Vdsat.com

My trading account lost another -1.6% in June. This performance follows and 3.5% loss in May after 9 consecutive months of gains.

I am not going to be stupid about this. I refuse to give those gains back. I will probably put together my new trading computer on Thursday or Friday, but it’ll take me a good week to get everything to settle down, especially when I am putting Linux on it. If it only takes me 2 days to make everything settle down, I still need to get over the thrill of getting a new computer before I trade.

Going forward, I feel I need to completely change my trading. No more index ETFs, no more ProShares Ultra garbage, no more retarded options. I feel that my entries and exits have been too much based on gut feeling. What has worked for me in the past is that I short the market when it’s high and go long when it is low. As long as I buy the dips and sell the rips, I won’t get too hurt badly if I do not have a stop loss. If I use stop losses, then I slowly bleed to death with small losses. I know I cannot continue like this forever because the gains are too unpredictable, I have to work hard at it just to get those gains, and there will be some day in the future where this gut feeling approach is going to break down hard. The amount of money I have also been making has not really been worth the time.

Going forward, I think I am going to move into futures trading. At this point, my trading account is big enough to comfortably trade 1 contract and still remain well above margin requirements. Futures is where the real money is, but it is also the fastest way to lose your money. I will not be stupid about this.

Given my duties as a grad student, what I am looking for is some sort of opening bell play where I put on a trade shortly after the market opens, put on an OCO order to get out of the position, and just walk away and go to school. The OCO order will have a stop loss and a target. The trade will play out however it plays out. The whole ordeal should not take more than 20 minutes each day.

Right now I have some opening bell strategy with some backtesting that looks good. However, I firmly believe that there is no such thing as a free lunch and I will be forward testing it with fake money, and adjusting it until it consistently rakes in fake money. Then I will devote cold hard capital to the strategy. Until I can be convinced that this strategy will work day in and day out, I won’t do it. In the meantime, I am not going to waste my time with petty trades.

I think one of the big issues in trading futures is that it’s too easy to get unnecessarily stopped out. I think there is a partial solution to that.

The ES contract which is the S&P 500 e-mini futures contract is $50 per point, each tick is 0.25 point or $12.50. The ES is currently at 916.25 as I blog right now, making the contract worth $45,813. However, thinkorswim only requires that you put $5,625 down to get the contract.

There is another contract, the YM, which is the DOW e-mini futures contract. This contract is $5 per point and each tick is 1 point or $5. The YM is currently trading at 8404 making the contract worth $42,020. Thinkorswim requires $6,500 down to get the contract.

Comparing these two contracts, we see that the values are roughly equal. Also note that the ratio YM/ES is 9.17, but let’s play with nice round numbers and call that 10 and assume that if the ES goes up 1 point, the YM will go up 10. Of course the percentage correlation will not be perfect and on top of that the ratio isn’t exactly 10, but it isn’t bad approximation.

Each ES point just happens to be worth 10 YM points.

Each tick on the ES is $12.50.

Each tick on the YM is $5.

Although the YM tick size is 40% of the ES tick size, from a signal theory standpoint, the difference is much larger. In signal theory, the signal power of quantization error is (step size)^2/12. What this means is that the quantization noise power of the YM is only 16% of the quantization noise power of the ES. With a 6.25x reduction in noise, we’re talking about a 7.96 dB increase in SNR, and that’s an extra 1.32 of ENOB. That extra SNR is going to reduce the number of unnecessary stop outs.

I can’t believe I am talking like this.

Now of course there is no free lunch. The YM may have much lower quantization noise power compared to the ES; however, the ES is far more liquid than the YM. But given that I would only be trading 1 YM contract, the lower liquidity of the YM isn’t going to be a big issue. If I had a super duper large trading account and had to trade 500 contracts at a time, then trading the YM would not make sense and I should probably move over to the ES. Just to get to that point, I would need $3.25 million to meet the margin requirement and a few factors extra on top of that just to not be stupid.

UPDATE: To be precise, it should be SQNR instead of SNR since quantization noise may not be the only source of noise.

About a week ago, my advisor gave me a side project. I worked on it for a bit, but then I brushed it aside. It was a minor verification project as in, please look at this, it looks broken, but tell me if it makes sense kind of deal.

