I recently finished an article for SFO Magazine with Henry Carstens, the system developer who contributed a worthy best practice for the series a while back. I continue to feel that Henry's introduction to testing trading ideas is the best article on the topic I've ever read.
For that reason, I was only too happy to write the current article with Henry. This article deals with something we call hybrid trading: the blending of discretionary and system trading styles.
If you recall, Henry worked with a blog reader and successful trader to help him extend his edge. Since that time, he has extended his ideas regarding helping discretionary traders become more systematic and consistent in their trading.
The creative idea that underlies the article is that successful traders can articulate their trading ideas and approaches to a system developer (with assurances of confidentiality, of course), who also studies the actual trades placed by the trader. From the account statements and the trader's own descriptions, the system developer identifies the rules behind the discretionary trader's trading.
Once the developer has this initial set of rules, he can then test the rules and improve upon them as part of system development. The result, for the trader, is a trading system that trades the trader's way. Many trading systems don't work for traders because they involve larger risks and drawdowns and different activity levels than are right for the trader. When a system is developed around *your* trading style, however, you're most likely to be able to use it out of the box.
The beauty of this hybrid is that you can accept or override its signals as you see fit. This enables you to see exactly how much your discretionary judgment adds to the performance of your basic rules. Moreover, you can automate your system so that you will be trading, even when you're not in front of the screen. This frees you up for other tasks and priorities, including (perhaps) developing new trading methods for other markets. Eventually, you could have a dozen computers trading just like you across different markets and time frames.
My sense is that this idea will be a particular boon to proprietary trading firms, enabling them to leverage the skill sets of their traders. A profit sharing arrangement between the trader and the firm to let a computer trade the hybrid method would prove a win-win--and it would help firms make the most of their talented traders. Too, a system developed to reflect a trader's own style could serve as a mentoring tool for beginning traders who might study under the expert trader.
I come across new ideas every week, but I have to say this strikes me as one of the most promising ones in quite a while. I'll post the link when the SFO article comes out.
RELATED POSTS:
Blending System and Discretionary Trading
Every Trader is a Trading System
Friday, May 18, 2007
Thursday, May 17, 2007
Market Notes for a Thursday
* Thursday makes the fifth consecutive trading session in which we've seen an ARMS Index below 1.0. Indeed, the five-day reading of .73 is one of the lowest readings we've had since 2005. Going back to 2005 (N = 592 trading days), we've had 97 occasions in which the five-day ARMS Index (or TRIN, as it's also known) has been below .90. Five days later, the S&P 500 Index (SPY) averaged a gain of only .07% (52 up, 45 down), much weaker than the average gain of .24% (298 up, 197 down) for the remainder of the sample. When volume is concentrated in the rising stocks over a five-day period, returns have been subnormal over the following week.
* Equity put/call ratios continue to drift lower, indicating no noticeable fear in the market despite the recent small cap weakness. Indeed, the five-day reading as of Thursday is the second lowest level since March.
* The small caps continue weak, with the Russell 2000 futures closing at their lowest level since mid-April. On Wednesday, we saw 20 new 52-week highs among S&P 600 small cap issues and 16 new annual lows! Thursday saw 21 highs against 12 lows. Hardly the stuff of roaring bull markets.
* Hats off to CXO Advisory's blog; they consistently summarize interesting research. Here CXO takes a look at companies that are good to work for and whether they're also good investments.
* The Kirk Report does a great job scouring the Web for news. The recent market watch links include James Altucher's look at 10 stocks with significant insider buying.
* Interesting new ETF from Claymore (CGW) is a way of trading companies involved in the clean water/water-as-natural-resource theme. The holdings are global, making this somewhat different from other investment alternatives.
* The scans are showing lots of NR7 patterns for Trader Mike.
* Yet another way of tapping home equity and keeping the boom going: Seeking Alpha. But Barry Ritholtz shows that housing needs more than a little stimulus.
* Equity put/call ratios continue to drift lower, indicating no noticeable fear in the market despite the recent small cap weakness. Indeed, the five-day reading as of Thursday is the second lowest level since March.
* The small caps continue weak, with the Russell 2000 futures closing at their lowest level since mid-April. On Wednesday, we saw 20 new 52-week highs among S&P 600 small cap issues and 16 new annual lows! Thursday saw 21 highs against 12 lows. Hardly the stuff of roaring bull markets.
* Hats off to CXO Advisory's blog; they consistently summarize interesting research. Here CXO takes a look at companies that are good to work for and whether they're also good investments.
* The Kirk Report does a great job scouring the Web for news. The recent market watch links include James Altucher's look at 10 stocks with significant insider buying.
* Interesting new ETF from Claymore (CGW) is a way of trading companies involved in the clean water/water-as-natural-resource theme. The holdings are global, making this somewhat different from other investment alternatives.
* The scans are showing lots of NR7 patterns for Trader Mike.
* Yet another way of tapping home equity and keeping the boom going: Seeking Alpha. But Barry Ritholtz shows that housing needs more than a little stimulus.
A Tale of Two Markets
On Wednesday, we saw a bull market high in the S&P 500 Index (SPY; blue line) and an all-time high in the Dow Jones Industrial Average. At the same time, the Russell 2000 Index chalked up a two-week low. The result is that we actually had a day in which more stocks on the NYSE, AMEX, and NASDAQ registered 65-day lows than highs (pink line) on a day in which large caps made new highs.We can see that, since April, the rally has become more selective as we've moved higher. Indeed, according to the Barchart site, Wednesday's highs were accompanied by 603 stocks making fresh 20-day highs, but 1225 making new 20-day lows!
Nor is the selectivity of the rally confined to small caps. DecisionPoint reports that only 35 S&P 500 stocks made new 52-week highs on Wednesday, down from about 90 in April. And only 6 of the Dow 30 issues made annual highs.
Many have commented on the persistence of this rally. Now, perhaps, they will also marvel at its shrinking base.
Risk Management and the Biology of Trading Psychology
Readers of this blog are probably familiar with Dr. Bruce Hong, who has graced many posts with insightful comments. He recently helped us understand how the adrenaline rush impacts trading in stressful circumstances.
I'm happy to report that Dr. Hong now has his own blog and is elaborating upon the biology of trading psychology. He offers considerable insight into the biological mechanisms of learning and how traders develop bad habits. His explanation of the role of the amygdala in learning under conditions of stress and the counterbalancing influence of the prefrontal cortex is the best, clearest account I've yet encountered.
