I saw someone asking about FreedomRocks FX trading on a forum today. I went and looked at it and I had to laugh. They flash some really complex stuff like “Moving Average” on screen to highlight how complicated and intimidating trading is. Don’t worry if you don’t understand what they are talking about, though, because according to their promotional video:

You don’t need to know how everything in your car works in order to drive effictively, and the same principle applies here.

What is the system they sell? It appears they put you in a long position, and then place a buy line below your position, and a sell line above it. Whenever your position goes against you as far as the buy line, simply buy more! Eventually, the price will undergo a correction, they say, and you will make money. Here’s the educational graphic:

Here’s the case where the position goes in your favor, and you inexplicably only sell 1 lot, even though you supposedly know a correction is about to happen:

What they don’t say is… what happens if there is no correction? And, if there is always a correction, why bother putting on the initial position? Their examples show the original position always breaking even…

While the video looks pretty slick, it’s amusing to note that during the entire running time, there’s an obvious “Your Name Here” that they forgot to fill in on their template. :-) At FreedomRocks, attention to detail is job #1!

I have not tried their service, so they could be the best thing since sliced bread. If so, then their marketing is doing them a great disservice by offering to do things like “allow you to select virtually any interest rate you desire on your portfolio.” Yeah, because knowing you’ve got that 10% interest rate will make you really happy when half your account has evaporated…

If you watch their movie and do not agree with me, they have a free trial you can try out. I’m opting to pass on this particular offer of a lifetime.

I just noticed on a digg story that Google Spreadsheets lets you put live stock data in the cells. It’s the same as Google Finance data, which means it has the typical 20-minute delay. If it were real-time data, I’d use the heck out of it to program complicated real-time alerts based on a bunch of criteria. With a 20-minute delay, it’d just be pointing out opportunities I’ve already missed. :-(

I could maybe see this used to publish a shared spreadsheet that determined in 20-min delay time which stocks are posting higher than average volume for the day. Maybe there are other good ideas out there. The key limitation to doing anything too complex with it, is that you can’t ask for the quote for a day/time. Like, imagine what you could do for swing trading off daily charts if you could have a list of cells for the closing price for the last 50 days. Suddenly a whole wealth of technical indicators could be programmed in, spreadsheet-wise. And, every 20 minutes it would update. Kinda cool. If it’s all keyed to a symbol on the top row, just changing that symbol does the same analysis for a different stock, etc. But, it’s not quite there, yet.

You can get:

• price: market price of the stock - delayed by up to 20 minutes.
• priceopen: the opening price of the stock for the current day.
• high: the highest price the stock traded for the current day.
• low: the lowest price the stock traded for the current day.
• volume: number of shares traded of this stock for the current day.
• marketcap: the market cap of the stock.
• tradetime: the last time the stock traded.
• datadelay: the delay in the data presented for this stock using the googleFinance() function.
• volumeavg: the average volume for this stock.
• pe: the Price-to-Earnings ratio for this stock.
• eps: the earnings-per-share for this stock.
• high52: the 52-week high for this stock.
• low52: the 52-week low for this stock.
• change: the change in the price of this stock since yesterday’s market close.
• beta: the beta value of this stock.
• changepct: the percentage change in the price of this stock since yesterday’s close.
• closeyest: yesterday’s closing price of this stock.
• shares: the number of shares outstanding of this stock.
• currency: the currency in which this stock is traded.

My original review of HighChartPatterns.com covered their first three weeks of operation, or so. I wanted to give you all an update now, since you can only lock in their promotional $29.95/month price for a few more weeks. After November 12th, new subscribers will be paying $37.50, which is still a great deal in my opinion. But, if you are on the fence you might want to decide in the next couple weeks so you can get the lower price if you subscribe.

I think everything I said in my original review is still valid, and I won’t repeat it all here.

They have months of performance data available now, and they’ve been very consistent during some pretty rough months. They stuck to their guns during the worst weeks, and several days offered no picks when they couldn’t find anything good enough to recommend. Many of us would have been wiser to heed the warning and take those days off, rather than get chopped up like we did!

