MOBILE IS EVERYWHERE

Now, I don’t Trade on the iPhone. I think the term ‘fat finger error’ would take on a whole new meaning if I traded from an iPhone.

There a few programs for trading on the iPhone. iSwim from thinkOrSwim, E*Trade Mobile Pro and of course the Interactive Brokers app.

Having access to my trading platform on something I can carry with me is great. For me, there is some comfort in being able to check my position when I am done trading for the to make sure I am flat. Or if there is a problem with my internet connection, I can still flatten all my positions.

ZENFIRE ON THE IPHONE

ZenFire has a Webtrader in beta, which is expected RSN ( Real Soon Now ). I have no idea when, so don’t quote me on it.

You can try it at beta.zen-fire.com You can select an iPhone interface or the iPhone interface upon login.

They changed to a new darker look, which I do not care for that mch. I much prefer the old color scheme shown here.

TRADERWERKS ON THE IPHONE
This site runs on both the iPhone/iPod Touch and Google’s Android. Just point your browser to http://blog.traderwerks.com just like your normal web browser would and the magic happens auto-magically.

If you haven’t noticed, NinjaTrader has a new version coming out in NinjaTrader 7 ( NT7). It has a lot of improvements over NinjaTrader 6.5 (NT6.5) as well as some changes that you need to make in your code.

FIRST IMPRESSION
My first impression was “Hey, this looks just like NinjaTrader 6.5″. It is true, it does. Not like switching from Windows XP to Vista. ( Although I am not sure, I still use XP, but I heard they look different )

The application still looks like NinjaTrader 6.5 but under the hood, there has been a lot of work.

SECOND IMPRESSION

My second impression, is much better. After using it , I think NT7 delivers. Now, it is not ready for prime time , but it is close. I use it for all my backtesting now. I get funny debugging messages sometimes, but I assume they will go away when it ships.

NT7 is still in beta , so I won’t discuss the features that I really , really like. You can check that out on the website. I had one little GUI pet peeve that I HATED in NT 6.5, and they took care of that in NT  7.0, is I think they have been trying to take care of a lot of bugs at once.

I have a Win7 machine that has been running NT7 continuously on a Mirus feed and a few strategies just to see when it ‘falls down and can’t get up’. So far it is much better than 6.5. ( This was a virgin install with nothing on it but NT7, source control and anti virus. Stable as a rock …. so far.

BRINGING YOUR SOURCE OVER FROM 6.5

There are some code breaking changes, and some that are only slightly code breaking. ( I will talk about that in the next section )

There is a document, appropritaely called NinjaScript Code Breaking Changes for NinjaTrader 7 that discusses most of the changes. They are all pretty minor, and won’t cause any major problems. I have a pretty large codebase of indicators and strategies and I brought them all over very quickly.

MAKING 6.5 & 7 INDICATORS COMPATIBLE

If you want to run your indicators in 6.5 and 7 simultaneously, you can use C# pre-processor directives. Note that the .zip archives will still be incompatible if you distribute using zip archives. Take a look at this document Best Practices for Distributing NinjaScript Objects

What a pre-processor directive does is perform actions before the code is compiled. If you want to have code that is only compiled in NT7, you would put it in between #if and #endif statements.  If you want to maintain one codebase  you could use NT7 to generate your NT7 and NT6.5 compatible indicators but , you can NOT use NT6.5 to generate NT7 indicators. That would be bad.

In this example, we compile an indicator with code for NT7 & NT6.5

#if NT7
    Print("NT7 Code);
#else
    Print("Not NT7");
#endif

Hat tip to r2kTrader

Photo by kevindooley

GENERALISSIMO FRANCISCO FRANCO IS STILL DEAD.. AND SO IS OPENTICK

Yes, I have been MIA lately. But I did want to do an update on my previous blog post on OpenTick. So here is the latest news. Hat tip to Inside Market Data.

If you don’t know who Generalissimo Francisco Franco was, don’t worry, I didn’t either. But he was the subject of Saturday Night Live skit with Chevy Chase that was apparently a running joke on the show. Watch on YouTube.

