Progress Reports Here

Progress Report 23

Whatever you think you can accomplish is but a function of what you at the moment know.

I do not think I have come across a more powerful statement that that one. Every day that passes by, I am more and more humbled by all the things I discover that are out there just for the taking. Like, today, I set out with a plan of doing all these amazing things in Python and, as such, I started doing some research regarding the current state of Python in Finance. Suddenly I am browsing the website of a guy that has spent years, if not decades, coding all this shit up. You can see everything here in DX Analytics (https://dx-analytics.com/). And it is free access, open source, there, for you, no strings attached. People are just fucking amazing. So, yeah, good progress on the programming bit today, since the Python library I previously referenced (DX Analytics) has reduced the amount of work I need to do by several orders of magnitude. And I am just getting started; imagine all the things that I will have learnt a year from now. And all the possibilities that wil open up…

Besides programming, I spent some time in mental mathematics. I managed to go all the way through the multiplication strategies except for ‘factoring’. I invested a good 60 min, 90 min on that but I find it increasingly entertaining. Like, yeah, this is what my life has come up to: I derive now more pleasure from doing quick Maths in my head, than watching Netflix in my bed. Oh, and I gave up Spotify a few days ago, by the way. I deleted it from my phone, as I found it too distracting. It was robbing me of my ‘headspace’ moments, where I normally have time to meditate on the actions I am currently undertaking. Mathematicians will probably understand this best, but many of the best ‘aha!’ moments occur when you have some downtime to meditate and not necessarily when you are undertaking action. By deleting Spotify, I hope I will be able to cultivate more of those moments.

Eyes on the prize: those >40% yearly returns.
 
Progress Report 24

Today was programming day. I spent a bunch of time this morning understanding the iPython console and reading a couple of weeks of how to code for finance for python. They had to do with some simple topics like plotting and retrieving financial data from online sources. But then also more complicated topics such as quantitative models for asset pricing.

Besides that, I had a couple of long conversations with friends explaining them how I want to build my trading strategy. I used them as sounding boards to understand better what I am doing, and also to gather some feedback. They are also involved with Finance, so they had good points to look into. One of them will start working for a fund in a couple of weeks and the other one is trying some momentum quantitative investing strategies on his own. One of the main insights we agreed on is that we do not need to make it complicated; that will just lead us to unwarranted confidence. And that is what lead to 2009, remember?
 
Progress Report 25

Slow day today, same as yesterday.

I have just not been able to concentrate well the last two days. Specially with the programming part. I am just jumping around a lot and thinking about new things, discovering new things. On the one hand, I enjoy it because I can get into ‘flow’ mode and just lose myself on it. On the other hand, I feel that I just postpone the actual core actions that I need to put in motion due to these ‘trips down the rabbit hole’, to put it in that way.

I believe that I way to make my practices more efficient is to set up clearer goals. I have mentioned a few entries ago the three main things I am trying to achieve, but there is a lot of wiggle room that qualifies as ‘working on it’. This leads me to inefficiently allocate my time. Therefore, I am coming up with more specific subtask for each goal as follows:

Learn to read momentum and trends from price movement. Currently, I’m dipping my toes in the water of technical analysis (charting), but there might also be some interesting programming ideas to assess trends/momentum.

  • Finish reading the book the visual investor (deadline: 15 days from now). This is active reading, whatever I see in that book, I am going to try something similar in tradingview. Of course I am not testing all strategies, but the ones that seem most promising.
  • Finish reading thereafter the book Ichimoku clouds. (dd: 30 days from now) Thereafter I will draw Ichimoku clouds for at least three assets with 4-week, 20-week and 52-week time horizons. Doing this will allow me to familiarize myself better with visual investing and price movement evolution.
  • After the above two are completed, I will probably look into momentum screeners based on e.g. moving averages. I will see then.
Write a fully-fledged program to decompose the anatomy of a covered call.

