Michael Covel: News & Info.

HedgeStreet now offers monthly Yes/No contracts based on the estimated corn and soybean production forecasts released by the USDA’s National Agricultural Statistical Service (NASS). The crop production reports are carefully monitored by commodity futures traders and have a direct impact on prices. The corn and soybean reports are released by the United States Department of Agriculture on a monthly basis from August through November as well as in January. Said John Nafeh, CEO of HedgeStreet: “Corn and soybeans are highly sought-after commodities used in thousands of food items and industrial applications. By trading these new Hedgelets, HedgeStreet members can offset risks associated with rising and/or fluctuating corn and soybean prices or speculate on the direction and degree production forecasts will change.”

A good quick and dirty explanation from Christian Baha’s Superfund (formerly Quadriga):

“There is no system which can immediately and accurately identify the difference between a short term fluctuation and a big, long-term, profitable trend. From time to time, the trading system enters trends, which despite promising signals, reverse very fast. These erroneous signals may cause losses if they occur cumulatively. In so-called sideways periods, when no clear trends can be identified, erroneous signals occur more often. As hardly any clear trends develop during such sideway movements, it is difficult to yield profits in these periods.”
Superfund Newsletter

Most of Wall Street expresses surprise with any decline in any market. Trend followers on the other hand know ups and downs are part of the game. They honestly talk about declines before they ever happen. What do you want? Honest talk about the ups and downs? Or would you rather listen to Wall Street’s silly predictions and cries of “what happened?” whenever there is a decline?

From Reuters today:

“Lachlan Murdoch, considered a frontrunner to succeed his 74-year-old father Rupert as chairman and chief executive of News Corp., on Friday resigned as an executive at the media conglomerate. The younger Murdoch, 33, will leave his post as deputy chief operating officer at News Corp. and publisher of the New York Post tabloid newspaper on Aug. 31 but will remain on the board, News Corp. said…News Corp.’s Australian shares fell 1 percent on Friday to A$22.96, bucking a 0.5 percent rise in the broader market.”

Murdoch’s son resigning is one thing. Connecting the share price movement for any one day to something like this is wishful thinking. This kind of story might be great for all those fundamentalists out there who think data like “resignations” is useful for market predictions, but to the great traders this type of less than critical information, on any one day, is noise.

The following interview is between Trade Center Inc. and Dean Hoffman:

Trade Center Inc.. What is your entry method to the market? Is it price-based or do you rely on some proprietary mathematical formula? Is position sizing done in the same method? How important is position sizing? What do you base position sizing on?

Dean Hoffman. My primary entry is based on some form of trend recognition. It is not merely a function if price but rather a combination of algorithms and filters. I also use money management overlays for position sizing considerations, as it’s a critical component.

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Brett Steenbarger recently authored two articles covering the morality of trading (DOC) and the reprocessing needed to be a winner (DOC). Both very good food for thought.

Bill Swanson, CEO of Raytheon, wrote an unpublished book about management that seems to dovetail in many ways with great trading. Read the Business 2.0 article that broke open the “rules”: The CEO’s Secret Handbook.

Bill Swanson’s ‘25 Unwritten Rules of Management’:

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I was forwarded a nice excerpt today from a trader:

“Clear minded thinking is absolutely critical as a trader. I, personally, know how it feels to be in a trade and you are feeling great about it. Then, all of the sudden, it goes against you and you end up taking a big loss. The feeling is not a fun one, but you have to move on to the next trade and leave any negative thoughts behind. Otherwise, it will lead to your views on the next trade being skewed one way or the other. In the book Market Wizards, Paul Tudor Jones is being interviewed by Jack Schwager, asking about his timing. I don’t have the exact quote, my copy is at home, but Jones is discussing how a headline may read that he shorted the S&P 500 Index (SPX) two ticks from the top. He goes on to say how what the headline doesn’t tell you is that that might have been the fifth or sixth time that he had attempted to short it and had been stopped out on all the previous attempts. How many of you would have the courage to keep jumping in and shorting it after being stopped out two or three times, let alone four or five? While Paul Tudor Jones does not come right out and say “next trade,” he certainly is displaying this type of behavior when he continues to enter trades and continues to get stopped out, but he has the conviction to keep entering the trades. Even if you think I am not worth paying attention to, Paul Tudor Jones certainly is.”
Rick Pendergraft

How good is Jim Cramer? Read PDF white paper that examines Cramer’s “picks”.

From CSI’s Technical Journal:

“Every process you consider [in a trading system] requires some level of decision-making control to force a market profit. Your trading algorithm should have at least one trigger to explicitly buy or to sell a given commodity [or any market for that matter], and to take a profit or a loss as time and market conditions unfold. These triggers, called parameters, can be used alone or in conjunction with other triggers to develop specific trading signals. Overcomplicating the decision that gets you into the market tends to consume statistical degrees of freedom. The more freedom you take out of the market (adding process control), the less chance your trading algorithm will be successful. Factors such as commissions, slippage and inevitable errors made by you and your paid partner, the broker, all impact the likelihood that the market will pay back your risk capital. Excessive parameter control artificially minimizes their impact.”

While my book Trend Following rightfully heaps praise on the Turtles who have had great success, it also casts doubts on those Turtles who became con men. However, the ones who have made “it” appreciate the book. Here is some private feedback from one of the few great ones. This trader has nearly a 20-year record of damn good performance:

“I enjoyed Trend Following very much and thought you did an excellent job on it. Best wishes for continued success, Michael.”
XXX
President
XXX Capital Management