Profitable ETF Trading Strategies: being a good Mastermind member

We have seen in a couple of other articles the benefits that accrue to members of a good Mastermind trading group, and some ideas on how to find and join a good Mastermind group. Having joined a Mastermind, how should you behave?

Most of your behavior should be guided by the principles of being a good neighbor. Supporting the community of the Mastermind group  includes the following ideas:

1. Waching out for your neighbors, which means observing their trading style and commentary and offering them thoughtful feedback designed to help them in their trading practice.

2. Integrity: this is an element of good citizenship.  Your advice comes from your best place. You speak the truth as you see it. When you offer research ideas or the results of analysis, you have actually done the research and have taken care with numbers, facts, and references. The principles of good scholarship apply here.

3. Observing and respecting boundaries:  Masterminds are not families, although they have familial moments. They are professional gatherings of like minded individuals who share outlooks on the practice of trading which is intended to improve the way we earn a living. Now there may be some groups somewhere that purport to be Masterminds but are really social networks in disguise, either by intention or through lack of professional focus. If your goal is to be a professional trader you should move on to another group which shares your focus.

4. Pitching in to help those in need.  Sometimes people will ask for help, and sometimes it is up to you to sense the need and respond even if the recipient doesn’t recognize the need yet. Respectful help is called for, perhaps even an intervention. But remember that horses can be led to water but may not want to drink and there is only so much you can do for people. Sometimes all you can do is make a good faith effort to show the way or share an insight.

5. Accepting good faith offers of help. In the same way, there will be times when people offer you advice and help that you may not see a need for, and you may consider this to be a breach of personal space or simply an insult. Give your mastermind members the benefit of the doubt in these cases and presume their intervention is coming from a good place and is intended to help you. Who knows, you just might be wrong and are being shown the way out of a dilemma you may not even recognize.

6. Accepting advice in the spirit it was intended: even if the truth can be hard to hear, or you disagree with the insights or recommendation, be grateful that the members of your Mastermind have your best interest in mind.

It is true that in the end, only you are responsible for all of your trading results. But it is also possible to find a great deal of comfort, insight, support and ideas inside your Mastermind. Cherish  the connection to fellow traders and work hard to improve your own practice and the practice of others. Your diligence, patience and care will be rewarded in many ways. 

Profitable ETF Trading Techniques; 10 qualities of a good Mastermind group

What can a mastermind do for you? Why should  this be part of your trading practice? What are the qualities of a good mastermind? 

Trading can be a very lonely profession particularly with online trading through a deep discount broker. At the same time trading places tremendous psychological pressures on you to win or at least not lose.  Especially if you are counting on the win today to pay for your lifestyle. If you are in big markets, going against well capitalized institutions with the best in equipment, training, talent, research and size it can quickly become a lonely dark place. 

The good news is  that a mastermind can develop into a powerful ally for you. A good one will have some or all of the following qualities, at a minimum: 

1. The group will have a charter, with a purpose and mission statement

2. Group members will treat each other with dignity and respect, and be genuinely committed to share their best practices with others

3. Members will listen carefully to advice, and will treat it as an offer to help.

4.The group will be flexible in its approach to solving the unique needs of its members

5. It will help with a structured, disciplined approach to exchanging, recording and archiving information in a professional manner.

6. It will not just be a social club, although it will have a social component.

7. The traders will consider the whole person concept and not simply be focused on the relentless pursuit of money.

8. The group will demonstrate and support a professional work ethic

9. Sensible use of technology will enable the group to collaborate efficiently and effectively through the web.

10. Group members will take care to enforce their standards of conduct with all members. 

You will notice that there is a good mix of social and professional values and virtues as well as a description of how to exchange technical information. The Mastermind’s social power may be even more important than the technical trading aspects of the markets, which can be simplified into a robust set of trading systems and principles for most people. 

In future articles I will describe how to find a mastermind to join or how to create and maintain one with a group of friends and colleagues.

Hyenas fighting over the carcass

Not a single thought concerning the appropriateness of shovelling other peoples money at favored constituencies; only concerned about elbowing her way into the trough:  yeah Maxine! Now if you would just cheat on your taxes you could be in line for Treasury

Members of the Congressional Black Caucus on Monday criticized the lack of minority participation in the government’s financial bailouts and suggested that President Barack Obama isn’t doing much better than his predecessor to ensure diversity.”We are not going to sit by and allow billions of dollars to be dumped into this economy and have the same old players being advantaged by it,” said Rep. Maxine Waters, D-Calif.

