Stocks that I am watching January, 16th 2013

by Mark Williams on January 17, 2013

Charts are courtesy of Stockcharts.com

lee-chart

I like to trade breakout/consolidation patterns with stocks. In the case of LEE here, there was consolidation as well as a bottom, a very bullish candle the day before, and a candle showing indecision (doji) right now.

The rest of the charts that I am going to showcase here also display traits similar to that above.

IVAN showing consolidation
IVAN showing consolidation
MWA chart showing consolidation and uprange
MWA chart showing consolidation and uprange
Consolidation pattern
Consolidation pattern

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How the markets can mirror a game of Guilty Gear?

by Mark Williams on December 16, 2012

I will be returning to some meat a potatoes post soon, but before I do, I wanted to share something.

In my spare time, I love to play video games. In particular, I love, love, love FIGHTING GAMES.

The reason I love fighting games so much is because unlike other competitive games out there you go man-to-man (one on one) versus an opponent, and but also in order to beat your opponents you must become one with the game.

You must study and practice techniques in the these game over and over and over again until you gain mastery.

There is a trading lesson here, just wait a moment.

Almost every fighting game has a training mode. This mode allows you to practice movement with your character, combinations of moves, etc. so that when go out into battle, you are prepared.

However, nothing can take the place of going out and fighting a real opponent. And no matter how much time you spend in training mode, real life does not always mirror the simulation, which brings me to this:

  • The final skill that you have to learn when playing fighting games is PATTERN RECOGNITION.

In the above video (you do not have to watch it because it has horrible, horrible gameplay from yours truly and an online opponent), I faced a guy online on Xbox 360.

After he got some good licks in on me, I noticed something:

  • My opponent always mashed on the punched button.

Watch the video and you will notice it. It is very blatant what he is doing, but there is a reason for it.

With the character that he had, mashing on the punch button is not a bad idea. A couple of punches leads into a combo that can take up to 50% of your opponent’s life away. And since the character that I was playing had low defense and had worse attack hitbox than him, his mashing of punch would beat out a lot of my normal moves.

So Mark, if he was doing something that was smart, what’s the problem?

The problem was that I recognized that he was mashing over and over. I found a pattern in his gameplay,  I exploited it to multiple victories — and he almost never adapted.

When is comes to trading, ADAPTABILITY is vitally important.

You may have the greatest trading algorithm known to man-kind, but if you or your algorithm are not adaptable to changes in the market (sentiment, direction, high volatility, lo volatility, up trend, downtrending, etc.), you may have a great strategy, or a great plan…that causes you to go broke because you are mashing on punch the whole time while the market is throwing invincible poofballs at you. 🙂

By the way, later in the video the Sol player eventually adapts to what I was doing to him. My whole plan was to hit him and run, using only special attacks since my normal attacks would not beat his special attacks.

However, when I changed tactics (like how the market you are trading can do sudden moves against due to breaking news, or some big bank algo going haywire),  he then reverted right back to mashing mode, and got lit up accordingly.

Long story short, be ready to change your gameplan when things are not going according to plan.

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After a long hiatus, I am back…sort of…

by Mark Williams on December 9, 2012

Hey guys,

So, after a long ass time out of it, I am back.

But hey Mark, were’d you go?

Well, that is a funny story. A story that I will tell at a later date, but for now I just want to say this:

Depression sucks. Depression makes you do things that a rational person would never do. Depression deprives you of…life.

Depression caused me to do trades that I would never in my whole entire existence would even think about. Now years later, as a I recover, I have been going through my older trades going all “Whiskey-Tango-Foxtrot MATE!”

Depression cost me so much that I had to get a job again. I must thank my lucky stars though — my Navy and old career backgrounds have landed me a pretty decent job at very nice pay in an economy that is pure ass.

So now I am just like you, saving money — making moves — so that I can get back out of the rat race.

And this time stay there, because it appears that before I was not ready.

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So, Today I loaded up a new strategy that I had tested, optimized, threw everything that I had at, and more, out into the real world for the first time.

MY little baby.

Anyway, let this be a lesson to all ye out there: Always test your code for automated strategies on small money accounts.

My strategy was one that traded the FOREX market, so testing it on a small account that I created just for testing, was no big issue (only $100 total at risk in this micro-lot account).

Well…the trading portion of the code worked FLAWLESSLY (ended up with a loss for the day, but based on my trading parameter is did everything that I wanted to). I am still letting it run free-range for the next month or so just to make sure no other bugs are in the code.

