fickletrader journal

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fickletrader

Reading Brett Steenbarger's blog last night I followed a link to a book "Talent Is Overrated". Reading the amazon book reviews convinced me of the benefits of coaching. It is for that purpose that I am undertaking this journal. By making daily updates of my thoughts, practice routines, progress, and fumbles, I hope to build an archive that qualified people could use to provide coaching feedback.

In the past I have shunned interaction with coaches and avoided openly writing about what I am doing because I would be inviting competition. Now I realize this is only a problem if I stop innovating, and the potential benefit far outweighs the downside. For this reason I am willing to put almost anything on the table for discussion except where I might be putting my business partner at risk.
 
Here is my current "ideal foundation daily routine". The idea is to conform to this foundation routine as closely as possible each day.

Sleep 7 hours (or more)

Start with exercise:
* pushups
* situps
* dumbbells squats-to-shrugs
* dumbells shrugs
* dumbbell curls
* jump-rope
* repeat...

Breakfast:
* Drink a Boost
* Have a vitamin C with water
* Scan financial news and quotes (no forums)

Daytime:
* Drink 4 or more green teas.
* Eat salad for lunch as often as possible.
* Snack lightly as desired from mixed nuts, granola, fruit, dark chocolate, energy bars.
* Spend 15 minutes outside.

Evening:
* Red wine instead of beer
* Take vitamins & supplements after dinner
* Drink 1 (or more) decaf green teas
* 15 minute "retrospective" to develop and innovate deep practice routines (written)
* 15 minutes updating journal (for coaches)
* Floss teeth
* Read 1 hour (or more) of non-fiction
* Go to sleep as early as is reasonable
 
I had read a post recently on Zero Hedge about the S&P and treasuries moving in the same direction in response to the debt ceiling drama. This is the opposite of the extremes that we saw during the 2008 crisis, where treasuries soared and the S&P crashed.

I wanted to investigate this a little further and look at the history of correlation and movement in the same direction between the S&P and the long bond. Yesterday I grabbed some historical data and did some crunching in excel. The results are attached to this post in an excel spreadsheet. From this cursory analysis, my conclusion is that we just had 6 days of movement in the same direction (broken today), and it doesn't seem out of the ordinary at all. Perhaps my analysis is missing some critical component. This is not yet actionable, and certainly not the phase shift I was looking for. Perhaps adding gold into the analysis will reveal something important.
 

Attachments

Market results for the day:

Trading bot: +1.6%
(compare to +1.35% for S&P 500)

Discretionary:
EUR/AUD at 1.3312, my position is short (for a carry trade). Nothing to note here other than the size of the trade is big enough that I watch it closely.

Silver is down some for the day. I have a lot of physical silver and a long position in AGQ.
 
I am not a full time trader, I am a Java programmer. This is an important context for this journal. I have a complete custom backtesting and live trading platform that uses Interactive Brokers API. I turn on the bot each morning and it trades the New York session. All the data for that day is captured and I can replay the day in backtesting mode with an accuracy that is good enough for my purposes.

I can be a better automated trader by being a better position trader, so I do both. Let's compare the strengths and weaknesses of automated vs discretionary trading:

Automated trading pros: Trading ideas are quantifiable, testable, and deterministic. Many ideas can be simultaneously implemented. High precision trades can be made on subtle data changes.

Automated trading cons: Estimating transaction costs is difficult. Obtaining accurate and relevant data sets is a considerable constraint. Bugs in trading systems and platforms can be costly. Computer crashes can be very costly. Automated trading is usually low-margin and high volume, thus often highly leveraged. Trading system death is a slippery slope that often involves human intervention when the "uncle" point is reached. Trading systems are often vulnerable to black swan events or market phase shifts.

Discretionary trading strengths: A concept does not need to be quantifiable to be tradeable. Trades can be implemented on new investment vehicles just as easily as old ones. Monetary and fiscal policy can play a much larger role for a discretionary trader. Positions can be taken that last months or years without worrying about if there is enough data to backtest the idea. Fundamentals such as a company's management or industry experience can be a factor for taking a trade.

Discretionary trading weaknesses: A trader has limited time for fundamental research. A human cannot "high frequency" trade or make the market for multiple instruments easily, if at all. Human judgement is not consistent. There are dozens of psychological factors that come into play for a discretionary trader and are usually amplified by trade size, leverage, trade frequency, and portfolio volatility (HEAT, per Ed Seykota). Minimizing these factors can bring comfort, but is far from optimal.
 
Quote from fickletrader:

Here is my current "ideal foundation daily routine". The idea is to conform to this foundation routine as closely as possible each day.

Sleep 7 hours (or more)

Start with exercise:
* pushups
* situps
* dumbbells squats-to-shrugs
* dumbells shrugs
* dumbbell curls
* jump-rope
* repeat...

Breakfast:
* Drink a Boost
* Have a vitamin C with water
* Scan financial news and quotes (no forums)

Daytime:
* Drink 4 or more green teas.
* Eat salad for lunch as often as possible.
* Snack lightly as desired from mixed nuts, granola, fruit, dark chocolate, energy bars.
* Spend 15 minutes outside.

Evening:
* Red wine instead of beer
* Take vitamins & supplements after dinner
* Drink 1 (or more) decaf green teas
* 15 minute "retrospective" to develop and innovate deep practice routines (written)
* 15 minutes updating journal (for coaches)
* Floss teeth
* Read 1 hour (or more) of non-fiction
* Go to sleep as early as is reasonable
More...

