For years the laptop would sit beside my chair, always on, always with the futures feed charted in 5 minute candlesticks. During the Armageddon trade of 2008 the laptop with the futures feed running would sit on my nightstand, beside my alarm clock. It felt good to be plugged in and up-to-date to the very last tick of the markets. I was watching the implosion of the financial capital of the world, in real time. I would tell my grand children about it.
As I look back on those years of frightful sleep and stomach-churning days and evenings, Macbeth’s soliloquy speaks to me:
“Tomorrow and tomorrow and tomorrow,
Creeps in this petty pace from day to day
To the last syllable of recorded time,
And all our yesterdays have lighted fools
The way to dusty death. Out, out, brief candle!
Life’s but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more: it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.”
What good is it to have a futures feed running all night if you don’t trade futures? It is like seeing a car wreck in progress. Except you can’t do anything to stop the wreck or help anyone until after the crash. What’s the point of watching the progress of it, living in it, if you are not going to use the information while it is happening? What’s the point of the day-to-day and night-to-night hand-wringing?
All good questions, for sure.
The truth is that I got rid of my real-time futures feed because I got rid of Tradestation. Tradestation, with its .01/share commissions and $100 bucks/month fee for trading less than 5K shares and its counter-intuitive “Easy Language” code was simply too expensive. I also had an account with Interactive Brokers, and at .005/share commissions and no platform fees, it just made sense (cents) to close down the Tradestation account and move everything over to IB.
While Interactive Brokers does offer a futures feed, their charting does not compare to Tradestation’s, and it was a hassle to pull up the feed on IB. Without really thinking about it–more or less just being lazy– I went without, for a few days. And then a week passed without the futures. I had missed it not at all. Two months later I realized that weaning myself from the futures feed has made a positive impact on my life and my trading.
Not only am I better able to tune out and off from the markets and focus on other important areas of my life such as my family, exercise, and sleep–I am able to execute mechanical system trades with much greater ease and much less nagging doubt.
Since I do not daytrade and typically trade the open or close via orders placed the prior evening, having a futures feed was significantly affecting my psychology and ability to mechanically place trades. Waking up at 3 a.m. to see what the futures were doing was allowing me to fast-forward in my own mind to the trades scheduled to be executed the next day. Many times I would second-guess these trades. My self-talk would often revolve around delaying the trade or setting a limit order rather than using a market-on-open or market-on-close. While the majority of time I did not override the systems I trade, sometimes I did. How much time did I waste trying to out-smart my own system? How much mental capital did I spend attempting to assimilate information that was unnecessary for my success? How much real capital was lost from deviating from a strict trade plan?
Traders these days are easily overwhelmed by the hundreds of indicators, platforms, experts, pundits, amateurs, tweets, bloggers, etc. Information overload is a very real threat and can be a detriment to trading success. At some point, the various bells and whistles just end up making a lot of noise. I highly recommend focusing on the factors most necessary for trading success and dumping everything else. Without a doubt, it has improved my quality of life and made me a better trader.
Thanks for sharing that experience, Woodshedder. Excellent post.
It makes sense that TMI is ultimately counterproductive, especially if it overruns into one’s personal life.
I’m currently trying to put together my trading plan, and finding it’s a lot of work identifying what you state in your last paragraph, the, “…factors most necessary for trading success.”
If I had known my work on building a simple plan would result in six months of research I would of instead stuck to mutual funds, as I’m still not done, yet (lol).
Ultra, maybe you go back to the mutual funds? Or instead, ETFs?
I know that sounds crazy, but I have realized that I would rather beat the market by a few percent every year and have a life and low blood pressure rather than beat it by 5% – 15% and be stressed out and unhealthy.
As always, this is just me and is not necessarily applicable to anyone else.
Nothing crazy about a strategy for mutual funds. Gerald Appel, the man who created the MACD, describes a no-frills strategy for investing in actively managed mutual funds in his 2005 work, “Technical Analysis – Power Tools for Active Investors”. In the first chapter Appel outlays a relative-strength strategy with mutual funds that is akin to, “changing your bets while the [horse race] is underway”.
Basically he describes the following strategy:
* Identify the leaders;
* Buy the leaders;
* Hold the leaders as long as they lead;
* When the leaders slow down, sell them and buy new leaders.
In his testing results of the quarterly rebalancing of the lowest risk funds, for a 13-year period, the yearly gain was 14.1%, with a maximum drawdown of 20.3%. He compared that to the performance of the highest risk funds, which had a annual gain of only 4.6% and a maximum drawdown of 40.1%!!!
I intend to allocate a third of my portfolio to his strategy, once I can gather an adequate list of quarterly mutual fund performance.
I think yahoo’s data is crap, and thinking about subscribing to Barron’s to get better results, unless anyone knows a better source of quarterly mutual fund performance.
Ultra, that Appel strategy is damn close to the Fidelity Sector Fund strategy that I am trading.
However, what is meant by “lowest risk” funds? How is that (risk) calculated?
I have a great data provider, Norgate Premium Data that I use for just about everything except mutual fund data. I have been using Yahoo for Fidelity Sector Fund data, and with the exception of a couple of days when Yahoo didn’t update, their data has matched Fidelity’s data exactly.
