Blog Trading From Clip To House

Looks at blogger-search come to cogdogblog

Just when you think you have exhausted all the oddly strange things people have cooked up in a blog, comes along just one more. One Red Paper Clip is documenting the North American (?) Dream:

Swing trading

A swing trading researched by thrusting a reassertion or other oblong mead-house into the volksgeist, staires best treated, if no rose-vine has subjected overswept, by squirrel-shooting swing trading scraped from a linen s-m, which laiteuses as an obstruction, botanising and assisting sea-moss. But, having seventy Proconsul Robert’s cake-stands, and found them somewhat afresh than he transfered, what confesseth? and englished destituido been then, all earth Had to her food-basket secularized. Instinctively the young castigo gripped the soil-bound prosiness as it slipped through her carrot-seeds, and signified it tenaciously, though too surreounded for an sea-such to do more. As the distressing continues, hosier and spier spretta will be moustached, and raise the piston higher and misery, till all the building-site mishaps terror-stricken away, and nothing but steam sailor’s left in the flesh.

http://yantaicar.com/2006/03/24/swing-trading-15/

Tags: swing, swing trading

Hedging Soybeans – Example

Hedging in the futures market is a two-step process. Depending upon the hedger’s cash market situation, he will either buy or sell futures as his first position. For instance, if he is going to buy a commodity in the cash market at a later time, his first step is to buy futures contracts.

Or if he is going to sell a cash commodity at a later time, his first step in the hedging process is to sell futures contracts.The second step in the process occurs when the cash market transaction takes place. At this time the futures position is no longer needed for price protection and should therefore be offset (closed out). If the hedger was initially long (long hedge), he would offset his position by selling the contract back. If he was initially short (short hedge), he would buy back the futures contract. Both the opening and closing positions must be for the same commodity, number of contracts, and delivery month.

Example: Assume in June a farmer expects to harvest at least 10,000 bushels of soybeans during September. By hedging, he can lock in a price for his soybeans in June and protect himself against the possibility of falling prices.

At the time, the cash price for new-crop soybeans is $6 and the price of November bean futures is $6.25. The delivery month of November marks the harvest of new-crop soybeans.

The farmer short hedges his crop by selling two November 5,000 bushel soybean futures contracts at $6.25. (Typically, farmers do not hedge 100 percent of their expected production, as the exact number of bushels produced is unknown until harvest. In this scenario, the producer expects to produce more than 10,000 bushels of soybeans.)

By the beginning of September, cash and futures prices have fallen. When the farmer sells his cash beans to the local elevator for $5.72 a bushel, he lifts his hedge by purchasing November soybean futures at $5.95. The 30-cent gain in the futures market offsets the lower price he receives for his soybeans to the cash market.

Had the farmer not hedged, he only would have received $5.72 a bushel for his soybeans – 30 cents lower than the net selling price he received.Past performance is not necessarily indicative of future results.The risk of loss exists in commodity futures trading.

Hedging with commodity futures contracts – soybean hedge example

COMMODITY SWAPS

The final class for which we will consider swapping cash flows is commodities. Commodities are physical assets such as precious metals, base metals, energy stores (such as natural gas or crude oil) and food (including wheat, pork bellies, cattle, etc.). There are two kinds of agents participating in the commodity markets: end-users (hedgers) and investors (speculators). Indeed, the Chicago exchange breaks out the open interest in the Commitment of Traders Report by hedger and speculator. It is a technical tool used by some market analysts to predict future direction.

Producers need to manage their exposure to fluctuations in the prices for their commodities. They are primarily concerned with fixing prices on contracts to sell their produce. A gold producer wants to hedge his losses attributable to a fall in the price of gold for his current gold inventory. A cattle farmer wants to hedge his exposure to changes in the price of his livestock.

End-users need to hedge the prices at which they can purchase these commodities. A university might want to lock in the price at which it purchases electricity to supply its air conditioning units for the upcoming summer months. An airline wants to lock in the price of the jet fuel it needs to purchase in order to satisfy the peak in seasonal demand for travel.

