Monthly Archives: February 2008

Scientists Would Turn Greenhouse Gas Into Gasoline

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The NYT had a great article about how Scientists have figured out a way to turn CO2 into gasoline. They would suck CO2 out of the atmosphere, put it through a chemical process, and create gasoline. This sounds like the cure for our greenhouse gas and energy problem, right? Wrong, it takes a lot of energy to do this and in my opinion the payoff doesn’t make sense.

There is, however, a major caveat that explains why no one has built a carbon-dioxide-to-gasoline factory: it requires a great deal of energy. [via NYT]

Now the article didn’t detail what the net energy loss was in this equation (meaning you put in more energy than you get out) but I assume this won’t make sense to do just like biofuels when combating greenhouse gases.

Remember, you should think of the producing energy just like trading. Your reward to risk ratio should always be greater than 1. That means if I’m using 1 Energy Unit to make more energy, the output should always be greater than 1 Energy Unit. Disclaimer: Laws of Physics apply! :)

Stock Signals

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EWZ Buy SignalsI’m busy going through my list of stocks in my neural net program looking for buy and sell signals. My actual trades in XOM and EWZ have been profitable and I’m looking forward to doing some more trading this week. The beauty of this system is its simplicity. Every morning I just update the models with new price data and then click the prediction button. It tells me to BUY, SELL, or HOLD at the next market open. When used with a good stop loss and risk management system, this program is one helluva great swing/position trading tool.

Here are a few signals of stock positions I’m holding:

  1. NE – HOLD long position
  2. XOM – SELL long position @ market open

FYI: My posts may become erratic over the next few weeks as I’m busy with work and a crazy light rail design submission.

Sold iShares MSCI Brazil Index (EWZ)

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I sold my position in EWZ yesterday after it rocketed over $80 yesterday and started a slow decline back down. This is counter to what my EWZ neural net model says but the Forex Trader suddenly emerged and screamed, “see profit, take it now!” I ended up with a 2.3R gain instead of 3R but I’m happy nonetheless.

EWZ-021208

The EWZ neural net model still remains long going into today’s open and with my luck EWZ will blow past $81 today! :)

Stock Signals

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EWZ zoomed up yesterday and I remain long, up +4.2% since I bought it on Friday @ $74.66, I did move my stop up to break even and look to be trailing it from here on out. My stock neural net program tells me to remain long and I will wait patiently till the sell signal.

Just a quick recap of the other stocks I’m following and what their signals are right now:

  • SPY: SELL to close out the long position
  • EWM: HOLD long position
  • MLM: HOLD long position
  • GEOY: BUY today at open

Disclosure: Long EWZ and trade at your own risk

Trimming Outliers In Rapidminer

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RapidMiner OutlierI was inspired to write a short post about trimming outliers in RapidMiner after a comment from dc yesterday. Although I’ve never used these particular set of data pre-processing operators (I always inspect my data visually), I find them to interesting and worth a look.

If you right click and select “New Operator”, you’ll find many parent category operator selections. Choose the “Pre-Processing” category, then “Data”, and then “Outlier.”

Once in the outlier directory you’ll find three operators: densitybasedoutlierdetection, distancebasedoutlierdetection, LOFoutlierdetection.

Here’s what each of them do in brief:

  • The densitybasedoutlierdetection operator scans your data set and looks for outliers based on a density function (squared distance, euclidean distance, angle);
  • The distancebaseoutlierdetection operator uses a k-nearest neighbor algorithm to find outliers, and;
  • The LOFoutlierdectection operator uses minimal upper and lower bounds (with a density function) to find outliers.

These operators, in an experiment, will automatically “snip” your the outlier data record and then build your neural net model from the remaining data. Check out RapidMiner’s “Pre-Processing” category for more great data “cleaning” goodies!

Biofuels Deemed a Greenhouse Threat

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Just as I suspected, Biofuels aren’t the panacea that everyone thought they would be. When you factor in the operations of clearing trees from the land and planting all those biofuels, you get an increase greenhouse gas emissions rather than reductions.

The destruction of natural ecosystems — whether rain forest in the tropics or grasslands in South America — not only releases greenhouse gases into the atmosphere when they are burned and plowed, but also deprives the planet of natural sponges to absorb carbon emissions. Cropland also absorbs far less carbon than the rain forests or even scrubland that it replaces. [via NYT]

The best way to help fight greenhouse gases, in my opinion, is to plant trees and lots of them.

The End of Black Scholes?

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data.gifI’ve been thinking a lot about options this year and focusing my Internet searching on that topic a bit more than usual. I recently stumbled across a paper co-authored by Nassim Taleb, the author of the widely popular books “Black Swan” and “Fooled by Randomness”. In this paper, he rails against the Black Scholes Merton Option pricing model and explains why it wasn’t “invented” by the Nobel Prize winning researchers Black, Scholes, and Merton but rather “repackaged.”

The article also delves into the hidden risk of options and their pricing and I urge my readers to download the paper, its a fast read. It made me realize why traders like Victor Niederhoffer blow up when selling options, they rely on rational statistics applied to an irrational market. Most of the time selling options works well, and is very lucrative for traders and instituions. Its when the irrational market rears its ugly head and you get wild standard deviation moves in your assets, that the Black Scholes Merton’s weaknesses are exposed; it can’t adjust for financial outliers.

The problem with those outliers is that you never know when they’ll happen and most often the majority of traders and investors are exposed. So the future option trader question for today is to ask oneself, “what are the hidden risks in options and can a model be created to help better reflect those risks?”

Changes To The Member Section

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SamuraiI’m curtailing the scope of my member section for the time being because I’m extremely busy at work and my mystery illness is still knocking me out. Right now I can only send out a weekly email with my S&P500 Market Timing Report, usually on Saturdays.

What you’ll get every weekend is an email with a few paragraphs of my read on the market based on my timing model and a PDF snapshot of where my proprietary volatility indicator is.

I’ve even simplified the signup process in the right sidebar, so all you need to do is click on the link and fill out some basic information. Just so you know, I’m doing this for free right now and I may change it at anytime.

Stock NeuroMaster BUY/SELL Signals – VIII

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Today is the last installment of our little Stock NeuroMaster experiment, I hope you’ve been following along! We sold our long position of the iShares MSCI Brazil Index (EWZ) at the open for $74.09. The total total gain from this position is +12.1% and the model has sent another BUY signal for EWZ @ today’s opening, which I will be taking with real money.

The model is 2 for 2 in its win/loss ratio and the total gains for the account is +15.6% (I didn’t include costs for commissions and fees). I hope that this little experiment helped clear up any concerns you had regarding this software, I really like it and have included it in my trading arsenal.

If you read my Stock NeuroMaster post yesterday, you would’ve picked up on the SPY BUY signal and been sitting on a profit today. Guess what? EWH is also giving a BUY signal this morning!

As always, if you any questions, just leave me a comment below.

Stock NeuroMaster BUY/SELL Signals – VII

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The Stock NeuroMaster neural net model issued a SELL signal yesterday to close out our remaining long position for the iShares MSCI Brazil Index (EWZ) at today’s open. Our position EWZ has had a great run, as of yesterday’s close ($ 73.79) it was up +11.6% from the BUY signal. I’m looking forward to closing out this position (on paper) and finding out what my aggregate return was for this little test.

I’m planning on writing a brief summary of the things I learned using Stock NeuroMaster for this little exercise and hopefully will be able to provide my readers with some tips and tricks to help fine tune their systems. Thanks for playing along!

PS: I’m getting a BUY signal for the SPDR Trust (SPY) this morning!