I am fumbling on a few of these points. So far this week I need to improve:

* jump-rope
I haven't done jump-rope this week because it is sweltering hot outside. I should try to get up earlier in the morning to avoid the heat.

* Floss teeth
I've been going to bed too late so I have been skipping this.

* Go to sleep as early as is reasonable, sleep 7 hours (or more)
Sunday night I stayed up until 1:30am to code up a system idea. Like most ideas, it did not do well in backtesting so we cannot use it, and my sleep schedule has been off all week. For me, it seems like getting a 5 hour night of sleep causes me to sleep less every night after that. The best explanation I have is that I feel unproductive the next day, so by the time I should be going to bed I feel like my day isn't complete, that I still need to accomplish something substantial before I can let myself sleep. I hope to short-circuit this issue by letting 7+ hours of sleep be my accomplishment =)
 
Quote from fickletrader:

I am fumbling on a few of these points. So far this week I need to improve:

* Floss teeth
I've been going to bed too late so I have been skipping this.
More...

I floss while in the shower, while doing squats (multi tasking)! Also, you may be interested in "oil pulling". I am not sure of all the reported health benefits, but it sure gets rid of morning breath, and makes the gums and teeth feel clean.

I do pull ups, pushups, back bends, and stretching before bed. It really helps relax the muscles, by relieving daily stress.

I'm also a big tea drinker. I prefer high mountain oolong.
 
Quote from Rol:

I floss while in the shower, while doing squats (multi tasking)! Also, you may be interested in "oil pulling". I am not sure of all the reported health benefits, but it sure gets rid of morning breath, and makes the gums and teeth feel clean.

I do pull ups, pushups, back bends, and stretching before bed. It really helps relax the muscles, by relieving daily stress.

I'm also a big tea drinker. I prefer high mountain oolong.
More...

Flossing while in the shower is a great idea! I'm very slow at flossing and I think that could really speed it up for me.

I've never heard of oil pulling, but I just looked it up. It sounds like something I will try.

Regarding tea, I'm specifically after the health benefits of green tea. Perhaps other teas have some of the same benefits. I've heard oolong is healthy, but I only tried it once and didn't like the taste quite as much.
 
I wanted to talk about allocating capital inflows. This is something most people deal with in their household but don't necessarily put much thought to.

I spent some time working at an insurance company and one of the big subjects of the quarterly meetings was how much income the company had that quarter. The people running the company were far less interested in the mark-to-market value of their portfolio than they were with the level of income they were getting (from insurance premiums and portfolio yield) and how they were going to allocate this income. My household has a similar situation to that business, but I was putting far too much emphasis on the mark-to-market value of my assets.

Following a series of logical conclusions, we come across a lot of interesting ideas.

* I think people have high portfolio turnovers when they are allocating their inflows incorrectly. Buying and selling with a high portfolio turnover is like a bull in a china shop. This was the case for me. High portfolio turnover is bad because it requires you to make an unbroken string of correct decisions in order to get ahead. Think of the probability of flipping a coin and getting heads 3 times in a row. It is 12.5%. If you only have to flip once, your odds are 50%.

* A capital inflow must be dealt with. Letting the cash pile up is a position and needs to be thought of that way. This idea puts cash into the spectrum of possible positions that should be evaluated instead of just a 'stand-by' position.

* The closest thing to a 'stand-by' position isn't cash, it is physical gold. When it is readily available, the market price for physical gold makes a much better unit of account than a currency. Using dollars as a unit of account for pricing assets is a relic left over from when the dollar was pegged to the price of gold. A floating gold price effectively floats the income streams from "fixed income". While they may be fixed in nominal terms, the "real" income may differ substantially.

* We want to trade our capital inflow for an asset that is trading at a low valuation. Put another way, we want to buy what is on sale at the time of our capital inflow (usually an income stream).

* Looking at monetary policy can give us a good feel for what kind of "real" yield we can expect in the future. A quick rule of thumb is that a steep yield curve (or loose monetary policy) indicates a falling "real" yield from fixed income, and an inverted yield curve (or tight monetary policy) indicates rising "real" yield from fixed income.

* Putting gold in the denominator instead of dollars when evaluating prices lets you compare prices on a more absolute and stable scale. This is simply asking how many ounces of gold it costs to buy an asset. Using dollars for this purpose is flawed because the historical price context is hugely distorted when the gold price is floating.

* Borrowing to buy more of an asset because it has an extremely attractive valuation is effectively allocating future capital inflows at the present time.

I expect to be writing a lot about what I do with capital inflows in this journal.
 
My package from the US mint came yesterday, it is the newest 5 oz silver coin from the "America the Beautiful" series, the Grand Canyon coin. As fun as it would be to have a look at the coin, I have already committed to selling it, unopened, for a $50 profit to a coin collector. So tomorrow morning I will be visiting the local coin dealer.

I will probably bring enough extra cash to roll the proceeds into a 10 oz silver bar. The price won't change over the weekend and they are quoting $417 for the bar right now. My 5 oz coin will sell for $335, so I need to bring an extra $100 cash. After this purchase, my wife and I will have accumulated 410 ounces of physical silver.

I am bringing my 2 year old son, whose birthday was last Sunday. He has some birthday cash he can't wait to buy some coins with. He says, "coin store? coin store?" He has enough cash for a 1/10'th ounce gold coin or 4 silver 1-oz coins, so we'll see which choice he makes :D
 
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