Wednesday, January 26, 2005

John Henry and Airbrushing Models

Very interesting Q & A with John Henry. Read here.

I admire how John has full confidence in his systems...especially in the drawdowns. I'm sure the biggest key to his performance is not deleveraging during heavy drawdowns. By staying fully leveraged he is able to snap back to prior highs. Of course, in the wrong hands this could be another Long Term Capital. So, not only confidence in your system is key...but your system's validity is an even bigger key.

Also interesting how he chooses to deleverage due to profit. And how they will look at various charts priced in different currencies.

That brings up a long-term gripe I have about some forms of technical analysis. I used to eyeball charts...up to 1500 a night. Looking for patterns that matched what I considered to be "winning charts".

The problem with this approach is that many factors change on a stock chart when a stock begins advancing. Splits, dividends, volatility, etc. You look back at a chart and might see a nice tight range then a breakout that leads to a 100% or more movement in price. You get that "aha" moment that you need to look for nice tight ranges and buy the breakouts.

Problem with this approach, is often times those "tight ranges" are only created after a 40% to 50% upward move in the stock.

Split-adjusted stocks are even more fun. They make many stocks look as if they rose from mere pennies when in fact they got their start at a much higher price. Fools several beginning investors into thinking they need to look at penny stocks in order to find the next Starbucks.

Okay, enough griping before I piss off anymore die hard chart readers.

Seriously, I still review charts every night. Always will. There's no better way to tell what's going on with a stock for me. But, realize you're often times looking at a Maxim Magazine cover spread. Airbrush and all. Looks can be deceiving.

Later trades.

Daily Systems

New System Triggers
  • Close QQQQ (MidWeekDrops) long position at Thursday's market open.
  • Close ACV (BreakUp) long position at Thursday's market open.
  • Close EAT (BreakUp) long position at Thursday's market open.
Recently Closed Trades
  • none
Current Open Systems
Symbol System Entry Date Exit Date Profit/Loss%
1/5/2005 open -3.96%
ACV BreakUp
1/7/2005 open +1.01%
MGF BreakUp
1/19/2005 open +0.60%
QQQQ MidWeekDrops
1/24/2005 open +1.03%
FO Breakup
1/24/2005 open +2.70%
EAT Breakup
1/25/2005 open +4.33%**

Total +5.71%

Note: EAT opened late on the NYSE exchange and its very possible the actual opening print was much higher than the $36.52 quoted in the various data providers.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

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