Let's cut to the chase here -- I've been given "free" money. Not really, it's free! FREE! You just have to . . .
So started my newest conversation with a CFP / sales representative with a major bank / insurance company / mortgage lender / broker. No conflicts of interest here right? So a typical engagement involving what to do with the "free money" I'd been given. First, though my employeer had been oh so generous in providing matching funds when I contribute I still felt conned and shackled. Indeed, after a couple years of recieving the contributions, I ultimately stopped contributing anything to my 401k. Despite the matching funds and my foresight (or luck) to get out of the market before the big finacial fallout I still lost money. This was due to me being unable to chose the broker or investments to invest in. Sadly, this is steadily becoming worse as pension plans (and the impending bailout) are increasing displaced by lackluster retirement accounts. The laws can change at any time (and they will), but most are being misled into staking there life and work on a single number. It's a fools' game and I want no part.
So back to the CFP, what to do with him? I'm now being shown some boxes and asked to chose which one I like the best. Perhaps color plays a part here, or commissions, or just the person's current attitude and emotion1. The boxes of course are some sort of rehash of the MorningStar boxes which attempt to define risk and performance. A pretty graph of course shows you how the whole procedure will work. You contribute $X a week for XX years, and at the end of the rainbow *poof!* you retire a millionaire. Nonetheless, a choice is made and money starts to funnel. Into the acount, into the CFP's company coffers, and to those manipulating the investments.
I shake his hand, thank him for his time and in a flash he's gone. I feel ill and internally lash out against myself for not striving harder to take control.
How else can I deal with a CFP? I don't believe him. I don't want what he is selling. At the end of the day, he knows I'll sign the paper anyway. And so do I.
1. Seriously, I'm sure it would make a fascinating study of how the box is actually chosen. Assigning logic to the choice would only make explaining the choice worse. Human actions can be controlled, but not predicted :-)
7.16.2010
In the end there is only socialism
Really, at the end of time, power will be so consolidated there will be only one world leader1. And the "greater" good of mankind will be the primary focus of that government. When those days come I don't think the free thinkers will find any happiness in saying "I told you say".
1. http://en.wikipedia.org/wiki/Antichrist
1. http://en.wikipedia.org/wiki/Antichrist
7.15.2010
A timber baron
There's something about trees; and something attractive about being able to touch, taste1, and smell my investment. While thinking about non-traditional investments2 the thought of timber came up. Sure sure, the idea of being a baron hearkens to the good ole days of capitalism during the turn of the century. You know, when a couple rich folks controlled huge population sections of our country. They set living standards, manipulated others actions, and even told them how to spend their free time (at a baron owned attraction naturally!). Not a pleasant experience for most in our country; nor one that should be repeated. Indeed, I think capitalism's best years are still ahead of it. A time when it's true vision of free markets, independent people and ideas, will be more fully realized. It will (as things always seem to) come of necessity and not by active choice.
As for the trees, they represent an investment into raw land. Growing trees for a paperless world! I think there will always be some demand for wood, especially slow growing dense wood. Have you seen those Japanese coffee tables? The earth's old growth forests have long since been logged. It saddens me thinking of all the wasteful practices that have led us to this state of affairs. Still it represents a *possible* investment opportunity. A list of reasons for investing include:
1) Good quality hardwood is expensive
2) Timber is a long-term investment (read risk!)
3) Land is a finite resource and *hopefully* will always be > 0
4) Trees don't need constant attention, so this can be a more passive investment
5) Finally, I want to own some land
The reasons not to invest can be just as numerous. Ongoing costs and liabilities of physical ownership, potential disaster risk (disease, drought, storm, fire, etc), and lack of ROI.
So while I am still on the fence (a wooden fence) about investing or not the broader idea of land ownership does spark more ideas than just timber. Anyone wanna buy some rental houses? Beachfront speculation property? How about farmland? All of these have the potential for being a good investment because they could all yield income without losing their principal value.
1. I won't be eating the leaves or bark, but maple syrup is GOOD!
2. Now I sound like a CFP!
As for the trees, they represent an investment into raw land. Growing trees for a paperless world! I think there will always be some demand for wood, especially slow growing dense wood. Have you seen those Japanese coffee tables? The earth's old growth forests have long since been logged. It saddens me thinking of all the wasteful practices that have led us to this state of affairs. Still it represents a *possible* investment opportunity. A list of reasons for investing include:
1) Good quality hardwood is expensive
2) Timber is a long-term investment (read risk!)
3) Land is a finite resource and *hopefully* will always be > 0
4) Trees don't need constant attention, so this can be a more passive investment
5) Finally, I want to own some land
The reasons not to invest can be just as numerous. Ongoing costs and liabilities of physical ownership, potential disaster risk (disease, drought, storm, fire, etc), and lack of ROI.
So while I am still on the fence (a wooden fence) about investing or not the broader idea of land ownership does spark more ideas than just timber. Anyone wanna buy some rental houses? Beachfront speculation property? How about farmland? All of these have the potential for being a good investment because they could all yield income without losing their principal value.
1. I won't be eating the leaves or bark, but maple syrup is GOOD!
2. Now I sound like a CFP!
7.13.2010
Got change for a euro?
Since my last post on speculating the euro's direction, it has taken a huge down and now up swing. As I mentioned I rode the downward trend and have been sitting on the sidelines since watching it regain its strength. I am not sure what the future holds for the euro, which is why I'm sitting on the sidelines. I'm hesitant to go long, but the market action clearly doesn't leave room to short the currency.
The MSM seems to have moved on, and most of the bad news seems priced in paving the way for the bull market to keep on roaring along. It's kind of an eerie midsummer sleep1. I am not enthusiastic about jumping in to any market at this point. Things can turn on you in a hurry.
1. Don't wake the bear!
The MSM seems to have moved on, and most of the bad news seems priced in paving the way for the bull market to keep on roaring along. It's kind of an eerie midsummer sleep1. I am not enthusiastic about jumping in to any market at this point. Things can turn on you in a hurry.
1. Don't wake the bear!
6.29.2010
6 months of living
Having now been pursing my chosen lifestyle for almost 6 months, I'd like to offer a bit of self reflection. What has this pursuit enabled me to do, and by consequence, not do?
Having freed my time, I still find myself quite busy with the pursuit of hobbies. I now cycle over 100 miles every week and ride my bicycle every day. Bicycling more has been a desire of mine for sometime and indeed was a huge motivator for moving to a warmer climate. In addition, I was able to "accidentally" experience the joys of going "car-free" for over a month. My car broke down, and I resolved to fix it, but had to wait for the part to arrive. The car is now fixed but the lesson remains. Unless I'm going on a long distance trip, the car sits. All my day to day activities, errands, shopping, etc are now done by bicycle. I'm much happier for it. Of course if my plans for doing some long-distance bicycle touring come to fruition I wouldn't need the car for the trip across North America.
In a similar vein, I have begun spending time with family, finally growing my own food via a garden, and pursing my goal of contributing to open source projects! The interesting thing to note is that none of these actually involve trading. It seems my lack of focus on trading has made me a better trader. I've had my first profitable months ever manual trading. I attribute this to most of all dumb luck (haha), but also to being patient and in some ways trading on less information thereby filtering out the noise. Shockingly these last few weeks have seen me really busy on non-trading things and I must confess to not knowing what the euro or other currencies are doing everyday. It's freeing to think I don't have to worry about how my trading is doing every moment of the day. I am no longer living or dying by my NAV. Further because I trade at a sane leverage (2:1 or 3:1) I literally am not making or losing fortunes on an interday move. This is a stark contrast to my first week as a trader. I had huge NAV gains (and losses!) on as little as 10 pips.
Having freed my time, I still find myself quite busy with the pursuit of hobbies. I now cycle over 100 miles every week and ride my bicycle every day. Bicycling more has been a desire of mine for sometime and indeed was a huge motivator for moving to a warmer climate. In addition, I was able to "accidentally" experience the joys of going "car-free" for over a month. My car broke down, and I resolved to fix it, but had to wait for the part to arrive. The car is now fixed but the lesson remains. Unless I'm going on a long distance trip, the car sits. All my day to day activities, errands, shopping, etc are now done by bicycle. I'm much happier for it. Of course if my plans for doing some long-distance bicycle touring come to fruition I wouldn't need the car for the trip across North America.