XASAX NEEDS CASH NOW … OR AT LEAST A SUGAR DADDY

Xasax is/was the parent company of OpenTick, and they have a ‘funding crisis’. Also know a being ‘broke’. Ok, ‘broke’ is too harsh a term. Let’s just say they ran out of money.

They have put their business on ‘hold’ until it can find a buyer ( Sept ‘09 ). I am not sure what on ‘hold’ means, but if I was a customer, I would be looking for another provider.

STILL HOPE

The guy who started OpenTick and Xasax seems to be a serial entrepenuer. He has several domains ( all of which are dead ) , so you never know what he may come up with in the future. The Opentick founder apparently has a couple hundred domains registered, and I only checked a few.

http://quantumarbitrage.net

http://xliquidity.com

http://atsfund.net

http://FreeTickData.com

MAYBE IT IS FOR THE BEST

I cannot really shed a tear for those guys, they were sort of dicks. Back in the day, I talked to them about getting a feed from Xasax for my job.

They seemingly could not answer simply questions about their service, and always wanted to do a webinar. Then they would schedule and then miss the webinar, with an excuse letter a couple of days later. After it happened twice, I gave up on them. They seemed overpriced at the time. I don’t really know if they were because I never had a chance to talk to them.

MIT/LIT ORDERS MIA IN NINJATRADER

With any trading platform, there will always be ONE feature that you need that is not implemented. For me that is Limit If Touched orders with a negative offset in NinjaTrader. I was on a long trip recently and I finally had time to implement MIT/LIT for a strategy I was writing.

Long flights are great for getting work done. I will dread the day they allow cell phones in all planes.

On, on to the orders. Market if touched are a very similar to stop limit orders. They are both types of orders that occur only if the price reaches a certain level. With a Market If Touched order, once a price reaches a certain level, a market order is executed.

In Ninjatrader, there are some limitations to stop limit orders in strategies which are annoying, such as setting a negative stop price. I guess there is some reason for that, but it is beyond me. Maybe in NinjaTrader 7 they will have it for strategies.

If you have used StopLimit orders before and have seen an error about an improperly placed  order, then you know that I am talking about.

For these situations, we can use a Market If Touched or Limit If Touched order to accomplish the same thing , without the annoying errors and stopping of your strategy.

MIT / MARKET IF TOUCHED

A buy market-if-touched order is an order to buy at the best available price, if the market price goes down to the “if touched” level. As soon as this trigger price is touched the order becomes a market buy order.

A sell market-if-touched order is an order to sell at the best available price, if the market price goes up to the “if touched” level. As soon as this trigger price is touched the order becomes a market sell order.

LIT / LIMIT IF TOUCHED

Just like MIT order except that a limit order instead of a market order. This is the closest one to a stop limit order.

IMPLEMENTING IN CODE

You can only do this if you are writing code, I do not believe the strategy wizard can do this. I am not sure, I rarely use strategy wizard for anything.

This may be considered advanced programming, but it is not that hard. It just looks harder than it is. It is considered ‘advanced’ programming by the people on the Ninja Trader support forum, so they will not be that helpful.

Now for either of these orders , you have to monitor the prices, in-between bar updates. For that, we use OnMarketData. This recieves the price every time the price changes. This also increases the work your computer has to do , so be careful.

protected override void OnMarketData(MarketDataEventArgs e)

The variable e has a MarketDataType attached, and this is what you want to trigger you trade from. There are different things you can trigger from.

• MarketDataType.Ask
• MarketDataType.Bid
• MarketDataType.DailyHigh
• MarketDataType.DailyLow
• MarketDataType.DailyVolume
• MarketDataType.Last
• MarketDataType.LastClose

Mind you, not every data provider furnishes those. So when we see the price we want e.Price , if it is above our buy stop, we can then enter an order.

if (e.MarketDataType == MarketDataType.Ask)

{

 

Now, this is just a start, and there are a lot of things you can do with this. Such as shorting when the bid reaches a certain price and so on.

