Discretionary Trading Method-----Outliers Discussion Thread

Can we keep discussion here so the commentary,chart sequence and logic doesnt get lost?

Moderator's Note, this is the primary thread: https://www.aussiestockforums.com/forums/showthread.php?t=4650

Re: Discretionary Trading ---Outliers,discussion thread.

tech/a,

If you could cover both (live) intraday and EOD that would be good.

Only have EOD on the ASX at the moment, but expect to have intraday in the next couple of weeks. Just need to get my finger out and finally organise it. Finding that I need to start using intraday charts on the ASX to gain a better perspective for my short term trading activities

Been having a similar issue and came to the same conclusion with respect to the discretionary component. The only guys that I am aware of that are doing this kind of trading really well from a discretionary perspective are in the US and are primarily futures traders. Technical setups, with a discretionary trading approach, not for the faint-hearted or undisciplined.

The Hint #1 format will be fine and your initial hints are practical.

Will be interesting to see how the thread progresses.

Cheers.

Re: Discretionary trading method-----Trading outliers

tech/a said:

Of the 2067 stocks under $3 today at sometime over the last 12 mths.

(1) 403 increased in price 50%
(2) 283 increased in price 100%
(3) 217 increased in price 200%

Its these which I look for and trade as often as I can (Place myself in the position to is more to the point)

At the time of taking a trade I have no idea wether a stock will increase 1% let alone 200%.
I dont often get 50% less often 100% and every now and then 200% plus.
However I do currently have a pretty high success rate---around 65%.
and a current return over the last 18 mths Ive been doing this of approx 400% in that 18 mths.---$15k to 64k less tax but brokerage included.

I only allow a 2-3 tick stop.

Click to expand...

Hi Tech

Very interesting thread thankyou. Can you please clarify something for me - are you saying that the stocks you select are ones you have identified as having gone up 50%,100% or 200% (or that this is what you are aiming for). I guess my question is "how you identify your 2-3 stocks?" to purchase

I can scan using Market Analyst and identify volume, % increases etc but it is all at end of days trade.

Also - for the uninitiated - what does a "2-3 tick stop" represent?
Thanks
Duckman

Re: Discretionary Trading ---Outliers,discussion thread.

hi tech/a

thanks for starting this thread

u mentioned u trade in 15k parcels, with 60k capital; and u are quick to exit once the stock hits your stop

what i want to know is; where do u put ur stop?

does it depend on the movement of the stock? ie. if its a massive breakout, its likely to be trading much above its 200dma so you wouldnt wanna put it just under that.
do u use ATRs?
or is it a % of your initial capital?

interesting how your universe for this strategy are stocks above $3; how did u come to the conclusion that this universe is the best for this strategy? through backtesting?

thanks, much appreciated

Re: Discretionary Trading ---Outliers,discussion thread.

Duck.

The statistics are presented as a matter of information,interest value.
I doubt many know how many stocks rose by what over the last year that trade under $3.Point Im making is that there are plenty.
Tick is the unit value of the stock being traded.
A 1c stock trades in 1/2 cent ticks and higher value stocks trade in 1c ticks.
Tick I believe came from the old "Ticker tape" days.

As for which stock I trade and how I find it/them all will be revealed.

Nisar.

2-3 ticks under the purchase price initially.No more. If its not moving right now I'm out.This becomes wider as the trade progresses (In the sence that the profit supplies a buffer if I carry the trade over night.) But we are getting ahead of ourselves.

I use price action ONLY and one custom indicator which if you or anyone has metastock I will give you or the code which can be re coded by experts in their software for their use.

Stocks are UNDER $3. Nizar you will have to pay attention the answers I have given you are in the initial intro!!

Michael

And entry and in these short term trades is very important.
I want win rate up! and the potential to be as much in my favour as I can.
Seeing it happening NOW is a huge benifit.--both entry and exit.

Re: Discretionary Trading ---Outliers,discussion thread.

I'm definitely watching with great interest (I'm currently trading small parcels of a discretionary system which did well on prospective paper trading, so I'm now trialling it with real money) - mine's based on EOD data for the moment as a lifestyle choice, although it seems self-evident that you could run a better exit with intraday data.