In a similar vein, I have begun spending time with family, finally growing my own food via a garden, and pursing my goal of contributing to open source projects! The interesting thing to note is that none of these actually involve trading. It seems my lack of focus on trading has made me a better trader. I've had my first profitable months ever manual trading. I attribute this to most of all dumb luck (haha), but also to being patient and in some ways trading on less information thereby filtering out the noise. Shockingly these last few weeks have seen me really busy on non-trading things and I must confess to not knowing what the euro or other currencies are doing everyday. It's freeing to think I don't have to worry about how my trading is doing every moment of the day. I am no longer living or dying by my NAV. Further because I trade at a sane leverage (2:1 or 3:1) I literally am not making or losing fortunes on an interday move. This is a stark contrast to my first week as a trader. I had huge NAV gains (and losses!) on as little as 10 pips.
6.16.2010
Forex Market Participants
Many traders are interested in the big players actions. They assume the big players represent the 'smart' money or that perhaps they are more informed. This may be true in the case of the stock market. However, in the case of forex I don't believe it to be true.
Take the classic example of George Soros and others versus the Bank of England. Or the Tokyo housewives of Japan shorting the yen despite the governments large scale interventions. Clearly the big players paid dearly in these cases. Nevertheless, the commitment of traders report acts as a weekly guide of big players for currencies. Since forex has no central exchange, it's impossible to get any such report directly for the forex market1. However the futures and options markets for currencies do have a central exchange and therefore a report. It is published weekly by the CFTC and cane be found here:
http://www.cftc.gov/dea/options/deacmelof.htm
1. Even if trading forex on an ECN, we're really only interacting with a subset of the overall market.
Take the classic example of George Soros and others versus the Bank of England. Or the Tokyo housewives of Japan shorting the yen despite the governments large scale interventions. Clearly the big players paid dearly in these cases. Nevertheless, the commitment of traders report acts as a weekly guide of big players for currencies. Since forex has no central exchange, it's impossible to get any such report directly for the forex market1. However the futures and options markets for currencies do have a central exchange and therefore a report. It is published weekly by the CFTC and cane be found here:
http://www.cftc.gov/dea/options/deacmelof.htm
1. Even if trading forex on an ECN, we're really only interacting with a subset of the overall market.
6.14.2010
Move #2 Complete
On a personal note, my second move in 6 months is now completed. Same state, still beautiful and trader friendly. However, I am now closer to family who I've begun spending more time with. Paradise is meaningless if experienced alone.
6.12.2010
Thank you Mr. Trichet
So the past month has seen me busy with manual trading again. Since my last post about shorting the Euro, it has dropped 15 cents or so. I've been along for the ride at several points. This past week we finally saw the first real response from euro bulls to support the currency and keep it in the 1.2x range.
With that, I can say my account grew over 40% during the month of May. This is simply unbelievable, given my low leverage employed (typically 2:1 or 3:1). My post on profit and the mob seems to fit well here. The market participants agreed with my thoughts on the euro and became net sellers for the entire month.
By the way, my thoughts on the euro are less certain moving forward from here. Although I don't believe the sentiment has changed, it may very well have all been priced in at this point. If you'd like to venture a guess, open a position :-)
With that, I can say my account grew over 40% during the month of May. This is simply unbelievable, given my low leverage employed (typically 2:1 or 3:1). My post on profit and the mob seems to fit well here. The market participants agreed with my thoughts on the euro and became net sellers for the entire month.
By the way, my thoughts on the euro are less certain moving forward from here. Although I don't believe the sentiment has changed, it may very well have all been priced in at this point. If you'd like to venture a guess, open a position :-)
5.19.2010
The stock market: or how I learned to stop fearing different and love free markets
A quick note: I've avoided writing this column since the start of the blog. This topic will likely bring heat and controversy. I welcome it. In many ways my own position on this simply isn't thought out enough. It requires more debate; some point and counterpoint to see it developed fully. In that spirit, I present to you what is really my rough opinion.
"Why 99% of savers should avoid the stock market
Over the past several decades, the stock market has become an enormously popular vehicle for retirement savings.
I rest my case." -- Jacob, Early Retirement Extreme
I've long held the view the stock market = wealth = retirement vehicle was flawed. I suppose I would be lying if I said I don't experience any pleasure in watching the DOW drop -- I have nothing to gain or lose whether it goes up or down. However, seeing it drop does make me smile a little inside. My hope is that it would alert others to the inherent issues the stock market has. It's a national game of scandal, taxation, and false information.
Many people may be flabbergasted at this view. Myself being a capitalist (or at least attempting to become one :-) ) should love the idea of trading. And I do! I often still dream of a romanticized view of the 1800's; myself a successful goods trader, perhaps a ship merchant. In my later years having acquired wealth perhaps I'm an early investor/venture capitalist funding trips to faraway places and new ideas. Back in the present, I still like the idea. That's why I'm a trader and will likely remain so. However, I don't trade stocks. Too many people, too much power, and too much politics involved to be a free market. Heck -- just look at this news article for last week. NYSE and NASDAQ are reversing trades! You heard me right. Who wants to trade in an environment where trustees, politicians, regulators, and governments will reverse trades or otherwise try and manipulate price? It's this type of news that almost doesn't shock me. After all,
stocks always go up
put X% of each paycheck into stocks, retire a millionaire
Or so I'm told. The examples of this manipulation and lies are prevalent everywhere. From the mutual fund ads claiming 8% returns, to the CFA in the corner office, to the president himself1!
As a capitalist I am drawn to free markets. In a free market, I can pit myself against others; I can analyze; I can use my brain. In my quest to find such a market, I found forex2. It's size and lack of regulation help prevent against long term manipulation -- even at a government level. Right now the Euroland countries are openly crying foul of the fall the euro has taken. It's to no avail. Whatever they desire for the currency, they cannot change it's price over the long term. Just ask George Soros and the Bank of England3.
The quote that I began this article with is perhaps the short answer to the question: Why not invest in the stock market? Because everyone else is! It's a classic mob question. The only ones making money as part of the mob are what I've termed the mob leaders. In his expanded post, Jacob goes on to talk about when stocks might be a good idea. My thoughts coincide with his -- when you can actually invest in a company, receive dividends, and buy and sell in a fair market it can be a good idea. Unfortunately, it's my view that todays market represents no such thing. And as such I cannot recommend to anyone to play the stock market game.
1. Barrack Obama gives his infamous advice to buy stocks
http://www.bloomberg.com/apps/news?pid=20601110&sid=aBndLi5PmOvc
2. If there are other free markets, please enlighten me. I do not wish to say I believe forex to be the only free market -- merely the one I participate in
3. Soros famously shorted the pound in the summer of 1992, recording a huge profit when the Bank of England was forced to abandon it's artificial rate.
http://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp
"Why 99% of savers should avoid the stock market
Over the past several decades, the stock market has become an enormously popular vehicle for retirement savings.
I rest my case." -- Jacob, Early Retirement Extreme
I've long held the view the stock market = wealth = retirement vehicle was flawed. I suppose I would be lying if I said I don't experience any pleasure in watching the DOW drop -- I have nothing to gain or lose whether it goes up or down. However, seeing it drop does make me smile a little inside. My hope is that it would alert others to the inherent issues the stock market has. It's a national game of scandal, taxation, and false information.