MIT definition from Wikipedia

I usually read books to help me find trading and indicator ideas. This book doesn’t really address either of those points. This is more about the psychology of trading and ‘beahvorial finance’.  It is more of a ‘Intro To Behavioral Finance” you might say.

 I have talked about behavioral finance before here .

This book caught my eye because [1] It had a picture of a lizard on it , and [2] Taleb recommended it, and I am a big fan of his even if I think he is a bit too pompous on TV.

SHORT REVIEW

Good book if you liked Taleb’s Black Swan book. It is an easy read and makes you think about how our ‘Lizard Brain’ causes us to make crappy trading decisions.  Recommended.

Keep reading for the full review.

INTRO BEHAVIORAL FINANCE

The author , Terry Burnham, worked on behavioral finance for 10 years at Harvard including teaching, which puts him in the egg head category.

The book is divided into four sections. The first part , The New Science of Irrationality, and the last part, Profiting from the New Science of Irrationality are the most interesting to me.

EDUTAINMENT

The book tries to Edutainment ( hat tip to Boogie Down Productions) , which is entertaining and educational. It does not excel at either , but also does not fail.

Edutainment (also educational entertainment or entertainment-education) is a form of entertainment designed to educate as well as to amuse.

There are a lot of stories in the book, and I think this guy would have been a pretty fun professor in class. 

 If you have been around for a while, you probably have heard a lot of these stories, but he does put them into context.  Things like German Hyperinflation, the chances of making it to the NBA and ‘This is Spinal Tap’ quotes.

LIZARD BRAIN

The book centers around our ‘lizard’ brains. Which is non ‘pre frontal cortex part of our brain. The ‘pre-fontal cortex is what we use for rational thought, trading decisions, etc.

The rest of our brain, the lizard part , is responsible for everything else. Fight or flight, loss aversion, fear of being eaten and things like that are all handled by our lizard brains.

The final part of the book gives rules on how we can invest without out using our lizard brains.

GOOD PARTS

1. Excellent intro to behavioral finance
2. Good attempt at making a subject more relatable
3. The author was bearish on the market in 2005

NOT SO GOOD PARTS

1. The book is dated. Has a lot of references to the housing crisis.
2. Tries to be ‘edutainment’, does neither well
3. The author was bearish on the market in the book

It is surprising hard to write a post about this book without overusing the term Lizard brain. My apologies.

THE TURTLES

In 1983 & 1984 Richard Dennis recruited 21 men and 2 women who both became known as the “turtles.” The program with the turtles ended in 1988, with many of the ‘turtles’ have going on to successful careers as commodity trading advisors.

If you have not hard about the Turtles there is a good book about the legendary ‘Turtles’, named “Way Of The Turtle“.

I was reading Curtis Faith’s book “Way Of The Turtle” over the weekend.  I think it is the best book on the Turtles on the market today. There may be other books that are better written or edited than this one, but I consider this one the best, as it was written by one of the original turtles.

Now with thatout of the way, onto one of the systems they used.

DONCHIAN CHANNEL

The donchian channel is a volatility based indicator. Like other volatility indicators, and especially channel indicators, the donchian channel is usually used to identify a break out of a price range.

The donchian channel is displayed as high and low bands , and therefore it looks similar to other volatility indicators such as Bollinger Bands.

DONCHIAN CHANNEL TURTLE SYSTEM

This system is the channel breakout system from the book. It consists of two parts. A n-period channel breakout, and a trend filter to only trade breakouts with the trend.

The Donchian channel is a 20 period breakout, so that you enter a position if the high or low passes the 20 period high or low.

The trend filter is a 50/300 period moving average crossover. If the 30 period moving average is higher than the 300 period moving average then only take long trades.

So this system uses this breakout to initiate trades, while still being a trend following system via the the trend filter to only initiate trades ‘with the trend’.

MY VERSION

Lately there have been a lot of trading days, so think a trend following system would have performed very well in the last few weeks ( during this bull run ). I coded this for Ninja Trader 6.5 and the source is a zip file below. Just import the zip file from the NinjaTrader utility menu, selecting ‘Import Ninjascript” and selecting the zip file.