Well Mark, if the trading portion of the code worked correctly, why are you even talking about this?

Well, the trading portion did work correctly.

The trade notification code DID NOT.

By placing the wrong function in the wrong place, instead of the code notifiyinh me whenever I got into and out of a position, it notified me whenever my trade parameters were hit — even when I was already in a position.

Example:  If I was Long due to hitting a set-point, I would get into the trade. However, once in the trade, you set-point could technically continue to be hit, but since you are already long, it does not matter.

However, my trade notification function was not keyed into when I got into the trade, like it wanted it to, it was keyed into whenever ANY possible trade set-points were hit.

It is a good thing that I have an unlimited text messaging plan, because by the time I dialed into my VPS to turn off the program, I had already placed 1,830 text messages to myself in a 20 minute time span!

1,830 TEXT MESSAGES!!!

1,830 TEXT MESSAGES!!!

Did I mention that I ended up sending 1,830 text messages to myself?

So, in closing, you have to remember: Always test code for an automated strategy in a small money account, because only when the strategy goes live can you REALLY see how it will react.

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How to Create an Indicator (using Ninjatrader)…

by Mark Williams on May 4, 2009

Okay, so here is the scenario.

You have just read a paper by some famous mathematician. In the paper, he talks about using a formula to calculate some thingamabobjiggy, and you, for some strange reason, have an epiphany, and decide to see if what was written in the paper would work for trading.

So, you put on you thinking cap, and decide to go about creating this wonderful formula, and try to see if it can help you gain an edge in the market.

So, how do you go about creating this fancy, schmancy indicator?

Well, like your strategy from lessons before, you need to flesh out your idea.

Using mind maps helps, but in the case of making THIS indicator, we already have the math available, so need to really think about what we are creating.

So, we skip to the next stage, which is flowcharting/paragraphing our idea. In today’s example, we are going to do the paragraphing method.

So, what are we creating?

Well, we are going to create an indicator called CANDLE BODY MOMENTUM.

Where’d I get this thing? Well, I found some information about it in Perry Kaufmaun’s book “New Trading Systems Methods.”

Now, before you rush out to get this thing, I have to warn you: the book weighs like 10 pounds, and you could literally kill someone with it.

It is jammed full of technical information on almost every indicator that is currently out there, and I DO RECOMMEND that you check it out, but I had to warn you…

What I used this book for is to look at what indicators to avoid, but that will be another lesson for another day.

What is CANDLE BODY MOMENTUM?

Well, it is the comparison of up candles (when the closing price of a period is higher than the open price), versus that of down candles (where the closing price of a period is less than that of the open).

Here is the equation we are working from:

CandleBodyMomentum = Number of Up Days/ (Number of Up Days + Number of Down Days)     

The period that he starts off with was 14.

So, out of 14 past bars of data, we take the number of UP days (Close > Open) during that 14 day period, and number of DOWN days (defined as Close < Open)

Once I have the number of UP days, I divide by the period (since UP days + DOWN days = Period) to get the momentum.

So, as Candle Body Momentum goes up, expect positive price action.

As Body Momentum goes down, expect negative price action.

Once the number is released and charted, we update to the next bar, and repeat

Now that we have this information created, we will create the code.

At this point, if you are not a programmer, then you could turn this project over to you handy dandy programmer from Elance, Rent-A-Coder, or your cousin with too much time.

If you are a programmer, then you should be able to handle this yourself…

And, if you can not afford a programmer, then it is time to grab a book, or you charting software’s manual.

One of the many things that I have learned on my journey is that if you have no time to learn something, then you had better have money…

If you have no money, then you had better have or make time!

In part two, we will go over how to take the above from it’s current form, to code.

Continued on in Part II…

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“[Y]ou will face three challenges: you must face your enemy, you must face yourself, and you must face your worst fear.”

— Princess Kitna [to Liu Kang]:

You Must Face Your Enemy.

You Must Face Yourself.

You Must Face Your Fear.

Never, when I watched this movie years ago, did I EVER expect these words to come back to me as words of wisdom.

But, here I am, years later, and this phrase from an otherwise cheesy movie has comeback to me — with a lot of meaning behind it.

  • Face your enemy.
  • Face yourself.
  • Face your fear.

So, you are probably wondering what I am talking about here. Did Mark finally jump over the deep end?

NO, of course not.

There IS a lesson here.

  • Face your enemy (when it comes to trading)

Well, account drawdowns are a start (a period of having multiple losing trades in a row). When this enemy appears (and it will), how will you handle it taking your money? Do You even know the historical drawdown of your trading system? Do you even have a system, or are you STILL one of the many who are flying by the seat of your pants?

