NUVO and So-Called "Analysts"

i haven't blogged in a bit but this deserves a special blog. monday NUVO crashed 80% on failed FDA test results of its new drug (and there are good fixes for the failure but that's another story). Bayer has been partnering with this outfit.

IMMEDIATELY wall street's so-called "analysts" pounced and they've been at it all day today too. it's absolute proof you can't trust what these jackasses say. they now have a target price of only $3 but it's been holding $4-4.49 all stinking day in spite of 'em. fools. absolute fools. traders are getting 'way more savvy than they used to be and they've learned not to trust these wall street clowns who get paid to bash. disclosure before i forget: yeah i'm in this stock.

there's word on the wires of a merger or buyout. could be Bayer even tho they said they're backing out of collaboration by early 2007. could be anybody. but SOMEBODY had paid these wall street bashers to do a number on NUVO. here's the bit that any six-year-old could figure out: BEFORE the new drug pr's started coming out, Nuvelo Pharmaceuticals (NUVO nasdaq) was trading at abt $7.50-8.00 . so it makes sense that even if the drug is totally wiped out (which it ain't) the new target should be abt $7.50, right? but the jackass "experts" have downgraded target to $3 ??? these people get paid to do this stuff- NEVER TRUST THEM!!!!!! i'm not saying buy this stock- it takes 'way more guts than most players have- and for good reason. i'm just saying never trust the so-called "experts".

HYPR Bankruptcy Play?

i am not recommending this play unless you're REALLY good with charts. HYPR just announced (nov. 9, 2006, abt 5pm) it's filing bankruptcy. this is not a quant thing right now- it's more of a t/a play with a 15-min chart. "Q's" often bounce and this one might too. since they haven't yet actually filed, i don't know if friday it'll be HYPR or HYPRQ.

Stick Around

yeah, stick around. i'm watching one. when it gets ripe i'll holler. check in over the weekend- it may be ripe by then.

now i want to go off topic a bit. here and there you may have noticed my links to my quant website whattolearn.com. well, last night i found out, to my great anger, that my so-called hosting service was screwing up again and my site was "site unavailable". the hosting service was vizaweb.com. i am now with another server. a word to the wise if you're putting up a website: never ever trust vizaweb.com. they lied to me about a "compensation plan" for their downtime but never came through. and now i can't even reach their site.

TD Ameritrade Haemorrhaging Customer Base

td ameritrade (AMTD) shares have slipped from an early october high near $20 to near $16 today, as traders express disgust over tda's recent policy of not allowing buys to go thru on certain stocks. it is widely believed that tda has heavy short positions in certain stocks (including SSSU and TDCP) and is attempting to manipulate prices downwards for their own benefit, to the disadvantage of their own customers. some flavour of the growing tempest can be seen here where traders are pulling out of tda en masse...

Quant Verified Again

DRGV. yup, HOD dropped from .064 thurs to .060 friday. i think dip would've been even bigger if i hadn't posted abt it here and on a forum. quant picks are easily messed with is why i rarely post them. please note that my post on this (just previous) was at 4:24 a.m. friday, 'way before mkt open.

i don't like sharing picks, especially quant picks because quant is like a rare orchid- very sensitive to light. it's a stalking tool, a sniper thing. that said, looks like this one going down some today (friday nov 3 2006). don't know if it's shortable (might be a pink) but if this quant picture is true then is good for short early or for long once it bottoms...

Quotetracker Picked Up By TD Ameritrade

here's a tidbit to munch on... on Sept 29 2006 td ameritrade through its subsidiary T2 API Technologies, LLC acquired the medved quotetracker program.

hmmm- too soon to read the tea leaves but if recent experience with tda is any guide we should all be expecting quotetracker to go from free to astronomical in no time. the qt site still looks the same except for the tda watermark stains here and there, and LOL the fact that they've disabled all links to other brokers.

for those who didn't know, qt is a free streaming quotes and L2 program that you hook up to your broker's feed.

Td Ameritrade Saga Continued

ROFL, i'm slowly piecing this together and in a way it gets funnier by the minute...
it now appears that i'm one of a select group (LOL) of ppl who had something to do with the recent TDA debacle over sssu, even though i don't hold any sssu. let me explain... someone who'd been away from the marketmillionaires tdcp thread for awhile sent me a pm asking what the heck was going on with tdcp. i wrote him back with this...
while you were gone something interesting came up: we were trying to figure out how to stop our brokers from using our own shares to short us and stop them from loaning our shares to mm's to short us. so LOL catfish says, "Hey, if you put a limit sell on your shares they can't do anything with 'em." so ppl did, with ridiculous limit sells like $75 etc. and then we forgot abt it. well, it looks like the news spread and it really killed td ameritrade's action. so td ameritrade decides to restrict buys based on supposedly "questionable practices" of tdcp- hahaha. so now you know the story. cracks me up!!
so okay, hehehe- what obviously happened was that this whole thing spread like wildfire all over the boards and folks started putting all their other stocks on limit sell because very soon after Scottrade, e-Trade and others started in with the same "buy restrictions- sell only" monkeybusiness as stupid Td Ameritrade. ain't the internet just wunnerful?!!

Dreams DO (sometimes) Come True

lousy filthy trash stinkbox td ameritrade may be about to get its due. in part, silver screen studios is suing td ameritrade because...

" Due to the conduct of TD Ameritrade and ETrade preventing investors from purchasing our shares and receiving a dividend they will be forced to cover, we will hold a board of directors meeting to set the dividend date on this weekend and make an announce on next week. Market makers and brokers will have 10 days to balance their positions in preparation for the dividend. "

link to full smartbrief.com story

like i said last week- i hope somebody sues the crap out of them! so dreams do sometimes come true- i blogged about it thursday and this came out friday!