Re: Discretionary Trading ---Outliers,discussion thread.

tech/a said:

As for which stock I trade and how I find it/them all will be revealed.

Click to expand...

Im awaiting this eagerly.

So u keep pretty tight stops, do u re-adjust these once u are in profit and to where?

Just goes to show u can get stopped out heaps and still pick plenty of winners.

Would be interesting to find out what % of stocks hit your stop, and rebound and keep going up, and what % actually then go down and out... any analysis on this?
ie. there must be a good reason why your stops are so tight

Re: Discretionary Trading ---Outliers,discussion thread.

Hello Tech,

Was there a problem with Marketcast recently ?

Cheers
Bob.

Re: Discretionary Trading ---Outliers,discussion thread.

nizar said:

Im awaiting this eagerly.

So u keep pretty tight stops, do u re-adjust these once u are in profit and to where?

Click to expand...

Generally no (purely because very few really run away with it IE +25% and more in a day) but when they do, this is where your bar analysis becomes very important and the stop is turned into a trailing stop.Exits they are different again.

Just goes to show u can get stopped out heaps and still pick plenty of winners.

Click to expand...

This is a good point to mention this. I struggled with short term trading for years.Super inconsistent or so I thought.
Being predominently a longterm position systems trader when I became involved in shorter time frames I moved with the speed of an Elephant on morphine. I needed to and have altered my mindset to double fast forward.
Thats why generally I only trade 2 stocks at a time and if I have 4 going then everything else stops (I close my office door).This is rare as I dont have an office door (Yes I do only kidding!!).

What kept me at it was the constant observation of stocks practically daily that made huge gains (20% on your money in a day I call a huge gain!) Now I dont get all of that very often and even less do I get more than that in a week,but the times I do make it well worth the effort and at times frustration--you certainly find out about yourself and discipline trading this way

Would be interesting to find out what % of stocks hit your stop, and rebound and keep going up, and what % actually then go down and out... any analysis on this?

Click to expand...

NIZAR
A very very good question and I really want everyone to think about the answer because it was one that haunted me in the early days.

I dont know and I dont care

What I do know is that I can turn a profit trading as I do.I came to the conclusion that as I could not test this way of trading and as such give myself a 'blueprint" of "Knowns" that the best chance I had at making it work was to trade by the tried and proven things I did know.
Profit comes from 3 scources.
(1) More wins than losses.
(2) Much bigger wins than losses.
(3) A combination of both.

No (3) is the one I strive for.

As for % that hit my stop at times it seems like a lot at other times it seems like very few,this is generally related to the volatility of the market in general.
As for the other 2 questions some do and some dont,every now and then I see one I was stopped out of or exited prematurely go flying into the stratas phere and others I never see pop up again.

ie. there must be a good reason why your stops are so tight

Click to expand...

Sure is see #(2)

Bobby
Marketcast was changing feed from the ASX. Caused all sorts of problems with live feed. Pricing was delayed upto 5 mins which cost me $450 in slippage as I exited a trade I was looking at .058c when in fact it was .056c
Bugga.
Depth was hopelessly out.
As of yesterday seems all fixed.

Re: Discretionary Trading ---Outliers,discussion thread.

tech/a said:

Generally no (purely because very few really run away with it IE +25% and more in a day) but when they do, this is where your bar analysis becomes very important and the stop is turned into a trailing stop.Exits they are different again.

Click to expand...

tech/a thanks for your reply can u please elaborate on the above point and when do your (tight) initial stop turn into a trailing stop loss...

so i take it most of your profits are in fact from exits and not from the stock hitting your trailing stop loss ?

maybe this is because u have got to a stage where u have become so pro that u can exit without being "stopped out" but when u started initially, was every profit/loss due to the sp hitting some sort of stop ie. either initial or trailing ?

Re: Discretionary Trading ---Outliers,discussion thread.

nizar said:

Would be interesting to find out what % of stocks hit your stop, and rebound and keep going up, and what % actually then go down and out... any analysis on this?

