Wednesday, February 25, 2009
The RO Report, "Volume" Edition
I'm not going to throw a party or anything, but it appears volume has returned to the market. Two days in a row we've traded over 1.5 billion on the NYSE.
I was very hopeful at 3pm when the market was ripping and the financials were leading. When we decide to go higher again, the financials are going to have to lead. Also, the fact that USO climbed higher and was pinned to the highs was positive.
Unfortunately, we're in a nasty bear market and rallies get absolutely no respect.
I hate late day reversals and always have a hard time trading them.
It was a mixed day in the RO. Out of 30 traders today 19 were gross positive or 63%. 7 traders made over $1,000 gross and 4 lost over $1,000. I gambled on a couple of MOCs at the close and lost... DNA, man. I was #23 of 30.
The good news is that we had a full on "spray" by Trader A. As you know, that means he picks tonight's song. I will post it later. He led the Bosses to victory.
"Lucky Pierre" - Trader A, $26,632 on 297k shares traded.
2. Trader D, $11,496 on 307k shares traded.
3. Trader C, $7,422 on 147k shares traded.
4. Trader B, $6,861 on 524k shares traded.
5. Trader F, $5,850 on 198k shares traded.
"Chambermaid" - Trader Z, -$7,787 on 309k shares traded.
2. Trader R, -$6,903 on 22,000 shares traded.
3. Trader &, -$2,603 on 22,400 shares traded.
4. Trader J, -$1,356 on 13,800 shares traded.
5. Trader E, -$675 on 11,400 shares traded.
Stock Market Trend Analysis 2/25/09 from brian shannon on Vimeo.
Another Person Who Shouldn't Trade
This is a perfect example of a low probability setup. Traders always need to balance risk and reward. This here was all risk...
Brutal Roof Jump to Trampoline Faceplant - Watch more Funny Videos
Ed Seykota: Market Wizard
(Yes, I'm skipping right over Gary Bielfeldt. However, while he seemed like a nice dude in the interview, his hands aren't squeaky clean according to this Forbes article. A fun read if you're familiar with the Market Wizards interview.)
Anyway, the Ed Seykota interview has been my favorite thus far in Market Wizards.
Why? Well, I appreciate anyone who can have a good sense of humor and be humble despite being richer than a cat in a fish store. Also, the man has the ability to break trading rules down into aphorisms that stick in your head. I've read a lot of books on Buddhism and I'm always amazed at how simple but dense some of the writing is. A lot is conveyed in a very efficient way.
Seykota on trading is as good as Thich Nhat Hanh on Buddhism.
Okay, sure, all the humor and humility in the world isn't going to make you money if you don't have some other things working for you. But I want to stress that developing a good sense of humor and a true sense of humility (not to be mistaken with false modesty) are very important if you hope to be a good trader.
Think of trading as a lifestyle, not just an occupation. It's longevity you are striving for, not simply riches. Having a sense of humor and humility will help keep you in this job through difficult times.
And longevity is important. According to Seykota, "Longevity is the key to success."
Again, I'm re-reading this book during a difficult stretch in my career, and so I tend to focus on those parts of the interviews that deal with setbacks. But Seykota didn't even want to talk about setbacks... the dude was just focused on the here and now and the positive future. I liked that because only by focusing on what's in front of me will I be able to move forward again.
Seykota is primarily a systems trader. He wrote some sort of trend following trading system that generates buy and sell signals, and he sticks to it. I couldn't help but wonder if this was why he was so damned cheerful and happy... he's got a goddamn robot making hundreds of millions of dollars for him. What's not to be happy about? Still despite this fact, he had many insights that can apply to us daytrading types.
I mentioned how he doesn't like to dwell on mistakes. He moves quickly past them and focuses on the next opportunity. Obviously, this is a great skill to try and develop. When you start dwelling on past errors, you tend to want to correct them as quickly as possible. This can lead to overtrading, or taking excessively large bets in an attempt to "make back" all the money you lost.
While occasionally this might work out for you, long term, it's not a good strategy. So, when you make a mistake, move on.
If Seykota finds himself in a trading slump, he simply limits activity. Meanwhile, if things are going well he gets more aggressive and takes larger bets. Again, this seems very simple but in practice, it is often tough to remember. That's why reading books on trading should be part of your everyday job description as a trader.
