ASX Momentum Trade Book - Part 2

[peter2]

EOW 88 update: ASX Momentum Portfolio +37.1% ( 33% invested in 2 trades )
Benchmark index: SPAX2F15 (incl divs + f credits) -4.8% (past 88wks)

Our portfolio lost value this week as the market fell.
As the selling continued we closed more trades and now have only two left open.

This weeks sells: SSM (-0.05R), CWY (-0.7R), FMG (-0.2R)

This weeks buys: nil

Outlook: Our market filter is down and we've reduced our exposure in response to the falling market. Our current DD is only -3.8% which is insignificant as can be seen in the DD chart. If our remaining trades are closed the DD will be ~-5% which is within our comfort zone.

 

[jjbinks]

hello p2

I've been testing mechanical systems and back testing gives you a reasonable idea of what draw downs to expect.

How do you know what level of draw down you can expect from semi discretionary system such as this? Is it via experience/ manual back testing?


cheers

 

[peter2]

You're familiar with the warning that historical results are not predictive of future performance. Well it's correct.

The red chart posted earlier shows the historical DDs that this portfolio has experienced since the start 88wks ago. I don't know what sort of DD distribution or max DD this portfolio will experience in the future. However I do know that we're managing the portfolio to avoid a 10% DD. This was one of the important goals stated right at the start. So far, the real-time risk management has been successfully keeping the max DD below that limit.

From the knowledge you've learned testing mechanical systems you should know if this DD limit is within normal operating parameters for the type of strategy and trade risk we're using in this thread.

 

[tech/a]

Peter.
You have successfully minimised exposure and perfectly timed!

I'm interested in how you intend to proceed from here?

 

[peter2]

Our market filter is still showing high risk (WD DD). However last night's miraculous V reversal on the day following the US election result must be interpreted as bullish.

Hence we'll look to start a few trades in stocks that have been more resilient than others over the past few days. However I don't want to chase the market. Looks like there will be many opening gaps today.

 

[peter2]

Trading update: New trades.

MLX: Bought after yesterday's BO. Buy 1.55, iSL 1.45

NSL: (iron ore) Re-bought NSL at 0.040 this morning. iSL 0.035.

FMG huge gap up shows the demand for iron ore remains strong.

 

[peter2]

Here's the chart for MLX showing the recent pullback in the weekly up trend. We've used the second BO-HR as our entry. Some may see the H&S pattern with a target of 1.85. This target coincides with the old high creating an acceptable RR for us.

 

[peter2]

Reflections:

Anything can happen in the markets. Everyone knows this but few really understand what it means. If anything can really happen at anytime then it's a priority to control our risk in every trade and our portfolio.

If anything can happen at any time then it's vital to have a structured process (trade plan). Our TP indicates what to do and when. This means selling when we'd rather see another day and it means buying at our indicated time and price not giving it another day just to be sure price is going up.

The short term trading that we're doing in this thread is hard. I've mentioned this before. The mechanics of buying and selling is not hard. That's easy. The difficulty is applying our TP consistently when we are so easily influenced by our emotions and media.

The market is a great teacher if you watch it and review your actions. Did you learn anything (about the markets) this week?

 

[Rypieee]

Reflections:

Anything can happen in the markets. Everyone knows this but few really understand what it means. If anything can really happen at anytime then it's a priority to control our risk in every trade and our portfolio.

If anything can happen at any time then it's vital to have a structured process (trade plan). Our TP indicates what to do and when. This means selling when we'd rather see another day and it means buying at our indicated time and price not giving it another day just to be sure price is going up.

The short term trading that we're doing in this thread is hard. I've mentioned this before. The mechanics of buying and selling is not hard. That's easy. The difficulty is applying our TP consistently when we are so easily influenced by our emotions and media.

The market is a great teacher if you watch it and review your actions. Did you learn anything (about the markets) this week?

Still fairly new to the game but this week I learnt that you had to be preemptive of volatile "indecisive" situations and match your portfolio accordingly like when you, P2, started to cut out certain positions in the lead up to the election. In fact, I was taught this lesson during Brexit and have changed my strategy accordingly to accommodate these sorts of events. I also realised that a single TP which is not adaptive is another way to throw money out of the window

Great stuff P2!

 

[peter2]

Thanks for your comments Rypieee. I'd like to make it clear that the portfolio heat was reduced because the market was going down. We took profits and raised the exit stops. Both actions reduced the portfolio heat. There was no mention of the US election.