Click to expand...

tech/a said:

A very very good question and I really want everyone to think about the answer because it was one that haunted me in the early days.

I dont know and I dont care

Click to expand...

This is actually a critically important psychological point that Tech/A is addressing here. The intrinsic nature of a stop is that no matter how you run a stop, there will always be the odd occasion when a stock which is stopped out will proceed to take off without you.

However, for every one that "gets away" like this because of your stop, two will fall like stones, taking your capital with them if you let them.

The point is to consistently apply a stop so that ON AVERAGE your wins outweigh your losses.

If you haven't actually gone through the process, an extremely enlightening exercise is to trade with a stop for 12 months and then go back and analyze what would have happened if you hadn't used a stop - yes, a few trades will have taken off without you, but more often than not, they will have tanked. It becomes very clear and very obvious that trading with a stop means there is more money in YOUR pocket at the end of the day.

Thanks for your thoughts there Michael.

Just wanted to ask u (and every1) a couple of questions:

1/ Do u have exit criteria apart from a trailing stop? How many % (roughly) of your (closed) trades that are in profit were exited due to it hitting a trailing stop?

2/ How do u decide whether to use a trailing stop after your initial position is already "in the money" ? Do u always use one?

Nizar.

Trailing stops are put in place to protect profit which has been made for moves which are extra ordinary like those of late by MOX and PMH.

If you read the threads on these to those trading them have no idea of the use of trailing stops.
Basically a fundamental buy and hold methodology is being used on highly volatile stock.Nothing wrong with that if all goes well.

Tech/A,

MetaStock has a built-in scan which finds breakouts of this nature reasonably efficiently. It will return a list of anything from 0 to 10 candidates over the entire ASX on any given day. Of the ones returned by the searches, about 1/4 are breakouts which meet the breakout above trading range criterion.

The scan is called "Equis - Price and Volume Breakout". It doesn't take long to run or to flip through the candidates.

It certainly picked up PMH and MOX recently (a bit sad that I didn't have any available funds to allocate to either of these, but c'est la vie - the market will still be there tomorrow).

My only slight concern is whether there is a negative effect simply because it is a built-in scan and thus potentially over-used by traders.

I personally don't trade anything with a close under 0.20 due to some limited work I did on this a while back - this gels nicely with the step from 0.001 ticks to 0.005 ticks at 0.20.

tech/a

for the AUZ chart u posted; was your buy signal the first arrow or the second?

CVN - i noticed it went up on big volumes the first day, but the 2nd day (entry day) it actually gapped down (obviously 6.2-6.1c is not significant but in general terms). Did this influence your decision whether to buy? (ie, as opposed to if it had gapped up). Or are all the entry decisions made before the next open after reviewing previous days data ?

ITE - wow that was really a beauty!

Also - when u buy a stock do u care if there is overhead resistance? ie. for CSM.

Thanks

MichaelD said:

It certainly picked up PMH and MOX recently (a bit sad that I didn't have any available funds to allocate to either of these, but c'est la vie - the market will still be there tomorrow).

Click to expand...

Michael D

Have u thought about how to deal with such circumstances?
ie. if u hold stocks that have "run out of puff" or are slow movers or are in no mans land.
And then another stock comes along which, if you werent holding any stock with that cash - u would favour the latter stock - why not chop and change?

Or are you satisfied that u have no cash because this means your system is running at maximum efficiency?

Firstly the most important criteria is a break from consolidation.
I have found that the longer the consolidation the more "sever" the breakout normally is.Also the longer the consolidation there seems to be a correlation as to the sustainability of the breakout.

I'd like also to point out that not all goes entirely to plan as we will see in the coming weeks as we look at trading them.I have had many losses in a row.8 being the most.However often 1 trade makes up for the last string of losses.
4 in a row being the best string of wins.

Michael--You know Ive been so busy making my own indicators I have never looked at the generic.
As for what scans we use it doesnt matter as long as the "Eyeball" of the chart meets with what I believe to be the best candidates.
I dont care what the price is infact I like it under $2 as I get better "Bang for Buck" this (Bang for buck) Indicator can be used to further scan stocks to biggest poentials.
More later.

