I. A famous trader hooks up with the NeuroShell DayTrader
Marc Chaikin started his career in trading as a stockbroker in 1966. By 1969 as a new bear market was in full swing, he began doing research into technical analysis as an alternative to fundamental research. He started working with relative strength and volume analysis, following the work of Larry Williams and Joe Granville. “I wanted to develop a multi-indicator approach to trading using relative strength, momentum, and volume analysis,” Marc told us. Soon thereafter Marc started his first hedge fund, but he was back as a broker by 1971. By 1977, he had become head of the options department at Tucker Anthony & R.L. Day, Inc. where he applied the technical analysis he had developed to options trading.
It wasn’t long before Marc purchased a seat on the New York Futures Exchange (NYFE) so he could trade right on the floor. He started using standard trading software in 1980 to build his own indicators – still centered around the work of Williams, Granville and David Bostian. He developed the now famous Chaikin Oscillator, Chaikin Accumulation/Distribution indicator, and the Chaikin Persistence of Money Flow indicator. His work was devoted to determining whether stocks were under accumulation or distribution and then applying momentum indicators for timing. However, he left the floor in 1981. “I always wanted to be on the floor.” he said, “but it turned out to not be such a great place to make money.”
Next Marc joined Drexel, Burnham, Lambert, Inc. in 1982 where he began doing press pieces and even a segment on the Financial News Network (FNN), which was the predecessor to CNBC, and continuing on at CNBC. “At Drexel I became interested in neural networks, just as my son was studying the technology at Brown University. Look at your records and you will see that I was one of the earliest users of NeuroShell 1,” he told us proudly. “I used it to build trading models for stock index futures.”
Marc’s next adventure was to create the very successful Bomar Securities, where he built a technical analysis workstation for portfolio managers and traders. He sold the company in 1992 to the Instinet subsidiary of Reuters. However, he continued on building equity related analytics products for Instinet and Reuters. He continued his neural network research too, but never really had enough data to build robust models until he used S&P cash index data back to 1962, after which he developed successful models to predict S&P futures 3 days in advance.
During this time, Marc was a lecturer on neural nets at places like the New York Society of Security Analysts. He began using genetic algorithms and later on fuzzy logic in conjunction with John Bollinger. “I developed some very strong opinions on how to build neural nets,” he added, “feeling that you had to feed significant and proven reversal and continuation patterns to the network in order to build profitable neural networks.”
Marc left Instinet in 1998 to focus on day trading as a business. “I wanted disciplined models to deal with intraday volatility,” he explained. “I became interested in candle charts as a way to explain and deal with some of the extreme volatility, but the problem was that there were too many formations and the interpretations were too subjective.”
Then in 1999 he began reading the articles of Viktor Likhovidov in Technical Analysis of Stocks and Commodities magazine (TASC). “The TASC articles discussed how to measure candlestick patterns by assigning a ranking to each candle. I was intrigued. Unfortunately, I didn’t have programming resources to implement and test Viktor’s work, so instead I developed rule based systems based on intraday momentum to trade stocks and ETFs (QQQ and SPY).” Later Marc was to return to candlesticks.
In April 2002 Marc spotted a TASC press release about the NeuroShell DayTrader Professional. “I didn’t realize you guys had a day trading product, so I picked up the phone and talked to Marge Sherald and later Steve Ward, whom I hadn’t spoken to in about 12 years! I purchased the DayTrader and the first month I was able to build a short term trading system better than anything else in my career! Success came from using the optimizer as opposed to the neural net aspects of the software. I brought in my year old rule based system and combined it with the candlestick systems you provided in the TASC tips. One of the best things about your systems is that you regularly post the charts from the TASC articles on your website, making it easy for non-programmers to implement and test new ideas. It is very valuable. The optimizer then helped me extend Viktor’s work.”
We asked Marc to explain his system a little further. “I incorporate candlesticks in a disciplined way using an optimized version of Likhovidov’s CandleCode along with momentum indicators such as MACD in two time frames, one a five minute and the other a longer term MACD, as well as two time frame moving averages, again one a 5 minute and the other based on a longer term time frame. The icing on the cake was the ability to incorporate money management discipline in the form of multiple stops, and either test them by trial and error, or with the optimizer. Using the back testing capability, I was able to zero in on a system which models the extreme volatility of the QQQ. I built some SPY systems which were also profitable, but they weren’t as profitable as the QQQ system. Actually, I determined that I could apply the QQQ signals to the SPY with much better success.”
Marc further explained that he used 2 years of hourly data and tested on one year out-of-sample. “With the power of NeuroShell and the speed of modern processors, I did all of this very quickly compared to my previous efforts!”
Marc Chaikin’s current goal is to become a commodity trading advisor, implementing trades for ETF’s and Nasdaq and S&P futures. His new company is Chaikin Capital, LLC, in Washington, CT. It is scheduled to start money management in October 2002. “I like the real time monitoring capability in the chart and portfolio views,” he told us. “I can show prospective investors how I monitor the signals and the stops. It gives them confidence that a disciplined system is being used. The back test is also very valuable in marketing. Anybody who wants to market their system has a valuable tool here – you can compare the actual to historic trade by trade to show how you are tracking your system in real-time trading.”