A very important implication of Dr. Hong's work is that risk management is perhaps the preeminent tool of trading psychology. When we trade with excessive leverage, exposing our accounts to potential drastic drawdowns, we create the kind of stress-based learning that overwhelms the executive abilities of the prefrontal cortex.
There are many guides for risk management, but perhaps this psychological definition is simplest of all. You should always ensure that any loss you are likely to take in a position will not be large enough to generate an emergency response of mind and body. The size of your positions relative to the size of your portfolio will serve as a kind of magnifying glass for the stress responses of mind and body. Read Dr. Hong's posts carefully, and you'll understand why risk management is a biological--as well as psychological--trading imperative.
RELATED POSTS:
Psychological Risk Management
Self-Inflicted Problems of Trading
I'm happy to report that Dr. Hong now has his own blog and is elaborating upon the biology of trading psychology. He offers considerable insight into the biological mechanisms of learning and how traders develop bad habits. His explanation of the role of the amygdala in learning under conditions of stress and the counterbalancing influence of the prefrontal cortex is the best, clearest account I've yet encountered.
A very important implication of Dr. Hong's work is that risk management is perhaps the preeminent tool of trading psychology. When we trade with excessive leverage, exposing our accounts to potential drastic drawdowns, we create the kind of stress-based learning that overwhelms the executive abilities of the prefrontal cortex.
There are many guides for risk management, but perhaps this psychological definition is simplest of all. You should always ensure that any loss you are likely to take in a position will not be large enough to generate an emergency response of mind and body. The size of your positions relative to the size of your portfolio will serve as a kind of magnifying glass for the stress responses of mind and body. Read Dr. Hong's posts carefully, and you'll understand why risk management is a biological--as well as psychological--trading imperative.
RELATED POSTS:
Psychological Risk Management
Self-Inflicted Problems of Trading
Wednesday, May 16, 2007
Assorted Stock Market Observations
* The "stealth correction" that I noted in the Weblog is looking more corrective and less stealthy so far this week. The discrepancy in performance between the large caps and small caps continues to widen. On Tuesday, we saw 735 stocks make fresh 20-day highs across the NYSE, AMEX, and NASDAQ. We also saw 1110 stocks make new 20-day lows. That's the highest level of new lows since May 1st. We've seen below average NYSE TICK readings for 7 of the past 9 trading sessions, even as the Dow Jones Industrials have made fresh highs.
* I'm watching interest rates here. With a rise above 4.7% on Tuesday, we made a 20-day high in 10-year rates as the small cap stocks fell out of bed. Since 2005, however, rising rates have not hurt stocks. When the market has made a 20-day high in 10-year rates (N = 93), the next five days in SPY have averaged a gain of .36% (60 up, 33 down). That is stronger than the average five-day gain of .17% (277 up, 205 down) for the remainder of the days in the sample. What I'm watching for in the current market is any evidence that this pattern is changing, such that rising rates might be associated with weakness in the NYSE TICK and the small caps.
* We're seeing sector divergences in the current market. DecisionPoint notes that, among S&P 500 large cap stocks, 69% are above their 50-day moving averages, down from over 85% in late April. The proportion of S&P 600 small cap issues above their 50-day benchmarks, however, is down to 46%. Among the S&P large caps, 97% of energy stocks; 85% of industrials; 82% of materials issues; and 97% of utilities are above their 50-day averages. Only 51% of consumer staples stocks; 63% of financials; and 66% of technology stocks are above those levels. And the NASDAQ 100 stocks? Only 57% are now trading above their 50-day moving averages.
* Bounce after two days of strong selling sentiment? We've had two consecutive days in which my cumulative adjusted TICK reading has been below -500. That has occurred 16 times since 2005. Five days later, the S&P 500 Index (SPY) has been up by an average of .46% (10 up, 6 down), modestly stronger than the average five-day gain of .21% for the entire sample. To act on such a pattern, however, I need to see evidence of momentum drying up to the downside. With my Demand measure at 45 and Supply at 95 as of Tuesday's close, I'm not yet seeing that evidence.
* Yen continues to grind lower vs. the dollar. That's been facilitative of favorable stock market returns the past several years as part of the carry trade.
* Great reading - Check out the links at Abnormal Returns. Just about every article is a worthwhile read. Hats off to Abnormal Returns; they regularly scour the Web for market and industry insights.
* I'm watching interest rates here. With a rise above 4.7% on Tuesday, we made a 20-day high in 10-year rates as the small cap stocks fell out of bed. Since 2005, however, rising rates have not hurt stocks. When the market has made a 20-day high in 10-year rates (N = 93), the next five days in SPY have averaged a gain of .36% (60 up, 33 down). That is stronger than the average five-day gain of .17% (277 up, 205 down) for the remainder of the days in the sample. What I'm watching for in the current market is any evidence that this pattern is changing, such that rising rates might be associated with weakness in the NYSE TICK and the small caps.
* We're seeing sector divergences in the current market. DecisionPoint notes that, among S&P 500 large cap stocks, 69% are above their 50-day moving averages, down from over 85% in late April. The proportion of S&P 600 small cap issues above their 50-day benchmarks, however, is down to 46%. Among the S&P large caps, 97% of energy stocks; 85% of industrials; 82% of materials issues; and 97% of utilities are above their 50-day averages. Only 51% of consumer staples stocks; 63% of financials; and 66% of technology stocks are above those levels. And the NASDAQ 100 stocks? Only 57% are now trading above their 50-day moving averages.
* Bounce after two days of strong selling sentiment? We've had two consecutive days in which my cumulative adjusted TICK reading has been below -500. That has occurred 16 times since 2005. Five days later, the S&P 500 Index (SPY) has been up by an average of .46% (10 up, 6 down), modestly stronger than the average five-day gain of .21% for the entire sample. To act on such a pattern, however, I need to see evidence of momentum drying up to the downside. With my Demand measure at 45 and Supply at 95 as of Tuesday's close, I'm not yet seeing that evidence.
* Yen continues to grind lower vs. the dollar. That's been facilitative of favorable stock market returns the past several years as part of the carry trade.
* Great reading - Check out the links at Abnormal Returns. Just about every article is a worthwhile read. Hats off to Abnormal Returns; they regularly scour the Web for market and industry insights.