The FOREX Market

the FOREX market is the currency exchange market. you buy and sell currency of different countries. it is extremely volatile, it is extremely tricky, and you can lose a lot of money fast.

now the bright side. you can trade FOREX 24 hrs a day, from sunday afternoon until friday afternoon. you can make a lot of money, but because things happen so fast, you absolutely must have a plan and follow it. and it has to be a GOOD plan, obviously. yes, you could use technical analysis as a plan. and i have to admit that here, in FOREX, t/a has a special advantage over quant: raw speed. if you haven't bothered to quant the currency pair you're trading, t/a can give you that quick snapshot you need to make a decision. if you're very good, you'll be right at least about half the time, which is profitable if you limit your loss to less than your gain.

on the other hand, if you quant the pair and do updates every few minutes, you should find your success rate jumping to about 80% or more. for you quant aficionados, i do provide a set of reporting algorithms in my tutorial. for everybody else, here are some general rules to follow when trading FOREX...

• your FOREX broker has a page that lists all the upcoming scheduled government news releases. STUDY THEM and about 30 minutes before they come out, GET OUT of the related currencies. you never know- the pr may cause the price to go 'way up or 'way down and it's real hard to predict. NOTE: by "related currencies" i mean any currency related to the one issued by the government who's issuing the pr. you'll have to study to figure this out. for example, a USA pr will often have a dramatic effect not only on the USD, but also the opposite effect on the EUR (euro); or, the USD and the CAD (Canadian dollar) often travel in lockstep with each other. again, study and know- but mainly get outta the way!!!!
• never trust common t/a patterns (indicating strong price change) for more than a minute or two, and maybe not at all. these turn into fakeouts- i dunno, maybe half the time. as covered earlier, too many people are using t/a. so the big banks and governments (yeah, govt's trade the market too) know exactly what everybody's gonna do before they do it and they clobber ya!
• my personal rule, most of the time, is never use trailing stops, either for stop loss or for limit stop. the fine print in your deal with your FOREX broker tells you why: "in extremely volatile conditions, trailing stops may not be honoured". and they mean it! i've got burned on this once and learned my lesson. so always use hard stops and limit stops.
• if you can afford it, do not set your stop loss based on what you can afford to lose. set it based on what you realistically believe the pair "could" move to. if you can't afford this, you might want to reconsider the trade and find something better because all you're doing is gambling.
• never gamble on a trade. quant it, or use t/a. do not go with just your hunch.
  

if you can follow just these rules, you should be able to survive in FOREX long enough to make a profit.

How Your Broker Screws You

i was just about to go to bed when i decided this just had to be blogged. i hang out at a stock forum and for days the significance of a certain small firestorm had eluded me. the light just went on. apparently, TDAmeritrade is restricting the purchase of certain stocks, including TDCP. you can sell, but you can't buy. i don't use TDAmeritrade because its fees are 'way overpriced, so i don't have a direct interest in the controversy. but i do have an indirectly powerful interest since i hold some TDCP.

the key question for me came up tonight on the tdcp thread when somebody asked if what TD Ameritrade was doing was legal. not being a lawyer but delighting in legal puzzles, i decided that it's probably illegal and i hope like hell somebody sues the crap out of them. TD Ameritrade's explanation so far is that they restrict purchase of "questionable" stocks or companies with "questionable practices". well, if you know anything about TDCP, that just doesn't fit.

what does fit, however, is something i mentioned earlier in this blog- your broker can short stocks against your interest and can loan stocks to market makers to short against your interest. if there's strong buy pressure on the stock (as is the case now with TDCP about to have its stockholders' meeting on oct. 28th, and a demo of its technology with Oklahoma University), then any brokers or market makers holding heavy short positions are about to get screwed big time.

so if you're really big like TD Ameritrade, why not use your market muscle to deny all your clients the right to buy TDCP? and for added fun, why not scare them all into selling with the "questionable practices" red herring? that way, you get some shares to sell when things do break loose. in addition, you drive the pps down.

now, besides my opinion about TD Ameritrade's practices on TDCP being illegal, i consider that it's also a violation of their fiduciary obligation to place their clients' interests above their own. bottom line, if you're with TD Ameritrade or anybody else who suspiciously restricts buys, i say dump the suckers and find another broker.

Quant: External Correlation

earlier, i stated that quant mainly uses open, hi, lo, close, and volume data. that's generally true, but there are other ways to quant the stock of your choice. all things are connected. here are a couple of ways to quant against external data:

• quant against a related index. for example, if yours is an energy stock, you could quant the index performance against your stock's pps. there are many such indices. somewhere, buried in that data, is the relationship to your stock.
• quant against an apparently unrelated index. this may be even more fruitful than using a related index.
• devise your own index, quant it, and run it against your stock's pps. now it gets really interesting. by doing this, you're introducing some "apparent" fresh randomness to the process. but it's not really randomness, since everything, under quant rules, is related anyway. so what you're actually doing is finding new correlations not yet noticed by other quants.

true, you may often have to factor your net values to make them all readable on a single chart, but that's a small price to pay for the potential richness of the enquiry.

