DummySpots.com

Just a note, for the seven of you who follow my trading thoughts and miscellaneous ramblings (i.e. who didn’t find me by Googling Jim Cramer and Dan Dorfman — that’s pathetic, wrote a stupid little post in Feb ‘06 and it’s still the top search engine lead into my site).

The SPYders action the last three days has eerily duplicated the pattern they formed in August just before the final “drop to the bottom”:

Note the similarities:

• RSI(4) topping in the high 60s, RSI(2) in the mid-80s.
• Three higher highs engulfing the action of the prior 7 days.
• An indecisive spinning top candlestick on the third day (which was today).
• Declining Volume on each of the three days.

As the legendary trader Elmer Fudd used to say, “Be Vewwy Vewwy Careful!”

A DummySpots Book Review

The reactions I got when people saw me reading Day Trading for Dummies were very telling…

“Trying to get rich quick?” No, I know better than that.

“Maybe I’ll give that a try” Here, have a look. (After which they thumb through the book and give it back with a confused harrumph.).

“That stuff is just gambling… it’s impossible. I know because I tried it back in the 90s.” Mmm-hmm. If you decided to ‘try’ flying a 747 without any training and failed, would you declare that ‘impossible’ as well?

After all these years, Day Trading’s reputation as the gambling playground of young hotshots and rich middle-aged men looking to make millions overnight is still completely intact.

But in Day Trading for Dummies, Ann Logue has taken a refreshingly different approach from the typical “get rich quick” theme of many trading books, which are all so heavy on hype and light on substance. Ann approaches Day Trading in the only way it should be approached, which is as a real business, whether full- or part-time.

Day Trading for Dummies is the most comprehensive overview of the Business of Day Trading I’ve seen. This yellow book is printed in a smallish font that fits it into 335 pages, but I guesstimate that it contains about 140,000 words, which at a “typical” 250 words/page would make it 600 pages long. Those pages are chock-full of good information, and in them Ms. Logue addresses virtually every facet of Day Trading.

Between the Covers

There are 20 chapters and a few hundred sections and sub-topics. The chapters include things like:

• Investing, Trading and Gambling - These are in fact varying shades of the risk/return ratio; how to tell the difference.
• Setting Up Your Accounts and Office - From the importance of a good chair and redundant computer systems to comparisons of various brokers, including direct-access, web-based and software-based services.
• Taxes for Traders - Trader status, deductions, CPAs vs. tax lawyers, wash sales, etc.
• Short Selling and Leverage - Managing margin, choosing shorts, short squeezes and other risks, assessing risks and returns from Short Selling and Leverage, losing your money, losing your nerve
• Managing Your Money and Positions - A very informative treatment of things like Risk of Ruin, Opportunity costs, and various money management styles
• Managing Stress - Cautionary tales of alcoholism and suicide, advice on controlling your emotions and following a trading plan.

And as Baloo said in “The Jungle Book,” there’s more, lots more!

In Evaluating Your Performance, Ann includes descriptions of various methods of calculating your returns, including simple Percentage Return, CAGR, the Modified Dietz Method, Time-Weighted Average Return, and more. Ever wonder what your true return was when you were making frequent deposits and withdrawals from your account? Now you can know.

There are also some of our most beloved money management/ position-sizing formulas, as well as some that even experienced traders may not have seen: Fixed Fractional, Fixed Ratio, Gann, the Kelly Criterion, Martingale, Monte Carlo simulation, Optimal F… they’re all here.

An entire section of Day Trading for Dummies called Trading Strategies is devoted to strategies based on fundamental and technical analysis. For experienced Day Traders, this section is one you’ll probably flip through (you know your Fibs and your dojis already), but it will be quite informative to less-experienced traders.

There’s also a chapter called The World of Arbitrage in which Ms. Logue (also the author of Hedge Funds for Dummies) demonstrates her prowess in the world of “trading the differences.”

Top Tens

Towards the back of the book are some great “Top Ten” lists, such as:

• Ten Reasons to Trade- I like this one: “You like to eat what you kill”
• Ten Reasons to Avoid Day Trading- Includes “You want to get rich quick”
• Ten Common Day Trading Mistakes- “Switching systems” in search of the Holy Grail is one all experienced traders can relate to

One of my favorite sections of the book (besides the position-sizing formulas) is a section called Ten Alternatives to Day Trading. This section gives some great ideas for those who decide (hopefully not too late) that Day Trading isn’t their cup of tea.