I have just added a liquidity filter to the equis exploration which cuts prospects right down.(Volume*close,>200000)

Nizar
My buy was the First arrow (But I have a live scan which Im not discussing in this section on EOD) trading.The 3rd arrow would have been the next EOD buy. Often you can see that trading these offers up opportunities to pyramid.

Hint (3)
When trading Live I often buy 1/2 of my $15k parcel when I see it on the scan with a stop at old support on a tick chart,then if it is closing on or around its high for the day the rest on close. I find that the next days enthusiasm from the EOD buyers who are alerted overnight,can be a great boost to profit. So 2 things happen ---if it goes against me I further minimise losses. If its going for me I maximise opportunity. (Similar opportunity can arise for EOD traders but a day later).

What we do with the trade (Or more to the point how we trade it) is very dependant on price action next day.the 30-100% gains in a few weeks are what we are after. We wont always get it 100% right,but if we can trade the bulk of a move the we have success in my view.

Hint (4)
Be SELECTIVE
Tight stops.
Very quick exits if stopped.
The ability to walk away when we take a loss only to see it fly (We arent in sync!!). There will always be other prospects.Being wrong is simply making way for an opportunity to get it right!

Will get down to chart specifics (Price action) next.

nizar said:

Have u thought about how to deal with such circumstances?
ie. if u hold stocks that have "run out of puff" or are slow movers or are in no mans land.
And then another stock comes along which, if you werent holding any stock with that cash - u would favour the latter stock - why not chop and change?

Or are you satisfied that u have no cash because this means your system is running at maximum efficiency?

Click to expand...

The bird in the hand is better than the birds in the bush. No matter how good the chart looks, there is no guarantee of a positive trade outcome - the entry does not make the money.

The critical point is that you have a plan and you STICK TO IT, particularly with dramatic movers as being discussed here. Trading them inconsistently leads to inconsistent profits, uncontrolled losses and no chance to look back at a series of trades and work out how you could have done things better.

Exiting consistently from these trades is extraordinarily difficult to do in a manner which delivers a positive expectancy, so I'm paying very close attention to see what I can learn.

tech/a said:

When trading Live I often buy 1/2 of my $15k parcel when I see it on the scan with a stop at old support on a tick chart,then if it is closing on or around its high for the day the rest on close. I find that the next days enthusiasm from the EOD buyers who are alerted overnight,can be a great boost to profit. So 2 things happen ---if it goes against me I further minimise losses. If its going for me I maximise opportunity. (Similar opportunity can arise for EOD traders but a day later).

Click to expand...

So you're saying here that you do a scan at (eg) 1530 and get in before the EODers? (and then pyramid).

Michael.

The discussion at the moment doesnt cover this but as your interested I will elaborate here.

I have Marketcast.
It has a scan function which reports.
Highest Volumes
Most trades
% gains
% loss
Gap % both up and down.

I run my first scan 30 mins after open.I look for prospects with the following characteristics.
(1) % increase above average.
(2) % gap on open less than 10%
(3) High Volume
(4) Hign number of trades.

I might find say 4 I can immediately double click on the code and get both a tick and daily chart.If I like what I see then I'll go to ASF open Yahoo and see what announcements have been made AND OR if there has been any DIRECTOR BUYING in the past few months.
If I can find a support area on the tick chart not to far away and all is good from my analysis then I buy.
Its a personal decision wether I buy a full or part parcel.Normally its a full parcel as Im pretty picky.
The trade could last a few hrs or days rarely a week.
If it finishes strongly then I could add say 50% to the position at the close.If not then Ill leave it or close it out.

I will after this discussion show you a few live trade examples posting that which I see.

You'll find both my entry and exits are rarely perfect----it does happen---but you'll note my care in keeping the numbers in my favour.Every now and again it all falls into place.

Mind you I prefer now than to again!!

OH if nothing grabs me in the first scan I do them 15 mins apart until I find one. If nothing grabs me by 2 hrs into trading I will leave it for that day---no trading. Happens quite a bit,Ill often miss some great ones. Cant see them all Im afraid.