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Three Best Practices of Currently Successful Traders

 

Three Best Practices of Currently Successful Traders

Bella recently wrote a blog post in which he described five things that top traders at SMB were doing to facilitate their success.  It was interesting for me to read his post because, as he notes, I’ve been working as a coach with many of these same top performers.  I see the traders from a different angle so, with that in mind, I offer three additional “best practices” that I am seeing among traders experiencing consistent profitability:

Accountability – The most successful traders are the ones that most consistently bring their numbers to meetings with me.  They show each day’s performance and review with me what happened:  good and bad.  They let the numbers tell the story:  whether or not they let losing trades get away from them; whether or not they were consistent in trading their edge; etc.  In one case, P/L was down for the month, but the distribution of winning and losing trades showed real consistency and superior risk management.  It was simply a time period where opportunity was more scarce in that trader’s strategy.  But the conversation focused on what the trader was doing right, not simply on the lower P/L.  The best traders hold themselves accountable; they hold themselves to the goals they set and they set their goals in measurable ways.

Working on Psychology in Real Time – The most successful traders develop strategies for staying in their trading zone during the course of the trading session.  Psychology is not merely an add-on, something to be reviewed at the end of the trading day.  It is an integral part of their trading process.  For example, one trader has found that he is much more successful when he is in a mind state of calm, patient, self-awareness.  Accordingly, he takes breaks during the day to ensure he sustains his optimal state and practices meditation outside of trading hours to build his capacity to enter that zone.  On the trading floor, the traders frequently refer to trading “setups”:  criteria that have to line up in order to provide an edge in a trade.  We’ve recently begun talking about each person’s psychological setups:  the cognitive, emotional, and physical factors that need to align for best trading.  Edge occurs when our psychological setups overlap the setups offered by the market.

Adopting a Process Focus Trade by Trade – A promising new trader who will be joining the trading floor recently emailed me and asked about “trading process”.  Because he had experienced success as an athlete, I responded by drawing an analogy to football.  When you’re in the game, you focus on blocking, tackling, and executing the next play well.  You don’t get caught up in the scoreboard or what others are doing.  *That* is a process focus:  being immersed in the doing rather than the results of the doing.  Imagine that each month is a season for your basketball team and each trading day is a game that you’re playing during the season.  Your goal is to win the game, but to accomplish that you need to be focused on making the crisp passes, boxing out to get the rebounds, keeping yourself between the ball and the player you’re defending, moving without the ball on offense, and screening to free up the good shooter.  To win a season, you have to win many games; to win a game, you have to run many good plays; to run a good play, you have to execute on offense and defense.  I’ve written in the past about my favorite bumper sticker, “Forget world peace.  Visualize using your turn signal.”  That is process focus!

The worst traders have a passion for trading.  They need to trade.  The best traders have a passion for trading well.  They need to get better.  Show me what traders are doing outside of market hours, and I’ll show you the odds on those traders’ success.

Further Reading:  Mental and Emotional Preparation for Trading

Published at Sat, 22 Apr 2017 12:47:00 +0000

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Wall Street gears up for busiest earnings week in years

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 Wall Street gears up for busiest earnings week in years

By Caroline Valetkevitch| NEW YORK

Forget about French elections or the flagging Trump trade.

Corporate America is set to unleash its biggest profit-reporting fest in at least a decade next week, with more than 190 members of the S&P 500 index .SPX delivering quarterly scorecards, according to S&P Dow Jones Indices data.

The lineup accounts for around 40 percent of the benchmark index’s value, or more than $7.7 trillion, and includes big names like Google’s parent Alphabet Inc (GOOGL.O), Amazon.com Inc (AMZN.O), Microsoft Corp (MSFT.O) and Exxon Mobil Corp (XOM.N).

The onslaught could keep U.S. stock investors’ focus largely on earnings next week even as the world’s attention is likely to be drawn elsewhere.

“That would be our hope,” said Joe Zidle, portfolio strategist at Richard Bernstein Advisors in New York.

“A lot of people looked at this market and said it was the result of the Trump bump or the Hillary relief rally,” while earnings have been rebounding, he said. “The faster earnings growth is underappreciated by investors.”

Many strategists have attributed the 10 percent rally in the S&P 500 .INX since Donald Trump’s victory over Hillary Clinton in the Nov. 8 U.S. presidential election to optimism Trump would boost the domestic economy through tax cuts and an infrastructure spending binge.

The gains drove market valuations recently to their highest since 2004, even with little progress in Washington on the fiscal policy front. Meanwhile, other anxiety-provoking events have grabbed headlines, including unsettling relations with North Korea and this weekend’s election in France, which has a bearing on the country’s membership in the European Union and its currency, the euro.

Upbeat earnings from Morgan Stanley (MS.N) and other banks so far this reporting period cushioned those geopolitical worries, helping push the S&P 500 .SPX up 0.9 percent this week, its best such performance in two months. Shares of smaller companies did even better, with S&P’s benchmark indexes for small .SPCY and mid-cap .IDX stocks notching their best weeks of 2017, with gains of between 2 percent and 3 percent.

Expectations for the quarter’s profit growth have risen as well, and the first three months of the year now appear set to mark the strongest quarterly earnings growth in more than five years. In the last week alone, expected S&P 500 first-quarter earnings per share growth rose to 11.2 percent from 10.4 percent, a more than 7 percent jump, according to Thomson Reuters data.

“This week definitely has proven that the Street likes earnings – it’s controllable, it’s U.S.,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

The reason for the slew of reports next week is anyone’s guess, Silverblatt said, although recent holidays possibly played a role. Passover, Good Friday and Easter all fell in the previous weeks, which may have prompted some companies that typically report earlier to delay a week.

Just 76 companies reported this week compared with 134 in the comparable week a year ago, Silverblatt said.

Next week’s rush will represent a 15 percent increase from the 166 S&P constituents that reported in the comparable week last year.

Thursday will be the busiest day with nearly 70 reports due, including updates after the closing bell from Alphabet, Amazon, Intel Corp (INTC.O), Microsoft and Starbucks Corp (SBUX.O).

That could make for a bang in the market on Friday, Silverblatt said, which is also the final trading day of April.

(Reporting by Caroline Valetkevitch; Editing by Dan Burns and Meredith Mazzilli)
Published at Fri, 21 Apr 2017 20:55:16 +0000

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Wall St rallies on earnings; Nasdaq hits record

by bones64 from Pixabay

 

Wall St rallies on earnings; Nasdaq hits record

By Chuck Mikolajczak| NEW YORK

U.S. stocks rallied on Thursday, with the Nasdaq closing at a record, as a round of solid earnings led by American Express pushed equities higher.

The credit card company (AXP.N) closed up 5.9 percent as the top boost to the Dow Industrials after reporting a smaller-than-expected drop in quarterly profit late Wednesday.

CSX Corp (CSX.O), up 5.6 percent, was one of the best performers on the S&P 500 after the railroad reported a better-than-expected quarterly net profit driven by rising freight volumes and said it plans to cut costs and boost profitability moving forward.

“You need a catalyst to go higher and the only one that is out there to me that is logical and would drive the market higher is earnings, and so far it is OK,” said Phil Blancato, CEO of Ladenberg Thalmann Asset Management in New York.

“You look at a day like today and it tells you there is a lot of cash on the sidelines that wants an opportunity to buy when the market sells off even just a little bit.”

Major indexes have fallen for two straight weeks, retreating from record levels as worries about President Donald Trump’s ability to deliver on his pro-growth promises raised some concern about stretched stock valuations.

Mounting tensions between North Korea and the United States, as well as the looming French presidential elections, also served to heighten investor caution. Recent polls showed centrist Emmanuel Macron hung on to his lead in a four-way French race that is too close to call.

