For the last year or so I’ve been “dark” as far as the website has been concerned.  I’m probably one of the worlds worst bloggers, and I’m really okay with that.

If I could automate my blogging, I would be great at it… unfortunately I haven’t figured out how to do that yet. I have however figured out how to automate my trading.

I’ve been running on fully auto now for about 9 months and I’m extremely happy with the results.  The emotion of trading is gone and the results have been stellar. I’m in the process of testing out a few enhanced strategies right now and I’ll publish some results in the near future.  My current strategy is running in the commodity space and has been performing exceedingly well.

I’ve found that when it comes to trading, I am my own worst enemy.  I know the system that I’m trading, and I know my rules…. I just don’t follow them.  By automating the system, the rules are always followed and the system can work as designed.

A few days ago I posted about my personal commitment to simply trade what I’ve tested this year.  Well, these past two weeks have been a great testament to that process and the pay off has been pretty solid.  Currently, I’ve only spent enough time testing the corn futures market to be comfortable allocating capital against it. If you follow any of the commodity markets, you’d know that these last few weeks have presented amazing volatility and irrational trading according to some of the respected commentators in the grains space.

Last year, I’m pretty sure that I would have walked away from this type of market with a nice big loss.  My system would have performed really well, and I would have added enough horrible trades in to lose a bunch of money.  These would have mostly been entered very late at night, in a thin session and they would have all moved against me.  I would be angry and swear that I wouldn’t do it again.

Well, this year, I didn’t do it again.  I stuck to my guns and just traded what I’ve spent time testing.  It worked like a charm and kept me out of some of the insane volatility while basically nailing the drops over and over again.  I only had 7 positions triggered and 5 of them were winners.  In a market like this, I can’t ask for anything else.  That is a net of +35 points on each contract traded, not to bad over a two week period if I do say so myself.

Let’s just hope that the rest of the year continues to provide solid returns.  I’m pretty darn confident in the system I’ve developed and I’m looking forward to branching out into a few other grain products in the future as I have time to back test and ensure the system ports over cleanly.

These last couple of years have been quite a learning process for me.  I’ve been fortunate enough to have the opportunity to complete my MBA (I’ll be done in two weeks) at Kellogg, experience the birth of two fantastic little boys, enjoy a great job with a fantastic company and grow a lot as a trader in the process.

Given the myriad of other things that I am doing on a daily basis, I obviously cannot commit the time and effort to trading that a lot of others do.  I don’t have the time to stare at a trading screen all day long, and quite frankly I don’t trade a large enough account to make enough money to even consider it!  However… I really enjoy being a participant in the market and generating some spending cash.

With some basic constraints around what I can and cannot do, I’ve turned to very technical, very system driven trading.  I’ve dabbled with a few newsletter services (not a fan), I’ve played with options quite a bit but I’ve really found a home in commodity futures.  My trading method is horribly simple, just follow the trend.  I use a combination of some very basic indicators to get into a positions and as long as I trade without emotion, I’ve done pretty well!

My problem is that I get in my own way!  I can’t tell you how may times I’ve given away everything that my simple system has earned in a series of gut feel trades.  It’s as though I start to get overconfident about my personal ability and I try to time the market rather than simply go along for a the ride.  To make matters worse, I’ve noticed that I tend to trade in size on these horrible gut feel trades and blow up my account in spectacular fashion really quickly!  I’ve managed to remain profitable, but I’ve given back far too much money by letting my emotions drive my trades rather than analytics.

This year, I’ve committed to knock it off.  I’m only trading things that I’ve tested successfully.  It isn’t quite a full quarter of the year in, but the results are awesome so far.  It’s great to just set it and forget it based upon my rules, in fact if the year continues to be this solid I will likely transition to a fully automated system sometime this year for my futures positions.  I’ve spent a good amount of time developing and testing this little system, and it works really well.  This year I’m going to take advantage of that.

Buy it on Amazon

Over the last few years, I’ve developed quite an enjoyment of reading.  After taking a great course (Managerial Leadership) at Kellogg taught by Edward Hughes, my back log of books has grown substantially.  As a part of this course, he did a great little thing called the “Book-O-Rama” where all of the students read a book and we basically shared them at the end of the course.

One of the boks read by my peers in this course was Last Man Standing, a biography of Jamie Dimon.  It piqued my interest, so I picked it up recently.  This was a great book, a quick read and really quite interesting.  This was also my first attempt at reading anything using the Kindle for iPad app -it is awesome.

The book chronicles the life and career of Jamie from his time at Harvard to his tumultuous relationship with Sandy Weil and his accent to the top of JP Morgan Chase.  This is a very favorable account of Jamie, so those looking for a deep critical view of his career may find this reads a bit like a puff piece on his career.

For me, the book got really interesting as it dove into the depths of the financial crisis and the events that led to the purchase of Bear Sterns and Washington Mutual.  While there are many other books that do a great job diving into the nuts and bolts of what happened, Last Man Standing focuses on a lot of the political issues and some of the core reasons that JP Morgan was such a key player in the Bear and WaMu dispositions.  I also enjoyed some of the accounts of Jamie and Sandy burning the candle on both ends as they worked though transforming Commercial Credit into Citigroup.