How to Keep a Trading Journal: Trader Perspectives
When it comes to climbing the learning curve of trading, few tools have proven as helpful to traders as journals. Properly constructed, a journal can be a device for goal setting and identifying strengths and weaknesses. Here are some worthwhile perspectives on keeping journals from trader/bloggers:
RELEVANT POST:
The Most Important Psychological Skill for Traders
- Joey Fundora, from the Downtown Trader site, offers an excellent account of how journals can aid in the cultivation of a trading edge. He explains how he utilizes the journal feature within the StockTickr program to create a forward evaluation of his trading. He makes effective use of tags to categorize his trades, enabling him to quickly identify the types of trades and markets that are working best for him. Great article.
- Trader Mike tracks his trades with a spreadsheet and offers the spreadsheet as a free download. He follows his P/L as a function of dollars risked and leaves a column for comments about each trade. This enables him to identify specific circumstances--in the market and in his trading--that were operative in the trade. Helpful tool.
- Here's a post from Charles Kirk, summarizing Doug Hirschhorn's trading journal checklist. He includes 15 items, such as news and economic events for the day, the trader's game plans, and self-evaluation. This is useful as an integration of trading and trading psychology.
- In this article from my personal site, I provide a summary of trading journal features that have worked best for the traders I've known. I stress the use of the journal to learn from good trades as well as bad ones, and the role of the journal in preparing for the upcoming trading day. I also identify specific metrics worth tracking to improve your trading.
- Here's another take on journals from Downtown Trader. He makes effective use of the "R" statistic in his journal and outlines several ways of improving the bottom line.
RELEVANT POST:
The Most Important Psychological Skill for Traders
Tuesday, May 15, 2007
Using ETFs to Develop Trading Ideas
I find specialty ETFs to be great ways of developing ideas for trading and investment. Above we see PUW (blue line), the PowerShares WilderHill Progressive Energy ETF. PUW is different from another energy ETF I have written about, PBW. Unlike PBW, PUW focuses on companies that are involved in improving the efficiency of fossil fuels, not the development of alternative fuels and technologies. PUW has outperformed PBW of late, and I like the fact that PUW draws upon a variety of styles and sectors for its holdings. Specifically, PUW consists of approximately 50% small cap stocks and about 50% growth stocks. About 28% of the companies are Industrials; 21% Energy; 16% Utilities; 12% Technology; and 12% Consumer Discretionary. I like not being locked into one style or sector when investing in a theme.Above, we can see that money flows have been very good for the most highly weighted PUW stocks. The chart summarizes the Adjusted Relative Dollar Volume Flows for five issues: TEN, ENR, USU, CCJ, and MEOH. Flows have consistently been above the zero level, meaning that the stocks are seeing dollar inflows above their 200-day averages. (Note some relative tailing off of dollar flows as we've hit recent highs in PUW. This is a pattern common to many of the market sectors and themes I track and has preceded the recent correction, particularly among the small caps. I'd like to see a pickup of flows before making a commitment to the theme).
Before I allocate capital to PUW, I will have reviewed the money flows for all 46 holdings of the fund. This will tell me which stocks within the universe are particularly strong. This may reveal subthemes within the universe--efficiency plays within utilities for instance--worthy of consideration. Too, the money flow examination might identify stocks beaten down within the theme that could represent value under accumulation. Honda and Toyota are candidates in that regard.
From the 46 stocks, we can also track new highs/lows; expansion and contraction of volume; and other indicators that would help us identify institutional accumulation of the shares. It's not enough to look at a chart of an ETF and make an investment decision. It pays to look under the hood, see if the stocks are under accumulation, and see if the number of issues participating in the ETF strength is growing or waning.
In that sense, the search for good ETFs is the beginning of a research process, not the endpoint.
RELATED POST:
Overview of the Adjusted Relative Dollar Volume Flow Indicator
Perspectives From the Pros
Always happy to share credible ideas from worthy sources; these are on my current radar:
- Victor Niederhoffer puts a piece of common wisdom to the test and finds that homebuilding weakness is not necessarily bad for the stock market.
- Between the Hedges on the implications of Chinese funds entering U.S. markets.
- What comes after free trade? Deep integration of economic relations, including regulation, along the lines of worldwide aviation: Deutsche Bank Research.
- If housing has peaked, rates will come down: Bill Gross.
- Robert Schiller/Yale research: Institutions have grown more confident we'll avoid a crash; individuals are less confident.
- On the proliferation of automated trading and implications: CPP Trader.
Thoughts on a Weak NYSE TICK and Strong Patterns
Monday's trading saw significant selling in the broad market. My cumulative adjusted NYSE TICK reading for the day was the lowest since March 13th. The "stealth correction" that I had noted in the Weblog broadened into more noticeable weakness.
Recall that I utilize the NYSE TICK as a sentiment measure reflecting the willingness of traders to execute at the market offer vs. bid across the broad range of listed stocks. I watch for shifts in the distribution of NYSE TICK readings to alert me to changes in the sentiment of large market participants. Such a shift alerted us to the downside breakout from a narrow range on Monday, and it tells us that sentiment is turning more negative on a short-term basis.
But what does it tell us if the Dow Jones Industrial Average (DIA) rises on a day in which we have significant selling sentiment?
I went back to the start of 2005 (N = 589 trading days) and found 121 occasions in which we hit an NYSE TICK reading of -1000 or less during the trading day. On only 28 of those instances did we see a flat or rising Dow on the day. Five days later, the Dow was up by an average of .92% (22 up, 6 down). That is considerably stronger than the average five-day Dow gain of .20% (346 up, 243 down) across the entire sample.
In sum, when the Dow has held up in the face of selling pressure, we've tended to see further strength in the near term. Of course, I'll need to see a drying up of negative TICK readings intraday and a holding of the Monday lows to act on this pattern. It's the kind of pattern that would lead me to book some profits intraday, but also leave a piece of the position on to catch a larger move.
The best setups are those that combine a multi-day edge with intraday confirmation; clear, conceptually grounded stops (at the Monday lows); and equally clear profit targets (the S&P highs). As any baseball batter knows, if you only swing at good pitches and take enough quality cuts at the ball, you'll eventually make contact and get your hits. With the market weak in the pre-opening action as I write, we may not get that good pitch to hit from this pattern.
But that might lead to another pattern. And an even better pitch.
Sometimes laying off the high outside stuff is the best thing a batter can do.
