Trading RM, LLC.

The Trading RM Oscillator has continued to decrease in value and has continued to slope down.  The Trading RM Oscialltor value of 29.33 has not been seen since the last week of September.  (However at that point in the year the Oscillator crossed through 29.33 on an upward slope.)  This is a function of the holiday trading and the declining volatility in the market.  We will continue to try and trade less, be more selective, and manage our losers carefully.  When we see the Oscialltor slope up we will know it is time to get aggressive and trade more. 

Trading RM tracks the number of "waves" in the SPX every day, week, and month.  I looked up some stats for what we define as "waves."  Being shorter term option traders I am curious as to how this expiration is shaping up as compared to the most recent expirations.  from this I can gauge my expectations for PnL, # of trades, and aggressiveness against how I did previously. Here is a brief table with the stats (# of "waves" per day):

Day                                                              September          October         November           December  
Wednesday before expiration Friday         38                          48                    38                         19
Thursday before expiration Friday              58                          97                    67                         18
expiration Friday                                             30                          62                    66                           ?

What signs have we seen at Trading RM that we are in a range bound market?:

• When I feel like adding to my longs or shorts they stop working.  That feeling of adding and pushing was correct in September and October.


• The Trading RM Oscialltor is sloping down.  (see below post)


• Increasing frustration on our trading desk


• The SPX has been honoring several levels on upside and downside.  One of several charts that show this is posted.  920 on the SPX seems to be a top of one range.  Any longs in front of 920 this afternoon around 1:30pm cst were hurt on the afternoon mini sell off. 

• Book profits when you have them


• Less positions


• Be Active - sitting in a long or short for a long time is not working.  When the market sells off the strongest names are going down the most and vice versa.   Today we saw several REIT names drift up, pick up a little acccelration, then sell off sharply.  Below is the REIT etf, IYR.  Depending where you got in the up move was quickly erased.   Pick a REIT name they all looked the same today (URE, SPG, VNO, BXP, FRT, etc...)

What follows is an introduction to the Trading RM Oscillator. 

Trading RM developed and uses the oscillator to tell us when trading is "good" and when it is slower/ "bad."  In a perfect world we trade more and more aggressively when the oscillator is high and/or trending up.  Likewise when it is trending down/or at a historically low level we trade less and less aggressively. 

We will be posting the Oscillator with commentary on what we are seeing at the beginning of every week. 

December has shown less opportunities for us than September and October.  The slope of our Oscillator and the upcoming holiday period confirms this.  It may be a good time to think about winding down for 2008 and to look forward to 2009 trading.

Trading involves ebbs and flows.  Market conditions can persist for long periods of time or change rapidly.

The key is to be consistent: to create and execute a game plan that can be profitable and sustainable over the long term.  I have noticed that when I get caught up in the short term factors (making money, not missing out, what are others doing) it takes away from the plan I have established for myself. 
    
    Many of us at Trading RM are focused on maintaining our consistency each and every day, week, and month.  By implementing a consistent plan, I am laying the foundation for profitable trading.  At the end of the year, I will not remember specific trades on a given day. However, I will look back and  reflect on whether I executed my plan, and whether I kept putting myself in positions to succeed. By focusing on positioning myself for long run success, short term fluctuations are mitigated and I can focus on what's really important: my trading.

 

Trading RM is proud to introduce our website: www.tradingrm.com

At the site you will find additional information on the Five Pillars of Trading RM, our proprietary indicators, access to a morning report, and information on learning how to trade, live on our trading floor.

The Morning Report:  Each morning, veteran trader Michael Osacky, prepares his morning worksheet on what he is watching for the coming trading day ahead.

If you have any questions or comments, please feel free contact Nandan Shah at ns@tradingrm.com or 312-640-1601.

No sooner than I was done kicking myself for not getting long the greatest last hour rally (Tuesday 10/28 2pm cst) than we had the biggest last hour head fake (Wednesday 10/29 2pm cst).  I left the office Tuesday angry I did not "make more."  Wednesday afternoon's action showed me why Tuesday afternoon was not my pitch.  And there have been plenty of pitches to look at and swing at lately.  Which brings me to some data I have been following...

At Trading RM we have several propietary oscillators.  I particularly track one that compares the S&P daily range to NYSE volume and another that compares the # of 5 and 10 point S&P moves to NYSE volume.  The high mark in my oscillators were obviously mid September and Mid October.  In both situations NYSE volume spiked ahead of the daily ranges and the intra day moves.  

