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Thursday, March 27, 2014

Sitting on the Fence

About a month into Bergamot Capital Management, I find myself with less capital and 'up the river without a paddle'. So following my wife's advise I stopped to look around.

My account isn't big, but it was suppose to be enough to produce about equal to my previous income. For that I had System 11 - a simple and robust approach to short term S&P 500 index trading. This system was well  thought out, thoroughly back-tested, paper traded, and then traded with leveraged ETF's. All good. Then I moved to ES futures, to get this thing making real money. For-awhile I was ahead, even though I traded it sporadically. Then about a month ago it pretty much stopped working. WTF? Upon reviewing recent trades I realized that I am badly over-trading. Usual remedy is to step out to larger time frame and avoid whipsaw, but it required larger stops... Too large, as it turned out. Combining Systems 10 and 11 seemed like a good idea, but was an unproven method, and backfired severely.

It is quite possible that System11 was based on that fucking pseudo-statistical TA mambo-jumbo nonsense. I see it alot around internets these days. Sound all fancy, with secret acronyms - TA gone mad! These squiggly-wiggly lines and exotic candle patterns on a chart suppose to tell a trader where to buy and sell, and it works every time, and there is a trade every day, and you just reverse if you are wrong, and you win more than you lose ... except when I do it. I guess I was suckered by some temporary irregularities into thinking I can game short term index movements. Lots of people do that, lots did it before them. No wonder all old posters and commenters are gone from most sites and forums I read. They all blown their accounts!

I took a day or two to poke around interwebs, and ask some people: "How come skillful and profitable stock trader is a complete sucker when it comes to index futures?" Nobody replied anything meaningful, but I read some stories very similar to mine. Especially this:
 Сегодня день меня уничтожил… Нет больше грааля, ничего больше нет… сливал как мог, за один день всю месячную прибыль, и дело не во мне, не в тильте, а в системе, которой больше нет, точнее она не работает. Видимо я просто попал в фазу рынка, где увидел какую то закономерность, но вот она и прошла.
Буду пытаться понять сам рынок, а не искать алгоритмы, которые сужают мое сознание до точки, и я просто напрсто перестаю думать. На данный момент имею 22 600р на счету и полностью чистый мозг.
Моя цель ПОЗИЦИОННЫЙ ТРЕЙДИНГ А НЕ ТУПОЙ СКАЛЬПИНГ! Значит, так, с завтрашнего дня буду выкладывать в блог каждый трейд и эквити счета.
Сейчас занимаюсь пониманием рынка)
Russian guy from SmartLab  http://smart-lab.ru/my/Viacheslav/blog/all/
Holly Shit, how come the guy I never knew, on the other side of the World, gone thru exactly the same experience I just did? I'll tell ya how... we are both Suckers... the only difference - I was suppose to know it already, based on Dow Paradox.(link)

According to my own real world experience - short term ES futures trading is a fool's errand.
After all, index was made exactly to avoid any necessity of short term trading, smooth out irregularities, reduce risk, etc. Instead they turned it into horse-n-pony show, because it benefits Scammers. Brokers make money, pumpers make fee's, advisers charge for 'forecast' - all happily paid for by willing Victims, who don't want to make things too complicated, but rather just trade this one thing (sarc). How can Technical Analysis (TA) be used to analyze past price and volume of index, when there are no buyers and sellers, but only Scammers and Victims... and Suckers blood to keep them going...

To make sure I am not a Victim, I stopped doing few things:
1) No more day-trading (final decision)
2) No more futures (unless its an overnight emergency hedge)
3) No watching news (I've been staying away from TV for-awhile. It did me good)
4) No more reading or posting on any trading blogs! NONE! I will not let somebody's nonsense to get into my mind again. I have been learning and studying, and reading so much about the market over past few years. I think I've learned everything there is to know. I even know stuff that is not written anywhere,... ever. In fact, I know so much - I can teach other people about this shit. But I will not.
5) I refuse to become a Scammer.

My biggest and most consistent gains came not from trading stock market, but from researching market of stocks. I am always looking for some kind of companies or industries that make sense, make money, have bright future, and (if I am lucky) carry discounted expectations. When forecasting error is realized and expectations are adjusted, then valuations of company undergo rapid repricing, allowing me to sell to a greater fool. Prudent speculator gets in early enough to accrue easy gains, before Scammers get a whiff of whats going on and crap all over a good thing. The biggest trick is to find and enter these stocks on time. Get in too early - too long ride; get in too late - stop too wide.

I have found, and invested, and traded, and made alot of money in stocks like that.
This is the only way I know of  How Not To Be a Sucker.
I got this thing licked


Tuesday, March 25, 2014

System 12 - Fully Loaded

  "There are three kinds of lies: lies, damned lies, and statistics." Mark Twain

"I can massage data so well - you will think I have two dicks. But in reality, I am just a pussy"  iBergamot

Pseudo-statistics. What a beautiful little concept to sell endless trading systems and methods to muppets. Doesn't work for you? O, its just human nature - you are a flawed mother-fucker. And lazy too... didn't do proper testing. Testing... TESTING... Why are you people testing random shit? Why is this kind of candle-stick after that kind of a stick, so many sticks from some other fucking stick should mean anything to stick +1? These people are mad scientists. No wonder they always seems to blow up. Some system...