Many people may be flabbergasted at this view. Myself being a capitalist (or at least attempting to become one :-) ) should love the idea of trading. And I do! I often still dream of a romanticized view of the 1800's; myself a successful goods trader, perhaps a ship merchant. In my later years having acquired wealth perhaps I'm an early investor/venture capitalist funding trips to faraway places and new ideas. Back in the present, I still like the idea. That's why I'm a trader and will likely remain so. However, I don't trade stocks. Too many people, too much power, and too much politics involved to be a free market. Heck -- just look at this news article for last week. NYSE and NASDAQ are reversing trades! You heard me right. Who wants to trade in an environment where trustees, politicians, regulators, and governments will reverse trades or otherwise try and manipulate price? It's this type of news that almost doesn't shock me. After all,
stocks always go up
put X% of each paycheck into stocks, retire a millionaire
Or so I'm told. The examples of this manipulation and lies are prevalent everywhere. From the mutual fund ads claiming 8% returns, to the CFA in the corner office, to the president himself1!
As a capitalist I am drawn to free markets. In a free market, I can pit myself against others; I can analyze; I can use my brain. In my quest to find such a market, I found forex2. It's size and lack of regulation help prevent against long term manipulation -- even at a government level. Right now the Euroland countries are openly crying foul of the fall the euro has taken. It's to no avail. Whatever they desire for the currency, they cannot change it's price over the long term. Just ask George Soros and the Bank of England3.
The quote that I began this article with is perhaps the short answer to the question: Why not invest in the stock market? Because everyone else is! It's a classic mob question. The only ones making money as part of the mob are what I've termed the mob leaders. In his expanded post, Jacob goes on to talk about when stocks might be a good idea. My thoughts coincide with his -- when you can actually invest in a company, receive dividends, and buy and sell in a fair market it can be a good idea. Unfortunately, it's my view that todays market represents no such thing. And as such I cannot recommend to anyone to play the stock market game.
1. Barrack Obama gives his infamous advice to buy stocks
http://www.bloomberg.com/apps/news?pid=20601110&sid=aBndLi5PmOvc
2. If there are other free markets, please enlighten me. I do not wish to say I believe forex to be the only free market -- merely the one I participate in
3. Soros famously shorted the pound in the summer of 1992, recording a huge profit when the Bank of England was forced to abandon it's artificial rate.
http://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp
5.04.2010
Slow ride down the Euro
So recently the Euro has been on a downward slide; perhaps spiral is the better term. Given the relative cost of holding short positions, it's been easier for me to open and close manual trades on the way down. It's unclear how long this new trend will last in EUR/USD, but in alot of ways it seems to be only building steam. The news of Europe being potentially bankrupt is just starting to float onto the forefront of news; something which folks like Mish have been pointing out for some time.
In other news, is the Australian dollar next on the list for falling out of favor with traders? Critics point to a still yet to pop housing bubble and the high interest rates in the wake of the endless deflation states of the United States and Japan. For now it seems, the commodity bubble is in full swing and that bodes well for the Aussie. It's rebounded nicely from the spring lows. I'll keep my eyes on the dollar, but if you curious at staying more in tune with AUD, check out Rookie Forex. He's been trading the currency for sometime and has strong longterm views and outlooks towards it.
In other news, is the Australian dollar next on the list for falling out of favor with traders? Critics point to a still yet to pop housing bubble and the high interest rates in the wake of the endless deflation states of the United States and Japan. For now it seems, the commodity bubble is in full swing and that bodes well for the Aussie. It's rebounded nicely from the spring lows. I'll keep my eyes on the dollar, but if you curious at staying more in tune with AUD, check out Rookie Forex. He's been trading the currency for sometime and has strong longterm views and outlooks towards it.
4.14.2010
Bugs be gone!
The past few days have had me chasing down framework bugs. Since I've decided to expand a little on my brokers functionality in order to suite my trading style, I've introduced a bit of an issue. Normally, when you place a long order for lets say EUR/USD, any pre-existing short orders will be closed, up to the available units. For example, if I place a short order for 1000 units EUR/USD and then subsequently place a long order for 1200 units EUR/USD, my new position will be a long order of 200 units EUR/USD. This means that my short order has been closed by my long order.
Anyways, this obviously causes issues when attempting to trade multiple timeframes, strategies, or hedge in a single account. I've gotten around that by using sub accounts, and seamlessly tying them together. Now then, calculating an average position and price is easy when all the positions are in the same direction. It's not quite so easy when you want an average position of your portfolio of positions! My objective here is too avoid calculating the PL of the portfolio on every iteration. I posted about my work earlier. Getting the average position consists of adding up and dividing out the long and short positions to arrive at a net price, units and directions. The trouble comes in when you then try and utilize this "net" position to calculate your PL to exchange rate ratio. In other words, how much profit do I see with each pip? From there it would seem easy enough to predict your profit based on price movements. This is were the trouble seems to be occurring. Given enough positions this profit calculation seems to no longer work. If the math is right, blame the client! I guess my bug hunting will be focused on the client side now.
Anyways, this obviously causes issues when attempting to trade multiple timeframes, strategies, or hedge in a single account. I've gotten around that by using sub accounts, and seamlessly tying them together. Now then, calculating an average position and price is easy when all the positions are in the same direction. It's not quite so easy when you want an average position of your portfolio of positions! My objective here is too avoid calculating the PL of the portfolio on every iteration. I posted about my work earlier. Getting the average position consists of adding up and dividing out the long and short positions to arrive at a net price, units and directions. The trouble comes in when you then try and utilize this "net" position to calculate your PL to exchange rate ratio. In other words, how much profit do I see with each pip? From there it would seem easy enough to predict your profit based on price movements. This is were the trouble seems to be occurring. Given enough positions this profit calculation seems to no longer work. If the math is right, blame the client! I guess my bug hunting will be focused on the client side now.
4.09.2010
Investing like Nassim Taleb
George @ OnlineInvestingAI recently finished Taleb's first book called Fooled by Randomness. I was once again reminded of Taleb's trading strategies, and reminded myself to continue my own contrarian bent. I'm going to assume you know who Nassim Taleb is, and instead are curious how one might invest given this new strategy.
First a quick note. You need to look at all of you liquid assets as investable. Meaning, ideally you will want to calculate the percentages below against your total net worth -- not just simply money you can afford to lose.
The basic idea is to take 10%-20% of funds and buy out of the money options for pennies, and reap big when crazy events happen. Since you don't know when (and no one does) "Black Swans" will happen, you will slowly bleed money to the sellers of these options. The other 80% of your money place into the safest investments you can think of. Don't be so naive as to think US government debt is the way to go here. I would recommend (as would Taleb) buying government debt from several large and "safe" countries of your own choosing. You could try and diversify here, but if you've read Taleb's book(s), you'd simply be fooling yourself. If the US defaulted on there debt, who or what would be left in good shape? Don't misread me here. A US default is only a black swan away from occurring :-) The key is to try and minimize the risk on most of your money, while maximizing the risk on the invested 10-20%. When (not if) a black swan strikes again, you'll profit very nicely.
First a quick note. You need to look at all of you liquid assets as investable. Meaning, ideally you will want to calculate the percentages below against your total net worth -- not just simply money you can afford to lose.
The basic idea is to take 10%-20% of funds and buy out of the money options for pennies, and reap big when crazy events happen. Since you don't know when (and no one does) "Black Swans" will happen, you will slowly bleed money to the sellers of these options. The other 80% of your money place into the safest investments you can think of. Don't be so naive as to think US government debt is the way to go here. I would recommend (as would Taleb) buying government debt from several large and "safe" countries of your own choosing. You could try and diversify here, but if you've read Taleb's book(s), you'd simply be fooling yourself. If the US defaulted on there debt, who or what would be left in good shape? Don't misread me here. A US default is only a black swan away from occurring :-) The key is to try and minimize the risk on most of your money, while maximizing the risk on the invested 10-20%. When (not if) a black swan strikes again, you'll profit very nicely.
4.02.2010
Trader Personalities
Are the best traders the ones that are independent? Perhaps they are those who can find and exploit an edge1? I suppose the typical answer for someone who makes a good trader is a middle or right brained person2 who is good at math, buries emotions, and doesn't get stressed. And odd combination to be sure.
1. An advantage; real, perceived or otherwise.
2. Someone who is entirely logically oriented will not find success in trading IMHO. They would seek to find an answer where there is none. People are unpredictable; tis the only predictable thing about them!