This week I have seen the daily range of the S&P begin to spike again along with the intraday S&P point moves. However NYSE volume is somewhat flat lined.  I know many traders look for a revisit to a stock/index level on less volume to fade the move.  I am not exactly sure what my data tells me, but I will continue to watch if expanded daily ranges and point oscillation is met with increased volume or static volume.  

In the below chart the green line is the 5 day NYSE volume moving average.  The pink and green lines are moving averages of the S&P daily range.  Again... I will watch to see if expanded ranges (crazy last hour moves) are met with increased volume or not. 



On a side note, this is the CNBC quote of the week, compliments of Mark Haines: "If you can't handle the truth get out of the kitchen."  ????

 

I find writing on the blog to be very therapeutic.  The last few days have been profitable ones, although not as profitable as I had hoped.  My ideas have been right, but the execution hasn't been as strong.  I would rather get paid, than be right.  As frustrated as i was, i need to realize that keeping it green on a consistent basis is also very important.  Being emotional and hard on myself comes with the job.  I need to step back enjoy the evening and come back tomorrow (expiration) and execute my game plan. 

Tomorrow (friday) is expiration.  This could possibly be the craziest/weirdest expiration you have or will ever see.  We are currently getting a minimum range of 700 DOW points every day.  That being said, if you are down money in the morning, there will be plenty of time/opportunities to make it back during the day.  Make sure your head is clear and emotions in check. 

This article about the VIX makes me happy to be trading.

http://www.cnbc.com/id/27220935/site/14081545

If there is anything humorous about the last 6 months of market activity, it has been the implosion (in my opinion) of CNBC's credibility.  Here are a few things heard/seen on the channel over the past few months:

• Several instances of a host saying "breaking news...right after the break."  How important/real time is the news if a few commercials need to be fit in first?


• Today, October 8th, the focus has been on the rally(s). No mention that Ford (F) is on its way to zero. 


• Cramer: Has made his recent career of giving the public stocks to buy ever day.  Recently he now says it is time to sell everything.  Thanks for the heads up.


• They repeatedly have a guest named Hugh Johnson.  Are they trying to give trading desks ammo? Didn't Bart Simpson used to look for him at Moe's Tavern? 


• 


• Some genius recently uttered "the market won't be at this level forever."  Someone got paid to say that.


• B. Pisani - 1) Why do you have to walk briskly when reporting?  2) Were there really people "cheering" the rally this morning on the floor with "many more on sidelines ready to jump in?"  Head cheerleader. 


• 


• Comment days ago: "only forced sellers today, no buyers." 


• Next week look for guest commentary from Carl Spackler.  " I'd keep playing. I don't think the heavy stuff will come down for a while."
  
  
  
  
  
  

September was a monumental month.  Here is what I learned about my trading and myself:

• Timing...whether the market was crazy (end of month) or slow I was paid well by using my timing principles. When I chased or went outside my timing guidelines my PnL took a hit.  Busy or slow I need to stick to my guns. 

• Sector trends...I can and do go against trends.  However reviewing my trades I found it beneficial to be more aggressive on short terms trades in the direction of longer trends, and less aggressive short term against the longer trend. For example early and mid September Agriculture names (MOO) were is a huge downtrend.  When I had intra day long set ups I was less aggressive than intraday short set ups. 

• Profit goals...I seem to get blinded by the one time out of ten that my nice winners turn into monster winners.  I go for the 500 foot homerun every time.  Upon further review my equity would be higher at month's end had I taken 10 of 10 trades off at my initial profit goal, as opposed to holding some or all of my positions for the homerun. 

• Opinion vs fact: this was touched upon in greater detail in my last post.  I did better when trading the names that were moving as opposed to trading the names I thought should be moving. 

• This picture is humorous, I'll let you draw your own conclusions:

I wonder what Ball State alum Brian Collins has to say about yesterday's market activity:




Being a short term trader it is important to separate my opinions from what is really happening.  As a short term trader I trade what the market gives me.  If my PnL is saying do more I do more, if it says do less I say do less.  If my indicators tell me to get long I do, and vice versa. 

I (as many of you I am sure) have been inundated with questions about the market recently.  I am hearing from long lost friends asking if they should pull their money out of 401ks? Is this is a bottom?  (My favorite is family members who say "you must have had a bad day"...yes we only make money on the way up). I am not a financial advisor and I do not know where the bottom is.  I can pick several blogs and articles written by smarter people every day from July to today calling a market/housing bottom.  It has been documented that Alan Greenspan himself has indicated/suggested a housing bottom several times in recent years. (Google "Greenspan housing bottom"). 

