ASX Momentum Trade Book - Part 2

[peter2]

Other observations.
The portfolio is currently experiencing its largest draw down (-8.9%) from its last equity high.
The portfolio is currently losing "alpha" as the market gyrates up and down. Our risk management procedures have avoided losses when the market fell but my inattention to the daily charts has caused us to miss out on the rallies.

If we want to trade the daily charts then we must go through our daily procedures every day. We can't decide to miss a few days and scan the market when we feel like it. We can't do this on a part-time or "hobby" basis. If you haven't the time each evening, then trade the weekly charts and make the time on the week-end to do the work.



The reason I have all these charts is to provide the often necessary "kick in the pants" moment that I need.

 

[VSntchr]

The reason I have all these charts is to provide the often necessary "kick in the pants" moment that I need.

Good stuff Peter, I have similar charts to provide my own ass-whooping when required. I really like that bottom one on alpha .

The recent market has certainly been that requires a bit of mental readjustment, as those sectors pushing the market have been the ones most of us have been shunning for a looong time.

While I'm here, some interesting charts I noted this week: CAT, AB1.

 

[peter2]

Trading update: New trade

SEK-cfd: Bought after yesterday's BO-HR (todays open). iSL = 15.80
This is a trade using cfds for the leverage and lower margin. This position was limited to 20% realised equity.
A profit target near +1.5R is in place.



TZL: Tried to buy this at 0.105 a few days ago but only got 20% of my order. I only mention it because this does happen when we procrastinate on a BO and it takes off without us.

IMF: Price drifting lower, clearly no upward momentum at present. We may sell this soon to utilise the cash more productively.

 

[peter2]

EOW 62 update: ASX Portfolio +21.5% ( 91% invested in 6 stocks ) XAO -9.2% (past 62wk)

Our portfolio had a good week adding 3% while the index rose 0.7%. It's good to see that our patience in the open trades that seemed to be going nowhere is paying off, finally.

This weeks sells: nil
This weeks buys: SEK-cfd

Trailing exit triggers: Latest moves highlighted in yellow.
Profit targets( limit orders in case of price spikes): AMA (1.05), JHX (19.92), SEK (17.65)

Note: My calculations of the current draw downs were wrong. I didn't calculate them from the highest point of our equity which was 27% higher than the start (compounding). You can see the latest DD chart and our largest DD was only -7% (not -10%). Percentage calculations can get tricky.

Outlook: As we've seen, the index can't go higher unless both the banks and materials participate. This tug of war will most likely continue for a while yet. We should be cautiously bullish, with an eye on the "sell in May" craziness that stems from the US.

Our portfolio could probably use more leverage (cfds) as our capital risk is low (only 1.8% with a limit <5%), but I prefer to be conservative at this time. If your risk tolerance is greater, then yes start a few more trades, but be wary of any sudden changes in market sentiment from the US.

 

[peter2]

Comments on those draw downs. I like the DD chart because it shows the journey. Even though we're managing each trade to prevent a large individual trade loss we can overlook the cumulative effect of all our trades. Our trades in the ASX are highly correlated. When the market falls most of our trades will fall and our portfolio takes a hit. The DD chart shows us what is a "normal" hit and what is a larger hit. Opening five trades each risking 1% means a -5% portfolio hit is normal and must be expected to happen. If you allow 5% of your account to be lost then expect it to happen often. It's a normal sized loss and nothing out of the ordinary. If you can't tolerate this amount then you shouldn't trade with that amount of downside exposure.

I have chosen to avoid a 10% loss in portfolio value (in this thread) and have a process to help me. You've been seeing how that works in real time each time the market falls. Please don't assume that this portfolio will never lose 10%. It might and probably will if the market falls another 10%. The current DD is ~-5%. There is nothing preventing the open trades and the next few that we start from being losers and creating the -10% DD.

Is a -10% the end of our trading journey? No of course not. We'll just restart when the market conditions are right for our strategy and carry on. We know that in good market conditions we can earn much more than 10% to get us back in front. If we never allow any trading loss to get big enough to hurt us, we will prevail.

 

[peter2]

Trading update: New trade

TPP: Better late than never, doesn't usually work out well in trading.
Bought BO (at 0.30), iSL is 0.26

 

[Telamelo]

Trading update: New trade

TPP: Better late than never, doesn't usually work out well in trading.
Bought BO (at 0.30), iSL is 0.26

View attachment 66583

Thanks Peter and best of luck with TPP (unfortunately got stopped out a few months back at about 0.11c only to see it 'take off big time' soon after - couldn't believe it!?).. should've bought back in on break above 0.20c (but wasn't game to try chase it).
--------------------------------

http://www.starpaymentsystems.com.au/images/pdf/media/STL_Initiation_Note_Final.pdf has a 12 month price target on STL of 0.081c (so 100% upside potential from current price of 0.04c).