I did not make many changes to the system for this version yet. Later I will post a more modified version of the system.

DOWNLOAD DONCHIAN SOURCE FOR NINJA TRADER 

The difference for this system is that the system works as a day trading system. The original system was based on daily prices, this one is based on 5 minute bars, although you can run it on any time frame.

I used a 2 * ATR trailing stop. The systems also exits all trades at the end of the day.

RESULTS

Well, as you would expect, it performed as most trend following systems do. Trend following systems tend to have a lot of small losses and fewer, but larger wins to make up for it.

I back tested the system on the March ES contract from 12/21/2008 to 3/21/2009. It did not fare well, losing $4475 before comms. But let’s look past that at how well it did as a trend following system.

Trend following systems are profitable less than 50% of the trades.The Donchian channel In this case, it was profitable 31% of the time.

The largest win was about 2.5 times the largest loss. The average win was almost 50% larger than the average loss. Also in line with trend following systems.

NEXT UP : MODIFICATIONS

Now that I have the base line using bog standard settings for the Donchian channel system. I want to make some modifications and post them along with modified source.

If you have any ideas you would like to see, write me at blog @ traderwerks.com

TraderWerks. The first part, trader, we can all relate to. The second word , Werks is a German word that means factory.Stupid name at first, but when you think about it, it makes sense.

So now you have a clue to why I named this site TraderWerks. This post has been a long time in the making. Mainly because it is not just an answer for the curious, but an insight into the way I look at trading. I am by no means the worlds greatest trader, I just want to share my thoughts.

TRADING IS BORING

Trading is a lot more like working in a factory than you might think.

I focus on short term auto mated trading. Day trading you might say with a computer. When you are running systems it can be very, very boring. Really it is, since your systems make all the decisions, you are just along for the ride. Factory work is boring because it is factory work, trading is boring because it like like factory work with a better view.

On the setups I use most often, I have programmed an alarm sound when it comes time to place a order and open/close a position. Maybe 10 alerts over 6 and a half hours ( my current system anyway ). Of those ten alerts, maybe five trades will actually be signaled. I have semi automated my system, and I will fully automate one day, but for now, I am the human that makes sure a false signal is not generated by a Federal reserve speech or just a not a head fake from the ES. Most of the time, I just let the system do what it is programmed to do.

So here I am , pressing a button like a trained monkey every half an hour to an hour or every couple of hours. It doesn’t hurt my feelings to be called a trained monkey, since I am the who built the button I am pushing. But the time in between waiting for the the setup to occur is ‘downtime’. I can read email and such, but I still want to stay close to the system during trading hours.

LIKE A FACTORY

Day trading for me is not  the helter skelter of ‘Trading Places‘ ( One of my favorite Eddie Murphy movies ).

You go to the factory, do the best you can making widgets and go home and have a beer. No theatrics.

For me, my trading day is pretty much the same. I make sure my computers are running, checking out the systems, checking the previous day’s trade, updating my trading journal. Even though I auto trade, I still keep a trading journal which gives me  ideas on how to improve my systems. My trading consists of following my trading plan and following my system.

SO WHAT DOES TRADING BETTER HAVE TO DO WITH A FACTORY?

Both trading and working in factory have to do with following a plan. In trading, we have our trading plan, in a factory we have a work schedule. In a factory,  follow the work schedule and worry about your execution. In trading you follow your trading plan, and you worry about following that plan. I am sure you already have a trading plan, but in case have not written it down yet…….

A trading plan is a personal thing, so everyone’s trading plan will look different. IMHO, it should have at least three parts.

1. Entries – Your setups
2. Exits – Profit targets, Stop Losses
3. Money Management – Risk management

The first step to following a trading plan is writing out your trading plan. The key is writing it out. A trading plan is something you could actually explain to another person. The process of writing it out helps clarify our trading plan. A lot of us have vague trading plans in ‘our head’, but that is not a trading plan, that is one step from random trading. So, put together your trading plan, trade it like you are working in a factory, and you trade better.

