Thursday, 22 December 2016

Getting started and increasing productivity

Success favors those who act. So just get started. Easy right? Well sometimes it is. Other times it's difficult to get the ball rolling. In these cases it's important to remember two things. Firstly, if you've chosen your task or action item but cannot decide where or how to begin, then it's likely that your action item is not an action item at all, rather it's a group of items. Take a moment to refine it and come up with two or three smaller components of the task and tackle those instead. In all likelihood you will immediately see what other steps need to be taken.

The other concept to remember is this; sometimes motivating ourselves to act is as simple as going through the motions. Rather than consciously trying to determine the specifics of your action item before start again it, simply try starting with the physical routine first. Often the cognitive or the ideas will begin to flow quickly after you start going through the motions. If you think about it this is really a microcosm the first concept. Need to respond to that email or finish that quote? The first action is generally something as simple as ‘turn on computer’ followed by ‘open correct program’ etc. It may seem like autopilot and in a way it is, but the goal is to be effective and move forward. Ultimately only doing is really moving forward everything else is just stalling. 

Saturday, 17 December 2016

Why you need a trade simulator

     As traders we all have our systems. Our systems are (hopefully) what governs our trading; a clear set of rules and parameters that tell us when and how to enter, and more importantly exit our position. It is only by developing and optimizing, and then not deviating from these parameters that we can succeed. Unfortunately many novice traders focus almost exclusively on the entry side of the equation and neglect the vastly more important aspects of sizing and exit strategy. This is where our trade simulator comes in. Again, if the amateur even gets this far he focuses all of his attention on testing his entry strategy; sometimes importing historical data and back testing his rules. Contrast this with the approach of the pros and more seasoned traders who run endless simulations and models; focusing instead on exit strategies and testing their systems in all market conditions. It used to be that only large institutions with vast resources and supercomputers could do this. Fortunately now, we all have right in front of us the tools to do this. Armed with your PC and a simple spreadsheet you too can run thousands of simulations in minutes and test a myriad of conditions. Then you will see your system as a statistician does, and can begin to truly optimize it to maximize profits in the long term where it really counts.

Check out our video series on building and running a simple, spreadsheet based simulator:

Thursday, 15 December 2016

Improve your small business with automation and outsourcing

Business Automation and Outsourcing

The tools available to businesses today are incredible. Virtually everything can be had and at astonishingly affordable prices. Need routine tasks completed? Can't afford to hire another staff? No problem, there's likely an app for that. Take for example bookkeeping. This used to involve either a dedicated staff member, or in the case of most small businesses, fell into the lap of an already overtaxed owner. Enter in the online bookkeeping app; synced to your accounts and programmable. You can now automate the majority of your bookkeeping to the point the where the most it requires of you is simply a routine check-in and review. Often these services can be had for $20 per month for a small business. Add to this a myriad of service apps for things like inventory, check out, and point of sale, even bookings and payments. Suddenly you have the capabilities of a much larger company but without the larger payroll. Furthermore when you need to have an actual person for a task you can outsource, sometimes even on a task by task basis eliminating the need for hiring and taking on more responsibility yourself;  thus solving one of the major hurdles facing entrepreneurs as they attempt to grow their companies. We've all been there. You wanted to increase sales only to get them and then need to scale your business while maintaining margins. Now we can in a way have it all. Admittedly it doesn't do much for employees and people looking for full-time work but that's a whole separate issue, one that both employees and employers need to be aware of. Our economy and society are changing quickly and this concept is a big part of it.

Wednesday, 14 December 2016

Trade Simulator 2

The next video in our trading simulator series is now up! In this video I share the basic formulas involved in making your own simulator. With this you will be accurately modelling your trading systems like a pro. Once you build a simulator, just enter your system parameters and start testing. If you've never modeled trading before you may be in for a surprise; learn how your system actually does in all market conditions.

Tuesday, 6 December 2016

How to use the power of compounding to set and achieve your goals

How to use the power of compounding to set and achieve your goals

     Most of us are familiar with the concept of compounding, particularly as it pertains to money and the earning or paying (shudder) of interest. But the benefits of this concept can be applied to a wide variety of situations. Take for example goal setting. We all set goals. Goals help us define what we want and then help us measure our progress towards achieving them. A great deal has been said about two aspects of goal setting. Firstly, we are commonly encouraged to set lofty goals which at the outset seem unrealistic or unachievable but are meant to push us towards an end result vastly greater than where we started and one that is greater than we expected.  Secondly, we are taught to set smart goals; goals that are broken down into their smaller and more easily actionable components, all adding up to the end result. The problem with these two approaches is that we can begin to focus on one end of the spectrum to the detriment of the other. A lofty end goal can induce paralysis or feelings of being overwhelmed by the seemingly impossible or insurmountable task, while the other, that is the focusing on small manageable steps, can lead us into complacency and keep us in our comfort zone rather than pushing the boundaries of what we think is possible. So what does compounding have to do with all of this? How can we use this concept to gain all the advantages of both ends of the spectrum to keep us on track towards them? Imagine this example:

