# TH's buy & hedge system



## Trembling Hand

I have a system that is longer term than my normal 1-5 min trading. Thought I might post the trading here as an ongoing record. I'll base it on a 1 mil paper trading account for this example.

Basic idea is a swing trading setup trading ASX 20 stocks but instead of selling to lock in profits and then triggering CGT or income tax the idea is to place hedges until another buy signal is triggered on the same stocks or the underlying index. Then removing the hedge to hopefully gain more upside.

No margin on the stocks but used for oppies & futs to gain the hedge positions. Will also add extra exposure from time to time in each direction if signals line up. For example if I was full invested at the recent XJO 5000 mark my system would of given a signal to hedge. Because my super duper never fail indicator gave such a "good" signal I would of went short 1.2 times my stock holding as an example.

First trades in forum tradition of all buy and holders is a hindsight from yesterday. 50% of funds invested for first trade.


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## MRC & Co

Sounds like a global macro strategy mate!


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## Trembling Hand

MRC & Co said:


> Sounds like a global macro strategy mate!




You never know where a simple idea could end.


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## tech/a

So when do you close out a position --- 12 mths?
You just keep adding positions until your capital is used?
At some point you'll hedge each trade with oppies or just the Fut blanket?
500K how many contracts ---- 4?


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## Trembling Hand

tech/a said:


> So when do you close out a position --- 12 mths?
> You just keep adding positions until your capital is used?




I don't. Its a twist on the buy and hold. Aim being the best of all three worlds franked div, Cap growth, and protected down side. 

Just like you read in the ads. 

Of course if the outlook for a stock becomes terminal then that would change things.



tech/a said:


> At some point you'll hedge each trade with oppies or just the Fut blanket?
> 500K how many contracts ---- 4?




Each SPI at this level is around $115,000. So 4 would cover $460,000 holdings here. But of course the SPI isn't the perfect hedge but at the same time the alchemist rob you on the options and they are very expensive to trade as well so its a game of coin toss. futs IMO are the better instrument for what I'm trying to do here.


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## brty

TH,

You are a funny character taking yesterday's afternoon low at ~2.30 as the starting point, your hindsight comment had me in stiches.

Why are you doing this?? Have you put real money into this?? What were your starting parameters to buy yesterday?? What parameters do you use to decide when to hedge??

Glad to see you posting again.

brty


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## Trembling Hand

brty said:


> TH,
> 
> You are a funny character taking yesterday's afternoon low at ~2.30 as the starting point, your hindsight comment had me in stiches.



glad you liked it but they are real trades from yesterday. (real paper ones) 



brty said:


> Why are you doing this?? Have you put real money into this?? What were your starting parameters to buy yesterday?? What parameters do you use to decide when to hedge??




I been using this approach since early 08 in a far looser way but have been working on turning it into something bigger for a few months. As for the system its signals are derived from the index not the stocks themselves and a couple of indicators I've been using forever. They are not a price based ones like RSI, MACD etc More of a market internals type thingo.

The actual stocks setups do not matter as long as they are showing signs of swinging aound with the market. 

The buy yesterday was actually a buy signal from Monday morning.


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## MRC & Co

Yeh, I know the exact super duper indicators your talking about and strategy your going for here, I think it will work well, not the best returns, but consistent over the long-run and little time required!  

A good thing to have in the background of intraday trading considering most funds sit there idle as intraday is nearly all leverage!


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## RazzaDazzla

MRC & Co said:


> Yeh, I know the exact super duper indicators your talking about and strategy your going for here, I think it will work well, not the best returns, but consistent over the long-run and little time required!
> 
> A good thing to have in the background of intraday trading considering most funds sit there idle as intraday is nearly all leverage!




TH, are you able to share your super duper non price indicator? Just curious.

With your hedging, obviously it will be hard to hedge exactly 100% of the value of your shares. So would you be inclined to over or under hedge?

Will you use options at all for hedging? or simpler and more transparent to just use SPI over the whole lot?

Is this something you can backtest? or because of the many facets involved the only way to test is paper trading into the future?

Looking forward to see how this develops.


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## Trembling Hand

RazzaDazzla said:


> TH, are you able to share your super duper non price indicator? Just curious.




A simple version is already out there for anyone willing to investigate a little.



RazzaDazzla said:


> With your hedging, obviously it will be hard to hedge exactly 100% of the value of your shares. So would you be inclined to over or under hedge?



Will depend on the situation. And that being mostly discretionary. Certainly will add a little leverage both ways given enough ducks lining up.



RazzaDazzla said:


> Will you use options at all for hedging? or simpler and more transparent to just use SPI over the whole lot?



 Only if for whatever reason I believe an individual share enters a period where it will significantly delink from the index performance. But options from my experience are actually a very very costly way to hedge. If, like here, you have a reasonable spread of holdings then poorer performers should be helped by the better performers, in theory 



RazzaDazzla said:


> Is this something you can backtest? or because of the many facets involved the only way to test is paper trading into the future?



 Its still very much a discretionary decision as to what signals are used for putting on the hedging process.


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## Ageo

I enjoy reading your posts TH as you like to think outside the box. So in short what are you trying to achieve with this? Short and long term hedged gains??


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## Trembling Hand

Ageo said:


> I enjoy reading your posts TH as you like to think outside the box. So in short what are you trying to achieve with this?




I'm looking at the indexes all day long and mostly have a reasonable handle on where they are going and when but my trading clearly misses profiting from the bigger swings.

So this is long term growth away from my trading capital yet not adding a heap of extra work by falling into the mugs game of punting on ASX stocks :. Something I can see as very scalable too.


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## wayneL

Trembling Hand said:


> ...at the same time the alchemist rob you on the options and they are very expensive to trade as well so its a game of coin toss.




Don't discard alchemy.

Lead can truly be turned to gold.

(Caveat - Gold can also be turned to lead)


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## Trembling Hand

wayneL said:


> Don't discard alchemy.
> 
> Lead can truly be turned to gold.
> 
> (Caveat - Gold can also be turned to lead)




Oh I agree but I think you would agree too that a straight option position to hedge what could be anything from a -4% to -10% expected index move is not all the sunshine and happiness that option spruikers would have you believe??