Recall that I utilize the NYSE TICK as a sentiment measure reflecting the willingness of traders to execute at the market offer vs. bid across the broad range of listed stocks. I watch for shifts in the distribution of NYSE TICK readings to alert me to changes in the sentiment of large market participants. Such a shift alerted us to the downside breakout from a narrow range on Monday, and it tells us that sentiment is turning more negative on a short-term basis.
But what does it tell us if the Dow Jones Industrial Average (DIA) rises on a day in which we have significant selling sentiment?
I went back to the start of 2005 (N = 589 trading days) and found 121 occasions in which we hit an NYSE TICK reading of -1000 or less during the trading day. On only 28 of those instances did we see a flat or rising Dow on the day. Five days later, the Dow was up by an average of .92% (22 up, 6 down). That is considerably stronger than the average five-day Dow gain of .20% (346 up, 243 down) across the entire sample.
In sum, when the Dow has held up in the face of selling pressure, we've tended to see further strength in the near term. Of course, I'll need to see a drying up of negative TICK readings intraday and a holding of the Monday lows to act on this pattern. It's the kind of pattern that would lead me to book some profits intraday, but also leave a piece of the position on to catch a larger move.
The best setups are those that combine a multi-day edge with intraday confirmation; clear, conceptually grounded stops (at the Monday lows); and equally clear profit targets (the S&P highs). As any baseball batter knows, if you only swing at good pitches and take enough quality cuts at the ball, you'll eventually make contact and get your hits. With the market weak in the pre-opening action as I write, we may not get that good pitch to hit from this pattern.
But that might lead to another pattern. And an even better pitch.
Sometimes laying off the high outside stuff is the best thing a batter can do.
Monday, May 14, 2007
Taking the Measure of Large Cap Stocks
The measure of a market from day to day is whether it closes near its highs or near its lows. In a bull market, intraday weakness is viewed as opportunity to add to positions. This creates a floor under stocks and enables the market to close well of its lows. Conversely, in a bear market, bounces are viewed as opportunities to lighten up on holdings or establish short positions. This leads us to close nearer to the day's lows than highs.
Where we close in relationship to the day's highs and lows tells us very simply whether buyers or sellers were viewing those prices as significantly different from fair value.
All of which brings us to the Dow Jones Industrial Average (DIA) and its trading pattern over the last 20 sessions. For 18 of those sessions, we have closed closer to the day's highs than lows. Specifically, in DIA, we've averaged a close $.26 (26 Dow points) away from the day's highs but $.66 (66 Dow points) off the day's lows.
Monday was an excellent case in point. We saw significant selling in the broad market during the day, with the NYSE TICK hitting very negative numbers repeatedly in the afternoon. By the close of trading, however, the Dow was sitting well off its day's lows and with a gain on the session.
I referred to this action as a "stealth correction" in my recent Weblog entry. Even as we see selling among small caps, traders continue to bargain hunt among large caps on weakness. Indeed, over the past 20 sessions, all but one Dow stock has displayed money flow above its 200-day moving average. Until institutions no longer view value in these stocks--as revealed by money flows and how we trade relative to daily highs and lows--it is difficult to hold short positions for anything more than an intraday trade.
Where we close in relationship to the day's highs and lows tells us very simply whether buyers or sellers were viewing those prices as significantly different from fair value.
All of which brings us to the Dow Jones Industrial Average (DIA) and its trading pattern over the last 20 sessions. For 18 of those sessions, we have closed closer to the day's highs than lows. Specifically, in DIA, we've averaged a close $.26 (26 Dow points) away from the day's highs but $.66 (66 Dow points) off the day's lows.
Monday was an excellent case in point. We saw significant selling in the broad market during the day, with the NYSE TICK hitting very negative numbers repeatedly in the afternoon. By the close of trading, however, the Dow was sitting well off its day's lows and with a gain on the session.
I referred to this action as a "stealth correction" in my recent Weblog entry. Even as we see selling among small caps, traders continue to bargain hunt among large caps on weakness. Indeed, over the past 20 sessions, all but one Dow stock has displayed money flow above its 200-day moving average. Until institutions no longer view value in these stocks--as revealed by money flows and how we trade relative to daily highs and lows--it is difficult to hold short positions for anything more than an intraday trade.
ABUSE But No Neglect: The Global Liquidity Boom in Equities
In my latest Weblog entry, I noted that the U.S. is actually at the trailing end of a liquidity boom that is inflating equity prices worldwide. Above we see EFA, the iShares ETF for the MSCI EAFE Index (Europe, Australia, Far East) and EEM, the iShares ETF for the MSCI Emerging Markets Index. Plotted with each of the ETFs is their 50-day moving average for share volume. Note the expanding participation in these markets as they have risen.
Since the start of 2006, EFA has gained 30.54%; EEM has risen 37.58%. By contrast, the S&P 500 Index (SPY) has risen a little more than 19% over that same period.
According to Charles Biderman of TrimTabs, since 2005 investors have placed $60 billion into mutual funds that focus on U.S. equities, but $300 billion into funds that primarily invest outside the U.S. The strategy has gained the acronym ABUSE: Anything But U.S. Equities.
Meanwhile, however, Biderman notes a separate dynamic to the liquidity boom: the buyout surge among private equity firms and the corporate buyback of stock. Together, these have accounted for a decrease in the total float of U.S. equities of 1.4% during the first four months of the year alone.
Rising liquidity (demand) and decreasing stock float (supply) is a potent combination for market strength, particularly if investors cease their ABUSE.
Sunday, May 13, 2007
Weekend Highlights From the Blogosphere
- The revamped Trading Psychology Weblog lays out my case for a stealth correction in a bull market.
- I've updated my resource links for traders.
- Charles Kirk works his magic with more links, including a new alternative energy ETF.
- Jeff Miller, on the difficulties of timing declines in a rising market.
- The Big Picture offers a Mother's Day linkfest, including observations about cheap debt inflating stock prices.
- CXO Advisory, with some excellent work questioning the value of options indicators.
- Stockpickr tracks stocks rising on unusual volume.
- Bespoke Investment Group tracks the various currency ETFs. See also their lists of commodity ETFs and dividend ETFs.
- Recent links from Trader Mike, including a very disruptive technology.
- Sunday links from Abnormal Returns, including why passive investing often beats active investing.
- Millionaire Now! on uranium.