On the balance, this is a great read, and I’d highly recommend it to anyone who is looking for a great financial story or is simply interested in banking, Jamie or the political and power struggles in the financial crisis.

In just about four weeks, I will have finished my MBA at Kellogg.  It has been quite the journey!

I have so many great things to say about the Kellogg community and the experience, it has indeed been nothing short of life changing.  This is going to be a super quick post; however I intend to reflect on the program quite a bit more over the coming weeks and months.

Tonight marks the end of another quarter at Kellogg.  This was a great 10 weeks with two very interesting courses.

Management Communications – Just a fantastic course.  Professor Van Camp is top notch!  Communication and the ability to present effectively is a critical skill in any profession.  This course provides and opportunity to learn experientially by preparing and delivering a speech every week.  The course culminated with two progressively more difficult speeches and some great tools to complete them.  I really, really enjoyed this one!

Bargaining - It’s not just saving a few bucks when you are working over your landscaper, this was a great scientific and experiential look into the world of bargaining.  We played different games each and every week actively participating in pre-configured bargaining situations that really highlighted different aspects of human behavior.  The course finished with a two week collective bargaining exercise that was extremely interesting. After spending 8 weeks bargaining away, we all felt like experts; boy were we wrong!  The collective bargaining exercise was very eye opening and quite challenging.

Next quater will bring Operations and Decision Analysis.  Both of these courses should be quite interesting, I am particularly looking forward to the Decision Analysis course as the professor is simply fantastic.

The entire Kellogg experience has just been fantastic. I’m on the home stretch now with only three quarters left, and I’m already getting a  little sad that it is going to end.  If you have aspirations to go to business school, I cannot recommend Kellogg highly enough!  The program is challenging, but it is worth every bit of time, effort and money you will put into it!

I decided to hedge off both the IWM and SPY condors today to ensure profitability should we get a substantial drop over the weekend.  Upside risk is negligible at this time, and quite frankly the hedge on IWM wasn’t really needed yet…- I’m simply playing it safe.

The trades are as follows:

• BOT 25 SPY 100 MAY 10 108 PUT @ 1.90
• BOT 50 IWM 100 MAY 10 59 PUT @ .59

The SPY hedge is a little late as my existing short strike on the SPY trade is 112, I should have hedged this off on Monday and Tuesday when I was working the rest of my real money accounts.  That was my mistake.  No worries though, these hedges will protect from downside risk, and worst case the SPY trade turns out to be a slight loser.  Also, the strike I used may have been a touch to close, a further OTM option would have provided possibly more protection due to a larger volume of contracts for the same outlay.

The IWM hedge is really to protect from a MAJOR market collapse in the next few days.  The short strikes are at 63 for this condor, so there isn’t a ton of risk here with the IWM currently at about 65.5 – however there is enough risk that I don’t want to be unprotected!  Time decay is going to start to pick up rapidly in the next week or so, so these hedges will be very short term.

My personal opinion is that we are going to see continued weakness in the market. There will likely be a rally in the next few trading days to consolidate the losses, however I would not be at all surprised to see the Dow, S&P and Nasdaq all down again next week and throughout the month. Greece is a power-keg that is ready to explode and the Euro zone is going to be in big trouble when/if that happens.  The old adage of sell in May and go away is really holding true!

Wow!  The High Frequency Algorithms sure made a mess of the Dow today!  Currently my IWM condors are looking very good and have lots of room for the ETF to float around up and down.  The SPY position is a little closer to having some issues, so I’m going to either hedge off some of the risk, or simply capture profits. I’ll post an update depending on the market activity tomorrow and what I decide to do.

From the WSJ:

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

After the carnage of Lehman and Bear is anyone surprised that major banks are doing everything in their power to manage their perceived risk?  This isn’t nearly as bad was what Lehman was doing, but 42% is a major shift, in fact that would be a material shift of risk in my mind.

Call me crazy, but wouldn’t it be prudent to actually manage the risk rather than attempt to hide it?

I was filled for an additional 25 contracts to the May 2010 IWM(96.76 -0.07) Iron Condor position in the paper money account.  This time the fill was for $0.55 credit, a reasonable premium to the original position.  I’ve gone ahead and adjusted my strike prices for the SPY(163.54 +0.13) order that is outstanding; these have been moved to 124/126/112/110 for a $0.50 credit, this order may fill if implied volatility spikes up nicely.

As of this evening the IWM position is profitable to the tune of a whooping $12.50! As with any position with 44 days till expiration, I’m not expecting much from it today. As you can see from the risk profile on the left, this position won’t do much until late April into Early May.  At that point, assuming the IWM hasn’t moved much I may unwind to remove risk and capture a nice return on capital at risk ($15,000).

It’s time to let time do its magic work.