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## wayneL

Trembling Hand said:


> Oh I agree but I think you would agree too that a straight option position to hedge what could be anything from a -4% to -10% expected index move is not all the sunshine and happiness that option spruikers would have you believe??




Yes, ignore spruikers. (slap with a wet fish etc)

But given a certain market expectation the alchemist position should certainly be considered alongside a straight out blacksmith's (linear) hedge.

Certainly the alchemist has more things that might go wrong, but also more things that might go right.

Alchemy offers more choices.


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## Naked shorts

Trembling Hand said:


> Basic idea is a swing trading setup trading ASX 20 stocks but instead of selling to lock in profits and then triggering CGT or income tax the idea is to place hedges until another buy signal is triggered on the same stocks or the underlying index. Then removing the hedge to hopefully gain more upside.




Interesting idea, but why dont you just move to Switzerland, setup an offshore entity to do all you trading through at either, Liechtenstein, Channel islands, Cayman islands, Bermuda, The Behamas etc? Is Melbourne really that good?


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## Trembling Hand

Naked shorts said:


> Interesting idea, but why dont you just move to ........?



Why don't you?


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## cutz

Interesting idea TH,

With your buy and hold plus hedge system another idea could be to use XJO options as part of a collar strategy where you short out of the money calls and buy out of the money puts in the appropriate amounts, could work out to be zero cost.

I take it you’re using the top 20 stocks so you can mimic the ASX200 more cost effectively, problem is you seem to be using equal dollar amounts as opposed to weighted, not sure if the portfolio will move at the same rate as the index.

BTW, personally with collars I like to add further out strike long calls as so not to limit upside, effectively a backspread to the upside.


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## Trembling Hand

cutz said:


> With your buy and hold plus hedge system another idea could be to use XJO options as part of a collar strategy where you short out of the money calls and buy out of the money puts in the appropriate amounts, could work out to be zero cost.




Yep I knew you option guys would be full of good advice for hedging. At the moment I haven't the time to investigate or play with them. But when I get to the time when I'm looking to put some in place maybe you guys can suggest actual examples alone with my simple SPI hedge to see how much better off the outcome would be?



cutz said:


> I take it you’re using the top 20 stocks so you can mimic the ASX200 more cost effectively, problem is you seem to be using equal dollar amounts as opposed to weighted, not sure if the portfolio will move at the same rate as the index.




Yep fully aware of the problem between the weightings of the index and my holdings. May over time correct that. But maybe not. I don't want an index tracking portfolio. And although the hedging will not be matched 100% the other problem is that then I'm not all that sure I would be comfortable holding 20% of capital in BHP & RIO for example. Anther time when theory doesn't match practicality??


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## Mistagear

Hi, 
I reckon I'm a better race car builder than I am a trader but one principle which stood up well when I was racing was the KISS method. If a component aint there it can't break.
So if you are a successful trader with your kick-ass indicator

"Because my super duper never fail indicator gave such a "good" signal I would of went short 1.2 times my stock holding as an example".

why wouldn't you simply reverse the position down and then use the extra profit to multiply at the bottom along with your exit capital to buy more shares, surely with any tax configuration you only pay a portion in tax so if you make more (which you would do) you get to keep more???.. and you would have more shares to boot
Why not leave the tax minimization tricks to people who don't have ability to trade each leg.
Fixes the problem of % holding in a single stock as well.

Just a thought from a non accountant .

Cheers, M


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## Naked shorts

Trembling Hand said:


> Why don't you?




who said I already haven't?


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## James58209

Hi Trembling Hand,

Thanks very much for sharing your ideas!

I'm a little confused about one thing, though.



> Yep fully aware of the problem between the weightings of the index and my holdings. May over time correct that. But maybe not. *I don't want an index tracking portfolio.* And although the hedging will not be matched 100% the other problem is that then I'm not all that sure I would be comfortable holding 20% of capital in BHP & RIO for example. Anther time when theory doesn't match practicality??




A wise man once said:
http://aussiestockforums.com/forums/showthread.php?p=226197&highlight=TLS#post226197


> With a little education, practice and patience I see no reason why someone would not be able to learn basic techniques for putting money into the market which can beat an index.
> Like when you see Market corrections hit the front page of a newspaper is when I add to my super holdings. Very simple but reasonably effective. The selling is a bit harder but that holds for getting out of an index fund as well.
> 
> *Not to mention the staying away from or getting rid (stoploss) of the Duds. HIH...Onetel...TLS which index funds hold.*




So has Telstra become a better company since then, or is it just looking over-sold at the moment?   Can it be trusted to continue paying generous dividends?

Cheers,
James


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## Trembling Hand

James58209 said:


> Hi Trembling Hand,
> 
> Thanks very much for sharing your ideas!
> 
> I'm a little confused about one thing, though.




James if you cannot see the difference between an index fund being long a stock for 5 years that's gone from $7 to $3 and what I'm trying to do here being close to flat when appropriate then there is probably not a lot more I can add to alleviate your confusion.


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## James58209

Hi TH,



Trembling Hand said:


> James if you cannot see the difference between an index fund being long a stock for 5 years that's gone from $7 to $3 and what I'm trying to do here being close to flat when appropriate then there is probably not a lot more I can add to alleviate your confusion.




I'm in awe of your trading skills, which is why I have read so many of your posts from several years back.  Of course you are lot more impressive than any index fund!  I just thought that if you have the protection of hedging, and you have a long-term outlook (a variation of buy and hold), then you might choose high beta stocks that have a good track record of performing well over the long term (at least in boom times).

Cheers,
James


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## Trembling Hand

James58209 said:


> I just thought that if you have the protection of hedging, and you have a long-term outlook (a variation of buy and hold), then you might choose high beta stocks that have a good track record of performing well over the long term (at least in boom times).




Yep that would be idea. Though I don't want to get too hung up in trying to pick individual winners. As long as they are moving up and down they will be of some benefit. At the moment its a decent idea to be holding something other than Big miners & banks so as any drawdown in a particular sector isn't going to knock me around too much. Tls is moving around 10% per month so it looks good for this at the mo.

I'm no fan of TLS (and I know it quite well as my partners a senior advisor there) but as long as it doesn't go in a straight line down to $1.80 it will be a reasonable one to have here. Today for example I'm glade I'm holding Tls rather than more Rio & Bhp.