SO REALLY, WHY TRADERWORKS.COM?

Because TraderWorks.com and TraderFactory.com  were already taken.

TIMELINES
This is a favorite ‘indicator’ of mine. I often forget my rules on time parameters. Such as trading over lunch and not trading around 2:00 p.m..

Timelines are indicators the draw lines across the bottom of a screen to give you a visual indication of the time during the trading day.

They can display many things, such as when different markets open and close or specific periods during the trading day.

DIFFERENT STROKES FOR DIFFERENT FOLKS

Different traders use timelines for different reasons. Currency traders will want to know things such as the time of the European open or the asian close.

Index traders usually look for periods during the day such as the open, lunch, and pre-market.

At the end of the day, timelines help you trade better by knowing what time you are in in the trading day.

TIMELINE FOR THE ES

This is my version of a timeline for the ES. The only parameter is the time-zone. By default, it is set to CST ( Chicago time ) and has settings for PST and EST.

This indicator is a little different in that it gives you a 5 minute warning before a change. When I am watching a trade, I want to know BEFORE the change. It gives me more time to prepare to enter/exit a trade.

If you click on the graphic , you will see a light green bar before the open. That is a color change that appears 5 minutes before the color changes to red. That little bit of warning helps me, I hope it helps you too.

The 5 minute bars are different sizes because I am using tick charts and they can have a different number of bars in a 5 minute period.

TIME TABLE

TW Timelines only has two colors, Red and Green. The light Green and light Red mark the transition times between two time periods.

The times for the indicator to go red are:

Opening : 8:30 A.M. Central Time
Lunch Break : 11:00 A.M. Central
Bond Market Close : 2:00 P.M. Central

These times are my preferences. The Bond pit closes at 2:00 P.M. Chicago time, and that may influence the stock market. Some people pay attention to that, others do not. If you have any ideas for other timelines, drop me a line at blog @ traderwerks.com

DOWNLOAD TIMELINE INDICATOR

I have put a banner ad up on the site for you to download this indicator when you sign up for the mailing list. I do not send much on the mailing list, but I put any updates to my free indicators there so it is a good thing to be receiving when I update indicators.

If the offer has expired, is because the free download has been cancelled, changed, folded , spindled or mutilated ( Just kidding ) . I do rotate the free indicators, so if the offer is gone, AND you are on the mailing list, email me and I will see about getting you a copy.

THINK LIKE A TRADER

Some scientists decided to do a study on how do people trade ‘like a trader’, and do they perform better when  people trade better when they ‘Think Like A Trader”.

This paper specifically takes a look at traders and loss aversion. If one ‘Thinks Like A Trader” will they be less risk averse and trade better. The answer is yes. I posted a link to the paper below.

For simplicity sake, I will define loss aversion as:

losses hurt more than gains feel good

That is taht people feel a lot more pain from losing $100 than from making $100. Thus, we make based decisions based on not making loses.

What the study did was ask the guinea pigs subjects to “Think Like A Trader” and not to worry about the losses. It seems to have worked. They have a lot of graphs and charts in the paper that you can check out in your free time.

SIM TRADING

A lot of people can sim trade better than they can trade actual money. I could have titled this post “Why I Am Great In Simulation Trading And Suck In Real Life” but that would have been just too long.

For most people, when we sim ( trading in simulation mode without money on the line ) we take more risks and tend to do better. When it comes to actually trading, we tend to suck. Time seems to slow down while we are watching every tick.

The reason some of us ( most of us ) , sim trade better than than real life trade is that were are in a better state emotionally to trade our systens and not second guess ourselves. We are thinking like a trader because we do not fear the losses.

AUTOMATED STRATEGIES ALWAYS THINK LIKE A TRADER

That is the beauty of an automated system. It is mechanical and it does think like a trader.

You should see my face when I watch the strategy trade. My strategy will make a trade and I will watch it and just want to close out the trade before I lose too much or lock in a profit. Most of the time, my strategy proves me wrong and stays in the trade. My strategy trades like a machine because it is a machine.