Their performance already looks good, but I should point out that on many days they record a trade as a loss, when many real traders could have made money on it. This happens when the first time a stock touches their number, it fails, but then it sets up again for large gains. If you’re like me, and you’re used to services taking credit for the high of day minus their trigger price, then you find this refreshing. Granted, on some picks the setup or the bid/ask action makes it hard to get in the trade anywhere near the trigger price, but that is the case with any stock service.

As I hoped, they have continued to provide great commentary and recaps of their trading days in their newsletter. They pick especially informative trades and break them down in detail for the readers. You can see some of what I’m talking about on the highchartpatterns blog.

I have found their picks to be relatively easy to trade, when they set up well during the day. They try to warn you about the tricky stocks, both in the text of their newsletter, and by relegating trickier picks to their “watchlist” section rather than the “primary” or “secondary” sections. I will say that they sometimes pick stocks that trade less volume than I’m comfortable daytrading. Unless those are trading multiple times their normal volume on the trigger day, they are automatically N/A for me (and I hope most other daytraders follow my lead on that). Those low volume picks would probably be decent to swing trade, since people tend to swing trade less shares than they daytrade.

You can see in my video about my daily trading prep, I incorporate the highchartpatterns picks into my nightly routine. I have plenty of my own scans and ideas, but there are days when they make a good back-up for me. Sometimes, the stocks on my scans just aren’t ready to break out, so it’s good to have another set of ideas to work with. Other times (like last night!) I got tied up and didn’t even have time to run my scans.

Bottom line: Both trades I made today were picks from their newsletter, and I made enough money to pay for their service for more than a year in the first two hours of trading. If you read my post about those trades, you’ll see that’s even though I left at least half my potential profits on the table due to my own overcautious trade management! When services are $100 or sometimes even $300 a month, I have to think hard about how much I get out of it. At $30 to $40, it’s a no brainer when they pay off like this.

I’m not affiliaited with highchartpatterns, and am not getting paid in any way for this. In fact, I am paying them!

[Update: I just found another viewpoint on highchartpatterns, at Phileo's site. Like my review, it says the service is well worth the cost.]

As first mentioned here, I recently followed highchartpatterns.com’s service for their 3 week trial. Here is my review. It’s going to be pretty positive… I’m going to subscribe for a while and see how it goes. If you are only attracted to negativity, there is a section of criticism at the bottom that you can just skip to. :-)

Performance

How did they do? Let’s break it down:
From June 13th to July 14th:

• 21 Trades Triggered
• 3 Profitable by 1% to 2% of the entry price
• 13 Profitable by 2% or more of entry price
• 5 Stopped out at 1% of entry price

If you are like me, then your first two impressions are “wow, that’s fewer trades than I expected” and “wow, that’s pretty good performance.” Well, you probably would have done even better if you were actively trading. You see, their performance numbers are collected mechanically so that there can be no question about them. In actual trading, there are cases where the stock technically hits the target for trade entry, but market conditions are such that you should stay away. Also, there was at least one case I can remember when a trade was stopped out, but later set up again and was profitable. In cases like that, only the loss is recorded.

The other thing interesting about their performance is that none of their trades were flat. That is, so far, when their picks trigger, they are either stopped out or profitable by at least 1%.

Trading Style

Their methodology is pretty straightforward, and across three weeks of newsletters, you get a pretty good feel for how it works (you can see an example newsletter on their website, as well as information about how they go about trades). They look for setups on daily charts, and identify patterns that have developed over the last 30 to 90 days or so. When there are good chances that some key resistance or support may be broken the next day, they flag it as a candidate in their daily email.

The setups they like to trade are not very complicated. Simple support/resistance, trendlines, and cups + handles cover the majority of their picks. Not a lot of other indicators usually come into play, though sometimes a moving average is involved. This is a topic for another entry, but between books and my own experience, I’m rapidly coming to the conclusion that technical indicators are useless. There’s some great material in Jack Schwager’s books on this topic. But, I digress…

You can see from the performance numbers above that they definitely do not overtrade. There were several days when their email had no picks. What’s interesting about that, to me, is that I can go spot several charts that look similar to the ones they pick on those days. Clearly they use other factors to refine their selections down. I suspect a big one is what I can only call “street buzz.” In their newsletters you get hints of this when they say stuff like “we know a lot of traders are going to be watching this one tomorrow” and the like. That’s probably also part of the reason none of their triggered trades have been flat so far; they are good at identifying (and waiting for) stocks that have enough eyes on them to move.