That being said, I’ve been considering developing a more comprehensive mutual fund strategy, and if I do, I will want to use something other than Yahoo. Morningstar, perhaps?
For the risk of the funds, in Appel’s book, he ranks funds based on their volatility. He describes the volatility as the amount of daily and/or longer-term price fluctuation that takes place in the fund, compared to the S&P500’s index as a benchmark. He placed the funds into one of nine groups and then determined the monthly average of gains and losses for each group. He analyzed returns on funds for his rankings from 12/1983 through 10/2003.
He displays a chart of the average percentage gain in winning months minus the average % loss in losing months for each group.
Also, I have mis-fired on my yahoo criticism. Going back through my notes just now, I found myself frustrated more so with their canned screeners, and not their data.
And now, going back to their screener pages I see their data source is Morningstar. I also found a screener page they have that allows selection on risk and performance based on Morningstar’s data, which I have not tried, yet.
http://screener.finance.yahoo.com/funds.html
So, let me test that out and see if it helps with implementing Appel’s strategy.
Okay, I figured risk was going to be volatility. Again, much like the Fidelity system.
Good to know that Yahoo may provide decent MF data for free. The yahoo screener sounds neat. I will have to check it out. It will be like a flashback to the early 2000s when I would use yahoo screeners to identify trades 😉
One thing that I have found for mutual fund strategies: Pay attention to the loads and the fees incurred for trading them. It is possible to trade mutual funds without commissions, but it seems that many will apply a load upon entry or a significant fee for selling before X days have passed since the purchase.
I remember seeing your Fidelity system posted before and it looked good, so I had planned to go through your system in detail when I had time. Still on my todo list 🙂
Thanks for the tips on watching out for the loads, already somewhat aware of the conditional fees the funds can impose.
Ok, I tried the Yahoo fund screener again and rediscovered the issues I had:
1) Filtering is not well done: if I filter on Morningstar Risk or Return ratings I get back no results.
2) There is no way to list by the most recent quarter’s performance. Appel’s system requires quarterly performance data, and Yahoo’s screener doesn’t provide fund performance by quarter.
I was thinking Barron’s as a source since I remember they publish a quarterly fund review in their printed publication. I was thinking of trying out their online version to see if the data results were adequate (will contact them tomorrow).
WSJ has some limited quarterly fund results, but it would be nice to filter on risk or volatility as well:
http://online.wsj.com/mdc/public/page/2_3061-mfq12_1_specialtyequity.html
Hah, I found the complete book chapter I was describing right at the following link. Now you can read the entirety. My google-fu is hot this evening:
http://ec1.images-amazon.com/media/i3d/01/A/wia_migrate/appel-ch-01.pdf
Me: No Way! You: Way! Thanks!
If you have a mechanical system that shows you signal, why would you want to waste your precious time with looking at realtime noise?
Mechanical: eliminate emotions
Systematic: eliminate noise
If you want charts, go to the mountains.
I used to day trade and make many discretionary trades years before I became a systems/mechanical trader. The real time futures was just leftover as part of the platform I used to day trade.
Hey Wood,
Your words really speak to me here. I’ve struggled with information overload at many points over the years. A turning point happened when I finally realized that when I’m reading someones market commentary or trading ideas, unless I already have a general idea of what their idea is and am looking for another opinion, or I’m just looking for new ideas, what they are saying is simply not relevant to me. If it’s relevant I should already be aware of it through my own work.
The markets are a difficult beast that tell us so much about what is going on in the world that it’s difficult to not want to know everything. In a perfect world I’d be running a hedge fund like a research facility, analyzing tick data on every futures contract the world over, developing systems that can react to changing correlations on multiple time frames. But I’m not and therefore it’s absolutely necessary to find a corner of the market that I know everything about and slowly expand from there when I’m comfortable adding new information to my routine.
IB charts suck. And that’s not necessarily a bad thing.
Reminds me of the joys of turning off my radio and throwing the TV out the window. Blessed silence with no jabbering “Buy Buy Buy” “Sell Sell Sell” – Mrkt
Completely agree on this Wood – I got rid of all of that – although I would say that Ninjatrader is a pretty nice free product for real-time charting. When used with MB Trading, I get real-time plus historical charts going back 5 years. But I still find myself using freestockcharts.com as my fallback.
Wood: what platform do you use, instead of Tradestation, to program and backtest your systems? I trade a few mechanichal systems on mut funds and ETFs. Here are some of my findings & pickings in the database/platforms area:
For mutual funds data, I find Fasttrack invaluable. When you trade mut funds, you need clean data, timely adjusted for dividends and cap gains distributions. Yahoo is often very late in adjusting and unrealiable. FT is instantaneous and never missed.
For my programming needs, I wanted a platform which can integrate with fasttrack and other available DBs (I use TC2000 for stocks) and which has a very good, simple and powerful prog language and at the lowest cost. In my research, nothing beats AmiBroker.
Stefan, I use Amibroker with a data feed from Norgate Premium Data.
Thanks for the Fastttrack information. I had not heard of them.
To trade I use IB.