We usually ask our real traders if they ever override their models. Marc was unequivocal: “The biggest problem you can have with any system is when you start to second guess it.”
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II. Announcing Advanced Indicator Set 2
You’ve requested more indicators and we’ve built them. They are now in the Advanced Indicator Set 2, following in the footsteps of the very successful Advanced Indicator Set 1. This NeuroShell Trader add-on is now for sale for $299 plus shipping, but you can get a $50 discount and pay no shipping if you’d like to have email delivery without a CD. However, with the current sale (see the next item in this newsletter) you can get 15% off of those prices.
Below is a list of the indicators, but for a short description of each, please use the following link to our web site:
http://www.neuroshell.com/addons.asp?ais2
J. Welles Wilder’s Indicators-
PlusDM
MinusDM
PlusDI
MinusDI
Directional Movement Index
Parabolic SAR value
Parabolic SAR signal
Swing Index
Accumulation Swing Index
Redundant Haar Wavelets-
Redundant Haar Wavelet Smoothed Curve
Redundant Haar Wavelet Coefficient
Marc Chaikin’s Indicators-
Accumulation/Distribution Oscillator
Chaikin Volume Accumulation Percent
Chaikin Money Flow Persistency
Flag Indicators-
Flag2
Flag3
Flag4
Flag5
Flag2 with reset condition
Flag3 with reset condition
Flag4 with reset condition
Flag5 with reset condition
Flag1 toggle with reset condition
Flag2 toggle with reset condition
Flag3 toggle with reset condition
Flag4 toggle with reset condition
Bar/Condition Count Indicators-
Bar Count Since Condition
Bar Count Of Time Series
Condition Count
Miscellaneous Indicators-
Center Of Gravity Index
Center Of Gravity Oscillator
Median Price
Median Value
Random Walk Index of Highs
Random Walk Index of Lows
RAVI
Retrace Buy
Retrace Sell
Stochastic RSI Oscillator
Variable Length Moving Average
Volatility Breakout High
Volatility Breakout Low
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III. SALE – It’s hot outside, but the market’s not!
Order by August 15th and Save 15% on all NeuroShell Trader Products!
With the current state of the economy and the market at the levels of five years ago, it is clear that the trading rules of old no longer apply. Market choices are no longer clear cut – long term investing may be just as risky as trading. The NeuroShell Trader can help you test and develop your trading strategy before risking your capital.
To take advantage of this offer, you must mention the sale when you place your order.
This offer cannot be combined with other promotions.
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IV. Message to our non-trading users – opinion from CEO Steve Ward
Most of our business and science users have very analytic minds, are good with numbers and logic, and by now know quite a bit about modeling with neural nets and genetic algorithms. They are methodical and persistent. In other words, they are perfect candidates for using the NeuroShell Trader Professional!
I can hear you now saying “No way I would ever get into doing risky trading!” So I’m asking, ok, where do you invest your hard earned money? In your home – that’s the best place, of course. But careful people like you have surely saved some money beyond the house payments.
Are you thinking about rental properties? Call me some time and let me tell you the horror stories about the 8 rental homes I purchased in Texas. First of all I was constantly repairing the damage from tenants who moved out after trashing the place, or making repairs because of the shoddy construction many houses have had in the past 20 years. Then the savings and loan crisis hit and real estate plummeted there. I was never so happy to take a big loss as when I sold those properties.
What about long term investment in the financial markets? Go back and reread my editorial last month about how it isn’t your father’s financial market any longer. Since last month we’ve had Worldcom, Bristol-Myers Squibb, and others. I actually own 200 shares of BMY given to me by someone who carefully watched it rise over the good years. It is now worth less than half what it was worth when I received the gift (taking splits into account). You still think investing in stocks is a good idea?
Or you could just keep your money in the bank, nice and safe, and make a few hundred dollars a year. Except it isn’t safe if inflation goes up.
My question to you is why not take advantage of the knowledge and skills you have gained in science or business all these years? In that respect you are out in front of many of our traders. If you own the NeuroShell Classifier, Predictor, or NeuroShell 2, you can even fire models made with those systems from the NeuroShell Trader Professional (Predictor and Classifier require the Runtime Server).
OK, so maybe you don’t know about short term trading. Paper trade for a while. Take advantage of our 15% off sale. Talk to the traders on our forum and learn. I’ll tell you now the biggest problem you’ll have. You’ll have trouble “pulling the trigger.” Your science or business mentality will make you look for the perfect system before you start to trade with real money. You won’t find it, so you’ll have to overcome that part of your personality. Successful traders have learned that risks have to be taken, and that if you get 70% of your trades right you can still make a lot of money. Overcome the conservative mentality and your skills could make you independent.
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V. Termination of support for NeuroWindows
We have been supporting the old NeuroWindows product now for 4 years after we stopped selling it. The flow of requests for assistance for this product is just a trickle now as people are finding how much better their nets can be with the newer products, and with far less effort. Therefore, effective July 31, 2002 we will discontinue support for NeuroWindows.
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VI. No more newsletters in the future?
No, we aren’t ending this newsletter. But you will think we did if you change your email address and don’t send us your new one!
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