Where and How to Screen

okay, you made it through the splitter minefield.

your further screening now depends on your style of trading. if you're a fundamentals trader, you'll want to look at certain things. i suck at fundies so we won't even go there. if you're using technical analysis (t/a), you'll want to look for certain things. i have skill there but i already posted some good places to get that info- and they all do a better job than i could do here, though i may revisit the subject later.

that leaves quant. if you've chosen to be a quant trader, this post will help you. there are two kinds of quant trader- long-term, and short-term (like me). and in case you missed my earlier warning: sitting ducks get shot. that's why i'm short term, 1 or 2 days at most.

first, where do you find stocks to look at? well, places like nasdaq.com, otcbb.com, smallcapcenter.com, and stockcharts.com, as well as others, have listings of the day's winners/losers or gainers/losers, etc. currently, for quant, i use the smallcapcenter.com listings, for no particular reason except that i have a (free) "screening" account there.

if you google "screen stocks" in quotes, you'll find tons of free screening sites. a "screen" is a set of parameters you set to search for stocks that meet your criteria. you might choose to set a variety of t/a values for various indicators, such as "closed above open", "macd crossover", "rsi above 50", "volume above X value", etc. the system produces a list for you and then you look a little deeper to decide your trades, if any.

but for quant work, i don't much bother with screens (although screening with a t/a volatility indicator might be helpful). i just run the winners or losers and mainly look for my price range and good strong volume and volatility. if you're a long-term quant, you probably want to avoid volatility and just look for a healthy longterm trend. but as a short-term trader, i want high volatility because i want to get in there, make my money, and get the heck out!

so for a quant, it's really as simple as that. no setting up of screens and poring for hours over t/a charts. i just grab data for a few promising candidates and start quanting them. in an hour or so, i can get maybe three or four to answer strongly to a custom algorithm. and if the algo says any are ready to go, next day i may trade them. otherwise, they go in my reporting algo library and i keep them under watch. adding data to these each day and reading the resulting charts only takes a couple minutes per stock. when they get ripe, i'm ready to hit 'em.

if you want to learn quant: whattolearn.com . or go to amazon.com and buy a book- but be very selective; many quant books get you 10 feet deep in higher mathematics in the first three pages, therefore proving pretty useless to most people. quant just doesn't have to be that complicated. spreadsheet skills and common sense will do the job, which is why i've simplified quant at whattolearn, along with a simple video spreadsheet tutorial if that's all you want.

Screening: Finding Good Stocks to Trade

before we even go down this road (screening), i want to make an important point:
never, EVER, buy a splitter!!

there are some rare, very rare exceptions, but chances are you'll never see one.
mainly, this rule applies to OTC stocks under about $5. but splitter disease is spreading north into higher priced stocks too.

oh, for those who don't know, maybe i should explain what a split is, huh? okay, there are two kinds of splits, forward split, and reverse split. both suck. and the lower the stock price the worse they suck. splits are notoriously bad in pennies, especially pink sheets, where no warning is required before a split.

let's pretend you have 100,000 shares of fictitious stock "ABCD" at .001 at 10 a.m. on a monday morning. total real value = $100. and then at 10:01 they announce a 1/2000 reverse split. this means that for every 2000 shares you held at 10 a.m. you will now have only 1 share. but that 1 share will have an "instant" value of 2000 times what each of your previous shares had. so you will theoretically have 50 shares at a new value of $2 per share. total real value again = $100. so far so good, right?

but, and i can almost guarantee this, by 10:15 a.m. you'll be lucky if your shares are even worth .25 each. total real value = $12.50, for a loss of $87.50. and, to make matters worse, you probably won't even be able to sell them at that price. and just when you think it can't get any worse, it DOES!! the ticker symbol gets "instantly" changed in a split and you can't trade anything- it takes days to sort it out with your broker. so what happened??

what happened was, splits make traders nervous and they start dumping huge quantities of stock and that drives the pps down. it makes them nervous because splits (reverses) have historically been used by companies to boost their share price and to cover up some real bad balance sheets. more often nowadays, however, r/s are used simply to screw the investor and line the pockets of company officers. they wait for the pps to crash then buy back in.

take a look at JKRI (former JRIV, former JKRV)- but hurry before they split again and change their ticker. it's one of the nastiest pieces of stinking crap i ever had the filthy misfortune to trade. luckily, it was 'way back when i started so i didn't lose that much. the absolute nastiest piece of crap was WTVN (former WFTV)- i didn't lose much there either, but i watched one lawyer lose $120,000 literally in a few heartbeats the morning it happened.


but you can protect yourself, more or less. most of these scumbags are chronic splitters. so if you check their history for splits going back at least a couple years and you see even one, run like hell and warn everybody else! splitting is an addictive way for crooks to make money. you can check for splits by going to nasdaq.com, loading the chart for the stock, set it to show maybe 3 years of data, select the "Splits" checkbox below the chart and click "Update". the chart will then show you splits for that period with an "s" in a circle where they occurred.

forward splits have historically had somewhat better outcomes, but these days even those suck. they're the reverse of a reverse split (you get more shares but a proportionally lower "instant" pps). using the above example, but instead a 2/1 forward split, you would end up with 200,000 shares at an instant price of .0005 per share. and the same events would likely unfold, for much the same reasons.

alright, so that's step1 in how to screen for good stocks.
next post we'll get further into screening.

One More Funny

this one's hilarious, in a macabre sorta way...
i can't post it here 'cause it's not mine. but when you get to the page scroll down to the post by "grizzums" and check out the animated avatar and his signature...
here's da link... marketmillionaires.com

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Web Site Counters

More Stock Humour...

and this one's about what happened with one stock when sharp online traders dug in their heels over a stock and refused to let the mm's run the show (the fight continues).... LOL

Some Stock Humour

time for a break! humour about stocks and market makers (well, it's funny to us retail traders, but maybe not to the mm's, heheh...)

Making a Profit: Sticking It to the Market Makers

whoo-boy! that last post got my blood up!

so how do you make a profit in spite of market maker manipulation? here are some pointers for how to profit, while at the same time screwing the hell out of the market makers, shorters, and brokers...