They seemed to be selecting more long candidates than short. I asked about this, and they confirmed it: “We prefer longs as shorts are a bit trickier to trade within our system, especially with the 1% stop.”

In addition to their primary stock picks, they also have a secondary list of potential candidates, in which they have less confidence. Many days, stocks from this set perform quite well, but they are not considered in the group’s performance history. And, I would suggest that beginners beware the secondary list… by definition it’s trickier! A good exercise may be to compare the charts from the primary and secondary lists, and see if you can identify any factors that separate the two lists (though in some cases it may come down to non-chart factors again).

Because all their setups are on daily charts, you can daytrade the breakout day, or try to trade the bigger move as a swing trade. All performance numbers are based on daytrades.

Commentary

I think the service’s commentary is very good for beginning traders. The day of the pick shows them chart patterns in action, and the next day has a thorough review of what went right or wrong with the trades. It describes whether they took the trades in question themselves, and why. This is exactly the kind of information a beginning trader needs to internalize in order to apply judgement and beat the mechanical performance numbers.

Even though I am not a beginner, I still enjoyed reading their analysis and getting to know what factors they incorporate into their thought process. For instance, they watch the strength of the stock relative to the market, whereas I usually watch the strength of the stock’s sector. What are the advantages and disadvantages of both methods? I can investigate things like that and perhaps adjust my trading style in the process.

They have also started a blog at this location, where they comment further on their trades and methodology for free.

Criticism

I find their standard 1% stop to be somewhat arbitrary for use in actual trading. I look at it as a necessary evil of the type of service they offer. They can’t give stops based on the daily charts, as that would cause daytraders to buy too few shares (if they are managing their risk!). It’s nice that 1% gives us an unambiguous way to measure their performance, but I suggest traders use the intraday information in front of them to choose stops at entry time. You can most likely eek out better performance that way, if you know what you are doing.

One thing that turned me off of Jim Cramer’s paid services was that there’s so much free Cramer content. When you whittle away the duplication, you find out that there’s not much behind the paid curtain that you can’t at least infer from the free content. With the advent of their blog, Highchartpatterns also gives away lots of information about their trades and methodology for free. It’s a double-edged sword, as it can drive interest in the paid service, but at the same time it devalues that service a little. Certainly the daily picks are the primary thing you are paying for, so maybe I shouldn’t care so much…

They are a new service, so they don’t have a published track record except for the month they’ve been in operation. You could say they’ve compensated for that with the $30 price tag. That’s much cheaper than the other services I have tried so far. They are also very friendly and quick to respond to email. So the newness has it’s benefits as well.

Summary

There’s only one month of performance to go on, but that month was very good, in my view. They offer a three week trial that doesn’t require your credit card to enter. They clearly want people to understand their methodology, which most paid services don’t make any attempt to explain beyond surface details. I made enough money the first day I followed their picks to subscribe for another month, so I plan to do so.

I didn’t find another place to mention it, so I’ll point out here that a percent of all their profits go to charity, and you can even suggest charities to benefit.

Readers of my past and present market blogs know that I try new services often. I’ve joined millennium traders live trading room (and quit due to their very high price tag). I’ve been a thestreet.com subscriber (and quit because they don’t say much that you can’t see on all of Cramer’s other free outlets). I’ve recently joined stocktickr (and so far am impressed by their service). And on and on… I always let you know what’s worth it and what isn’t. I hope you benefit from that.

Why do I join all these things? Can’t I come up with trading ideas on my own? Of course I can, and if you read this site you know that I do. But, I think it pays to always be vigilant in this game. What works today may not work so well tomorrow, and wouldn’t it be nice to have a few fresh ideas on hand that are in use, and promising? I think so. As such, I read quite a few market sites and blogs every day, to see what kinds of ideas are working out there. I devour market-related books like candy, and post my thoughts on them here. I post my trades, and occassionally write my own views on the market, and plan to start doing a lot more of that in the future.

My goal is to make a timely source of trading-related information that lots of people will want to visit daily. I like the companionship, and I like helping people. Hopefully, as readership grows, I will be able to subsidize the work I put into my site via advertising. If you are interested in advertising on this site, please contact me.