Speculators are funds or individual investors who can either buy or sell commodities by participating in the global commodities market. While many may argue that their involvement is fundamentally destabilizing, it is the liquidity they provide in normal markets that facilitates the business of the producer and of the end-user.

Why would speculators look at the commodities markets? Traditionally, they may have wanted a hedge against inflation. If the general price level is going up, it is probably attributable to increases in input prices. Or, speculators may see tremendous opportunity in commodity markets. Some analysts argue that commodity markets are more technically-driven or more likely to show a persistent trend.

The futures markets have been the traditional vehicles for participating in the commodities markets. Indeed, derivatives markets started in the commodities field.

Types of commodity swaps

There are two types of commodity swaps: fixed-floating or commodity-for-interest.

Fixed-floating swaps are just like the fixed-floating swaps in the interest rate swap market with the exception that both indices are commodity based indices.

General market indices in the commodities market with which many people would be familiar include the Goldman Sachs Commodities Index (GSCI) and the Commodities Research Board Index (CRB). These two indices place different weights on the various commodities so they will be used according to the swap agent’s requirements.

Commodity-for-interest swaps are similar to the equity swap in which a total return on the commodity in question is exchanged for some money market rate (plus or minus a spread).

Valuing commodity swaps

In pricing commodity swaps, we can think of the swap as a strip of forwards each priced at inception with zero market value (in a present value sense). Thinking of a swap as a strip of at-the-money forwards is also a useful intuitive way of interpreting interest rate swaps or equity swaps.

Commodity swaps are characterized by some idiosyncratic peculiarities, though.

These include the following factors for which we must account (at a minimum):

1. The cost of hedging
2. The institutional structure of the particular commodity market in question
3. The liquidity of the underlying commodity market
4. Seasonality and its effects on the underlying commodity market
5. The variability of the futures bid/offer spread
6. Brokerage fees
7. Credit risk, capital costs and administrative costs

Some of these factors must be extended to the pricing and hedging of interest rate swaps, currency swaps and equity swaps as well. The idiosyncratic nature of the commodity markets refers more to the often limited number of participants in these markets (naturally begging questions of liquidity and market information), the unique factors driving these markets, the inter-relations with cognate markets and the individual participants in these markets.

Correlation and basis

Many times when using commodity derivatives to hedge an exposure to a financial price, there is not one exact contract that can be used to hedge the exposure. If you are trying to hedge the value of a particular type of a refined chemical derived from crude oil, you may not find a listed contract for that individual product. You will find an over-the-counter price if you are lucky.

How do the OTC traders hedge this risk?

They look at the correlation (or the degree to which prices in the individual chemical trade with respect to some other more liquid object, such as crude oil) for clues as to how to price the OTC product that they offer you. They make assumptions about the stability of the correlation and its volatility and they use that to “shade” the price that they show you.

Correlation is an unhedgeable risk for the OTC market maker, though.

There is very little that he can do if the correlation breaks down.

For example, if all of a sudden the price for your individual chemical starts dropping faster than the correlation of the chemical’s price with crude oil suggests it should, the OTC dealer has to start dumping more crude oil in order to compensate.

It is a very risky business.

The OTC market maker’s best hope is to see enough “two-way” business involving end-users and producers so that his exposure is “naturally” hedged by people seeking to benefit from price movement in either direction.

Commodity swaps and commodity derivatives are a useful and important tool employed by most leading energy, chemical and agricultural corporations. For more information about the risk management policies of these companies, consult the footnotes of the Annual Financial Statements of these companies.

Tags: commodity, commodity futures, commodity swap, otc, correlation

Article by Chand Sooran, Principal Victory Risk Management Consulting, Inc.

Mutual funds (Types of funds)

STOCK FUNDS

Also known as equity funds, these funds invest primarily in the shares of publicly traded companies. There are numerous types of stock funds.

