Tuesday, October 22, 2013

Review of SpreadTheTrend.com

In my prior post about Adventures in Autotrading Services, I discussed my overall experience to date with a handful of autotrading newsletter services.  And in conclusion, mentioned how one program has actually delivered solid results so far.  That service is SpreadTheTrend.com.

OVERVIEW
SpreadTheTrend is a iron condor/credit spread newsletter services run by Derek that trades the SPX index options.  Derek posts on Twitter under @spreadthetrend, doesn't have a chatroom, and communicates primarily by email, although he does publish a phone number which I've never tried. 

THE WEBSITE
The website is in the process of being revamped, so the information below could become somewhat dated soon.
  • The non-member/public portion of the website has some helpful information including a very helpful FAQ's, how to get getting started, performance page, etc.
  • The members section contains a couple dozen or so tutorials diving into more details regarding trading credit spread options strategies.  There's a lot of useful information in there and it's not overly technical, so it's relatively easy for a beginner with some basic options knowledge to understand.  But since I'm autotrading, I admit I haven't studied these posts as much as I should.  Maybe it's time for me to revisit them.
  • The performance page format has changed starting this year.  However, you can still see the prior years in the older (and less detailed but easier to read) format.  I started with this program in Q1/2013, so I don't have actual performance results prior to that time.  But from what I have heard from others, the posted performance on the website going back a few years matches their actual account performance very closely.
COMMUNICATIONS
As mentioned earlier, the primary source of communications is via email.  Since I subscribe to his autotrading program for hands free execution of his signals, my interaction with Derek has been very minimal, only via email.  His response time has been timely, usually within several hours or less during the weekday.

For those who manually execute his alerts, there are examples of how his alerts are emailed on his website.  Pretty straightforward.

MARKET COMMENTARY
He also sends out market commentary on a weekly basis, or more frequently as conditions change.  I admit, I was initially ignoring his market commentary emails since I was in autotrader mode and didn't really want to know what's behind his signals -- I just wanted results.

However, I now look forward to reading his market commentary.  His emails are far from dry and technical -- they often have a entertaining and sometimes quirky or snarky tone (I mean this in a positive way), ranging from rants regarding the "cabal" propping the markets, some subscribers getting too nervous about current positions (or complaining about being in cash too long), or whatever is the topic de jour.  But in the end, his commentaries consistently contain very valid insights and perspectives.

He often says he has no idea what the market is going to do, which might lead you to initially wonder whether he's the right guy to lead the ship across the ocean.  But read carefully and you'll see that his commentary is peppered with wise trading wisdom that can only come from years of trading experience.

DOESN'T SEEM TO ADVERTISE MUCH
For whatever reasons, Derek is yet another newsletter service proprietor who doesn't advertise or market himself very much in his communications.  You won't see "BOOM" or "nailed it!" type comments from him.  It's hard to tell from his Twitter posts that he even offers a successful alert service.  Maybe it's because he's content with his subscriber base, or maybe he'd rather grow based on referrals and focus on trading.  I'm finding that a lot of the good services are very low key, and they probably like it that way.

THE BOTTOM LINE
Ultimately, just look at his past performance and results speak for itself.  I often sense an interesting dichotomy between his market commentary vs. his timely trade executions, and believe it comes down to his unique and intuitive feel for the markets, which can change quickly due to market conditions.  His trading seems to be far from mechanical, and that's what I have come to appreciate about his trading style.

Here's a breakdown of my P&L based on the autotrading service:
  • $5,959.45 in profits net of commissions since starting in February 2013
  • About 24% net return year to date since late February, based on a $25k allocation
  • The net return does not factor in subscription and autotrading fees
  • I started with a decent drawdown, at one point unrealized losses were around 15-20%.  So right off the bat, I was able to see how Derek managed difficult conditions, and in hindsight, he handled the situation very well.  Many other similar services panicked and booked big losses.
    P&L curve generated by TraderVue.com
  • The report below indicates a 81% winning percentage
  • However, this is based on how I grouped the various legs of the trades together in Tradervue (which were grouped by expiration month)
  • But if you track the trades based on how they rolled (if applicable), the accuracy would be higher
  • The profit factor is a very respectable 2.50
  • And the probability of random chance is < 10%, meaning these results are not likely due to luck
Statistics report generated by TraderVue.com
MOVING FORWARD
SpreadTheTrend is a keeper, assuming the results remain within acceptable historical ranges, which I believe they most likely will.  Although my primary goal is to diversify with other autotrading programs, I will likely scale up my investment in this program next year.  So if you're looking for a solid program to begin autotrading credit spreads and iron condors, SpreadTheTrend would be a very good program to consider. 