Of the 82 companies in the S&P 500 that have reported earnings through Thursday afternoon, about 75 percent have topped expectations, according to Thomson Reuters data, above the 71 percent average for the past four quarters.

Overall, profits of S&P 500 companies are estimated to have risen 11.1 percent in the quarter, the best since 2011.

The Dow Jones Industrial Average .DJI rose 174.22 points, or 0.85 percent, to 20,578.71, the S&P 500 .SPX gained 17.67 points, or 0.76 percent, to 2,355.84 and the Nasdaq Composite .IXIC added 53.74 points, or 0.92 percent, to 5,916.78.

The S&P 500 closed just below its 50-day moving average, a level that had acted as resistance after the index fell below it last week.

Philip Morris (PM.N) fell 3.5 percent to $109.98 as the biggest drag to the benchmark S&P index after the tobacco maker’s first-quarter profit forecast fell below estimates.

Advancing issues outnumbered declining ones on the NYSE by a 2.49-to-1 ratio; on Nasdaq, a 2.61-to-1 ratio favored advancers.

The S&P 500 posted 40 new 52-week highs and 1 new low; the Nasdaq Composite recorded 117 new highs and 35 new lows.

About 6.65 billion shares changed hands in U.S. exchanges, compared with the 6.3 billion daily average over the last 20 sessions.

 

 

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)
Published at Thu, 20 Apr 2017 21:50:27 +0000

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Billionaire says he has 10% of his money in Bitcoin and Ether

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How Bitcoin works
How Bitcoin works

  @byHeatherLong

Billionaire investor Mike Novogratz is betting big on digital currencies like Bitcoin and Ether.

“Ten percent of my net worth is in this space,” Novogratz said at a forum held at the Harvard Business School Club of New York Wednesday. He declined to say exactly how wealthy he is, but he’s a former hedge fund manager at Fortress Investment Group and a Goldman Sachs partner who made the Forbes billionaire list in 2008.

It’s the “best investment of my life,” Novogratz said.

Bitcoin was worth under $500 a year ago. Today the digital currency trades at over $1,200. Back in 2013, Novogratz predicted Bitcoin’s value would soar. He remembers people laughing at him at the time.

Since then, Bitcoin’s price has been on a wild run. It surged to nearly $1,000 in late 2013 and then fell to under $250 in 2015. It started to fly again last year, around the time of the Brexit vote. It surpassed $1,000 in January of this year again and has kept climbing.

Now Novogratz is saying Bitcoin will go to $2,000.

But he also warned the Harvard Business School Club crowd that there will “likely be a bubble” in digital currencies. The best way to handle it, he argues, is the old Wall Street trick of diversification. Put a little money in a lot of different plays in digital currency.

For example, Novogratz was also an early investor in Ether. It’s another digital currency that has quickly emerged as the No. 2 rival to Bitcoin. Novogratz says he bought Ether when it was trading for about $1. Today it’s worth over $48.

Novogratz met Vitalik Buterin, the young Russian brainchild behind Ether at a dinner party at a prominent CEO’s home. He recalls that Buterin, then 21, showed up late, which struck him as shocking — and a bit ballsy. He figured it was worth paying attention to Buterin.

Ether is a currency with a “smart contract” function that gives users additional security and abilities to transfer information in addition to monetary value.

We’re witnessing the “3rd inning” of this digital asset revolution, Novogratz predicts. He’s not exactly sure how it will play out, but he plans to continue investing in digital currencies and Blockchain, the revolutionary technology behind the scenes that makes Bitcoin work.

Blockchain is literally a digital ledger to record and track transactions. What makes it so technologically advanced is that multiple companies or parties can access the Blockchain and see the history of what happened to an asset.

Novogratz has emerged as one of the biggest Wall Street cheerleaders of Blockchain, but his bets haven’t always gone so well. He exited Fortress in 2015 after the company shut down his Marco Fund for poor performance. It lost around 20% in its final year after his investments in emerging markets, especially Brazil, tanked.

“We have had an extremely challenging two years, and I do not believe the current environment is conducive to achieving our best results,” Novogratz said at the time.
Published at Thu, 20 Apr 2017 16:44:14 +0000

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Bubble-spotting, like genius parenting, is rare

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 Bubble-spotting, like genius parenting, is rare

By James Saft

“Is this market a bubble?” and “Is my kid a genius?” are two questions which are asked far more often, and with less profit, than they should.

Financial advisors probably dread the asking of the one, just as much as teachers fear the other.

That’s because both questions, when asked by the typical investor or parent, embed both a delusion of detective skill and a wrong-headed idea of the point of the exercise.

You will very likely not be able to work out the answer, and will be prone to make the wrong move even if you do.

Moreover, and this applies equally to bubble hunting or genius cultivating, you make the cardinal error of putting yourself firmly at the center of an operation in which you belong well on the periphery.

Your kid probably isn’t a genius and won’t be helped, and may well be hurt, by your interest in the matter.

The market probably isn’t in a bubble and your consideration of the matter sets you on a path to do more harm then good.

“The bubbles that did not burst are just as important for investors to know about as the bubbles that did burst. Placing a large weight on avoiding a bubble, or misunderstanding the frequency of a crash following a boom, is dangerous for the long-term investor because it forgoes the equity risk premium,” Yale finance professor William Goetzmann wrote last year in a study of bubbles in financial history. ( here )

“In simple terms, bubbles are booms that went bad but not all booms are bad.”

What Goetzmann found is that booms are more likely to be followed by another boom than by a bust.

Looking at 21 national stock markets since 1900, 14 percent of the time stocks doubled in real terms over a three year period, or what we might call a boom.

Subsequent to this markets which doubled halved 3.37 percent of the time in the following year but doubled again 8.37 percent of the time.

Stretch that out to five years and post-boom markets double again a bit less than 50 percent of the time but only halve about 8.0 percent of the time.

Get out after a boom and you are more likely to miss another boom than a bust.

Clearly, unless you are exceptionally good at bubble detecting you are playing with fire in attempting to pick them out.

FOREVER BLOWING BUBBLES

Of course bubbles, those artificial and unsustainable increases in asset prices, like geniuses, exist and of course they make a big impression when they come around.

Bubbles happen for a complex and fascinating set of reasons.

A short list of causes would need to include human psychology and the fear of missing out, monetary policy and its late tendency to see asset price rises as a means to achieve aims previously met by genuine innovation and fiscal policy.

It is also true that the fact that we benchmark the managers we hire to steer our mutual and pension funds means they have an in-built motivation to chase irrational market valuations higher. If they sit out bubbles they are more likely to get fired.

That helps to drive both genuine booms and bubbles alike. The person who can determine which is which, especially the person who is simply managing their own retirement or long-term savings risk, is a rare bird and unaccountably in the wrong job.

So, sure, an optimum execution of investment would avoid bubbles, but a typical investors’ main risk isn’t that they might be subject to a downdraft but that they, in seeking shelter, may miss out on equity gains while doing so.

Investors, like parents, should aim to do reasonably well and act cautiously, and with a proper respect for how little they know about the future and what will be for the best.

Exceptional phenomena, like crashes or child geniuses are just that, exceptional, and best left to worry about themselves.

Bubbles, therefore, are a problem, but one which individuals are in a very poor position to mitigate. Policy makers should worry about bubbles, which can be more destructive to human and economic capital then they tend to be to portfolios.

Better fund management incentive systems and more symmetrical monetary policy around potential market bubbles would be a good thing.

You, on the other hand, are more than likely to do yourself, and your portfolio, damage by trying to time bubbles

(James Saft)
Published at Thu, 20 Apr 2017 01:00:59 +0000

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Now Is the Time to Buy Financials (XLF, C)

by geralt from Pixabay

 

Now Is the Time to Buy Financials (XLF, C)

By Casey Murphy | April 19, 2017 — 8:45 AM EDT

2016 was an exceptionally strong year for investors who held positions in the financials, and a recent pullback could provide investors with an opportune entry point should the momentum continue. In the article below we’ll dive into the charts and try to determine how technical traders will look to trade the resumption of one of the strongest trends in the public markets. (For more, see: Top 4 Financial Stocks for 2017).

