Links of the week

• John Forman of The Essentials of Trading share with us why sticking with your method is the best thing you can do.
• Brett Steenbarger launched new blog for his new book.
• Advisory Group write a column analyzing guru’s performance. This time they analyze the “fast money” gurus and apparently they don’t excel in making fast money or as Advisory Group put it:
  ”In summary, the Fast Money experts probably do not offer fast money with their stock picks, but they do as a group mostly outperform the broad stock market over the short term during recent months. The sample is not long enough to determine whether the outperformance is peculiar to recent market conditions.”

Buy signal for May 19th & keeping up the faith

A new buy signal has been issued by the system for NUCO. This buy signal and last week's portfolio results had me thinking about the recent period. If you've followed my blog in the past few months you probably saw that as time went by I sold most of the stocks in my portfolio, all but one. These selling's were a result of sell signals from the system and not the affect of fear caused by macroeconomic events. Ever since I opened this blog I have decided to stay true to my beliefs in the system and follow it no matter what happens.

Three weeks ago, due to changes in the NASDAQ which the system monitored, I started getting buy signals. And hopefully they'll turn into something great :)

I believe that the most important thing in trading, or any other area is believing in yourself. The rest will follow.

What would you do?

Since trading at this point is just a hobby which I tend to change and become a full time trader I set myself a workout plan which include staying late two to three times a week and study the markets as much as I can by reading books on the subject, subscribing to various RSS blogs, developing and perfecting different systems and last but not least, writing this blog.

You could say I knew technical analysis was my cup of tea since the beginning. Graphs and different oscillators fascinated me from the beginning and since I come from the software industry I guess develop computerized systems was just an evolution thing. Developing computerize system takes a lot of time where one develop, test, tweak and do the whole thing over and over again  but once you are done all there is to do is follow the system signals, which most of you know, is not an easy task :).

Now here's my dilemma: I strive to improve myself by reading blogs, newsletters and books and thus hope to improve the way I trade. But since I follow the systems signals I find that reading about the current recession or the credit crunch or looking at a graph explain why I should buy gold is irrelevant to me.

I feel I have reached a point where reading few more posts in various blogs wont expand my knowledge in the direction I need.

Let me know what would you do in my place.

Expand your knowledge

Know your Federal Reserve Chairman - An interesting piece on Ben Bernanke's track toward the long awaited job.

Brett Steenberger share his favorite posts for 2007

Excellent blog by John Forman of The Essential of Trading about how to take the long view when trading

According to The Institutional Investor it seems everyone, including the big players had their share in the last market turmoil.

Trader's Narrative believe we are in the beginning of our way up, back on the trend's back.

Barry Ritholtzl post in "TheStreet" reveal What Investors Need to Know About Historical Data.

How does it feel to be on the wrong side?

Watching the video above brought some bad memories from my previous trading period. A period which led to a year break from the stock market. A year in which I went back to basics and tried to understand where did I go wrong and what needs to be done so these mistakes wont repeat.

My heart goes to this guy and I hope he recover from the loss and find the mental strength to sit back and try to figure out what has he done wrong.

One thing that I have noticed about the guy's trading method was the lack of stop loss. In the video he mention how he thought it might gap 100 point but it went down 300 and then another 500. WHERE ARE YOUR STOPS dude?

I urge you to read Brett's response to this video

Expand your knowledge

• Investors begin to see the light at market bottom.
• Daily Option Report tries to figure why the VIX isn't moving with the market.
• Debris from the subprime blast exposed in the form of $100 Billion writedowns.
• Intra day and stock picks blog

Bulls, start your engine

Looking at the chart taken from Fusion IQ we can see that currently, only 20% of the NYSE stocks trade above their 200 MA.

Historically speaking, it usually signaled the end of the bear period and was a sign for the bulls to begin their buying spree.

So, can us bulls warm up our engines?

Technorati Tags: Stock Market,NYSE,Bear,Bullish

Is Fridays behavior an indicator to Mondays behavior?

