SKC 2010 trade review journal

[skc]

There had been some good discussions over on the trading review process thread https://www.aussiestockforums.com/forums/showthread.php?t=18349. And given that it's the start of the new year, I've decided to get organised and log my trades in some details a week to 10 days after a position is closed. I will try to log every trade, review the entries, exits and risk management along the way.

The primary objective of this thread is to motivate myself to review trades in a disciplined manner, learn from past mistakes and successes, and to learn from others.

Your input and comments are definitely welcomed. But please respect the time and effort that I will put into this thread and try to keep things constructive, clean and uncluttered if possible.

For the purpose of this journal, the starting capital is $100K. My actual capital is either lower or higher.

 

[professor_frink]

There had been some good discussions over on the trading review process thread https://www.aussiestockforums.com/forums/showthread.php?t=18349. And given that it's the start of the new year, I've decided to get organised and log my trades in some details a week to 10 days after a position is closed. I will try to log every trade, review the entries, exits and risk management along the way.

The primary objective of this thread is to motivate myself to review trades in a disciplined manner, learn from past mistakes and successes, and to learn from others.

Your input and comments are definitely welcomed. But please respect the time and effort that I will put into this thread and try to keep things constructive, clean and uncluttered if possible.

For the purpose of this journal, the starting capital is $100K. My actual capital is either lower or higher.

Good luck with the journal. All the best for a good year

 

[Sugar Dunkaton]

yes, will be very interested to watch this space.

 

[skc]

Trade #1 - RMS

Entry date: 5/1/2010
Entry price: $0.545
Stop: $0.515
Risk: 1%
Quantity: 33000
Position size: ~18% of capital
Pattern: Triangle

Exit date:8/1/2010
Exit price: $0.605
Reward:2R

Entry discussion: RMS is a gold stock that's lingered relative to its sector peers, and has been (and still is) engaging in a takeover battle for DIO with Avoca. The chart is showing some sign of life and good basing pattern. Prices seem to have consolidated long enough (and reached 50% retracement) since the significant surge in late Nov / early Dec, forming a decent looking triangle. Also at the time, the gold chart was looking bullish. So I took an aggressive entry and bought on breaking the mid-point of the triangle. I did leave the stop relatively loose at $0.515.

Position management: The initial target was basically a new short term high. With a great deal of luck, a good production report was leased the next day and the stock jumped on good volume. But the momentum did not continue for long, and a bit of reversal day on 8 Jan had me cold feet and I jumped off towards the close that day.

Post mortem: The speed to which the stock reached my target was a surprise, and the urge to take a 2R profit to start the year was too strong. At the time of exit, the gold chart no longer looks bullish to me. It looked like doing the middle up leg of a 3-wave decline (dotted line on the gold chart) and I would be caught long a gold stock. So I talked myself into exiting even though the RMS chart still looks good to me. But another reason for taking the profit was that there is still a tight re-entry to be had if the stock is to breakout higher. The risk was obviously that I would have missed out if it was to gap up on me the very next day.

Rolling record
Trades: 1
Wins: 1
Win ratio: 100%
Avg win: 2R
Avg loss: N/A
Commission paid: $30.5 (0.08% of transaction size)
Closed PnL: $101,949.5

 

[johnnyg]

The primary objective of this thread is to motivate myself to review trades in a disciplined manner, learn from past mistakes and successes, and to learn from others.

Something I'm really struggling with at the moment.

Be good to see your reviews skc.

 

[Trembling Hand]

Something I'm really struggling with at the moment.

The primary objective of this thread is to motivate myself to review trades in a disciplined manner, learn from past mistakes and successes, and to learn from others.

Best way to "learn to love your review" IMO is to start by focusing on the good. What you nailed, How it added to you trading well and how you want to repeat it.

Most people focus on controlling their crap and end up sitting at the screens trying to enjoy swallowing razor blades. With predictable results.

 

[skc]

Trade #2 - LNG

Entry date: 7/1/2010
Entry price: $1.175
Initial stop: $1.04
Risk: 0.9% of capital
Quantity: 6666
Position size: ~7.8% of capital
Pattern: End of retracement / reversal

Exit date:13/1/2010
Exit price: $1.055
Reward:-0.88R
Trade PnL: -$812

Entry discussion: LNG is in the LNG space (funny enough) and has a relationship with AOE to build their smaller scale LNG train in Gladstone. On 4 Jan LNG made an announcement regarding a restructure on the Gladstone LNG project. Essentially it put less commercial / financial burden on LNG, the smaller partner. Market reacted well to the news, gapped up on open and sending the shares to a high at $1.25 on good volume, from $1.12 before the announcement.

