The Pitfall of Feeling Like a King

Last weekend I updated my wealth spreadsheet and I felt like a king. It reminded me of days when as a teenager selling knickknacks on the street of La Tuque I would go home at night counting my bounty countless times, even smelling it. Hey, money smells better than the local paper mill.

For capitalists money is a way to keep score and man does it feel good when the magic Excel grand total cell updates to a new all time high.

My excitement lasted a brief moment though as I reminisced about how different I felt during the bear market of 2007 and 2008.

In late 2008, I went kiteboarding with a very successful friend of mine who told me before we hit the liquid for a sick session that he had suffered major losses in his investment portfolio. He was considering going back to work to refill his money tank. Ouch!

Our investment portfolio suffered as well. However, following the sage advice of Shelby Davis, I bought stocks with both hands.

“Bear markets make people a lot of money; they just don’t know it at the time.”

–Shelby Davis

The action I took then drove the magic Excel cell all the way to a new all time high. For investors, it is the actions taken then that are making money now.

What should we be doing now? The way I go about answering this question is to flip Davis’ statement on its head:

Bull markets lose people a lot of money; they just don’t know it at the time.

I guess this explains why I recently tweeted this —@biggercapital: I will probably be miserable for the next two years. All I want to do is sell $$

Feeling like a king makes me real nervous. I never make money one or two years down the road when I feel like that.

Are you feeling the effect of the magic Excel grand total cell?

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

Trading the GLD-GDX Spread After The Last Fed Announcement

On the morning of November 2, before the open, we bid $6 for the 4*GLD-9*GDX spread. The spread had closed at about $10 the night before, but we didn’t want to be too aggressive before the Fed announcement later in the day. We felt there might be an opportunity to buy the spread for less than $10 after the announcement. The spread traded close to $10 for most of the day, and we decided to leave the $6 bid in before the announcement.

What happened after the announcement surprised us. Gold sold off, but the price of the spread declined because GDX did not sell off as much as gold. Typically, the spread price will decline with a significant increase in gold, not when gold sells off. At about 2:55 PM, we bought the spread for $5.90. We immediately offered it at $11 and were lifted less than an hour later for more than a $5 gain per spread—not a bad profit for such a short turnaround.

Written by Norm Winer. Follow me on twitter and StockTwits

Sharpening Your Trading Edge

But when the world gets more challenging—scarce resources, predators, parasites—you need to innovate.

-Steven Johnson

Don’t you feel that as a trader, the world we live in gets more challenging every single day? Of course it does. When you and I trade one stock with an opposite view on its outlook, you are trying to take a dollar away from my wallet. And I am trying to do the same to you, faithful readers.

Recently, I wrote The Best time to be a Trader is Now! In the comment section of that post, BC was quick to point out:

I guess I'm missing something here. All this stuff is available to everyone. Hedge fund risk adjusted returns have fallen in last 10 years, not risen. The first statement I'm sure you can debate. But how do you answer the 2nd statement. It's a fact, not opinion.

I mean you've really talked with traders who tell you it's easier to trade now as opposed to 10 years ago? That there's lower hanging fruit now vs then.

I answered:

It is a competitive world and the fruit will always be harder to get if you stand still. But the technology is getting better, and more affordable, and more accessible. Great traders adapt. If you follow this path—using these new technologies and are willing to create, experiment, and invent—heck yes! It is so much easier to concoct recipes that will bring down the fruit from high up in the tree.

The point I make is that to counterattack unrelenting predators, you must create and innovate. If you stand still, the crocodiles lurking underneath the bushes are going to eat you alive. They are going to take it all away from you.

Winners innovate! Innovators create.

Contrary to popular belief, trading is a craft. Like an artisan who develops a craft over a lifetime, it requires a discipline to be exercised daily.

-Mike Bellafiore

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

The Lost Art of Spread Trading

I am repeating this story one more time…

When I traded single stock derivatives at D.E. Shaw, observing my boss trade S&P options fascinated me. He made money consistently though he took very little risk. He was a trading magician. He knew his options market, especially the S&P, and he knew how to trade spreads. He constantly traded in and out, squeezing juice out of the lemon. The lemon never ran out of juice! It was a wonderful thing—a winning trading method.

He started his career trading options for O’Connor & Associates, then worked for Swiss Bank before joining D.E. Shaw. All of them are/were great trading houses.
Most of the best traders I have met trade spreads. They spread different options, stocks versus stocks, indices, stocks against indices, etc. The number of combinations is endless.

The StockTwits stream is populated with one-dimensional, plain vanilla trading stories. Shouldn’t we step up our trading game a bit? I am still waiting for the day someone posts a chart on the stream displaying a two stock combo ratio. Let’s go!

