Archive for March, 2007

Since Tuesday, Feb 27, the market has been in a correction. My 100% gain in ICE is now a 50% gain (why didn’t I sell? I was waiting to sell on the rebound because no stock goes straight down… although that theory has since been proven wrong). My gains in a couple of other stocks have gone down (although Apple is doing as well now as it was in January). Anyways, over the past two weeks the market tried to sucker me in but I didn’t take the bait.

The market sold off and then rallied, and then had what we call a follow-through day. After a market drops and bottoms, if it goes up more than 1.5% on the fourth day (or later) of a rally attempt, that signifies a change in trend from down to up. Well, last week, the market flashed a follow-through day which in theory should have signified the start of a new trend. To that end, I should have been buying stocks as a new trend had begun.

But did I buy stocks? I most certainly did not. Fool me once, shame on you. Fool me twice, shame on me. This is just what happened last May, 2006. The market sold off and then rallied and even staged a follow-through day. I reacted by buying stocks. Turns out that was just a fakeout and I had to close all of my new positions at losses. That really irked me because I followed my buying rules and they all turned out to be wrong. This time, I learned my lesson. I didn’t trust that follow-through day last week because of what happened to me last time. As a matter of fact, I have been through a couple of market corrections and been burned in the past. I decided that this was probably yet another fake follow-through. Was I right? Well, the market is now below where we had the buying surge. So far, it looks like I was right. Buying nothing was the right move.

But wait! The story gets even better! Not only was I not tricked, But a couple of weeks ago I shorted two stocks (FDS and CF). They were in strong rallies and I thought that they were due for a correction. I reasoned that they were at the top of their price channels and that it was very unlikely they could buck the overall market trend. So, I shorted them. It turns out I didn’t catch the exact top of their moves, but I was very close – I was out by about 4 days.

But wait! The story gets even better! I was a little early on both of those positions and each continued to increase. I held strong in my belief that the market was going down and it was only a matter of time before these positions came down again. Well, they started to come down last week and they actually started to come down to almost the exact price targets I had set. I drew price channels and figured that I would sell once they hit the bottom of the price channel. Well, they did that yesterday and I closed both positions for a 5% gain in about two weeks. Not a big gain, but 5% in two weeks is way better than the 2% yearly interest is much better than what you’re getting on your savings account (of course, TD Ameritrade’s fees ate up nearly half my profits). The best part is that I sold the shares yesterday and today both stocks rallied! In other words, while I was close to hitting the exact top, I nailed the exact bottom of the move, however short it was.

The whole point of this story is that I have taken a small step towards my goal of trading full time. I recognized this pattern from personal experience – the fakeout upmove that tricked me before and I did the opposite of what I would normally have done. I’ve always said that before I become a full-time trader I need to live through a few cycles. This is the reason why: so I can react based on what I have done (incorrectly) in the past.

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I sometimes read the posts over at Daily Speculations. Today, I read the post here and got a good laugh out of it.

"I guess the antonym for "Austrian Economics" would be "Harvard Economics." Very funny (to me).

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I often hear that networking is the best way to get ahead in life.  It’s less important what you know than it is for who you know.  My mother, for example, when describing anything good that happens to anyone ways "It’s who you know… it’s whooooo youuuuuu knoooooow!"  The prolonged emphasis is not at all inaccurate.

Is this actually true?  Are your connections more important than what you actually are capable of?  I can speak for myself and for me that is completely false.  While I have gotten jobs based on people I have had contacts with, my best paying jobs have always come based on what I know and what I have done.

For example, my first job in England the recruiter had no idea who I was, I had no contacts over there.  I simply had my resume on an online jobs portal.  My current job at Frontbridge/Microsoft I simply answered an ad in the newspaper and I impressed the interviewers with my technical knowledge and passion for the job. I was recently approached by another company not because they knew who I was but because they were familiar with my work.  They were suitably impressed by my abilities and not for my connections.