By the way my system will probably produce another buy signal some time between here and next Monday. I probably will not be taking it because I don't want to look like too much of a goose & as I haven't built up any guru profit with this system. : But that signal will give me a panic point to put a hedge on to protect from loses if it goes under that within the preceding weeks.


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## tech/a

> By the way my system will probably produce another buy signal some time between here and next Monday. I probably will not be taking it because I don't want to look like too much of a goose & as I haven't built up any guru profit with this system.  But that signal will give me a panic point to put a hedge on to protect from loses if it goes under that within the preceding weeks.




*T/H*

I cant believe that your serious.
Whats the point of having a system if you have a discretionary bias as to when to implement it!
Perhaps a psychological error in the wiring which needs to be addressed if you wish to follow a system.

Watching how gurus handle situations which turn out to be less than ideal you/I learn far more than when they seem to be ever profitable.
I'm more impressed with people who handle adversity than those who avoid it---seemingly I may add.

True gurus are like chameleons they are so well versed that they never lose sight of the big picture---impressing all when they get there or admit that they need to re visit their ideas.

Something I have done far more often than adopting a long term strategy.

I like many others are following with interest.


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## Trembling Hand

tech/a said:


> *T/H*
> 
> I cant believe that your serious.
> Whats the point of having a system if you have a discretionary bias as to when to implement it!
> Perhaps a psychological error in the wiring which needs to be addressed if you wish to follow a system.




What the hell are you talking about ???????????????????????????????????????????

You do not hit the buy button beyond your predefined risk just because there is another signal. What system scans the market every day and takes *every *signal churned out by the code 

I cannot believe you even bothered with the comment.

Perhaps a psychological error in your personality????


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## tech/a

Trembling Hand said:


> What the hell are you talking about ???????????????????????????????????????????




Trading a system--this system.



> You do not hit the buy button beyond your predefined risk just because there is another signal. What system scans the market every day and takes *every *signal churned out by the code




If there is a pre defined risk component that filters trades then there wouldnt be a buy signal. Certainly you dont need to take every signal in a well tested system particularly if you have Monte Carlo results confirming performance over 1000s of portfolio's but you should take some trades if your capital allows.Your system has a hedge component anyway so I'd have thought this is a perfect time to kick it off.*Those trades now listed have they been hedged or are they just naked currently?*

Some systems do take every signal.



> I cannot believe you even bothered with the comment.




Why I think its relevant.



> Perhaps a psychological error in your personality????




Maybe-----but has served me well.
I'm not getting into you T/H just asking the obvious questions.(Obvious to me).


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## nomore4s

tech/a said:


> Whats the point of having a system if you have a discretionary bias as to when to implement it!




I didn't realise every system had to be traded mechanically. 

I also don't understand why a system like this couldn't be traded on a discretionary basis?


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## Trembling Hand

Tech you have chosen to jump in and look for problems without even taking the time to ensure you know what you're talking about. Which is the usual response I seem to get from you. More interested in discrediting and adding BS where it doesn't exist. 

I have already said very very clearly that this is a discretionary system. Yet you have ignored that to open up a line of attack that simply doesn't exist here.

Its mind numbingly boring having to go over and over the same old **** simply because your fail to see what is clearly spelt out over whatever is going on in your head.

Like I said yesterday I'm expecting to get another buy signal some time this week but being only 1 week into it I'm not going to take it as this is a LONG TERM system. I, as I'm sure any half decent trader would agree, there is no need to deploy all capital in the first week of trading. It would in fact be a stupid thing to do.

As for adding a hedge here there is simply no reason to. The market is acting to my analysis so far. I said yesterday if we trade under the level where the next signal is triggered then its not acting to my expectations and I will move towards flat by starting to hedge then. Until then I'm looking for an up move.


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## Frank D

tech/a said:


> Whats the point of having a system if you have a discretionary bias as to when to implement it!
> .




A system doesn’t have to be black or white it can be optimized to
 the markets conditions, trends and cycles, and therefore discretionary
 in nature when it is being excuted.


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## nunthewiser

FWIW.

I personally am finding this thread intriguing. Some parts i cant actually get my head around ....namely the non closure of various position re hedges (but dare  say i will understand the methods and strategys as more gets posted).
I often hedge postions on a short term basis on longer term stocks i hold but this is mainly via cfd,s and a shorter term approach to trade short and "hopefully" profit on the dips as they occur. There  is NO tax minimisation strategy in place on these trades.
I have no current questions or knowledgeable comments currently but will enjoying reading and learning as the thread expands.

Thanks.


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## tech/a

nomore4s said:


> I didn't realise every system had to be traded mechanically.




*To me* ---A system is a set of rules for buying/selling/position sizing/and managing trades.It is a system as it has been back tested/forward tested and tested in various markets and instruments.
It has a blueprint you can clearly see if it is trading within its parameters or it isn't. You know what type of markets it has been tested in and the duration of those tests.



> I also don't understand why a system like this couldn't be traded on a discretionary basis?




Its not a system its a trading method or a conceptual system.Vast difference.
*Again to me*



Trembling Hand said:


> Tech you have chosen to jump in and look for problems without even taking the time to ensure you know what you're talking about. Which is the usual response I seem to get from you. More interested in discrediting and adding BS where it doesn't exist.




Not discrediting anything-- not understanding how you treat a system is the issue---now that I understand that its a trading method or Conceptual System with no blueprint to follow you/it make sense.



> I have already said very very clearly that this is a discretionary system. Yet you have ignored that to open up a line of attack that simply doesn't exist here.




You stated that the filter is discretionary nothing else---as far as I know its a system by my own definition.-----------TH's buy & hedge system.
Very Little discretionary about a system lots when it comes to a concept.



> Its mind numbingly boring having to go over and over the same old **** simply because your fail to see what is clearly spelt out over whatever is going on in your head.




Cant agree more--- if your going to talk about a system then do so---if its a trading method based around an idea or hypothesis then don't call it a system. Your right its *my own definition and education in systems*/their design and implementation which give rise to my questioning.