Meanwhile, chart is shaping up nicely imo for a potential breakout.

Please dyor ........ Cheers tela

 

[peter2]

Trading update:

JHX: Sold today at price target (19.92 just under 20.00 level) for a profit of $808. This was above our AW. All good.

AMA: Price going down after retest of 0.95 BO level. Time for us to sell it. Sell next open.
If price closes >0.95 soon, next 3 days. I'd be tempted to re-buy for a move to 1.05.

SEK-cfd: Did not go up with market the last few days and is now slightly below our buy price. Sell next open.

NVT, EGH: Moving higher, slowly. Trailing exit stops raised.
IMF, TPP: On tight leashes. Go higher or get lost.

These changes will allow us to revitalise the portfolio with some new blood.
I'll have a look at STL, but I'm concerned about low volume and where to place iSL. I like to see a recent HL.

 

[Nortorious]

I haven't caught up with the latest in this thread as I've been somewhat occupied with ACL surgery and a new job in the last month or so.

Did a scan of the markets tonight and wowee... There's a few opportunities around!

 

[peter2]

Trading update: Two new trades.

LPE: Bought BO-HR (0.038), iSL 0.033. There is supply at 0.04 that must be overcome (or withdrawn).

EDE: Bought BO-NH (0.31), iSL 0.25. As we're late to this party we'll look to grab a quick drink (anything >+1R).

 

[peter2]

EOW 63 update: ASX Portfolio +21.4% ( 79% invested in 6 trades ) XAO -8.5% (past 63wk)

The portfolio had an up and down week ending level. The index rose slightly (+0.7%).

This weeks sells: JHX, AMA, SEK-cfd
This weeks buys: EDE, LPE

We won't hang on to trades in small caps that have lost their upward momentum. So, if the prices of TPP, EDE, LPE don't move higher next week, we'll sell them.

Outlook: The XAO chart is looking more bullish than I feel. I'm cautiously bullish. The 5400 level is a key level to hold. It's the "sell in May" crazies that keep me cautious at this time of the year. We'll control our portfolio heat like always.

 

[Telamelo]

Thanks very much Peter for the update - great work on your portfolio.

re: "We won't hang on to trades in small caps that have lost their upward momentum. So, if the prices of TPP, EDE, LPE don't move higher next week, we'll sell them". - Completely agree with you.

P.S. STL mentioned earlier.. bullish breakout today closing +15.38% on it's day high of 0.045c! - plenty of room to move higher imo (with open gaps to fill etc.) please dyor

Have a good weekend everyone.

Cheers tela

 

[skc]

EOW 63 update: ASX Portfolio +21.4% ( 79% invested in 6 trades ) XAO -8.5% (past 63wk)

View attachment 66670

Looking over 63 weeks this is a good result.

I think it is interesting to look more closely at the equity curve... From Mar to Sept 2015 (6 months), the blue line grinded out ~5% profit in choppy fashion. Then from Sept to Dec 2015 (4 months), the portfolio enjoyed great traction and gained some 22%. Since 2016 however, it's been a slow grind in a 5-6% drawdown that's now 5 months long.

This is perfectly normal and within expectation for many trading strategies. But for new beginners, if they started 6 months ago and experienced a performance similar to Peter's equity curve from either of those two flat periods, they could easily be discouraged and find it all a waste of time. Many might even give up at this juncture, or switch strategies, blame the broker, market manipulation etc etc.

A big part of being a trader is accepting prolonged period of 'blah' performance. Not easy and doesn't feel great... but if the strategy and approach is value then eventually the equity curve will turn back up in the right direction.

 

[Newt]

Looking over 63 weeks this is a good result.

I think it is interesting to look more closely at the equity curve... From Mar to Sept 2015 (6 months), the blue line grinded out ~5% profit in choppy fashion. Then from Sept to Dec 2015 (4 months), the portfolio enjoyed great traction and gained some 22%. Since 2016 however, it's been a slow grind in a 5-6% drawdown that's now 5 months long.

This is perfectly normal and within expectation for many trading strategies. But for new beginners, if they started 6 months ago and experienced a performance similar to Peter's equity curve from either of those two flat periods, they could easily be discouraged and find it all a waste of time. Many might even give up at this juncture, or switch strategies, blame the broker, market manipulation etc etc.

A big part of being a trader is accepting prolonged period of 'blah' performance. Not easy and doesn't feel great... but if the strategy and approach is value then eventually the equity curve will turn back up in the right direction.

Golden post skc. For those starting out their trading career its invaluable to see an honest consistent reporting for a strategy - as Peter has spent so much time doing here. It IS possible, but just as important though is the illustration of how hard you have to work to hold even and manage risk in the choppy times.

The only curve missing is perhaps "trader skill versus time". I've got a suspicion most 3 year uni degrees are easier to obtain than sufficient hard-won experience to be a reliably profitable equities trader. And against that dangerously low barriers to entry for most who think "how hard could it be!?"

