Stress-Free Trader (The Lawrence Chan Blog)
Full time index & forex trader, occasional consultant to hedge funds / institutions, my work leads to my not so normal view of the financial markets. My blog mostly talks about trading, market behaviours and other musings.
Originally this blog is supposed to be organized in a separate website like what most authors do but I don’t think I will maintain it properly that way. So here it is as part of this website.
Schedule – Regular blog post every Friday with occasional additional posts when I feel like ranting.
In case you are curious of what I do outside of blogging here:
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Major Changes to DaytradingBias.com
2016 Oct 21 Fri 11:27:42 | by
After lengthy discussions with my team on various aspects of DaytradingBias.com, I have arrived at the conclusion that we are going to streamline the overall design of the website. Instead of keeping it more portal like with various areas accessible from the home page, we are going to revise it so that it delivers a clear message in terms of the type of services and products that are offered. The changes will be graduate as there are a lot of content to be reorganized.
For the weekly commentaries, I may not keep it in the same format as the way it is done now. On the upside, I am considering adding more markets to Market Bias Observer newsletter for my premium members with weekly or bi-weekly updates so that premium members can follow my swing plays more closely. I am looking into adding US bonds, crude oil, ETFs, stocks and probably other markets as time permits.
These changes are necessary as my role in managing my fund can take up much of my time. Naturally, if I write about what I trade for the fund, it will be much easier even though the comments I make on the individual markets can be quite brief. The goal stays the same though, I like to make this site educational for retail traders so that they can become proficient in trading by observing a professional trader in action.
One thing that will affect my daily routine most is likely the amount of time I have for day trading. Day trading a number of markets will still be the core part of my investment strategy but it will be more automated than ever. I will keep up with the real-time commentaries at least for now. I see that going forward, however, spending more time to summarize my day trading techniques into something well organized will probably help more traders to breakthrough their trading obstacles.
Many changes are coming and I welcome all suggestions as usual.
Have a nice weekend all!
Thanksgiving Turkey, Post Election Trading and 2017 Outlook
2016 Oct 14 Fri 14:39:07 | by
Last weekend, during dinner with friends and family on Canadian Thanksgiving, the very topic of turkey prices was raised. The discussion was very interesting and I have put some thoughts about it after. Should be something nice to share here.
The main occasions when turkeys are served are Canadian Thanksgiving in October, US Thanksgiving in November and Christmas holidays. Since these 3 occasions are happening very closely together. The turkey farmers usually raise their turkeys to full size by October so that they can send them to the slaughter house for processing and distribution.
This seasonal effect creates a very interesting market dynamics on turkey pricing.
Walmart usually price the frozen turkeys by weight categories during the holiday months. This makes Walmart having one of the lowest prices on frozen turkeys. The seasonal increase of turkey supply also helped in reducing the overall prices on turkey. For non-frozen turkeys, however, their prices are much higher depending on the brand and farms the turkey is originated from. In general, we are looking at seasonal price for frozen turkeys at just 30% of the regular price.
The beauty of supply and demand at work.
The funny thing though, is that more and more people who love eating turkey stock up on the frozen turkeys during the holiday months and pull them out of the freezer throughout the year right after. Many small restaurant owners are also doing the same to better control their food cost. The net effect from these behaviours boost the seasonal demand even further.
Currently, the smaller size frozen turkeys are so cheap that the farmers are not making money from them at all during the holiday months. I seriously wonder if this market dynamics can continue much longer into the future without pushing the seasonal turkey prices higher.
I cooked that turkey in the photo and everyone loves it!
Post Election Trading
Many people have been hoodwinked multiple times during this month right before the US election. So much drama and surprises with the election making the trading environment less than ideal. I have seen many traders thinking that post election trading should be much better. Well, this is what they wish for but it may not be what they are going to get.
What if the election results are undetermined?
Think Bush Jr. vs. Al Gore
This time, if close calls happen in various states, I am sure both sides will fight to the bitter end instead of seeing one side gives up on just one decision from a lower court. An all out legal battle on the election can take years to resolve. This means that there will be no president for the United States for a long while.
Now, think again how bad it can be for all the markets around the world.
My trading goal for the year is reached as of this week thanks to multiple swing opportunities presented themselves this year. I am not sure if I want to trade much from this point onward until after 2017 New Year. One good thing about this though is that I can have more time for my writing and site development projects.
Going into year 2017, I can foresee the potential of a very volatile stock market in the making as interest rate issues will move into the forefront while Brexit impact will finally be felt. Day trading opportunities will increase many folds.