There are many truths to trading that are obvious but also easily forgotten. Books help you remember.
Seykota says that cutting losses is the most important element of trading. After 10 years I can't tell you how sick I am of hearing this trading axiom. However, it's constantly repeated because it's a very tough rule to master.
I mean, look, you're going to read these words over and over again: "cut losses short." I guarantee it. If there is one positive change you make today to your trading, promise yourself that you're going to read these words now, "cut losses short" and master them. Here and now. Done.
Easy enough, right? But in practice, when the screens are flashing and the news is spitting out of your computer speakers or worse, the television, connecting to the rules in your head is often difficult.
Always remember... trading is simple as you want it to be.
Take the small loss. Just take it. You can always get back in if the situation improves. As Seykota puts it, "Losing a position is aggravating, whereas losing your nerve is devastating."
Finally, Schwager asks what a losing trader can do to transform himself into a winning trader. Seykota responds, "A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That's the kind of thing winning traders do."
In other words, adapt or die.
You need to constantly change with this game since the market is constantly changing. Don't get attached to a certain style of trading because you are setting yourself up for much pain in the long run. Instead, understand that you have to constantly reinvent the way you approach the market all the while hanging onto the core principles of trading.
Seriously, this was a great interview to read. If you are just picking and choosing through the book, be sure to spend a half hour and read this one.
Tuesday, February 24, 2009
Great Speech By Obama
While it is already being derided by so called "first tier" bloggers, I will submit that it's much nicer to have a President who sets lofty goals during a time of crisis, instead of one who tells you to "go shop."
Staff Benda Bilili, "Polio"
A reminder that polio still plagues much of the world. Why the fuck not?
The RO Report, "Relief Rally" Edition
Never has relief been so palpable...
If you've been following along, you know that 2009 has not been kind to the RO. There has been lots of blood, large drawdowns, and a couple of blowups. So it's nice to see nearly everyone do well together.
It's the kind of day that renews confidence.
I have no idea what to expect tomorrow. My guess is that this was mostly short covering ahead of the Obama speech, but we had solid volume today and the VIX cratered so perhaps it will last a bit.
It would be nice to look back at this point in June and see a nice double bottom.
The RO kicked ass, putting in probably the best day of 2009. Out of 30 traders today 23 were gross positive or 77%. 15 traders made over $1,000 gross and only 3 lost over $1,000 gross.
I was #15 of 30. Baby steps. I know the game. It's all about building back up and not trying to make it all back at once.
The Bosses dominated.
"Lucky Pierre" - Trader B, $29,509 on 746k shares traded.
2. Trader A, $19,464 on 572k shares traded.
3. Trader D, $14,785 on 527k shares traded.
4. Trader Z, $13,545 on 244k shares traded.
5. Trader C, $10,457 on 369k shares traded.
"Chambermaid" - Trader E, -$1,881 on 75,600 shares traded.
2. Trader M*, -$1,571 on 0 shares traded.
3. Trader 9*, -$1,204 on 600 shares traded.
4. Trader T, -$908 on 4,900 shares traded.
5. Trader G, -$493 on 45,000 shares traded.
Today's heatmap is the inverse of yesterday's...
Click here for Brian's take.
Since I got busy trading today, I didn't have time to finish the Ed Seykota post. It will be up tomorrow.
Another Disappointed Customer
Meanwhile, my discussion of the Market Wizards interview with Ed Seykota is in development. I'll either have it published midday today or tomorrow.
Monday, February 23, 2009
The RO Report, "Chickens Without Heads" Edition
Back when I was in grade school, I had this teacher who always used to complain that us kids were running around like "chickens without heads." As an adult, I recognize that this teacher was probably somewhat disturbed.
However, the image has stuck in my head and today I get to use it because I watched CNBC. Every person who was on CNBC today was running around like a chicken without a head, with the exception of Dylan, who is a bit cooler than most. No one knows what's going on... all anyone has are questions... it's a great mess.