1. An advantage; real, perceived or otherwise.
2. Someone who is entirely logically oriented will not find success in trading IMHO. They would seek to find an answer where there is none. People are unpredictable; tis the only predictable thing about them!
4.01.2010
We're all self-employed
I was reminded today of that simple little fact. Yes we are all self-employed. Before someone balks at this notion, I would say the majority of people trade there time (finite resource) for money (infinite resource) directly. If they ever cease trading there time, the money also ceases. This can be a real problem when you can no longer trade your time, but still require money. I evaluated this thought of exchanging my time for money, and in a true traders perspective, found it a poor return on assets. This blog was founded on the idea that there had to be a better way of providing for my needs than a direct exchange of my time for money1.I think anyone who has ever resold the same piece of “time”, aka work, would agree. Artists, writers, musicians, etc all understand the idea of reselling the same time block. The idea here is to create something that you can utilize for income, without having to spend the same amount of time as the initial outlay. Sounds a lot like passive income, and to a large extent it is. These folks are multiplying there monetary returns on there time by reselling that same time block again and again. Sometimes this resale requires no more time input, resulting in a truly passive income stream. Generally however, I would guess a small amount of time is required to continue to see the return. All said, we should seek to do the same as traders.
Whether your on an automated or manual setup, it's likely your seeing a better than 1 to 1 return on your time spent versus money earned. Trading in general requires upfront commitment, but the returns on that time spent allow you achieve a similar enhanced monetary return in exchange for your time. Unfortunately, even in this digital world I don't have the "dream" job of reselling my work again and again, a la a musician or writer. At least not yet. Happy trading.
1. Read steps 1, 2, and 3; especially step 2.
Whether your on an automated or manual setup, it's likely your seeing a better than 1 to 1 return on your time spent versus money earned. Trading in general requires upfront commitment, but the returns on that time spent allow you achieve a similar enhanced monetary return in exchange for your time. Unfortunately, even in this digital world I don't have the "dream" job of reselling my work again and again, a la a musician or writer. At least not yet. Happy trading.
1. Read steps 1, 2, and 3; especially step 2.
3.31.2010
Timeframes
Does long term trading really work? I struggled for a long time during my first trading attempts wondering this question. It seemed to me longer term trading was inherently more risky than short term1. After all, I can't know what will happen 5 mins from now, let alone 5 days or weeks. However, stats geeks would tell me I can predict with greater certainty what will happen in 5 mins than 5 weeks2. And thus it seemed to me that short term was the way to go.
I had a good run for some time manual trading short term; however automated trading short term setups seemed to be an on-again, off-again sort of feeling. One week, I would win 90%. The next week, I could lose 90%. Plus, the concept behind why I would be entering positions in such a short term way was non-existent and flawed. I was simply guessing, hoping perhaps, and I had a risk/reward ratio that required a high win rate to succeed. Needless to say, the effect on my account was a slow drain, with nice profit spikes during those weeks where everything just clicked.
My current philosophy I suppose is that long term trading can and does work. However, I believe my initial analysis about higher risk was correct. If I trade long term with a poor risk reward ratio and with a short term viewpoint, then I have simply increased my risk. What I was missing initially was an entirely different way of trading. I suppose the "happy" way to think about longer term trading is that it gives you more possibilities of taking profit. In theory, if we can wait long enough, everything eventually comes around to profit. Or as price over time approaches infinity my win ratio becomes 100%3.
1. Without going crazy on definitions, I'm simply going to say "long-term" is anything more than a couple days
2. And they would be wrong. People's actions aren't a Gaussian distribution.
3. If your buying that idea, let me tell you about a system I would sell you. You see if you simply double up your bet each time, eventually you win. It's called a martingale, and ...
I had a good run for some time manual trading short term; however automated trading short term setups seemed to be an on-again, off-again sort of feeling. One week, I would win 90%. The next week, I could lose 90%. Plus, the concept behind why I would be entering positions in such a short term way was non-existent and flawed. I was simply guessing, hoping perhaps, and I had a risk/reward ratio that required a high win rate to succeed. Needless to say, the effect on my account was a slow drain, with nice profit spikes during those weeks where everything just clicked.
My current philosophy I suppose is that long term trading can and does work. However, I believe my initial analysis about higher risk was correct. If I trade long term with a poor risk reward ratio and with a short term viewpoint, then I have simply increased my risk. What I was missing initially was an entirely different way of trading. I suppose the "happy" way to think about longer term trading is that it gives you more possibilities of taking profit. In theory, if we can wait long enough, everything eventually comes around to profit. Or as price over time approaches infinity my win ratio becomes 100%3.
1. Without going crazy on definitions, I'm simply going to say "long-term" is anything more than a couple days
2. And they would be wrong. People's actions aren't a Gaussian distribution.
3. If your buying that idea, let me tell you about a system I would sell you. You see if you simply double up your bet each time, eventually you win. It's called a martingale, and ...
Framework Optimizations Complete
The framework optimizations I mentioned in my previous post are now complete. Backtesting my current in progress strategy has been reduced from about 5 mins per month of simulation to ~30 seconds. Quite an increase. I think anything to increase speed from here on out will most likely be minor tweaks. At this point, I can increase the polling frequency if I chose and still keep the processing demand extremely low.
I would now in fact be focusing on testing and vetting the strategy for use, except for the fact my main machine is down for the count. This fact wouldn't be a huge issue if my SVN server didn't also happen to be running on it during this interim period. Right, I know what your thinking. Git is SO much cooler than SVN. I agree. However, there is little reason to migrate at this point, given the other pressing issues. After all, I don't have easy access to the code; let alone migrate it.
I would now in fact be focusing on testing and vetting the strategy for use, except for the fact my main machine is down for the count. This fact wouldn't be a huge issue if my SVN server didn't also happen to be running on it during this interim period. Right, I know what your thinking. Git is SO much cooler than SVN. I agree. However, there is little reason to migrate at this point, given the other pressing issues. After all, I don't have easy access to the code; let alone migrate it.
3.28.2010
Profit and the Mob
Profiting from a trade doesn't mean you are/were right; don't buy into this fallacy. It simply means others also traded the same way as you, during the same time you were vested. This brings up an odd perspective on the manual trader. There are traders who put in long1 hours manually trading the news, or fundamentals. Many of these folks are your classic stock market gurus who form an opinion on a company or sector as a whole and trade that opinion in those instruments. Yet it appears their ability to generate a profit from these activities is simply because they think the same way as others do; aka they are part of the mob.
In other words, if we view an instrument in the market at any time, we can think of the price as a representation of a random2 slice of people's opinions. The best traders are the ones who simply align themselves closest to the opinions of there peers within that instrument. Make sense?
Your paradox for the day - How can following the mob make you a profitable trader, when 95% of the mob loses money? It would seem the key to success in manual trading is to follow the mob, but be a mob leader.
1. If you trade the non-farm payrolls announcement exclusively, you only work 1 hour a month!
2. This is perhaps a topic for another post. However, market participants are not random. They certainly are not constant, but I think statistics are valid here for who is participating. For this reason, we can gain insight into who is making up our market, and according to my theory presented above, adopt their style of thinking for profit.
In other words, if we view an instrument in the market at any time, we can think of the price as a representation of a random2 slice of people's opinions. The best traders are the ones who simply align themselves closest to the opinions of there peers within that instrument. Make sense?
Your paradox for the day - How can following the mob make you a profitable trader, when 95% of the mob loses money? It would seem the key to success in manual trading is to follow the mob, but be a mob leader.
1. If you trade the non-farm payrolls announcement exclusively, you only work 1 hour a month!
2. This is perhaps a topic for another post. However, market participants are not random. They certainly are not constant, but I think statistics are valid here for who is participating. For this reason, we can gain insight into who is making up our market, and according to my theory presented above, adopt their style of thinking for profit.