> Like I said yesterday I'm expecting to get another buy signal some time this week but being only 1 week into it I'm not going to take it as this is a LONG TERM system. I, as I'm sure any half decent trader would agree, there is no need to deploy all capital in the first week of trading. It would in fact be a stupid thing to do.




If you think so.



> As for adding a hedge here there is simply no reason to. The market is acting to my analysis so far. I said yesterday if we trade under the level where the next signal is triggered then its not acting to my expectations and I will move towards flat by starting to hedge then. Until then I'm looking for an up move.




Fair enough.



Frank D said:


> A system doesn’t have to be black or white it can be optimized to
> the markets conditions, trends and cycles, and therefore discretionary
> in nature when it is being excuted.




Sure it can but a system in my definition has a set of numbers which define its expected performance relative to similar conditions in which it was tested (markets conditions, trends and cycles etc).This clearly then isn't a system more a concept/idea or Hypothesis and I think TH would agree.

If it were a system (by my definition) we could talk about all sorts of interesting numbers and test periods blah blah.
Sadly we have to watch the forward tested results of T/H's rules to see if in fact he has a profitable system concept at hand.


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## mazzatelli

Let's call it TH's buy and hedge *model* then :

I like the idea if there are solid super duper indicators for a longer term outlook - long the put + stock => synthetic call at < fair value/credit if possible and leave for upside gains, little margin and bounded downside risk

Look forward to your exploits 
Au revoir


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## Trembling Hand

tech/a said:


> Sadly we have to watch the forward tested results of T/H's rules to see if in fact he has a profitable system concept at hand.





I for one have already learnt a lot from your contribution. Sadly it has nothing to do with trading.


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## doctorj

tech/a said:


> To me ---A system is a set of rules for buying/selling/position sizing/and managing trades.



Who gives a donkey's nut over these semantics? It's an approach that has not yet been discussed at ASF and therefore there's a good chance we can learn something from it. Feel free to start a thread to discuss if all systems must be mechanical, but in doing so, don't forget there is a discretionary component to techtrader.

TH - I watch this thread with interest. Please don't be distracted by the religious zealots.


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## Trembling Hand

For anyone interested here is a bit of light reading on the tax treatments of futs & options as hedges. : All as clear as mud so I've asked my accountant to get a private tax ruling for me.

http://www.asx.net.au/products/pdf/taxation_of_exchange_traded_options_oct_2009.pdf

http://mindthemarkets.com.au/documents/Taxation_futures_Dec03.pdf

As we understand it at the moment the hedging transactions will be taxed in the fin year that they are closed out in. But we are not sure what happens if that affects the outcome in later years once the underlying share holding is closed out.

Other things that are being checked is the entitlement to franking credits and the holding period rule. If the tax office ever sorts out their crap and handles the rest of the gumph they have taken 6 months to sort out (which include a data entry error doubling last years income!! and charging me tax & 13% interest on it!! Then sending me a letter from dept collectors all the time while telling me we are fixing it!!!!!!! ) this may be answered.


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## Joe Blow

This is an interesting thread, so I would like to urge everyone to keep it constructive. So please, no insults or personal attacks. Lets just discuss the topic at hand and keep it as civil and respectful as possible.


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## tech/a

doctorj said:


> Who gives a donkey's nut over these semantics? It's an approach that has not yet been discussed at ASF and therefore there's a good chance we can learn something from it. Feel free to start a thread to discuss if all systems must be mechanical, but in doing so,
> 
> TH - I watch this thread with interest. Please don't be distracted by the religious zealots.




The vast majority of those watching on will be less than experienced. Most like you believe that trading a Model/plan/idea is in fact developing a system.
Off they go convinced that they have devised a system. many at great cost.
That's why I GIVE A DONKEYS. Its important that people understand the vital difference in whats being discussed---if its not known then the misconception lives on.




> don't forget there is a discretionary component to techtrader.




There sure is and its not used in the entry/exit M/M or Position sizing for the system it is used when there are more entries available than funds.

Montecarlo analysis has shown that there is a range between portfolios from lower to higher return over the test period. The live 7 yrs trading was in the higher end of the Monte-Carlo results.

T/Hs discretionary component (The filter) is the crux of the idea.





Trembling Hand said:


> I for one have already learnt a lot from your contribution. Sadly it has nothing to do with trading.




Well I disagree.

Your Idea has merit and is a question asked by many traders.Can/Should I hedge a portfolio rather than sell it in less than ideal conditions.
The question is can your filter turn these corrective moves or change of trends----enough to better a buy and hold strategy.
If your indicator works well enough early enough on entry and on exit then success---if not then in your study a less than ideal result may come about.

On with the show.


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## It's Snake Pliskin

tech/a said:


> The vast majority of those watching on will be less than experienced. Most like you believe that trading a Model/plan/idea is in fact developing a system.
> Off they go convinced that they have devised a system. many at great cost.
> That's why I GIVE A DONKEYS. *Its important that people understand the vital difference* in whats being discussed---if its not known then the misconception lives on.



Some systems designers call their systems _strategies_ and other synonomous names. Just read Robert Pardo's book to see what I mean.


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## Trembling Hand

How much longer will the BS go on??


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## prawn_86

Trembling Hand said:


> How much longer will the BS go on??




Exactly.

Any posts not specifically discussing this method TH is trying to employ (the results/outcomes), will be removed.

If you wish to discuss synonyms, please start a new thread.


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## leedskalnin

Trembling Hand said:


> By the way my system will probably produce another buy signal some time between here and next Monday.




has this been triggered yet ?


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## Trembling Hand

leedskalnin said:


> has this been triggered yet ?




Nope. 

I wouldn’t be surprised if we make a low over the next 3 days. Very possible that I’m out of sync here because of the extra volatility (Murphy's law states first trade must always be a stinker!!). Signs are building for some sort of bounce. Trouble is with this type of action we could wallow around here next week and then we are vulnerable to further falls. 

I’m not all that confident that a good bounce is set up with this action,

yet. 

But no panic. I'm down 1% of capital as of this open. We take the low from yesterday to Monday and make that a stop for cautiously putting on a hedge. Sooner hopefully rather than latter it will get into sync.


