TheRiskBlog

Lately I saw a commercial for one of those multi-screen-computers in a trading magazine. It was about one of those systems you can use with up to 8 or 12 screens if you feel the need.

That would give you enough screen real estate to display most charts and pages on a separate screen.

But are those systems really as useful as they seem to be? Could I be a better trader with 8 instead of 4 monitors? (Sometimes I only use a Notebook for trading)

Finally we are done with 20 min delayed charts. Especially in the beginning it is quite frustrating to check out your new system using delayed quotes. What if your system is trading intraday and needs up to the minute information? Most of the times while developing a trading system there is a lot of work to be done, things need to be tested and they need to be confirmed using live market data.

Every trader wants to know whether his trading ideas are working or not. Up to now you could only do it with delayed information or End of day (Eod) data. There were just no live streaming data available at no cost.

Like the title says, Jesse Livermore explains in the only book ever published under his name his philosophy about stock trading.
Published in 1940 you could say, that all information this guy could give us is way to old to be useful in the www-communication-era.
And maybe partly this is right. The way to purchase a stock has changed through upcoming online trading, and the flow of information is much faster and there is much more information available than back in the 1920´s.
But I strongly believe, that the psychology regarding the stock market and Traders didn’t change and won’t do so. And Jesse Livermore was pretty good to handle psychological traps that occur during trading.

Being a Trend-follower and high player at the stock market, Livermore is said to be one of the best traders ever. He doesn’t only explain under what circumstances he enters the stock market, but also, what I really liked about this book, he talks a lot about how to deal with risk and about the ability to change your opinion and getting out of losing positions.
He makes clear that you can never be sure what will happen the next day or the next minute in the stock market.
But he teaches, that through watching, thinking and having much patience (!) you “place many factors in your favour”. And that’s something you can work with.

More than half of the book contains material added by Robert Smitten, who wrote a Jesse Livermore Biography, like quotes about “emotional control” or “risk management” and a short explanation of Livermore’s trading system. Although I don’t use systems from books like these, it’s never wrong to learn about different trading styles for the process of evaluating your own style and philosophy.

This book won’t be useful for a beginner to actually learn how to trade stocks, but it gives you very good advice how to manage yourself, to handle risk and very often reminds you “that the good speculators always wait and have patience, waiting for the market to confirm your judgement”.

It’s a useful book to take off the shelf from time to time after you ve read it completely, and let Jesse Livermore give you some advice.
To close with his words: “Don’t ever lose your cash boys. Keep it close to your balls!”

The following link can only be used by buyers living in germany.

I read an interesting post by David Merkel this morning over at  TheAlephBlog

I have been to the USA recently on a business trip, i visited New York and then the Tampa Bay Area in Florida. By not living in the USA permanantly i got the same view David describes in his article. The last time i visited the USA was in 2006 and compared to back then shops these days are empty, car seller lots are crowded (with cars that is, not with people) and Home Depot seems to sell nothing at all if you look at the numbers of customers shopping there at any given time in moment.

But on another note, returning to germany i do not get the same picture. Yes we are waiting on the situation developing at GM, so that we get a decision on what happens to one ouf our own bigger carmakers - the GM daughter Opel - but other than that our shopping malls are still crowded, people are still buying at the local homeowners shop and we still buy ipods and iphones (well, i guess looking at AAPL´s numbers everybody does it around the world,  no matter how hard hit by the crisis).
People talk about the crisis and of course we follow the news very closely but it looks like most business is still in normal mode.
Talking to my own car dealer salespersonal bigger companies are feeling the pressure, they cut down on free cars while your own car is in the repair center and their stock has come down to prepare for the future, but amazingly people are still buying new cars in our country. And the rebates are not necessarily great. At least for the moment.

So i think, for germany the crisis has not fully developed, which is a bad thing because as long as people still think, everything is fine, it only gets worse. We will probably see more stock prices going down in germany and we still have to wait until we finally hit the bottom.

As far as trading and investing in this environment is concerned, stops need to stay tight and we can expect more volatility in the markets. So i still have open positions but instead of having 12 open positions in an account i might have 6-8 open right now, and i do tend to get stopped out more often these days.

It is not necessary to know the next market move if the portfolio lives by risk management rules

I am sitting here at the bottom of the world famous “Eiger Nordwand” (Eiger North Face) in Switzerland with 5 open positions in my account.

How does that work as far as riskmanagement is concerned?

Well, given, this article is being written on an iPhone and having an iPhone available certainly helps. First of all i can check stockprices online, which is not a problem because they have UMTS available even here directly at the bottom of the Eiger.

