Humor4u

Wouldn't it be nice if we could rewind the good times and fast forward when things aren't so good?  While life doesn't (yet) come with a game console, we do have the ability to pause the action in our life.  It turns out that ability to hit "pause" makes all the psychological difference in the world. Traders commonly make the mistake of treating their emotions as problems.  They want to banish frustration, greed, fear, and boredom from their experience.  The reality is that these emotions provide information: they are there for a reason.  We can either become aware of emotional experience and make use of it, or we can try to banish it and run the risk of having those emotions drive our next decisions.  The problem occurs, you see, when we are not fully aware of our emotional experience, when we're not mindful.  That's when frustration or boredom can drive actions that we would never take otherwise. Hence the value of the pause function. Pause provides us w

Friday, April 29th *  I'll be talking with the Benzinga pre-market prep show at 8:35 AM today.  We'll take a look at the psychology of the current market. *  I love this post regarding innovating and finding new trade setups from Ivanhoff. *  Stocks bounced nicely from overnight weakness yesterday but then stalled at prior peak levels and sold off sharply into the close.  Breadth was not especially poor; fresh monthly new highs dropped to 915 and new lows rose a bit to 235.  Technology/NASDAQ shares broke below their earlier April lows; housing stocks (XHB) also took a hit.  That's not the kind of action you'd expect if the market was pricing in economic strength.  Fewer than 50% of SPX shares are trading above their 3, 5, and 10-day moving averages.  Let's see if that can bring in buyers, as prior short-term corrections have been able to do. *  A few things different about this most recent market drop:  1) higher volatility on the decline, with extreme selling on

One of the most common questions I hear from traders is how they can trade more confidently.  Nothing is quite as frustrating as developing good ideas and then not having the confidence to properly act on those ideas. Where does confidence come from?  In this recent article , I address this question and why it's important.  Once we view confidence as a way of processing self-relevant information, we can literally learn to be more confident in our trading, our personal lives, and in our careers. I've found three important contributors to lack of trading confidence: 1)  Not putting in the work - When we try to borrow ideas from others, we never really deeply understand those ideas.  The process of independently generating an idea ensures that the idea makes sense to us.  That gives us staying power during temporary periods of adverse price action; 2)  Negative self-talk - When we focus on everything we could have done better and everything we did wrong, we create mini failure e

A while back I wrote about rock musician John Mellencamp, who decided that his band had gotten into a rut.  As a challenge, he required each member, including himself, to learn a new instrument that would be featured on songs for the next album.  That album explored an entirely new sound for the band and became one of their most popular.  The band talked about what they wanted that album to sound like , departed from their usual music to make it happen, and extended their success.   A savvy trader recently pointed out to me that the quant fund Two Sigma held a competition for their staff to program a robot to play winning air hockey.  That assignment had nothing to do with trading whatsoever, but it forced the staff to learn new technologies, new programming languages.  That investment in development can eventually help the fund research and develop new opportunities. At some point, you've grown within your skill sets and it's time to learn new skills and make new music.  Focu

Friday, April 22nd *  Excellent post from Jesse Felder questioning the wealth effect from recent central bank policy . *  Stocks pulled back in Thursday's trade, with fewer than 50% of SPX shares closing above their 3 and 5-day moving averages.  Despite the pullback, even my shorter-term measures remain in overbought territory, as seen below: *  Note how the pullback in bond prices (rise in yield) was accompanied by drops among consumer staples (XLP), utility (XLU), and real estate shares (IYR).  Because these sectors offer enhanced yield and because government bonds offer so little yield, rate views are playing out in these stock sectors.  This is a very relevant dynamic for traders/investors. *  Retail (XRT) and technology (XLK) shares have been underperformers lately; much of the recent strength has come from commodity related sectors (XLB, XLE, XME).  Strong commodities (DBC) are another macro theme playing out within stock sectors; the relative performance of stock sectors has

Above we can see that the volatility of stocks across market sectors has come down significantly since the February lows.  Since 2012, when realized sector volatility has been in its lowest quartile, the next 20 days in SPY have averaged a loss of -.40%.  When sector volatility has been in its highest quartile, the next 20 days in SPY have averaged a gain of +3.54%.   During historical investigations, I consistently find that intermediate-term returns are significantly tied to volatility and correlation regimes, particularly when the statistical overlaps among realized volatility, implied volatility, and correlation are eliminated. The reason for this is that the psychological dynamics of market tops differ from those of market bottoms.  Stocks make tops when values become sufficiently stretched to the upside that buying interest dries up.  In that context, the weakest sectors begin to fall off, breadth wanes, correlations go from lower to higher, and volatility shifts from lower to hi