CONCLUSION

When I read an academic paper, I usually read the conclusion first and work my way back from there. I also read the ends of novels first, but considering how many novels I read now ( pick a number between nil and zero ) , it does not matter.

In real life, you need to fear and respect losses but not let them overwhelm your trading. Try to ‘Think Like A Trader” and don’t let the losses affect your trading or your system.

So when you can trade on a sim, and you move to trading a live account, remember to try to keep the same detachment you had when you were trading on a sim.

NOTES

The image is by Sakurako Kitsa, is a Bento box in the shape of a Starbuck’s Green Tea Frappuccino .

You can read the whole paper herepnas-2009-sokol-hessner-0806761106

3 Bar Reversal Pattern ( Strategy Wizard )

        This strategy is from an article  by Thomas Bulkowski ”Are Three-Bar Patterns Reliable For Stocks?” . It was in the  January,2000 issue of Stocks&Commodities magazine. As an aside, I want to mention, that there are a lot of things called “Three Bar Reversals’, but I am just looking at this particular one.

        This strategy was done in strategy wizard using NinjaTrader so those who are not into C# programming, can fool around with it. You can import this strategy with File->Utilities->Import NinjaScript. Ninja expects a zip file when you import so don’t unzip the file after you download it, just import it as is.

THREE BAR REVERSAL

        I coded this up in NinjaTrader ( Sorry Tradestation people ) for use on daily charts and then I tested it on one stock. I chose AAPL for two reasons (1) I love Apple computers (2) It comes first alphabetically. I also like to trade AAPL stock, it is one of my favorites trading stocks.

        It is a stop and reverse system, which means it is always in the market. When it gets a buy signal, it goes long, when it gets a sell it closes the long position and goes short. Some people like this style of trading system, some people do not.

Rules :

- Day two of the three-day pattern has the lowest low / highest high of the three days.

- Day three  must have a close above the prior day’s high/low.

- No DoJi’s

If you want the full details , you can order a reprint from the net.

I discovered this gem of a pattern while prospecting for ideas in a recent issue of STOCKS & COMMODITIES.In the interview with Kevin Haggerty was the following pattern description: One example [to determine a change in direction ]is a three-bar pattern,which is the same one that futures traders use.The stock establishes a low price as a swing point.Once the stock closes above the high of the low day,to me,that is a change of direction for an undetermined period. Using this description as a guide,I decided to formalize the shape and behavior of the pattern.

-Thomas Bulkowski

        So I tested this system from Jan 1, 2008 to today, April 4, 2009. No particular reason why I picked that date, I just wanted to start on a Jan 1. It ran for 16 months in backtesting, and the results are in the image about. You can click it for a larger image.

        Now admittedly, AAPL is a very volatile stock, that I do like to trade, so this probably does not represent your average stock. However, it has been a very volatile period and a lot of equities have been trading like AAPl stock.

        The strategy returned $84 a share over the 16 monhts, and had a win/loss ratio of 53%. Just a little better than flipping a coin but the profit came from the win /loss ratio. The wins were 50% greater than the losing trades. Average trade was over a week, which is a doable rate for the retail trader who cannot watch the market all day. The profit percentage was 4.41% percent a month.

WHAT CAN BE DONE TO IMPROVE THIS STRATEGY

        I think there is a lot to be said for this strategy. However, it is an ‘always in the market’ kind of strategy that can get caught in a downdraft. So here are some suggestions ( If you try any of these, let me know and I will update this post )

1. If used on a portfolio, use a portfolio normalization scheme for position sizes.
2. Stop Loss at support and resistance levels.
3. Profit Stop.
4. Test performance on ETF’s

WHERE CAN I DOWNLOAD THIS

        You can download this here,3 Bar Reversal Strategy . Enjoy

None of this is investment advice. This is just a strategy I coded for entertainment purposes only. Nothing more. Whatever you do with this is up to you. There is no warranty expressed, adumbrated, implied, insinuated, inferred, implicated, aspersed, or otherwise in existence.