Financial Select Sector SPDR Fund

With total net assets of $22.3 billion, the Financial Select Sector SPDR Fund (XLF) ETF is one of the most popular exchange-traded funds used by retail investors for gaining exposure to financials. In case you aren’t familiar, this ETF is comprised of 65 high-quality financial companies, and it trades with a reasonable gross expense ratio of 0.14%. Taking a look at the chart, you can see that the bulls were tripping over each other to get into a position in late 2016 and that the price is currently in the process of reverting toward the support of a major long-term level of support. As you may know, mean reversion theory suggests that sustainable trends are created when prices move back to long-term averages after a strong short-term rally. Based on the pattern below, the bulls will likely be looking for buying opportunities near $21.50, which is the level of the 200-day moving average and the long-term ascending trendline.

Citigroup, Inc.

Citigroup, Inc. (C) is one of the behemoths when it comes to the financial sector. With a market cap of $160 billion, there are only a handful of players with broad enough operations to be able to even compete with the company. Taking a look at the chart, you can see that the price has been trading within a confined trading range for most of 2017 and the recent pullback could be providing an excellent buying opportunity for those who expect the price to break above the resistance near $62.50. From a risk-management perspective, active traders will likely place their stop-loss orders below either the ascending trendline or the 200-day moving average (red line) depending on risk tolerance. (For more, check out: How Citigroup Makes Its Money).

Bank of America Corp.

One of the most widely-followed financial companies is Bank of America. BAC’s enormous market cap of $227.4 billion, puts it in a class of its own. Taking a look at the chart, you’ll notice that the recent pullback toward the horizontal trendline could provide the support that traders are looking for in timing their entry. Some traders may choose to wait on the sidelines and try buying near longer-term levels of support such as the ascending trendline or the 200-day moving average. (For more, see: Good Omen for Financials: BoA’s Net Interest Income Surges).

The Bottom Line

The financial sector was one of the darlings in 2016. As discussed above, if the momentum continues in 2017, then the recent pullback toward key support levels could be the buying opportunity many bulls have been waiting for. (For more, see: Top 5 Financial Sector Mutual Funds).

At the time of writing, Casey Murphy did not own shares of any of the assets mentioned.
Published at Wed, 19 Apr 2017 12:45:00 +0000

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Decent Exposure

Decent Exposure

by THE MOLEAPRIL 19, 2017

I leave it up to you to decide whether its due to sheer luck or perhaps skill but we actually seem to be accumulating pretty decent exposure and there’s more waiting in the bullpen (see below). It has always been my opinion that the true skill of a trader reveals itself not by what he/she does during the easy times but by how he/she operates during those nerve wrecking periods when things tend to get messy. And to be clear – this doesn’t necessarily mean a necessity to take action or to attempt to ‘beat the market’ at its own game – which obviously none of us will ever be able to do.

2017-04-19_spoos_update

Yes equities are still meandering all over the place but the recent price action suggests that we did pick a pretty good spot for grabbing some long exposure. Now we are far from being out of the woods on this one but I do enjoy seeing a new spike low which formed overnight. I’m moving my stop at about 0.5R now as another drop toward our entry zone will most likely lead us much lower. This puppy has to get out of the gate now and that fast.

More Tape Reading

Someone asked me yesterday as to the exact definition of a spike low. Well in theory it’s a candle that is flanked by two candles with a higher low. A major SL of course is one that at the same time represents a recent price extreme – I personally use a 10 candle window to identify a major SL. Of course there is also always the advantage of additional context – for example a spike low breaching through a Net-Line Sell Level (and recovering). Or perhaps a SL dropping through terminating near a lower Bollinger you find valuable – you get the idea.

2017-04-19_silver_entry

So given that I think you will agree that the current major spike low on silver is a pretty damn good one. What has followed since then is the retest that I usually wait for. I wait for one more (non major) spike low and then enter with a stop below the major SL. And voilá – that’s my setup for silver.

2017-04-19_EURUSD_update

Good and bad news on the EUR front. The bad news is that my favorable exchange is being taken to the woodshed. The good news is that I (and hopefully you) was long since about 1.0625. I’m moving my trail at about -0.5R MFE now which may surprise you. Well, my reasoning is this – either the EUR keeps burning the shorts now or it will most likely correct back a bit deeper. If it does I can always find another entry. Oh by the way, did I mention I’ll have to raise the subscriber fees now?

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Published at Wed, 19 Apr 2017 12:03:27 +0000

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Premarket: 6 things to know before the bell

 

premarket Monday
Click chart for more in-depth data.

1. China GDP: The Chinese economy picked up steam in the first quarter, with GDP up 6.9% from a year earlier.

That’s the fastest pace of growth since the third quarter of 2015 and slightly above what some economists had been predicting.

China’s ruling Communist Party has been prioritizing economic stability ahead of a key leadership reshuffle later this year when President Xi Jinping’s second term in power will start. But the International Monetary Fund and other agencies have urged the Chinese government to focus on tackling the country’s high levels of corporate debt.

The Shanghai Composite lost 0.7% on Monday, while the tech-heavy Shenzhen Composite shed 1.4%.

2. North Korea tensions: U.S. Vice President Mike Pence has issued a warning to North Korea after a failed attempted missile launch by the country on Sunday.

Pence, who was in South Korea, said that Pyongyang should not test the resolve of the U.S. “or the strength of our military forces.”

Increased tensions in the region, along with the deterioration in relationship between the U.S. and Russia and attacks in Syria, have forced investors to look for safe havens assets.

Gold, the Japanese yen and the Swiss franc all gained in early trading on Monday.

3. Moneygram bid: Chinese firm Ant Financial on Monday upped its offer to $1.2 billion for MoneyGram(MGI), one of the most popular avenues for sending money from the U.S. to Mexico and other countries.

The original deal struck in January was for $880 million, but U.S. rival Euronet Worldwide(EEFT) jumped in last month with an unsolicited $1 billion offer.

4. Global market overview:U.S. stock futures are edging lower.

Most European markets are closed for a holiday. Asian markets ended mixed.

Turkey’s main stock market advanced 1% after a referendum to expand the powers of President Recep Tayyip Erdogan saw the “yes” side winning by the slimmest of margins.

The Turkish lira also strengthened in response.

U.S. crude oil futures were down 0.9% to trade at $52.70 per barrel.

5. Earnings and economics:United Continental Holdings(UAL), the owner of United Airlines, will release its quarterly report after the closing bell on Monday, a week after becoming embroiled in a turbulent PR nightmare.

The company will hold a conference call with investors on Tuesday.

Netflix(NFLX, Tech30) will also report after the markets close on Monday. Sales for last quarter are expected to clock in at $2.6 billion, up from $2 billion this time last year.

6. Coming this week:

Monday – China GDP; United Airlines(UAL), Netflix(NFLX, Tech30) earnings
Tuesday – U.S. Tax Day; United Airlines(UAL) analyst call, Goldman Sachs(GS), Bank of America(BAC) and IBM(IBM, Tech30) report earnings
Wednesday – U.S. Crude oil inventories report, Morgan Stanley(MS), BlackRock(BLK), eBay(EBAY), American Express(AXP) publish results
Thursday – Mattel(MAT) earnings report
Friday – U.S. release of Samsung’s(SSNLF) Galaxy S8
Published at Mon, 17 Apr 2017 08:51:49 +0000

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Could Wix.com’s Rally Finally Be Coming to an End?

 

Could Wix.com’s Rally Finally Be Coming to an End?