 

[VSntchr]

This is perfectly normal and within expectation for many trading strategies. But for new beginners, if they started 6 months ago and experienced a performance similar to Peter's equity curve from either of those two flat periods, they could easily be discouraged and find it all a waste of time. Many might even give up at this juncture, or switch strategies, blame the broker, market manipulation etc etc.

A big part of being a trader is accepting prolonged period of 'blah' performance. Not easy and doesn't feel great... but if the strategy and approach is value then eventually the equity curve will turn back up in the right direction.

Great post. My pairs trading has felt "blah" at times throughout this year, but given past results I know that it is worth hanging around for.
Peter's "alpha" line is a great tool in this situation, because it gives the beginner trader (or any level trader) some sense of achievement when they see that a grindy 5% is alot better than a falling benchmark.

The only curve missing is perhaps "trader skill versus time". I've got a suspicion most 3 year uni degrees are easier to obtain than sufficient hard-won experience to be a reliably profitable equities trader. And against that dangerously low barriers to entry for most who think "how hard could it be!?"

The easier part about achieving an undergrad uni degree is that it is predominantly laid out for you. The path to completion is known and one of the most important factors is just getting the work done.

The difference with trading is that it is largely self-motivation required. YOU have to decide how you are going to educate yourself. YOU have to decipher the BS and know what to accept and what to reject. YOU have to decide when to size up, and when to take losses. The lessons are much more brutal than those gained during university education, although I suspect that this is true for most vocations...after all, university is just the preparation stage for what is 'the real world'.

 

[5oclock]

This is a great thread!! With the markets so choppy it would be so easy to just suffer loss after loss,death from a thousand cuts,great to watch in real time how you handle the trades Peter. Agree with what SKC posted. Thanks for your time and effort on this thread Peter much appreciated !!!

 

[Telamelo]

This is a great thread!! With the markets so choppy it would be so easy to just suffer loss after loss,death from a thousand cuts,great to watch in real time how you handle the trades Peter. Agree with what SKC posted. Thanks for your time and effort on this thread Peter much appreciated !!!

I re-iterate 100% all of the above..... Cheers tela

 

[peter2]

Trading update:

TPP: Closed below our exit trigger, sell next open.

Review: Looking at the weekly chart, our BO entry was the fifth BO-NH setup. Trends that start to go geometric/parabolic do not last long before running out of demand (buyers). This was a poor setup selection.
The reminder is to look at the bigger picture (weekly chart) and to select first/second BO's.

 

[peter2]

Random confession: We trade break-outs in this thread and manage them to earn an overall profit. Simple really.
Well the idea is, but we find it difficult to do consistently. Our psychological biases get in the way and sabotage our discipline.

Here is a great break-out opportunity that I have great difficulty buying. Did I say difficulty! I find it impossible to buy a break-out after a terrific run up in price, like in this chart of CIM. I love to see shallow sideways price movement. No-one is selling but I can't bring myself to buy the break-out. The original BO at 25, no problem bought and still holding, but I can't make myself add to this position after such a good run up.

I know, you're agreeing with me in that the apparent reward:risk is not as good here, but how do we know. Anything can happen. CIM could go straight to 100 for all I know. If you agree with the poor RR here then you suffer from the same psycho bias that most of us have.

I won't get over this bias and that's another reason for me to make sure I find and buy the initial break-outs.

 

[VSntchr]

Random confession: We trade break-outs in this thread and manage them to earn an overall profit. Simple really.
Well the idea is, but we find it difficult to do consistently. Our psychological biases get in the way and sabotage our discipline.

Here is a great break-out opportunity that I have great difficulty buying. Did I say difficulty! I find it impossible to buy a break-out after a terrific run up in price, like in this chart of CIM. I love to see shallow sideways price movement. No-one is selling but I can't bring myself to buy the break-out. The original BO at 25, no problem bought and still holding, but I can't make myself add to this position after such a good run up.

I know, you're agreeing with me in that the apparent reward:risk is not as good here, but how do we know. Anything can happen. CIM could go straight to 100 for all I know. If you agree with the poor RR here then you suffer from the same psycho bias that most of us have.

I won't get over this bias and that's another reason for me to make sure I find and buy the initial break-outs.

First of all, great post
I certainly have this problem and BAL is a great descriptor for me to use. From memory I got a BO that did a range from around $3-5.50 or thereabouts....but my psychological barrier stopped me from taking multiple new signals that kept re-firing all the way up to $13!

One question. As you have bought the first $25 BO, wouldn't your position size, and thus overall single name-risk now be large enough to warrant just a hold, rather than a buy-more on new BO signal approach? Id assume that given the strong run up, even with an updated stop, that your position risk would be larger than any initial trade that you would now take if you didn't have prior exposure to the stock.