Start looking at the trading world from an exchange of at least two securities. I buy this, and I sell that against it. You might not execute the transaction on these terms, but doing this exercise will help you in the following ways:

• It forces you to look at the economics of both legs.
• A spread removes some of the market noise from the equation.
• You will have a better basis for comparison and analysis.
• It will make you think and open up new areas for exploration.
• It will allow you to understand the word “hedge” in hedge fund.

Does this make sense to you? Did you learn anything?

If you are interested in learning more about spread trading please ping me. We are working on something cool for you.

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

Free and Abundant Information

Two great minds of our time, Jeff Bezos and renowned investor Wilbur Ross, recently discussed information in two separate interviews. Harvard interviewed Bezos in October 2007 and Fortune Magazine interviewed Wilbur Ross in March 2010.

Mashing up Bezos’s and Ross’s insights about information, I built this checklist that helps us think about how we use information in our trading activities:

1. Information perfection is on the rise.
2. Information costs are going down.
3. Market information is timely.
4. Market information is abundant and it overwhelms.
5. Market participants have not demonstrated more ability to gain meaning from more information.
6. Therefore, the value of the expertise and ability to interpret information goes to infinity.

Since it has never been cheaper and easier to access the internet information reservoir, the value of trying to assimilate more of it goes to zero.

Traders should focus on honing their ability to interpret vast amounts of information instead of trying to get more of it.

Experimentation—at Bigger Capital, we have decided to explore the following avenue to boost our ability to interpret information better:

We have begun viewing our interactions with other market participants and information obtained from these interactions as defining an internet space in which we operate. Our challenge is turn that space into a creative space in which ideas can collide, fuse, and recombine into some powerful trading insights.

We are just starting to walk along this dark alley, but we will keep you posted on our progress.

Do you have any insights into how traders can increase their ability to interpret information?

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

The Best Time to be a Trader is NOW!

Traders these days have it all. That's right—you’ve got it all.

I'm not talking about how good a trading market we are blessed with, although you and I both know it’s been an awesome period lately for traders.

What I am talking about are the free trading resources that are available to YOU right now— resources you can use to create some potent trading strategies. Maybe I am so excited by this because I was introduced to computers at the tail end of the punch card era, or maybe it is because I am using this cheap technology to make awesome trading profits.

Here are some of the free trading resources available to you to boost your trading profits:

• Cheap and blazingly fast bandwidth.
• Super-fast computers for $500.
• Free pre-built algorithms allowing you to squeeze the lemon right away.
• Free usage of kick-ass trading APIs. You can use them to trade as many stocks as you want…globally. AWESOME!
• Free usage of the Twitter API. Upon request, Twitter will allow you to use its 10,000-query streaming API.
• Free connection capabilities with almost anyone in the world.
• Top traders sharing their insights via their blogs, Twitter streams, and StockTwits streams.
• The ability to create your own Trading MBA for a fraction of the cost of a traditional program.
• Free single-stock rating system based on different methodologies. Pick a few that float your boat.
• Free single-stock pattern recognition algorithms and tradometers. Check out Zignals.com.

If that isn't enough, check out my free e-book titled Coolest Financial Tools (the download icon is located on the right side of this page).

Make this cheap technology work for you in awesome ways.

P.S.For anyone interested in blogging, networking, and marketing, you should check out How to Get $1052 of Uncommon Business Education for $97. I bought the program a few days ago and it is terrific. It is much better than all the MBA marketing classes I took. Highly Recommended! The offer ends at 10 am this morning.

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

Inspiring Bloggers for Traders and Investors…the Non-Financial Kind

In 42 Tips to Help You Scale Your Trading Business, I said this about Mashup:

Mash up recipes, ideas, and other stuff. The e-book I created is a mashup. The interview @chicagosean did with @evbogue is also a mashup.

Here is a list of some of the bloggers operating outside the financial domain producing big ideas I mash up with my trading philosophy to produce an even better strategy. They make me a better trader:

• Seth Godin: Simply the best. He led me to the Levy flight concept. Seth writes a post daily. It usually contains actionable tidbits for traders.
• Everett Bogue: Insightful perspective on minimalism. Living a minimalist life with low overhead allows you to feel more comfortable taking trading risks.
• Leo Babauta: Leo writes great blog posts at Zenhabits. Trading is stressful, and Leo inspires.
• Chris Brogan: I love reading Chris’s insights about social media, marketing, and human business. Chris and Julien Smith (another great blogger) wrote a fantastic book together titled Trust Agents. Are you a trust agent?
• Corbett Barr: I enjoy reading Corbett’s Free Pursuit and Think Traffic blogs.
• Chris Guillebeau: Chris has been challenging authority since 1978. If you are a non conformist (most traders are), you will enjoy Chris’ blog.