I waited a couple of days anticipating some retracement, and placed a limit buy order at the top of the gap which was executed on 7/1/2010. Zooming out a little bit, it is clear that LNG has also retraced significantly since the run up in Jul from ~50c to a high in mid Sept of $1.9. $1 and 62% Fib retracement levels were both broken briefly, but prices have since held above these well. The recent spike up has put in the first higher high since the end of the downleg. All looked good to me.

Stop was placed at $1.04, basically back into the trading band in late Jan. The thinking was that if prices was to go back into this zone, the news probably wasn't as positive as I made it out to be. It is also quite a volatile stock so I don't want too large a position due to a super tight stop (i.e. bottom of gap at $1.13).

Position management: The initial target was an ambitious $2.5, based on a renewed leg up equal to the first up leg. A few days of low volume drift lower in a weaker overall market had me losing confidence and was clear that this move will not be impulsive, so I moved the stop tighter up to $1.07 before the market opened on 13 Jan. Stop was triggered that day and executed at $1.055.

Post mortem: This was a trade where the larger time frame looked great, the smaller time frame looked good, and news announcement was positive. If it wasn't for the few negative days I would probably still be riding it. I must admit however that I don't know LNG intimately to fully assess the impact of the news item. Prices has drifted somewhat aimlessly since. It remains on my watch list for further setups.

The lesson is that, given the tight setup and the very target, a stop limit to buy on the break of the higher high would still offer good risk reward.

Rolling record
Trades: 2
Wins: 1
Win ratio: 50%
Avg win: 2R
Avg loss: -0.88R
Commission paid: $42.4 (0.08% of transaction size)
Closed PnL: $101,137.7

 

[skc]

Here are the charts... a longer term view showing the upleg and retracement, and a zoomed in view of the gap, the more recent spike and stop placement (blue line).

 

[Sugar Dunkaton]

I am really enjoying this analysis. Great contribution

 

[skc]

Trade #3 - FBU

Entry date: 7/1/2010
Entry price: $6.51
Initial stop: $6.33
Risk: 0.6% of capital
Quantity: 3333
Position size: ~22% of capital
Pattern: End of retracement reversal / flag

Exit date:13/1/2010
Exit price: $6.75
Reward:1.33R
Trade PnL: $765

Entry discussion: FBU is a building materials company with a fair amount of operations in NZ as well as Australia. Apart from that I don't know a great deal about the firm's operations. But I know that it is one of the few building materials firm that didn't do a big capital raising last year - to me that says they are managing OK and not too highly leveraged.

On the chart, the bigger time frame shows a retracement to sub $6 following a good swing up from $5 to $7 (July to Oct 09). Zooming in closer, a small flag pattern was evident. So I placed a stop buy order at top of the flag ($6.5) and a stop order at the bottom of the flag ($6.33). The entry order got filled on 7 Jan. The risk size was kept small given the tightness of the stop and low liquidity of the stock (see below) - as you can see the position size was already 22% of total capital. This is pretty much where I like to keep things to avoid significant single name exposure.

Position management:The initial target was a simple 50c, or just under $7. The target was based on the size of the recent swing up (~$5.9 to $6.4) before the flag (thereby placing the flag in roughly the mid point). $7 was also the recent high where some resistances are likely to be experienced.

The price moved up steadily until the 12 Jan. On that day, the overall market did a nice tumble falling about 80 points from the intraday high. FBU is always a bit of thin stock, and thin stock tends to lag the market in terms of price movements. Having already moved back from intraday high of ~$6.8 and with the market depth looking terrible in the afternoon (may be a few thousand bids at my price and nothing below until $6.3), I decided to take profit based on where the overall market was heading.

Post mortem:Although profitable, a nothing sort of trade really. If I didn't take profit I would have moved the stop to breakeven on 12 Jan which would have been hit Monday this week. In hindsight taking the profit was somewhat wise... given that my target was $7, there's not much point risking my open profit of 24c to get another 24c, esp. considering the weakness in the overall market and low liquidity.

Rolling record
Trades: 3
Wins: 2
Win ratio: 66.7%
Avg win: 1.665R
Avg loss: -0.88R
Commission paid: $77.8 (0.08% of transaction size)
Closed PnL: $101,902

 

[MRC & Co]

Beautiful structure and presentation of this review journal SKC.

Are you taking long signals only, what if the broader market shows another down wave?

 

[skc]

Beautiful structure and presentation of this review journal SKC.

Are you taking long signals only, what if the broader market shows another down wave?

Thank you. It is amazing how writing things down makes you think about what you are doing.

I have little experience with short trades and have yet to take any setup. If the whole market was to tank I'd probably take out some shorts on the futures as a hedge / trade, and use a smaller pot for practicing some short trades.