3.26.2010
Strategy Verification
How do I know my backtesting is sound? How can I verify a strategy is ready for live execution? I employ several techniques to ensure my backtesting results are sound and represent1 what would have actually occurred. Strategies won't be run in live mode with real money until I can check these off. A quick list:
1) Live test and observe
This is more of a general catch all. But running the strategy in live mode will find bugs you won't otherwise find. And sometimes, those could affect backtesting. Any math errors that the server also calculates will show up here.
2) Use debug statements
Dump stack traces during each state change. Be careful of information overload, but the more you dump the more you can verify.
3) Check for logic errors
Make sure your not "cheating" with any of your math. And also verify your boolean and conditionals are executing as you think they should
4) Manually step through data and match output with strategy
This one requires you to trade your own strategy. step by step, on the test dataset. This can reveal coding errors, or strategy errors on your part.
5) Re-run data from live mode in backtesting and compare results
This has to be my favorite. I consider it the ultimate test so to speak, when the strategy will give the same results on the same data, whether run in live mode or backtesting mode. Simply collect data from live mode execution, and rerun in backtesting mode.
1. To the extent that is possible -- backtesting will never account for runtime differences such as slippage, spreads, etc.
1) Live test and observe
This is more of a general catch all. But running the strategy in live mode will find bugs you won't otherwise find. And sometimes, those could affect backtesting. Any math errors that the server also calculates will show up here.
2) Use debug statements
Dump stack traces during each state change. Be careful of information overload, but the more you dump the more you can verify.
3) Check for logic errors
Make sure your not "cheating" with any of your math. And also verify your boolean and conditionals are executing as you think they should
4) Manually step through data and match output with strategy
This one requires you to trade your own strategy. step by step, on the test dataset. This can reveal coding errors, or strategy errors on your part.
5) Re-run data from live mode in backtesting and compare results
This has to be my favorite. I consider it the ultimate test so to speak, when the strategy will give the same results on the same data, whether run in live mode or backtesting mode. Simply collect data from live mode execution, and rerun in backtesting mode.
1. To the extent that is possible -- backtesting will never account for runtime differences such as slippage, spreads, etc.
Of Execution
Since I touched very briefly on process separation in my last post, I thought I would quickly mention what actually is running and it's purpose on my auto-trading sever. I suppose setup will have to wait for another day. The first three I mention are always running, while the fourth is manually triggered by myself.
Pricefeed
This process grabs and stores realtime forex price data from Oanda. Currently, I don't have the disk space nor huge desire for long term storage, so I'm writing to csv files on a weekly basis for now. Given the data is available from Oanda with a 2 month rolling delay, there's little need for collection when dealing with the major pair, outside of verifying strategy execution.
Monitor
I monitor all strategies to ensure they are running, and have alerts based upon there actions. I will be alerted if a strategy dies, or if the PL encounters a drastic change, etc. These alerts are sent via email and SMS to my cell phone.
Strategy
Finally, each strategy itself will be running inside it's own process.
Analysis
This I will run from time to time to perform analysis on any strategy log; whether running in live mode or backtesting mode. Essentially it does things like produce statistics of trades, and graphs things like balance, PL, trade timespan, etc.
Pricefeed
This process grabs and stores realtime forex price data from Oanda. Currently, I don't have the disk space nor huge desire for long term storage, so I'm writing to csv files on a weekly basis for now. Given the data is available from Oanda with a 2 month rolling delay, there's little need for collection when dealing with the major pair, outside of verifying strategy execution.
Monitor
I monitor all strategies to ensure they are running, and have alerts based upon there actions. I will be alerted if a strategy dies, or if the PL encounters a drastic change, etc. These alerts are sent via email and SMS to my cell phone.
Strategy
Finally, each strategy itself will be running inside it's own process.
Analysis
This I will run from time to time to perform analysis on any strategy log; whether running in live mode or backtesting mode. Essentially it does things like produce statistics of trades, and graphs things like balance, PL, trade timespan, etc.
Framework Optimizations
During this downtime I'm working on coding the new strategies, and have found it beneficial and necessary in some cases to recode some of the old strategies for quicker backtesting. After all, when one can't be actually trading, what better to do than paper trade eh?
My typical strategy shell as it were has certainly evolved over the course of coding. It never seems to stay up to date, a I continue to add to the framework, and realign my thinking and strategy code. The latest set of optimizations are basic in thought, but slightly harder than first realized to implement. Up until this point laziness combined with several other factors has led to an abuse of running a calcPL() command1. Because of design overlap and poor coding, sometimes this was being calculated 2 or even 3 times per iteration. Obviously this is burning CPU cycles, but more importantly, it's taking valuable time away from strategy analysis and price feed updates. And of course, it's also why backtesting has slowed from "instantaneous" results to taking 10 minutes.
Despite knowing the issue, I decided to take the opportunity to profile my code for the first time. Profiling2 quickly pointed out the problem as well. Several hundred million calcPL() calls made for only a few hundred trades.
Rectifying this CPU waste has been a challenge. The ultimate goal is to completely remove any redundant calls to calcPL(), and instead allow the strategy to "know" when it needs to execute something. Obviously this means more upfront calculation and tracking, as well as storing the data. To the extent it makes sense, the objects have gained additional attributes that will store much of the data. Some of it will remain inside the client. Of course, this is only a first pass, and will likely see its own enhancements as time goes on.
The end result should create very fast iterations while running the strategy. Essentially the new processing order for each iteration will be as follows:
Get the exchange rate
Simple check to see if we need to act
Currently there is both a calcPL() layer and an analysis layer sandwiched in-between those steps. If your strategy can be re-written to fit the simple check model as above, even your smartphone could run it :-)
1. I also wanted to have realtime data of my PL. Instead of pursuing the proper solution, until now I've optimized the calcPL() call. To get this realtime PL data under the new model, there are several approaches one could take. Before coding much of the framework, I had a separate monitor process that also tracked PL. Separation is an easy and wise solution, as you can both monitor and perform additional analysis with it, and gain the separate process stability.
2. I used Devel::NYTProf and got a cool html graph output. CPAN makes things easy, so don't put off profiling for as long as I did.
My typical strategy shell as it were has certainly evolved over the course of coding. It never seems to stay up to date, a I continue to add to the framework, and realign my thinking and strategy code. The latest set of optimizations are basic in thought, but slightly harder than first realized to implement. Up until this point laziness combined with several other factors has led to an abuse of running a calcPL() command1. Because of design overlap and poor coding, sometimes this was being calculated 2 or even 3 times per iteration. Obviously this is burning CPU cycles, but more importantly, it's taking valuable time away from strategy analysis and price feed updates. And of course, it's also why backtesting has slowed from "instantaneous" results to taking 10 minutes.
Despite knowing the issue, I decided to take the opportunity to profile my code for the first time. Profiling2 quickly pointed out the problem as well. Several hundred million calcPL() calls made for only a few hundred trades.
Rectifying this CPU waste has been a challenge. The ultimate goal is to completely remove any redundant calls to calcPL(), and instead allow the strategy to "know" when it needs to execute something. Obviously this means more upfront calculation and tracking, as well as storing the data. To the extent it makes sense, the objects have gained additional attributes that will store much of the data. Some of it will remain inside the client. Of course, this is only a first pass, and will likely see its own enhancements as time goes on.
The end result should create very fast iterations while running the strategy. Essentially the new processing order for each iteration will be as follows:
Get the exchange rate
Simple check to see if we need to act
Currently there is both a calcPL() layer and an analysis layer sandwiched in-between those steps. If your strategy can be re-written to fit the simple check model as above, even your smartphone could run it :-)
1. I also wanted to have realtime data of my PL. Instead of pursuing the proper solution, until now I've optimized the calcPL() call. To get this realtime PL data under the new model, there are several approaches one could take. Before coding much of the framework, I had a separate monitor process that also tracked PL. Separation is an easy and wise solution, as you can both monitor and perform additional analysis with it, and gain the separate process stability.
2. I used Devel::NYTProf and got a cool html graph output. CPAN makes things easy, so don't put off profiling for as long as I did.