Highchartpatterns.com
The newest service I’m trying is highchartpatterns.com. They are a daily e-mail watchlist for intra-day/swing stock moves. How have they performed? Hard to say, as they are brand new. They’ve been running one week, and that week was profitable. Their website looks like it was from 1994, but when you notice how fast their pages load, you’ll be wishing more sites were like that! I admit, I miss the old days when web pages served more information and less flash animation.

I’ve gotten my first mailing from them today, and I was pleased to see–in addition to the watchlist for tomorrow–a fair amount of commentary on the previous week, as well as the outlook for the days ahead. I hope that’s not just new-company enthusiasm, and they keep it up. The mail has charts for their picks, annotated with the technical analysis that they did, and with a description of the conditions to look for on entry. One of those conditions is a price target it should pass prior to entry. They also suggest explicit stops for some, but not all, of their picks. Their site has general stop-choosing advice, but on first sight I wish they would give explicit stops (with analysis) for all of their picks. I’ll reserve judgement on that until I’ve tried them out for a couple weeks, though.

They have a generous three-week trial (many sites only give 1 week), and are one of the few services that don’t require a credit card to participate in the trial. I think that’s a sign of a group that believes in their service. When I have to give payment information to sites for a FREE trial, I feel like they are hoping I’ll forget to cancel the trial on time, which to me is just as sleazy as complicated mail-in rebates.

I’ll let you know how it goes… but there’s also no reason you can’t try the trial as well. All you have to do is send them an email. If you do, please mention that you heard about them at my site. It helps businesses to know where good places to advertise are, and they will also extend my trial period as referrals come in. This will allow me to spend more time reviewing the site, and providing you with feedback, without incurring overhead.

You know by now that most of my posts about services slant negative, as there are a lot of bad sites, and a lot that are okay but overpriced. Example 1, Example 2, Example 3. It’s hard for full-time traders, especially new ones (I should know… I’ve been at it full time for less than a year, after years of part-time trading). I want to help people find the best places for information, so I can’t pull punches.

Well, I’m down to one swing position now… the other four were stopped out. All five trades were entered about a week and a half ago. It’s unfortunate that I started trading long systems right when everything started plummeting!

As I need income, I was going to start day trading again on the side, but today’s market didn’t look good for that. Maybe I’m just out of practice after a few weeks away from day trading, but once I saw confirmation from other sources, I decided to stay out of it today. It’s no surprise I’ve used today’s downtime to read about market-neutral strategies! The suddenly sound pretty attractive! :-)

Mini-Reviews
Well, I finally finished Fooled by Randomness : The Hidden Role of Chance in Life and in the Markets. While I thought it was eye-opening in places, it never really got around to giving much advice on what could be done to profit from random effects. He says he personally tries to profit when he knows others will be fooled by randomness. Just doesn’t say how. The most practical advice I noted was: 1) Use stops, and 2) be aware that you might have a successful strategy, or you might just be lucky. All that just boils down to “be careful.” I don’t want to put the book down too much, though, as the book is only tangentially about the markets (because that’s his profession, so he draws a lot of examples from them).

Now, I’m several chapters into Paul Wilmott Introduces Quantitative Finance. I’m fairly new to the deep quant stuff, so it’s very interesting to me. Of course, a lot of the early examples make use of interest earned on proceeds from short sales. I don’t know of any individual brokerage account that actually passes those benefits on to you (although I’m more aware than ever that they probably make interest on my short sales–or at least they would if I held ‘em more than a day!). As an aside, while grabbing the amazon links, I was shocked to note that amazon sells it for $44, when I bought my copy from a Borders for $60+! In the spirit of quantitative finance, I can’t help but think there’s some sort of arbitrage opportunity in there somewhere.

I stumbled across digstock today, which appears to be a digg clone with a stock market theme. Not overly exciting, but I looked around. I saw that they appear to automatically index lots of stock market blogs so users can browse and digg them (oops, I mean “tagg” them, in digstock parlance–come on, if you’re calling it digstock, just call it “digg”ing).