Adventures in Autotrading Services

Currently, I have 3 ongoing trading initiatives:
  1. Discretionary:  Discretionary trading strategies -- primary swing trading stocks and stock options.
  2. Algo systems:  Develop and manage mechanical trading systems
  3. Autotrading:  Research and invest in autotrading newsletter services
One of my goals for this year was to explore "autotrading" services/newsletters.  Since "it" (auto trade, autotrading, automated trading, signal providers, trade copy, etc.) can mean different things to everyone, I'll define it as an alert newsletter service you subscribe to, which then executes their trade recommendations in your brokerage account automatically.

It's an interesting space -- somewhat between alert service and chatrooms on one end, vs. managed futures accounts and perhaps some types of hedge funds on the other end. 

NOTE: One key point -- like most chatrooms, autotrading services are usually not operated by registered investment advisors, so be aware of your risks (very high) and recourse options (very low).

One of the main reasons for investigating autotrading services is to try and diversify my trading "business" and to hopefully recapture more time for my family as well as non-trading goals.  We'll see if that's possible in such an all encompassing field such as trading, but I going to give it my best.

This year, I've participated in a handful of autotrading services in various asset classes, including index options, stock options, stocks, and futures.  This "experiment" was all conducted with actual live accounts, since ultimately, there's only one way to find out how a program performs.

The autotrading world is a much bigger business than I expected, and I've only scratched the surface.  But if you haven't yet explored it, here are a few ways to find out more.

HOW TO RESEARCH
I've found that the services are generally clustered around a particular asset class (such as stocks, options spreads, forex, etc.).  Here are some sources I've found useful for further research:
  • Google search "auto trade stocks" or "auto trade options" or "auto trade credit spread" or "iron condor newsletters" or whatever other keywords you can think of.  There will be tons of sites that come up.
  • Global-Autotrading.com - this company acts as the agent or middle man between the alert services/newsletters and your broker -- they take what the newsletter recommends, and executes the trade on your behalf at your broker.  You can see a list of all the newsletters they cover here.  For my autotrading program, I use this intermediary service linked with my brokerage account at Interactive Brokers (IB).
  • Dittotrade.com - this stock and stock options brokerage also acts as a autotrading agent.  See a list of newsletters and lead traders that you can follow on this webpage.  I have an account with Ditto, and have used the account with both a Ditto autotrade service, as well as a standalone brokerage account.
  • Pro-trading-profits.com - I'm not a member of this site, but they will take actual results from subscribers of newsletters, aggregate it, and provide that information to their subscribers.  You can see a list of what they track here.
  • Collective2.com - I have not used this site, although I know someone who has subscribed to some services they offer.  They are somewhat similar to global-autotrading.com, in which they act as the middleman between those who generate trading signals and your broker.  The autotrade section of the website is nicely designed, with the ability to quickly search for various systems and evaluate their performance.
  • Currensee.com - Another site which I have visited, but never utilized.  This site focuses on forex traders, and you can see the leaderboard here.
  • MyFxBook.com - Last but not least, this is another site focused on forex systems that appears to have recently offered a new autotrade service.  You can also see their most popular systems here.
  • Investimonials.com / forexpeacearmy.com - Many of the newsletter services you find above can be researched via these review sites.  I've actually contacted some people who posted comments on these sites and have gotten some great feedback.
HOW I GOT STARTED
Like many things, it was a somewhat of a fluke.  I accidentally received information about a iron condor credit spread newsletter late last year, and that made me recall learning about those strategies over a decade ago.

They say something like 90% of options expire worthless, so why not be the one that sells/writes the options and keeps the premium with a 90% win rate?  But here's the catch -- if you write options, the only thing to be worried about is the 10% of the time when the trade goes against you, and your losses are theoretically limitless.

