Brain Synchronization

To the people who bought my book How Traders Achieve Creative Flow; brain syncing should be thought of as the sixth habit of highly creative traders.

I recently received an e-mail from Amazon.com ($AMZN) stating that Kipp Poe Speicherstarted following me on kindle.amazon.com. According to Twitter, Kipp is an author, independent filmmaker, and a dreamer. Kipp follows me on Twitter and vice-versa.

From now on, every time I highlight and take notes in a Kindle book, Kipp will have access to this information.

Now imagine if I could follow George Soros on Kindle. It would be a different game, wouldn’t it? If Soros highlights a passage and writes notes in a book about trading, I should pay attention because the information could lead to powerful insights about trading. I could access Soros’s brain and his insights in almost real time. You can’t beat that.

Wouldn’t it also be great to access Einstein thinking as he read physics books a few decades ago?

This process of exchanging sophisticated thinking with minimal friction is what I call brain synchronization. You can sync your brain to the insights or ideas of people capable of elevating you. This powerful idea will radically change the processes we use to acquire knowledge.

There is a lot of information on social media platforms right now, but most of it is not intelligent enough to elevate you. It buries you.

In my opinion, some intelligent information will gravitate to the written words in electronic books that will be social-media enabled to facilitate brain synchronization. Trading insights are better digested while reading peacefully in solitude.

Amazon.com$AMZN is the company that is making this a reality as we speak. It will be truly awesome the day Amazon.com pushes this information from people I follow to my Kindle on a daily basis.

I want to drink from that fountain of knowledge and insights. How about you?

From now on, I will be posting trading insights derived from reading awesome trading/investing books under the Twitter hashtag #tradinginsight.

Written by Michael Bigger. Follow me on Twitter and StockTwits.

One of Our Favorite Spreads

It was a quiet week in spread trading for us.  The market seemed to be moving back in forth in a narrow range.  The only spread we follow that made some interesting moves was $SPY-$IWM.  And some of these moves occurred after market hours.  On Monday morning, pre-market, we sold 8 $SPY and bought 13 $IWM for a total of -9.7 per spread to unwind a position.  The spread closed that day at -4.25.  When it made a sharp move after hours, we decided to unwind some more at a level of -1.73.  That’s a decent size move for this spread to cover after hours.  By Wednesday the spread moved sharply again after the close.  The closing price was -7.89 and we were able to buy some back for -10.33.  We’re really not sure what’s driving these moves other than a lack of liquidity.  You can be certain though we’ll have orders out there again this week to take advantage of such sudden moves.

With the Market selling off hard this morning, we will be trading the heck out of this spread.

Written by Norm Winer. Follow me on Twitter and StockTwits.

You Are a Truffle

Imagine a field named Greek Gyros and renowned for the truffles lying at the roots of its every tree. Hundreds of pigs are hard at work trying to dig for the bounty.

Beside this field is another one named LinkedIn($LNKD), supposedly renowned for its truffles as well.

After a few weeks of hard work, the pigs have exhausted Greek Gyros of its truffles. The pigs are getting bored with Greek Gyros, so they decide to migrate to LinkedIn.

The behavior of the pigs migration from one source of food to the next is best described by a stochastic process called a Levy Flight Brownian Motion.

The Levy Flight is a great model to use to model the behavior of media. In our example the pigs are acting not differently than journalists, bloggers (myself included), etc. The food in this case is your attention. Got ya little truffle!

At Bigger Capital, we think there are three stochastic spaces of importance (there must be more than 3) working in concert to affect stock prices:

1. The intrinsic value stochastic process. Internal dynamics.
2. The stock price stochastic process. The market.
3. The media Levy Flight. The Media.
4. And so forth.

Observing how each component is affecting the other is a beautiful market melody. Figuring out how to incorporate these dynamics into an algorithm is our challenge.

You can find out more about Levy Flights right here.

Written by Michael Bigger, author of How Traders Achieve Creative Flow.

P.S. If you are a scientist that has an interest in working on concepts such as the Levy Flight, you might be interested in joining our Creative Space.

The Knowledgeable Know Nothing

The beauty of learning Physics in University was that I quickly realized I knew nothing. And I still do.

In addition, Physics knowledge is a skill set well worth having if you think about it in relation to how you compete against your peers despite not knowing much at all. Physics knowledge opens your mind to understanding the essence of a concept and experimenting with it.

In trading, the advantage of this “knowledgeable know nothing” position is that it combines the humility of realizing you know nothing with a terrific inquisitive skill set.

Maybe the Warren Buffet “Too hard to do” concept has something to do with being knowledgeable and knowing you know nothing.

Written by Michael Bigger, author of How Traders Achieve Creative Flow.

The Gold Spread Moves Sharply Against Us

The spread that occupied most of our attention this week was $GLD-$GDX, and we didn’t even trade it this week.  We have been short $GLD-$GDX since late April and the spread recently moved sharply against us.  The spread is currently trading at its highest level since late 2008.  Of course it’s always a good idea to re-evaluate a position that has made such a large move.  We’ve decided to leave it on for now because we don’t believe there has been any fundamental change in market conditions to justify the current level.  We feel the move is attributable to the recent sell off in silver (and other commodities).  We think this sell-off spooked some holders of $GDX even though gold itself has held up rather well compared to other commodities.  Also, our position is relatively small compared to the size of our portfolio.  We try not to have many positions that are so big that we can’t take a little pain once in awhile.

Written by Norm Winer. Follow me on Twitter and StockTwits.