Anyway, I noticed my blog did not appear to be indexed. I thought, okay, I’ll register and maybe I can find a way to get it listed. So, I registered, and they sent me a confirmation email, after which I was unable to log on. Hmmm. Well, some sites (like fxpansion) choke on special characters in passwords, and I like to make strong passwords. Maybe that’s it. Their confirmation email said to contact “support@digstock.com” with any problems. So, I sent them an email, and their mailhost bounced it:

This address no longer accepts mail.

So, on their site, I click their “contact” link, which is a mailto:admin@digstock.com. I explain the login issue, and also point out that their own email pointed me to a bad contact address.

This address no longer accepts mail.

I see. Well, that’s not promising. Clicking around some more, I see that a few of their internal hyperlinks are malformed. In other words, NOT a good user experience so far. I would still like to try their site out, but I apparently have no way of contacting them to work out the login issue.

As a last ditch attempt, I made a second account with a different username, and I made sure I used the extremely simple password “blahblah” just in case the special characters were the issue. Same result–could not log in.

In contrast, a good experience with stocktickr
I don’t just sit around complaining about things, though. I am also capable of praise, when sites are run well. A good recent example is stocktickr. I was so pleased with the way they addressed my feedback that I signed up for their paid “pro” service. They continue to make enhancements and add features (sometimes it seems like something new arrives daily). Plus, they are a bit more imaginative than a digg-derivative. :-)

At the risk of this blog becoming idempotent’s gambling journal, I wanted to mention that in the last week I have become infatuated with poker (limit hold ‘em in particular). I’ve read somewhere that lots of traders are also avid poker players, and now I know why! It’s an uncannily familiar feeling when judging when to wager and how much! Cutting losses when a hand turns against you, winning big when it doesn’t… poker’s got it all for people with trading in their blood!

Mini-Review
I got interested when I read The Professor, the Banker, and the Suicide King: Inside the Richest Poker Game of All Time just on an impulse. It’s not a poker how-to book, but rather it’s about a Dallas banker who took up poker and played several extremely high-stakes games over the past few years. His name is Andy Beal, and from the description of him, he’s like my new hero. He’s done a little bit of everything in his career, from real-estate, to banking, to mathematics, to aerospace engineering, and now poker.

The book has a lot of colorful history of big gamblers, and their lifestyles. They acknowledge that their money-management is pretty reckless, and they all seem to balance that by taking money out of the casinos as often as possible, and doing their best to leave it out, for good.

So, I looked up how to play on-line, and started playing in fake-money games on yahoo. Just like in the stock markets, the whole key seems to be to wait for good opportunities. I think my trading experience really paid off here . By simply folding about 70% of the hands I got, I doubled my first fake $1000 stake in just 4 hours. I am hooked! It seems that the legal status of real-money poker in America is iffy, so I have so far resisted it. But, it’s tempting!

That got me thinking… what does poker have going for it that the markets don’t? Probabilities are easy to compute, and reliable. That is, I can get a reliable probabilistic lower bound on the expected value of my hand at any point. In fact, just quickly calculating, there are only about 2 trillion unique games with two players–less if you consider that lots of hands are equivalent, differing only by suit. Technology’s getting close to the point where you could just precompute them all on a large workstation. If you wait til after the flop, there are only 1.2 million possible outcomes with two players. On the other hand, in the markets, it’s not clear to what extent past behavior implies future behavior (some say, not at all!), so any probabilities you have calculated based on past events could be useless. So poker hands are a ton more predictable.

A downside of poker compared to the markets is the binary result–you can have an awesome hand, and still lose. And, you can have the a royal flush, but still only win a small amount of money. In the markets, everyone who is right, wins, and the amount they win is proportional to how right they are.

More directly related to the stock markets, I’ve started reading Fooled by Randomness : The Hidden Role of Chance in Life and in the Markets, and it seems promising, if a little long-winded. I will write more about it when I’ve finished it.

One thing about tracking trades publicly in stocktickr is that you’ve really got to go open and close out the trades in tandem with your actual brokerage orders, or they will be inaccurate. Two examples from today alone:

1. Due to today’s suckage (that’s a, um, highly technical trading term… just try to get the gist of it if you aren’t “in the know”), I was stopped out of AXP and GM, but both for nice profits. Yet, because the stops were hit while I was asleep, I couldn’t get stocktickr in synch with me, and it actually thinks I took a loss on GM. Someone trying to gauge my systems by the color of the stocktickr boxes will be mislead.
2. When my systems signalled buys for this morning, I went ahead and put them in stocktickr last night. Fine, except I bought them for a lot less than yesterday’s close, so stocktickr shows a bigger loss for me right now than I actualy have.