I didn't like the thought of unlimited losses.  But I liked the idea of having a steady "income" via writing options spreads such as iron condors, which at least limits the downside risk.  I wanted to move forward with this trading strategy, but didn't want to deal with having to execute and adjust/roll all those iron condor legs, which seemed like one big complicated hassle.

After deciding to move forward with autotrading, here are the steps I took:
  1. Subscribed to a credit spread/iron condor newsletter service
  2. Opened an account with Global-Autotrading.com
  3. Opened a brokerage account with Interactive Brokers 
  4. Requested Global to link the newsletter service and  brokerage
  5. Set the allocation per trade (i.e. % of portfolio or $ amount) for each trade
WATCH THE COSTS
A big point of consideration are the overall costs.  Depending on your portfolio size, costs can be high as a % of assets and/or profits.  Here's a general ballpark cost structure for stock and options trading.
  • Newsletters range from $30-$150+/month
  • Global-Autotrading charges based on number of newsletters subscribed:
    • 1st newsletter = $70/month
    • 2nd newsletter = $30/month
    • 3+ newsletter = $10/month for each additional
  • Interactive Brokers doesn't charge any fees for autotrading.  But what's interesting is that because all the accounts managed by Global are aggregated under one adviser umbrella, you benefit from reduced commissions as volume tiers are exceeded within the calendar month.
  • Dittotrade doesn't have a monthly fee, but each of their newsletters/alert services have varying monthly fees.  And their commissions are middle/high end of the road, about $6/trade (and additional $.75/contract for options).
  • There are some options brokers which work directly with some credit spread newsletters and either don't charge any autotrade fees (tradingblock.com), or minimal $2/trade (eoptions.com). 
    • In those cases, you can avoid the global-autotrading service and monthly charges.  Their commissions can also be as low as $0.75/trade, with no ticket charges.  However, your fills may or may not be as reliable as using the Global-autotrading and IB combo, although it's hearsay and I have no firsthand evidence.
So depending on your portfolio size and/or returns, costs as a % profits can vary widely on a net return basis. For example:
  • Using the higher range ballpark cost figures above on a $5k portfolio, you would need to make a 40+% net profit in a year, just to break even on your autotrading related costs! 
  • Compare that to a $50k account, which would require a 4% net profit annually to break even.  Big difference.
SO, HOW'S IT WORKING OUT?
Surprise!  Most autotrade programs I've tried just haven't delivered.  Maybe it was bad luck with the selection process, or maybe that's just the way it is with most autotrading services  Keep in mind my sample size of autotrading services is very small.  But the bottom line is I've lost several thousand $'s on "autotrading research." 

DID ANY AUTOTRADING SERVICE WORK?
Yes, there has been one autotrading newsletter that ended up meeting/beating expectations, so I am considering scaling up my investment in that program.  I've posted a review of the performance to date on a separate blog post here.  

NEXT STEPS
It has only been less than a year since I began this journey into autotrading services, so I'm still tracking the newsletters I'm subscribed to as well as continually evaluating other potential ones. 

I'm finding that this is not a process that can be accelerated very quickly, except perhaps from others who subscribed to other newsletters and are willing to share their real time results or experiences.

So if you're someone who is interesting in sharing autotrading newsletter results, it would be great hearing from you.  Like any other endeavor, there are some good opportunities out there, but only after working hard (or luck) at uncovering those few autotrading gems.

Moving forward, I will continue to research potential autotrading candidates, invest a small amount in promising candidates as a test, and if results are within an acceptable range, scale up.  Ultimately, I would like to diversify into 3 to 5 autotrading services across various assets classes and trading methodologies.

Stay tuned as this interesting journey continues.

Friday, October 18, 2013

Review of TheTradingWife.net

Now that enough time has passed and hindsight analysis becomes 20/20, it's clear that joining Danielle's TheTradingWife.net chatroom had a big impact on my overall swing trading performance, as discussed in my prior two blog posts here and here

This is my unsolicited review of her service.

BACKGROUND
I had been a follower of Danielle via @thetradingwife on Twitter for a while and knew she also had a credit spread options service.  So when I started exploring various credit spread services around the end of 2012 and contacted her for more details, I found out she was no longer at that website. 

She said she was planning on starting her own service, so I got on her trial when it opened up.  In hindsight, it was a good serendipitous series of events.