For Further Information…

Ms. Logue strikes a very good balance in Day Trading for Dummies between the number of subjects she addresses (I think she covers just about all of them) and the space she devotes to each subject. An author could easily spend 600 pages just on “Accounting and Taxes for Traders,” or how the various asset markets work, or (as we Old Dogs know) probably 50,000 pages on technical analysis alone.

Ann’s approach is very effective: She introduces and explores each topic very well, but then goes the extra mile (a little lagniappe as we say in Louisiana), and provides a huge number of references to other relevant books, articles and websites for further reading and education.

The Bad and The Ugly.. What I Didn’t Like

The tear-out “Cheat Sheet” in the front of the book is a waste of paper. Unlike something like “cutting proper dovetail joints,” the subject of Day Trading is far too broad for such a gimmick. I suspect this was something the publisher came up with.

The covers of the book are littered with sayings like “Know the tricks to trading the markets and make money from home!” and “Buy and sell like the pros!” and “Leverage limited capital“, all no doubt also marketing ploys of the publisher which cater to the Get Rich Quick mentality, and all in stark contrast to the excellent work Ann has done between those covers.

There’s a sidebar about halfway through the book which explains “Bulls vs. Bears”… I doubt there’s anyone who’s read that far for whom this explanation is necessary.

Finally, I wish the book had addressed more thoroughly a couple of points I feel are extremely important: Adequate Capitalization and Prior Trading Experience for anyone who even dreams that they can be a successful Day Trader. The person who tries to start Day Trading with debt money or without significant experience would, to me, be nothing more than fresh meat for the professionals, and a disaster waiting to happen. (Ask me how I know).

Conclusion

I thoroughly enjoyed this book, and am proud to have it as a reference. The “for Dummies” moniker may have caused me to overlook it at first, as some books in that series are overly simplistic. But the fact that this work is part of that series is also why it will likely find its way into more hands, which is a benefit to both the readers and the author.

Ann Logue does a wonderful job of combining “how to do it” with a healthy dose of the caveats and pitfalls of Day Trading, which most authors conveniently overlook.

I highly recommend Day Trading for Dummies to anyone considering making the leap (I will be giving copies as gifts in the future), as well as to my more experienced friends who will find it a great reference and will find that even they can still learn a thing or two, despite the fact that we’re all convinced we already know it all!

Cheers, and best of luck with your trading!

[Note: Ms. Logue provided me with a copy of “DTD” for this review, with no preconditions as to the outcome. The Amazon links above are not affiliate links. You may enjoy the lighter side of Annie in this YouTube video with “Dr. Magic”.]

Just got back from the Blues Jam. Early night tonight.

I was thinking of a friend of mine who’s a musician. He lives in a constant dilemma.

You see, he wants to play his own, original music for others, but they don’t show up to hear his music. They show up to hear the old familiar tunes, the ones they know and can sing along with.

He knows exactly how to bring in the crowds- he can play the cover songs like ringin’ a bell, as they say. He can drive the traffic if he wants to.

Here’s his dilemma: Does he ignore his own music, his passion, and cater to the crowds? Does he play his own songs for whoever drops by, and hope that one day the crowds come to him? Does he stop playing in public altogether?

Or does he continue to play covers, strategically inserting an original of his own now and then once the audience is in the house, so that they have to listen (much like throwing green leaves on a fire once it’s started, hoping it will be hot enough that they will ignite)?

If you gotta play at garden parties, I wish you a lotta luck
But if memories were all I sang, I’d rather drive a truck
But it’s all right now, I’ve learned my lesson well
You see, you can’t please everyone, so you got to please yourself
(Ricky Nelson, “Garden Party”, 1972)

If deflation caused by the credit market collapse overtakes the easing Fed and the falling dollar (leading us into a painful recession), we’ll hear about it from CNBC and FoxNews about nine months too late. Is there any way for the astute individual (who knows what shows up in the “news” is always past-tense) to spot the breakdown as it’s happening?

There is- watch the commodities, they react first.

Keep an eye on the charts of Oil and Gold for a top, see the dollar find a bottom against… everything, and when you’re comfortable we’ve rolled over into the spiral, plan your trades accordingly. What worked brilliantly the last year or so may suddenly stop working, and you’ll find your trades hitting stops instead of profit targets.

