep breath before they continue their trading, as they’ve become overwrought, and are no longer thinking logically. It’s at this juncture when students really find out how they emotionally react to losses. Changing their attitudes about losing and being right is truly where the work begins.

Let’s delve into this notion of unconditionally accepting losses as part of trading, which in my humble opinion, is one of the biggest obstacles for most traders to overcome. It goes without saying, we never put on a trade expecting to lose, and most traders do place a stop loss just in case the trade doesn’t work. Yet, when price approaches the stop level, the natural tendency for the NON-PROFESSIONAL trader is to move the stop away from the market, in hopes that the market will recover. The next adjustment in his avoidance of losing is to pull the stop altogether, or worse, double-down on the position.

Moreover, when a trade initially goes against the non-professional, and then recovers to a breakeven level, this trader will close out the trade, relieved he didn’t lose money. Invariably though, as soon as he exits at breakeven, the trade goes on to do exactly as his analysis suggested – causing him to be immensely irritated. Regrettably, this begins a vicious cycle that can only be broken by gaining confidence in a methodology and coming to terms with risk acceptance. So you see, placing a hard stop does not necessarily endow a trader with the “risk taker” attribute.

In class, I encourage students to think in terms of risk versus reward, as well as probabilities. I’ve covered the risk/reward topic in previous newsletters so I won’t go into it now. However, I will discuss the odds game.

Much like a professional poker player, a trader must find an edge. A poker player works at memorizing what card pairings offer the highest chances for him to win. He understands that aside from the initial ante, he only presses his bet when the odds are in his favor. What’s more, he understands that he may not win for a series of hands, but if he plays enough hands, his edge will win out over time. Similarly, the professional trader will put on his trades in a systematic fashion without FEAR of losing or being wrong. He sees every trade as only one in a series of hundreds or possibly thousands in his trading career.

I understand this is much easier said than done, and it will probably take some work to modify your thinking. On the other hand, those traders who can’t get over their fear of losing or being wrong will always operate in an environment full of stress and anxiety. Sure, they’ll have their ups and downs, but at some point, trading will become drudgery and not much fun. Then again, for those of you that truly want to take your trading to the next level, and experience the satisfaction of seeing a rising equity curve over months and years, next time you spot an opportunity, predefine your risk, put on the trade without hesitation or doubt, and let the chips fall where they may. After all, what’s the worst that can happen? You might lose a few bucks or perhaps the trade works and your profit target is attained. If your profits exceed your losses by a margin of better than three-to-one and you have an edge (higher than 50/50 probability), your chances of being consistently profitable will vastly improve. That is, provided you accept the outcome on every trade. In other words, you must truly EMBRACE RISK in order to become a PROFESSIONAL TRADER.

Until next time, I hope everyone has a profitable week.

Gabe Velazquez, Online Trading Academy E-Minis Instructor

Triple 3-Dimensional Options Are

Often I am asked: “What is the advantage of trading options versus trading equities?” In Yoda’s (the Star Wars character) speech pattern, I frequently reply: “Triple three-dimensional options are.” The following article will describe in detail each of the three areas that make the options 3-D when compared to equities.

First of all, it is repeatedly mentioned that options are complicated. I personally dislike the use of the word “complicated” in the same sentence with the word options. The word “complicated” carries within itself assumptions that options are impossible to be learned. In my humble opinion, options are indeed complex but they are NOT complicated. They are mathematically accurate and manageable as long as one has the knowledge of the six grade level of math. I would assume that any reader of this article has completed elementary education; therefore, I could further argue that everyone is capable of grasping how the options work. However, whether a trader embarks on the journey using options as his or her trading instrument is just a matter of perspective. A majority of novice traders find the stock market to be challenging enough and they do not want to embark on more challenges by turning their attention to learning about options. For those rare individuals who do wish to gain knowledge of options, I salute you; it is for you that I am writing this article.

Options aren’t complicated, they are simply complex. Options are all about choices. Choices aren’t complicated they are just numerous and that is the beauty of it.