The point is to listen to opinions, develop some...but in the end listen to the market.  Listen to what the market is doing as opposed to what you think it should be doing.   

I thought the S&P gave us the answer to the bailout vote somewhat earlier than CSPAN on Monday.   

I will most likely miss the market bottom.  I won't try to predict it.  But I will be with the trend before and after the market bottom. 

After the historic 700+ point drop in the Dow today, I felt the need to get back to the blog.  What a great time to be a trader.  All we have ever cared about is volatility, and we have plenty of that lately.  Speaking of which, the VIX traded at near historic levels on Monday.  I am going to be looking for a rally in the next few days.  This high reading in the VIX historically has been associated with nice bottoms.  We truly had fear and panic in the markets today.  Besides the VIX, you will also want to look at money inflows/outflows from the different sectors to confirm the bottoming action.  You have every talking head on TV saying how scary the market is and don’t invest, etc.  Again, that is usually associated with a short term bottom.

Being a great trader is about finding an edge and then exploiting it.  Sometimes the edge comes from the strangest places.  I am usually watching CNBC, but today an astute trader turned to a competing channel because the $700 billion bailout vote was being televised on a different channel without commercials.  (CNBC had commercials)  As the votes started to come in and time was expiring for all votes to be counted, it looked like the bill was not going to get passed.  I flattened out before the vote, even though I expected the vote to pass.  However, my opinion quickly changed.   As each and every vote was tabulated, more and more were in the Nay column.  I quickly shorted the market and was rewarded nicely and quickly.  We took out the 1136 S&P low by some 20 handles!! 

Today showed me why it is crucial to be able to react on a dime.  It is a lot harder to react when you have a large position on.  However, if you scale out before an economic number, or congressional vote you can see the forest thru the trees.  I have heard countless times over the last few months how something can not go lower.  How can WaMu possibly go any lower?  What about AIG, WB, MER, FNM, FRE, LEH and the list goes on and on.  Today we had the biggest point drop ever in the DJIA.  NEVER say that something can not go lower. 

Slow Markets, huh?  Of course, i am kidding.  Anybody watching and/or trading these markets in the last few weeks knows what has been going on.  I find it very therapeutic to talk with other traders/friends in the business when things are going nuts, like they have been.  I leave the building every day with a clear head regardless of my P&L for the day.  However, yesterday I felt like i got beat up.  I had a base hit day, but left feeling exhausted and confused.  The market is technically oversold and the VIX is in the mid 30's.  However, that doesn't mean we can't keep going lower. The market is looking for any excuse to go higher as is clear by some of these BS news stories that drive the market higher, only to see it retrace in the last hour of trading.  Last nite I got "out of dodge" and cleared my head.  I first went to the Trader Monthly Magazine Happy Hour in Chicago http://www.traderdaily.com/magazine/index.html and then met a friend at the Cubs game.  During the game I talked with a few people I know in the business about the markets.  Hearing what others are thinking and how they are trading is very interesting and at same time takes the edge off of your trading.   

Remember:  It's not only what you do during the trading session, but it is sometimes more important what you do before & after to clear your head and regroup that can pay dividends in the future. 

Traders need to let the market tell them what to do.  Having an opinion of market direction can be a costly proposition.  How will I know when to trade from the long side?  I am looking for the first time that the market (s&p futures) sell off and stocks don't go down.  This will be the markets way of telling me that it is time to get long.  We have not seen this in a while.  Sure, the market has gone up and stocks have followed, but when the market rolls over the stocks have followed suit.  The market always tells you what to do.....we just need to listen.

Good trading!

After three weeks away from trading, I returned to trade yesterday.

After hearing how there had been great trading during the span I missed, and seeing the market gap lower yesterday morning, I came in expecting a big trading day.

At our morning meeting for Trading RM, we emphasized that while this market is volatile, we still need to focus on utilizing our patience and waiting for our edge to show up.  Emphasizing this put me back in the proper frame of reference to trade

Yesterday, during the first half of the day I ended up not trading as much as I expected (the scenarios did not present themselves to me), but as I went home I felt the day had been a success. 

I stayed committed to my game plan, executed it, and was in the game throuhgout the day.