• never give a sucker an even break. your broker "loans" your shares out to market makers who in turn use those shares to naked short the stock you're in, driving the price down. you can prevent this. simply put a limit sell order in at a price you like- brokers CANNOT loan out your shares once you do this. this screws them and the mm's.

• if you see lots of buys going through but the pps (price per share) is not going up, it means the mm's are naked shorting the stock. get out now! don't go back in until you see the price reacting normally to buy/sell volume.

• stocks that you're considering that have high buy volumes but little northbound price change are highly suspect! don't buy them! before making any trade, check the naked short list here. this tells you how long the stock has had FTD's (fails to deliver). rule of thumb: any stock on this list is suspect.
  
• sitting ducks get shot. keep your trades very brief. long-term trading may look good to you now (even in blue chips), but when the crap hits the fan you'll be glad you followed this advice. never stay in any trade longer than a couple days. you can always go back in on a price opportunity. keep the suckers guessing!
  
• stocks getting a LOT of forum attention are sure targets for mm manipulation. this applies also to blue chips where there are no mm's but there are huge institutional traders who will manipulate the hell out of the pps. avoid them like the plague. find your own dang stocks!

well, these tips should keep you busy 'til the next installment of this mad blog. meanwhile, if you haven't found a source to learn quant, here's my tutorial.

next blog, we'll talk about- uhhh- something important...

The Darkside: Market Makers , cont'd.

resuming where we left off....
oh- i WILL be getting to how you avoid getting hurt by mm's, but first you need context, flavour....

so what is NSS? NSS (naked shorting) is the selling of shares you don't actually own, i.e., you are selling "ghost shares", "counterfeit shares", "fraudulent shares".

now the funny thing is, the SEC allows mm's to engage in NSS, but only if they've made good faith "arrangements" to actually borrow the shares from somebody else (like another mm or broker). it sounds like a good system, ideally providing liquidity in the markets. but it absolutely does not work because it's riddled with mm abuse. but why is this important to you as a retail trader? ....

well, remember a little thing called the law of supply and demand? in other words, as demand increases and supply decreases, the price of the item should go up. but mm's use increasing demand to drive price down!!! they do it with NSS- counterfeit shares. they sell shares that don't exist, causing the price to go down! those "good faith arrangements" to borrow actual shares are often just a flimsy nod to the law and the actual shares are never even delivered. if you doubt this, go watch this video- the data comes from academics, PhD's, not some rant-mongers. i started watching and couldn't stop! and it's a long video.

daily, millions of new counterfeit shares hit the market. and a large number of those never gets delivered. these are called "FTD's" (fails to deliver). it's been going on for years, and the effect is cumulative. someday soon, coming to a bank near you, there has to be a balancing of accounts. there has to be a reckoning. that "correction" will make the crash of 1929 look like a hiccup. believe it. having to cover their naked shorts with either real stock or real cash will ruin market maker after market maker, bank after bank, broker after broker.

we're being systematically looted by criminal elements inside the usa and outside the usa (the epicenter of one major NSS scheme was traced to a Moscow ring). watch the video!!

okay- let's move on to how to protect yourself and make a profit in spite of the mm's.

The Darkside: Market Makers

awright, time to talk about the dastardly market makers.

let's suppose you've survived the ravages of ignorance, greed, false hope, fear, and bragging. now, to stay alive in the market, you must outwit the market makers.

market makers (mm's) are financial "institutions" whose role it is (supposedly) to maintain orderly markets (by preventing extreme volatility- again, "supposedly"), and to make a market for the stocks they handle.

okay, enough with the "supposedlies". these people don't give a rat's a** about being orderly OR making a market. all they care about is making money for themselves. their methods include craft, stealth, and outright violations of the law. some people say it even includes criminal conspiracy.

when you see the bid/ask/last on an OTC stock price, those are set by mm's. ask is the price at which you can buy the stock; bid is the price at which you can sell the stock; last is the price of the last transaction.

there are dozens of market makers. when bid/ask prices are posted (often changing within seconds), the bid price is posted from the mm with the highest bid price, and the ask price is posted from the mm with the lowest ask. so you would think it's a competitive market. many observers doubt this, however, and accuse the mm's of price-fixing, i.e., criminal conspiracy to fix prices. they also accuse the SEC of lax enforcement. be that as it may, there's little you can do to directly change the way things work. (ummm- actually, in a later blog i'll cover what some people are planning to do to "encourage" the SEC to do a better job).

for now, your main issue is how to avoid getting beat up by the mm's. and this is a good time to cover short selling, or "shorting", and in particular, "naked short selling", i.e., NSS. as a retail trader, in certain stocks (not pink sheets) you can engage in shorting for profit. here's how it works:

you must have a margin account (in FOREX, your cash balance is your available margin- but here i'm only talking about stocks, okay?- i'll get to FOREX in a later blog). using your margin as surety against being wrong, you borrow some stock from your broker at the current price. your broker will then sell those shares into the market for you. if the price goes down, you make money. for example, if you shorted 1000 shares of ABC at $5 a share ($5000 your total trade), and it then drops to $4 per share, and you decide to buy the shares back at that time, you would make $1000 profit. but, if the price goes up to, say, $7 per share, and you decide to buy the shares back at that time, you would lose $2000. if you get to a point where your loss is greater than your available margin to "cover", you'll get a margin call from your broker to ante up some more cash or they'll buy the shares back and you eat the loss up to that point.