People are a bit freaked out, and rightly so. Trader P pointed out to me that we're almost exactly 50% off the Dow highs of 14,198 set back in October of 2007. It's an amazing and swift giveback. However, unless you're among the lunatic fringe who, sadly, seem to frequent "the Fly's" site almost exclusively now, you can see it in a positive light.
Unless you truly think the world is coming to an end, most of the pain is probably behind us. And if you truly think the world is coming to an end, what the fuck are you doing reading this anyway? You have work to do! Go get that gun! Go buy those grains!
I traded very lightly. I'll continue to do so until I get a consistent trade going... a trade I see over and over again and that works. When this happens, my confidence will come back and I'll start trading heavier again.
I know I am not the only trader suffering from confidence loss right now. The RO got slammed. But, like the market, I plan on being around in 10 years. In 10 years, these couple of months of drawdowns will be a blip.
Anyway, the Manservants took it to the Bosses today. Out of 28 traders today, only 10 were gross postive or 36%. 5 traders made over $1,000 gross, but 8 traders lost over $1,000 gross. I was #11 of 28, or basically flat.
"Chambermaid" - Trader B, -$22,858 on 385k shares traded.
2. Trader D, -$16,881 on 252k shares traded.
3. Trader F, -$16,053 on 89,600 shares traded.
4. Trader H*, -$13,793 on 25,300 shares traded.
5. Trader C, -$7,421 on 117k shares traded.
"Lucky Pierre" - Trader Z, $6,185 on 80,100 shares traded.
2. Trader A, $4,394 on 116k shares traded.
3. Trader E, $2,624 on 22,400 shares traded.
4. Trader N, $1,617 on 24,400 shares traded.
5. Trader V, $1,461 on 31,200 shares traded.
Click here for Brian's take.
Sunday, February 22, 2009
"Trader Tax" Would Kill Stock Traders
"Out of opposition, a new birth."
-Carl G. Jung (1875-1961). Psychology of the Transference
Meanwhile, check out this article to understand why a new birth may be our only option. The old patient is cold. (h/t Jawbreaker)
IMPORTANT: The so called "Trader Tax" would be the end of proprietary trading as we now know it. It would place at 0.25% transaction tax on "the sale and purchase of financial instruments" including stocks. It is in a bill, H.R 1068 which is currently being debated for passage. If you are a proprietary trader, you need to write your congressperson to voice your opposition today.
Here is the full text of the bill.
Friday, February 20, 2009
Week In Review
Stephen King killed John Lennon. Really? Be sure to check the video on the left.
Dude in China has 5 mistresses. He can't afford them all so he holds a contest to see which one he should keep. They all die.
An Oral History of the Bush White House.
True, it sucks to miss your flight, but this woman takes it a bit far.
See if you can find me in this photo of 18,000 naked people.
Despondex, for the annoyingly cheerful.
Use your cell phone much? Might as well get tagged and tracked like a game animal.
25 people to blame for the financial crisis. You can vote how innocent or guilty you think they are!
Thursday, February 19, 2009
Tom Petty, "Won't Back Down"
Let this serve as a message of warning to my detractors, and to the market in general.
A Warning From Hank Brummel
On a recent afternoon, I drove to the local hardware store. I had to buy some rock salt to melt the ice covering the brick steps that lead to our back door. Ice clings stubbornly to brick.
Last month, my father-in-law slipped on some ice and landed flat on his back. He couldn't get into his car for 2 weeks. The same thing happened to my father a couple of years ago, except he wasn't so lucky. He broke 4 ribs, punctured a lung, and spent a few nights in the hospital. I still remember visiting him...
From the door of his room I looked in to find him sitting up in his bed, wearing one of those hospital gowns that were designed by armless blind people: the kind that expose your ass when you stand. He was staring idly at the thin gray curtains that separated him from his roommate, an angry old man who was mumbling something about laxatives.
Hospitals gowns, old people and laxatives... Incidentally, all great conversation starters if you ever find yourself burning in hell.
Dad's thoughts seemed scattered. We were at some sort of "teaching hospital" and minutes after I arrived, 8 or 9 doctors stood conferring over a clipboard at the foot of his bed. They were debating the best way to re-inflate my father's lung. Many of them seemed young. My father had this idea that his lung would get better on its own; however, the hospital people wanted to put in a chest pump and re-inflate it for him.