Wix.com Inc. (WIX), a Tel Aviv-based web development platform targeting small businesses, has soared nearly 70% so far this year and 250% over the past 52 weeks. While the company is not profitable, its four-year compounded annual revenue growth rate stands at an enviable 38% with nearly 100 million users on its platform. The company’s history of beating earnings and achieving breakneck growth has led to its premium valuation.

After its recent move higher, the stock trades with a price-sales ratio of nearly 10x compared to an industry average of just 7x. The market for web development platforms is also becoming saturated with competitors like Shopify, Squarespace, and WordPress. WIX has benefited from its freemium business model (only ~3% of users are paying customers), but free customers bleed cash unless they’re converted into paying customers.

Raymond James recently downgraded Wix from Outperform to Market Perform due to these valuation concerns following its 250% rise over the past 52 weeks.

On a technical level, Wix faces a rising wedge chart pattern that could signal a bearish reversal. The stock attempted to breakout from its upper trend line and R2 resistance at $77.13, but has since moved lower toward its R1 resistance at $72.52. A breakdown from these levels could test lower trend line support at around $70 and a move below those levels could lead to a move to the 50-day moving average at $64.94 or S1 support at $61.87.

Wix is expected to report its first quarter earnings on May 3, which is an important day for traders and investors to watch. If it surpasses expectations, as it has done in the past, the stock could rally further. But, a failure to meet expectations could lead to a significant downturn as analysts become increasingly concerned over the company’s lofty valuation. The upshot is that it seems the company is well-capable of growing into its valuation over time.

Charts courtesy of StockCharts.com. Author holds no position in stocks mentioned.
Published at Fri, 14 Apr 2017 10:24:00 +0000

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Cyclically Adaptive Trading (CAT)

 

Cyclically Adaptive Trading (CAT)

The recent post highlighted the challenge of short-term trading returns over the past year and, indeed, since 2009.  In this post, I will sketch how I am addressing those challenges in my own trading.When traders refer to the difficult trading environment, they often make reference to “choppy” or “noisy” markets.  Usually their next sentences lament the “algos” and their impact upon markets.  I find these to be expressions of frustration, not constructive formulations of trading challenges.  Invariably, those lamenting choppy markets dominated by algos that “manipulate” markets engage in their venting–and then go back to trading as they’ve always traded…and continue to lose money.

A key to understanding the recent poor returns of short term traders is to appreciate that these traders don’t merely lack an edge; they have a negative edge.  What they are doing, which largely falls into the category of trend/momentum trading, is systematically not working over time.  Waiting for high Sharpe trends to return to markets has not been a sound business model.  But perhaps we can trade in a way that benefits from anti-trending/mean reversion as well as momentum.

In coming months, I will be rolling out an approach that I refer to as Cyclically Adaptive Trading (CAT).  The core idea behind the strategy is that all markets contain linear, directional elements (trends) and cyclical elements.  On a given time frame, a “noisy” or “choppy” environment is simply one in which the cyclical aspects of market behavior dominate the linear ones.  Note that any market cycle itself has linear (rising and falling) components and range bound ones (topping and bottoming).  Very often, what is a trend on one time scale is a portion of a longer-term cycle.  The interaction of cycles over multiple time frames creates challenging irregularities, as markets switch between mean-reverting and trending phases.

The idea of CAT is that you trade the market’s personality, not your own.  Instead of trading the time frame and style you happen to prefer, you trade the cycles setting up in markets.  Because there are multiple cycles at work at any one time and because the dynamics of the current cycles are influenced by the activity of prior cycles, we can identify dominant cycles in real time and adjust trading parameters to those.  This is the adaptive element in cyclically adaptive trading.  The reason so many traders are failing is that they lock themselves into preferred time frames and trading styles.  An adaptive approach is one that trades momentum/trend when we are in the rising and falling phases of cycles and one that trades in a value/mean-reverting manner when we are in the topping and bottoming phases.  We trade longer-term when longer-term cycles dominate and shorter-term when we see those “choppier” conditions.  Trading one time frame in one style systematically fails over time in markets possessing strong cyclical elements.

(A corollary is that, to the degree you identify yourself, say, as a directional trader or a short-term trader, you are probably losing money.  Someone who limits themselves to trading one facet of market cycles is like a baseball hitter who specializes in hitting fast balls.  If you get enough of those guys on a team, it doesn’t take the opposition long to put breaking ball and off-speed pitchers on the mound.)

A second major idea behind CAT is that cycles are self organizing:  recent cycles impact the creation of new cycles which interact to generate other, different cycles.  There is no single periodicity to cycles that can be traded mechanically and, indeed, I have doubts that cycles even exist in chronological time.  Markets move in event units of price movement and volume: as participants enter and exit markets, they impact cycles in ways that impact future price behavior.  In other words, cycles are a function of the behavior of market participants, not a function of the passage of time on a clock. Our job as traders is to adapt to the market’s clock and trade in market time, not our time.

The trading I am rolling out is based upon an advance I’ve made in tracking the self-organization of cycles over multiple event time horizons.

Some sources of insight into market cycles can be found in the early technical works of George Lindsay and Terry Laundry.  Important quantitative perspectives and tools have been offered by John Ehlers, who introduced the notion of adapting technical trading systems to dominant cycle periods.  Relevant TraderFeed posts appear below, and I will be posting more as I formally roll this out in my trading.

 

Further Reading:

Published at Sun, 16 Apr 2017 10:51:00 +0000

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How Tough Has Trading Been?

 

How Tough Has Trading Been?

Thanks to a savvy trader for this graphic of the Soc Gen Short Term Trading Index, which is the composite results of the largest diversified futures funds holding positions for less than 10 days.  Even the longer track record is net negative.  Interestingly, hedge fund performance was positive for the first quarter of 2017, but the performance of CTAs was negative over that same period.  These results mirror my own experience working with trading firms:  those trading short-term and those trading in a momentum/trend style have been performing worst.  Those performing best in Q1 were ones focused on Asia, as well as activist funds and funds trading volatility strategies.

In other words, those market participants with specialized strategies have been outperforming the generalists.  Working at a number of funds as a performance coach, I can tell you that–on average–those placing directional bets on interest rates in Q1 greatly underperformed those trading relative value strategies.  Even among day trading firms, uniqueness of strategy has been an important predictor of success thus far in 2017.  Those traders day trading big liquid instruments have underperformed those finding unique opportunities in carefully selected individual stocks.

I’m not so sure this is all that different from the dynamics in the broader business world.  If new participants enter a crowded space, they are less likely to be successful than if they find unique niches.  This is an important challenge for those aspiring to trading success.  The risk tolerance of most trading firms does not permit long holding periods for directional positions.  This tends to throw everyone in the short-term camp depicted above.  You’re not going to win by playing the same game as everyone else, just as you’re not likely to find gold if you prospect the hills that have been well picked over by previous miners.

It’s not enough to learn how to trade; it’s critical to trade uniquely.  It’s not enough to trade with rules and discipline; one must also find opportunity creatively.  The firms achieving the results depicted above are trading trends in liquid markets in a disciplined fashion.  A great approach to success would be to research strategies that made money during months when those other participants were performing worst.  There is no guarantee that future returns will mirror backtested ones, but digging for gold in well-mined fields is a poor risk/reward proposition.

Further Reading: Creativity and Innovation in Trading

Published at Sat, 15 Apr 2017 10:06:00 +0000

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Top 4 Technology Mutual Funds for 2017

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Top 4 Technology Mutual Funds for 2017

By Sheila Olson | April 14, 2017 — 5:19 PM EDT

The technology sector is up more than 12 percent year to date (YTD) as of March 28, 2017, outperforming the market so far this year. And if President Donald Trump carries through with some of his campaign promises (think repatriation of overseas cash, decreased corporate taxes), the tech sector stands to benefit greatly. (See also: Top 5 Technology Penny Stocks to Watch for 2017.)

