Trade The S&P Tickle Me Elmo Style

[SnerpGoodWord]

I thought all the financial traders on PDFSP might find this blog post I just did interesting:

Trade the S&P Tickle Me Elmo Style

It describes how to convert "conventional" business logic into financial trades, with a little Black Friday twist

[just jr]

I enjoyed your post. I also took the time to read your why i am a speculator post. While i dont agree about investing will be a dead shot until 2025 or so i do see your point. Overall you are a good writer and i look forward to reading more

[VinceG]

That was a pretty good article, thanks!

[Peterw]

Good post!

I never really looked at trading from a viewpoint of being a middleman but I suppose it does make sense to do that.

[SnerpGoodWord]

Unless you actually plan to produce or consume the security, I think it's the best mindset.

[Peterw]

Originally Posted by SnerpGoodWord

Unless you actually plan to produce or consume the security, I think it's the best mindset.

I do plan on owning some gold soon, think I'll pass on the crude though!

[just jr]

Originally Posted by SnerpGoodWord

Unless you actually plan to produce or consume the security, I think it's the best mindset.

do you think that a bottom up approach can work in this day and age or do you think that in order to be succeed in the future one must look globally then work your way down and if so why?

I am a value investor by definition but I am always looking for different view points on these things

[SnerpGoodWord]

I'm not sure exactly what you mean by bottom up vs. looking globally and working down? I can see several dichotomies you might be getting at:

speculation vs. investment
long term vs. short term
global perspective vs. US-centered
many trading instruments vs. few or one
fundamentals trading vs. technical trading

Just so you know where I'm coming from, my approach is generally speculative, short term, US-centered, one or few instruments and technical. That's where my expertise lies. But I believe it's possible to make money with nearly all possible combinations of those parameters.

I'll be glad to answer in more detail if you can clarify the question a bit.

[just jr]

Originally Posted by SnerpGoodWord

I'm not sure exactly what you mean by bottom up vs. looking globally and working down? I can see several dichotomies you might be getting at:

speculation vs. investment
long term vs. short term
global perspective vs. US-centered
many trading instruments vs. few or one
fundamentals trading vs. technical trading

Just so you know where I'm coming from, my approach is generally speculative, short term, US-centered, one or few instruments and technical. That's where my expertise lies. But I believe it's possible to make money with nearly all possible combinations of those parameters.

I'll be glad to answer in more detail if you can clarify the question a bit.

I meant from a speculation vs investment approach. Do u believe that investing in
companies long term say 3-5 years? And have u ever tried that approach?

[SnerpGoodWord]

Originally Posted by just jr

I meant from a speculation vs investment approach. Do u believe that investing in
companies long term say 3-5 years? And have u ever tried that approach?

One issue here may be terminology. In my mind speculation is primarily concerned with the price of a security. Investment is primarily concerned with disbursements, or yield. The problem is that these definitions are not universal by any means.

In that context, I believe 3-5 years is too short to be an investment timeframe unless you're talking short maturity bonds. With stocks capital appreciation or depreciation (aka price) is going to be the dominant thing determining your return over 3-5 years. Simply put there won't be enough time for yield to predominate.

In terms of speculation (ie. trading for price), I don't have much interest in the 3-5 year time frame at the moment, but it's possible I could in the future. As I see it the things that push one towards longer time frames are

a) the desire or need to trade a larger amount of capital that can't be moved into and out of positions in a short period of time

and

b) the desire to simplify your speculation tasks and make more free time ie. to work less hard compared to short term speculation

At the moment, neither applies to me, so I speculate on a shorter time horizon. About the farthest out I go is a few weeks.

[just jr]

Originally Posted by SnerpGoodWord

One issue here may be terminology. In my mind speculation is primarily concerned with the price of a security. Investment is primarily concerned with disbursements, or yield. The problem is that these definitions are not universal by any means.

In that context, I believe 3-5 years is too short to be an investment timeframe unless you're talking short maturity bonds. With stocks capital appreciation or depreciation (aka price) is going to be the dominant thing determining your return over 3-5 years. Simply put there won't be enough time for yield to predominate.