brokers make money a couple ways here: if you're right and the price goes down, they make special commissions; if you're wrong and the price goes up, they make the commissions AND (probably) a big chunk of that cash you lost. to understand this last bit, think of yourself as a broker. here comes some stupid client who wants to short a stock that you figure (based on what your quants tell you) is sure to go up. so you know your client is going to be a loser and will either bail when things get rough or not bail and go all the way through their available margin. what do you do? well, you analyze how much cash reserve you have, balance that against how many shorting knotheads you have that day, and "maybe" choose to not even "actually" place their trades, to the extent that you can stand the risk. then you just sit there and collect the money when things go bad for your clients, i.e., you get to keep the value of the whole transaction, instead of just some commission crumbs. like the song says, "nice work if you can get it". if you're wrong, and things go well for any clients, you simply pay them what they should have made on the trade. but the odds were always in your favor, get it? and by the way, it's another reason why brokers pay quants such astronomical salaries- and yet another reason why YOU should learn quant. whattolearn.com.

so what is NSS? NSS (naked shorting) is the selling of shares you don't actually own, i.e., you are selling "ghost shares", "counterfeit shares", "fraudulent shares".

this post is getting long enough.... continued next post

Help the Poor, Despise the Lazy

if one comes to you for aid, and they be sincere and of inclination to learn from you, then aid them. it will return to you a thousandfold. if later they have not continued to learn, leave them be. a dead dog is heavier to lift than a live one.


if one comes to you who is slothful, and lazy, and unwilling to learn, and only wants your picks, despise them! despise them! despise them! a leech is hated in the sight of traders! but speak not ill of them- for then you condemn yourself.

your knowledge has been gained at great price. treasure it, and do not squander it on those who have no motivation, no spirit.

Fear, Hope, Greed, and Bragging

once you have mastered IGNORANCE by using quant or t/a, beware the other four horsemen of the apocalypse!-- Fear, Hope, Greed, and Bragging.

they also are deadly enemies. when you enter the market with quant, with your own working algorithm, you will encounter a storm of bad signs, fear; people on forums saying bad things about the stock, t/a saying it's not ripe, etc., etc. these are only demons- they have no substance. do not argue with them. go your way and make your trade. yes, sometimes you will be wrong- but to be right 9 times you must be wrong at least once. that is the law.

false hope comes upon you when you are weak. you have erred and are unwilling to take the hit and get out. defeat it with the cold savagery of the click of a mouse, grasshopper- jump! get out! live to fight another day! follow your plan!

greed is the evil cousin of false hope. wicked unto the ends of the earth! take your predetermined profit and run like hell!!

bragging is the steed of the foolish, and its vile spurs are arrogance! pride is its vain armour, and shall be soon pierced by the arrows of the market makers! take heed, therefore, and avail yourself of wise counsel: keep silent, be as the grass, strike like the lion, disappear like the wind.

if you think i'm just bs'ing you with this stuff, then you haven't been in the market very long.
next blog: heck, i dunno- i'll think of something.

Quant Tools- No PhD Required (continued)

meditation and prayer. if you're so inclined, these are powerful tools. if you're not so inclined, i suggest you try them once or twice anyway. again, there's powerful science behind it.

finally, relax. don't be wedded to any single approach in your quanting.

the whole point to all of the above is to prepare the mind. brain chemistry is a fascinating area. the above techniques increase the flow of blood and certain neurochemicals to the brain, while decreasing certain neurochemicals that could hinder you. stay loose. sometimes you'll be staring at data and wondering what to try next. then you may notice something, like maybe volume seems to go down before a pps rise or whatever. it might even be a lie! but plug it in anyway- you may have unhinged a part of the brain that normally follows rigid rules. it just may have grabbed something useful. i've actually had this happen and got a powerful algo from it, only to find out later that my original premise was wrong! by now, maybe you think this is 'way too complicated for you, but trust me- it isn't. get started and you'll see.

the spreadsheet. you simply cannot do all the calculations you need to do on such massive amounts of data in a timely manner. the spreadsheet does this for you, and even generates the charts to display the results. there are plenty of free tutorials on the web for this. i didn't like any of them and decided to just jump in and teach myself, but maybe you'll find one you like- just google "free spreadsheet tutorial". if you're willing to spend a few bucks on the intensive 2.25-hour video tutorial i wrote, you can get it at whattolearn.com (OrangeQuant Lite link at top of page).

more about diligence. diligence is also about accepting your own results, trusting them. let me tell you a story. in the late 90's i stumbled across the work of one scientist who seemed to have experimentally produced absolute zero in a substance, which is widely believed impossible to do. you see, reaching absolute zero creates some serious math and physics problems, like "infiinite" values of zero mass, super density (black holes), and even time distortions (time stands still). he looked up and all his atoms had disappeared. so what's the first thing he says? something like, "There must have been something wrong with my instruments!" he didn't believe his own results. when i read it i almost fell off my chair laughing. here's this poor guy, this brilliant scientist, who went to all this trouble to create an apparatus for reaching absolute zero- and when it works, all he can say is, "It must be a mistake". Wish i could find the link to him, but if you want to read about this subject, one of the key researchers in this is Dr. Lene Vestergaard Hau and her work is really brilliant.

now, almost 10 years later, i got payback for laughing at that first scientist. i was writing my main quant tutorial and 9-hour video and had come to the section on FOREX (currency trading). now, whenever you're talking FOREX with someone, there's always this elephant in the room that nobody wants to talk about- those "apparently random" and rowdy spikes that make some FOREXers rich and others cry. so i wouldn't talk about it. i just kept writing with the elephant looking over my shoulder. finally, it was just too much- i knew i could do this. so i started writing about how to quant those spikes but hadn't the slightest idea where i was going with it. but i kept on as if i knew. and suddenly, i really did know what i was doing. then i tested it to see what had happened in the hours since i'd captured the first data. and it had worked. so what do you think is the first thing i said? right- "This is impossible- must've been something wrong with my calculations!"

