ASX Momentum Trade Book - Part 2

[peter2]

Technical Note: Supertrend indicator

There's an indicator on my charts that changes the colour of the price bars when price has moved a certain distance from a low (and high). They turn blue when price crosses above the indicator line and red when price crosses down. One nice thing about Bullcharts is that I can hide the lines and still have the bars painted blue and red. I can see the effect of the indicator without seeing it on the charts.

Fact: Every significant swing up includes a first blue bar.

Note: This indicator is nothing special. If you back-test it on it's own it will NOT be profitable. Don't waste your time or mine complaining about it.

The main reason for mentioning this indicator is that the software can scan and find every instance of the first blue bar throughout the market. The scan will find all the charts where price is starting to go higher based on this indicator. I run this scan in the last hour before the close and select the best charts to buy before the close. The scan finds charts that are ready to buy immediately.

Some charts will show a price break-out, some will show a pull-back, some will show price moving off support (channel), some will show a reversal and many charts will be crap.

How do we select the charts with the best attributes to put the probabilities of success in our favour?
We use a checklist.



ps: You'll notice that we can use this indicator to scan for shorts in a cfd list also.
(skc you read my mind and pre-empted the BO of an idea.)

 

[Lone Wolf]

Have thought what the initials BP stands for? Knowing that should get you excited. I know I am.

I did think about what BP stood for, no I didn't know what it means.

I started to guess - "TP and BP"
So if TP = Trading Plan, BP is something not already covered within the TP... Then I gave up, figuring that with a little patience all will become clear.

 

[debtfree]

Hi Peter

1st of all I must say a huge THANK YOU once again for all your work, time and assistance in the ASX Momentum Trade Book that you have given me and others. I too like Lone Wolf had heart palpitations when reading your post as I know my education from you is still not finished.

Yes I'm one of the guilty ones of being distracted from your trading thread but with our new business up and running it required me to be a little more on deck than I first thought. But, I haven't lost my interest at all one little bit in this form of trading and your teachings. I been jumping in and out of ASF along the way to quickly read new posts to keep up to speed and when time permits brushing up on my excel for a better spreadsheet as to review trades at a later date.

I have been able to mimic your graph with the balances of the Portfolio/SPAX2F15/Downside Exposure (I love this Graph) and also the conditional formatting that you have in your EOW Update (It's a quick story in 1 cell) As for the trading plan I still waste a lot of time with deciding a stop loss criteria. I should stop procrastinating about it and just pick any and get on with it.

I'm also very excited about your plan to continue forward with a few modifications. I've been thinking about this BP and the only thing I can think of is maybe Breakout Plan or Pattern .... Maybe Brokerage Platform, moving to all CFD Platform to increase amount of trades held at once.

Looking forward to learning more, thanks again Peter and also everyone else participating in this thread ... it's just been fantastic.

Cheers ... Debtfree

 

[Habakkuk]

BP = Business Plan

how to make 50% return in 1 year rather than 2

I'm also looking forward to it!

Thanks for your continued contribution, Peter2.

I did think about what BP stood for, no I didn't know what it means.

I started to guess - "TP and BP"
So if TP = Trading Plan, BP is something not already covered within the TP... Then I gave up, figuring that with a little patience all will become clear.

 

[captain black]

skc: Thank-you once again. This makes me feel good about the community when experienced traders take the time to post suggestions. Another recent example is Captain Black's posts in Modest's thread.

Thanks for the acknowledgement Peter, much appreciated

Well done on picking up this thread from Pav, for keeping it going for 18 months and also for the returns you've achieved using a discretionary trading plan. It's obvious from comments from people posting along the way that you've earned a huge amount of respect from everyone.

The profitable routine is a plus for continuing, but it's not enough. Maybe I should use this thread to challenge myself and push my comfort zones (risk tolerances).

Pushing outside our comfort zone is one area that's always tough for traders. It's important for our confidence to operate within our comfort zone but it's equally as important to always be on the lookout for new ideas or new ways to adapt our ways of doing things.

