Archive for ‘investing theory’

From Calculated Risk

By , 28 November, 2008, No Comment

CB Richard Ellis: CRE “Conditions have deteriorated” Rapidly
by CalculatedRisk on 11/28/2008 09:10:00 AM

“Conditions have deteriorated on a scale and with a speed that no one could have predicted just a few months ago. Market conditions of unprecedented strength are roiling the world’s financial markets. The global economy is either in, or close to, recession and 2009 is not likely to be a year of great recovery.”

Brett White, president and chief executive officer of CB Richard Ellis, recent letter to clients, from the LA Times: CB Richard Ellis feels industry’s painAnd a few months ago White wasn’t exactly optimistic:

“Decreased investment volumes have now become evident in all parts of the world. … I can best describe the current environment as being very challenging and still having a high probability of getting worse before we see improvement.” Brett White, president and chief executive officer of CB Richard Ellis, July 30, 2008

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Was it the Obama effect?

By , 6 November, 2008, No Comment

I have read several blogs of late that hold the opinion that the last two days of market declines can be attributed to the election of Barak Obama as president-elect. All sorts of elaborate scenarios have been extolled upon which are primarily centered around the trepidation most Americans citizens and corporations feel toward our soon-to-be president.

Of course, nothing could be further from the truth. For those of you with backtesting ability on your software, check out the stock market returns during election years starting October 22 thru November 2, and you will find, with one exception….a run up in the stock market. It is not surprising to also find a sell off, of differing intensities, in the days after the election. This “election effect” was first brought to my attention while watching one of John Carter’s videos, so I went and checked it for myself and sure enough, the corelations held true. So we can lay to rest the idea that Barak Obama caused a widespread panic in the stock market.

We have ourselves in a tenuous financial position in this country, and the problems we were experiencing prior to the election are no less now than they were two weeks ago. The credit markets are improving, but still remain in a state of semi-paralysis. Numerous industries, the automobile business being one of the most prominent, are teetering on the edge of bankrupcy. A check of most industrial output, earnings and sales shows a general slowdown in all areas and very few sectors of the economy have been spared. (Although Walmart reported increased earnings this quarter and gave very positive guidance) Though government officials dare admit this fact, we are in a recession. There is no equation or formula to gauge just how long our economic woes will last, or even the severity of the recession. We are in for a rough go of it, and I hope that our leaders will be successful in their mitigating attempts to solve some of the financial problems the American public is experiencing.

It is common to hear the bloggers blame the government for our troubles, very fashionable, but the fact of the matter is that private business led to our problems. We simply let our own greed overcome any semblence of good sense. One could argue that the government should have somehow had a steadier hand on lending practices, but I cannot fathom how Alt-A loans and some of the “liars loans” could have ever been made with a good conscience. Quite simply, the peddlers of these mortgages had little concern beyond immediate profit and the same goes for the suppliers of the funding for these mortgages. It was, without a doubt, irresponsible. Period.

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Ah…this is truer than you think….

By , 26 October, 2008, No Comment

Used with permission from cartoonist John Ambrosavage at Ambrotoons.com
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How I place stops

By , 18 October, 2008, No Comment

Many traders have their own theory on how to place stops on their market orders, or whatever kind of order they place. With the recent market volatility this has been a challenging job to accomplish, because the intrabar turbulence has many a stop to be triggered and money lost. I still encourage, no……I insist that traders place their stops in a manner that gives them adequate protection. My stop ranges have been anywhere from 12 to 20 ticks, depending upon the nature of the market that day.

But I want to address those who trade without stops, and indicate what a terrible risk they are taking because a sudden spike, of which we have had no shortage in the recent month, my signal the end of your trading career. Stops are an important and essential part of any trading strategy to keep me from encountering catastrophic losses.