But does it help to know the prices? No, because knowing the prices doesn’t change anything in my account. I need to be able to sell positions if the need be.

So, secondly i need to have a way of calling my broker to size down or even completely sell positions in the account. Only then having an iPhone available helps. Did i bring the number of my broker? Yes, i did and so should you. Make sure that you have the telephone number of your broker readily available, when you are on vacation with open positions.

But then again i’ll be hiking a lot today and it is not practicable to check my iPhone every 5 minutes, so i kind of need an extra method of how to cope with the risk of losing money in my account.

Here is what i did. I first checked the volatility (ATR=Average True Range) of every single stock in my account. I then made sure, that not a single volatility is higher then my total open profit in the account. This way stockprices can drop, but as long as they stay within their historical volatility the dropping prices can not hurt me.

Let´s look at an example. Let´s say we own 200 AAPL and AAPL shows a historical 14 day ATR of $4. That means that we can lose $800 in a single day since we own 200 of them and need to multiply our position by the volatility. 200 * $4 gives $800. If we have an open profit of - let´s just say - $2000 nothing would happen, because even if AAPL drops by its full historical volatility of $800 we still would have $2000 (open profit) - $800 (historical volatility and actual drop today) = $1200, so we´d still be in the green.
But if we only had $1000 of open profit, the drop of $800 would be too much for our account, since this would mean to give up 80% of our open profit, so it would be too much risk for the account. In this case i had to sell 100 AAPL before i went on vacation, just to get the risk level right.

Ok, enough written on the subject, i am on vacation and sitting here at around 5000 feet not moving i am getting cold, so i need to get up and going.

Most trading systems concentrate on the entry system when they should concentrate on the exits. The problem with entrys is, that when opening a trade, it will always be in the red, since it loses the commission to the broker.
Especially when accounts are small, these costs can add up quickly because percentagewise they are expensive.

But finally it is possible to cut costs at entry level. The first broker to give you free trades is Zecco.

Obviously there is a catch. You need to maintain at least a minimum of $25.000 in the account to get those free trades. Nevertheless, compared to other brokers this is a good offer, because according to the Pattern Day Trader rules, anyone who engages in short term trading in the US does need to maintain those $25.000 minimum.

If you want to get the scoop of these rules, you will find a nice explanation here.

Just in case you are looking for the official rule, you can find it at FINRA.

FINRA came into existance in 2007, when the NASD merged its regulatory functions with the enforcement arm of the New York Stock Exchange. It is the abbreviation for Financial Industry Regulatory Authority (FINRA).

It is always good to research before you commit you hard earned money to anything, so go on over to Zecco and check out there community first. People are communicating there trades and the community is building fast.

It was about time, that free trading became available.

…then think again. Did it help in the past, did you make any money by reading the usual stuff?
Not that it is a bad thing to dig your way through the daily gossip about companies, CEO´s, earnings, wrongdoings and other good stuff but what really helps is to find real news. Things that will change the price of a stock, no matter what.

For somebody not familiar with the street slang and all the fancy words journalists use today, it could be a tough task though to find the right little tidbit of news that could mean the next tenbagger in your portfolio.

So, how do you find the real news? Well, the good thing is, you don´t have to. That is already done by Michelle Leder and her staff at footnoted.
She is doing a very good job of digging through the stuff we all could read but are to lazy to do so. By the way she needs your help, she explains it here

you know what this means. When a house is bought you can change anything but the location. So we need to think about the location before we buy, this means we are thinking about the most important factor beforehand or in other words we take care of the single factor that determines the bigger part of the price of the house before we buy.
Now for the stock market the same is true but the phrase goes more like Exit, Exit, Exit….
Other than the location of our real estate we could always change the exit of our trade after we bought the stock, but then again while trading in the market this is the single most important factor to determine our profit.
Oooops…so you thought it was the Entry that made you rich? Not even close, when entering a trade your broker will be happy because he just earned himself some money, not you did.

So this means we are in the red, right there, right after entering the trade and it all looked so good after analyzing before we decided to jump right in. So what does this mean.

It means that we can analyze all we can, it doesn´t mean anything, when we enter the trade we are randomly taking part in the market and the only way we achieve any kind of profit is by controlling a few parameters that we can control.

Obviously we can not control the price movement after we hit the button but we can control how much we want to win or lose. So, we can control our exit and that is exactly what we need to do. You need to take control of your trading and the best way to do that is by controlling the things you can control not the things you can not control.