Yesterday my advisor called me into his office to ask me what was going on and why little progress had been made. Being the lame grad student that I am, I didn’t have a good explanation. Anyway, the conclusion of the meeting was that he needs me to do it by the end of July.

Just a few minutes ago, I fired off a 1,000 word e-mail to my advisor that took me an hour to write. This e-mail explains the observed phenomena and demonstrates that what is observed is reasonable and that the system isn’t in fact broken.

I haven’t heard back from my advisor on whether or not he buys my explaination, but I feel pretty darn good about it right now.

Too bad this flash of brilliance was on a side project and not my own research. The good news is that I feel pretty good about not getting fired.

Okay that was horrible.

I raised my stop loss on my XLF puts from $11.98 on the underlying to $12.05, and of course I got stopped out on a higher underlying price.

Sold all 5 XLF July 12 puts for 39 cents.

Idiot.

I ordered my new computer. I just had to do it.

Click to enlarge

I could have made it cheaper, but…

1. I insist on buying a $109 case that is quiet rather than a $40 cheapo.
2. I also insist on buying a SSD drive instead of a $40 cheap HDD. I do not mind splurging on a fast drive because that’s where the performance bottleneck is when it comes to boot time and application load time. A spiffy CPU isn’t going to help you here. Yes, it’s only 32 GB, but I am only installing thinkorswim and not much else.

This parts list is different from my list a few days ago in the following ways…

1. 16 GB SSD was bumped up to 32 GB.
2. I found out that the 5050e CPU does not support virtualization so I changed it to the 5400. It actually does. The 5400 has a TDP of 65 W compared to the lower power 5050e which consumes 45 W.
3. $25.99 DVD burner sold out so I had to get a pricier $42.99 burner.

Since I do not anticipate playing games, an integrated video solution is more than enough.

Interesting thought…

If I were to buy this cheap video card which is $19.99 after a $10 rebate, I can have 4 display ports on my computer, because the motherboard already has two display ports. I already have 2 19 inch LCD monitors. If I can nab 2 more monitors for about $100 each on eBay, I can have a quad monitor setup. I actually have room on my desk for 4 monitors. Hmm…

This piece of news is old news to most. I am sure most of you are already aware of the absurdity of the matter.

In case you were living in a cave, the governor of South Carolina disappeared and no one knew where he went. One of his staff said he was hiking the Appalachian Trail. When he returned, he confessed that he actually ran off to Argentina to visit a woman with whom he had an extramarital affair.

Now this part of the story isn’t really all that surprising. Humans will be humans. This kind of stuff happens. What I don’t get is the following…

via NY Times

Through a spokeswoman, Mrs. Sanford declined requests to be interviewed for this article, but told The Associated Press she learned of her husband’s affair early this year when she found a letter he had written. She told him to end the relationship, but he repeatedly asked permission to visit the woman in Argentina in the months that followed.

“I said absolutely not,” Mrs. Sanford told The A.P. “It’s one thing to forgive adultery. It’s another to condone it.”

Then, last week, when the governor told her he needed time alone to write, she had specifically warned him not to see his mistress. She said she was devastated when he went to meet her in Argentina.

I can understand cheating on your wife, having your wife find out about it, and then working on the marriage together.

Now what I mean by “understand” is that I understand that this kind of stuff happens, not that I agree with the rationale of doing so.

I can kind of understand cheating on your wife, having your wife find out about it, and still cheating on your wife.

What I don’t understand is cheating on your wife, having your wife find out about it, asking your wife if you can go back to Argentina to be with that woman again, your wife saying no, and you blatantly flying all the way to Argentina to cheat on your wife yet again.

There are three things wrong with this…

1. If you really really really want to cheat on your wife yet again, you don’t ask for permission to do so.
2. Even if you do go to a foreign country to visit some secret lover, you need a reason to go, like a business trip or something. This guy just blatantly went to Argentina to cheat on his wife.
3. If you’re some public figure, your chances of getting away with it aren’t good.

And it doesn’t end there. Somehow the e-mail exchanges were leaked.