TTEK: The Money and the Water are Flowing
A while back I wrote about an interesting ETF that enables traders to play the "water as natural resource" theme. Since that time, the PowerShares Water Resources ETF (PHO) has moved to new bull market highs. A component that has received particular buzz is Tetra Tech (TTEK), an environmental engineering consulting firm involved in water quality but which is also expanding into other fields, such as alternative energy. The stock was a recent Smart Money pick as one to own for the next 10 years; it was also recently mentioned in Barron's as a growth stock with potential for further appreciation. A good part of the company's appeal is its ability to help companies become more eco-friendly, although a substantial book of business is with governmental agencies.Above we can see that TTEK (blue line) broke out of a trading range on substantially above average adjusted relative dollar volume flows (pink line). Indeed, we've seen money flows above the 200 day average (red line) for 14 of the past 20 trading sessions. In this case it appears that investors are putting their money where their mouths are, keeping dollars as well as water flowing at TTEK.
RELATED POST:
Explanation of the Relative Dollar Volume Flow Measure
Saturday, May 12, 2007
Equity Option Volume and Speculative Sentiment in the Stock Market
In my recent post, we saw that stocks are climbing a wall of worry, with expanding put/call ratios, even as equity prices rise. How about total option volume, however? When we have more puts *and* more calls trading, we can reasonably assume that speculators are active in the marketplace and emotions are running strong. Conversely, very low option volume suggests more placidity among speculators.
I went back to the beginning of 2005 (N = 573 trading days) and expressed each day's equity option volume as a proportion of the prior 200 days' moving average. I then assessed how a 10-day moving average of this relative volume was related to future price change in the S&P 500 Index (SPY).
When option volume over a 10-day period was 25% or more ahead of its 200 day moving average (N = 92), the next 10 days in SPY averaged a very solid gain of .89% (66 up, 26 down). It thus appears that, when emotions are frothy among stocks, returns have been skewed to the bullish side.
When option volume over a 10-day period was below its 200 day moving average (N = 123), the next 10 days in SPY averaged an impressive gain of .85% (90 up, 33 down). Interestingly, very low emotionality among speculators has also been associated with a bullish bias.
When option volume has been average or modestly above average over a 10-day period, however (N = 358), the next 10 days have averaged a gain of only .13% (214 up, 144 down). Returns have been subnormal when emotionality among speculators has not been outstandingly high or low.
It thus appears that it's not just the directional bias of option traders, but also their willingness to participate in the marketplace that helps to define the market's speculative status.
RELATED POSTS:
Stock Margin Debt and Trading Sentiment
NASDAQ Volume and Speculative Sentiment
Emerging Market Performance and Speculative Sentiment
I went back to the beginning of 2005 (N = 573 trading days) and expressed each day's equity option volume as a proportion of the prior 200 days' moving average. I then assessed how a 10-day moving average of this relative volume was related to future price change in the S&P 500 Index (SPY).
When option volume over a 10-day period was 25% or more ahead of its 200 day moving average (N = 92), the next 10 days in SPY averaged a very solid gain of .89% (66 up, 26 down). It thus appears that, when emotions are frothy among stocks, returns have been skewed to the bullish side.
When option volume over a 10-day period was below its 200 day moving average (N = 123), the next 10 days in SPY averaged an impressive gain of .85% (90 up, 33 down). Interestingly, very low emotionality among speculators has also been associated with a bullish bias.
When option volume has been average or modestly above average over a 10-day period, however (N = 358), the next 10 days have averaged a gain of only .13% (214 up, 144 down). Returns have been subnormal when emotionality among speculators has not been outstandingly high or low.
It thus appears that it's not just the directional bias of option traders, but also their willingness to participate in the marketplace that helps to define the market's speculative status.
RELATED POSTS:
Stock Margin Debt and Trading Sentiment
NASDAQ Volume and Speculative Sentiment
Emerging Market Performance and Speculative Sentiment
The Equity Put/Call Ratio Traces a Wall of Worry
Here we see the 15-day equity put/call ratio (pink line) plotted against the S&P 500 Index (blue line) from January, 2004 to the present. Note how spikes in the options ratio have marked excellent intermediate-term buying opportunities during this period.
Perhaps even more interesting, observe how we've been riding a wall of worry during this bull market. We've been tracing out higher lows and higher highs in the equity put/call ratio. While some have referred to this market as a "bubble", it is difficult to make the case that we're seeing excesses of optimism that would be characteristic of a market peak.
With respect to the present market, we can see that troughs in the put/call ratio have tended to precede price tops during market swings. We've yet to see such a trough in the recent market, suggesting that we could have further to go on the upside during this swing.
RELATED POSTS:
Market Psychology: Why It Is Important
Assessing Market Psychology With Relative Options Indicators
A Different Way to Measure Market Sentiment
Friday, May 11, 2007
Changes to the Trading Psychology Weblog
Dear Readers,
Starting this Sunday, the Trading Psychology Weblog will join the rest of my personal site with a weekly publication schedule. This will enable me to focus on broad market themes, and it will accomodate my expanding schedule on the road working with traders.
Some of the daily indicators that had been part of the Weblog will be posted to TraderFeed, particularly when there are significant market developments. Similarly, I will be posting worthwhile blog links and resources to both sites.
The personal site will continue to post articles and reflections on trader performance. My hope is that the weekly features on that site will provide a big picture context for traders, regardless of their trading style and time frame.
Thanks for your interest and support. Look for the format changes to go into effect on Sunday!
Brett
Starting this Sunday, the Trading Psychology Weblog will join the rest of my personal site with a weekly publication schedule. This will enable me to focus on broad market themes, and it will accomodate my expanding schedule on the road working with traders.
Some of the daily indicators that had been part of the Weblog will be posted to TraderFeed, particularly when there are significant market developments. Similarly, I will be posting worthwhile blog links and resources to both sites.
The personal site will continue to post articles and reflections on trader performance. My hope is that the weekly features on that site will provide a big picture context for traders, regardless of their trading style and time frame.
Thanks for your interest and support. Look for the format changes to go into effect on Sunday!
Brett
When Trading Coaches Fail - Part Two: Stages of Change
In my last post, I mentioned the relapse problem as a major challenge for any coaching efforts. As several readers astutely pointed out, skill development and the acquisition of expertise are a function of practice. That same practice effect pertains to personal change as well. Repetition cements all learning.
There is, however, another major barrier to change that helps to account for situations in which coaching does not work. Coaches, counselors, and therapists tend to approach their work with a limited toolkit of methods to create change. In applying this restricted set of methods, they fail to recognize that the people they work with may be at very different points in the change process.
