This story about my failed attempt to outsmart the stock market was initially part of the article about creating an efficient trading routine but I had to take it out in order to not go overboard with the length.
Whenever you question my rather ZEN like approach of getting things done nowadays please recall where I am coming from and that I was doing the opposite thing for many years until I realized that I was doing it wrong! What you are about to read is self-centered as I am about to reveal my biggest failure. It took me half a decade to truly rewire my academic and engineering mind. That transition marked the low point of my learning curve right before I started a 5 year climb which lead me to profitability.
Therefore I believe that this article possesses a high educational value thus I decided to share it. This is especially true for all those with a scientific background. If you are coming from that direction you have to let go of the idea that you can outsmart and beat the markets with data. If it would work, many scientist would have an easy time making money in the markets. So ask yourself, why is that not the case?
On the other side I suppose that the free spirits among you have to to learn at least some technical skills first before they can hope to beat the markets for good. Just make sure to not overdo it like I did.
In the following I’d like to show you how you can easily deceive yourself when it comes to running a trading routine.
I maintained a sophisticated Excel spreadsheet (My trading routine) during my early years of being a hardcore O’Neil follower. As it turned out, all that extra effort was just a collossal waste of time. It robbed me of at least a couple years.
Before we jump right into it I want to make clear again that this article explains how it shouldn’t be done! Trying to outsmart the markets is a dead end and the Excel spreadsheet shown below was a failure!
Now that this is clear, let’s go:
Here’s a screenshot of a breakout system I created where breakouts in many different groups of stocks are monitored (High earnings growth, highly speculative, high relative strength, large and small caps…)
This subsystem was fed with 10 screens alone and I created my own breakout index on the right. This here is just the front end by the way and there was a lot of data crunching going on other tabs.
Here is the whole ‘wallpaper’ of my so-called trading routine:
The green area which is seventh from the right side is the aformentioned breakout system. As you see, there was a ton of other stuff going on. Each days open, high, low, close price and the volume of the NASDAQ Composite, S&P500 and NYSE Composite as printed on the first page of eIBD was copied into the spreadsheet.
There was everything in there, trust me on that!
One complete row (day) was filled each and every morning with 67 single data points for over 465 trading days straight. I only missed a couple data points during that period when the research tool I used back then was down or when I was sick and unable to get out of bed before the daily premarket data reset.
I was even sitting in front of my laptop with a lousy internet connection while being on vacation in Spain every morning from 5:00 to 6:30 AM while my wife and friends slept until 10:00 AM. I was dedicated for sure.
Similar wording but completely different meaning!
In hindsight, putting so much effort into this spreadsheet was so insanely stupid. I can’t believe that I tried to gain an edge doing all this.
All that data was then automatically displayed in proper fashion for me to gain unique insights, at least thats what I believed. The output consisted of a 6 page PDF document.
My “holy grail” Stock Market report!
Lets have some fun and go through the individual pages of my ‘holy grail’ stock market report. And you must know that I did this only for myself and never shared it with anyone. I truly believed that looking at all this plotted information was going to lift my trading on another level, while in reality I slowy drowned in data.
Page 1 showed the major market indices with accumulation, distribution and follow through days. The actual HLC bar-charts were all computed in excel and I was able to go back in time and then print whichever time period I wanted.
Next was a page filled with secondary indicators. I even monitored the exact money printing rate of the FED . I came up with my own small/large cap volume oszillator in order to see where the volumes goes. Advance/Decline ratio was there but also the Advance/Decline volume ratio. I am not sure what my thinking was at that time.
On page 3 I created a relative strength based overview of all the major sectors and industries. Data came from a screen and I had to actually read and then paste the daily closing price of each ETF into Excel before calculating the relative strength against the S&P500.
Alright the next one is the last page that I will share as the remaining two had been portfolio related.
Here all quality breakouts have been tracked manually. The red bars are failed breakouts if I recall it correctly. I tried to judge the quality of accumulation days by checking how many stocks with great fundamentals actually made fresh 52-week highs that day. And I also tracked the blocktrades as printed in eIBD, because …why not.
Again, the reason why I show you all this is so that you guys truly understand that trying to beat the markets with information does not work! I any case, it didn’t work for me!
I believe that a trading routine must be slim and effortless first and foremost. All the effort I put into the mess above did not translate to an increased trading performance, actually the opposite was the case. And I was trying hard for multiple years until I finally acknowledged my fault. Whenever my trading suffered I came up with some more data because I blamed a lack of data for all my shortcomings early on. In hindsight it is clear that I was simply overloaded with information and my brain had no idea how to prioritize the input. I increased the entropy of information until I was simply confused 24/7. My ego was also quite proud of my excel sheet.
I travelled too close to the blackhole and stayed for a little too long. If you watched the movie ‘Interstellar’ you can relate. As a result I certainly prolonged my learning curve by a least a couple years which I will never get back! However, I know traders who put effort in the wrong things for much longer then me. When you took the wrong path you must be able to recognize it and make adjustments eventually.
Or to put it in the words of Led Zeppelin:
“Yes, there are two paths you can go by But in the long run There’s still time to change the road you’re on”
Whenever you think about gathering data and checking indicator after indicator remember that I did all that and it truly got me nowhere. And I am trained to look at graphed data and drawing robust conclusions from it.
Today, I focus on only a handful pieces of carefully selected information which proved to work for me over the years:
- Relative strength
- Market breadth
- Put/Call ratio (fear gauge)
- Retail sentiment
And I am working very hard to shield my mind from all the noise out there. My routine nowadays is slim and effortless and it yields me all the crazy stock movers I ever dreamed about during my early years. I don’t catch them all but I also couldn’t care less about the ones I missed.
But who knows, maybe all this was needed to teach this rational German engineer that stock picking is an ART and that you won’t get the results you desire if you try to FORCE it.
Enough has been said, time to forget about this monumental failure of mine!