I have a good trading year this year and I am very grateful for that.
I am looking forward to a great trading year in 2017 already knowing what is in store for so many major markets. Exciting time, indeed.
20 Years of Research and Development Finally Accessible by Retail Traders
2016 Oct 7 Fri 13:09:17 | by
This week is very important to me. More than 20 years ago, I successfully created the first real-time custom market breadth index across the S&P100 components on a Windows computer. There were many failed attempts due to many technological obstacles before I overcame them one by one. Over the years my custom market breadth engine was mainly licensed to trading firms for their proprietary trading needs. This week, I finally released a beta version of custom market breadth chart for Emini S&P which is accessible by my premium members. No need of higher-end computers or installation of sophisticated application to gain access to the information in real-time. A browser is all they need. This is one accomplishment that brings me lots of satisfaction.
Start of a Revolution Against Established Concepts in Trading
In the simple chart delivered, it packs much critical information that are not available anywhere else since it is computed in real-time across the 500 components of S&P500 based on my proprietary research. In trading or investing in general, rare but critical information always gives one hard edge way beyond data that is available to anyone. Alpha is generated more easily as one can take on the opposite side of the consensus opinions thanks to having information the counter-parties wish they have.
But this is just the start of a revolution in trading decision making process for retail traders. For one, I need to write many articles on how to utilize the information provided. I will also need to integrate the mechanical trading signals generated from my custom breadth data with the Real-Time Trading Assistant so that the standard interpretation of the information can be used immediately for better trading performance.
Maintaining Scarcity a Priority
I know that the availability of the custom market breadth chart will alter the market behaviour going forward as my premium members gaining unfair advantage over other traders. Once I deem that we are getting close to affecting the market, I will impose limitation on the number of premium members by either increase in membership fees (existing members will not be affected) or through a waiting list approach. I have been keeping the premium membership fees extremely low relative to the services offered. Going forward, however, I need to strike a balance between servicing the trading community and keeping a reasonable bottom line taken care of.
I don’t think I will increase the premium membership fees this year. By the end of December I will decide what I am going to do and let everyone know well in advance so that there is no surprises.
Advanced Trading Techniques and Mechanical Models
My little remaining time is mostly spent on writing the advanced trading materials that I promised. I still need to keep a bit of time for sleeping and other basic human needs. The goal with the advanced materials is not so much teaching the various ways to make money from the markets. Instead, they are written to satisfy the need of committed traders who need better foundation to build their own trading methods on.
Hence every trading method I disclose would be completely different from each other because they only work if you follow them consistently. Depending on your personality and temperament, you can stick to the method that suits you best. And that is usually the best way to develop consistent trading results.
Have a nice weekend everyone and Happy Thanksgiving to my fellow Canadians!
More on Site Changes
2016 Sep 30 Fri 18:00:33 | by
Real-Time Custom Breadth Chart for Emini S&P Going Alpha
The real-time custom breadth tool for Emini S&P will go alpha early October (keeping my fingers crossed). Instead of my original more aggressive plan to deliver it with many features. It will be simple and functional. From there all premium members can give me feedback to see where we are going to take it. It will also give me idea on what to write about the various custom breadth trading techniques.
It was one of the most frustrating developing project for us all here. From not enough server power to difficulties in securing internet connections to our website for real-time updates, every little adjustments were met by more setbacks than making progress. So I made the decision to put the more complex prototypes on hold and asked my team to give me the barebone version ASAP for alpha release. And here it is.
Consolidation of Funds and the Start of a New Fund
Mentioned quite a number of times already that I am obligated to help out close friends and family members to manage their risk capitals. I have now formally formed a company with my business partner to put everything under one company to detach the investment and trading from my personal accounts. The good thing with this approach is that I can structure an example trading account as a demonstration on how some of my trading models work with clean audit trails.
The setting up of corporate accounts for trading can take some time to do as many paperworks have to be filed during the application process. This means the expectation is that official launch of the demo will be more likely to start in first quarter of 2017.
For the swing trading and short term investments decisions that will be made on daily and weekly basis, I will see if I can make the watch list of potential trades to be made available to premium members here. This is like an extension to what we are offering already with Market Bias Observer newsletter but more active with specifics on each individual stocks or markets. It may not come with a lot of explanations but it is not intended as teaching materials. To learn my trading methodology one can check out the website for the information. The trade ideas will be useful for seasoned swing term traders and investors.