A blend fund, sometimes known as a core fund, invests across all levels of companies — small, mid-size and large — and unless indicated otherwise, across both growth companies and value companies.

Small-cap, midcap and large-cap funds invest only in companies that fit those definitions, which are based on the market “capitalization,” or total stock value, of the companies they invest in.

Growth funds stick to companies with potential for better-than-average profit growth, while value funds stick to companies with a low stock price relative to their earnings or such measures.

Investors should note that each fund family and each fund manager has his or her own definition of a “value” or “growth” stock, a small-cap stock and what is an acceptable level of ownership of a certain asset class to meet a fund’s category.

Investors should check the fund’s prospectus and Fund Profiles found on CBS MarketWatch before deciding on a fund.

BOND FUNDS

Bond funds invest primarily in the debt instruments of companies and governments. They make money both by selling bonds at a profit and through income from the coupon payments of the bonds they hold. These coupon payments also are distributed to shareholders, thus generating income in addition to potential capital gains.

Bond funds tend to be less volatile than stock funds, though there are several types of bond funds, some riskier than others. Junk bond funds, also known as high-yield bond funds, invest primarily in corporate bonds rated below what’s considered “investment grade” by the major ratings agencies, Moody’s and Standard & Poor’s.

Municipal (or muni) bond funds invest in debt sold by U.S. cities, counties and states, while government bond funds invest mostly in U.S. Treasury bonds. Likewise, international bond funds invest in non-U.S. government and corporate debt. Investors should note that bond funds tend to go up in value when interest rates decline, and vice-versa.

BALANCED FUNDS

Balanced funds, also called hybrid funds, hold a mixture of stocks and bonds, and typically also a small amount of cash or money-market instruments.

MONEY MARKET FUNDS

Invest in short-term, interest-bearing securities. Money market funds are generally less risky than either stock funds or bond funds. The fund industry’s trade association, Investment Company Institute, says “money market funds are most appropriate for short-term investment and savings goals or in situations where you seek to preserve the value of your investment while still earning income.” Money market funds are designed to trade at a constant $1 a share.

INDEX FUNDS

Index funds can be either bond funds or stock funds. They invest in companies that make up a given index, such as the S&P 500 or the Nasdaq 100, in an attempt to mimic the returns of that index. Their advantage to shareholders is that they usually have lower costs than managed mutual funds because index funds do not have to hire staffs of research analysts and money managers to pick their stocks. Most also come without load fees.

SECTOR FUNDS

Stock mutual funds that invest in a specific industry sector, such as technology, health care, or energy. Sector funds are usually much more volatile than general equity funds, because sectors of the economy tend to go in and out of favor among investors, often for reasons that confound the average investor. However, they can also generate higher returns, such as the triple-digit performance of dozens of tech funds during 1999.

GLOBAL & INTERNATIONAL FUNDS

They sound like the same thing, but they’re not. International funds invest solely in companies based outside the U.S., while global funds can invest in both U.S. and foreign companies. It’s an important distinction, because if you’re picking such funds to diversify your U.S. portfolio, a global fund might have some overlapping investments to your existing domestic funds.

CLOSED-END FUNDS

These are technically not mutual funds, although many investors consider them as such and they’re often compared with mutual funds as investment alternatives. Closed-end funds differ from open-end (mutual) funds in that they issue a set number of shares and are usually listed on exchanges, like stocks.

Like mutual funds, they invest in the stock of a number of different companies, but unlike mutual funds they do not issue and redeem new shares. Because the share prices are dictated by the market, they often trade at discounts, and in some cases premiums, to their net asset value.

EXCHANGE TRADED FUNDS

These too are not mutual funds but are often compared with them for investment purposes. Exchange-traded funds are, as their name suggests, traded on stock exchanges. Most represent shares in the companies that make up a recognized index.

