Wheat Prices, Sunspots, and One-Dimensional Theories

I meant to post a link to this article on the increase in grain prices a couple weeks ago. It is still an important article especially from a critical thinking point of view. The author begins by noting the assertions by many in the media that the reason for higher grain prices is drought caused by global warming. He then goes on to say:

A better explanation for the drought, and the ensuing spike in grain prices, is that this is all part of the normal 11-year sunspot cycle.  But to find that relationship in the data is what the story is about. 

Given the data presented in the article, I would have to say the information is compelling. But, that is not the point of my post. I have little knowledge of what causes grain prices to fluctuate. In fact, that lack of knowledge is my point. So often people are willing to hurriedly, lazzily, and/or sloppily accept what sounds good. This, of course, can lead to an imperfect idea as to what will happen. What you think may happen, might happen for some time; but then, when the premise on which you built your theory continues to hold (e.g. global warming, drought, etc) but the underlying asset fails to continue its path, you will find that your single loose premise is not much help. Yes, global warming may be a cause, but perhaps it is merely an auxiliary cause of some greater impetus.

Abstract lessons learned in one area and apply to other investments and trades. Grow and profit.

Fed Days

I purchased Quantifiable Edge's Fed Guide a day before the last Fed meeting. If you have an interest in reading solid analysis, I suggest you buy it too. For $25, it's not too much to add an extra edge to your trading.

While it definitely doesn't sum up everything presented in QE's Guide, the NY Fed has a paper of its own with the following as an introduction:

This paper documents that stocks in the U.S. and several other major economies have experienced large abnormal returns right before U.S. monetary policy announcements since 1994. These returns are puzzling and difficult to explain with standard asset pricing models.

Despite only a handful of Fed Days throughout the year, it is well worth your time to take notice. The edge provided is enough to strengthen anyone's portfolio with relatively little exposure.

Gap Trading

If you were to fade each gap on AAPL that was .5% or bigger (up or down) over the last month or so, this is what you could expect for max gains (i.e. max return: if a negative gap, then you would go long so the max gain would be daily high minus open; and vice versa for gap ups).

PS: Been working on analyzing data like this across a number of stocks and with more info like drawdown before target is reached, contributing factors (e.g. earnings, news releases), etc. 

Those Who Finish Second

Here's a really good article. Yeah, it may not always be true that those who finish first were mostly lucky or bold; but, it can certainly be the case. Think Warren Buffet, Bill Gates, or Mark Zuckerberg. They're all intelligent, skillful, and successful. But do you do yourself a favor following their strategies? Probably not.

Poker Notes

Bovada.lv deposited a free $20 in my account. I haven't played for quite some time, but I'm up to >$170 (playing $25 buyin .10/.25). Here are a few notes on the game of poker that have crossed my mind:


-create a model of other players' hands

-determine best bet to further refine player hands

-use further betting to extract as much value based on others' hand

-all while keeping your hand in mind
although no need for it to win, if strategy typically
leads to others folding

-keep appearances in mind (not too much raising, folding, etc)

-always try to play with the 'soft'
why make your life harder than it has to be?

I think something similar can be used for trading.