  • Write a python class for the covered call with at least five functions regarding how the covered call can yield you profit.
  • One of this functions needs to be the rolling strategy. e.g. writing a covered call monthly for 6 months, with a delta of xxx would yield you xxx in income.
Make a option trade with my own money

  • Allocate 4% of your portfolio to a momentum-based strategy where you make use of moving averages and recent events to assess potential profit. These position will be held between 3-7 days, but preferably not over the weekend. It does not need to be incredibly complicated either: it can be longing a stock as well. I will set up a pre-determined loss rate and a tracking stop-loss at 5%-30% of the investment, depending on its volatility.
 
Progress Report 26

With the goals I set up yesterday, I was able to make some good progress on learning more about momentum strategies. Right now, I am looking at different indicators, how they work and eventually how to apply them.

Not a lot to write about, unfortunately. I also was not able to put a lot of time into, which I regret.

A nice development is that I got admitted for an ‘e-house’ day from a prop trading firm in Amsterdam. This is one that is focused in options, but they do not make money necessarily from ‘trading’ but from market making. But I guess you could see market making as trading. In the end, it is a strategy that has tons to do with scalping, and that one is considered trading. In the ‘e-house’ day, we will have a case, will have to come up with a solution and then they will probably tell us about the opportunities for the working positions they have available.
 
Progress Report 28
Bearish Wolf

I spent a big amount of time today working on the programs for Python, at least putting time in the preliminary research phase. And, well, for all the buzz surrounding Python for Finance, I still cannot for the life of me find a package that has already implemented the calculators for different options strategy in a simple to use manner. Most of the packages have a very academic focus, so it is not straightforward to apply them for active trading. Of course, that is not to say that they are not valuable, but it does mean that there is still loads of work to do in this regard.

Moreover, I spent more time looking at charts and trying to understand how traders use different momentum indicators. I am doing this by reading the book ‘The Visual Investor’ and also by just googling around ‘technical analysis for momentum trading’–mostly by googling around. Still a bit fuzzy, all of these concepts, but I am starting to make sense of them. At least looking at bar graphs and candlestick graphs is not as confusing as it was at the beginning.

I used these candlestick graphs to see whether some of my observations regarding the markets were correct. And it seems like they are, so I placed some trades based on my hypotheses. So, what I am seeing is that people are pricing in a recovery, and, accordingly, prices of stocks that had been beaten up are starting to jump back up. Case in point, the surprise recovery of BA with a jump of 11% today. At the same time, since the lockdown seems to have been overdone, and apparently reaching its end, investors are not as interested anymore in the ‘stay at home’ securities such as ZM and WORK.

So with that hypothesis in mind, I placed two bull spreads on BA and LULU. These two stand to benefit from the ‘lock-down is over’ sentiment. I also placed a bull spread on AMZN, but due to a different reason: it is a trade based on sentiment, regarding on the recent statement by Jeff Bezos that ‘Black Lives Matter’. And well, leftists love those type of statements by rich white males (just look at all the recent <3 for Romney after he went to protest in Washington). And given that our media is 90% run by leftists, expect to see journalists lauding Mr. Bezos in the following days. Hopefully, that should have a positive effect in the price. (And at the same time make people forget all subpar conditions of Amazon workers…)

I also opened three bear spreads on ‘work at home’ stocks, as I expect them to see a correction, since people are out of their lockdown mindset. The bull spreads are on ZM, SHOP and WORK. Although the price charts of all seem to show a downtrend, this was not as apparent as the bull trend with the stocks in which I traded a bull spread. ZM in particular is one I will play close attention, since they have been crushing it in their performance metrics (e.g. free cash flow), and I just basically shorted a winner. Oh well, time will tell.

Note, by the way, that all these trades are on paper trading.
 