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## sails

Trembling Hand said:


> ... (Murphy's law states first trade must always be a stinker!!)....




lol - as soon as a live trade is posted old Murphy has a habit of butting in...
Here it is described - courtesy of WayneL:
https://www.aussiestockforums.com/forums/showthread.php?p=374692&highlight=murphy's+law#post374692



> Murphy's Law
> Section 36, Subsection(c), paragraph(2)
> 
> Any trade posted publicly on a forum must fail. Furthermore, it shall be the only losing trade on the trader's books, and all other unposted trades on the trader's books shall be deliriously successful. Only the posted trade must fail. This law is absolute and no exceptions are allowed.




Interesting thread - thanks TH...


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## trainspotter

Have been watching and reading with great interest on the methodology of the spread. Amazed at -1% of capital due to the volatility around at the moment. Notice a "bounce" is building ? Got a predicted low yet TH?


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## Trembling Hand

trainspotter said:


> Notice a "bounce" is building ? Got a predicted low yet TH?




Nope better at time than the actual price.

Should of seen my last call


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## tech/a

trainspotter said:


> Have been watching and reading with great interest on the methodology of the spread. Amazed at -1% of capital due to the volatility around at the moment. Notice a "bounce" is building ? Got a predicted low yet TH?




Starting capital $500k
Current as of 10 mins ago $463,698

I make that 7% ish on Invested capital and 3.5% on Capital base.
I'm sure There must be an error which will be duly pointed out.
Thanks.


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## trainspotter

tech/a said:


> Starting capital $500k
> Current as of 10 mins ago $463,698
> 
> I make that 7% ish on Invested capital and 3.5% on Capital base.
> I'm sure There must be an error which will be duly pointed out.
> Thanks.




Hence my comment on only -1% capital ?? Call is at 4200 for mine before upward trend. Bit more pus to be squeezed out of this boil before the "story tellers" come out to play.


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## Trembling Hand

Not sure where we are out. I have initial value of funds invested @ $475,036

Current value @ $461,993. Down $13,000

haven't the time to check will follow up lata.


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## tech/a

> $475,036




The difference is here.
V's---- $500K
Clears that up.
Thanks.


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## Sir Osisofliver

Trembling Hand said:


> I have a system that is longer term than my normal 1-5 min trading. Thought I might post the trading here as an ongoing record. I'll base it on a 1 mil paper trading account for this example.
> 
> Basic idea is a swing trading setup trading ASX 20 stocks but instead of selling to lock in profits and then triggering CGT or income tax the idea is to place hedges until another buy signal is triggered on the same stocks or the underlying index. Then removing the hedge to hopefully gain more upside.
> 
> No margin on the stocks but used for oppies & futs to gain the hedge positions. Will also add extra exposure from time to time in each direction if signals line up. For example if I was full invested at the recent XJO 5000 mark my system would of given a signal to hedge. Because my super duper never fail indicator gave such a "good" signal I would of went short 1.2 times my stock holding as an example.
> 
> First trades in forum tradition of all buy and holders is a hindsight from yesterday. 50% of funds invested for first trade.




Hi TH,

Thanks for displaying this strategy. I have a couple of questions.

1) You've stated your trading on a 1 million dollar paper trade account. You only have $475k invested. Why?

2) What about the other stock in the XTL - FGL SUN WDC etc? Did you simply not have a signal yet on these positions?

3) You've gone in with even position size ~ 30K in each position you have open. These positions have a weighting that does not conform to the index weighting of the XTL. Why?

I'm sure I will have more questions later.

Cheers

Sir O


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## Trembling Hand

Sir O

I'm sure I have already answered your questions above but,

1. I think its a dump idea to employ all funds on day 1. Whats the hurry to run head long into a draw down. Once I'm in sync I'll add more funds. 

2. AXA is effected by takeover. FGL looks to be the worst of the lot, in a down trend & not really moving historically in any fashion that suits what I'm trying to do. So it got flicked. SUN & WBC - I didn't want to load up too much in fins at this point or have to follow 20 company divs etc.

3. I don't want to follow the weighted index. How can anyone outside of a fund weigh their holdings like that? Why would you hold 20% in BHP & RIO and only 2% in NCM? It may make sense in regards to hedging with an index instrument but that IMO doesn't outweigh the added risk of being hit unexpectedly by something you have an outsize holding in.


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## Trembling Hand

Well aint that a stinker??!! Here we are, Friday, and I'm getting my low alright just a good +200 odd points lower that I figured.

More lata.


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## Trembling Hand

China comes to the rescue today. They started this mess and now have been ignoring the falls the last few days by rallying into the close. Looks to be doing the same today but from their open.

Buy signal will be triggered tonight. 

Hmmmm!


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## Sir Osisofliver

Trembling Hand said:


> Sir O
> 
> I'm sure I have already answered your questions above but,
> 
> 1. I think its a dumb idea to employ all funds on day 1. Whats the hurry to run head long into a draw down. Once I'm in sync I'll add more funds.




Fair enough, but as far as I can see this strategy is still in testing phase (live paper trading). I appreciate that you have certain elements of discretion built into your strategy based upon your extensive experience in the industry but when you come to evaluate the strategy in the future, (and assuming you use numbers to validate your strategy rather than just looking at it and saying "That'll work") doesn't it just add unnecessary work to then calculate your performance accurately?

I don't want to be seen as having a go TH. I'm genuinely curious. I'm far too OCD to evaluate a strategy or system without *accurate* testing data. I'm not being critical of the strategy - I like the idea behind it and will probably do some modelling based upon the concept. However the last testing that I did for a system took me nine months which included historic testing, paper trading, and live trading with a small percentage of the final funds invested. Have you done any significant backtesting or is this just an idea you are kicking around?







> 2. AXA is effected by takeover. FGL looks to be the worst of the lot, in a down trend & not really moving historically in any fashion that suits what I'm trying to do. So it got flicked. SUN & WBC - I didn't want to load up too much in fins at this point or have to follow 20 company divs etc.



 Cool thanks 







> 3. I don't want to follow the weighted index. How can anyone outside of a fund weigh their holdings like that? Why would you hold 20% in BHP & RIO and only 2% in NCM? It may make sense in regards to hedging with an index instrument but that IMO doesn't outweigh the added risk of being hit unexpectedly by something you have an outsize holding in.