That will mean it’s time to get out the old playbook and mix things up, because we’ll be on the field with an entirely different opponent.

Related Links

• Refinancing Subprime Loans to Prevent Debt-Deflation
• Dollar Stronger against the Euro?
• The Fed Should Not Be The Hedge Funds’ Insurance Agency
• Speaking of Deflation…

I am joining the many, many (many) others who are dropping BlogRush in droves. A seemingly brilliant idea, very poorly implemented.

If the plan was just to get the widget on hundreds of thousands of websites overnight… well, it worked, albeit only temporarily. Maybe now that it’s implanted everywhere, they can monetize it by selling exposure via the widget. “Your headline on one gazillion websites for a dollar.” Whatever.

As for BlogRush’s ROI for me, my experience seems to be in line with what I’ve read from others. BlogRush has ostensibly given DummySpots some 35,000 exposures, which have resulted in… wait for it… a total of twelve clickthroughs.

I’d do better to mention to a few people in the hospital cafeteria, “Hey, check out my site.”

If I can get a little time and a bit of gumption, I’ll just create my own widget which cycles recent headlines of my blogroll friends, and perhaps they’ll return the favor.

Otherwise, I’ll just have to stick to that whole damned “content” thing.

I just heard Garrison Keillor reading a poem on Writer’s Almanac, after the news and before the music on NPR. It made my day. Thought you might enjoy it as well. It’s a poem called “When I Am Old” by Ray Nargis from Almost Tomorrow. The link I’ve inserted is the NPR affiliate link to Amazon, so they get the two cents if you buy it.

Here are some excerpts:

When I am old I’ll drink whiskey in the morning
And coffee at night
And laugh and spit and swear wherever I want.
When I am old I’ll help Girl Scouts across the street
Even if they don’t want to go
And I won’t have a car
And I won’t have a bike
And I’ll walk everywhere.
…
When I am old I’ll tell people exactly what I think of them
And surprisingly, most of the time it really will be good stuff.
When I am old I won’t have a TV
And I won’t have a radio
And I won’t have a computer or a clock or a phone in the house.
I won’t read books and I won’t read magazines
And I won’t read newspapers and maybe, finally
I’ll learn something just watching the birds and the weather.

In an email exchange with LP yesterday morning, I’d said that I was not looking forward to entering a trade before what amounts to a 5-day weekend, but that I may have to if we got anything other than another down day-

If we can get a light down day on SPY today then a positive close tomorrow, I’m in (grade of B). A gap down and reversal this morning (grade of A), or light drop today and OGRe tomorrow (grade of A+) and I’m in. Spike down to new lows, then positive close (A). Or just a plain positive close today (B-).

Well, we did get one of those, and I’m in:

The alternative to developing a method and then strictly sticking to it would be to enter and exit “by the seat of my pants,” and I still have a full-time job (which I’m ICK! about to leave for) to prove how well that works.

Coffee Pot Crisis

A little entertainment for this Thanksgiving Eve. My coffee maker is about a decade old, was maybe $20 new, but makes (made) the best-tasting coffee on earth. I’ve even bought newer, more expensive ones, then reverted back to Old Faithful.

Yesterday morning I shattered the decanter. Is it me, or do they make those things out of the most brittle, breaks- into- fatal- shards kind of glass on earth? Anyway, I don’t usually have panic attacks (often), but I did then. Mister, I have GOT to have my coffee!.

Here’s my rather inelegant, but amazingly functional solution (had to tear the no-drip valve out of the basket, but it’s one big coaster anyway now):

“Coffee Pot”

One of my original intentions in creating DummySpots some hundreds of thousands (millions?) of words ago was to share a bit of what I’m thinking as trades unfold. I’m getting back to some of that. If you trade regularly, I doubt my pointing out where (anything) stands in relation to its 200-day moving average will be of much use to you. You’ll already know that, or have decided it’s not pertinent to your trading style.

Instead, I’m offering what I see based on the methods I use, mostly short-period RSI readings, especially the RSI(4).

As always, if it looks at all like I’m telling you to take any particular trade, please see my disclaimer in the sidebar.

Here’s what’s currently pinging off the cold metallic walls of the cavern where my brain should be:

(Click for the readable version)

Please feel free to share your own expectations (or your opinions on mine). Dialog is always welcome, and it’s a great way for us to learn from each other.