Although there is always inherent volatility in technology, the sector has consistently performed well – the Nasdaq is up 94 percent over the past five years compared with 71 percent gains for the S&P 500. If you’re looking for exposure to technology to diversify your portfolio, here are the top technology mutual fund picks for 2017. (See also: Top 4 ETFs to Track the Nasdaq.)

Note: Funds were selected on the basis of year-to-date (YTD) performance and assets under management. All figures were current as of April 10, 2017.

1. Fidelity Select IT Services Portfolio (FBSOX)

Issuer: Fidelity

Assets under management: $1.65 billion

Expense ratio: 0.81 percent

YTD performance: 6.51 percent

FBSOX is one of the largest and oldest of the technology mutual funds. Over the life of the fund (inception date February 1998), it has delivered average annualized returns exceeding 12 percent. The fund’s objective is capital appreciation, and it invests at least 80 percent of its assets in companies providing IT services. The mutual fund is relatively concentrated – although there are 67 equities in the fund’s portfolio, the top 10 holdings account for 62 percent of the assets. About 95 percent of the equities are domestic, with the remainder in international emerging markets.

Cumulative five-year returns for FBSOX are 114 percent, and turnover is low at just 24 percent. FBSOX requires a $2,500 minimum investment and $25 minimum recurring investments. (See also: 3 Mutual Funds That Invest in U.S. Companies With Indian CEOs.)

2. Red Oak Technology Select Fund (ROGSX)

Issuer: Oak Associates Funds

Assets under management: $431.3 million

Expense ratio: 1.23 percent

YTD performance: 8.89 percent

ROGSX is a long-term growth fund that bases stock picks on fundamentals without regard to market cap. There are just 41 holdings in the fund’s portfolio, with the top 10 equities accounting for just 38 percent of its assets. You’ll see household names like Amazon.com, Inc. (AMZN​) and Apple Inc. (AAPL) as well as lesser known equities like Red Hat, Inc. (RHT) powering the fund’s solid returns. (See also: Post-Earnings Valuation: Red Hat Edition.)

Since its inception in 1998, the fund has delivered returns of nearly 5 percent, with one-, three- and five-year annualized returns at 38.38 percent, 14.88 percent and 17.24 percent, respectively. Five-year cumulative returns for ROGSX are 124.4 percent.

3. T. Rowe Price Global Technology Fund (PRGTX)

Issuer: T. Rowe Price

Assets under management: $4.0 billion

Expense ratio: 0.91 percent

YTD performance: 18.08 percent

This is an aggressive growth fund for investors seeking long-term capital growth. Turnover is brisk at 171 percent, as you’d expect from an aggressively managed fund. Since its inception in 2000, the fund has consistently outperformed the MCSI All Country World Index IT and the Lipper average for global technology funds.

One-, three- and five- average annual returns are 30.94 percent, 20.97 percent and 20.25 percent, respectively. There is a $2,000 minimum investment required ($1,000 for an IRA) and a charge of $100 to add to an account. (See also: Top Mutual Funds for Aggressive Investors.)

4. Columbia Seligman Global Technology Fund (SHGTX)

Issuer: Columbia Threadneedle Investments

Assets under management: $589 million

Expense ratio: 1.40 percent

YTD performance: 15.13 percent

SHGTX is another aggressive growth fund, and compared with the MCSI World Index IT Index Net, its portfolio is heavily concentrated in semiconductors (48.5 percent vs. 15 percent) and short on IT (5 percent vs. 17 percent). However, SHGTX has consistently outperformed the index by between 5 percent and 10 percent over the past three years. (See also: Semiconductor Names Tied at the Hip to Apple.)

One-, three- and five-year annualized returns are 33.07 percent, 21.55 percent and 16.49 percent, respectively, with a five-year cumulative return of 114.5 percent. The fund requires a $2,000 minimum investment.

Published at Fri, 14 Apr 2017 21:19:00 +0000

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Yext: The newest $1 billion tech company

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Confide makes the internet less permanent
Confide makes the internet less permanent

Yext: The newest $1 billion tech company

  @byHeatherLong

Like most New Yorkers, Howard Lerman talks quickly and dresses in black.

The 37-year-old is CEO of Yext, which just had one of the biggest public debuts ever for a startup born in the Big Apple.

Yext(YEXT) stock started trading on the New York Stock Exchange Thursday, surging 22%. The company is now worth over $1 billion.

“I’m an East Coast guy,” Lerman told CNNMoney.

Lerman grew up in northern Virginia, just as AOL was exploding on the scene. He went to Duke University and just couldn’t see himself in Silicon Valley.

“When you’re starting a company, you need to rely on people around you to work for free for a long time,” Lerman says. He met Yext’s chief operating officer, Tom Dixon, in middle school. He still remembers the day Dixon brought a Pentium chip to class. It was the beginning of a long friendship, fused with a common love of tech.

“They were scary bright kids,” remembers Vern Williams, their math teacher at Longfellow Middle School in Falls Church, Virginia. “They didn’t like routine or textbooks. They wanted to push their creative juices.”

Yext is one of five companies Lerman has founded so far. It’s basically a 21st Century version of the phone book (Yext actually stands for “next Yellow pages.”)

Companies like McDonald’s(MCD), one of Yext’s clients, need the addresses, hours and contact info for its many restaurants up to date on sites as diverse as Google Maps, Yelp, Facebook, Bing, etc. Yext provides the software for companies to update their information on all of those sites with one click.

“We’re pioneering a new market,” Lerman, who co-founded the company in 2006, says.

But for all its success, the company still isn’t profitable. Like many young tech companies, there’s still a lot of risk about how much Yext will grow in the coming years and whether it will be able to generate bigger sales.

Yext has over 600 employees with offices in the U.S. and Europe. Lerman speaks German and is currently learning Chinese, perhaps foreshadowing Yext’s next move.

“I think being an entrepreneur is the intersection of two things: Being able to see how the world should be and then doing something about it,” he says. “A lot of people can do one of those two things.”

howard lerman yext nyse bell
Howard Lerman, center in the black suit, celebrates as Yext debuts on the New York Stock Exchange.

Lerman has been compared to iconic techCEOs like Marc Benioff of Salesforce for his ability to rally crowds,and Apple cofounder Steve Jobs for his love of black turtlenecks, which he wears every day.

In addition to Yext, Lerman also created the secret messaging app Confide. It’s gotten a lot of media attention lately after news broke that White House staffers were using it to chat confidentially with each other, and journalists. Confide markets itself as a secure app “military-grade end-to-end encryption,” although some have questioned whether that’s a fair statement.
Published at Thu, 13 Apr 2017 21:50:03 +0000

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Wall Street slips as geopolitical risks gather, earnings loom

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 Wall Street slips as geopolitical risks gather, earnings loom

By Yashaswini Swamynathan

U.S. stocks edged lower on Wednesday as investors assessed uncertainty stemming from rising geopolitical tensions and the upcoming corporate earnings season.

The United States launched missiles at a Syrian airfield last week to retaliate a deadly chemical attack on civilians. The strikes pushed President Donald Trump, who came to power in January calling for warmer ties with Syria’s ally Russia, and his administration into confrontation with Moscow.

Also, Chinese President Xi Jinping called on the U.S. for a peaceful resolution with North Korea, which has warned it would launch a nuclear attack if provoked by the United States, as a U.S. Navy strike group headed toward the western Pacific.

The S&P 500 fell below its 50-day moving average, while the price of gold and VIX .VIX, Wall Street’s fear gauge, rose to their highest levels since November.

At 10:57 a.m. ET, the Dow Jones Industrial Average .DJI was down 52.9 points, or 0.26 percent, at 20,598.4, the S&P 500 .SPX was down 7.27 points, or 0.31 percent, at 2,346.51 and the Nasdaq Composite .IXIC was down 19.45 points, or 0.33 percent, at 5,847.32.