I also move my stops when a trade is in progross….let’s assume that I have made a good trade and am in the money and I have initially positioned my stop at 12 ticks…once I am 1.5 points into the money, I manually move my stop up to 4 ticks…once I have reached two points, my stops are at my market entry points, and if I let the trade run I continue moving my stops upward to protect my gain. Remember this…..NEVER LET A WINNING TRADE BECOME A LOSING TRADE…and stops are a great way to do this.

You might also use a trailing stop strategy, where once you reach a certain point in profit the stopo moves automatically according to a preset you put in before the trdeeeeeeeeeeeeeeee gooes in. Myself, I am much more comfortable moving the stops manually, which may be the remnant of the “old school” way of doing thing, but I feel much more comfortable placing my stops this way.

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Could someone just slow this roller coaster down?

By , 10 October, 2008, No Comment


Click on image to enlarge
ESZ8 10-10-08

Now let me see, are we down 700, up 200, down 500….we were all these things today and more. The surprising thing to see was actual buyers in the market again. There has been a noticeable lack of buyers in the last couple of weeks. Which is not to say that buyers overwhelmed the market, they didn’t… but there were bona fide groups that appeared to mutual funds trying to find some value.

As for myself, when the market dropped 700 at the open and then roared back to +200, I shut the computer off and went golfing. I don’t have much to tell you about the market, other than it ricocheted around all day and I wanted no part of it.

And my golf game wasn’t much better, but was quite enjoyable.

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The song remains the same

By , 8 October, 2008, No Comment

The charts today, along with the story is very similar to the last two weeks. The market is in the process of deleveraging and jettisoning the assets they have to raise cash. Unfortunately, many of the assets that are integral to this process are of dubious or not value, especially the CDO and credit default swaps that accompanied them. So it has been raining cash in the markets for the last few weeks, and today was not different.

The Federal Reserve flailed at the problem today by lowering interest rates 50 basis points, but this was of little consequence to a market focused on unloaded debt, and assuaging the fear that has become integral in the market of late. So the market bobbed up and down and all around with some of the longest bars to date, and finally settled on -189 and change. So much for interest rates solving the problem.

The chart below is from yesterday and you need only substitute todays comments for yesterdays comments as the song has remained fairly constant in the current economic environment. I would expect some bounces up in the coming day, but that is just a guess on my part. Of course, the interest cut was bad news for the dollar and it was roundly pummelled throughout the course of the day.

The volatility today convinced me to stay on the sidelines until more manageable volatility prevails….using 3 point stops, or even 5 point stops, it is virtually impossible to stay in a trade.
So I watched today with grim fascination.

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Todays market and oscillators….

By , 9 September, 2008, No Comment

I only traded until 11:00 today and the setups were obvious and easily spotted….fractal after fractal. The only problem I had today was I was constantly “bottom fishing”….that is, most of the trade setups occurred when the market was at a daily low. I am always hesitant to try to trade as the market is making new lows, as this is often a reversal point. Today, however, the market just kept chugging downward, and I stepped right down the ladder with it. It is a very uneasy feeling, however, to take a short position into a what will be a new low…so I felt quite uneasy about most of the trades, even though they were quite profitable.

I’ve been getting quite a few phone calls lately from individuals asking me about my style of trading….

For some, anyway, the way I trade (and many others like me) seems too intuitive, though nothing could be farther from the truth. I do run a number of oscillators on my screens to cross check my fractal formations, and try to filter simple market noise out of the equation. There are some days, and parts of some days, where the market simply wanders aimlessly and there few opportunities to trade. But I would hate to trade a “mechanical” oscillator system where my entries and exits are predefined because there too many anomalies for an oscillator to differentiate. Which is not to say that oscillators are of no use in trading, only that relying on any mechanical or mathematical system to trade is a less than profitable situation.

Fractals, or price action, gives a very clear picture of what the market is doing. Add support and resistance, pivot points and some filtering oscillators and you have a remarkable system to trade, all it takes is some practice and it can be easily mastered.

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