"DT," he whispered to me, "this place is like a veterinary hospital. Of course they want to give me a chest pump! Where else are these kids going to learn how to do this?"
I won't say that he panicked, but my father looked fearful. It was awful seeing him in that condition, and it has stuck in my head. He's not paranoid like I am... actually, quite the opposite. Anyway, he got out of there and his lung inflated just fine: no chest pump.
What's the point of this? Ice has been trying to kill my family for years. As a result, each winter when it shows up on my steps it's a sort of "revenge play" for me to melt it all. Ice isn't welcome at my house; when it shows up, I take it personally.
So, as I was saying... hardware store, rock salt.
The hardware store is always uncomfortably warm and smells of herbicides and fertilizer. The man who works the section by the entrance constantly wears a stoned, glazed-over, look. And, in fact, he is always stoned. In another lifetime, I got heavily into darts and joined a pub's "dart team." Clearly, this topic needs its own post... However, let's just say I really got to know a lot of the local degenerates and "Bob the builder" here was one of them. I asked him where the rock salt was and without looking up from what he was doing, (trying to release a gumball from the gumball machine) he said, "automotive."
So I was on my way to the automotive section when I bumped into Hank Brummel. He was stacking suet blocks into his basket. When he looked at me, his face immediately went dark.
Hank is a celebrated figure around town. He's 95 or so, but you'd think he was 80. He's still very independent and mobile, and you'll see him strolling around in a fashionable cardigan sweater, hair fuller and whiter than a blizzard, waving to everyone he passes and making small talk. I've heard that he developed the first motors for windshield wipers. GM had bought his patent and he became very rich.
Without a greeting, he grabbed me by the elbow and said in a low voice, "Bad times are ahead." I made some hopeful gesture and said, "Barack Obama!"
Hank wasn't impressed. He stood there next to a display of window washer fluid and blinked patiently at me. "DT, we've been building up to this for years and years. It will take years and years for things to get back to normal." He looked thoughtfully at the floor and shook his head. "Even then," he said flatly, "things will just be different." Brummel's eyes grew nebulous. "I mean, it's not for me I worry. I'm going to die soon... hopefully anyway. But I have 30 grandkids to think about."
I knew Hank had lived through the Great Depression and so I asked him, "What do I do if things get as bad as you think?"
He looked right through me with his cloudy old man's eyes and said, "Plant a garden, raise chickens, and buy a gun."
"Jesus, Hank," I said as some nervous laughter escaped, "a gun?"
"Yes, DT. A gun."
And with that, Hank Brummel darted down an aisle full of cabinet hinges and disappeared.
I purchased my rock salt no longer confident that ice was worth all the worry.
Wednesday, February 18, 2009
Xcelera Anybody?
Behind each flash of red and green on a stock trader's screen there is a story to tell.
Back in 1999, many of those flashes were created by "regular" people who had just opened Ameritrade accounts. They were driven to the market by the "tech bubble" and their newly acquired access to real-time quotes. They abused the letter "e," which quickly became the world's most overused prefix, and buzzed about initial public offerings.
Seemingly sane analysts were on CNBC plastering ridiculous price targets on companies that were nothing more than a vague idea and a ticker symbol. Surely there were some who protested, but the vast majority in the media claimed that things were "different this time" and that the economy had fundamentally changed. The bulls were released through the TVs that hung from the heavy steel brackets over our trading desks. As professional proprietary traders, we were like sharks swarming to devour the chum they tossed to us.
Unfortunately, the bulls also found their way into the living rooms of unsuspecting Americans who had a friend that "cleaned up" in AOL.
CNBC hit us all with an intoxicating combination of cold analysis, sex and humor. The men in pinstripe suits with gelled hair spoke of fundamentals while a young Maria Bartiromo bumped and grinded with the traders on the floor. Joe Kiernan and David Faber acted like they were fraternity brothers, Mark Haines was your cranky uncle, and during commercial breaks, humorous online trading commercials sold the stock market to a new generation of investors.
The overriding message was, "Hey you! Why are you letting the rich guys make all the money? Any monkey can figure this shit out! TRADE! LAUGH! CHECK OUT MARIA'S TITS!"