Busy Busy Busy
Although I am encouraged by my existing clients to move on to active management of my own firm, I still need to work with them to rearrange my role with their family offices. This means I will have to schedule my travel in coming months to handle the transition quickly so that I can focus on the new projects. Hopefully this time my internet access will be much better than my last travel experience.
From being busy to very busy, I can foresee a very exciting year ahead already.
Tax and More Taxes on Real Estate
2016 Sep 24 Sat 14:07:13 | by
Vancouver Canada has chosen to tax houses that are deemed vacant. London Britain has chosen to increase tax on foreigners who purchased properties there. Ontario Canada chose to increase minimum down payment percent for more expensive houses. There are more such taxes and constraints introduced around the world. Many people think that these are such great ideas to improve the supply of housing for people who need affordable housing. The reality, however, is far more complicated and the unintended consequences can be far reaching.
More Taxes Never Put Money into the Pockets of the Local People
Contrary to what the politicians telling the people, tax increases almost never help resolving the budget issues of any government. The more money a government gets to collect, the more money the government will eventually spend. There is never an end to this downward spiral once deficit budget was chosen. So whatever politicians promise, no matter how sincere they are, there is absolutely nothing they can do to reverse the inevitable.
The same holds true for tax increase that is supposed to stop people from engaging in activities hurting the general public. The excuse itself, like tax on tobacco or additional tax on the buying and selling of properties, does nothing to curb the underlying activity since the fundamental reasons for these activities have not changed. All these additional taxes or tax hikes do, is to give the government more money to spend on the wrong things.
More Constraints on the Real Estate Markets Never Cool Them Down
One of the craziest laws proposed on real estate was coming from none other than the City of Toronto many years ago. The proposal was to allow homeless people to live in buildings that are supposedly vacant. The idea actually gathered quite a lot of support from the left leaning community. Back then, the homeless people issue was growing out of hand in Toronto. Many people simply wanted the homeless people to disappear on the street. It was not empathy whatsoever to help the homeless people.
Lately, the concept of foreigners being guilty of pushing real estate prices higher has gained traction everywhere in the world. This, again, is just another example of branding a complex issue into naive black or white thinking. As oppose to embrace complexity, majority of people choose to use problematic narratives to enable them to stay ignorant. The real underlying reason for many asset classes going up in price in terms of the local currency is the result of the extremely low interest rate policy of these countries. This fundamental driver unleashed all the evil consequences that we are seeing around the world from asset inflation to instability in many countries that in turn give rise to terrorism.
Maybe, these unintended consequences are not that difficult to anticipate as many people figured that out years ago. For taxes on real estate, it is obvious that it will force people to choose to live or invest elsewhere. It will also reduce the competitiveness of a city relative to the nearby counties. Hence, instead of getting more revenue as the politicians expected, the net outcome is always negative in terms of overall income for these cities. The dire consequence is the reduced ability of these municipal governments to borrow money as their financial strength in securing revenue is greatly diminished.
The Source of the Next Global Crisis: Municipal Debts
As many countries can no longer get enough income through taxation to cover their expenses, these countries have now resort to introducing more form of taxes by many creative excuses. The core reason for which taxes on the people are not generating enough income for the governments is that the governments are simply too big in terms of economic footprint relative to the size of the economy of these countries. While the private sector of the whole world has been in nimble with real wages not growing for the past ten years for many countries, the governments of these countries keep growing at a very fast pace. As there is never enough tax income to satisfy these big governments, they borrow more and more through the issuing of government bonds.
The soaring of debts in many countries confirms this global problem. What we do not know, however, is the limitation of the investors to be willing to lend to these governments. When investors become sick and tired of negative returns from near zero interest rate government bonds, the music chair game of debt driven financing of these government entities will end abruptly and destructively.
It is not likely the biggest countries in the world will default their debts against their creditors because these countries can print money to pay for the debts and their interests. On the other hand, we cannot say the same for the regional governments and the municipal governments. The particularly troublesome ones are the big cities with huge infrastructure cost like Toronto in Canada, Chicago in United States, etc. When these cities no longer able to borrow, they will have to default on the debts they issued. Basic services will disappear. Upon restructuring, local real estates will be targeted as cities do not have power to tax people’s income.
Of course, we all hope that this day is not going to happen to the city we live in but that is just wishful thinking.
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I have been exchanging email with Ron, an old friend from Netherland, lately and here is a short story of his path to establish his trading career. Ron was part of the Dutch Air Force. Since then his career had been revolving around airplanes until …
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