This runs completely against the mantra that who you know is more important than what you know.  When I was travelling in Australia, I quickly built a network of friends by performing magic.  It was what I knew that counted, not the fact that I knew somebody’s friend in Canada.  When I won a writing contest last year it was because of what I had learned, not because I knew intelligent people who I learned it from.

So, my theory is the following: while having good contacts can be useful, unless you have something to offer it won’t be particularly useful.

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Last month I went to a magic meeting and one of the tricks I learned, as I alluded to in another post, involves paper napkins. This past week, I have had three opportunities to perform the trick. I simply say "Hey, I can do a magic trick with paper napkins" and all three times the people around have said "Really? I’d like to see it."

I have had some success with this trick but it’s not quite at the level where I’d like it to be. There are two things that it is missing: a logical opening and a strong finish.

I’ll start with the finish; the premise of the trick is that the performer (me) is hiding a paper ball in one of my hands and the spectator from the audience is supposed to guess which hand the napkin is in. The spectator always gets it wrong as the napkin vanishes completely. The trick works well for one-on-one but it is even better in a group of people. In fact, that is how it is supposed to be performed. Anywas, the one thing I cannot figure out yet is how to end the trick. At my magic club, they explained that the performer can vanish larger and larger objects like a person’s shoe. I’m not convinced this is a good way to do it. In the end I simply thank the spectator for playing the game. It’s not a strong ending (in my opinion) but it does bring it to a close.

This leads me to the beginning of the trick – how do I introduce it? All of my best effects have some sort of logical opening (ie, an opening with meaning). Sam the Bellhop, a card trick, is a card trick that tells a story. The Invisible Deck involves a deck the turns from invisible to visible. My multiplying ball routine starts with one ball, multiplies to four and then all vanish to zero. The cut-and-restored rope starts off with a piece of rope and my need to cut it into two pieces. My arm twisting stunt involves a demonstration of my flexibility. The Cups-And-Balls starts off with me telling the story of the world’s oldest trick. By contrast, the paper balls… starts with me telling the spectator to keep their eye on the ball and if they do they win a prize.

I don’t think it’s a great opening, I think it should be stronger. For what reason would I want the spectator to play a game that I know they won’t win and they suspiciously think they won’t win either? It sounds a lot like Chase-The-Ace which immediately places the volunteer on the defensive. I believe I need to provide a more logical context in which to embed the trick.

This is how some of my best effects get created. I often have to perform a trick over and over again in order to get the context down in order to give it meaning. It’s one thing to perform a trick, it’s another thing to get the audience "involved" in the trick. Giving the trick meaning is an important part of that process.

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My sponge hockey team had our annual awards night and I won the award (ie, a certificate with a nice little drawing) for the Most Improved Player. I graciously accepted the award.

I had a suspicion that I might win it a couple of weeks ago. I really turned around my season in the final three games. In actuality, it was a continuation from the preseason when I was the team’s leading scorer, but my 8/11ths of the season drought certainly dropped me in the standings. So, compared to those 8 games I really did improve.

When I compare last year to this year, I really do think that the caliber of my play has increased. Last year, including preseason, regular season and playoffs I had 4 goals and 3 assists. This year, combining everything I got 13 goals and 4 assists. That is a major turnaround. So, that means that next year I have an even loftier goal, that of scoring even more than I did this year. We shall see.

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At work, my title in our internal HR tracking mechanism has changed.  I have gone from "Spam Analyst" to "Software Test Engineer."  Nice.

It still hasn’t updated in the global contact list, however.  Doing a search for a contact in Outlook and clicking on the Properties of the person still has the same information.  I guess eventually it will update… by the time I get my next title change.

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I hit my stride in magic in 2001 when I was living in England. At the time, on weekends, I would head down to one of the local tourist towns and perform on the street. I wouldn’t make a lot of money but I definitely got really good at my tricks. In 2002, I travelled around the world also doing some street performing. Again, I wasn’t making a lot of money but I was getting better and better at my tricks.