 

[skc]

Trade #4 - DOM

Entry date: 5/1/2010
Entry price: $3.76
Initial stop: $3.55
Risk: 0.95% of capital
Quantity: 4500
Position size: ~17% of capital
Pattern: End of retracement reversal / micro triangle

Exit date:15/1/2010
Exit price: $3.57
Reward:-0.9R
Trade PnL: -$881

Entry discussion: DOM is a gold miner that caught my eye in late 2008, when everything was falling like flies, DOM started its climb from $2 to a high of $5.7 by May. Since then, it started a choppy decline that would last 9 months (and still continuing).

Back in Oct last year when gold price was the talk of the town, DOM was the few gold stocks that were not making new 12 month highs. The DOM vs spot gold chart shows the significant divergence that has occurred. On my chart it has reached the Fib retracement level since the May peak, and the decline has certainly gone on long enough time wise.

It looked like a double bottom in place at $3.35 and a couple of strong day up followed by a tight micro triangle gave me the setup to go long. Initial stop was $3.55 just at the base of the triangle patter.

Position management:With all the choppiness on the way down there are many points of resistance. I wasn't 100% set on a target, but I was looking for it to run up to $4.25 without too much problems. As you can see, price simply unwilling to get on with it after my entry, and several bad down days from 13 Jan onwards had my initial stop triggered. On hindsight I should have moved my stop up on 13 Jan to below $3.7, but I decided to give it more space and leave the stop as is, as DOM can often throw some long shadows intraday.

Post mortem: One thing that came up to me while I am writing this review, was that DOM is actually an Aussie gold producer. AUD gold price probably fell since May last year thanks to the rise in $A. DOM's input prices have gone up but their product prices have not... so by looking at the DOM vs gold price in $US I reached the wrong conclusion that they are somehow lagging the gold market.

Many of these retracement / reversal patterns that worked wonders last year are no longer working for me. Prices point up only briefly and lack conviction most of the time. They chop around a lot and it's hard to make money from breakout trades.

Rolling record
Trades: 4
Wins: 2
Win ratio: 50%
Avg win: 1.665R
Avg loss: -0.89R
Total commission paid: $104.2 (0.08% of transaction size)
Closed PnL: $101,021[/QUOTE]

Longer term chart


Details around entry


DOM vs $US spot gold

 

[MRC & Co]

Out of interest SKC, why are you using this method when you are having good success with pairs trading?

 

[skc]

Out of interest SKC, why are you using this method when you are having good success with pairs trading?

I am continuing with pairs trading and very happy with the way I am compounding my capital over there.

The technical trading here is a smaller part of what I do, but there are many good reasons.

- There will be times when this method will be more profitable than pairs trading, esp if we enter a smooth uptrend with low volatility. Might as well build up the skill now.

- I found chart reading skill complements pairs trading well. e.g. I get a signal to short something that looks like breaking out and the overall market is trending up... wait a couple of days and I'd get a way better entry.

- My pairs trading also brings attention to various stocks that are behaving funny in the market. It sometimes throw up charts that look bullish and I'd trade the long side only. They then fall into this trade journal.

Quite a few losses coming up, stay tuned.

 

[MRC & Co]

Ah, I see now. Thx. Will stay tuned.

 

[skc]

Trade #5 - OZL

Entry date: 13/1/2010
Entry price: $1.21
Initial stop: $1.10
Risk: 1.1% of capital
Quantity: 10000
Position size: ~10% of capital
Pattern: Gap close / range breakout

Exit date:19/1/2010
Exit price: $1.17
Reward:-0.36R
Trade PnL: -$418.5

Entry discussion: OZL, a copper and gold miner, had a pretty disastrous 12 months. They forgot to tell everyone about their refinancing obligations, sold their best assets at the very bottom of the cycle and been sitting on a pile of cash in the last 9 months when the commodity market shot up around them. Based on their track record I've no doubt by the time they decided to buy something it would be the top of cycle again!

Anyhow, the share price has gone up from <50c to $1.3 by Oct, and has been zigzagging in a 20c range for the 3 months. Early Jan saw strong moves by OZL, including a gap up on 5 Jan. It looked poised to make a break above the recent trading range. I decided on an aggressive entry and placed a limit order at close to the bottom of the gap on 5 Jan (I also had a stop buy order above actual breakout in case it didn't retrace). A week on, the stock paused and reversed to close the gap, filling my order in the process. The stop was a very far away $1.1, but that was somewhat arbitrary as I was making a gap play (see below). The wide initial stop was simply there so my position was a nice round number of shares.

Position management:There was no firm initial target - I have looked for a breakout above $1.3 and to probably ~$1.5 area. On the night my position was filled I moved the stop right up to $1.17, just below the low of the candle before the gap. The assumption was that - gap has been closed, and I want no part unless the share price can get on with it.