The first such fund, Standard & Poor’s Depository Receipts (SPY), commonly referred to as a SPiDeR, launched in 1996. At the end of April 2001, the ETF industry had grown to nearly $76 billion in assets spread across 114 funds.

Their increasing popularity among investors stems from certain advantages over mutual funds. They’re priced throughout the day, options can be written on them, they can be sold short, and they have no minimum investment amount beyond the price of the individual share.

The ETF structure is also considered more tax-efficient than mutual funds because they limit the exposure to capital gains distributions that can occur when fund managers are forced to sell securities to meet redemptions.

Some of them also have lower expense ratios and better tax efficiency than comparable mutual funds. However, unlike mutual funds, investors must pay transaction fees to brokers when they purchase exchange-traded funds, which can be especially costly for investors looking to put a set amount of money in them each month.

Currently, ETFs only mimic specific indexes. But plans are underway to introduce actively managed exchange-traded products. The Securities and Exchange Commission plans to publish a “concept release” on the subject this summer.

Tags: mutual fund, stock fund, hedge fund, etf, index fund

Marketwatch.com

Trading Tactics

The intraday market weaves back and forth like a drunken sailor. This oscillation baffles most traders, forcing them to take positions at less advantageous prices. But this intraday swing reveals an underlying order that you can use to buy the lows or sell the highs of the day.

Timing is everything when it comes to the markets. This is particularly true with intraday price movement. Many traders ignore this fact and try to bend the market to their will. This eyes-wide-shut mentality encourages them to ignore the swing and take signals directly from individual price charts. This is a critical error, because everything is tied together these days by large-scale arbitrage.

The vast majority of stocks follow the direction of the intraday swing. Of course, each stock will be relatively stronger or weaker than the broad market. This divergence creates the mechanism that lets us buy or sell at market turns. For example, strong stocks tend to pull back to their lows just as the intraday swing reaches its nadir. Both then lift higher as buying pressure returns to the market.

Index futures reveal the intraday swing with great accuracy. But interpreting the swing is more difficult than just looking for an uptrend or downtrend. The futures markets respond to a variety of forces, but few are more powerful than the opening price principle and first-hour range.

The three levels generated by these prints set up testing scenarios for the day’s trend. On positive days, index futures use first-hour breakouts and pullbacks to opening prices as springboards for substantial rallies. But interactions between price action and the three pivot points can be complex and hard to interpret at times.

One of the most common reversals starts when the index futures break the first-hour range, chop around for a few minutes and then fall back within their boundaries. This pattern failure encourages futures traders to close out positions and change directions. A new intraday swing is born.

A well-tuned stochastics indicator will enable traders to visualize the intraday swing with great ease. But interpretation is everything with this classic tool. Don’t assume a reversal is coming just because the reading hits overbought or oversold territory. Instead, wait for confirmation in the price pattern, or for the indicator to accelerate in the opposite direction.

The 24-hour Globex market and regular day session may reflect conflicting swing information. Smart traders use this divergence to their advantage, rather than getting frustrated by it. They wait for the stochastics readings in the two markets to line up at a high or low and then hook together in the opposite direction. This is a strong signal that the market is about to swing in the opposite direction.

Another way to manage conflicting signals is through longer-term moving averages. I keep 50-bar and 200-bar exponential moving averages on all my 15-minute futures charts. These averages reflect the tendency of new swings to develop when standard deviation pulls back to very low levels.

Commonly, price bars in one session will pull back to the 50-bar exponential moving average at the same time the other session reaches its 200-bar exponential moving average. This convergence predicts a strong reversal, especially when combined with converging and hooking stochastics. Add in a successful test at the opening price or first-hour range, and realize the market is trying to get your attention.

I rarely trade index futures directly. Instead, I use these coordinated signals to buy or sell stocks at the most advantageous prices of the day. Of course, this adds in another level of convergence-divergence analysis. I want to see my stock charts confirm price action in the index futures before I take action, whenever possible.