Since then, I have not learned a lot of new effects, I would say that I add one or two new tricks to my repertoire per year. That is not to say that I don’t learn many more, but instead I learn and retain only a couple of good ones. All in all, I have about 20 tricks that I perform very well, but over time I’ve probably learned and performed about 100.

In the past three years, since 2004, I have learned some new effects but what strikes is not that these effects are novel, but instead they are tricks that are performed by a lot of other magicians with great success but I have never performed. Two examples are two card tricks I do: The Invisible Deck and NFW (if you have to ask what it stands for, you haven’t seen it performed). I first saw the Invisible Deck in 1994 but I didn’t start performing it myself until 2004. That was a mistake on my part because it is one of my strongest effects. A friend of mine gave me NFW in early 2005 but I didn’t learn to perform it until late 2006. Again, I consider this a mistake because I knew that it was a good effect (or so the name would imply) but I didn’t take the time to master it. Now that I have added it to my list of effects, I realize that I never should have procrastinated on the matter.

Just this past weekend, I added another effect to my bag of tricks. It’s a trick that is done with paper balls and making them vanish from in front of the spectator’s eyes. I first learned of this trick in 1997 but this weekend is the first time I have ever performed it (and I got another chance tonight). It is a very good effect. I haven’t mastered it yet, my technique is not great and I still haven’t figured out how to end it, but now that I can do it I wonder why I never performed it in the past? I definitely should have and from this point forward, whenever I have a stage show I am going to include it.

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In a turn of events that is becoming increasingly common, I tried to short some shares in Prepaid Legal (PPD).  This a stock I had been waiting for a few days to reverse and today I got it.  So, I put in my order in the morning to short it and when I came back a couple of hours later, I saw that my order had not been executed.

I put the order in again and once again I saw that the order was not executed.  The reason?  It said that my order was declined by a TD Ameritrade representative.

This is not the first time I have tried to do a trade and TD intervened and cost me profits.  This trade was carefully timed and it is becoming unbelievably frustrating for them to interfere in my trading like this.  Let me say this right now – I hate that brokerage.  They have done this to me over and over and over again.  This weekend I am phoning up and getting the necessary paperwork done to close the account and never return to them.  If every other broker in the world except for them closed, I would quit trading.

Let me see, let’s count what I have against them:

  • Tripling my fees? Check.
  • Fees double their competitors? Check.
  • Preventing me from doing time-sensitive trading?  Check – many times over.
  • Not providing me real-time information on my current positions? Check.
  • Won’t let me place stop-loss orders on odd-lot trades?  Check.
  • Has no interface for more complicated trading strategies?  Check.
  • Giving me something extra for being a customer?  No checks there.

As a matter of fact, I can’t think of a single reason to stay with them.  The only reason I haven’t switched by now is that I have a joint account set up and it is a royal PITA to switch accounts from a joint account (like I have at TD) to OptionsXpress (where I have a single account).  But believe-you-me, I am phoning them up this weekend to do all the paperwork to convert that joint account to a single account so OptionsXpress can switch my account.

Below is a screenshot this afternoon of where I wanted to short PPD:

Below is the closing price:

Look at that, 2 points in a single day.  That’s huge.  And I couldn’t capitalize all because of my broker.  Unreal.

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A stroke of genius!

As I alluded to in another post, in my upcoming magic show I have had some writer’s block. I simply have been unable to think of a good magic trick to perform. I had some ideas in the past but when I went over them this evening I decided that they simply weren’t good enough to show at the performance. The tricks did not make sense, that is, they were simply tricks without any real emotional involvement.

Well, this evening, after I discarded the one idea I had, I thought to myself "What could I possibly perform?" I considered not performing in the show at all and only helping out backstage. Then the idea came to me – what good is being a magician in everyday life? In other words, if I had magic powers how could I use them to help me get along in my day-to-day activities?

So, that’s going to be my trick, I’m going to simulate how being a magician helps me in real life. My plan is to live out a scene, without me speaking but narrated to sound effects, of going through a typical day. For example, I’m going to walk up to an imaginary vending machine with no money on me, but then proceed to pluck a coin out of mid-air, dispense it in the machine and pull out a drink.