I try to take a systematic approach to it. While I'm trading current systems I'll be paper trading/testing/sim trading at least one new system or trading plan each 12 months. At the same time I'll be researching and looking for new ideas to be testing in the following 12 months.

The following modifications to our TP are designed to increase the frequency of our trades and to improve our edge (expectancy). The biggest modification will be to our entry technique. I love break-outs, as you know, but I want to get in earlier and in many charts there are earlier opportunities before the obvious BO level is hit.

This is one area that's been of real interest to me over the last few years, particularly with day trading index futures. Whether it's someone taking 20 trades a year on a weekly system or someone like me taking 80+ trades a day the end result always comes down to the expectancy equation. The word "confirmation" is used a lot when technical analysis setups are discussed and I often wondered whether waiting for confirmation to enter a trade had more to do with people's fear of making a "wrong" decision rather than the pure maths of expectancy.

I've posted a bit in Modest's thread on the subject, hopefully I'll get time to post a bit more on it.

I'm interested to see the approach you take to reach the target you've set and the process you use to increase your trade frequency.

Once again, congratulations on your results so far and particularly the humility you show in your posts, it's one trait I've seen that's common in most of the successful traders I've met.

 

[peter2]

BP = Business Plan

how to make 50% return in 1 year rather than 2

Thank you, yes trading is a business. Currently there is only one trading activity in this business, I'm hinting that there may be another added soon to help reach the end goal.

Whoa there, don't make up any deadlines. IMO deadlines kill traders.

We'll go one trade at a time until we get there.

 

[peter2]

Hmm, it looks like I've lost a post. Where was I? Checklist.

With lots of 1st BlueBars appearing every day, we need to filter the number of opportunities to a manageable number. Some ideas;
(a) In the XAO index (~500)
(b) Highest 1000 by traded volume
(c) Highest ranked by Stockdoctor or similar FA ranking system
(d) Price delimiter (<2.00)
(e) etc...

Select something that makes sense to you.
I can look through lots of charts quickly because I know what I'm looking for.

The first thing I look at is the weekly chart. I want to see the trend in the weekly time frame. I have a similar indicator in the weekly chart. There are only four possible combinations on the weekly charts.
1. Strong trend UP with shallow pullback (EMAs UP, Blue bars)
2. Trend UP with deeper pullback (EMAs UP, Red bars)
3. No trend (EMAs useless, Red bars)
4. Trend DOWN (EMAs DOWN, Red bars)

I prefer to trade in charts were the weekly trend is clearly UP (types 1,2).

This chart shows our favourite break-out setup (BO-HR) that coincided with the appearance of the first two blues bars. The second setup is a perfect pull-back setup in a strong trend.

 

[peter2]

I don't want to confuse the issue with examples of price moving off support levels (in channels) or reversal setups. We know there are lots of break-out opportunities, now we've added an objective pull-back setup and entry signal.

When I see perfect examples of types 3 and 4 (list in prior post) and I want to trade them I'll show the charts soon after entry as I have in the past.

The huge advantage of using an objective pattern like this one (1stBB) is that everyone interested will be able to do the scans and see the same charts I will.

Before I forget to mention it. My parameters for the supertrend indicator are slightly different on the weekly charts. The weekly charts are less volatile than the daily charts.



Of course the other huge advantage of this indicator is that I can scan a list of shortable cfds looking for the first red bar.

 

[Lone Wolf]

Technical Note: Supertrend indicator

View attachment 67903

I spent most of Sunday and this arvo trying to get supertrend to work. Looking back at your old charts, my blue/red bars don't always line up exactly (out by a bar or two). So I wasn't sure it was exactly the same as bullcharts supertrend.

But I managed to find the stock in the picture you attached and my line matches it exactly. So it seems ok, I'll be able to confirm as candidates turn up. Should still get similar candidates anyway, if not always identical. Good news is my Amibroker skills have moved up from "rusty beyond recognition" to "dull".