Once again I don't want to seem critical, I'm genuinely interested in the strategy, I just have some issues with your testing methodology. Do you know what will happen in the event you match the index weighting? (I'm asking if you have modelled this against historic data) Since you are testing anyway and your price and time data will remain the same regardless of weighting, how much more difficult is it to see what the results will be with a couple of variations?

Cheers

Sir O


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## tech/a

> I don't want to be seen as having a go TH. I'm genuinely curious. I'm far too OCD to evaluate a strategy or system without accurate testing data. I'm not being critical of the strategy - I like the idea behind it and will probably do some modelling based upon the concept. However the last testing that I did for a system took me nine months which included historic testing, paper trading, and live trading with a small percentage of the final funds invested. Have you done any significant backtesting or is this just an idea you are kicking around?




Although put another way if you read back over the posts earlier on---when I bought this up I got this among various other responses from T/H and moderators!!!!!



> How much longer will the BS go on??





and



> Exactly.
> 
> Any posts not specifically discussing this method TH is trying to employ (the results/outcomes), will be removed.
> 
> If you wish to discuss synonyms, please start a new thread




I too see this as an important aspect in the discussion of the method.---but seems few do!


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## Trembling Hand

To the weighting question I just find this a ridiculous argument. What happens if I had 10 years of data saying that weighting gives a better performance than equal $ holdings.

Does that in any way isolate me from single outsize risk over the next 10 years?

What could possibly make a trader throw out what we all know is sensible portfolio position sizing? Its a theoretical question for those who do not trade and deal with the real world of trading.


_____________________________


On the rest. I've been using this as a swing trading trigger since 05. My blog is full of real time accurate examples of how this has kept me on the right side of things since then. This is a discretionary approach and as I have ALWAYs said unless you know an approach works via backtesting a system or forward testing a discretionary approach (which has served me very well over my time in this game) you shouldn't be trading it. I have tested this for long enough to know what it looks like when its working and will know when its not. 

The only thing thats relatively new to this approach is the idea of hedging rather than exiting. But it seems, ironically, that the only people that are allowed to bring up or put forward a discretionary approaches are the system traders who think they are the ducks guts.


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## tech/a

> But it seems, ironically, that the only people that are allowed to bring up or put forward a discretionary approaches are the system traders who think they are the ducks guts.




T/H thats not true from my perspective--
Although I am a duck.

I believe---and your going to find out---that the crux of out performance lies in the ability to apply the filter in a manner to increase return on the portfolio as against buy and hold or buy and exit.

There are a million other things you could add but the vanilla question and concept is what this thread is about---the rest even the above is discussion----and relevent---in my view---without detracting from the presentation or tracking of the results.

This forward test could take years.


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## Sir Osisofliver

I'm trying hard not to argue TH - please do not take what I say as confrontational or degraging to your experience or existing methodology in any way. I wish to understand and perhaps even assist with suggestions out of a genuine desire to see if the strategy a) works and b) can be improved. 

I am a very firm believer in using what works - regardless of what others think. I would be a massive hypocrit if told you that what you are doing isn't they way I would do it...ergo you are wrong. Tone is hard to convey in a text based medium so please, I truly am not having a go at you, just wishing to have a deep comprehension of process.

Having said the above....

When I am designing something I try not to use preconceived ideas. I am distrustful of the statement "everyone knows". To give you some background I currently have a long-term portfolio that is based on blue chip shares from the ASX 200 with over ten years of history. Whilst I do not hold 200 stocks in that portfolio, it is balanced against the ASX200 index - requiring a weighting that you've stated is ridiculous...yet it meets the goals that I have set for that portfolio. It works very well for what I am trying to achieve.

You said the following



Trembling Hand said:


> To the weighting question I just find this a ridiculous argument. What happens if I had 10 years of data saying that weighting gives a better performance than equal $ holdings.
> 
> Does that in any way isolate me from single outsize risk over the next 10 years?
> 
> What could possibly make a trader throw out what we all know is sensible portfolio position sizing? Its a theoretical question for those who do not trade and deal with the real world of trading.




The answer to that  question from my perspective is...perhaps. It depends upon the power law and level of return that your strategy operates under. If your system compounds gains, then it only takes very small gains over a ten year period to make it more than worthwhile to expose yourself to a single outsize risk *depending upon the frequency of that event.* Unfortunately without data it is a moot question.

You've mentioned trading, but what I am seeing is not a "trading" system as I would normally define that. It's kind of a hybrid. You are buying and holding the core portfolio. You are not trading the core portfolio, seeking instead to profit in other means, so the question to me is why are you applying traders rules rather than fund manager rules? Is it of benefit to do so? 







> On the rest. I've been using this as a swing trading trigger since 05. My blog is full of real time accurate examples of how this has kept me on the right side of things since then. This is a discretionary approach and as I have ALWAYs said unless you know an approach works via backtesting a system or forward testing a discretionary approach (which has served me very well over my time in this game) you shouldn't be trading it. I have tested this for long enough to know what it looks like when its working and will know when its not.
> 
> The only thing thats relatively new to this approach is the idea of hedging rather than exiting. But it seems, ironically, that the only people that are allowed to bring up or put forward a discretionary approaches are the system traders who think they are the ducks guts.




 *wipes off the duck*

Cheers

Sir O


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## Trembling Hand

Sir Osisofliver said:


> Having said the above....
> 
> When I am designing something I try not to use preconceived ideas. I am distrustful of the statement "everyone knows". To give you some background I currently have a long-term portfolio that is based on blue chip shares from the ASX 200 with over ten years of history. Whilst I do not hold 200 stocks in that portfolio, it is balanced against the ASX200 index - requiring a weighting that you've stated is ridiculous...yet it meets the goals that I have set for that portfolio. It works very well for what I am trying to achieve.
> 
> The answer to that  question from my perspective is...perhaps. It depends upon the power law and level of return that your strategy operates under. If your system compounds gains, then it only takes very small gains over a ten year period to make it more than worthwhile to expose yourself to a single outsize risk *depending upon the frequency of that event.* Unfortunately without data it is a moot question.
> 
> You've mentioned trading, but what I am seeing is not a "trading" system as I would normally define that. It's kind of a hybrid. You are buying and holding the core portfolio. You are not trading the core portfolio, seeking instead to profit in other means, so the question to me is why are you applying traders rules rather than fund manager rules? Is it of benefit to do so?