I haven’t worked out all of the details yet, but some of the things I want to do are tricks that I haven’t performed in a very long time.

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For the past 12 years (excluding 2001 and 2002 so it is actually only 10 years) I have been involved in Springfield Youth Parliament. It’s an event where young people from the community come together for two days and hold a mock parliamentary session.

For the first two years, I was a backbencher. The next three years I was a minister of something-or-other, at which point I ran for deputy premier but lost. I was gone for the next two years (because I was overseas) but returned in 2003 to have my own ministry for the next two years. Then, in 2005 I was Deputy Premier, in 2006 I was Premier, and just this past weekend I was the Speaker of the House. So you see, I have progressed through the ranks and put a lot of time in. I’m a little old for Youth Parliament, but whatever.

Speaker is the top of the mountain, there’s no where to go from here. Next year I would be the Clerk while after that I wouldn’t be anything, at least not in the front scenes. I greatly enjoyed my time as Speaker, I really looked forward to it and I think I did a very good job. But, having SYP over is a little sad for me because now that it’s finished, I say to myself "Where do I go from here?" It’s basically done since there are no ladders additional to climb.

Clearly, I get to look onto the next challenge. Whatever that may be, I welcome it but for the time being I’m going to reflect on all the good times that I had. One thing that I had built up a reputation for doing is putting a lot of work into Parliament. Whenever I was a front-bench minister I always had my bills done weeks, if not months, in advance. I always had a great poster for my ministry and put in quite a bit of research. I wrote songs and brought in props. So, even if I said a number of outrageous things at Parliament and pushed bizarre ideas, I always brought a lot to the table because I was always prepared. When I was Deputy Premier and Premier (basically the one in charge of organizing it) I had the key tasks done weeks in advance and made sure everything ran smoothly. Even when things fell apart I kept my cool. Finally, as Speaker, I believe that I brought an air of respectability and professionalism to the position.

So, that’s what I look back upon in SYP. I was well-prepared and put a lot into it; I got just as much out of it. Those are times I will always remember with fondness.

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One of the other hobbies that I have is that I perform magic. At one time, I considered becoming a full time magician but I gave up the idea. I decided that I didn’t want to work "that hard." Whereas in stock trading over time I can pyramid into existing positions with more and more money, and with a regular job the pay is steady and at least I get raises, with magic I have to do all the work myself. I have to market myself, keep financial records, etc, and the net result is that I’d be doing more non-magic stuff than I care to do. Besides, with magic it’s difficult to leverage anything. I can only perform so many shows which means the amount of money I can make is limited by how many hours there are in a day (unless I were to get a TV special). I decided that was more work than I was willing to put in. Instead, I decided to perform a handful of tricks really well and do them for friends and co-workers and the occasional show. And, I’m okay with that.

So anyways, with magic, I have a show for my club coming up. I have performed for the past three years but this year I have a serious problem – I have writer’s block. In each of the last three years I have done something very creative and it’s gone over really well. This year, I can’t think of anything really good to do and can’t motivate myself to develop something new (ie, practice it intensely). That is quite frustrating for me because I really like to perform and the show is only 8 weeks away. Most of my stuff is close-up and of the few large-scale things that I have (ie, stuff that plays big) I don’t think any of it is up to the caliber of things that I normally like to perform. I did have an idea in December but it is not fully developed. Stay tuned…

However, I do have an idea for playing a really big show in September. Last September, I went to Microsoft’s annual company meeting. They rented out Safeco field in Seattle for the event as there were at least 25-30,000 employees there. Let me tell you, Microsoft knows how to put on a rock concert/annual meeting. They had a few fun things, and they also had a singing contest. Employees from across various divisions throughout the day sang a song and afterwards employees got to vote for their favorites. It’s a lot like American Idol. Well, my idea this year is to (somehow) perform one of my better magic tricks for the crowd of employees. I figure I have to talk to someone to do it and then make sure I’m there for that week. The fact that I was there last year was pure chance.