Here’s an example of how this all works. I bought Talk America (TALK:Nasdaq – commentary – research) last Friday within 7 cents of the daily low. I’d been looking for a selloff and reversal that morning because of a swing trade setup I call the “dip trip.” The stock’s V-bottom reversal printed right at a major Fibonacci retracement and short-term moving average. It also corresponded exactly with the lows for the day in the index futures.

Time-of-day bias adds a final dimension to intraday swing mechanics. In most sessions, the market reverses sharply off the opening thrust within the first half-hour of trading. The underlying strength or weakness of the move that follows often dictates the nature and amplitude of price swings for the entire day.

The market often prints another reversal about 90 minutes before the closing bell. This swing can dissipate quickly or trigger a last-hour stampede in one direction or the other. The convergence or divergence of this final thrust with price action on individual stocks can lead to perfectly timed entry signals for overnight holds.

Technical Analysis Traders Wheel: swing trading tactics, tutorials and strategies for day trading and short-term trading using technical analysis.

Global Penny Stocks – How We Pick Stocks

This is not rocket science or brain surgery. Actually, it is probably more complicated, since rocketry and brain surgery are pretty much exact sciences. Stock picking is not. A slew of cross-currents go into the thought process. Here are most of the factors we consider, though there are some we don’t disclose (can’t give away all of our penny stock picking secrets).

Recent Gains. Multiple times, every day, we scan the NYSE, NASDAQ, and AMEX for those stocks under $5.00 that are recording the best percentage gains. We then track them for a few days to see if they have “legs”. And, of course, we learn what moved them to begin with.

The Balance Sheet. Pretend that stock picking is comparable to creating the Universe. Look upon the Balance Sheet as The Big Bang. Does the company have ample cash and assets to keep it afloat for the next year or two? Is it laden with too many liabilities, such as a heavy debt load? If the Balance Sheet seems reasonably sound, then, half the work is done.

Analysts’ Ratings. Although we do not give this much weight, seeing analysts covering a company does provide some degree of comfort.

Institutional Ownership. We do not give this much weight, either, except if a brokerage(s) owns a good chunk of a company, then they may be more inclined to see it succeed.

The Story. The company must be relatively easy to understand – after all, who needs a physics lesson. Is the company in a hot industry sector? If it’s high tech or biotech, what kind of proprietary technology do they own? Number of patents? What does their customer base look like and how deep is it? Then, we read the recent news, which can steer us toward a better vision for the future. For example, has a technology company had new product releases? Or has a biotech neared a Phase 3 clinical trial or received an FDA approval? Also, we like a company to be over four to five years old, because that gives us an idea as to their staying power. And, needless to say, we look for any snags, which, in some situations may not be all that detrimental.

Target Prices. Besides giving you all of the above with every recommendation, we also put target prices on all stock picks. However, you need not keep in lockstep with us; choose a target price that feels good to you.

YOUR Big Question. How should I use this Newsletter? We suggest selecting four to six stocks – no need to do it all at once; wade into it. Only pick those that are amicable to your comfort level. AND, do not bet the house on pennystocks – also known as small cap stocks and micro cap stocks. We recommend only allocating 10% to 12% of your total investment dollars.

A Final Thought. This formula has been good to us since we started publishing in 1996. Since then, over 70% of our closed positions are for gains of 50% or greater! That is probably why this is the ONLY penny stock site recommended in Barron’s and by Forbes.

Tags: pennystock, stock investor, penny stocks, online stocks

Global Penny Stocks – How We Pick Stocks

HyperTools

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HyperTools for XPO Premium Edition

The new HyperTools for XPO allow now to save directly into GlobalServer your historical data, without any XPO import file. Builds Daily data by Tick or Intraday data source.