Earnings are likely to be the next catalyst for the market.

The big banks, which have outperformed in a post-election rally since November, are of particular interest as investors fret over valuations amid a lack of clarity on Trump’s ability to deliver on his pro-growth policies of tax and regulatory cuts.

Financials were the worst hit on Wednesday. The S&P 500 financial index .SPSY tumbled 0.91 percent, setting it up to post the fourth straight day of decline.

“Technically, we are due for a breather and if the earnings season disappoints, it could provide the correction that we need,” said Josh Jalinski, president of Jalinski Advisory Group.

JPMorgan (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N) are scheduled to report results on Thursday, which will be the last trading day of the week on Wall Street ahead of the Good Friday holiday. Seven of the 11 major S&P sectors were lower.

Utilities .SPLRCU, real estate .SPLRCR and consumer staples .SPLRCS, defensive sectors with slow but predictable growth, rose. Chipmaker Qualcomm (QCOM.O) dropped 2.8 percent to $53.81 after it was asked to refund Canada’s BlackBerry (BBRY.O) $814.9 million in an arbitration settlement.

Delta Air Lines (DAL.N) was up 3.5 percent at $46.90, boosted by a quarterly profit beat.

Declining issues outnumbered advancers on the NYSE by 1,869 to 846. On the Nasdaq, 1,832 issues fell and 776 advanced.

The S&P 500 index showed nine 52-week highs and no new lows, while the Nasdaq recorded 40 highs and 24 lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Sriraj Kalluvila)
Published at Wed, 12 Apr 2017 15:34:05 +0000

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Economy Contracting but Expect Higher Stock Prices

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Economy Contracting but Expect Higher Stock Prices

By: Chris Vermeulen | Wed, Apr 12, 2017


The United States is the world’s largest and most diversified economy! It
is currently suffering through a protracted period of slow growth
which has held down job creation and labor market participation. The Pew Research
Center reported, in late 2015, that a mere 19% of Americans trust the government
either always or most of the time.

The FED
must print more money
in order to keep the party going forward.

The bottom line is that this current bull market has been driven mostly by
corporations which are buying back their shares, over the years. Individual
investors have increasingly been moving out of equity mutual funds and into
equity ETF’s.

Equity ETF Inflows 2003-2017

The Congressional Budget Office (CBO) reported that in fiscal year 2016, the
federal budget deficit increased in relation to the GDP, for the first time
since 2009. The CBO projects that over the next decade, budget deficits will
follow an upward trajectory. The spending costs for retirement and health care
programs targeted towards senior citizens, and rising interest payments on
the government’s debt will be the root drivers. There will be only a modest
growth in revenue collections. This will drive up public debt to its’ highest
level of gross domestic product (GDP) since shortly after World War II ended.

The Congressional Budget Office stated that the nation’s
public debt will reach 145 percent of gross domestic product by 2047

Federal Debt Held by the Public 1790-2030

Conclusion:

The BULLISH Trend in the stock markets is not reversing in the near
future.

The stock market is on an upward trajectory. Are you wondering what you should
do next?

Do you want to gain the edge that you need in order to beat the markets an
profit during both rising and falling prices?

Take advantage of my insight and expertise as I can help you to grow your
trading account. Tune in every morning for my video analysis and market forecasts at TheGoldAndOilGuy.com on
all ‘asset classes’ and new ETF trade opportunities.

I always take half off of the table, on all positions, to lock in quick solid
gains and then ride out the other half for much higher returns! I manage my
risk while keeping profits!


Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized
market technical analyst and trader. Involved in the markets since 1997.

Chris’ mission is to help his clients boost their investment performance while
reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and
investment newsletter service. Chris is responsible for market research and
trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors
around the world. He designed an automated algorithmic trading system for the
S&P 500 index which solves his client’s biggest problem related to investing
in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades’ automated trading systems allows
individuals to investing using either exchange traded funds or the ES mini
futures contracts. It is supported by many leading brokerage firms including:

– Interactive Brokers
– Trade MONSTER
– MB Trading
– OEC OpenECry
– The Fox Group
– Dorman Trading
– Vision Financial

He is the author of the popular book “Technical
Trading Mastery – 7 Steps To Win With Logic
.” He has also been featured
on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe
Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and
dozens of other financial websites. His list of personal and professional
relationships approaches 25,000, people with whom he connects and shares
is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations
management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight
pilots license. He resides in the Toronto area with his wife Kristen and two
children.

Copyright © 2008-2017 Chris Vermeulen

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com
Published at Wed, 12 Apr 2017 09:21:41 +0000

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Flight to safety lifts yen, gold and bonds

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Flight to safety lifts yen, gold and bonds

Investors ducked for cover on Wednesday as a drumbeat of alarming geopolitical news sent the safe-haven yen and gold to five-month highs and yields on top-rated sovereign bonds to their lowest for the year so far.

The unease tarnished an otherwise brightening outlook for global economic growth and put equities on the defensive.

Japan’s Nikkei .N225 slid 1 percent in early trade, while MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was near flat.

In contrast, gold XAU= climbed to $1,275.66 an ounce and touched its highest since Nov. 10.

“A degree of uncertainty has found its way into previously seemingly bulletproof financial markets,” wrote analysts at ANZ.

“There is clearly some nervousness out there, with tensions around North Korea ratcheting higher and adding to an already heightened geopolitical environment. Global cyclical assets have not yet responded, but that can’t last.”

North Korea warned on Tuesday of a nuclear attack on the United States at any sign of aggression, as a U.S. Navy strike group steamed toward the western Pacific – a force President Donald Trump described as an “armada”.

Trump said in a Tweet that North Korea was “looking for trouble” and the U.S. would “solve the problem” with or without China’s help.

The bellicose language has dragged South Korean stocks and the won to four-week lows and caused jitters right across Asia.

At the same time, U.S. Secretary of State Rex Tillerson was in Moscow to denounce Russian support for Syria’s Bashar al-Assad, raising the stakes in the Middle East.

A joint press conference by Trump and NATO Secretary General Jens Stoltenberg is also likely to generate headlines.

 

A YEN FOR YEN

The yen, a favored harbor in times of stress due to Japan’s position as the world’s largest creditor nation, climbed across the board.

The dollar was nursing a grudge at 109.62 yen JPY=, having been as low as 109.53 at one stage. Dealers warned there was little in the way of chart support until the 200-day moving average at 108.72.

The euro sank to its lowest in five months at 116.16 yen EURJPY=R having fallen 11 sessions in a row, a record for the single currency. It was steadier on the dollar at $1.0610 EUR=.

Political uncertainty in France added to the euro’s woes as hard-left candidate Jean-Luc Melenchon surged in the polls ahead of the May Presidential election.

All this unease boosted bonds with yields on 10-year Treasuries US10YT=RR boasting their lowest close of the year on Tuesday. Yields were last at 2.296 percent and testing a hugely important barrier on the charts.

Wall Street’s losses were relatively minor so far as investors wagered on an upbeat earnings season, which kicks off this week with a handful of banks.

The Dow .DJI eased 0.03 percent, while the S&P 500 .SPX lost 0.14 percent and the Nasdaq .IXIC 0.24 percent.

Analysts expect earnings for all S&P 500 companies to have risen 10 percent in the first quarter from a year ago, according to Thomson Reuters data.

Oil got an added lift from reports that Saudi Arabia told OPEC officials it wants to continue OPEC cuts for an additional six months.

Global benchmark Brent LCOc1 edged up 13 cents in early trade to $56.36 a barrel, while U.S. crude CLc1 added 12 cents to $53.52.

(Editing by Shri Navaratnam)

 
Published at Wed, 12 Apr 2017 00:50:33 +0000

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Overcoming Overtrading: A Powerful Exercise

 

Overcoming Overtrading: A Powerful Exercise

The most recent post took a look at the real reason traders lose money.  Though we often justify our style of trading by asserting that the style fits our personalities, the reality is that traders lose money precisely because their personality traits interfere with the identification and trading of opportunities that legitimately exist in markets.  