Progress Report 29

Bearish Wolf

Two interesting things happened with the trades today. The first one was that the price of Boeing crashed and consequently, my bull spread lost money. However, I cut my losses at 25%. I think it was important that I was not obsessed over that small loss, and managed to close the position at a relatively small loss. What I want to do, but I still have not figured out, is how to put stop-losses on my trading account. This would save me a lot of time, and facilitate a lot of the strategies that I have in mind, as well as systemize my decisions. For example, here with BA, I could have defined a -20% downside and let it be automatically carried out. Although I think that an algo. would be a better idea. Even when the price is crashing, there seem to be small reversals which would provide a better exit opportunity. Something to explore.

The other nice trade today was a bull spread X long call on AMZN. As you remember, I mentioned yesterday that I thought AMZN would rally today, based on good press surrounding Mr. Bezos. And well, I don’t know whether my reasons were correct or not, but the price rallied today. As of 15:38 NYT, it had rallied 3.72% from previous close.

So I was looking at the position of Amazon in the morning, and I saw that my bull spread had hit its maximal profit. But I was also following the price action of AMZN with a simple candlestick chart. And it did not look like the rally was stopping. So what I did was to close the short position I had on one of the call legs of the bull spread so that my position could benefit on the price increase of AMZN. And, boy did it work. Over the following half an hour, I managed to gain a lot more profit than what I would have if I had kept the spread untouched. The short position that was previously dragging me down had now disappeared, and my long call was rallying with the stock. I was a bit excited/nervous to take my profits, so I tried putting a limit order with a higher 10% upside, but my broker said that only a 3% upside could be submitted. Not really knowing what to do, I put that 3% upside limit as my sell order, not taking into account that the stock could have a lot more space to rally. That was a mistake. The price of AMZN kept on pushing upwards and I was stopped and my call was sold. It was sold, even when there was still a lot of momentum going on. :( For comparison, I sold when AMZN had climbed 2.5%, and it is now at +3.7%; I should have waited. Here, what I think would have incredibly helpful is a trailing stop-loss. If I had managed to lock my profits but still allow the price to go upwards, I could have continued managing my risk AND benefitting from the upside. This is for sure something that I will look how to implement, as a lot of money was left on the table today. But, in any case, it was not a bad trade. On money invested, the return was 117%. That more than makes up for the losses of BA at the beginning of the day.

For the other four positions, the following holds: WORK and ZM positions have barely changed, but I am seeing there an upside. SHOP bear spread is down. It kind of seems like shorting this market is not a good idea. Good to note that overall this day, I was up. Specially due to the AMZN trade.

Besides the trades above, I spent this morning coding. Finally actually writing some lines. And it is going well, I am making some progress and these are tools that I will definitely be able to apply with my trading; I am building them that way.

Note that these trades are still paper trading.
 
Progress Report 30
Bearish Wolf


So many things happened today, but due to time constraints I will keep it short.

The main highlight was the e-house day with one of the prop trading firms here in Amsterdam. They specialize solely in options, so it was right up my alley. The in-house day was for us (students) to gain a better insight on what their business is, and to talk about the opportunities they offer.

And it was amazing. I kind of fell in love with them. Here are some of the main insights I gathered:

  • You do not be to be directional to make some money. There are ways in which you can hedge your option to the prices of the underlying to focus on only the other 4 factors that make up an option.
  • Having good data is key. Many public data sources exist, but they still collect their own and they clean it thoroughly to be able to make good use of it.
  • More than 7% return on capital invested is possible. (But we knew this already…)
  • Algorithms need to be programmed with an incredible amount of redundancies so that you are never in a position where you could lose a big chunk of money in your portfolio.
  • Human are very crucial in the process. Everything simple is automated, the complex things are the ones that are automated. That is, you use the machines as aids for what you want to achieve. Think of it as you being a cyborg trader.
 
Progress Report 31
Bearish Wolf


So many things happened today. And not the best ones. Let’s start: markets crashed today. Given that I had three bear spreads and one bull spread, you would expect I did well. Well, I did not.

So this is how it started. At the beginning of the day, I was long a bull call on LULU. At beginning of trading, I submitted a market order to get it off me because given that LULU is retail, conditions did not fare well for her. This was a good call, since I sold that position at break-even. Didn’t lose any money on that.