At the company meeting, they have large screens set up and video cameras so the person on stage is up on the screen. Since my best stuff is closeup this would work because they could film me and put me up on the screen. It’d be great! Plus, the trick I’d like to perform I have figured out a way to make it even more powerful (thanks to Alain Nu). I think it’d be a lot of fun to do that, hopefully I wouldn’t be too nervous.

To begin with, I need to audition so my plan is to record myself performing a trick and then put it up on YouTube. Then, I’m going to email somebody, somewhere and ask if they would consider this, allowing me to perform for everyone. It’d be my largest audience ever. Who knows, maybe something would come of it.

So, there’s my plan. Hopefully it works.

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I just got back from Seattle, I was there for a week and a half. On the trip I took along my PC but I left my Mac at home. I have to tell you, while I like my PC, I really missed my Mac.

I don’t understand why; I have more software on my PC including the latest version of Microsoft Office, my stock charting software and Windows Live Writer. I don’t have equivalent stuff for my Mac. But, I still missed it.

What do I miss about my Mac? Well, for starters, I miss the touchpad features of it. Macs are cool in that if you use two fingers to scroll on the mousepad, it has the effect of moving the scrollbar in the window you’re viewing. I love that feature. It’s absolutely fantastic. Secondly, my PC has absolutely terrible battery life. I’d say I can get maybe 40 minutes out of it. My Mac, by contrast, I can get at least 2 hours out of the battery. Third, the Mac is more compact. This is a disadvantage sometimes (like when I check out stockcharts.com) but carrying it around it is a real advantage. Finally, I like the Apple Mail program. It’s a nice little program for viewing personal mail (and the calendar is also cool). On my PC, I use Thunderbird but it’s not all that great. I prefer Apple Mail.

Of course, for business email I think Microsoft Outlook is the best program out there. But I’m talking about personal mail.

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This past Tuesday’s decline on the Nasdaq was swift and it was nasty.  The -3.86% drop is the worst I’ve seen since I’ve started trading.  I decided to investigate just how bad it was historically.

In absolute terms, going back 4100 trading days, Tuesday’s drop is the 61st worst decline on the Nasdaq.  Put that way, it doesn’t seem all that bad.  But is this the best way to measure this?

What if we measured the decline relative to how the market was moving in the recent trading period?  For example, a market that drops 5% in one day (as it did on Feb 16, 2001) looks large, but in those days 2.5% swings were the norm.  We only saw a double-the-average swing on that day.  It would have more meaning if we knew how big the decline was relative to the average move of the past few trading sessions.

To calculate this, I calculated the average % change and the standard deviation of the prior 10, 20, 30, 40 and 100 days.  Next, to normalize the results, I calculated the z-score of the all movements relative to those periods.  This would provide an absolute frame of reference in which to measure the drop relative to historical volatility within a reasonable time frame.

Viewed this way, using a 10-day period, Tuesday’s relative decline is tied for the largest along with Nov 15, 1991.  Using a 20-day period, it is the largest ever.  Using a 30-day period, it is the third largest ever.  Using a 40-day period, Tuesday’s decline is the fifth largest ever.  And, using a 100-day period, it was the fifth largest ever. 

So, even though in absolute terms the sudden drop was not among the largest, in relative terms it most definitely was.  For the record, using the 100-day period, the biggest relative declines are:

  1. Oct 27, 1997 (-7.02%)
  2. July 19, 1995 (-4.15%)
  3. Aug 31, 1998 (-8.58%)
  4. Feb 16, 1993 (-3.64%)
  5. Feb 27, 2007 (-3.86%) 
  6. Nov 15, 1991 (-4.24%)
  7. July 15, 1996 (-3.92%)
  8. Feb 4, 1994 (-2.57%)
  9. Jan 4, 2000 (-5.55%)
  10. Nov 22, 1994 (-2.18%)

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