I could digress and say that you have the ability to give magnificently gentle kisses, or that I love your tan lines or that I love the curves of your hips, the erotic beauty of you holding yourself (or two magnificent parts of yourself) in the faded glow of night’s light – but hey, that would be going into the sexual details we spoke of at the steakhouse at dinner – and unlike you I would never do that!

Well, I ‘ve never had the opportunity to write a love letter, but it doesn’t take anyone with experience to realize what a horrible piece of writing this is, especially the part about two magnificent parts. That’s just lame. Man, I could do much better than this garbage.

I got stopped out of SDS today at $56.44.

I was one penny away from stopping out of my XLF puts.

I am starting to believe that I have no idea what I am doing. It seems like my trading comes in 3 cycles…

1. Get stopped out on every trade.
2. Abandon stop losses and trade well.
3. Get over confident and get blown up on one trade.

I almost always pick horrible entries such that I almost always negative within the first 15 minutes. In stage 1, I get stopped out. In stage 2, I suffer moderate sized losses before making it all back and more. In stage 3, my moderate losses blow up and I return to stage 1.

We’ll see what happens with my XLF puts, but there’s no way I am adding new positions next week, especially when everyone is going on vacation before July 4th and when trading is super thin. Absolutely nothing I am doing is working. The only good news is that my losses are small because I am a big fat chicken in stage 1. I am going to have to think things through. Apparently a 3 week break from trading didn’t do the trick, especially when I was either busy or relaxing, but I wasn’t thinking things through.

Long 5 XLF July 12 puts @ $0.59.

Kind of pissed XLF isn’t available to short.

UPDATE: Conditional sell order if XLF rises above $11.98.

UPDATE 2: Piling in on the short side. Long 100 SDS $55.88. I like how $TICK is unimpressive , A/D line rolling over, and $TRIN breaking to new highs.

UPDATE 3: Need to throw a stop somewhere. $55.44. I am pessimistic about both of my trades, but I know where my stops are. Stops are in, emotions are out.

UPDATE 4: If you’re bearish and you know it, you start seeing things.

An H&S pattern has been forming. Top is 956, neckline is 880, difference is 76. If this breaks, we’re going down to 880  – 76 = 804 very quickly.

I am not too happy that I spotted this because now I am more bearish than ever. That means I am probably wrong. We’ll just have to see how this plays out.

1. Last week I visisited the Great Smoky Mountains. Over the course of the week, I visited quite a few gift shops. Since the Great Smoky Mountains has the densest black bear population east of the Mississippi river, these gift shops quite natually sell stuff related to bears. Stuffed bears, bear mugs, bear posters, children’s books about bears, bear keychains, bear bumper stickers, that sort of stuff. Well, as a market bear, I really wanted to buy either a stuffed bear or a bear mug. However, I ended up not buying anything at all. Why not? Because I realized that if I had a stuffed bear or a bear mug sitting on my desk while I am trying to trade, I will definitely lose money.

2. Yesterday I blogged about getting a new computer. That itch to buy a new computer is now dead. Last month I tried to get the market to pay for my suit and that was a big mistake. To avoid the same pitfall, I just simply won’t buy a new computer.

Stop loss on QQQQ raised from $34.68 to $35.38. That locks in $13 of profit before $10 roundtrip commission. Man, what a waste of time.

My CPU utilization is hovering around 55% while running thinkorswim. This is not good. I’m a cheapskate, but I do make good investments. The $1,000 computer is starting to look more attractive than the cheapo.

Buy a cheapo computer every 2 years or blow 2x the money every 4 years? Hmm tough call.

UPDATE: Stopped out at $35.38. The only bright side is that I didn’t lose money on my first trade after coming back.

Oh, look, my stop loss got punked to the penny again….

What a bunch of crooks.