Your Gift to Them

Wouldn't be awesome to read Russell Sage’s story via his own blog posts as he created calls and puts instruments during the second half of the nineteen century? Or J.P. Morgan’s decision to help the market during time of crisis? Or Jeff Bezos’ detailed account of his decision to leave D.E. Shaw (my ex-employer) to start Amazon.com?

So much uplifting financial experience throughout history has been lost forever. Capturing the insights in real time that led to these financial tipping points changes all that.

It will get very interesting when the new generations of financiers blog the thought processes they use to iterate towards achieving their dream. It will get even better if they start at an early stage with no clue about where the journey leads them.

I remember the day in 1995, when Benoit Lavigne, Co-founder of Innovative Fibers, came to New York to ask me for financial help with his business. I had been preparing for this moment since the day I met him. I saw so much potential in him; I wanted to invest in him.

Sitting on the couch in my apartment, Benoit was trembling as he explained to me the precarious situation his business was in. His sales were growing at 100 percent per annum but he did not have any more money to pay his employees. His inability to raise capital would shut down his business. He got denied financing by a few financial institutions in Canada.

It was just a regular New York day, but at that moment I said to him - YOU ARE DONE!

I wish I could have captured all the subtleties of the raw emotions filling the room at that moment and share them with all of you.

Written by Michael Bigger, author of How Traders Achieve Creative Flow.

What Else Can We Trade Against This?

Sometimes you have a particular spread trade in mind and you can’t do it for a variety of reasons: you already have too much exposure to one of the stocks in the pair, or you can’t get a borrow on the short side, or one of the stocks in the pair isn’t liquid enough, etc…  When this happens it is time to look for a substitute.  Earlier this week we were looking to buy $USO (United States Oil Fund) and sell $XOP (SPDR S&P Oil & Gas Exploration & Production ETF).  In one of our accounts we couldn’t get a borrow on $XOP so we substituted $XLE (Energy Select Sector SPDR).  We like $XOP better because $XLE is heavily weighted toward the major integrated oil companies while $XOP offers a broader based portfolio.  But $XLE is good enough.  As a matter of fact when we originally decided to trade the “Oil vs. Oil Companies” spread last year we did our first trade with $XLE, but later decided that $XOP was the better ETF for our purposes.  So if for some reason you can’t trade one side of a pair, look for a substitute.  You may even find a more suitable security.

As for the results of the trade, unfortunately it moved sharply against us with the big sell off in oil.  But we’re confident it will rebound.  Perhaps that will be next week’s topic.

Written by Norm Winer. Follow me on Twitter and StockTwits.

Trading Spreads This Earning Season

No single spread trade we made this week stood out from the others so we thought we’d mention a few spreads that made large moves.

Earnings season often provides a catalyst for entering into a trade.  On Tuesday II-VI Inc. ($IIVI) was up over 20% after easily beating expectations.  We decided to wait until the stock stabilized before shorting it as part of a pair trade.  On Friday we sold IIVI and bought Roper Industries ($ROP).  By then the spread was trading lower than Tuesday’s levels, but still considerably higher than its one year average.

We typically leave positions on through earnings, and sometimes this works against us.  We were long Mercury Computer Systems ($MRCY), short Stratasys ($SSYS) coming into the week.  $MRCY reported disappointing results and closed Friday 8.5% below last Friday’s close.  $SSYS reports next week.  Another potential catalyst.

$GLD-$GDX has been interesting lately, to put it mildly.  We sold the spread on Monday, and averaged down on Wednesday.  The spread closed Friday at close to its highs for the week despite $GLD being up almost 4% for the week, which would have typically translated to an even bigger move in $GDX.

Written by Norm Winer. Follow me on Twitter and StockTwits.

Is Day Trading a Losing Proposition?

In the past, I found day trading to be a losing proposition.  I lost money day trading when I wanted to day trade.  I find it to be the most difficult aspect of trading I have ever experimented with.

I usually make money on a trade held for a short period when I am buried with work and have only a few seconds to make a decision.  In those cases, I don’t over-think things.  I just make the obvious decision and usually it is the right one.

Leigh Drogen explained to me that by not having the goal of day trading, I choose the best opportunities when they present themselves.  I pick only the low hanging fruit.  Focusing on day trading forces me to do go for some fruit higher up on the tree, and that is where I would lose money.

Recently, we decided to give day trading as a business a second chance. We decided to think creatively and develop our own methods using experimentation rather than use traditional technical and supply/demand indicators. So far the results have been quite amazing despite not using moving averages, Bollinger Bands, level 2 profiles, and other tools. It is still early in the game but we are very encouraged by the results.  

What is your experience with day trading?  Are you using uncommon methods to day trade?

Written by Michael Bigger, author of How Traders Achieve Creative Flow.

The Second Roach Comes Out of the Cupboard

Today we thought we’d provide an update to our $SCSS (Select Comfort Corporation) – $TPX (Tempur Pedic) trade from April 7^th and April 8^th.  On both dates we bought 5 $SCSS and sold 1 $TPX on the back of a rally in $TPX after the firm said it expected strong first quarter results.  In the prior two reporting periods $SCSS’s results mimicked $TPX’s results and we were betting the same would happen this time.  Sure enough $SCSS significantly beat expectations when it reported earnings yesterday.  The stock is up 28% today.  We unwound the spread yesterday after the report for an approximate +13% return.

Also this week we traded in and out of 4*$GLD (SPDR Gold Trust) – 9*$GDX (Gold Miners ETF) for about a +2% return, selling the spread on April 18^th and buying it back on April 20th.  We’ve been more active in this one since the recent rebound in shares of the mining stocks.

Written by Norm Winer. Follow me on Twitter and StockTwits.