Let’s say you want to set a goal to increase traffic to your website. You decide to measure your progress by counting the total traffic to the site every week. So you check your analytics account and find that last week your site generated 300 visits for the week. Not bad you think but it could definitely be better. So what should the target be? Well 1000 hits would be great, right? Sure it’s more than 3 times what you have now but what’s the point of setting a goal if it’s not going to challenge you to push yourself? So you go with a goal of 1000 and then determine your next actions. What are the small steps you can identify and take now to start you on your way? You decide to do 3 social media posts and 1 blog post, and you estimate that this will drive traffic up by 25 hits. It’s a good start but you’re honest with yourself and you know that it’s a long way from your goal of 1000. Still, you plug away for a few more days or weeks trying the same old approach with similar results until interest in your goal fades and gets replaced by some other ‘urgent’ task. Why? Because it’s difficult to maintain focus and drive without ever seeing the reward of achieving your goal.

Now let’s try this again; this time using the power of compounding. So you want to increase traffic to your website to new and record levels. You check your stats and see that you’re at about 300 hits per week. Now you set a goal of increasing this by 10% this week. No problem, that’s only 30 more than last week. A few social media posts, a blog post, and maybe a few phone calls and you’re there. Now make the goal compounding every week so that next week the goal becomes 363 hits (330+10%). Again, you feel this is no problem. Encouraged by your results last week, you hit the ground running and manage to do 5 social media posts and 2 blog posts and you hit your goal again. Savour the reward. Now every week you approach this task with the energy and creativity to accomplish it supplied by the reward of the previous week’s achievement. Like a carrot on a stick, your goal is always just a little bit ahead of you but you enjoy the chase. Plug the numbers into a compound interest calculator and you see that a goal of a 10% increase on 300 hits compounded every week puts you roughly at 1000 hits/week by week 38 and over 3800 hits in week 52. Total traffic for the year: over 42600!

Not only does this approach surpass the original goal of 1000 hits/week but it gives you a timeline and encouragement along the way; a powerful tool that will have you both thinking big and taking small steps simultaneously and effectively towards an even greater result.

Monday, 5 December 2016

Trade Simulator Video!

Check out the first video in a series about building a trading simulator:

Any trader worth his or her salt should have one of these at their disposal. Trading simulators allow you to test the parameters of your trading system and see what the results would be if you ran thousands of trades. Not only is the process of building your trade simulator an extremely valuable exercise in itself, but after you have used one you will likely find it to be an indispensable tool for building and managing trading systems.

Thursday, 1 December 2016

Calculating Projected Annual Return of a Trading System

How to combine expectancy and compounding

Whether using an automated algorithm or a manual trading system, it is imperative that investors have some method of projecting the annual returns of their systems and portfolios. The human mind has a very difficult time grasping the concept of probability, and people often assume correlation or cause and effect where there is none. We search for patterns on a micro level and our brains supply them for us, happily falsifying the data to appease our desire for order and structure. Meanwhile what we really need in order to overcome this is to simply be shown the end results of our system over a long period of time. That way we will be able to see past the ups and downs and concentrate more objectively on macro results. Note; I’m not talking about back testing which traders love to do, rather I’m talking about combining individual results to create a smoothed projection in simple, relatable terms to show us where we are likely to end up after plying a system for a year. Put simply, if we could see ahead and estimate a 5 or 10 percent return, we could objectively determine the quality of the system and not make rash, unqualified adjustments.

So how do we combine all of our trading data into a single number? Basically it goes like this: First we need to know what the expectancy of our system is. What is the average net result of all our trades?

Here is the formula:

 EXPECTANCY = [(average win percentage * average win size)-(average loss percentage * average win size)]


E=([%W*Wsize)-(%L*Lsize)]   Note: percentages are expressed like this: 40% gets entered as 0.40

Now we need to convert expectancy into a percentage. Simply divide expectancy by principle (principle being the starting account or portfolio amount at the beginning of the year):

EXPECTANCY/PRINCIPLE=EXPECTANCY% (again expressed as a decimal- 0.5% is entered as 0.005)

Next we need to calculate iteration; that is, how many times does the system repeat or generate a result in a year? This is pretty straightforward. Whether you’re marking individual trades or entire portfolios, simply divide the length of time the position remains open by the total available time for the period.

Example: if a portfolio gets opened on a Monday and is closed out on Friday, then ITERATION=52 (52 weeks in a year).

Now we need to plug our expectancy and iteration values into the compound interest formula and generate a total amount returned after one year.

Here is the formula:

RETURN AMOUNT= [principle*(1+expectancy%) ^ iteration]- principle

Finally, to arrive at our annual expected rate of return, simply divide RETURN AMOUNT by PRINCIPLE


So there you have it; a clear and understandable value to show you objectively how your system is performing. One thing you will notice is that this approach highlights otherwise imperceptible individual results. A trade, fund, or portfolio with a profit of a quarter percent on its own doesn’t seem like much but compounded many times over will produce a healthy return. After all, the market is about the small, consistent advantage- if only most traders could see it. Hopefully now they will, armed with this tool.