As I mentioned in my previous post, I'm currently reading a book titled "How I Trade For A Living". In his book, the author reveal some of his trading methods and even going through some of his past trading positions. According to the author, a bullish Friday has influence on Monday behavior meaning bullish Friday will usually result in a bullish Monday.

I've decided to conduct a small research on the Nasdaq. I went back to January 1985 and counted the number of days where a bullish Friday ended up in a bullish Monday. Out of 627 bullish Fridays, 357 Mondays ended up bullish as well which is ~59%.

Trying to improve the ratio between winning and losing Mondays I decided to check Monday only if Friday gain was above 0.5%. Out of 310 bullish Fridays, 195 Mondays (approximately 69%) ended up bullish as well. The average gain for Monday was 1.02% and the average loss 0.13% as opposed to the previous test were the average gain was 0.84% and the average loss was 0.07%.

Looking back at the results it seems the author has a valid point and one can use this knowledge to increase the probability of a short-term profit by examining Friday's momentum.

Technorati Tags: Knowledge,Stock Market,Nasdaq

The usage of seasonality

Technorati Tags: Seasonality,Bullish,Stock Market

I'm currently reading a book titled "How I Trade For A Living" written by Gary Smith. The book expose you to many of the author's insights in the stock market.

One of the chapters in the book deals with seasonality and how to take advantage of it. The author write about a research conducted by Norman Fosback which shows that the market has bullish bias during the last trading day and first four trading days of each month. Further more, this bias is evident in the two days before each holiday. These days sum up to 28% of all trading days a year. Fosback run a simulation which traded only during these days from 1928 to 1994. The hypothetical account grew from 10,000 to 4.6 million dollar.

In his book, Gary note that even though this research is old he uses this knowledge and it still works for him. What puzzles him (and me) is that patterns like this are usually evaporate in the course of time as people take advantage of them, however the seasonality pattern seems to be still valid. If we examine yesterday's behavior we can see that it is exactly what happened. Lets wait till the end of the month and see if it will work as well.

Diversification - is it really essential?

Portfolio diversification means one should hold assets from different markets or sectors in order to reduce the risk.

I believe that in all the books I have red, no one question the necessity of diversification in a portfolio. Further more, the sample portfolio constantly contains equities along with commodities and I find this very confusing.  Even in a bear market there are a few stocks which rise. So, instead of looking at other markets I try to improve my stock picking in a specific market.  Building a mechanical system which perform well in different markets is very hard. I have tested my system in different markets like the FTSE, DAX, VSE and The Shanghai stock market and it worked well but since I concentrate on the Nasdaq I made several changes which showed great results on this market in particular.

So, is using one market acceptable? Let me know what you think of diversification.

Expand your knowledge

I came across an interesting research which examined whether profit can be improved using moving averages crossover as a replacement for BAH (Buy and Hold). The research examined the QQQQ in the years between 1991 and 2001. At this point some of you may say of "course SM is better than BAH", which is also true according to the research, but the interesting part is by how much.

The research shows using MA crossover resulted in up to twice the profit for the same period.

This gave me an idea how I can try and improve the system. I will publish the results in the following week.

Reference: SUPERIOR RETURNS FROM AVERAGE INDICATORS

Expand your knowledge

• Results of a study shows the important of self esteem with relation to the achievements one may have in his life.
• Stay true to your beliefs and don't sell your soul - Brett Steenbarger confesses his dilemmas.
• TraderFeed on turning setbacks into goals
• Trader's Narrative waits for seasonality to kick in
• Kevin explains what reverse divergence is.
• Barry Ritholtz from "The Big Picture" has a different view on Q3's GDP=4.9%

Expand your knowledge

• If you have the patience and mental strength - find your 40,000% return stock.
• Brett Steenbarger of TraderFeed publish his prediction for the following week and it looks a bit depressing.
• Interesting article about Nassim Taleb (also available in PDF) taken from one of the TraderFeed's posts.
• Trader Mike post a link regarding Lifeway Foods, Inc. (LWSN) which I bought last week due to a buy signal from my system.
• After reading the first link. It seems Google is still a bargain at 600+$
• Advisory Group's research shows there is no point trying to predict the economy's direction with the "Anxious Index".