 

[peter2]

Hehe, some of my old charts might have had different parameters for the supertrend indicator. It's like moving averages, there is no best fit for every price swing or chart. I use the same parameters now.

It's just a tool that we'll use to find charts where the price is going up from a recent low. Other indicators like RSI, STO, CCI, pSAR and W%R moving up from oversold levels will find similar charts. I prefer 2ATRs as it's a distance outside the normal ATR or average daily range.

Edit: That chart was SVW (Feb16 - June16)

 

[peter2]

Trading update: More selling has us closing two trades.

A2M, MYX: Closed as they both traded below our exit triggers (1.90).

Our market filter has moved to weekly - UP, daily - DOWN. There is nothing to do as our trades are being closed by their price falls (auto-defense).

We'll let the market dip and look to start more trades when the dip seems over.

 

[peter2]

EOW 79 update: ASX Momentum Portfolio +34.9% ( 57% invested in 4 trades )
Benchmark index SPAX215F (incl. divs and franking credits) -1.5% (past 79wk)

Our portfolio drifts down with the market. Giving back a portion of open profits is all part of the business. Naturally we don't want to give too much back and that's how our exit triggers protect the portfolio. I notice that the index is back into the red over the past 79 weeks. Even the dividends haven't helped keep it up.

This weeks sells: A2M (-0.2R), MYX(-1.1R)
This weeks buys: nil

IMD: have announced a capital raising. We'll exit asap when they next open in accordance with our trading plan.

Outlook: We'll get plenty of buy signals when this dip is finished. We have to be patient until then.

 

[peter2]

Trading update: new trade

RSG: Bought today's break-out at 2.04, iSL 1.70.

DCN: Also looked very attractive this pm. However these will need the POG to go higher from here. I always feel more comfortable trading gold directly rather than through the ASX gold producers.

IMD: Sold at open (0.595). price dropped to SPP price of 0.55 then demand pushed it back up to the open, quite bullish for the SPP. Being eligible for the SPP at 0.55 looks worth something at this early stage. Any profits earned through the SPP won't hit this account.

 

[grah33]

HI Peter, everyone
thank you once again for teaching us (peter). i'm still following. i'm hoping to follow it more frequently rather than less frequently with longer reading times... my concern is a little old, relating to news, that i 'd like to mention. as you mentioned peter APO was a bit of a dud after news came out.... even worse if someone had a more tighter stop like 2 atr. just wondering do you ever read bad news on the day and decide to put in a sell order before the market opens? i'm just thinking if any disastrous /fatal news comes out, whether you think about doing that as leaving your stop out of the market might take you to nought if it's really bad.... sorry for my strange questioning. i don't really even know what i'm asking


most of my recent wins (the bigger wins ) came from the news (jbh, web, bap, alu gave some terrific windfalls i got onto, I'm on test position sizes still so to increase a little i just took out more positions to keep it balanced hence landed several windfalls as i had many shares going, my brokerage is always a percentage so it's still relatively small, great way to transition with position sizes....) some of them i was up about 1R roughly b4 news came out, so something like APO would have still hurt me. perhaps even 2 weeks away from a news event for a trend trader might be too soon but u seem to not think so? i don't know. i take it if price is between entry and isl and news is coming out you might exit at e.g. -1/2R. interesting... thanks again

 

[peter2]

Trading update: new trade

AMA: Bought today at 1.055, iSL 1.00.
The best entry was the BO marked earlier. We missed it, so the next best entry is to wait for a higher low, which has happened. While our buy looks OK on this chart, we bought just below the all time high (ATH) noted on the chart. We'd anticipate some resistance there and I noticed the large sell order in the market at 1.06. If this supply is pulled, price can go higher quickly.

Nice BO's in EDE and CDD today. There are always a few opportunities, but getting further demand is the issue.

 

[tech/a]

RSG Boom!
Had this from 79c
Bought more at $1.98 close to your buy while I was away.
Nice when it all goes to plan.

