Jun 7, 2010 - Issue #218
Algorithms, or 'algos', defined as "Procedure for solving mathematics problems".
When applied to markets, it is termed 'algorithmic' trading. The goal is to remove human emotion from the
decision making process, thereby (hopefully) making better decisions.
CNBC could fill a lot of air time interviewing the 'algo's' but they might not want to be interviewed.
Many such programs are termed 'automatic market making' (AMM) and try to profit as low as one tic in filling
orders coming into the market. These trades are measured in micro seconds and have no long term effect.
Other 'algo's operate on different time frames and could be described as 'scalping', day trading, swing
trading, position trading, etc. In other words, any kind of trading style humans engage in.
If it sounds like video games, you're correct. It speeds things up. It has been reported 75% of all trading
is 'machine' trading. What does it all mean for us 'humans'?
For one thing, never use market orders. Active traders use 'direct access' brokers. Use limit orders with tight
limits (Algo's use 'flash' fill-or-kill orders to feel the market out). Use more sophisticated orders, such as
'contingency' orders to initiate positions and buy Put or Call Options to protect those positions.
Make sure the protective options are in place before (or simultaneously with) the underlying stock positions.
This is the only protection a trader has against the practice known as 'gunning the stops' or 'search and
Skillful use of Options can protect a trader from the 'machines'.
W. D. Gann, a keen market observer, although not an astronomer, nevertheless, was fascinated by the apparent
coincidence of important market 'pivot points' and astronomical dates. Theories exist for estimating time and
price of important market turning points but astronomical occurrences are computed with mathematical certainty.
There is no logical reason why these occurrences should coincide yet, empirically, they have.
The 'Full Moon' and 'New Moon', among others, have been cited. Therefore, one might be well advised to be aware
of their occurrence. Note: The first 5 business days of 2008 concluded on a 'New Moon' and we all know how that
worked out. Coincidence?
6/12 Saturday - New Moon (Observe market action Friday & Monday).
6/26 Saturday - Full Moon (Observe market action Friday & Monday).
During the next two weeks, the following DJ-30 components report earnings. Keep a sharp eye
out for possible price swings leading up to 'earnings day' (Subject to revision):
Dow score card for the week ending 6/4/10.
DJ-30: 9931.97 -204.66 -2.02%. The Real World (arithmetical) DJ-30: 43.79 -0.92 -2.05%.
UP: 1, Down: 29.
Trends (weekly charts): This is the subjective part.
Rising (Generally Higher Highs/Higher Lows) 0 (N/C) 0%:
Consolidating (Generally Lower Highs/Higher Lows) 26 (+5) 87%:
AA, AXP, +*BA, +*BAC, CAT, CSCO, +*CVX, DD, DIS, GE, HPQ, IBM, INTC, JPM, KFT, +*KO, MCD, MRK, +*MSFT, PG, +*T,
TRV, UTX, VZ, +*WMT, XOM.
Declining (Generally Lower Highs/Lower Lows) 4 (-5) 13%:
-*HD, JNJ, -*MMM, PFE.
+/- denotes change of direction.
* denotes change of category.
Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!