Since launching her service earlier this year, Danielle has been positively mentioned by @the_real_fly on his ibankcoin.com website back in February, as well as profiled in this month's (October) Active Trader magazine.

IT CLICKED FOR ME, BUT...
My belief is that there are no secrets with successful trading.  Everything you need to know is already out there in the public domain.  I believe one of the biggest challenges of successful trading is to "simply" discover what methodology works for you, as well as having the proper mental attitude.

One way to find out is to just keep trying various techniques and/or chatrooms in a methodological fashion until you find something that works -- but before you run out of financial and/or psychological capital.
I had studied many swing trading methods thru the years, so I am very much aware of the many different variations of trading.  However, I had yet to package up a method that I felt comfortable with, which also aligned with my personality and style and produced consistent results. 

After joining TheTradingWife.net and learning her overall process and methodology, I was surprised to learn how well her methodology resonated with me and with my own particular preferences I've picked up along the way.  And after nearly a year, my performance trading her method speaks for itself.  Note that my results are not based on her alerts -- I wanted to learn how to fish, not simply be given it.  As mentioned earlier, my actual results are here and here.

Will it work for you?  I have no idea.  And no one, except for yourself, will know for certain until you give this or any other trading methodology a fair shot.  If the overview below seems interesting to you, then it might be worth investigating.

MORE DETAILS ABOUT THE METHODOLOGY
You can see many blog posts and charts on TheTradingWife's website to give you an example of her swing trading method.  In a very simple nutshell, the swing setups are based on a combination of these criteria:
  • Going with the daily 8 ema trend.
  • Candlestick patterns such as left-right, belt hold.
  • Chart formations such as rounded bottoms, J-hooks, and frying pan bottoms.
  • Riding that trend until an appropriate signal appears to exit the trade.
  • "Trade small and often"
  • Position sizing no more than 10% of portfolio (sometimes half size), and generally, risk per trade much less than 1% of portfolio.
  • Importance of staying out of the market during unfavorable conditions.
  • Understanding emotional and psychological control when trading.
  • For example, she will pass on a trade if she feels "emotions" about a particular stock. The way she explains this as it happens really hits home with me.
THE CHATROOM
This is not your typical chatroom full of emotional chest pumping daytraders shouting out boom at every opportunity.  So if you're looking for that kind of excitement where everyone is hi-fivein' and hootin' and hollerin' after "nailing" a few penny scalp, this is not the place for you.

TheTradingWife's chatroom is a much more relaxed and congenial place for those looking to learn how to trade for bigger % gains on a swing trading timeframe.  There's a good mix of content in the conversations -- heavy on trading obviously, but also open to current affairs, music, humor, etc. during slower periods.  It's like a friendly neighborhood pub.

BENEFITS FROM THE CHATROOM
  • First of all, access to Danielle in the chatroom throughout the trading day (and often into the night) regarding any question you may have.
  • In addition to live interaction via the chatroom, receiving realtime email alerts on stock entries and exits are great for those not glued to their computers.
  • On occasion, she'll launch a video chat so that you can view her charts and comments.
  • Great contributions from other members, but especially from the prolific and very knowledgeable "G.G.", who posts relevant and timely comments/charts throughout the day -- from very early morning to often late into the night. 
These days, I'm not around as much to monitor the chatroom in real time, but having a transcript to review is very valuable, especially since Danielle does a great job commenting the reasons why she took (or didn't take) a particular entry or exit.  If you take the time to study this the transcripts, there are usually some solid lessons.

THE BOTTOM LINE
Check out her closed P&L performance on her blog here.  And her open positions are listed on the top of her homepage.  I've watched enough of her trades in real time over many months to know these results are realistic.  She prides herself on transparency.

I'm not sure if many are even aware of the service she offers, since she doesn't really market or hard sell her chatroom -- it's just not her style to boast with tweet after tweet after booking a +30% trade, to join her room.  But maybe she should do just a little more self-promoting so that others could learn and benefit.

So if you're truly interested in working hard to learn how to swing trade based on her successful methods, she is a willing and capable mentor who will take the time to teach you in a congenial and supportive environment.  I'm just one of many who have had the privilege of benefiting from her mentorship.