Yesterday I was reading Everett Bogue’s minimalist blog discussing How to Get $1052 of Uncommon Business Education for $97 . I got very excited to discover that this uncommon business education package has been put together by some of the bloggers that have inspired me the most. Last night I bought the courses for $97 and all I can say is WOW! The offer lasts for another 48 hours. After the deadline, the price goes back up to $1052. Check it out at Only72.com..

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

Flowing While Trading

Have you ever experienced that creative moment as you are about to figure out a winning trade setup? A day you wrote a difficult trading blog post and the time flew by? A moment when you could do no wrong trading, although the indices were extremely chaotic and challenging? An instant you pulled the trigger on a big investment even though a severe bear market screamed at you not to do it, but relying on your own conviction and research, you decided to go for it? A period after a long losing stretch when suddenly you turned the corner in positive ways as if your subconscious had finally resolved it?

If you answered affirmatively to any of these questions, you have experienced flow.

Mihaly Csikszentmihaly wrote in his fabulous book titled Flow: The Psychology of Optimal Experience:

I developed a theory of optimal experience based on the concept of flow—the state in which people are so involved in an activity that nothing else seems to matter; the experience itself is so enjoyable that people will do it even at great cost, for the sheer sake of doing it.

The best moments in our lives…are not the passive, receptive, relaxing times… The best moments usually occur when a person’s body or mind is stretched to its limits in a voluntary effort to accomplish something difficult and worthwhile. Optimal experience is thus something that we make happen.

During our ascent to becoming better traders, taking the right course of action for improvement will lead to an increased experience of flow. Achieving the optimal trading experience will enrich a trader’s life in more than a monetary way. A trader could gain satisfaction from being challenged, from the act of creating, or just from the pleasure of doing the work.

As traders, are we paying enough attention to how we flow and how we lengthen our experience of flow?

I am currently working on a book about flow and trading. It would be awesome if you could share some of your flow experiences with me. Thank you in advance.

BTW...I wrote this post about flow a few months ago. You might find it interesting.

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

An Ear to the Ground

Bear markets make people a lot of money: they just don’t know it at the time. ─Shelby Davis

I got really excited on November 10 after @fledgingtrader pointed me to the following blog post written by Curtis Faith Be Careful – Market in Danger Zone.

Faith predicts a bear market that might retest the 2008 bear market low. Most big market predictions like this one usually turn out to be wrong. However, Curtis has been right before and there is something to say about keeping an ear to the ground and verifying if his prediction is unfolding.

Here is a passage about the timing of bear market from our e-book In Praise of Speculation!:

When stock prices do not rally beyond the prices at which they were before the break occurred, it is a sign that the turning point has been reached and that the bear market has started, although the majority of people do not realize this until a long time afterwards.

I recently wrote the post titled Why Our Investment Blog Is Boring. This post explains why we love bear markets so much.

What do you think? Are we on the verge of a big bear market? If so we have the cash, and are ready for it!

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

Where?

When I enrolled in B-School in the late eighties, my path was clear. I wanted to become a trader- nothing else, no compromise. Been there, done that. Today, we are trading more than ever.

When we started our hedge fund in 2004, our path was clear. We created the strategy and the marketing material, and we raised money.

When I started my blog in 2009, again my path was clear. I was going to post some business stuff my kids could use when they grew up. I was wrong about that one! Writing a few posts about investing and trading nudged our business in the direction of the Internet, and the Internet vortex sucked us in, changing us in radical ways, never to be the same again. Our business genes have been altered forever.

Here is how that nudge has affected our trading business in one short year:

• The traffic on our blog has mushroomed.
• We now blog for StockTwits.
• Our number of Twitter followers, although not huge, has increased dramatically.
• Some of our followers have changed us in many positive ways. They bring fresh insights to the discussion on a daily basis.
• We get profitable ideas from some of our followers- they've made us quite a bit of money actually!
• We get a trading pit kind of vibe from the community, and it helps us trade better. How cool is that?
• Overall, it feels like we are in the flow.
• We have published an e-book, we contributed a chapter to a book to be published soon, and we are working on another awesome book.
• Our algorithmic trading business is firing on all cylinders.
• Etc.

Where are we going with all this?

The honest answer is that we have some vague ideas but no definite answer. The Internet gives us feedback on a daily basis as to the quality of the work we do. It tells us whether the work is poor, so-so, or great. It is brutally honest that way. And that is fantastic, because you learn what resonates and what does not, preparing you for the next iteration you take along the path. That high-resonance, iterative path is what we are following. The final destination is unknown.

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