Geithner, the tax cheat, to select winners and losers

Either geithner was too stoopid to figure out how to pay his taxes, in ehich case he doesnt deserve to be Treasury Secretary and also deciding which businesses will win and lode  or he was an intentional tax cheat, in which case he also doesnt deserve to be Treasury Secretary.

Sen. Bob Corker (R., Tenn.), probably the most knowledgeable man in Congress about the car bailout, and someone who argued months ago in favor of a pre-planned government-sponsored bankruptcy for GM and Chrysler, calls the Wagoner firing “a major power-grab by the White House on the heels of another power-grab from Secretary Geithner, who asked last week for the freedom to decide on his own which companies are ‘systemically’ important to our country and worthy of taxpayer investment, and which are not.”

Corker calls this “a marked departure from the past,” “truly breathtaking,” and something that “should send a chill through all Americans who believe in free enterprise.”

Hey Mr Geithner, ( the Tax Cheat): how about payng your taxes without first being ordered to do so before you tell us who is worthy of winning and losing?

St Obama continues to spend, while China licks its chops and waits

“ We’re in a government-dependent financial system; I never thought I would live to see the day… We’ve got to fight to get away from that.”– Paul Volcker

Meanwhile China lays the ground work for the slow but steady disassembly of the US economic strength worldwide by proposing an IMF managed global reserve currency which will erode US hegemony.

Meanwhile St Obama never met a 1T program he didn’t like, nor a salary too small to penalize.

Competence

Its ironic to see the Democrats huffing and puffing about the incompetence at AIG among the executives who have the nerve to to be honoring contracts to key leders who elected to remain at the company. The Democrats say that such a violation of common sense and the public trust disqualifies the leaders of this private corprotion from being entrusted with more public money. How I wish that Congress were held to that same standard.

Is there anyone or any organization more incompetent with caring for the public’s money than the government? Have already lost accountability of hundreds of billions of dollars from TARP 1, have supported the Fed printing another 1T out of thin air, and yet have the nerve to think they should be the ones to decide who are to be declared the winners and losers.  If they wanted to be efficient about it, they should simply suspend any pretense of the rule of law, nationalize ALL assets and redistribute according to their whim.  At least it would fast track their bungling and get us to their preferred endstate.

But because it takes brains to hold on to money as well as to acquire it, socialists would soon be broke after any such grand nationalization.

 

update:  more on the story: http://www.ft.com/cms/s/0/4ff2f77e-1584-11de-b9a9-0000779fd2ac.html

A Reflection on the gold ETF (GLD)

A friend sent me a report on “problems/concerns with the GLD ETF as structured and asked me to comment.  I said:

GLD is kind of in the same category of ETNs which are promissory notes of the investment house which is guaranteeing performance of the instrument. There are quite a few of those out there which i don’t include in the dB at all for the very reason that there is an extra degree of risk that’s unsettling.

GLD isn’t an ETN but it’s true that no one can validate the holdings of the contracts they hold. i consider ETF2 to be a short term trading system; if i were a fundamentalist with a macro economic opinion and was looking to hedge with gold long term, i wouldn’t use GLD; i’d pay the extra premium to own bullion outright or consider coins.

the worries about GLD have been floating around since day 1 of the ETF being fielded, for example in the goldbug groups on Yahoo where the conspiracy theorists argue that its really part of a shell game being played to manipulate the price of gold lower.

the problem with “conspiracy theorists” is that once in awhile they are right.

there is an argument that can also be made about what your belief in the real value of an ounce of gold in your hand in your possession is worth as well. It’s really a function of the strength of the social contract that respects the ownership of private property, and the willingness of someone else to accept a chunk of shiny metal in exchange for something else.

So, the onion skin sets of beliefs about the reality and value of trading instruments is pretty precarious the closer you look at it.

That said, I concur that GLD in particular, when compared to other more “normal” ETFs has special risks that are political and controversial in nature GLD right now trades about 1.6B dollars a day in dollar volume; my sense is that it follows the spot price rather than pushing the spot price around. The gold contracts are trading something like $20B a day right now

i’ll read the report to see what else it says; the research project into prospectus’ is massive; at the conclusion of it you could end up with something like levels of trust in the underlying assets of groups of ETFs, and modified by the soundness of the bank/brokerage offering the ETF.