  • Face yourself.

Are mentally prepared for your trading day? Did you just lose during a trade, and decide that you are going to take revenge on the market? Do you treat the market like an entity, or are you able to emotionally detach from it?

  • Face your F.E.A.R. (False Expectations Appearing Real)

Are you afraid to get into this trade because you “failed” before, and you think that you are going to fail again?

Do you have a fear of failure, or even worse, a F.E.A.R. of SUCCESS?

Are you trading with expendable cash, or are you playing with rent money, living on the edge?

Okay, so how can I face these demons?

Well, I was going to go into a whole schpeel on setting your trading goals, and having a trading plan, but someone not only beat me to it, but did such a good job at it that I just HAVE to link you to his post here

Warning in advance, you may have to sign up for the site to read what will be a 100% life changing post on trading, but signup is free, and there is a lot of good information hidden on the site.

So, go ahead and dig in. You will NOT regret it.

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POF: Piece of F***

Warning: Although the contents of this post are that of a rant, there is a trading lesson here that we will go more indepth on later

This chart is showing a temporary consolidation in the sell off of BAC stock. May they die a horrible, horrible stock death!

This chart is showing a temporary consolidation in the sell off of BAC stock. May they die a horrible, horrible stock death!

Dear Bank of America,

I hate you so much. I hate you, and everything that you represent. I hate the fact that you treat your customer like shits. I hate the fact that you rape me at your ATMs. I hate the fact that you place me on hold for so long when I call.

I hate you for the MASSIVE breeches in security that you have had over the years, exposing millions of people to ID theft.

I hate the fact that you are an incredibly BROKEN bank. I hate the fact that you should be dead right now, 100% pure cold, and lifeless…

I hate the fact that my elected officials placed your bleeding carcass on life support. I hate the fact that because of said stupidity of my elected officials, they are wasting more of MY tax dollars on YOU, when it would have been actually cheaper to let you FAIL and pay everyone who lost their jobs due to the whole economy in general 100% of their former salary per month via federal unemployment insurance for the next 5 years — AND STILL SAVE 700 BILLION!

But, your last transgression, and HOPEFULLY your final one, is what I REALLY hate you for.

Because, according to this MSN article HERE, you thought that it would be REALLY awesome to kick people while they are down by charging them a fee of $5-10 to deposit their UNEMPLOYMENT CHECKS into their accounts in your bank — you know, the ones that you would not have if we, the American taxpayer, had not (stupidly) bailed you out.

Do you not see the irony here: The bank that that is on FEDERAL WELFARE is gipping the person that is unfortunately on UNEMPLOYMENT out of EXTRA money that they would not even be able to collect if said worker’s taxes weren’t given to you.

It is a good thing that I am a very unemotional trader though. Because, as much as I LOATHE your bullshit establishment, I hate losing money even more.

Which is why, I am monitoring the rectangle consolidation pattern that you are currently making.

See, I have noticed that your trend is down, that you are in the banking sector (which is just chock FULL of weak companies like yourself), and fundamentally, although I am not a fundamental trader, in your case I had to look up your numbers because my hate for you is so totally and completely beyond , you are 100% broke.

But to me, this rectangle that you are making has me very, very intrigued…

And since the market will actually move one to two days prior to either your bankruptcy (YAY), or your nationalization (BOO), because of legal and illegal insider trading, when my technical signal is hit, and you drop like hotcakes, I am going to make money off your carcass either way…

— AND TAKE A HELL OF A LOT OF GLEE DOING SO!

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If a System Looks to Good To Be True, Then It Is!

by Mark Williams on February 20, 2009

So, I have been on a good many trading message boards, and on these boards, I always run across some douchebag (for lack of a better term to use) who proclaims to have the holy grail of a system and that everyone should use it, blah blah blah.

And usually when this happens, I either ask for backtested results, or for them to show the people in the board the system.

Then of course, if I see the following, the red flags come up:

  • If I see an outrageously complicated beast of a system
  • Backtested results that look to good to be true
  • Stochastics

I have yet to have a MAJORLY complicated system work well in the long run.

EVERY overly complicated system that I have tested has fallen flat on it’s face at best, or blown up the person’s account at worst (overly complicated meaning greater than 7 indicators or indicators of indicators of indicators).

You’d think that the more indicators that you add, the better the system should do, but I guess because of all the conflicting signals that one can get with said system, that is not the case.