 

[peter2]

EOW 80 update: ASX Momentum Portfolio +38.3% ( 76% invested in 5 trades )
Benchmark Index SPAX2F15 (incl divs and franking credits): -1.9% (past 80 wk)

The index ends down for the third consecutive week. Our daily market filter has been down for two weeks but today's low close switched the weekly filter to down as well. This is our warning indicator to protect our portfolio by closing losing trades and raising some exit stops. However on this occasion we don't need to do much at all. We've closed trades earlier as their exits were triggered and we haven't start too many new trades as the market was moving down.

Our portfolio held its value thanks to our trade in BOL. This open result is currently at +5.6R and we've moved our exit stop a little higher. The BOL trade is doing so well because the size of the initial risk was reasonably low (0.006) and once price went higher than 0.10 the minimum price step changes from 0.001 to 0.005. This is almost 1R and makes the trade result very volatile. We've removed our sell order at 0.145 and will just let it go. If price moves higher quickly we'll watch it closely.

If you weren't aware of this anomaly at the 0.10 level then this should be worth considering. There are some traders who specialise in trading stocks around this price level.

Outlook: Our market risk filter has switched to WD DD so we'll wait it out. When the market turns up it will provide plenty of setups. We'll probably see the setups before the index turns so don't take your eyes off the market.

 

[debtfree]

Good Morning Peter,

With our XAO Market Risk filter switching to WD DD and in view of the overnight market losing +2%, should we have our Total Portfolio Heat up as high as 6%? With this in mind, have your thoughts changed since yesterday or are you still happy to sit tight in the thought that they are strong stocks at the moment? I know in this style of trading you have stated we need to buy quickly and sell quickly, so I just wanted to know your thoughts if this is a time to react.

Thanks ... debtfree

 

[peter2]

Wow, what a night in the US. The overnight damage has already been done and the ASX will open much lower than it closed. Selling immediately will be more of a panic reaction rather than a pre-planned response.

Comments on our open trades.
BOL: has open heat of 2% (1/3 of our total heat). No doubt this is were most of our portfolio heat is. I think this is fair as it allows price to oscillate between 0.11 and 0.13.
TPP: Price is near all time highs and we are allowing price to oscillate between 0.26 and 0.30. That's reasonable.
RSG: Gold producer. I am surprised that gold didn't rally with the huge fall in stock indicies. Maybe it will next week. Nothing to do here.
IMF: Hasn't gone higher immediately and is one we could sell if it closes < 1.70 Monday.
AMA: Another one near all time highs and it's prudent to let price oscillate between our buy price and the ATH.

In summary, we're not going to sell because of a big overnight dump in the US markets. We'll wait for our EOD exit triggers for the trades.

Outlook: You must know that this time of the year the markets are generally weaker. In Aus the banks pay their divs and in the US they get a little troppo after their summer holidays. This US dip seems a self-fulfilling panic move. When this dip is done we are going to see plenty of buying setups and this dip will create more room between current prices and their old highs (ideal pull-back setups).

The overnight move means we're probably too late to short something (espec the index). The reasonable time to short was last week after the lower high. I did consider it but I haven't committed myself to the diversification of this trading thread just yet.

 

[debtfree]

Peter2: Thanks for your response and breakdown of all trades. I remember about a year ago we were roughly in the same position and a bad night was had in the USA the night before and you handled it much the same way. As you say be consistent in applying your trading plan.

I noticed your page out of your SF Trading Plan describing the XAO Trend determining Portfolio Heat. I know it's longer time-frame (Monthly and Weekly). Why is it that when your SF XAO Trend is MD & WD the Portfolio Heat is <1% whereas in this shorter timeframe (WD & DD) we carry a higher Portfolio Heat? Is the reason with the longer SF Trading Plan the stops are a lot further away and can be reduced quite a bit when needed whereas the shorter timeframe the stops are closer and there is not much we can do about it?

Cheers ... debtfree