There are some flat out sound heuristics already available for action like: no more than 10% of portfolio position in any single ETF, no use of ETNs whatsoever, maintain short term trading outlook, and after some research, perhaps exclude ETFs that trigger some kinds of alarms like GLD

20 year look back on SPY (the market)

on the monthly chart the 2 massive drawdowns are technically similar on a superficial level, but looking closely you will see that the previous massive drawdown tested the bottom several times before steaming back north.  the fundamental economy also had not imploded in that one either whereas we are looking at a deconstruction of the very mechanism of routine busness right now

The 5 Day Down Failure pattern explained

example of a current short position in Raytheon that has returned %R already, and more coming it seems;  shorting the defense industry is a gimme right now

The face of future warfare or a phenomenon emerging from complexity without attribution?

Here is some underreported insight that supports the theme of “Money as a Weapon System” which should give you a moment of pause.

 

LiveLeak reports this interview of Rep. Paul Kanjorski. At 2 minutes and 20 seconds in the video below, Kanjorski explains how the Federal Reserve told Congress members about a “tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars.” According to Kanjorski, this electronic transfer occurred over the period of an hour or two. And it gets worse. Kanjorski paraphrases the following disclosure by Bernanke and Paulson:  (emphasis added):

 

            On Thursday (Sept 18), [2008]at 11 in the morning the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there.

                       

            If they had not done that, their estimation was that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed… It would have been the end of our economic system and our political system as we know it…

 

 

We are no better off today than we were 3 months ago because we have a decrease in the equity positions of banks because other assets are going sour by the moment.

 

To consider: 

1. Was this on the order of magnitude of the Bay of Pigs in terms of potential?

2. Where does this situation (connectivity and propagation characteristics of the global economic digital network) rate on the list of Top Threats in the National Security Strategy?

3. Is the Secretary of the Treasury the main effort for interagency?

4. Would you rather have a great Secretary of the Treasury or a great Secretary of Defense?

5. Could this enormous withdrawal have occurred without planning? or is it a property of densely connected networks that go beyond planning and control? ([Hint: if you answer no, you have some work to do]

 A friend replied:  

I saw this interview last week.  My father is a President of a bank, so I often turn to him for his opinion and perception on the financial markets.

I’d like to tackle your comments one at a time.

1. Was this on the order of magnitude of the Bay of Pigs in terms of potential?

I think the situation was very dangerous, but the solution that was applied was nothing more than a pressure bandage on a single wound.  Our country is over $10T in debt.  The money that was released by the Federal Reserve is money that is borrowed from other countries – mainly China and the Gulf States.  Shutting down the markets was the only thing they could do, but it did not address the core issue – we have too much debt.

Would the country have been crippled if the run on the banks continued?  Absolutely.  Again, I do not think that the measures applied since SEP 09 have done much to solve the economic problems of this country.

2. Where does this situation (connectivity and propagation characteristics of the global economic digital network) rate on the list of Top Threats in the National Security Strategy?

In my opinion, in the top three, quite possibly number one.  The US economic system is built on some very shaky ground.  For the first time in US history, there are more governmental jobs than jobs in the manufacturing sector.  We have become a service based economy.  Due to the overconsumption of our government and our people, we have a national debt of $10T and it’s growing to even larger extremes.  

The amount of foreign investment in this country is massive.  The Arabs – mainly from the Gulf States and Saudi Arabia – have quietly poured hundreds of billions if not trillions into the US economy since the 1970’s.  The Chinese own hundreds of billions if not trillions of US Treasury bonds.  One of many countries could have been behind the sudden withdrawal of funds – setting an example that the US financial system was collapsing.

The connectivity associated with the 24 hour global financial market has become too vast and too complex to manage.  Add in some horrific if not illegal financial practices – the Madoff Ponzi scheme, the use of derivitives, and credit default options – and the system cannot be sustained. If the bottom of the pyramid is built of mud, and it starts raining, what happens with the top of the pyramid.

3. Is the Secretary of the Treasury the main effort for interagency?

No.  Interagency operations should have no permanent lead.  They should task organized as appropriate.  I also am confused by the question – main effort for what?

4. Would you rather have a great Secretary of the Treasury or a great Secretary of Defense?

Since we are a capitalist country, in theory at least, a great Secretary of the Treasury is mandatory.  All other governmental functions are reliant on a stable economy at the least, and a growing economy is desired.  The Department of Defense is reliant on taxpayer funds, which are derived from the state of the American economy.  Going back to my thoughts on debt, it is possible to cut governmental functions to save money and lower taxes for the American citizen.  