Prochaska, Norcross, and DiClemente, in their extensive research on the stages of psychological change, have found that individuals differ greatly in their readiness for change.
At the stage of precontemplation, traders are unaware of a problem and may even be in denial--much like the substance user who does not acknowledge signs of addiction. This trader may blame outside forces for problems or refuse to face problems altogether. Such traders rarely seek coaching on their own, but may be referred by their trading firms or may be nudged into help by spouses and concerned others. For this reason, the person in precontemplation does not usually have a strong motivation to change. The role of the psychologist is to help the person explore actions and consequences and move toward contemplation of change.
In the contemplation stage, there is a mixed motivation for change. The prospect of change raises a "yes, but" response. For example, I know I should exercise, but I have so little time during the day; I know my marriage isn't working, but I don't want to raise the kids myself; etc. Change, for the person in contemplation, is overwhelming, creating an internal tug of war. The psychologist's job in this stage is to help the trader develop more limited, doable, non-threatening goals that can serve as a focus for action.
Some traders enter coaching already in the next, action stage. They know they have a problem, and they are ready to work on it. They've experienced consequences from this problem and no longer want to continue acting out their old patterns. Those traders are ready for psychological techniques that facilitate focused change, such as cognitive restructuring methods or solution-focused techniques.
As mentioned in the previous article, however, initiating change is only one part of the coaching process. In the final, maintenance phase of change, traders work on holding onto those gains, rehearsing them, and making them automatic. The goal is to prevent relapse. Here, too, the role of the psychologist shifts dramatically. Instead of introducing new change methods, the coach helps the trader identify new opportunities for extending developed skills and provides copious feedback about those change efforts.
Coaches with limited repertoires (and sometimes very limited training) will equate coaching with the third, action phase of change. They come to the coaching relationship like a cavalry riding to the rescue, armed with action-oriented techniques for change. The problem is that not all traders are ready for change. If a coach tries to impose action methods on a trader in a contemplation mode, for instance, that trader will seem unmotivated and resistant to change. The problem, however, is not really one of motivation. Rather, the trader needs an exploratory process to help them develop viable goals and become ready for action. Many people drop out of their meetings with coaches and counselors because they are simply not ready for what their helper is offering: they don't feel heard or understood.
Equally problematic, the limited coach will initiate change efforts for traders, but won't have in place structured methods for preventing relapse. Ignoring the maintenance phase, the change they create is temporary; it is never truly internalized as part of an ongoing repertoire. This is a problem even with very experienced psychologists. Research shows that the outcomes of counseling and therapy are typically much better at the end of the helping process than six months or a year later. Too often, the emphasis is on generating change--not maintaining it.
A routine goal of my first meeting with a trader is to assess his or her readiness for change. If that readiness is low (precontemplation or contemplation stage), I will work in an exploratory mode to help that person see problems that might be there and begin to think through limited goals to start some action. Conversely, if the trader is in action mode, I am happy to bring out the toolkit of behavioral, cognitive, biofeedback, self-hypnosis, and solution-focused methods to work on targeted change. When a trader has already made meaningful changes, my role is to highlight these, find out how they occurred, and then extend this process to new facets of performance to reduce relapse.
In coaching as in clothes, one size does not fit all. It is important for traders to know where they stand in terms of readiness for change and find the right activities to help them move to the next phase.
RELATED POST:
Five Principles of Trading Psychology
There is, however, another major barrier to change that helps to account for situations in which coaching does not work. Coaches, counselors, and therapists tend to approach their work with a limited toolkit of methods to create change. In applying this restricted set of methods, they fail to recognize that the people they work with may be at very different points in the change process.
Prochaska, Norcross, and DiClemente, in their extensive research on the stages of psychological change, have found that individuals differ greatly in their readiness for change.
At the stage of precontemplation, traders are unaware of a problem and may even be in denial--much like the substance user who does not acknowledge signs of addiction. This trader may blame outside forces for problems or refuse to face problems altogether. Such traders rarely seek coaching on their own, but may be referred by their trading firms or may be nudged into help by spouses and concerned others. For this reason, the person in precontemplation does not usually have a strong motivation to change. The role of the psychologist is to help the person explore actions and consequences and move toward contemplation of change.
In the contemplation stage, there is a mixed motivation for change. The prospect of change raises a "yes, but" response. For example, I know I should exercise, but I have so little time during the day; I know my marriage isn't working, but I don't want to raise the kids myself; etc. Change, for the person in contemplation, is overwhelming, creating an internal tug of war. The psychologist's job in this stage is to help the trader develop more limited, doable, non-threatening goals that can serve as a focus for action.
Some traders enter coaching already in the next, action stage. They know they have a problem, and they are ready to work on it. They've experienced consequences from this problem and no longer want to continue acting out their old patterns. Those traders are ready for psychological techniques that facilitate focused change, such as cognitive restructuring methods or solution-focused techniques.
As mentioned in the previous article, however, initiating change is only one part of the coaching process. In the final, maintenance phase of change, traders work on holding onto those gains, rehearsing them, and making them automatic. The goal is to prevent relapse. Here, too, the role of the psychologist shifts dramatically. Instead of introducing new change methods, the coach helps the trader identify new opportunities for extending developed skills and provides copious feedback about those change efforts.
Coaches with limited repertoires (and sometimes very limited training) will equate coaching with the third, action phase of change. They come to the coaching relationship like a cavalry riding to the rescue, armed with action-oriented techniques for change. The problem is that not all traders are ready for change. If a coach tries to impose action methods on a trader in a contemplation mode, for instance, that trader will seem unmotivated and resistant to change. The problem, however, is not really one of motivation. Rather, the trader needs an exploratory process to help them develop viable goals and become ready for action. Many people drop out of their meetings with coaches and counselors because they are simply not ready for what their helper is offering: they don't feel heard or understood.
Equally problematic, the limited coach will initiate change efforts for traders, but won't have in place structured methods for preventing relapse. Ignoring the maintenance phase, the change they create is temporary; it is never truly internalized as part of an ongoing repertoire. This is a problem even with very experienced psychologists. Research shows that the outcomes of counseling and therapy are typically much better at the end of the helping process than six months or a year later. Too often, the emphasis is on generating change--not maintaining it.