So i repeated it with some fresh data and waited. sure enough, i nailed the next spike within +/- 60 seconds of its occurence. i was stamping around on the floor laughing- hysterical. but i'll never forget the lesson- don't laugh at your betters, and always trust your results until you can prove yourself wrong. here's what that big moneymaking/moneyeating spike looked like (click image for larger view):

Quant Tools- No PhD Required

The first tool you need is a little imagination and endless curiousity.
The second tool you need is diligence.
The third tool you need is basic spreadsheet skills.
The fourth tool you need is good music, exercise, and inspiration.

the need for imagination and curiousity was pretty much covered in the previous post. but a couple of concrete examples might be added... like, have you ever wondered if there's any correlation between how you feel on a given day and the variance in the barometric pressure over the last few days? or why the birds sing louder at dawn some days than others? or why disasters seem to occur in bunches? (maybe there's something to the old saw about bad things coming in three's, after all, huh?). if you've ever wondered about weird stuff like this, you have the basic mentality of a quant (and God help you!).

let's go further. have you ever wondered if stock price is somehow related to some twisted mathematical combination of factors like volume, OS (outstanding shares), and price differences over the past five days or something like that but just didn't have a way to compute it? if so, then again you are a confirmed quant. and you're in deep trouble because it's absolutely addictive: sooner or later you'll begin quanting your kids' behavior patterns, your spouse's spending habits, your girlfirend's/boyfriend's likelihood of calling you at a certain time, and doing a hundred other annoying things.

so you see that, in a way, quanting is definitely obsessive and borderline psychotic behavior. don't worry, though- there are checks and balances, like that first icy glare from your loved one that tells you you've gone 'way too far into wonderland and it's time to come back. or, when you look up all bleary eyed and grimy and realize you've been hunting an algo for the same stock for two days running and figure out that you could've spent the time actually finding working algos for two dozen other stocks. it's a long road but you'll get there.

how do i know all this? let's just say i'd rather not say...

diligence is not necessarily about obsession, though sometimes they're the same thing. the kind of diligence you need in quant is to set yourself some quanting rules and be diligent in observing them. for example, you might tell yourself...

• I'll only quant on weekends, for 4 hours each day between the hours of 6pm and midnight.
  
• I will not continue unsuccessful attempts to quant any single stock for more than 30 minutes.
• I will add at least one stock with a working algo per day.
• When quant trading, I will follow my entry/exit plan- no excuses.
• I'll backtest my working algos every two weeks to be sure they still work (algos do change).
• I will not give out my picks except to a couple of trusted associates (reasons covered earlier).
• I will try at least two new algos per work session, and not get stuck in a rut.

it's all about style- pick a style that works for you and stick to it. that's how you make steady progress and stready profits. to have a ripe trade every day, you need about two dozen quanted stocks with working algos. updating with current data takes about 2 minutes per stock per day, or the same amount of time if doing only weekly updates (in which case you'll miss a few ripe plays).

i want to skip now to the 4th tool- good music, exercise, and inspiration. it's far more important than most people realize. first off, rent a copy of The Hustler and watch it (Jackie Gleason with Paul Newman). it leaves a lasting impression about the importance of staying fresh. Minnesota Fats beat the Hustler in that billiards tournament because Fats kept himself fresh and the Hustler didn't. simple as that.

take a brisk walk before you start quanting. eat lightly (or walk briskly afterward). watch scientific pieces on tv (like NOVA, etc.). these will inspire you. read scientific stuff, even stuff you think is over your head. i read Nature and Scientific American, even though i often don't understand more than 10% of what the heck they're talking about. in fact, one of my best algorithms came from that- just one sentence that i did understand. it turned on a light inside my head but the article was about biology, for crying out loud!

music. here's my personal drill: Janis Joplin, Michael McDonald (Heard It Through The Grapevine), Aretha Franklin, Tina Turner, some Crosby, Stills, Nash, and Young, and some smooth jazz. i load it up, crank the volume, and pull the trigger, making instant enemies of my neighbors. a half hour of that then i turn it down low (or off) and coast on the adrenaline rush while i do my quant thing. i say pick music that gets your blood up, but...

aaaagggghhh- as a devout child of the 60's i hate to admit this... but scientific studies have shown that classical music is better for organizing the mind. ugh! i hated typing that, but as a scientist and physician i have to accept it. now my keyboard is going to bite me.

(continued in next blog...)

Quant: What Exactly Is It?

What's quant?
Before i get practical, let me rhapsodize on what quant is exactly for a moment. Quant is nothing less than the sheet music of the spheres, the rhythm of the universe, why bees make honey, the way things really work. okay, enough of that- for now- but as you get into it, such thoughts become irresistible.

one scientist, Dr. Bernard Chouet, finally used quant to predict a volcano and save many lives. it was described on the PBS program NOVA (read interview). quant is also used to anticipate adverse cardiac events, and many social phenomena such as population migrations and economic changes. engineers and other scientists often use quant to predict everything from quantum particle positions to the size and locations of as yet unseen astronomical bodies (which later on prove accurate).

but you don't need a PhD to use quant- all you need is some spreadhseet skills. i'm just showing you the kind of horsepower you'll have under you when you pull the trigger on a quant play. here's another example of that horsepower...