Since we're so far removed from those times, let me give you a quick reminder of what things were like. The case of the Linux IPO was not uncommon. The stock was initially priced between $11 and $13 a share. A week or so before the IPO, the price had doubled to $22. When it opened for trade, the first open market transaction was for over $300 a share! But the lunacy wasn't reserved solely for the NASDAQ stocks. Corning, the glass company traded on the NYSE, gave us our fair share of excitement. You can find their bowls in your mother's cabinets. In 1999 though, all anyone cared about was fiber optics, made from GLASS, and we watched as this tame company went from $15, to $115 and back to $15 in about a year.
In 1999 if anyone suffered from an anxiety disorder, it wasn't brought on by Osama Bin Laden or by their mountain of mortgage debt... Instead, people were afraid of missing the next big thing. But because no one knew anything about the companies being promoted, the common reaction was to buy first, just in case, and ask questions later. Xcelera anybody?
Indeed, this was the free-money era for investment bankers; the regular guy was in the market buying and the professionals were selling to him.
Weird stuff was happening every day, but to a new trader like myself, it didn't seem weird at all. This was the environment in which I was learning. It was sort of like growing up in a household where your Dad was a lion tamer and you didn't realize that this was odd until you were older.
The bustle and the energy from the exchange lifted out of our screens in those red and green flashes and drew us in. This was way before the anonymous hum of the hybrid market. The energy then was more visceral and personal. It was as if you could feel the pain and greed in the quotes. A big offer was lifted and you felt the flood of elation. A huge bid got smacked and you could almost see the bulls hang their heads.
And I was there, creating my own red and green splashes on the screens.
Early on, I remember focusing on three stocks: RDN, AVY and MUR. No one pulled me aside and told me to watch these stocks... in fact, no one told me anything. The only guidance I received was to watch the broad market, as 3 of 4 stocks move with it, and take my cues from there. I learned to search out stocks that had at least a one-point daily range, were priced between 10 and 100 dollars a share, and traded upwards of 200k shares daily.
I had good days and bad. At the end of my first 8 months, I came away with a respectable $40k. Looking back, I was being way too conservative. If anything had to fundamentally change it wasn't the media coverage, it was the way I viewed money. Surely, given the huge price advances on display one was almost encouraged to think that money wasn't real.
This was also spurred on by some of the traders surrounding me and how they dealt with huge gains and losses.
Tuesday, February 17, 2009
The RO Report, "Vacation" Edition
I need to take a break from this market. For now, I will also be taking a break from posting the RO. I've just never had such a struggle and need to go into my own world for awhile.
Could be to the end of this week, could be longer. I'm just gonna feel things out and do what seems right.
I'll continue to post the Tuesday through Friday posts.
Paul Tudor Jones: Market Wizard
Now, let's get one thing out on the table right away... Any dude who throws "Tudor" into his name, if he isn't an asshole, just sounds like one.
If you throw Tudor into your name and you play golf, YOU ARE AN ASSHOLE. It's a law stronger than Newton's Law of Gravity.
I dare any of you to prove me wrong on this. (Note: I don't know if PTJ plays golf, so he may not be an asshole at all.)
Okay, now let's get to the interview.
No... you know what? Forget it. I can't do it. And since my eyeballs have practically been bleeding all weekend due to some ancient virus that my daughter brought home from her filthy nursery school, I can't stand to sit and stare at the screens now and write much about this dude. It's a weakness, but I can't get over the name.
I'll leave you with what struck me the hardest...
PTJ traded through the 1987 crash and Schwager asks him if he believes the crash was "an early warning signal of more negative times ahead." Here is part of Tudor's response...
Everything gets destroyed a hundred times faster than it is built up. It takes one day to tear down something that might have taken ten years to build. If the economy starts to go with the kind of leverage that is in it, it will deteriorate so fast that people's heads will spin. I hate to believe it, but in my gut that is what I think is going to happen.So let me ask you... Has it taken 22 years for our chickens to come home to roost?
I know from studying history that credit eventually kills all great societies. We have essentially taken out our American Express card and said we are going to have a great time. Reagan made sure that the economy would be great during his term in office by borrowing our way into prosperity. We borrowed against the future, and soon we will have to pay.
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