Without a strong American economy, you cannot have a strong military.  Look to the Great Depression and the state of the Army from 1929-1937 for an example when our country has a weak economy…a weak military is sure to follow.

5. Could this enormous withdrawal have occurred without planning? or is it a property of densely connected networks that go beyond planning and control?

I tend to believe it’s more related to your second question than you first.  It is possible that this was a planned effort to send a message to the US.  The Chinese would probably do something like this because of the massive amount of T-bills they hold – we’ve reduced rates on them to literally zero on the short term bills.

But I think human psychology has a huge part to play in this.  If I recall correctly, this was around the time when Lehman Bros. was allowed to fail, and no one realized how interconnected they were into the mortgage markets.  When the government allowed them to fail, it sent a message to many people in the world that there was a significant problem with the US economy and the financial sector.  I think it led to some wise financial gurus saying “I have to get some of my assets out of the financial sector and banks before it is too late.”  After you reach a certain point, you then hit a level of panic.  It would be instructive to see an hour by hour breakdown of the $550B worth of withdrawals to see if the snowball was gaining momentum.  I think this would confirm my belief that people were starting to get real scared about the viability of the market.

And as we’ve all seen, the following weeks saw more giants of the American economy begin to falter.  AIG, Chrysler, Ford, and GM – not to mention other financial firms like Merrill Lynch and banks such as Bank of America and Citibank – have all had major problems with solvency.

I’d like to conclude this entry with something too many people within our military have forgotten:

Al-Qaeda leader Osama bin Laden said he is trying to bankrupt the U.S. through its war on terror, a strategy he says felled the Soviet Union two decades ago in Afghanistan, according to a translation by al-Jazeera television of his full, videotaped statement.

““The mujahedeen recently forced Bush to resort to emergency funds to continue the fight in Afghanistan and Iraq, which is evidence of the success of the bleed-until-bankruptcy plan — with Allah’s permission,” bin Laden said in the video that aired on the Qatar-based satellite network, according to the translation, posted today to al-Jazeera’s Web site. The channel aired portions of the statement on Oct. 29.”

 

I agree with you that we have just seen the first steps of trying to stabilize the patient with respect to maintaining orderly markets. Miles to go before we get to long-term treatment considerations, and the development of healthy lifestyle issues in our financial markets. At some point we have stop the tactic of borrowing to get out of debt, and rebuild the capital base through savings and production, rather than soliciting the capital of others exclusively.

I also concur on the magnitude and potential consequences of financial meltdown. The interconnectivity and subsequent fragility of global markets seems to have caught everyone by surprise; a classic case of a complex adaptive system that cannot be understood and controlled, but perhaps managed within boundaries; what Dr Paparone (and others)  have described as “messy management”

Acknowledging I am a naïve child in this area, it seems to me that the challenge to interagency effectiveness  is our departmental  structure which can be seen as an attempt to bound all problems within formal domains, giving authority and responsibility (unity of command) to a single department for typical problem sets.  We don’t habitually try to “matrix manage” governmental problems; rather we try to stay in our lanes. When problems spill over boundaries we wander around like  “ducks that have been hit on the head”, and we have no routine “current ops” shop that is designed to coordinate and integrate. The problem seems to be that every such problem will always be a task organization challenge as some lead agency tries to pull a team together. With respect to nation building it seems like DoD, the most resourced, has been trying to take the lead to force IA. In Homeland defense areas I can see other dynamics in play.

Departmental bureaucracies, by their nature, seem ill-suited for routine IA.  Where is the government’s  “G3”? Is it the White House?  You see more “coordinators” there and staff synchronizers than you do true Opns:  I am thinking about the national Security Advisor and the War Czar particularly. A policitical consideration is that the White House gets a some plausible deniability (survival insurance) by having expendable department heads in charge of wicked problems as opposed to trying to direct traffic themselves.

I also concur with the idea of the primacy of the economic dimension in terms of importance of national power (I am doing a lot of concurring here )

I think the better explanation of sudden massive withdrawal s is power of complexity theory and the butterfly effect to magnify feedback in complex adaptive systems as opposed to deliberate planning. The financial markets are wired for the free and full expression of human psychology to be manifest . Momentum ends up having a power all of its own, like an avalanche effect.  John Maudlin, of Frontline Thoughts” has a worldwide readership of over a million, has done a good job of summarizing this vulnerability through complexity and connectivity in global markets over the last couple years. Your dad is probably familiar with him