Next, I observed that although all index futures had been down, all prices for ZM, WORK and SHOP were bid up at the beginning of the trading day. I think that this was from trades that did not happen the day beforehand; the fumes of yesterday’s euphoria. Anyhow, here is where some bad decisions happened.

Firstly, I decided to close WORK at break-even approximately one hour after the market opened. I have followed the price of this stock, and I know that, on average, people are bearish on this stock. I should have waited instead of selling because the stock did go lower throughout the day, and I could have made some profit. Secondly, I decided also to close SHOP. Same thing as with WORK happened, lost money on that but waited would have made me money. Thirdly, and this might be the most interesting one, I decided to close one leg of the bear spread on ZM in order to have a long call. Later I closed this leg to close the position. The idea behind this last one was to capture the momentum of ZM in the upswing. Very bad idea, since the price tanked later in the day.

So why did this things happen? Firstly, I was in a rush and that was my own fault. All these spreads were expiring on the 12th (tomorrow), so I decided yesterday that I would close them today. Not a good idea. Two things wrong with this: (1) I should have bought spreads with longer time horizons (these were like one week time horizon); definitely something to take into account next time. (2) I let my emotions get the best of me. I had no defaults to go back to, so I was just going through the motions and doing what felt right. This is really difficult to master, and I need to set-up beforehand a stop-loss or an algorithm to stop me on the downside. The upside I can manage, that seems not to be an issue. But with risk management, I need to come up with a set of rules that will protect me from myself. And patience, that is the most important thing. I was not patient enough. It is incredibly psychological, though. I did feel the voice in my head saying all kind of things that threw me astray. This is not a wrong per se, the little voice is signaling you which things you are doing wrong. It becomes a problem when the little voice’s concerns dominate your actions.

Some other general commentaries:

  • I am not ready yet to trade in the real markets. There is still so much low-hanging fruit that I can gather from doing paper trading, that it seems irresponsible to start playing with my own money. Today I even had some execution mistakes because of pressing the wrong buttons in my broker platform.
  • I am also seeing that, retracements are a real thing, but they do not mean always a change of trend.
  • And the final one: you can’t allow volatility to have so much influence in your decisions: prices do not move in a straight line.
At the end of the day, I opened three new bull spreads on ZM, MSFT and XOM. This time I did buy them with a time horizon of one month from now. We shall follow these three little ones and learn from them.
 
Progress Report 32
Bearish Wolf

A lot of action happened in the market today. At the beginning of the day, it started rallying, but then it lost momentum and finished a bit lower. However, the SPX still higher than yesterday by less than a percentage point. The bear spreads I am holding did not move a lot. MSFT is down a bit less than 10%, as well as XOM. ZM is up by 4%. Since these are highly leveraged, these movements are not significant. This is just vol.

Besides following the markets a bit, I spent a bunch of time reading on the theory of options. I started with the book by Sheldon Natenberg, "Option volatility and Pricing", after it being recommended by one of the recruiters at one of the option trading firms. And what a God send. There is so much information on how to understand options, and there is even a chapter devoted to the spreads that I am trading! For example, how the bull spreads and bear spreads work and how the different (main) 5 factors affect them. I am definitely going to invest some time on it to understand it better. This detour towards option pricing stemmed from me trying to code some pricing models on Python and realizing that I was way over my head and I needed to step back a bit to understand the basics first. Sure, I could implement a model that just spits out numbers, but that’s no help if I do not understand the intuition behind it.

Besides that, I am slowly wrapping up many of the things I have for university, but I see already that my devotion to options this week is way higher than the weeks beforehand. Thanks, mainly, to having already finished my thesis and other assignments. I still have a couple of exams to go, but I can tackle these easily.

For tomorrow, the weekend, I am not sure what to do in regards to options. But I will probably spend some time chewing the book by Natenberg. Moreover, I will go through some of the messages I have received in EilteTrader and plan some trades with those.
 
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