I have this itch to buy a new computer. My computer is now four years old. I have the following…

CPU: AMD Athlon 64 3000+ Venice 1.8GHz Socket 939 Single-Core Processor
RAM: 1 GB (2 x 512 MB)
Video: ATI Radeon HD 4350 (The $40 card I got 3 months ago)
HDD: 160 GB 7200 RPM Ultra ATA100 (Yep, it ain’t even SATA)
Sound card: Creative X-Fi XtremeMusic
Monitors: Two 19 inch 5:4 aspect ratio LCDs (Got the second one also 3 months ago)

Since the only game I play is Tribes 2, this setup has served me well in most cases. During the last few months, I was kind of sad that Tribes 2 seemed to be completely dead because the official authentication server went down permanently, but a few days ago I discovered TribesNext which patches your Tribes 2 installation so that you can connect to a different authentication server. After playing the last few nights, I realized how pointless it is to play Tribes 2 because everyone now just hacks. I hate to say it, but I think I am done with gaming.

However, what’s been pissing me off about my computer recently is how slow it is. 1 GB of RAM is just not enough. Although the CPU is only four years old, it was not top of the line when I got it, and a comparable CPU could have been purchased seven years ago.

I could go out and blow $1,000 on a new computer, but it wouldn’t change anything. People somehow manage to use up the new computing power. The problem is that I need the following on my main computer…

A webcam
A scanner
A nifty sound card
A dedicated video card
And a whole mess of random stupid software

All of this stupid crap slows the system down.

Any extra hardware that you add complicates stuff. Any extra software complicates stuff. The more crap you add to your computer, the slower it gets. It does not matter if you tweak Windows like crazy, or disable pointless background processes, or remove any trojans that shouldn’t be there in the first place, the more crap you add, the slower your computer becomes because Windows is just a piece of trash. Sure, you could reformat your drive and start over, but either you have a fully-featured software set on a slow computer, or you have almost nothing on a very fast computer.

My office computer is nice and fast and boots in 30 seconds. Why? Because I don’t add crap too it and all the hardware is integrated. Yes, when I was a pimple faced teenager who fragged monsters on my monitor, I laughed at integrated video and audio, but now the integrated solutions are actually quite decent and if you actually get a discrete video or audio solution and enable all the fancy features that the hardware has to offer, you’re actually screwing yourself over because the extra driver complexity takes up RAM. Skim off that extra software stuff, and you’re left wishing for some features you wish you had.

For example, my sound card has a feature called smart volume management. This feature limits the dynamic range of the sound and is useful when you are listening to music and then all of a sudden someone sends you a message and the alert sound is 10x louder than your music. Without SVM, your ears would get blown out and you’d jump out of your chair. I heard that Windows Vista has this sort of feature, but who wants to use Vista?

Another example is that if I want to play games, sometimes I would like to change the anti-aliasing and anisotropic filtering settings in my video card to tradeoff between quality and speed. However, if I want to do that, I have to install some retarded software package that is bloatware.

So what’s my plan? Get a cheap computer, put Linux on it, only install thinkorswim software and nothing else and use that to trade. Am I going to install Pidgin or Skype? No, I don’t want people talking to me when I trade. Anything that does not come with the Linux distro other than thinkorswim, I will not add.

This computer must:

1. Be cheap because as discussed above I don’t need anything fancy and because I am a cheapskate.
2. Have loads of RAM.
3. Be quiet because I hate noise.
4. Consume little power because I am still going to be running my slow main computer at the same time.
5. Boot quickly because I want to trade right after I wake up.
6. Be small because I am going to stack it on top of my existing computer.
7. Have two monitor outputs because I have two monitors.

Here’s what I’ve come up with.

1. It is cheap. $399.94 before rebates, $369.94 after rebates. Shipping is $25.55 so the total would come out to be $395.49.
2. 4 GB of RAM is plenty.
3. The case is quiet.
4. The CPU has a TDP of 45 W. The power supply in the case is also 80 PLUS certified.
5. The HDD is a 16 GB SSD drive and has a blazingly fast sequential read and low latency for reads. It’ll boot in a jiffy. Sure, it’s only 16 GB, but I am only installing Linux and thinkorswim. In accordance with the principle of memory hierarchy, if the storage is to be fast, it has to be small. I’m willing to trade capacity for speed. If I can get thinkorswim to load 10 seconds faster, that’d be awesome.
6. The case is small.
7. The motherboard has two monitor outputs, one DVI and one VGA. I can live with VGA.

I haven’t purchased it yet and I’ll probably think about it for the next few days.