In terms of speculation (ie. trading for price), I don't have much interest in the 3-5 year time frame at the moment, but it's possible I could in the future. As I see it the things that push one towards longer time frames are

a) the desire or need to trade a larger amount of capital that can't be moved into and out of positions in a short period of time

and

b) the desire to simplify your speculation tasks and make more free time ie. to work less hard compared to short term speculation

At the moment, neither applies to me, so I speculate on a shorter time horizon. About the farthest out I go is a few weeks.

Hmm i see. I used speculation in the form of trading for price, over a short time frame, i view investing as a longer term situation. I consider investing anything longer than a year.

If you also wouldnt mind answering why do u prefer technical over fundamental analysis

[SnerpGoodWord]

Originally Posted by just jr

If you also wouldnt mind answering why do u prefer technical over fundamental analysis

Because I believe I can achieve a higher return with technical analysis than fundamental analysis. This is closely related to the time-frame issue since there are in essence no fundamentals trades on short time frames. And short time frames can be incredibly powerful - if I could take a bet for 1% of my net worth every trading day and be right 60% of the time, I'd double my money every year and a half (assuming compounding). There are several technical approaches which can potentially do better than that. The issue, as with all short term strategies, is execution and liquidity.

Realistically there aren't any fundamentals strategies I know of that can match that. CANSLIM might stand a chance, although it's as much technical as fundamental. Once upon a time structural and merger arbitrage were very good, but merger arb in particular is very crowded now and is a tough game. Something simple like buying low Shiller PEs works, but it only adds a couple of percent return to what you could get just by buying the index.

Of course, it's possible there are very good fundamentals-based strategies out there I'm unaware of.

[mpescetti]

I'm curious to hear what you might think about this: eminiWealth's Top9Trader Software | The Leader in Day Trading Software

It kind of takes all the effort you demonstrated out of the equation...

Cheers in advance...

[SnerpGoodWord]

Originally Posted by mpescetti

I'm curious to hear what you might think about this: eminiWealth's Top9Trader Software | The Leader in Day Trading Software

It kind of takes all the effort you demonstrated out of the equation...

Cheers in advance...

That looks scammy as hell. I would never recommend that anyone buy a black box trading system like that - or buy a trading system in any form for that matter.

[mpescetti]

Originally Posted by SnerpGoodWord

That looks scammy as hell. I would never recommend that anyone buy a black box trading system like that - or buy a trading system in any form for that matter.

I reread your article to get a better sense of where you're coming from and I can understand why you have that opinion. I actually wrote the copy for the site and boiled the jargon down to a low simmer.

I do appreciate what you wrote. It's well-written and makes your point pretty clearly (in your article.)

I'd love any constructive feedback you might feel inspired to give since you're obviously well-versed at trading.

[SnerpGoodWord]

My objection isn't to the copy, it's to the product being sold. I think it's ♥♥♥♥♥♥♥♥.

Think about it like this: let's assume those performance charts shown are real and assume $10,000 of day trading margin per ES contract which is plenty sufficient given the claimed performance. Based on the chart, it looks like it takes about an average of 700 trades to make $10,000. And it looks like the method averages about 4000 ES trades a year. So that suggests you'll double your money between 5 and six times per year. Let's say 5 for simplicity sake.

The test starts in 2008 and runs to the current day more or less. In other words, about 18 doubling periods. So if you started trading 1 contract on this method on Jan 1, 2008, you'd theoretically be trading a quarter million contracts on a $2.5B account now. Obviously there anywhere near enough liquidity for that, so what would happen is you'd max out the liquidity and be trading 100-500 cars just like the other big boys in ES. Say 100 contracts for simplicity. Now, 100 contracts making $3100 per contract per month like that chart shows is a $310K dollars per month - pretty good coin. Plus of course whatever peanuts you can pick up in TF. I wouldn't mind making that.

But if I was, there's no way in hell I sell the machine that makes it for $3,000. I'd have to be a grade A retard to create competition like that. So I'm left with two options:

1) the guy selling the software is a retard, in which case I do NOT want to be using his black box software even if it appears to work lest some stupid thing he did causes it to break
or
2) the software in fact is very unlikely to generate the promised performance and thus can be sold with no opportunity cost to the seller.

I lean heavily on theory #2 personally.