Index. I have an INDEX!  Mega Dozen (MD) is essentially an index of very best, biggest, most liquid, multinational, profitable, dividend paying corporations. Not my opinion. Market voted, I just added some filters and guidelines. No manipulation here, no scam, no agenda. My System 12 is not some cockamamie  index of stocks - its a collection of the best companies money can buy. Really

System 12 BCM:

Although S12BCM has 13 positions as of 3/25, I don't count it as Leveraged Period (LP) yet.
RDS, GE from MD; and NVS, PFE from SD are very close to stop
This starts the most interesting period in System 12.
Based on rules, I must buy any newly qualified and available MD stocks, even if I have 12 positions on. This will start LP.  I cannot buy any more SD stocks, unless I have less than 12 positions on.
System 12 BCM is Fully Loaded!

BOT:   PG on 3/17;  WMT on 3/21; AAPL on 3/25; XOM on 3/26
SLD:   GOOG on 3/24; AAPL on 4/7;   PFE on 4/7
DIVI received: RDS, MSFT, JNJ, WFC


This is MD:

MD Control: PG replaced with JPM
I don't have XOM, GOOG, PTR (still disqualified by a smidge)
GOOG changing shares: Apr2 last day Ashares; Apr3 starts classC; Apr8 settlement
 RDS  not sure when earnings. Year end in Dec., results published in March?
BRK annual report in Feb-March?

This is SD:

I have: PG, PFE, IBM, NVS
CVX disq under 118.50; HSBC drops to #18 (disqualified); new addition ORCL!
VOD removed.

Sunday, March 23, 2014

Bergamot Soap

I am deeply non-religious person. It doesn't mean I don't  believe in god. I do. Not a man in sky, of course... lol.
I believe in Equiponderance. Time and time again I observe how my actions and thoughts being balanced somehow somewhere by equal force, to offset me back to even. The Great Equiponderator is all around me, at all times... watching, listening... working its magic. He doesn't love me, nor he is out to get me. He doesn't care. All he does - keeping shit in Balance.
May be I should call him "it"?

How did my wife knew about bloody, muddy mess? How did she found Bergamot soap? Why would she buy more expensive soap, when we fast running out of cash? I love that soap. I need it.
Great Equiponderator.


Short Term S&P 500 Futures Trading.

No, I am not calling it a scam.
There is important and very real purpose for index futures. There are many methods for day-trading ES, some better than others, some fully automated. I thought a had a good one (System 11), but it didn't withstand real world conditions. A major contributing problem is my inability to act fast, decisively and purposefully on very short term time-frame. I have to admit, that i am completely unable to day-trade. I have to make peace with this fact, and walk away while I can. Knowing what I know now, I can see a '2010 disaster' coming fast towards me. I'll be damned not to do something about it.

Fishing Expedition (link) costed me a bit over 10%.
These type of losses (in dollar terms) would be quite trivial in an account 4 times the size, but for me - this is gargantuan and totally unnecessary at this time. What went wrong? Bunch of things, starting with weak execution for picking minor index bottom, mix-up of different time frames and too much leverage. Based on my notes, I observed bottom +/- 10points, but failed to act. Stops costed me too much, most of stop-outs where absolutely pointless. Multiple enters bled my account, as I was demoralized and in physical pain. My back is killing me, I have bruises on legs, and my biceps are so constricted I can't stretch my arms. How can man be so hurt from sitting in comfortable pleather chair? That's capital management for you, suckers...

Technical Analysis (TA) of  price charts is not a scam.
Most of basic and time-tested (by me) general principals of  TA work. Really. Especially so on individual equities charts. Really. This is where true investment interests are being displayed, buyers and sellers come to vote and bet on future prospects of companies and industries. I see them often. They leave familiar foot-prints all over price plot. Over the years (and quite consistently) I was able to properly interpret price/volume patterns, capitalize on many opportunities by following 'bread crumbs'. Again and again I benefited from investing and trading in real industrial stocks and commodities, as well as most forward looking, revolutionary companies. Trading active, fashionable stocks that are tied to the future (Darvas, yes), based on common sense and certain set of long/intermediate charts (aka Matrix). Buying and holding for a meaningful swing, with goal of riding a long and persistent price trend defined by Investment Theme.

TA works great on most individual equities, not so well in sector ETF's and mutual funds, and fails completely on broad indexes. The more I think and research, the more I am sure that the whole purpose of 'index' is to avoid Technical Analysis of price chart, rendering any attempts to time and analyze it pointless most of the time. I have a theoretical and philosophical base for this in a form of 'Dow Paradox' and 'Map is Not a Territory'.
I believe its true. Really.