3.20.2010
Behavioral Analysis Trading
An idea has popped into my head regarding the other factor at work in a market. Until now, I had thought of price only as a function of time. I failed to really appreciate the human side of the equation. Ultimately human emotion drives the market. Right? After all, the decision to buy or sell is made by a human, and collectively those decisions become price movements. I've never taken the time to study human behavior in markets. Perhaps, just perhaps, there is an edge to be gained in doing so.
I can admit, I am not the typical consumer. I've realized I wouldn't have done well in the entrepreneurial world - merely because of my inability to understand people. Pick on anything you like; myself having been in IT for the dot com boom, I thought I might have a chance at starting something. Code it and they will come! However having seen sites like Myspace and Facebook do well, I realize how out of touch I am. Who would post all there personal details on some random companies site? And why communicate inside such a black box? Evidently there is a reason, since so many are doing it2.
Which brings us back to trading. Have you ever thought about why someone would take the flip side of your trade? How does TraderX1 make his trading decisions? Even a machine must be programmed. How does he trade? And does it matter to me? His decision, just like my own, moves the market! Given my choice to be proactive or reactive in my trading I have often sought to be reactive. Try and let the price set itself, and attempt to profit accordingly. I think being proactive is possible, and thinking about behavior could help that.
If your convinced at this point that this could play a role in your trading, I'll attempt to leave you with something. When this idea popped into my head, I immediately thought of Google Trends. It's sometimes shocking to see what the latest thing is on peoples minds (at least viewed thru google). The top searches and hot topics list are ever changing as the news disseminates what people should be thinking about today. Presumably this critical mass googles the sound bites, and thus you can "rank" the news on importance to the general populace. I would bet you the marketed media of the day is always in the top 5. Of course if you take that bet, I wouldn't have to worry about trading anymore. I'd be rich! Now, we simply need the same polling of currency traders.
1. Ok, I couldn't resist a Nick Leeson reference.
2. I suppose marketing to "con"-vince enough people into using the site until you reach a critical mass was the game plan here. Now people signup and use social networks simply because everyone else is. Amazing.
I can admit, I am not the typical consumer. I've realized I wouldn't have done well in the entrepreneurial world - merely because of my inability to understand people. Pick on anything you like; myself having been in IT for the dot com boom, I thought I might have a chance at starting something. Code it and they will come! However having seen sites like Myspace and Facebook do well, I realize how out of touch I am. Who would post all there personal details on some random companies site? And why communicate inside such a black box? Evidently there is a reason, since so many are doing it2.
Which brings us back to trading. Have you ever thought about why someone would take the flip side of your trade? How does TraderX1 make his trading decisions? Even a machine must be programmed. How does he trade? And does it matter to me? His decision, just like my own, moves the market! Given my choice to be proactive or reactive in my trading I have often sought to be reactive. Try and let the price set itself, and attempt to profit accordingly. I think being proactive is possible, and thinking about behavior could help that.
If your convinced at this point that this could play a role in your trading, I'll attempt to leave you with something. When this idea popped into my head, I immediately thought of Google Trends. It's sometimes shocking to see what the latest thing is on peoples minds (at least viewed thru google). The top searches and hot topics list are ever changing as the news disseminates what people should be thinking about today. Presumably this critical mass googles the sound bites, and thus you can "rank" the news on importance to the general populace. I would bet you the marketed media of the day is always in the top 5. Of course if you take that bet, I wouldn't have to worry about trading anymore. I'd be rich! Now, we simply need the same polling of currency traders.
1. Ok, I couldn't resist a Nick Leeson reference.
2. I suppose marketing to "con"-vince enough people into using the site until you reach a critical mass was the game plan here. Now people signup and use social networks simply because everyone else is. Amazing.
Voidness of space and time
This time spent inbetween my previous residence and my new office has to yield something right? Is there a grandiose strategy lurking inside my brain? I hope so. Meanwhile, I am stuck waiting on my stuff to arrive. I feel like a writer without paper. Since I am both a visual and straightforward thinker, I am almost lost without my workspace. I had assumed to be setup this weekend, but that reality has slipped away.
3.18.2010
In Transition
As I've been transitioning to a more climate friendly location, trading and in many ways life has come to a standstill. The prospects of gathering and packing everything you own is a healthy exercise. Its a time for simplification, and of purging. A good friend of mine once noted that if he was rich, he would seek to own nothing. The lesson learned is stark. If money is no object, given our services based economies, simply pay for everything. Why pack? Simply buy clothes there (or pay someone to). Why not rent different houses and move at whim? Without stuff, you are free. One can go too far here and quickly become a pure consumer, which runs contrary to our purpose in life. See Step 2.
All this to say it's been the better part of the month with no access to my code, systems, or trading in general. Losing your internet connection can be like dying. However, nothing is forever. And so, tomorrow my stuff should finally arrive. I should be back in business for next weeks session. Albeit, with no dedicated internet, running bots in live mode will have to remain postponed.
All this to say it's been the better part of the month with no access to my code, systems, or trading in general. Losing your internet connection can be like dying. However, nothing is forever. And so, tomorrow my stuff should finally arrive. I should be back in business for next weeks session. Albeit, with no dedicated internet, running bots in live mode will have to remain postponed.
3.05.2010
Of Capital
A couple of manual trades closed successfully shows me up a modest 4% this past month. Seems hard to justify the cash sitting in the bank with that kind of return.
At this point I suspect most readers are crunching the numbers and seeing a >50% annualized return as unobtainable, risky and foolish. However, I will kindly remind them (and myself!) of a few insights they may not realize.
In this case, it may very well be said investing such capital into any market, let alone forex is a huge risk, and is only attempted to the investors own peril. One does well to listen and think for themselves after receiving such a warning. The concept that money (in this case US dollars) sitting in a bank is safer than vested in the forex market. After all, banks have guarantees, known returns, etc. This is all well and good. Indeed, those telling me such things would never dream of investing in anything, barring perhaps the stock market 1. To anyone in this position, I would challenge that they are invested, and in my opinion, invested poorly in the forex market! They are (and presumably have been for some time) sitting on a giant dollar long position. To anyone holding this position (myself included) the long term returns have been quite negative. Your getting poorer, even if the digits in the account are higher than 10 years ago. Trading in the forex market merely allows you to diversify and choose where to put your chips. Having such a huge (albeit unleveraged bet) is not a wise investment choice at all times.
Now to the original claim that a double digit return is risky, unobtainable and foolish. I am certainly not so foolish as to count on nor expect that kind of return. However, the market has given, and will likely continue to do so 2, opportunities to achieve such returns. I can make informed investments, manage risk, and do everything "right" 3 and still lose money. Oddly enough, the converse is also true. I can do everything "wrong" and still make money.
1. The stock market shall have to be dealt with in another post. For now, suffice to say there is reason why I call it the magical money tree. Not matter what the brochure the salesman shows you says, we're not all going to be millionaires in 30 years.
2. As long as humans are the source of the market, volatility will know no bounds.
3. The definitions of right and wrong here are dubious and relative. However, the arguments hold no matter the readers definition of proper investing.
At this point I suspect most readers are crunching the numbers and seeing a >50% annualized return as unobtainable, risky and foolish. However, I will kindly remind them (and myself!) of a few insights they may not realize.
In this case, it may very well be said investing such capital into any market, let alone forex is a huge risk, and is only attempted to the investors own peril. One does well to listen and think for themselves after receiving such a warning. The concept that money (in this case US dollars) sitting in a bank is safer than vested in the forex market. After all, banks have guarantees, known returns, etc. This is all well and good. Indeed, those telling me such things would never dream of investing in anything, barring perhaps the stock market 1. To anyone in this position, I would challenge that they are invested, and in my opinion, invested poorly in the forex market! They are (and presumably have been for some time) sitting on a giant dollar long position. To anyone holding this position (myself included) the long term returns have been quite negative. Your getting poorer, even if the digits in the account are higher than 10 years ago. Trading in the forex market merely allows you to diversify and choose where to put your chips. Having such a huge (albeit unleveraged bet) is not a wise investment choice at all times.