A routine goal of my first meeting with a trader is to assess his or her readiness for change. If that readiness is low (precontemplation or contemplation stage), I will work in an exploratory mode to help that person see problems that might be there and begin to think through limited goals to start some action. Conversely, if the trader is in action mode, I am happy to bring out the toolkit of behavioral, cognitive, biofeedback, self-hypnosis, and solution-focused methods to work on targeted change. When a trader has already made meaningful changes, my role is to highlight these, find out how they occurred, and then extend this process to new facets of performance to reduce relapse.
In coaching as in clothes, one size does not fit all. It is important for traders to know where they stand in terms of readiness for change and find the right activities to help them move to the next phase.
RELATED POST:
Five Principles of Trading Psychology
Thursday, May 10, 2007
When the Coaching of Traders Doesn't Work - Part One
You don't see too many discussions of failed coaching among traders. The reality of the outcome research, however, is that, while a majority of people receiving psychological help will benefit (compared with people receiving no help or a placebo intervention), a significant proportion of those individuals will not retain their gains over a 6-12 month period. This is known as the relapse problem, and it is one of the most important reasons that the coaching of traders doesn't yield meaningful results.
We're accustomed to thinking about relapse in the context of counseling/therapy for substance use disorders and other addictive problems. Research tells us, however, that relapse rates are just as high for many other problems, from marital discord to depression. After all, how many of us have made efforts to change our patterns of eating or exercise, only to relapse into old ways?
There's a sense in which making changes is easy. The hard part is sustaining those. In a motivated state, when we're emotionally connected to the consequences of our problem patterns, we can muster the will to do things differently. Once that emotional connection is gone, however, we tend to lapse into what is most familiar.
Change is most likely to stick when we overlearn new patterns of thinking, feeling, and acting. It's when we make changes again, and again, and again across a variety of situations that those changes begin to become second nature to us. When the coaching process is too brief or intermittent, those opportunities for overlearning may be insufficient for the internalization of change. That makes it easier to fall into old patterns.
For traders serving as their own coaches, it is helpful to keep a journal of your change efforts, tracking your specific change efforts every day for at least a full month. The daily effort, repeated with consistency, will increase the odds that the changes will become an automatic part of your repertoire.
When people need help with alcohol problems, the folks at AA will encourage them to attend 90 meetings in 90 days. That's great advice for any change process. Make the change 90 times in 90 days. AA knows that "when you bring the body, the mind will change." Similarly, when you make the consistent efforts, the changes will become automatic.
RELATED POST:
Coaching the Professional Trader
We're accustomed to thinking about relapse in the context of counseling/therapy for substance use disorders and other addictive problems. Research tells us, however, that relapse rates are just as high for many other problems, from marital discord to depression. After all, how many of us have made efforts to change our patterns of eating or exercise, only to relapse into old ways?
There's a sense in which making changes is easy. The hard part is sustaining those. In a motivated state, when we're emotionally connected to the consequences of our problem patterns, we can muster the will to do things differently. Once that emotional connection is gone, however, we tend to lapse into what is most familiar.
Change is most likely to stick when we overlearn new patterns of thinking, feeling, and acting. It's when we make changes again, and again, and again across a variety of situations that those changes begin to become second nature to us. When the coaching process is too brief or intermittent, those opportunities for overlearning may be insufficient for the internalization of change. That makes it easier to fall into old patterns.
For traders serving as their own coaches, it is helpful to keep a journal of your change efforts, tracking your specific change efforts every day for at least a full month. The daily effort, repeated with consistency, will increase the odds that the changes will become an automatic part of your repertoire.
When people need help with alcohol problems, the folks at AA will encourage them to attend 90 meetings in 90 days. That's great advice for any change process. Make the change 90 times in 90 days. AA knows that "when you bring the body, the mind will change." Similarly, when you make the consistent efforts, the changes will become automatic.
RELATED POST:
Coaching the Professional Trader
A Favorite Trading Pattern
Some of my favorite morning trades are based on a reading of strength or weakness in early trading--using such tools as the NYSE TICK and Market Delta--and then handicapping the odds of taking out the previous day's high or low.
Since 2005 in the S&P 500 Index (SPY; N = 588 trading days), we've had 81 inside days. That means that over 85% of the time, the market has either taken out its prior day's high, low, or both.
Those odds are increased when markets trade on above average volume. Because volume correlates well with volatility, it is rare to see a day with above average volume also be an inside day.
For example, we had 329 days since 2005 in which volume in SPY was above the 200 day moving average. Out of those 329 days, only 29 were inside days. That means that over 90% of the time, a high volume day will not be an inside day.
Conversely, out of the 259 days that were below the 200 day moving average of volume, 52 were inside days--about 20%.
When I see a day begin with average or above average volume, I go with the assumption that we'll take out the previous day's high or low and touch either the R1 or S1 pivot level (posted daily to the Weblog). At that point, it's just a matter of following the emerging distribution of market strength or weakness in such indicators as NYSE TICK to place your bet on which extreme will be breached.
A large number of my successful trades are based on this pattern. I will be illustrating in future posts.
RELATED POSTS:
How I Trade: Handicapping the Odds of Hitting Pivot Points
What You Can Learn From the Opening Minutes of Trading
Since 2005 in the S&P 500 Index (SPY; N = 588 trading days), we've had 81 inside days. That means that over 85% of the time, the market has either taken out its prior day's high, low, or both.
Those odds are increased when markets trade on above average volume. Because volume correlates well with volatility, it is rare to see a day with above average volume also be an inside day.
For example, we had 329 days since 2005 in which volume in SPY was above the 200 day moving average. Out of those 329 days, only 29 were inside days. That means that over 90% of the time, a high volume day will not be an inside day.
Conversely, out of the 259 days that were below the 200 day moving average of volume, 52 were inside days--about 20%.
When I see a day begin with average or above average volume, I go with the assumption that we'll take out the previous day's high or low and touch either the R1 or S1 pivot level (posted daily to the Weblog). At that point, it's just a matter of following the emerging distribution of market strength or weakness in such indicators as NYSE TICK to place your bet on which extreme will be breached.
A large number of my successful trades are based on this pattern. I will be illustrating in future posts.
