I went long these ETF's back on 11/19 (as well as others I will post about).  These holdings are part of the AAII ETF portfolio and I was experimenting with them.  These do not fit my new trend strategy but they've been performing well and I'm making profit.  Profit is profit, right?

Note: I accidently annotated the entry date on the charts wrong, it should be 11/19 and not 11/13.

Here's a snapshot of my current portfolio.  This includes entry points, returns, and stop levels.

I dabbled in the AAII.com screens for a bit  this year and bought AIRT on 11/17/09 after it showed up on the Grahman Enterprising screen. I figured it was worth a shot.  I sold that POS on 12/28/09 for a stinking 6.73% loss.  It wasn't a trend play but more of a position play that didn't pan out. Lesson learned, this screen is for suckers and not for me.

Went long SLXP yesterday (1/7/10) @ $27.72.  So far so good! Let's see where she takes me.

I got my ass spanked in the markets over the last year.  My 401k portfolios are surviving after some severe drawdowns (25%) between 2008 and 2009 and my trading capital in my Forex and Stock accounts got destroyed.  Luckily it was only risk capital, money I could afford to lose, but it still hurts anway.  So what did I learn from this hell of a market?  I learned that I’m not as smart as the market and that I tried to second guess it too much.  When times were good my system worked, when times got bad It hammered me. 

Perhaps the biggest thing I learned in this market crash is that nearly all my neural net trading models FAILED.  Yes, the models that were designed to alert me to impending market doom failed for the most part.  My volatility and timing model did OK but they had some major issues as well which I’ll discuss below. 

So today’s post is really a cathartic one for me.  It’s a mea cupla of sorts, a post in which I take my lumps and start to exorcise my trading demons.  It’s about the things I did wrong over the past year and hopefully a reminder to never repeat again.  Plus, it’s another way to ease myself into trading and posting to this blog again. 

As I rebuild my portfolios in 2010, I expect not to solely rely on neural net models again.  I realized that in a crazy market, neural nets can’t adjust fast enough.  As the market was crashing, my models were generating BUY signals when the market was obviously telling me they were wrong.  If only I had listened to the market instead of the models!  I learned that my biggest mistake was something called “confirmation bias.”  I wanted to believe what my models were telling and I traded accordingly.  Why?  Well it always seemed to have worked in the past, so why should this time be different? 

By the time I realized that there was a discontinuity between what the market was TRYING to tell me and what my models were generating, it was too late.  I had to unwind many positions at a big loss. 

I also made some severe psychological mistakes like not following strict money management rules and getting caught up in the market hype.  I thought it would never happen to me but it did.  In the end, I loosely followed money management rules and leveraged myself too much.  I didn’t honor all stops and threw caution to the wind.  In the end, I got what I deserved.

However, a few of my models performed OK.  My market timing and volatility models held up surprisingly well in the face of this Armageddon. A few wheels came off of them when the $VIX hit 80+ but it managed to generate signals at all upcoming market inflection points.  The problem with the timing model was that it generated too many BUY signals, not necessarily at the wrong time, but not at the optimal time.  The timing model hit all the turning points in the market but it couldn’t differentiate which ones were the major ones, the ones where I should’ve moved more money into the markets.  

So I got trapped in positions that in a normal market pullback made sense, but not in a market crash.  As a result of this shotgun approach, my 401K is up 20% for they year, as opposed to the 60% that the market has rebounded too.  Oh well, I guess I’ll have to refine or rebuild those models. 

This learning lesson doesn’t mean that I’m abandoning neural net models completely, I’m just reassessing how they’ll fit into my overall trading system.  I’m also sticking with a trend approach to trading but severely simplifying it.  I’m not as smart as the market and why should I spend time building sophisticated trend models when I can just look at Price and Volume, and trade accordingly.  I will listen to what the market is telling me and avoid the hype in the news.  Money talks, Bullshit walks.