Now to the original claim that a double digit return is risky, unobtainable and foolish. I am certainly not so foolish as to count on nor expect that kind of return. However, the market has given, and will likely continue to do so 2, opportunities to achieve such returns. I can make informed investments, manage risk, and do everything "right" 3 and still lose money. Oddly enough, the converse is also true. I can do everything "wrong" and still make money.
1. The stock market shall have to be dealt with in another post. For now, suffice to say there is reason why I call it the magical money tree. Not matter what the brochure the salesman shows you says, we're not all going to be millionaires in 30 years.
2. As long as humans are the source of the market, volatility will know no bounds.
3. The definitions of right and wrong here are dubious and relative. However, the arguments hold no matter the readers definition of proper investing.
2.25.2010
Of Backtesting
The joys of backtesting. In my last post I described the framework I am utilizing for autotrading. Once the strategy is coded inside the framework, I can choose to run it in live mode, or I can choose to run it thru previous price quotes in order to get a historical perspective on it's performance. This is helpful to reveal bugs more than anything else. People will often "tweak" there strategies in order to gain good backwards testing performance. Unfortunately, this is also how many are scammed with the inevitable forex bots, and pretty graphs showing beautiful equity curves. Suffice to say, tweaking for the past is an exercise in futility, and borders on dangerous. While it is enjoyable to see a strategy perform on an unknown dataset, I have successfully run robots that don't backtest well. The reason of course is that the past is different from the future; which is of course different from today. The only thing that matters is how the robot is performing now, in realtime.
That's not to say backtesting has no place. As I said, it helps to reveal bugs, and can identify or disprove your thesis on the core of the strategy. For example, if I code a trend following system, I would want to backtest it on a dataset containing trends. This will help me to see if my idea on how to idenitfy a trend is correct (and correctly coded). The performance of the robot on this dataset is a secondary indicator, but again is most useful for determining proper code. If a robot wipes the account of otherwise experiences severe drawdown my strategy doesn't call for, it usually means there is a bug somewhere. Typically you can no more always be wrong, than always be right. Either one is a cause for investigation. Or you found the grail. Heh. My money is on a bug!
That's not to say backtesting has no place. As I said, it helps to reveal bugs, and can identify or disprove your thesis on the core of the strategy. For example, if I code a trend following system, I would want to backtest it on a dataset containing trends. This will help me to see if my idea on how to idenitfy a trend is correct (and correctly coded). The performance of the robot on this dataset is a secondary indicator, but again is most useful for determining proper code. If a robot wipes the account of otherwise experiences severe drawdown my strategy doesn't call for, it usually means there is a bug somewhere. Typically you can no more always be wrong, than always be right. Either one is a cause for investigation. Or you found the grail. Heh. My money is on a bug!
Of Frameworks
When one considers how to approach trading there are alot of upfront choices to be made. Which market to trade? Shall I trade or have someone or something do it for me? What philosophy or strategy will I employ with trading -- aka what edge am I seeking to profit on? My goal is to use fundamental and technical analysis to determine where edges may lie and attempt to profit from them. Since I am human, I am delegating the grunt execution to a machine, and instead employing my time to analysis. This is otherwise known as autotrading.
While there are many packages of there to support such endeavors, I have written my own framework to accomplish this. In a nutshell, I have separated out the execution layer, data layer and logic layers of a trading program. The execution layer takes care of the communication and physical trade execution at my broker. The data layer is separated out to render feeds of price and other information for use by any particular strategy I am running. Finally the logic layer is separated out into individual strategies running within the framework.
It sounds much more complicated than it really is. But having this proper framework allows me to code strategies easily; and then run them thru backtesting or live mode. I suppose I would be remiss if I didn't also mention I did this all in PERL.
While there are many packages of there to support such endeavors, I have written my own framework to accomplish this. In a nutshell, I have separated out the execution layer, data layer and logic layers of a trading program. The execution layer takes care of the communication and physical trade execution at my broker. The data layer is separated out to render feeds of price and other information for use by any particular strategy I am running. Finally the logic layer is separated out into individual strategies running within the framework.
It sounds much more complicated than it really is. But having this proper framework allows me to code strategies easily; and then run them thru backtesting or live mode. I suppose I would be remiss if I didn't also mention I did this all in PERL.
2.18.2010
Look Ma, I called a top!
While working on writing my robots, I decided to start playing with a long term concept of position building with a directional bias. Say that three times fast. Suffice to say my initial position did so well I closed it for a solid 3% gain. Whoops! There goes the long term experiment. Nothing like calling a top, and getting out on the intra-day bottom as well. My robot to trade this strategy is still in the testing phase, so I decided to take the profits off the table for today and let the robot do its job when the time comes.
Of Systems
Creating a trading strategy isn't something to be taken lightly. It's important to remember we're running a business here. For practical purposes, I'm going to codify my thoughts on trading into trading robots. I have several in various stages of development. The concept behind having multiple robots is simply to target and profit from several different trading environments. Running them concurrently should in theory allow me to profit in any environment. Hehe. Any known environment 1.
1. You don't know what you don't know -- hence I cannot trade the unknown. But, if Nassim Taleb has shown anything, I can profit from it.
1. You don't know what you don't know -- hence I cannot trade the unknown. But, if Nassim Taleb has shown anything, I can profit from it.
2.13.2010
Step 3 - Becoming Capitalist
So, we've cleared our time, and discussed our needs. Now we can begin to spend our time as desired. To meet our needs however, we're going to utilize trading. Times have changed, but the art of the buy and sell hasn't. Trading evokes the most basic of human emotion and thought. It pits one versus everyone with direct and real consequences. Like heros, we cheer and admire those that can seemingly do the impossible.
For our purposes I am not going to use "The Stock Market". I won't be messing with Wall St here. At least directly. I am not so naive as to think one can escape the grasps of the elite corporations and those with money. I won't seek to defeat them at there own game. However, working for change and revealing the evils that lie in this upper echelon of society is a worthwhile, and indeed necessary pursuit.
So, what sort of trading shall I be attempting? One can trade anything -- even in modern day it is possible to make a living buying and selling physical goods 1. I will take the luxury of having virtual markets buying and selling paper; or really exchanging bytes between computer systems 2.
Forex. This fringe market, so liquid, secretive, and largely unregulated is where I shall participate. In many ways, this wild west of trading markets suits the personality of the transition. But the freedom given in such an unregulated market is too wonderful to give up 3.
We will take advantage of this freedom in many ways. For one, the retail investor such as ourselves is now allowed to "play" with the big boys. This was not always the case. Neither was the ability to trade instantly. And perhaps the biggest draw is that anyone can play. With as little as a dollar, you can take a position 4. Despite all the traps and costs lined up against you, it is definitely possible to make money in this market.
1. See "Around the world in 80 trades" book and BBC special as an example of this
2. Many modern exchanges are now simply the transfer and flow of information. Nothing becomes real until it is settled and withdrawn into the "real" world so to speak. In these days of continual rollover, the line between the "real" world and the digital one continues to thin.
3. Don't be naive here. This freedom means those who would take advantage of others, or cheat, etc, etc both can and will. The protections afforded by more regulated markets simply aren't here.
4. This is one of the reasons why Forex is full of brokers catering to the gambling type. Easy access, no upfront costs, and 400:1+ leverage makes it easy to rob from the unsuspecting "investor".
For our purposes I am not going to use "The Stock Market". I won't be messing with Wall St here. At least directly. I am not so naive as to think one can escape the grasps of the elite corporations and those with money. I won't seek to defeat them at there own game. However, working for change and revealing the evils that lie in this upper echelon of society is a worthwhile, and indeed necessary pursuit.
So, what sort of trading shall I be attempting? One can trade anything -- even in modern day it is possible to make a living buying and selling physical goods 1. I will take the luxury of having virtual markets buying and selling paper; or really exchanging bytes between computer systems 2.
Forex. This fringe market, so liquid, secretive, and largely unregulated is where I shall participate. In many ways, this wild west of trading markets suits the personality of the transition. But the freedom given in such an unregulated market is too wonderful to give up 3.