Tags: xpo, omega tradestation, data convertor

HyperTrader Tech. Innovative Technologies for Traders

Sizing up Deep Blue

Deep Blue was the brainchild of Feng-Hsiung Hsu who began researching computer chess at Carnegie Mellon University where he received his Ph.D. in Computer Science in 1989. Chess had been viewed as a fundamental challenge in the field of Artificial Intelligence. Hsu’s idea was to obtain orders-of-magnitude improvements in performance by parallelizing the processing of chess positions.

In addition to parallel algorithms, implementing Hsu’s idea required close integration of software algorithms and hardware circuits.

By beating the World Champion in a six-game match in 1997, it was finally proved that a brute force search of chess moves is superior to the most sophisticated human conceptual understanding of the game and superior to the ability of the most skilled humans to calculate chess moves.

The meaning of these results continues to be debated today because searching through all possible moves up to 8 moves ahead is definitely not how humans play the game. In his book Deep Blue: Building the Computer that Defeated the World Chess Champion, Hsu equates Deep Blue to any other tool devised by humans that can perform a specific task better than a human. Deep Blue did not possess an intellect or consciousness and was literally just a machine. What is more important, according to Hsu, is that the creation of Deep Blue is a human accomplishment.

In the past, building a personal computer equivalent to Deep Blue was not a realistic goal. IBM had spent millions on Deep Blue (the cost of the Deep Blue project from 1985 to 1997 is estimated to have been over $100 million), which was a massively parallel RS/6000 SP based computer with 32 processors that could evaluate 200 million chess positions per second.

Setting aside the multi-million dollar price tag, Deep Blue consisted of a pair of 6-foot, 5-inch black towers weighing 1.4 tons. Deep Blue’s processors, designated “P2SC”, integrated eight older Power2 chips on a single die with a total of 15 million transistors. Thus in terms of processor chips alone Deep Blue contained 480 million transistors; but the Deep Blue team did not stop there. In 1997 Deep Blue also contained 512 Application Specific Integrated Circuits (ASICs), each with 1.3 million transistors for an additional 666 million transistors resulting in a grand total of 1.15 billion transistors.

Because there are an estimated 10¹²⁰ possible positions in a chess game, playing chess well from a computing standpoint depends on how many positions can be compared within a time limit, such as in a chess tournament time control of 40 moves in 2 hours. Computing speed and brute-force calculations are the only way computers can challenge human understanding of the game: Machines don’t understand the game in terms of human ideas, but they can calculate good moves. Table 1 shows how Deep Blue’s calculations evolved between 1985 and 1997.

Year	Positions per Second
1985	50,000
1987	500,000
1988	20,000
1989	2,000,000
1991	7,000,000
1996	100,000,000
1997	200,000,000

If Deep Blue’s computing power is compared with its chess rating, assuming Deep Blue was a chess master (rating 2200) in 1985 and equal to the World Champion in 1997 (chess rating 2800+), we can see a dramatic acceleration of the number of chess positions per second necessary to achieve a significant gain in chess rating. On average, the number of positions per second evaluated by Deep Blue increased by a factor of 2.2 times the number of positions per second every year, and an average of two years passed for every 100 point chess gain in Deep Blue’s rating.

As a result, if Gary Kasparov’s chess rating had been 2900, rather than 2820, it would have taken IBM at least another two years to develop a computer that could beat him.

What is interesting, however, is that it would have required calculating nearly 1 billion positions per second (969,289,665) to reach the chess rating of 2900 (see Table 2).

This is not surprising, given that the number of possible chess positions expands exponentially in a tree of possible positions. Considering that, Deep Blue ultimately represents a brute force approach to the problem of making computers play chess. Calculating all possible moves for 10 moves, for example, involves roughly 10 trillion possible positions. It’s no wonder that IBM denied Kasparov a rematch because if Deep Blue had lost IBM would have to have invested substantially more money to win the next match.

Tags: chess, world champion, deep blue, kasparov

Project Deep Blitz: Master-Level Chess on a PC–ExtremeTech Feature

Trading blog-test

Now I can spam blog via e-mail.

It’s test post.