Nowhere is this dynamic more prevalent than in the frequency of people’s trading.  For the most part, traders trade with a frequency that suits their needs for involvement, not their objective assessments of opportunity.  The result is overtrading–taking many more trades than opportunity rewards.  

There are all sorts of excuses for overtrading, including the common assertion that frequent trading contributes to one’s “feel” for the market.  In reality, however, the chop, chop losses that often accrue with overtrading contribute to the very psychological problems–frustration, loss of discipline–that traders recognize lead to a loss of market feel.  The real question is whether frequency of trading is positively correlated with P/L.  Very often that correlation is zero or negative.  Periods of more active trading correlate with worse trading performance–not better market feel.

It’s no coincidence that one of the most read TraderFeed posts deals with why we trade emotionally.  We typically encounter psychological issues in trading because we’re overinvolved in markets, not because we lack commitment or passion.  Indeed, too often passion is used as the excuse for addictive trading.

So here’s an experiment that I’ve been working on.

The inspiration for the experiment comes from the idea that artificial constraints can act as prods that stimulate creativity.  For instance, suppose I tell myself that I have to prepare a tasty dessert that only utilizes three foods.  Moreover the first two components of the dish have to be cake and cherries.  So now I have to think out of the box.  How do I put cherries and cake together into a unique and tasty dessert?  I decide that the dessert needs liquid to bring the cake and cherries together, so I squeeze juice from some of the cherries.  I then recall that I had a delicious fruit beer during a recent brewery tour.  I blend the beer with the cherry juice to create a tasty sauce and pour that over the cherries and on top of the cake.  Voila!  A unique dessert that I never would have thought of had my options been unlimited.

With that in mind, how would I trade if I could only trade once per week?

Hmmmm…that changes everything.  If I can only fire one bullet, I have to make sure it counts.  That means I won’t take little scalp trade ideas; I’ll want to benefit from more significant market moves. So now I have to go back to my market research and identify the characteristics of the few great trades that set up during a week.  I look back at many weeks, across many market conditions.  Lo and behold, there *are* criteria that clearly indicate good weekly opportunity, but they are different from the criteria I’ve been looking at.  They are longer term, and they rely on setups that simultaneously occur on multiple time frames.  They’re like the fruit beer:  criteria I wouldn’t have thought of had I been free to trade any and every time frame.

As a consequence, if the trade doesn’t set up across defined time frames, I don’t take it.  Looking for a good idea isn’t good enough when you can only trade once in a week; you need those great ideas that come to you.  If it doesn’t strike me as a slam dunk, I don’t trade it.  I don’t want to waste that bullet.

What I can report from this experiment is that the trading thus far has been profitable and consistent.  If that continues, I’ll size up the selective trades; I won’t trade more often.  I am fully engaged in markets and update my research daily, but I only trade when everything comes together.  I’m perfectly content to miss moves, as long as I profit from the movement I do identify.

But just as the fruit beer cherry cake is a new creation, my new trading style provides an entirely fresh experience.  I check the market in the morning, midday, and evening, but I don’t spend time staring at screens.  That frees me up to do many other things with my time:  I now have the bandwidth to take on new and interesting projects.  Trading has fit into my life; my life does not revolve around markets.  It’s easy to tell when we’re on a good path:  the travel gives us energy; it doesn’t deplete us.  Trading less has meant making more, but also being more productive.  It has also led me to identify patterns to trade in the market that I would have never otherwise perceived.

Take it to the bank:  Trading success comes from trading the market’s personality, not our own.

Further Reading:  When Trading Gets Out of Control

Published at Sun, 09 Apr 2017 10:34:00 +0000

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Investors flock to ‘macro’ hedge funds, but not only the old guard

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Investors flock to ‘macro’ hedge funds, but not only the old guard

“Macro” hedge funds are back in favor with investors seeking to take a view on U.S. President Donald Trump’s economic policies, European elections, or interest rates, but it is start-up funds rather than established players which are attracting cash.

Some of the main beneficiaries of the macro revival are managers who cut their teeth at the big macro firms such as Moore Capital Management, Brevan Howard and Tudor Investment Corp, which made their names for outperformance in 2007-2009.

Eric Siegel, head of hedge funds at Citi Private Bank (C.N), said in general that macro strategies are likely to thrive. “With volatility coming back and monetary supply tightening, we believe it could be a great environment for macro managers,” Siegel said.

Macro funds bet on macroeconomic trends using currencies, bonds, rates and stock futures. They outperformed the broader industry during the financial crisis and amassed tens of billions of dollars between 2010 and 2012. But they lost most of those assets between 2013 and 2014 and also in 2016 for a variety of reasons, including performance.

But macro is back in vogue and was the most popular hedge fund strategy among investors in the fourth quarter of 2016 and the first two months of this year, according to industry data providers Preqin and eVestment.

Moore Capital’s Louis Moore Bacon, Alan Howard, who co-founded Brevan Howard, and Paul Tudor Jones of Tudor Investment were among the macro stars after years of delivering double-digit returns.

But during the lean years, when macro was less in favor, they had to cut fees and in some cases staff.

Now newcomers, such as Moore Capital spin-out Stone Milliner, are pulling in cash and producing some strong returns.

Stone Milliner’s discretionary global macro closed to new money last year after taking in over $4 billion in the previous two years.

Moore Capital’s assets have fallen slightly from $15 billion in 2012 to $13.3 billion as of Dec. 31 2016, filings with the U.S. Securities and Exchange Commission (SEC) showed.

Anglo-Swiss firm Stone Milliner, set up in 2012 by former Moore Capital portfolio managers Jens-Peter Stein and Kornelius Klobucar, averaged returns of 8.3 percent between 2014 and 2016, a source told Reuters, while Moore Capital Management averaged 3.4 percent, a second source said.

London-based Gemsstock, set up in January 2014 by Moore Capital trader Darren Read and his co-founder Al Breach, made 12.8 percent on average over the same period, documents seen by Reuters showed.

Chris Rokos, a Brevan Howard alumnus, raised another $2 billion in February after returns of 20 percent in 2016.

EDL Capital made gains of 18.4 percent last year after ex-Moore Capital trader Edouard De Langlade launched the firm in September 2015, according to a source close to EDL Capital. It has amassed assets of $450 million to date, he said.

Ben Melkman, who also formerly worked at Brevan Howard until May 2016, raised over $400 million for his launch in March, SEC filings showed.

Brevan Howard’s firm-wide assets fell to $14.6 billion in 2017, from $37 billion in 2012. [here]

 

RUSH FOR MACRO

But the old guard are fighting back. Some have been cutting fees and offering alternatives.

Howard, Brevan Howard’s co-founder, last month launched a new fund managed solely by him, which sources said has already amassed more than $3 billion.

Tudor Investment lowered its management fees to 1.75 percent and performance fees to 20 percent in February after a reduction last year and Moore Capital cut the management fee on its Moore Macro Managers fund to 2.5 percent from 3 percent.

Tudor Jones laid off 15 percent of staff in August. The firm’s main Tudor BVI Global Fund started 2017 down 0.6 percent to March 3 after gaining 0.9 percent in 2016.

Brevan cut its management fees to zero for some current investors in its Master Fund and its Multi-Strategy fund last September after a similar move from Caxton Associates.

But for both the old and new macro funds, it is still to be determined what 2017 will hold.

Even though macro funds are flat on average for the first two months of 2017, making gains of just 0.38 percent, according to Hedge Fund Research, the popularity of macro strategies is not in doubt.

A Credit Suisse survey in March of more than 320 institutional investors with $1.3 trillion in hedge funds showed macro was set to be the favorite strategy of 2017.