Still, it’s a nice, free, service… the actual p/l tracking will just be pretty sloppy. I wish I could put a comment on closed trades saying “Actual entry/Exit: $x/$y”. But, you can’t seem to comment closed trades. If I would think to add this comment right before closing it, I think that would work.

I read through A Mathematician Plays The Stock Market by John Allen Paulos recently. I’ve gotta say, I wasn’t too impressed. I think I was hoping for more math, and less whining about the decline of WCOM. If you are not mathematically inclined, I think this might be the right level of overview for you.

Now, I’m starting to read The Misbehavior of Markets by Benoit Mandelbrot, and it looks more promising, in terms of deeper mathematical exposition. Curiously, from the first few pages, it appears that his work is aimed at being able to generate realistic fake market data, rather than analyze and make predictions on existing data. So, he’s kind of attacking the problem from the other direction.

After that, I’ve found some academic papers on financial models out on the net, which will no doubt be the most rigorous treatment of the three.

Just a friendly warning… If you sign up for thestreet.com’s paid services, you can’t cancel them online… they make you phone them. I find this ridiculous! Plus, the phone number they list in the FAQ just hangs up on you immediately… I eventually found another phone number on another page, and I’m currently on hold, waiting to unsubscribe.

As for the content, I thought it was alright. But, Jim Cramer produces so much overlapping free content that the paid content is just not worth the cost.

And, for the record, the correct number as of 5/5/2006, is:
1-866-321-TSCM

I’ve read a few more trading-related books in the last few weeks that I thought I’d share. For the most part, these are about traders and trading, rather than “how to beat the stock market” type books. I think, having mastered the basics of trading, these are the best kind to read. It’s more wisdom and less technique.

At some point I may make a post about what I think the best trading books I’ve read to date are.

First we have Trading with the Enemy: Seduction and Betrayal on Jim Cramer’s Wall Street, which I thought was a lot of fun to read. You get pretty much the same information, trading-wise, that you get from Jim Cramer’s Confessions of a Street Addict. In other words, they paid brokerages tons of commissions in return for getting the first call when new information goes out from the analysts. You also get a real flavor for the high-intensity environment of a hedge fund. I really think the two books are best when read as a pair, so you get the dual perspectives. Based on what I had heard about the book, I expected something much more negative, but it really just paints the same picture Cramer himself paints, but presents it in a harsher light.

Next, there’s Stock Market Wizards : Interviews with America’s Top Stock Traders. I haven’t read the other two “wizards” books, but have certainly heard of them. I picked this one up and was thrilled with it. We get interviews with traders that are still getting press today as the top traders of 2005, like Stephen Cohen. And, the paperback was updated around 2002 to get the traders’ perspectives on the stock market slump in 2000. It was fascinating, but one theme was clear: these traders are all confident, and all consistent even when losing. They are all doing spectacularly year after year with completely different strategies and methods, which just further reinforces that there are lots of ways to skin the market cat.

Sort of tangential to trading, I read Confessions of a Wall Street Analyst : A True Story of Inside Information and Corruption in the Stock Market. It was eye-opening, for me anyway. It outlines the author’s career as one of the top telecom analysts during the 90’s telecom boom, and points out how many conflicts of interest are inherent in the financial system between the analysts and the bankers.

These last two are ones I don’t recommend:

The book: Trend Following: How Great Traders Make Millions in Up or Down Markets didn’t impress me much. Its message amounts to: use a winning strategy consistently even during drawdowns. Maybe I missed something, or read it too fast, but it seemed to me that the focus was on mechanical trading, rather than following trends.

Lastly, we have Stock Trading Wizard : Advanced Short-Term Trading Strategies for Swing and Day Trading. I don’t know… this book might have been good in 1999, but today it read like it was a bit dated. I will say that it had some of the best-illustrated information on Level II quotes, but prices were still listed in fractions of a point, rather than in cents. I think for an introduction to swing and day trading, Short-Term Trading in the New Stock Market by Toni Turner is much better, up to date, and complete.