Monday, October 14, 2013

The quest for consistency - Q3/2013 results

In my prior blog post almost 4 months ago, I commented at that time that I was profitable 6 out of the prior 7 months in my swing trading account.  Since that time, performance results have continued to remain consistent. 

Around that same time, I also made some changes to my swing trading.  I had a nearly forgotten IRA account at ETrade, and the account had been primarily in a money market fund making paltry < 1%/year.

But I was notified that the money market fund was shut down, thus leaving the account in all cash.  Well, at current money market yields where they are, being in all cash isn't much of a difference, but at least I was now "free" to trade in that account.

So I began actively swing trading my IRA account around the end of June. Here are some specifics of that account:
  1. Due to IRA status, it is a long only and cash based (no margin) account
  2. A steep $10/trade commissions. So that's $20/round trip, and even more when scaling out of a position.
  3. The starting balance was a little over $30k, so it larger than my prior swing trading account.
So how did I do swing trading that account, with a much less favorable commissions cost structure?  Given the conditions, respectable.  Here are my actual results:

Performance by month from Tradervue.com

June - October 2013 statistics from Tradervue.com

Trade distribution from Tradervue.com
TRADE AND ACCOUNT RISK MANAGEMENT
From the trade and account risk management perspective, my risk management was even more conservative than with the prior account:
  1. Except for a few dividend yield plays, my risk per trade was generally around 0.2% to 0.5% of my total account, often on the lower end of the range
  2. Position sizing per trade was generally < 5% of the total portfolio
  3. Total position leverage was on average < 50% but maxed out at around 85% for a short period
MY THOUGHTS
  • This swing trading method has worked for me over the past 10+ months, and appears to be process with which I can remain consistent.
  • However, a one year performance is nothing in the world of trading.  And I'm always wondering if the markets will change enough to negatively impact my future performance.
  • How would I do in a overall downtrending market, since I'm in a long only account?
  • Had I used a less conservative position sizing and/or more aggressive risk per trade, my returns could have conceivably been 2x higher.
  • How much can I really size up my trading before I run into growth limitations?
  • Commissions accounted nearly 25% of my gross profits (!!!), especially since my positions were usually small, only just a few hundred shares.  Had I used IB or TradeStation, my net returns would have been significantly higher.
  • Even with swing trading, I still fight revenge/rogue trading at times, but it's very infrequent compared to daytrading.  I realize that this challenge will likely never go away.
  • Trading with small risk per trade has been key.  I simply trade the solid setups, and follow the rules with little emotions.
  • My greatest challenge now is to stay motivated and to remain consistent with following my overall swing trading process. 
LOOKING FORWARD
As my discretionary trading continues to improve, my trading time continues to get squeezed due to increasing family commitments. 

My main goal now is to work hard now to diversify my trading business so that by doing so, I gain more time for non-trading activities in the future.  I'm continuing to explore autotrading services, as well as ways to trade other methodologies and products.  I've also reignited the development of mechanical trading systems with some promising results.
 
It's a very interesting and exciting time for the retail trader, with tools and services currently available that most (especially me) could not have possibly imagined even 10 year ago. 

Friday, June 21, 2013

Making The Turn / 2013 Trading Resolutions Revisited

I've winded down my trading for the month of June, since I'll be on vacation for most of next week.  And since we're at the halfway point of the year, it was a good time to do some reflecting and analyzing of my trading to date.

As of today (Friday, June 21st), I am up 15% for the month of June.  And based on the open positions I still have, it should not go down by more than a couple % points even if they are stopped.

On a longer timeframe, I have been profitable the past 6 out of 7 months.  Here is a chart of % returns based on closed trades (net of commissions) on my swing trading account for 2013.
My average number of trades have also consistently averaged around 22 trades a month.  No signs of overtrading.

TRADING RESOLUTIONS FOR 2013 - REVISITED
I wrote the following resolutions back in March 2013.  More details here.
  1. Stop overtrading/revenge trading/daytrading
  2. Lower expectations of returns and trade small to help build solid trading habits
  3. Explore and implement other trading methods, products, and time horizons
  4. Start thinking of returns based on % risk (R), not $'s
1) Stop overtrading/revenge trading/daytrading: ON TRACK
Based on the chart above, there is no sign of overtrading.  I've only had a handful of daytrades, and it's usually because I get stopped out quickly, or had such a good winner I needed to take some off the table.