RELATED POSTS:
How I Trade: Handicapping the Odds of Hitting Pivot Points
What You Can Learn From the Opening Minutes of Trading
Wednesday, May 09, 2007
What Makes a Professional Trader
I'm on the road this week working with traders at several professional trading organizations. It's always an enlightening experience to see how the best traders and trading firms operate. Here are a few observations that have hit me between the eyes over the past several days:
1) Many of the best traders follow and trade a variety of markets. They go where the opportunity is. When volatility dries up in one market, they have others to turn to. The small, neophyte retail trader often becomes pigeonholed in one market and overtrades it, desperate to turn a small account into a larger one. The professional trader may have a top-down or bottom-up perspective on markets (developing ideas from big economic trends or from individual company and sector results), but they have a framework for how to think about markets. Inexperienced traders lack such a framework.
2) Many of the best traders think big--as in big picture. Because they follow multiple markets, they are aware of the relationships among these markets. This enables them to develop trade ideas that connect one market to another, capitalizing on big picture themes. Knowing how interest rate differentials around the world affect capital flows is an obvious example of that. Another example is knowing how one asset is priced relative to others to capitalize on mispricing. The novice trader trades small patterns, losing sight of the context in which those patterns occur. They lack a framework for thinking about proper and improper pricing.
3) All of the best trading firms have risk managers. They stay on top of how individual traders (and the firm as a whole) are performing. They help traders adjust their position sizes to fit their portfolio needs, and they help traders during drawdown periods. It is very difficult for individual, solo traders to fill this role for themselves. The excellent traders spend significant time and effort on risk management: they know how much they want to gain and put at risk in each trade. Small traders tend to put a far larger portion of their capital at risk with each trade than large, professional traders.
4) Many of the best traders think small--as in very reasonable profit goals. This is very interesting. I never hear the pros talking about tripling their money in a year. It's the small traders, feeling a desperate need for a kill in order to make a living, who take those kind of risks. Many of the best traders I know focus on consistency and favorable risk-adjusted returns. I essentially never hear small, retail traders focus on risk-adjusted returns. I don't think I've ever met a retail trader who knows what his or her Sharpe Ratio is, for example. I don't think most newer traders could even explain the concept of VAR.
5) Many of the best traders use psychology to amplify strengths. This is one thing that a majority of "trading coaches" don't get. They are so accustomed to working with small, retail traders that their vision becomes limited to the kinds of problems that beginners have. On average, if a person lacks discipline, emotional control, etc., they don't get hired at a good firm. The best traders do experience drawdowns, but they work on themselves to identify and build strengths, not to develop simplistic "trading plans". A great deal of what's out there labeled as "trading psychology" could be relabeled as the psychology of the beginning trader. It's not that it's useless; it's that it doesn't speak to the seasoned professional. To the extent that trading shrinks emphasize positive thinking as the key to trading success, they don't understand trading--and what it takes to generate alpha--at all.
Ultimately, whether one is a professional or an amateur is a function of their approach to their work, not their setting. It is, of course, easier to live up to professionalism when you're surrounded by professionals. The best traders I know spend significant time generating trade ideas, researching markets, and staying on top of developments world wide. The ratio of time spent in preparation to time spent actually in trading has, in my experience, been a worthwhile measure of a trader's professionalism--regardless of setting. The best traders, like the best athletes, are always working on themselves, always refining what they do. In an important sense, they don't just use psychology to improve their performance. They work on their performance as a means of extending their personal mastery.
A small trader can approach his or her craft professionally. There are few models, however, for such professionalism--particularly when many of the "gurus" themselves do not begin to approximate what the pros are doing.
1) Many of the best traders follow and trade a variety of markets. They go where the opportunity is. When volatility dries up in one market, they have others to turn to. The small, neophyte retail trader often becomes pigeonholed in one market and overtrades it, desperate to turn a small account into a larger one. The professional trader may have a top-down or bottom-up perspective on markets (developing ideas from big economic trends or from individual company and sector results), but they have a framework for how to think about markets. Inexperienced traders lack such a framework.
2) Many of the best traders think big--as in big picture. Because they follow multiple markets, they are aware of the relationships among these markets. This enables them to develop trade ideas that connect one market to another, capitalizing on big picture themes. Knowing how interest rate differentials around the world affect capital flows is an obvious example of that. Another example is knowing how one asset is priced relative to others to capitalize on mispricing. The novice trader trades small patterns, losing sight of the context in which those patterns occur. They lack a framework for thinking about proper and improper pricing.
3) All of the best trading firms have risk managers. They stay on top of how individual traders (and the firm as a whole) are performing. They help traders adjust their position sizes to fit their portfolio needs, and they help traders during drawdown periods. It is very difficult for individual, solo traders to fill this role for themselves. The excellent traders spend significant time and effort on risk management: they know how much they want to gain and put at risk in each trade. Small traders tend to put a far larger portion of their capital at risk with each trade than large, professional traders.
4) Many of the best traders think small--as in very reasonable profit goals. This is very interesting. I never hear the pros talking about tripling their money in a year. It's the small traders, feeling a desperate need for a kill in order to make a living, who take those kind of risks. Many of the best traders I know focus on consistency and favorable risk-adjusted returns. I essentially never hear small, retail traders focus on risk-adjusted returns. I don't think I've ever met a retail trader who knows what his or her Sharpe Ratio is, for example. I don't think most newer traders could even explain the concept of VAR.
5) Many of the best traders use psychology to amplify strengths. This is one thing that a majority of "trading coaches" don't get. They are so accustomed to working with small, retail traders that their vision becomes limited to the kinds of problems that beginners have. On average, if a person lacks discipline, emotional control, etc., they don't get hired at a good firm. The best traders do experience drawdowns, but they work on themselves to identify and build strengths, not to develop simplistic "trading plans". A great deal of what's out there labeled as "trading psychology" could be relabeled as the psychology of the beginning trader. It's not that it's useless; it's that it doesn't speak to the seasoned professional. To the extent that trading shrinks emphasize positive thinking as the key to trading success, they don't understand trading--and what it takes to generate alpha--at all.
Ultimately, whether one is a professional or an amateur is a function of their approach to their work, not their setting. It is, of course, easier to live up to professionalism when you're surrounded by professionals. The best traders I know spend significant time generating trade ideas, researching markets, and staying on top of developments world wide. The ratio of time spent in preparation to time spent actually in trading has, in my experience, been a worthwhile measure of a trader's professionalism--regardless of setting. The best traders, like the best athletes, are always working on themselves, always refining what they do. In an important sense, they don't just use psychology to improve their performance. They work on their performance as a means of extending their personal mastery.
A small trader can approach his or her craft professionally. There are few models, however, for such professionalism--particularly when many of the "gurus" themselves do not begin to approximate what the pros are doing.
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