Saturday, January 14, 2006

Building a money machine - Part 1

This is a start of a serious of blog posts that will walk through the requirements for building a successful money machine. The outcome will be a clear understanding regarding what are the ingrediants for such a tool. It will be an exercise to the readers to find the individual answers and decide whether to build their own tools.

First of, I would like to point you to my earlier posts The philosophy of a Trade Machine and The Money Machine exists!!!.

Except for the technical ability to automatically transmit buy and sell orders, the first obstacle that we have to overcome is to define the trading strategy which is based on the following key questions:
[1] Which market are we trading? (Equities, Futures, Forex, ...)

[2] What kind of time frame do we intend to use in our trades? (Intraday such as a Day trader, 3-5 days holding limits such as a Microtrend trader, or maybe 10-14 (or more) days holding such as a position trader)

- The timeframe defines the buy/sell possibilities strategy.
- The decision which timeframe to use is individual. It vary based on self psychology, knowledge and initial available capital for trading.


Next, we have to decide which stock market are we trading? The market decision should fit to the timeframe in which we are intending to trade. For example, if we are willing to daytrade, the market we choose must be of a high volume, otherwise we won't have the ability to trade on small fractions which is a must in daytrading.
For example the Forex/Currency market is a good candidate for day trading since it has high volumes and the trade spans are very close.

Next, we have to:
[1] Decide where we are trading (using a brokerage firm, trading system, direct access to ECN, ...)
[2] Build the system that executes our trading strategy.

The decision where to trade should fit of course to our earlier decision regarding the market and the timeframe. It should also fit to our tools that will execute the strategy, for exmaple, if we are willing to use an off-the-shelf tool that helps us to execute the strategy, the tool should have an access for using the trading network, or be part of it.

In my next posts I will talk about these two elements of the plan. What question should you ask for the decision where to trade, and how to build a "system" and what is it anyway.

Leadership (By RUDOLPH GIULIANI)

I have read this book last year and lately had a conversation about it with a friend who happened to read it too. I have found the book to be very interesting and almost didn't leave it until I read it all. There are several issues that caught me in the book:
1. The high achievement standards demonstrated by RG.
2. The broken windows theory.
3. The self example.
4. The morning meetings that helped to move things up.

Well, actually there are lot more and these are only the labels of a much wider stories, however, I would like to concentrate today on the broken windows theory,
and this because I find it to be so useful to think at that way and I think everyone should be familiar with it in order to better understand how simple it might be to get to higher standards when you just follow the rules of consistency and showing an example.
The "broken windows" theory says in short that in places where the windows are broken, it might be common to assume that one more broken window will not be a disaster (on the contrary). This saw might be deduced to many fields such as:
[1] If you are shouting at me, it is ok to shout.
[2] If a politician is a liar, his surrounding might be built of lies (and is it ok?).
[3] If there is already a garbage on the floor, it is ok to drop some more garbage on that floor....
So, in short, the theory says - "fix the broken windows unless you want to see all the others broken too..."