Here are a few things I'm currently working on: *  I'm looking at the Ichimoku Cloud indicator and whether it has any unique value in predicting future price behavior in stocks.  The challenge is in finding unique value, as any indicator is likely correlated with others and with past price change itself.  So inevitably you're looking at the value of the residuals (the indicator minus the overlapping input of other variables), not the relationship of the indicator to market behavior per se.  I've gathered the data for number of all stocks on NYSE each day that are moving into and outside their clouds and found some interesting things.  For instance, if very few shares move into their clouds from levels above and below, returns are much more bullish than if many shares enter their clouds.  Returns are also different when you look at the number of stocks trading above versus below their clouds.  The whole exercise has become a way of thinking about momentum and value fact

Friday, April 15th *  Adam Grimes offers perspectives on mastering trading fears .  It's one reason risk management is so important.  If losses become emotionally debilitating, they inevitably result in future poor trades and missed opportunities. *  Stocks traded in a slow, narrow range yesterday.  Breadth tailed off a bit, but fresh monthly highs continue to significantly outnumber new lows:  1009 vs. 110.  About 65% of SPX stocks closed above their three-day moving averages, down from over 85% yesterday.  If the recent move to new highs was indeed a breakout move, we should see upside follow through and decent volume on such a move.  Stalling on slow volume gives me pause.  A false breakout would trap a lot of late bulls. *  We continue to see an increase in shares outstanding for the SPY ETF.  That has led to subnormal near-term returns in SPY on average; it's a useful sentiment gauge. *  Recent sessions have shown a notable absence of selling pressure from institutions on

You are an entrepreneur; you run your trading business.  Here are some questions that might help you focus your efforts: *  Are you creating a future for the business or are you mostly struggling to get by in the present?   Specifically, how much time are you spending on research and development, building the tools for tomorrow's trading, and how much time are you spending watching markets and placing trades? *  Are you running the business in a way that would make you want to work for yourself as an employee?   Leadership is as crucial in a one-person operation as in a large enterprise.  How effective is your leadership of your trading business? *  Is your business really growing?   Are you finding more opportunity now than in the past?  Are you trading new markets and/or new strategies or are you stagnating?  Would you choose to be an investor in your own business? *  Would you be proud to post your PnL and your trades every day?   Suppose a film crew was filming you and your tra

Thanks to Bella at SMB for bringing this video on building your inner coach to my attention.  There are quite a few gems in the video, including the idea that your inner voice--how you talk to yourself--needs to become your inner coach.  We build that inner coach by maximizing performance in the present: focusing on what we're doing now and how we can do it better.  It is the process of self-improvement that yields the outcome of success.  Or, as the video emphasizes, winning is not an outcome; it's a process. The mistake I see traders making is that they spend the lion's share of their effort on coming up with the next trades--not on the process of winning.  They focus on making money, not on getting better.  It would be unthinkable for them to go a full trading day or week without placing a trade, but they think nothing of going a day or week with no concrete work at the self-improvement that is the source of winning. Imagine an athlete who felt the need to enter compet

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Friday, April 8th *  Insightful post on the misery of bull markets from The Reformed Broker.  Many traders are temperamentally long vol; the one prediction you most rarely hear is one for little movement and little price change. *  Going back to 2010, if you take the number of 5-day new highs minus lows among SPX stocks and compare those to 20-day new highs minus lows, you get an interesting view.  When that time series is divided into quartiles, we find that when 5-day new highs/lows greatly exceed 20-day highs/lows, the next five days in SPY average a gain of only +.04%.  When 20-day new highs/lows greatly exceed 5-day highs/lows, the next five days have averaged a gain of +.39%.  (Raw data from Index Indicators ).  Think of the implications for FOMO trading... *  We reversed Wednesday's strength yesterday, closing with 5-day new highs/lows well below the 20-day level.  Less than 20% of  SPX shares closed above their 5-day moving averages and, for the first time since this rally