Sir O you haven't convinced me in any way.

Counter these points.

Even if i did have backtesting results that remove the survivorship bias of using current weightings. Will the last 10 years be the same as the next 10? Good bet would be no?

That aside the weightings question is really a coin toss. Its just as likely that NCM will outperform BHP. In that case being weighted to the index will be a huge drag rather than benefit. You can in no weigh assume that being heaver into one stock will not benefit or degrade performance. But you can be sure that its skewed your risk.

Therefore unless you have a crystal ball and ensure me that BHP will not buy Xstrata at the next top or NAB buy AMP or a Super Tax on WOW etc etc I'll pass on a coin toss and be happy to reduce portfolio risk. That's my thinking.


The hedging can be fine tuned to the portfolio with a few extra oppies.


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## trainspotter

trainspotter said:


> Hence my comment on only -1% capital ?? Call is at 4200 for mine before upward trend. Bit more pus to be squeezed out of this boil before the "story tellers" come out to play.




I wonder what the "story tellers" announced at 11.15am today? Sorry I was a bit off at 4188. How did the hedge go TH ??


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## Trembling Hand

trainspotter said:


> I wonder what the "story tellers" announced at 11.15am today? Sorry I was a bit off at 4188. How did the hedge go TH ??




No hedge on. I'm currently out of sync with the system up to today. Tonight's buy signal hopefully puts me back in the grove. As stated last week was expecting falls into today & Monday but not by this magnitude thats why I failed to hedge. Next action will be either hedging if we fall below today's/Mondays low because the market are not acting accordingly to my signals. Or hedging after we rally and I get a sell signal.

The rally @ 11:15 was following China.


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## trainspotter

Keep us posted on the progress. System looks good thus far but needs like you say, a bit of fine tuning by hedging the portfolio with a few extra oppies. China is saving our bacon again.


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## Sir Osisofliver

Trembling Hand said:


> Sir O you haven't convinced me in any way.



 Have I at least convinced you I'm not being a pr!ck and we can discuss these things calmly? 







> Counter these points.
> 
> Even if i did have backtesting results that remove the survivorship bias of using current weightings. Will the last 10 years be the same as the next 10? Good bet would be no?




Would they be perfectly aligned? Of course not but this is not the crux, the question is _will it be different enough_. The more things change the more they stay the same. You are talking about a strategy that is based upon regression towards a mean. Market is overbought, put hedge in play, make money as market returns to mean. Market is oversold, remove hedge and allow to return to mean. Correct?

So is there a reason to suspect that the market swings from a percentage standpoint will differ *significantly* from the past ten years? I _think - I'll even take an educated guess_ that the answer to that question is no.







> That aside the weightings question is really a coin toss. Its just as likely that NCM will outperform BHP. In that case being weighted to the index will be a huge drag rather than benefit. You can in no weigh assume that being heaver into one stock will not benefit or degrade performance. But you can be sure that its skewed your risk.




TH I'm not sure if I'm going to express this correctly - here's a crack at it however, I'm trying to multi-task when writing these responses to you and I only have a short period of time to write this before I have to do something else.

Your strategy is using the ASX20 (largely). You've said you'll use an index to hedge rather than hedging each stock. Fair enough, I get it. Buy one instrument rather than 20, cuts down on your costs and makes the strategy simpler and faster - all great and highly important characteristics to ensure your strategy makes money.

These 20 stocks account for an appreciable percentage of our entire market. Our market indicies works on an aggregate basis - which is what your hedge is working from. The individual stocks being as they are from a range of sectors will not move perfectly in lock-step all the time. Different sectors and stocks will have different periodicity and amplitude and differing correlation with each other. 

Since you are not individually hedging the contents of the core portfolio, these individual swinging incidents are irrelevant because you cannot take advantage of them with your chosen hedge. Only the aggregate performance of the index will determine when you place your hedge. By selecting a fixed percentage of funds into each position, rather than a weighted one, you are introducing a bias into your strategy that does not exist in the aggregate hedge you are using. Just as I _"can in no way assume that being heavier into one stock will not benefit or degrade performance."_ You cannot assume that the bias you have introduced will have no effect and *may actually increase* your risk and potentially degrade your return.



> Therefore unless you have a crystal ball and ensure me that BHP will not buy Xstrata at the next top or NAB buy AMP or a Super Tax on WOW etc etc I'll pass on a coin toss and be happy to reduce portfolio risk. That's my thinking.
> 
> The hedging can be fine tuned to the portfolio with a few extra oppies.




I'm running out of time here TH - but as I said before, you're not trading these things individually - it's more like funds management portfolio, you may actually be increasing risk - but unless you test for it you'll never know.

Cheers

Sir O


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## Trembling Hand

Sir O 

I see what you are getting at but your coming at it from the wrong angle.

Ideally you would construct a bunch of stocks with equal weighting or even try and pick some winners while using 'normal' position sizing. Then use options on each stock to hedge effectively creating your own index and hedging requirements.

The problem is the hedging with the spi is far more practical and cost efficient that using what is available with ASX options. As I have already stated. Directly hedging with individual options is simply BS. It don't work not with the market we have. Unless you have specific skills along the lines of the oppies guys like Wayne you will be cut to bits thinking you have a effective short hedge but what you will end up having is a time decay, high cost, large spread bunch of illiquid instruments controlled by the MM.

Even with the skewed SPI weightings my guess is that it will still bet my option strategies skills. (at the moment)


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## tech/a

Not Thinking of filling the portfolio T/H?


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## Trembling Hand

tech/a said:


> Not Thinking of filling the portfolio T/H?




Nope. you?


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## tech/a

Trembling Hand said:


> Nope. you?




No
My thinking on this period is here.

https://www.aussiestockforums.com/forums/showthread.php?t=4888&page=404


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## Trembling Hand

tech/a said:


> No
> My thinking on this period is here.
> 
> https://www.aussiestockforums.com/forums/showthread.php?t=4888&page=404




Yep, no reason to be wildly bullish. IMO.