Thursday, March 13, 2014

Fishing Expedition

I've been mulling over some philosophical concerns in  "Map is not a territory" post (link) about a month ago.
I ones heard someone comparing market to a puzzle.
A trader works on solving the puzzle, and every time he finds the piece that fits - he receives a prize token with a small monetary value. But I think there is a twist to this story.
You see, when trader goes to sleep... Santa Clause comes and rearranges portion of the puzzle, takes some pieces away and throws in some new ones. His origin is a secret, his reasons are unknown, his logic is moot.
I don't complain. I love the process of solving the puzzle and enjoy them prize tokens. I'm just a little leery of bearded motherfucker... that's all...;-)
Molecool disagreed, as he compared market to hunting:
 You don't care about which way the herd will run. You simply wait for an opportunity to tear into one of the laggards.
Now that is a bit too violent for me, I am too mellow for this kind of metaphor.
I don't even like hunting.
If there is a comparison to animal kingdom, I would go with Leo Cooperman's:
It doesn't matter whether you are a lion or a gazelle; when the sun comes up you'd better be running
Personally, I like to think of stock speculations as fishing...
First of all, fisherman needs a good spot. There is no way of knowing what lurks beneath murky waters - experience and bit of common sense goes a long way in picking a proper location. Preparation matters a lot - gear, bait etc. Gotta go out early ahead of time, to be ready for sunrise. Still, there is no guaranty that fish will bite. All the worms in a world will not help without a bit of luck (try back-testing that... lol).
Patient and skilled fishermen will not go home empty-handed (most of the time).

With that in mind, I embarked on a fishing expedition to pick a minor bottom in SPX via futures (amongst other things).
This is a really weird contract roll, btw. Open interest (OI) is very high still, considering that July will become front month today. It is my own theory, that high OI is indicative of large short position in ES futures. Even after a couple of days of heavy selling, March OI is still over 3mil. How these people are going to cover? They are out of time.
Most surveys show very low or even extreme low in bearishness, which is usually indicative of market top. Usually... After a 5 year bull market one wouldn't expect to find many bears. Not vocal one's, anyway...

I drew a crayon for SPX a month ago, exactly on a day of the bottom here (link), after a 6%ish correction. 1850 high was taken out and will act as support. If the is no overlap, then this market is even stronger that it seems. Fib target from that chart is 1898. My point-n-figure targets are 1974-1978, followed by 2115 (what?)... Lets first get to 1890, then we will see.
I am using System 10, designed just for this condition - a correction in major trend, with entry technique by System 11. Combining the two was a really good idea, as it takes care of major problems for both. System10 often suffered a draw-down, but never had a losing campaign. System11 never had a major loss, but often ends break-even or worse.
Fishing expedition is in progress. Hope I don't fall face in a mud.

UPDATE 3-22-2014:
 Everyone has a plan until they get hit in the face. - Mike Tyson 
Turns out mud was the least of my problems...
Under it was a sharp stone - I got blood and sweat, and mud all over my face
Bruised and humiliated, but not on my back... far from it

------------------------------IN THE NEWS--------------------------------
Ukraine, Crimea, Putin, war, Maidan, pipelines, Black Sea, 15 Billion, corruption...
So much talk, when really its all very simple. Ukraine borrowed 15bil, not its time to repay, but they are broke. Somebody (cough...Putin...cough) will give the money. Somebody ( Ukr government...cough) will steal some of it. Problem is - there is no functional government in Ukraine. Solution - its Jews fault... what else.

Overall - there is no news. Nothing! I don't watch much TV anyway, but things usually get to me somehow. Not lately. So I've been flipping thru channels, and also on a radio, for a couple of days - but there is nothing!. Little bit here and there, but mainly we don't have economy, politics, foreign affairs, scandals, scams, crimes or unemployment.
We have pleasant, giggling, mindless stories about nothing

Tuesday, March 4, 2014

System-9 Asset Allocation

First of all, congratulations to iBergamot:Bergamot Capital Management (BCM) is fully operational!
I need to change my slogan. "Working full time; Trading the rest of the time" is no longer true.
Also, I really don't need to keep this blog going, but will anyway.
My journal helped me on several occasions.

System 9 account grew significantly lately, and now can hold over 30 positions of my standard size. I was thinking about increasing position size, but decided to hold off. Rather I want to classify my holdings by asset type, in order to keep each segment from growing too big.
OTOH each active theme in System 9 should be represented by meaningful investment.

3 full positions is approximately 10% of portfolio.
Investment Theme that doesn't have 3 (full or half) positions on will not be classified separately, but will go into one of following groups:
- Industry. 
   Stocks/ETF of Real Stuff, producers, manufacturers etc that make things and use stuff.
- Other Stocks. This section presently holds DVA, GEO, MHFI, YELP - like I said... other stocks...

Industry       23%
Other            9%
PM             22% (precious metals and miners)
Agriculture  18%
International  9%
Shippers       8%
Marijuana     4% (I sold more than half from LB account)
Cash less than 10%

I have most of these (few that i don't have - i am looking to buy)