Alas, it didn't. The stop was triggered on 19 Jan.

Post mortem:I remember the market intraday action on 19 Jan was very bearish, so I was pleased with being stopped out of an often volatile stock. The share price movement hadn't lived up to my expectation and I got out where I wanted to get out. In that sense the execution was OK.

But as I write this review I realised my mistake... when I place my pending order on ~6 Jan, it looked to me that a 3 wave flattish decline is completed, and the stock will simply close the gap and start moving to new highs. However, by 12 Jan, before entry was triggered, I should have noticed the possibility of a 5 wave triangle, which is also quite a common pattern. I failed to review the chart for developing patterns after putting in a pending order.

So there are two key lessons:
1. Keep my mind open for alternate interpretation of chart (i.e. see the 5 wave triangle before it happens)
2. Review daily any pending orders to look for emerging, alternate patterns

A week on the share price looked like reversing after a better than expected quarterly report. But with the market looking a bit iffy I am hesitate to open a new long on this.

Rolling record
Trades: 5
Wins: 2
Win ratio: 40%
Avg win: 1.665R
Avg loss: -0.71R
Total commission paid: $122.7 (0.08% of transaction size)
Closed PnL: $100603

Longer term chart



Details around entry. Blue lines showing the stop.

 

[skc]

Trade #6 - SRL

Entry date: 8/1/2010
Entry price: $1.76
Initial stop: $1.62
Risk: ~1.17% of capital
Quantity: 8333
Position size: ~14.7% of capital
Pattern: End of retracement / range breakout

Exit date:19/1/2010
Exit price: $1.64
Reward:-0.86R
Trade PnL: -$1022.7

Entry discussion: SRL is a bit of hybrid miner / resource investment house...it is listed as a coal stock but from my pairs trading I know it is not correlated to any of the coal stocks whatsoever.

This trade relied on a very similar pattern to #2 LNG and #4 DOM. Good leg up since Mar 08 low, followed by a significant retracement to around 50-60% Fib levels. Note that the large gap in early Sept was due to a 30c special dividend, and not some terrible news. I thought this gap would throw off some traders who don't look at company announcements, and hence SRL may need to do some catching up compared to other resource stocks since Aug/Sept.

Between Oct to Dec, it put in decent basing zone between $1.5 to $1.75. At the start of the new year, the top of that zone was broken, and a new higher high was put in place. On 7 Jan the share price experienced a large range (11c, ~7%) day, tested the $1.75 (now support) and closed quite strong. I took it as a signal that the retest is completed and the strength will continue, and placed a limit order at $1.76. The initial stop was $1.62, which is based on 62% retracement of the most recent swing up. It is also roughly midway through the 3 month basing zone described above.

Position management:There was no firm initial target - but I thought 25c based on the basing zone was achievable in the short term.

The price floated between $1.7 and $1.8 for a week (11-15 Jan), mirroring the overall market and I decided to stay patient as it is still at the top of the basing zone. Come 19 Jan, with the overall market looking weak, and the SRL chart looking like complete out of steam, I decided to "pull it" and sold on market for $1.64 before the stop was hit.

Post mortem:On hindsight this was not a trade that I should have taken. There were resistances ahead that were way too close. There would probably be resistance either side of the gap at $1.9 and $2.0, making the risk/reward ratio pretty bad. I also should have moved the stop up more aggressively. My expectation of a "breakout" above $1.75 would clearly have been wrong below $1.70, so a stop at say $1.68 would have saved me a few more cents.

A poor decision to trade this, no doubt clouded by the new year confidence and enthusiasm.

Rolling record
Trades: 6
Wins: 2
Win ratio: 33%
Avg win: 1.665R
Avg loss: -0.75R
Total commission paid: $145.4 (0.08% of transaction size)
Closed PnL: $99,581

Longer term chart


Details around entry. Blue lines showing the stop.

 

[Nero64]

Hi SKC,

Enjoying the thread.

Interesting comments about DOM because I have been trading that as well. Although the longer term trend has been down it has been spiking counter trends for a good 50-60c profit here and there. I was wondering why the divergence with the Gold price and see that yes the Aussie gold price has been going down as well and its correlation to that.

 

[skc]

Hi SKC,

Enjoying the thread.

Interesting comments about DOM because I have been trading that as well. Although the longer term trend has been down it has been spiking counter trends for a good 50-60c profit here and there. I was wondering why the divergence with the Gold price and see that yes the Aussie gold price has been going down as well and its correlation to that.

Those spikes are somewhat tradeable for a good swing trader (not me). But I would probably trade LGL or NCM if looking for more decent correlation with gold price.