in my own early experience with quant, as a General Electric engineering researcher, i worked with the manufacture of diamonds (see wikipedia article). real diamonds, not "zircons" (zirconium oxide), but they're called "synthetic" because they're human-made. i also worked with Borazon (cubic boron nitride, another super-hard crystal). my job was to figure out how to make the maximum amount of a given size crystal per each run. hmmm- compare this to forecasting how many glass particles of a certain size result when you strike a marble with a hammer. kinda depends, huh? - depends on how hard you strike it, how hard the glass is, how hard the hammer is, how hard the underlying surface is, how much follow-through is in the blow, the angle of the blow, the temperature of the marble at the time... that enough variables for you?

now multiply that by a factor of about a zillion and you see how complex it is to forecast diamond particle size distributions, where you have infinitely variable temperature, infinitely variable pressure, infinitely variable time factors, and infinitely variable rates of acceleration of these variables. yes, infinitely variable because, after all, there's an infinite number of specific temperatures just between, say, 1700 degrees and 1701 degrees (1700.0001, 1700.0002, etc.). well, i'm no genius, but i was consistently able to figure it out with quant. now that's horsepower- and with the right tools, you can do it with stocks at the click of a mouse (we didn't have pc's when i was doing this back in the 1960's- all i had was paper, pencil, and a calculator).

enough of the flashdance- have i finally got your undivided attention?

as mentioned earlier, quant and t/a have certain things in common, and certain differences...

1. both rely mainly on OHLC-volume data (open-hi-lo-close-volume), although quant can reach out for other data as well.
2. t/a uses "canned, one size fits all" algorithms, i.e., the same indicators for all stocks. with quant, YOU create fresh algos for each stock, and each algo is "almost" as individual to that stock as a fingerprint- well, not quite that individual, maybe more like being as individual as the combination of hair color, shoe size, and date of birth.
3. with t/a, you might make several trades per day (and probably get "stuck" for weeks 1 time in 4). with quant, you make at most just a couple trades per day and almost always exit profitably within 1 to 3 days (ah, FOREX trading is a bit different, however, with trades lasting minutes, at most).
4. with t/a, all the other t/a traders are seeing the same opportunity you are. quant is stealth trading- it's your algorithm and only you see the opportunity coming, often days ahead of technical traders.
5. with t/a, you have to screen large numbers of stocks every day to find good trades. with quant, you slowly build a personal stable of stocks fitted to algos and just watch those. the rest of the time you go fishing or to the movies or spend time with the family.
6. t/a is a good system, but it takes almost no imagination. quant requires creativity- you have to hunt for relationships between algorithm elements. sometimes it's easy, sometimes it's hard. but in the end, it's super-rewarding, both financially and emotionally.
7. as a t/a trader, you're always asking yourself, "What is?", i.e., "What is this indicator saying to me?" as a quant, you're always asking youself, "What if?", i.e., "What if I compare this value to that value?, What if there's a relationship between this and that?", etc., and then you go try it to see.
   

i hope this gave you a fair idea of what quant's about. next, i'll cover the main software tool you need to do quant.

Two Systems, Different Outcomes. Why?

From just the last two blogs you can see the power of quant. i could also display the power of t/a, instead of showing how bad it can be. instead, here's my unscientific observation about the two methods: on average, quant's forecasting accuracy is about 85-90%; t/a has a forecasting accuracy of about 60-70%, and seems to be dropping. that's quite a difference.


But why? Both systems are based in exotic mathematics (you don't need to know much beyond how to count to 10 on your fingers or toes to use either one). Both systems tend to rely mainly on price and volume figures. So why the dramatically different success outcomes? And why, when you Google for quant trader (it'll open a new window for you), do you see so many big banks and investment houses willing to pay such astronomical salaries to hire quant traders?

Here's what's up. simply put, t/a is being used by too many people and the really big fish are starting to use that to jiggle the table up and down, and up and down, as discussed earlier. they make money on the runup, then make more money on the short as it comes down. they read the t/a, and they use quants (like me) to figure out how to slaughter the t/a traders. oh, no- it's nothing personal- it's just business. so the best defense here is to use quant. and i use it like a chainsaw. when i go into the market, it's to steal a sizeable chunk from the big guys and run like crazy.

well, i gotta get a few hours' sleep before the market opens. i'm not hunting today but you never know. sometime this weekend i'll explain more about exactly what quant is. meanwhile, if you want to see a very simple quant algorithm that you can use (the ones shown in this blog are very exotic), you can get a free download of the R algorithm at whattolearn.com . Just click the Free Download at top of page.

Quant Chart Accuracy

Now here's a quant chart for the same stock, same time period.
The proprietary algorithms shown at bottom tell the tale. They forecast in the following manner:
blue diverging down/away from green signals price dropping; blue approaching green signals price rise within 3 days; blue crossing moneymaker (zeroline) northbound signals price rise within 2 days, but if southbound over moneymaker signals price drop within 2 days; red rising even slightly signals price rise within 1 day. there is only one failure here- third from left... and 5 successes. uh, actually 6 successes if you count what happened immediately after the end of this chart (you can only see it by looking at the t/a chart in the last blog)- as you see here, blue ran up to and kissed green; then, just a couple days later, the price zoomed upward 30%. and that's why i prefer quant to t/a.

When Technical Analysis Fails...

Okay, like i said, learn t/a. it's fast, and often provides solid forecasting. but, as i also said, i've turned to quant instead of t/a (technical analysis) because i think t/a is losing its grip. still (even though i sell quant training), i strongly recommend first learning t/a basics so you get familiar with the power of charts, then move on up to quant. meanwhile, here's one truly hideous example of t/a failure. admittedly, it's rare for t/a to fail so grossly but it does dramatically illustrate my point...

for those who don't yet know how to read t/a, there are three indicator boxes at the bottom, MACD, RSI, and STOCHASTIC ("stoch"). In this chart's colors for MACD and stoch, the green line going up is supposed to forecast a rise in stock price (shown in main part of chart); the green line going down is supposed to forecast a drop in stock price. RSI going up is also supposed to forecast a rise, and going down forecasts a drop. but notice that you get false signals from ALL of these t/a indicators at least 5 out of 6 times (stoch and macd get it right only once, second white guideline from left). the white vertical guidelines are there to help you compare price to indicator. you judge by the direction of the indicator at the white line- not the day after, which is too late. that's an awesome loss profile for t/a in this case- with signals saying the stock goes up when next day it actually goes down, and vice versa. in my next blog, i'll show you the same stock for the same period but using a quant chart.