Now, there are complicated systems that do work, but this leads us to…

Backtesting results.

Now, if the person has backtested results that look to good to be true, I usually suspect a phenomenon known as curve fitting. Curve fitting is the accidental over-optimization of a system for a small sample of data.

For example, let’s say that I test a system on the Standard and Poor’s Index SDPR fund (Ticker: SPY) only from the dates of Aug 2003 to Aug 2008. During this period, I notice that from January 2004 to November 2006, I had a huge drawdown because of a massive amount of volitilaty during this period.

So, to compensate for this, I add a lot of volitilaty filters and that drawdown disappears and my results look AWESOME!

So then, I put the system online, and commence to lose my ass!

Why’d this happen? Well, I compensated for the drawdown for one period in the past, however I did not increase my sample size (add a few more years like at least 10 or so, or change dates to further time in the past)  therefore, I nver did test how robust my system truly was.

So, because of my faulty backtest, I was lulled into a false sense of security and did not realize that my system would work very, very, very well…If it were Aug 2003 to Aug 2008 😉

Finally, if the system contains Stochastics, MACD, multiple EMAs and SMAs, and the system gives off great results, shenanigans are being thrown. The reason being is due to another phenomenom called “Trader Effects.”

I will go over “Trader Effects” in more detail in another post, but in a nut shell, trader effects are caused by a system, or set of indicators, being extremely well known to the point where EVERYBODY (and brokerage houses) begin to use to them. Because of this, very smart and scrupolous traders/Hedge funds will either front run orders, OR WORSE YET,  purposely take a massive position on the other side of your trade whipsawing you out and giving them profit.

Furthermore, and this tip may hopefully save you THOUSANDS, unless you have read this too late, the MAJORITY of trading systems and trading classes sold teach these techniques. Not to say that Stochastics, MACD, and co will not work, but because everyone and their mother learns how to use these indicators, how can you find major edge from them?

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So Goes General Motors…So Goes America?

by Mark Williams on February 16, 2009

So goes GM, so goes America is how the old adage goes.

What ever direction the value of GM’s stock went was seen by many a fund manager/economist a leading indicator of the state of the American economy.

But, does this quote still matter in this day and age?

I bring this up, because on Tuesday, February 17th 2009 maybe the day that GM as a company may no longer exist.

According to this Bloomberg article here, GM may be forced into bankruptcy. The bailout that they were given in late December bought them more time, but delayed the inevitable.

Also, according to this article, the US Governement is not first in line to be paid back for the selling of any of GM’s assets.  Citigroup, JP Morgan Chase, and others all get first crack at them…

…wait a minute. Did we not bailout Citigroup? As a matter of fact, weren’t they recently in talks to be nationalized?

Oh well.

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So, we have created our Triple Moving Average System in Ninjatrader. Now, Let’s test something.

To bring up the strategy, we are going to File -> New -> Strategy Analyzer.

I have already imported Currency Data from a Provider. It may have cost me money, but is was better to spend $200 bucks on it, than LOSE THOUSANDS later.

By the way, if you do trade Forex, and are using Ninjatrader, you can get free data by connecting to GAIN (Forex.com), or if your broker is either Interactive Brokers or MB Trading. You can also get 100% FREE end-of-day from the Yahoo Finance feed…

Strategy Analyzer

What I am going to do is test a system that I have found in a book that purchased a few weeks ago. The author called this system the annivesary trade.

What is involved were these three moving exponential moving average: 4EMA, 16EMA, and the 60 EMA.

He said that he used this, as well as a few other systems to make “bookoo dollars”, so I put his claim to the test on thiss particular one.

A simple 3 exponential moving average, fast average greater than the medium average greater than the slow average.

In this case, I am testing the Great Britian Pound vs. the Japanese Yen, the author’s “bread and butter”. He uses 60 mins bars. The reason my default quantity is set to 100000 is to simulate purchasing 1 lot of the GBP/JPY pair (1 standard lot means that you are selling 100000 GBP and buy 100000 Yen).

Setting up for testing strategy

I have tested this strategy over a ten year period. The more test that are done, and the longer the time periods used — i.e. the larger the sample size, the more realiable the data.

So, how did this strategy work over this time sample period.

Well…

Ummm....WOWUmmm…WOW…

Now, if someone wanted to become a Guru on their own, they could just create a system, optimize it for a time period, and then sell it on  eBay or some other place saying that it made x thousands of $, in which some unsuspecting person buys it, and loses their ass. 

Dont, worry though, I will show you how to prevent that from happening 🙂

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