There have been a few rogue trades, but it's a small % of total trades.  And revenge trading is nearly non-existant, since I'm no longer in the daytrading mindset.  Every trade I take is with the expectations of holding overnight and for several days or more.

I have also deliberately kept my account below $25k, so that I am subject to pattern daytrading rules (PDT).  This has been one of my best decisions.  TradeStation prevents me from entering the final trade that would trigger my account to get flagged under PDT.  This helps to prevent me from overtrading, and to get into the habit of thinking carefully about each trade I enter.

2) Lower expectations of returns and trade small to help build solid trading habits: ON TRACK
Trade small and often, is something preached and practiced by @TheTradingWife.  I've also watched @TheLincolnList daytrading live and consistently profitable for over a year with generally a few hundred share sized trades.  And those crumbs add up to very impressive daily/weekly/monthly returns. 

Following their examples, I've established small position sizes as a % of my portfolio for each trade, and that easily allows me to sleep at night.  This helps me to follow my rules and let each trade properly play out without interference or sabotage.

Letting each trade properly play out means I'm building good habits.  That's huge.

In the past, I used to want to make 25-50%/month or whatever crazy expectations of returns.  But a funny thing happened when I stopped caring as much about P&L returns and started to really care about simply following my trading plan -- it resulted in being consistently profitable.

As those who play golf are well aware, when you really try and swing the club hard, the worse off the shot usually goes.

3) Explore and implement other trading methods, products, and time horizons: ON TRACK
This probably requires a separate post, but the autotrading experiment has been very interesting.  The goal was to diversify my trading via other traders/trading services.  Similar to how you can diversify long term investments between various types/styles of mutual funds.

My timing to start was unfortunate based on market conditions, so I'm currently down about -10% year to date in my autotrading account.  But I've learned a lot and still see great potential.  In fact, in addition to my Global Autotrading account, I'm also in the process of opening up an autotrading account with Ditto Trade.

Compared to even 5-10 years ago, the opportunities today to diversify your trading opportunities are amazing.  In essence, you can now outsource your trading and manage it like a business.  Simply hire and fire traders/services based on whatever criteria and business plan you setup.

Here's an analogy.  There are an amazing number of talented people out there, such as musicians, that in the past would never have been discovered.  But YouTube has created a distribution channel where you don't need to be "discovered and chosen" by the old school record industry establishment in order to reach a mass audience.

On a similar note, we're entering a new era for talented and dedicated traders who don't have the right connections or pedigree in order to gain employment at hedge funds or premier investment banks.  Platforms such as Ditto Trader are a game changer for those skilled traders who want greater exposure and opportunity.  This is just the beginning.

4) Start thinking of returns based on % risk (R), not $'s: ON TRACK
There was a recent upgrade to TraderVue that has made it much easier to track performance based on R-Multiples.  I'm still in the lengthy process of updating my trade data to support the new reporting features based on R.  But once completed, this method of reviewing performance will provide a risk based return, rather than return alone.

I'm guilty of this, but it's so easy to say "I made a 2000% return on my options trade" without understanding the proper risk context.  Was your risk or position size of that trade 1% of your portfolio or was it 50%?  Because there's a BIG difference in the impact and risk of that 2000% return trade.

And as I've said many times before, thinking in % terms also helps make it easier to scale up.  Because over time, as I meet my goals, I plan on scaling up significantly.

HAVE I MADE THE TURN?
It sure hasn't feel like a switch suddenly turned on, at least not yet.  However, I am feeling a much greater sense of clarity and confidence with regards to what works for me, and my results indicate likewise.

But the efficiency of my trades are far from optimal.  I still make sloppy mistakes, and my execution still has a lot of work necessary.  However, my upside feels limitless.

It has only been about a  half year of consistent profitability, so in the big scheme of things, that's not much.  But so far, this track record is a huge accomplishment for me and I feel proud.  I set a goal, I'm accomplishing it, and I will continue to meet my goals and raise the bar.

It has been almost 2 years since I wrote the post about The Moment.  My moment is still here.  And I remind myself, "How Bad Do You Want It?"