Here’s some feedback that one of you sent in following the video;
"Hi James, thank you for this great presentation (it's never too long:-). Love to see how you practically apply the 5 steps process. Interesting to learn with the farming machinery example of good fundamentals but technicals uncorrelated with the agricultural industry…”
I’m always grateful to get your thoughts and feedback, and its particularly great when its positive (although we also accept constructive criticism, cash and major credit cards!). So here are some more questions which came through this week, that I will attempt to answer here…
“Lots of focus each month are paid to PMI data, particularly US manufacturing and nonmanufacturing, but you are only looking at a subset of the overall data. Is that really considered enough when you are trying to take into account the total picture? I appreciate the importance of new orders but is that enough to ignore the rest?"
Ok, this is a good question. The objective of the monthly and weekly reports is to firstly provide a quick snapshot of what is happening in the markets. This is a top-level analysis which is performed in hedge funds usually on a weekly basis, with updates to key data releases and prices reviewed by traders throughout the day. The PMI data are some of the more important ones that we monitor, but as you know, we don’t look at anything in isolation (we like to track a broad basket of measures, hence the need for that quick ‘snapshot’ provided by the reports).
Now, we are more than familiar with the ISM reports you mention, and the depth of analysis that can be performed there. I worked on a number of models years ago which we still run to this day to generate ideas within specific industries on both the long and short side. However, for the purposes of what we present in the Club, there is simply not enough space to include this sort of thing - take for example the amazing equity fundamentals sheet that we don’t include routinely, but recently featured in one of our meetings.
To summarise, the headline reading (or for example, a single sub component such as the new orders) is important, but you can always do further research beyond this once you have a read on the market from the main number. We consider it enough for what we are looking to achieve, but if you want to go in to more detail for another purpose (a more granular idea generation) then indeed you may want to look further.
“You publish the monthly report which is different to the weekly report either side because obviously the data will be different to some extent, so for example the monthly macroeconomic indicators for the latest weekly report shows -3 whereas on the monthly report it says -1. How do you reconcile this for idea generation?"
The reports are basically the same, but one tracks the monthly change rather than the weekly change, as you identified. You may have noticed from the Trading Club videos that we tend to refer to the monthly reports there - that is because we are attempting to generate ideas (and get a feel for the market) for often the next month, rather than the very short term (one week or less). Nonetheless the weekly report is useful to see whether things are aligned, or perhaps divergent, over the next few days. You can weigh your conviction accordingly, or maybe sit out if you feel there is conflicting information.
My suggestion for people who are new to our process is to start by understanding the monthly report and checklists that we present in the video analysis first, before turning to the weekly reports to see whether things are aligned. Of course, if you are a day trader then the weekly report is a great place to generate ideas in itself, but that style of trading isn’t suited to everyone and most people prefer to take a longer term view, and maybe use the weekly reports as a final validation for the week ahead if they won’t necessarily be able to be at the screen.
"I noticed Lex have a Bloomberg keyboard. Now, Data feed from Bloomberg and Bloomberg keyboard is very expensive. From a retail person perspective do you think we should really have these?"[The Million Dollar Traders course student]
Yes, that is a Bloomberg keyboard! However, you don’t really need one as a retail investor. I wrote about this in more detail a couple of weeks ago here, and concluded that websites like Trading Economics, Fred, Quandl and TradingView will help you with most of your needs for a fraction of the price (and in many cases, free).
"The data nowadays seems to be expensive. A lot of data feed companies are developing API and charging customers in order to source the data. I'm not sure if I need to subscribe these API driven data feed or I go and hunt for free data on leading indicators values.” [The Million Dollar Traders course student]
Its big business - just look at the empires that the exchanges have been building in recent years around algorithmic trading. I would recommend going through all of the course first (and then, probably a second time) to understand what style of trading / investing you are likely to pursue before spending too much time thinking about short-term, automated trading strategies and the necessary data feeds / API subscriptions. You may end up being a longer term buy and hold investor or swing trader - no API required there unless you are running a hedge fund with other people’s money paying for your technology budget!
"Lex have multiple screens on your workstation. I can get the point since you are managing a hedge fund and place an order is large compared to a retail person. Do you recommend to have multiple screens in our home? At this moment I have a MacBook Pro and writing software codes to automate what I learned in the Idea Generation Module. Basically, I'm writing PYTHON code to automate all the excel sheet that I got from the course.” [MDT course student]
I was also asked this a couple of weeks ago. 1-2 screens are probably sufficient, unless you are day-trading (which on average, there is typically only sufficient volatility to justify on 1 trading day per month). There’s no need for additional screens unless you want to have multiple pages open simultaneously and plan to be at your screen all day long (hint: there is a strong inverse correlation to performance with the latter, particularly when starting out). So no, you don’t need multiple screens, but an external monitor might be nice to have when you are working with excel or multiple applications.
Thats all we have time for this week.
Do keep your questions coming next week if there is anything you would like to ask me. And of course, if you haven’t already, there is no time like the present to take the step up in your education and join us here by taking the Million Dollar Traders course or Trading Club membership (you can also contact us at [email protected] to learn about available discounts and promotions).
Have a great weekend,
James Helliwell | Chief Investment Strategist
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