The first main difference between trading the equities versus options is in the direction. When trading equities there are only two choices possible when opening a position: to buy or to sell short. In either way, one has to be correct about the direction in order to receive money from the market. Nonetheless, the market can move in more than two directions – it can go sideways, too. The table below illustrates the point of having two choices versus three possible outcomes.

In other words, the probabilities of being profitable with equities are only 33.3% which is worse than flipping a coin. In short, an equity trader could not become profitable when the market goes sideways. If the possibility of the market going sideways gets removed from the equation, then the equity trader has a 50-50 chance.

Options, on the other hand, could produce income no matter which direction the market goes: up, down, or sideways. The equities trading could make some profits only if the open position moves either up or down. There is no in-between scenarios for the equities being profitable if the market goes sideways. Unlike the equities, there are options strategies which are specifically designed to be profitable if the stock market goes sideways. One of those neutral strategies is Iron Condor, a combination of two vertical credit spreads. It is the range of the underlying that needs to be selected accurately for a specific amount of time and as long the price action stays within the boundaries of that predetermined range, the time constrained Iron Condor would be profitable.

Having described a single dimension, the direction, I shall revisit my argument that options are 3-dimensional instruments. Once again, an equity trader is always a directional trader; whereas an option trader could be more than just a directional trader. In the example above with the Iron Condor strategy, an option trader was a non-directional trader.

In this second segment, I shall use an example of an option trader who is a directional trader, and he or she wants the market to go either up or down. In other words, I am comparing oranges with oranges, directional equity traders with directional option traders.

Unlike an equity trader who needs to be correct only in the direction, an option trader must be correct in three dimensions: (1) direction, (2) time in which the move will take place, and (3) volatility of the underlying product which is being traded. An equity trader does care about the timing of entry and exit, yet (implied) volatility does not concern the equity trader. Volatility of the overall market does. Just a brief detour without any intent of getting too technical, implied volatility is, according to Investopedia.com, the estimated volatility of a security’s price. My question to the readers is: “Estimated by whom?” The answer is – by the market makers. IV or implied volatility reflects the expectation of the market makers.

Going back to the issue of time, any option trade either bought or sold has a time element built into it. Options have time decay built into their price which equities do not have. The chart below illustrates this point by showing the outcome on four different call scenarios.

In the first example, the option profits could go down on the directional option trade, if the underlying does not move but goes sideways. The similar situation was with the equity trader who could not be profitable if there was no move in the underlying, yet there was no loss taken for the equity trader. With the directional option trader who is a long a call, with price going sideways, there is already loss in the premium paid due to the time passage. The time left for holding the option decreases regardless of the price move. The time variable always decreases.

Scenario two shows the situation that the stock has gone up in value but the IV has gone down. The fact that the profits box is filled with the word “depends” means that more specifics are need to determine the exact situation of the premium. In the next example, the stock has gone down, the IV has gone up, and there is a loss in the premium. Again, there could be some exceptions to the rules in this kind of environment as well, but generally speaking, the option profits would decrease. The fourth example, shows a situation very similar to the second one, where the stock moves up, while the IV stay unchanged yet there is uncertainty whether the magnitude of the move was great enough to make the call into a profitable play. The overall point of these four scenarios is that option traders must be correct on three things (dimensions). They are: timing, volatility, and also the extent of the move (direction).

Lastly, let us turn our attention to the third reason why I consider options to be three-dimensional. An equity trader has it simple; he or she trades only the stock, whereas an option trader could trade the stock by buying or selling it, as well as trading put and calls on it, or even the combination of all three. Some of the choices are listed below:

Buy the stock and sell a call = covered call.

Buy a call.

Buy a call and simultaneous sell a call = vertical, horizontal, or diagonal spread.

Buy a put.

Buy a put and simultaneous sell a put = vertical, horizontal, or diagonal spread.

Combination of buying calls and selling puts or buying puts and selling calls = synthetics.

The list here is limited because the combinations are truly limitless when the share size of calls and puts changes.

In conclusion, options are 3-D because (a) they trade in all three directions, (b) they also have the component of time and volatility built in them, and lastly, (3) they can involve the trading of the stock, calls, and puts all simultaneously, as well as the combination of them. It is for these reasons that options are call options. The choices are limitless.

Josip Causic, Online Trading Academy Options Instructor