In the end, this market crash taught me many BIG lessons and that I’m taking to heart.  I’m a bit older and hopefully wiser now and look forward to a new year, filled with trading opportunities no matter if we’re in Depression, Recession, or Bull Market. 

In closing this post, I wanted to thank all my readers who stuck around.  My feedburner stats have keep relatively stable since I posted about closing down this blog.  I do plan on returning to posting in 2010 but the frequency and content is still up for grabs, and I plan on providing a separate subscription service (separate newsletter of sorts) in the future. 

Thanks for reading.  I want to wish each and every one of you a Happy Holiday season and a Happy New Year, may 2010 be profitable for you!

I recently downloaded the new version of TraderXL and was surprised to see a major update to the ClassifierXL module (as part of the NeuroXL suite). I’ve used this module before to classify like groups of stocks and identify (per my requirements) the right stock to buy out of a group of many. Major updates to the module include a better GUI interface and the inclusion of five neural net functions, namely the Threshold, Hyperbolic Tangent, Zero-based Log-sigmoid, Log-sigmoid and Bipolar Sigmoid functions. To see what it can do, I’m attaching a recently classified ADR stock scan spreadsheet from www.aaii.com.I downloaded this scan from AAII, used the zero-based log-sigmoid scan, and classified the stocks into 5 similar groupings.After it crunched the data it created two charts and a color coded spreadsheet from your data.If you flip to the charts in the spreadsheet, you’ll notice that cluster 1 and 5 have large groupings of similar stocks.These clusters represent the most interesting of the stock groups and should clue in the data modeler to some possible opportunities in the data. Let’s say you are interested in investing in a China based company and you have lots of data from a stock scan to go through. How can you identify a good candidate for more due diligence? First open the spreadsheet and then using the pull down data sorting menus to select China as your country of choice. The data in the spreadsheet will sort and show 7 China based stocks, with 5 being in Cluster 1 and 2 being in Cluster 5. Now this is interesting data revelation to me because not all of these 7 China based stocks are being classified as the same. If you further drill down the data by selecting the Top 10 EPS Growth Estimate, then you are left with 4 China based stocks in Cluster 1: LFC, JOBS, BIDU, and MR. These 4 companies should give you a good smaller list of stocks for further review. Granted, this example was a fast way of doing a complex data analysis but the ClassifierXL module helped simplify the process. The neat thing about this module is that it does all the heavy lifting for you and organizes the data in an easy to use spreadsheet!

I make it a habit of “selectively” catching falling knives and yesterday was definitely such a day. I emailed my members yesterday around lunch time yesterday to tell them that my Market Timing model issued a strong BUY signal. Interestingly enough it was at the 1335 level which is right around the 1337 support level I modeled using my Monte Carlo sim.

Could the market go lower from here? It sure could and I expect it to kiss the 1291 level,just like it nearly touched the 1383 level earlier this week. So why BUY now? Why not wait till the knife hits the floor?

Well its true that this type of investing is counter intuitive. No one can every pick the bottom exactly and I’d rather buy quality mutual funds and stocks that are being sold in panic then waiting for a chart bottom to form. It seems nutty and insane but it works for me.

I reiterate my downside targets from here: 1291, then 1245, then 1191. You don’t want to know the levels below that because they are downright scary!!!

I mentioned to my members in this past week’s Market Timing Report that I would run a Monte Carlo simulation on the S&P500 to see what are the potential upside and downside targets for the S&P500.

The Monte Carlo sim confirmed my suspcisions that the the 1310 to 1340 level was indeed an interim support area and the sim calculated it as 1337. The simulation did indicate a negative bias for the S&P500 for the short term so I’m still concerned that we might see a breech of that level before we turn higher.

The short term upside targets were calculated as: 1383, then 1429, and then 1475. The short term downside targets were calculated as 1291, then 1245, and then 1199.

Now, these targets were simulated using a Gaussian distribution and we all know how that distribution breaks down in very volatile markets. The chances are that if we do see more downside action, it could be violent and my downside targets would be meaningless.

I’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.