Ignorance

That last blog brings us to the issue of "Lack of knowledge/preparation".

Here's the deal. You cannot "hunch" your way to successful trading. You need reliable tools and procedures to make rational stock or FOREX picks. In some markets, like NASDAQ and NYSE, fundamental analysis is useful. fundamentals (or "fundies", as i call them), include such matters as breaking news, balance sheets, management profiles, and overall market conditions. but my observation is that fundies usefulness is very limited. just look at all the so-called "experts" in the financial pages of newspapers and how often they make the wrong call. mostly, their logic is fundies-based.

another tool is called technical analysis (t/a). i'm a big fan of t/a but, as you'll see in my later blogs, i've switched to quant because, in my opinion, t/a is becoming less and less reliable as a forecasting tool. i'll get into why that's happening later (and even show you a hideous example or two), but for now, i want to emphasize that i think it's very important for you to learn some t/a basics. good places to start include:
http://www.stockcharts.com/education/IndicatorAnalysis/indic_MACD1.html
and
http://investopedia.com/university/technicalanalysis/

Also, if you're willing to spend a few bucks for real knowledge, there's a trader i watched for a long time who wrote a t/a course earlier this year. even though at the time i considered myself expert in t/a, i bought one of the first 10 copies because i had watched his performance for so long and was duly impressed. the people on the forum had to browbeat him for a year to make him do it. so he finally did (he hardly needs the money). his name is "greencat". you can find him and his cd at the marketmillionaires.com forum. last i saw, price was around a hundred bucks, which kind of brings me to the issue of buying trading education: mostly, don't do it.

i've seen people waste thousands of dollars on this stuff and still not "really" learn how to trade. most of what they teach is available free someplace else anyway. on the other hand, don't be shy about bellying up to the bar and plunking down some hard-earned dollars for real advanced, innovative education. oh, full disclosure about the abovementioned cd: i do not make any money on it; it's just a resource that i found really useful- i actually learned a lot of important stuff, despite my own previous skill in the field. also, i'm an unpaid moderator on that site. in fact, what i offer on my website is kind of in conflict with that cd if someone's on a tight budget and has to choose.

t/a is all about charts and how to read them. the premise is that all important information about a stock (including consideration of its fundies) is already contained in its price and volume patterns. i do believe that. t/a has hundreds of standard indicators from which to choose, all based on the graphic plots of mathematical patterns. i may talk about some of these indicators later. but i want to re-emphasize: learn t/a. its chief advantage is speed. with t/a you can quickly glance at a chart and judge whether or not to make the trade. but again, i think t/a is slowly losing its grip, which i'll cover in my next blog...

Laziness

Let's talk first about laziness, i.e., "relying too much on others' opinions".

it's good to get opinion in the market- even non-expert opinion is useful because it tells you a little bit about possible trends. but laziness is a criminal offense when dealing with your money. i've watched knotheads do this time after time- and lose their shirts. they run in to some forum and ask what they should buy. the subtext is, "What's everybody else buying?" so then they buy, and the pps (price per share) crashes. and then the thread on that stock grows and grows in direct proprotion to how much money people lost.

it helps to understand the mechanism behind this effect. there are two major forces behind it and one lesser force. in penny stocks, the two major forces are market makers and institutionals. the minor force is shrewd, experienced traders. so when you see everybody else buying, these forces also see it. they know that most of these new trades are made by weak-kneed newbies who haven't got a clue. so at a certain point, these forces sell off their holdings, taking profits, and that crashes the pps. in pennies, you as a retail investor cannot engage in short selling ("shorting"), but the market makers can, and they do, with a vengeance. i'll probably talk about shorting in more detail later, but for now just understand that shorting is a complicated way to make money when a security's price is going down. so it's often in the mm's best interest to see it crash and make them money, then much later they come back and sell the shares again for fresh profit as the pps rises.

So, bottom line, when you're lazy and just follow the herd, you're on a sure path to the slaughterhouse. so what you need is to be able to pick your own stocks, and beware of stocks getting too much attention. we'll get to how to make your own picks shortly...

Stocks and Why People Lose Money

I never thought i'd get serious about this blogging thing. but after watching so many people (especially college students) lose so much money in the stock market i decided to give this a try. it won't help much- many will still keep losing- but a few will listen. as full disclosure, i should point out that i own the quant trading website mentioned here- whattolearn.com - which makes it worth my while to give away "free" financial wisdom here. call it the trader's mentality. as a further note, don't take any of this as investment advice, nor as a solicitation to engage in securities trading of any kind. trading in any security or currency is risky- and especially so in certain markets, such as pennystocks or FOREX (foreign exchange or "currency exchange"). now that that's out of the way...

here's the shortlist of reasons why people lose money in the markets...

1. Lack of knowledge/preparation
2. Too much reliance on others' opinions, i.e., criminal laziness
3. False hope and false fear
4. No plan to follow, or not following the plan
5. Bragging

In subsequent blogs, i'll comment on each of these reasons for failure and return to them often. As well, i'll comment on how to succeed in the markets, which is obviously the opposite of how to fail.