Schaeffer's Trading Floor Blog

Final Figures

by 5/20/2005 5:04 PM
Stocks quoted in this article:

I ended last night's session by saying..."A quick glance of the calendar shows tomorrow is rather light in terms of scheduled events which would seem to argue for a breather in line with what I talked about in the post below. Of course, with tomorrow being expiration, anything can happen...." And judging by the figures below, it appears I was a little too lenient by added that anything could happen, because nothing did.

Index Index Value Point Change Percent Change
S&P 500 (SPX) 1189.3 -1.8 points -0.15 percent
Dow Jones Industrial Average (DJIA) 10471.9 -21 points -0.2 percent
Nasdaq Composite (COMP) 2046.4 3.8 points 0.19 percent
Russell 2000 (RUT) 609.4 -1.1 points -0.17 percent
CBOE Market Volatility Index (VXO) 12.16 -0.18 points -1.5 percent

At least in terms of the broad market indices. A check of the overall picture shows that a few sectors did a little late-day dancing...

Both the semis and networkers made an afternoon push to show moderate gains on the day. However, this was about the extent of the excitement.

Earlier today I looked at the returns since the SPX bottom and noted how the "hot" money has been flowing to technology related groups. In my weekly ETF column for the homepage I recapped this week's biggest movers and touched on the transports so you might be interested in that.

The light action of the day gave me an opportunity to delve into the topics I discussed in the "Open to Debate" Series. A number of you sent me emails on this topic, so feel free to chime in. I have a just a bit more to say on the topic and that is where I will pick up next week...

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Open to Debate Part IV

by 5/20/2005 3:59 PM
Stocks quoted in this article:

Continuing from the post below from the post below ...

Understanding that no edge is perfect and that you should expect losing trades, the topic turns to how you deal with those. The answer to this greatly depends on your trading style and what trading vehicle you use. A conservative stock trader may focus more on loss control while an aggressive options trader may be more concerned with utilizing the leverage of options and trying to ride winners.

If you have not visited our education section, or merely want a refresher, two great resources to start with are the Money Management Guidelines and The Case for Letting Profits Run.

To be continued...


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Open to Debate Part III

by 5/20/2005 3:41 PM
Stocks quoted in this article:

Continuing from the post below from the post below ...

As I was saying, a number of "tweaks" are added to the system and it is put to use - where it fails. And if you have done this yourself and think I am mocking you - that is not the case. I am speaking from first hand experience. I have spent more than my fair share of time on time on that rollercoaster and I have watched others go through the same ride.

The reason for the failure is the "filters" tend not to be well-thought out reasons for not being in a trade but reactions to random events. This sort of filtering is referred to as over-optimization or data fitting. The market is a dynamic event and therefore you need "rules" that are robust enough to withstand changes. But I am drifting off topic a bit....

My intent was to highlight that you should expect "good" set-ups to result in losing trades since no robust system is perfect.

To be continued...


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Stocks quoted in this article:

Here are today's top and bottom performing Exchange Traded Funds (ETFs)...

Top Performing Sector Exchange Traded Funds:

  • Semiconductor HOLDRS (SMH) = +0.93 percent
  • iShares GS Networking (IGN) = +0.71 percent
  • iShares GS Semiconductor (IGW) = +0.63 percent
  • Wireless HOLDRS (WMH) = +0.49 percent
  • Technology Select Sector SPDR (XLK) = +0.35 percent
  • NASDAQ 100 Trust (QQQQ) = +0.35 percent
  • iShares GS Software Index (IGV) = +0.31 percent
  • iShares DJ US Cons Goods (IYK) = +0.28 percent

Bottom Performing Sector Exchange Traded Funds:

  • Internet HOLDRS (HHH) = -0.42 percent
  • Retail HOLDRS (RTH) = -0.64 percent
  • streetTRACKS Gold Shares (GLD) = -0.64 percent
  • Energy Select Sector SPDR (XLE) = -0.70 percent
  • iShares DJ US Energy (IYE) = -0.70 percent
  • iShares GS Natural Resource (IGE) = -0.78 percent
  • Materials Select Sector SPDR (XLB) = -0.78 percent
  • iShares DJ US Basic Materials (IYM) = -0.95 percent

Despite the "buying" I noted earlier, the sector picture is as lethargic today as the broad market indices as not one ETF from my list is able to hurdle the one percent mark. While the gains are muted, there is a slight upward bias in tech related stock and a downward bias in energy...

Note: If you are not familiar with ETFs, make sure you read the Education and FAQ sections in our ETF center.

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Open to Debate Part II

by 5/20/2005 2:51 PM
Stocks quoted in this article:

Continuing from the post below ...

The first important aspect to keep in mind is that no trading methodology is one hundred percent accurate. In other words, there will be times when a trade just doesn't work out, even though is the same type of set-up that you have used in the past. Some traders will find that a large portion of their trades don't work out, but I am getting a bit ahead of myself on that issue...

When a trade fails, it can be very tempting to go back and look for the reason "why". And while this can be a valuable part of the "post mortem" process that all traders should do, it can be taken too far. For example, consider what many traders do when they buy chart scanning software. They create a system and then begin to examine the results.

In order to improve the system, they look at losing trades and add in filters to "avoid" those trades. (Don't take a signal when the stock is below its 50-day moving average.) Inevitably, this added filter excludes one of the "good" trades so the filter is tweaked to single out the losses. (Don't take a signal when the stock is below its 50-day moving average and it is overbought.) This process goes on until enough of the losing trades are eliminated and results look great. The system is put into use and...

To be continued...

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