We will take advantage of this freedom in many ways. For one, the retail investor such as ourselves is now allowed to "play" with the big boys. This was not always the case. Neither was the ability to trade instantly. And perhaps the biggest draw is that anyone can play. With as little as a dollar, you can take a position 4. Despite all the traps and costs lined up against you, it is definitely possible to make money in this market.
1. See "Around the world in 80 trades" book and BBC special as an example of this
2. Many modern exchanges are now simply the transfer and flow of information. Nothing becomes real until it is settled and withdrawn into the "real" world so to speak. In these days of continual rollover, the line between the "real" world and the digital one continues to thin.
3. Don't be naive here. This freedom means those who would take advantage of others, or cheat, etc, etc both can and will. The protections afforded by more regulated markets simply aren't here.
4. This is one of the reasons why Forex is full of brokers catering to the gambling type. Easy access, no upfront costs, and 400:1+ leverage makes it easy to rob from the unsuspecting "investor".
2.08.2010
Really, what is money?
So we've talked about money, attempted a definition, and left ourselves still wondering and asking questions. After all, what is it really? Does it represent stuff, or happiness perhaps? I am going to attempt a broader view of money here. Simply put,
$ = Δt
Money is a derivative of time. "Time is money". Indeed. Defined as such, money then is simply a resource.
$ = Δt
Money is a derivative of time. "Time is money". Indeed. Defined as such, money then is simply a resource.
What is money?
Given all this talk about meeting needs and becoming a capitalist, I would be remiss if we didn't attempt at least a cursory definition of money.
Money at it's heart is a store of value. In our perfect world, one could suppose it represented a stable store of value. Reality tells us otherwise. In our world today, most would pick up a dollar or euro and consider it money. This is fiat currency - meaning it's value has been declared by some authority. In the case of the dollar or euro, it's been declared by the central government. These bills represents debt. US Dollars are really IOU's - not by the US government, but by you. Promises that you will (or more specifically your children) pay back what has been borrowed. Modern finance revolves around a world of so-called experts, central banks, and government authority. It's really a fragile and thin system based ultimately on trust. You do trust your government don't you? Remember the power is always from the people. Someday, the US Dollar will be worthless. It will go the way of all the fiat currencies have gone before. I don't think I've unearthed any big surprises here for most readers.
Money at it's heart is a store of value. In our perfect world, one could suppose it represented a stable store of value. Reality tells us otherwise. In our world today, most would pick up a dollar or euro and consider it money. This is fiat currency - meaning it's value has been declared by some authority. In the case of the dollar or euro, it's been declared by the central government. These bills represents debt. US Dollars are really IOU's - not by the US government, but by you. Promises that you will (or more specifically your children) pay back what has been borrowed. Modern finance revolves around a world of so-called experts, central banks, and government authority. It's really a fragile and thin system based ultimately on trust. You do trust your government don't you? Remember the power is always from the people. Someday, the US Dollar will be worthless. It will go the way of all the fiat currencies have gone before. I don't think I've unearthed any big surprises here for most readers.
Step 2 - Meeting your needs
Ok, so our time is all our own now. Hurray! There is nothing like the feeling of quitting your job. Suddenly you are free to do as you wish, at least for the moment. The world lies before you, and the feelings of youth and invincibility overwhelm you again. Being afraid of commitment had its upsides. Who wants to exchange 30 years of there life for a shelter, aka home? I think I missed the memo on that one. But I'm getting ahead of myself.
I still have needs to be met. My body will need food soon, and water for that matter. It will also need shelter; clothing and a place to sleep. This are but the most basic of needs. And like most Americans I'm paying someone to meet those needs for me. As I enjoy living, I still need a way to meet those needs without being a wage slave.
Meeting them myself is a feasible option. Indeed, my choice is simply the method I chose. I was already meeting my needs. Thus far I have been exchanging my time for money. I then exchanged this money for my needs. Becoming a capitalist would mean I value my time. Exchanging such a valuable resource for what indirectly results in my most basic needs isn't a good return on my assets.
Let us reconsider how to meet those needs. I could chose to exchange my time for food, and shelter directly. This would seem to be a better exchange, although it would still utilize my finite resource of time. The pitfall here is placing myself in a situation not unlike slavery. If I am unable to give my time (aka work), I don't eat. For example, say I pursued this strategy by buying a bit of land and building a garden upon it. That garden will not bring forth a harvest without work. That investment of time needs to be considered.
Indeed, if time was to be valued most I could cease 'working' now; in the sense of the modern day, 9-5 job. Living in a field with a tent and dependent on nature for food would meet all my needs and cost me very little of my time to setup. However, this is not a desirable arrangement 1. Freeing up all of one's time is futile.
1. Ecc. 2:24 There is nothing better for people than to eat and drink, and to find enjoyment in their work.
I still have needs to be met. My body will need food soon, and water for that matter. It will also need shelter; clothing and a place to sleep. This are but the most basic of needs. And like most Americans I'm paying someone to meet those needs for me. As I enjoy living, I still need a way to meet those needs without being a wage slave.
Meeting them myself is a feasible option. Indeed, my choice is simply the method I chose. I was already meeting my needs. Thus far I have been exchanging my time for money. I then exchanged this money for my needs. Becoming a capitalist would mean I value my time. Exchanging such a valuable resource for what indirectly results in my most basic needs isn't a good return on my assets.
Let us reconsider how to meet those needs. I could chose to exchange my time for food, and shelter directly. This would seem to be a better exchange, although it would still utilize my finite resource of time. The pitfall here is placing myself in a situation not unlike slavery. If I am unable to give my time (aka work), I don't eat. For example, say I pursued this strategy by buying a bit of land and building a garden upon it. That garden will not bring forth a harvest without work. That investment of time needs to be considered.
Indeed, if time was to be valued most I could cease 'working' now; in the sense of the modern day, 9-5 job. Living in a field with a tent and dependent on nature for food would meet all my needs and cost me very little of my time to setup. However, this is not a desirable arrangement 1. Freeing up all of one's time is futile.
1. Ecc. 2:24 There is nothing better for people than to eat and drink, and to find enjoyment in their work.
Step 1 - Quit your job
Quit your job. Really. Without warning, much thought or regard for consequences. I did. I'm becoming a capitalist. Be in control of your time, your money; your life. This will chronicle the journey of transitioning. From trading my finite time and my brainpower for money of dubious and relative value, to spending my time as I see fit.
I suppose some introduction is in order. I am a typical 20's male. Married, but unwilling to commit. Smart, energetic, talented; and burned in by corporate America. I've spent my life till now making the assumed societal choices. I pursued schooling with vigor, noting it had merit and value whereas sports did not. (Seeing some professional player salaries, perhaps I missed the mark on this one) I left high school for college early, a move spurred on by my desire to begin life. My summers were spent working for money. The jobs were chosen of course purely by how much it might pay. College was a disaster that did manage to only last 3.5 years. All said and done, society had birthed another upstanding citizen. No debt, young, fit, and eager to work. It had all the images of an American dream. I got lucky after all. I landed a job square in corporate America working in IT for a fledgling company. In exchange for 5 years of my life, they gave me money. It wasn't a fair trade. So I ended it. Which leads us to step 2.
I suppose some introduction is in order. I am a typical 20's male. Married, but unwilling to commit. Smart, energetic, talented; and burned in by corporate America. I've spent my life till now making the assumed societal choices. I pursued schooling with vigor, noting it had merit and value whereas sports did not. (Seeing some professional player salaries, perhaps I missed the mark on this one) I left high school for college early, a move spurred on by my desire to begin life. My summers were spent working for money. The jobs were chosen of course purely by how much it might pay. College was a disaster that did manage to only last 3.5 years. All said and done, society had birthed another upstanding citizen. No debt, young, fit, and eager to work. It had all the images of an American dream. I got lucky after all. I landed a job square in corporate America working in IT for a fledgling company. In exchange for 5 years of my life, they gave me money. It wasn't a fair trade. So I ended it. Which leads us to step 2.
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