Preqin data showed that after pulling assets out of macro for three back-to-back quarters, investors added $6.4 billion to the strategy in the fourth quarter of 2016 after Trump’s win.

eVestment data showed that macro funds have pulled in $4.4 billion in the first two months of 2017, demonstrating a turnaround from 2016 when investors took $9.8 billion out of macro after withdrawing $10 billion in 2013 and $19.1 billion in 2014.

“I don’t think macro is dead. Managers who can be nimble and are able to look outside the large liquid asset classes can still find great opportunities,” Erin Browne, head of Global Macro Investments at UBS O’Connor, said.

Representatives at Tudor did not immediately respond to a request to comment. Moore Capital had no comment. A spokesman at Brevan declined to comment.

(Editing by Jane Merriman)
Published at Sun, 09 Apr 2017 10:08:23 +0000

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The Real Reason Traders Lose Money

 

So I’ve figured out the real reason traders lose money.  It’s only taken me how many years as a psychologist to figure this out, but, hey, no one ever said psychologists have a monopoly on the insight market.

Before launching into the actual reason traders lose money, let’s step back and review an important principle:  Most accepted wisdom in the trading world consists of kernels of wisdom that have been blown up into Grand Ideas that are utterly invalid.

The poster child for this phenomenon is the idea of discipline.  Successful trading requires having rules that guide decisions and actions.  Success requires the consist following of those rules.  Given a set of valid rules, the better performer will be the disciplined person who trades with fidelity to those rules.  Makes sense.

But once we blow discipline into a Grand Idea and insist that Discipline is the source of all trading success, we then have mentors and coaches who harangue traders with journals and checklists to monitor every minute activity.  This ultimately serves two purposes:  it makes traders so self conscious that they are no longer attuned to market patterns, and it so routinizes trading that traders become unable to adapt to changing market conditions.  As a general principle, discipline makes sense.  As a supposed formula for trading success, Discipline ensures consistency in losing.

The same is true for ideas of emotional awareness and mindfulness in trading.  Great ideas in context that, once blown into Great Principles, divert traders from the real work for identifying objective patterns playing out in the marketplace.  If a trader trades randomness with self awareness, they will be a keen observer of their own demise.


Which brings us to the topic at hand: the real reason traders lose money.

One of those nuggets of wisdom that gets blown out of proportion is the idea that success comes from trading in a way that fits your personality.  There is certainly truth to that.  If you’re an extroverted person, your idea generation is likely to benefit from talking with knowledgeable market participants.  If you’re introverted, you are more likely to benefit from reflection and analysis.  Taken to the level of Grand Principle, however, the idea that success will follow from expressing your personality in markets becomes a kind of anything goes, do whatever you feel like justification for poor decision making.

Because *that* is the real reason traders lose money:  They ARE trading their personalities.  Show me a losing trader and I’ll show you someone acting out their personality in risk-taking.  Consider examples drawn from the “big five” personality traits:

*  The trader who lacks conscientiousness in his/her personal life fails to achieve consistency in trading.  The trader who is overly conscientious fails to innovate when market conditions change.

*  The trader who lacks emotional stability in his/her life trades impulsively and emotionally.  The trader who is highly emotionally stable has difficulty taking proper risk out of fear of upsetting the emotional apple cart.

*  The trader who is highly introverted or extroverted allows internal or external stimuli to interfere with decision making.

*  The trader who is highly open to experience becomes so enamored of new ideas that his/her trading becomes skewed by the latest shiny toy.  The trader lacking openness to experience finds one way to make money and can’t do anything else even after that one way loses its edge.

*  The trader who is very likeable has difficulty tuning out people and becomes easily distracted by noise.  The trader who lacks likeability alienates the very colleagues that could help inform his or her trading.

In other words, traders lose money BECAUSE they are trading their personalities.  Every personality trait brings potential assets and liabilities to trading.  Sometimes, our personalities pose severe challenges to trading success.  Every personality asset, when overutilized, brings its own set of problems.  

There is only one source of making money in markets, and that is identifying recurring patterns in market behavior and exploiting those in a manner that provides solid reward relative to risk.  We marshal and attenuate various personality traits to identify and exploit those patterns.  Success comes, not from indulging our personalities, but from knowing which traits to draw upon and which to work around.  That is called wisdom.

In my next post, I’ll provide a personal example of trading success that came, not from following my personality, but from properly channeling it.

Further Reading:  Trading Psychology for the Experienced Trader

Published at Sat, 08 Apr 2017 11:24:00 +0000

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Investors look to global growth for earnings power

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 Investors look to global growth for earnings power

By Caroline Valetkevitch| NEW YORK

America First may be a main policy of the White House and fuel to the stock market rally but U.S. investors are looking overseas for stronger earnings as S&P 500 companies are set to report their first quarter of double-digit profit gains since 2014.

A strong earnings season would help justify pricey stock valuations, with the S&P 500 rallying this month to its most expensive since 2004 on a forward price-to-earnings basis.

While the U.S. economy has gotten a lot of attention since the Nov. 8 election and President Donald Trump’s vows to boost the domestic economy, data during the quarter has suggested the global economy is strengthening.

That is welcome news for S&P components, since nearly half of their sales come from overseas.

Shares of the biggest U.S. companies, which tend to have the most overseas exposure, have been among the strongest performers over the past several weeks. For instance, the S&P 500 .SPX has outperformed its average stock .SPXEW this year since mid-February, after performing mostly in line at the beginning of the year. [www.bit.ly/2oQPVXF]

“The fact that we’re seeing stabilization in the global community will bode well for multinational companies and help earnings for the first quarter,” said Terry Sandven, senior equity strategist at U.S. Bank Wealth Management in Minneapolis.

“You’ve also seen the dollar not appreciate as much as many had forecast a quarter ago, so multinational companies may get some relief on the (foreign exchange) line,” he said.

A weaker dollar boosts offshore revenues when they are translated into the U.S. currency. The U.S. dollar index .DXY was down 1.8 percent in the first quarter, but it was still cheaper during last year’s first quarter.

 

STRONGER DATA AS EARNINGS LOOM

A survey this week showed euro zone business activity at a six-year high. Forecasts from the International Monetary Fund show a pickup in the global economy in 2017 and 2018, especially in developing economies.

However, some investors worry multinationals may have already priced in big gains in earnings.

“As long as nothing changes, these firms are going to be fine,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago, speaking of the strength of the largest American companies.

He warned, however, that stock prices may have taken in any good news. “The market has certainly fully discounted all that.”

The U.S. earnings season gets under way next week, with results from banks JPMorgan Chase (JPM.N), Wells Fargo (WFC.N) and Citigroup (C.N) among others.

The financial sector is projected to post a 15.4 percent profit gain, second only to energy among S&P sectors.

Energy companies, which carried most of the losses that extended an S&P 500 earnings recession until the second quarter of last year, are expected to do most of the heavy lifting this earnings season with a whopping 600 percent increase.

For the entire S&P 500, analysts are projecting earnings up 10.1 percent compared with a year ago, which would be the first double-digit increase since the third quarter of 2014, according to Thomson Reuters data.

Excluding the energy sector, S&P 500 earnings are expected to be up 6.1 percent.

Revenue is expected to have jumped 7 percent, the most since 2011, which should help compensate for higher wage and other costs facing companies, strategists said.

“We’re seeing revenues contribute materially more to that bottom-line growth,” said Patrick Palfrey, senior equity strategist at RBC Capital Markets in New York.

Big profit gains are expected in technology and materials as well, the data showed.

“It comes down to a synchronized global economic acceleration …; a rebound and stabilization in commodity prices and a higher interest rate environment,” Palfrey said.

(Reporting by Caroline Valetkevitch; Editing by Rodrigo Campos and James Dalgleish)
Published at Sat, 08 Apr 2017 00:00:33 +0000

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