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## Sir Osisofliver

Trembling Hand said:


> Sir O
> 
> I see what you are getting at but your coming at it from the wrong angle.
> 
> Ideally you would construct a bunch of stocks with equal weighting or even try and pick some winners while using 'normal' position sizing.




TH I'm confused. Is your system a) a long term core portfolio using expert stock selection and the use of a positional sizing model; or  b) the use of a swinging index hedge placed against a core portfolio according to your system rules to manage downside risk and create wealth utilizing weighting of the hedge? Or c) both 

If you are trying to do both, how do you then apportion the winnings or losings? How do you determine the probability of success or failure of the strategy?

Lets say your system makes $10,000.00 in the first week. Of that $10,000.00 what portion is attributable to your stock selection and what portion to your hedging activities? Is that ratio constant or static?

This is similar to the *problem of points* or division of the stakes  worked out by Pascal and Fermat when they were working out the laws of probability.

I suppose what I'm getting at TH is the number of variables you have introduced in your testing with no control mechanism to test your theory.



> Then use options on each stock to hedge effectively creating your own index and hedging requirements.
> 
> The problem is the hedging with the spi is far more practical and cost efficient that using what is available with ASX options. As I have already stated. Directly hedging with individual options is simply BS. It don't work not with the market we have. Unless you have specific skills along the lines of the oppies guys like Wayne you will be cut to bits thinking you have a effective short hedge but what you will end up having is a time decay, high cost, large spread bunch of illiquid instruments controlled by the MM.
> 
> Even with the skewed SPI weightings my guess is that it will still bet my option strategies skills. (at the moment)




I don't disagree with any of the above. In fact I've already applauded your use of a single instrument to hedge with because it cut down on time decay, costs etc.

I hope this post expresses better the concept I was trying to get across on Friday

Cheers

Sir O


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## Trembling Hand

lol!! Sir O I have no further comment to someone wanting back tested rolled gold confirmation that they will make $10,000 next week.


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## Sir Osisofliver

Trembling Hand said:


> lol!! Sir O I have no further comment to someone wanting back tested rolled gold confirmation that they will make $10,000 next week.




TH did you even read my post?? Forget the time period and dollar amounts I mentioned. I just used a week and a nice round number for you as an example. Feel free to replace that figure with any number between -$1,000,000 and +$1,000,000 or better yet replace it with the letter X and replace the time period with Y.

It still doesn't change the question I posed. How much of X is attributable to your position sizing and how much to your hedging activities over period Y?

Do you know why this is important?

Cheers

Sir O


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## Trembling Hand

I understand why these threads die after 40 post.

this is discretionary long term wealth building approach using my skills to take money out of the swings and put it into a portfolio of div paying shares + collect the franking credited income. While not adding to Krudds income.

The idea is to take profit B and add it to holdings A. Portfolio A will not be liquidated therefore there is no profit A to report on (besides divs (less tax on profit B))


.


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## tech/a

*Sir O*

In the longterm scale of things While you could tweek the hell out of any method.
The simplicity of T/Hs approach is and will be easy to follow.
Sure both he and others may well have some suggestions as it is traded (forward tested).
Hes made it clear its not been tested.
The theory at least is in my mind and his credible.

*But I'm with T/H keep it simple and see where it goes!!*

Im sure a lot will be gained in knowledge.


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## Sir Osisofliver

Sir Osisofliver said:


> Do you know why this is important?
> 
> Cheers
> 
> Sir O






Trembling Hand said:


> I understand why these threads die after 40 post.
> 
> this is discretionary long term wealth building approach using my skills to take money out of the swings and put it into a portfolio of div paying shares + collect the franking credited income. While not adding to Krudds income.
> 
> The idea is to take profit B and add it to holdings A. Portfolio A will not be liquidated therefore there is no profit A to report on (besides divs (less tax on profit B))
> 
> 
> .




I'll take that as a no.

Good Luck TH

Cheers

Sir O


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## tech/a

Any changes here or is the portfolio still half filled and long?


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## Trembling Hand

Nope no changes. All going as expected. At a guess there could be a hedge sign coming late next week. Other than that will have a protective hedge stop under current lows.


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## skc

Trembling Hand said:


> China comes to the rescue today. They started this mess and now have been ignoring the falls the last few days by rallying into the close. Looks to be doing the same today but from their open.
> 
> Buy signal will be triggered tonight.
> 
> Hmmmm!




Is it time to put a hedge on yet?


----------



## nomore4s

skc said:


> Is it time to put a hedge on yet?




Why would you be putting a hedge now?


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## skc

nomore4s said:


> Why would you be putting a hedge now?




Low volume rise on Dow. Spain may feel the heat soon. Resistance zone at 4600 - 4650 for ASX200, and we lost 4-0 to Germany... So many bad news.

May be a protective hedge is more prudent than a straight short...


----------



## tech/a

skc said:


> Low volume rise on Dow. Spain may feel the heat soon. Resistance zone at 4600 - 4650 for ASX200, and we lost 4-0 to Germany... So many bad news.
> 
> May be a protective hedge is more prudent than a straight short...




Well you have one supporter.
Not a time to be loading up long!


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## Trembling Hand

skc said:


> Is it time to put a hedge on yet?




Not by my signals. Its somewhat neutral. But at the same time its a bit messy as its coming off a very oversold reading so its not exactly perfectly in sync or suited for a clear signal. 

At the moment I would guess at a hedge signal spat out next week (Tuesday ).


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## tech/a

*Not by my signals.*

Fair enough.


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## Trembling Hand

Trembling Hand said:


> At the moment I would guess at a hedge signal spat out next week (Tuesday ).




LOL. Looking back  it did, faintly!!


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## Trembling Hand

Anyway off to jump on a big bird for a few months. Will run any further signals from my blog if I don't fall down a crevasse boarding. Or consume too  much :alcohol:

Take care gents,








(Whoopie 5000 post!!  :swear::dunno: )


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## tech/a

So the plan is?/Was.


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## nunthewiser

What is it with you and round numbers?( 4000 last time ) 5000 now ..




enjoy


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## boofis

Three years later, what was the outcome of the paper account?


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## DJG

boofis said:


> Three years later, what was the outcome of the paper account?


----------