It's important that your adaptive indicator be completely objective to avoid emotional input.

28th Oct: The market risk is high, so we'll take it easy and manage the open trades that we have. Our portfolio heat is low (3.3%)

.

28th Oct: Displayed chart of XAO showing how the market risk went from low to high as the index fell.

4th Nov: Outlook: Our market filter is down and we've reduced our exposure in response to the falling market.

It's probably simpler to have several systems suited to different market conditions than try to make one system adapt to different conditions. Our psychological biases will probably sabotage the overall performance.

 

[Rypieee]

Thanks for your comments Rypieee. I'd like to make it clear that the portfolio heat was reduced because the market was going down. We took profits and raised the exit stops. Both actions reduced the portfolio heat. There was no mention of the US election.

It's important that your adaptive indicator be completely objective to avoid emotional input.

.



It's probably simpler to have several systems suited to different market conditions than try to make one system adapt to different conditions. Our psychological biases will probably sabotage the overall performance.

So many can judge market risk through different ways but you do so with the XAO? Technical bullish/bearish signals from the XAO charts would determine your stance on the market?

 

[peter2]

EOW 89 update: ASX Momentum Portfolio +39.0% ( 62% invested in 4 trades )
Benchmark index: SPAX2F15 (Incl. divs and f credits) -0.9% (past 89 wk)

What a week! Enormous volatility in an amazing 24hr covering the US election result. The index has ended +3.5% and our portfolio +2%. We couldn't match the index gains as we only had two open positions. However we couldn't lose much if the market fell. A good defence is a huge part of our edge.

This weeks sells: nil
This weeks buys: MLX, NSL

Outlook: Weekly DOWN, daily UP after the miraculous rebound. This indicates that we can start a few trades but to not go overboard. We started two and will add to them next week if we can keep the portfolio heat at a comfortable level for the indicated market risk. The hottest sectors are coal, iron ore, copper and now steel.

 

[peter2]

Trading update: Another one bites the dust.

MLX: Sold at our initial stop loss (1.45) after price opened gap down. We take the loss (-1R).

This is now our sixth consecutive loss (only -3.3R though) during the past three weeks. Our open trades are +2.7R, so no real damage to our portfolio value during this volatile period.

We're going to place two sell limit orders at +2R in the market for our trades in BSE and NSL in case of spikes.

 

[peter2]

I remarked some time ago that I would push this thread with more trades in order to get to our end goal faster. We increased our trading setups (adding pullbacks and reversals) to take advantage of more opportunities. However trading more of the same style doesn't always produce more profit. We are dependent on the current market conditions and when they are volatile and trading sideways, more trades aren't going to help us.

Back at the eighteen month review, skc, made a few suggestions that are worth considering in the current environment.

One of his suggestions was to trade price jumps after good fundamental moves. Skc has shown his prowess in this style before (ancient thread, "lost in time" but worth looking for). Short term momentum trading is what this thread does. We've shown that we've got the skills to do this, but we need to be prepared in order to do it properly.

This momentum phenomenon is not only restricted to individual stocks but can be applied to sectors. eg. Since the US election, bank stocks have rallied hard. These sorts of rallies tend to last a few days to a week, but they are high probability. A trade like buying CBA after the election result is known, at 74 (iSL at 72.5) and selling at 77 four days later for a +2R result is our sort of cfd-trade. Other banks like BEN, BOQ and NAB have also rallied hard.

We need a process to find the right stocks/sectors to trade. We don't have to be sitting at the monitor all day like the pro's. We can do this EOD and find what the pro's have bought and join in at the next open.

This is another long only trading style, but includes a little fundamental commonsense. We're going the call this trading style "News" trading to differentiate it from our existing long only chart trading style.

I'd like a better name so that we take ownership of this trading style. "Chili" Trading , because we're trading hot stuff.
Any suggestions?

TO DO: Create a process to find the stocks we want to trade. Modify our trade management to grab quick profits and use tight exit stops.

 

[peter2]

IMO the ASX market will continue to trade sideways until interest rates rise. Until then, trading ASX stocks long only will continue to be tricky.

Another one of skc's suggestions to be considered.

"Look for short setups." I think it's time to do something about this. This will require another TP with the setups outlined and some modifications to trade management.

I've mentioned the benefits of including some short selling to our trading business. However knowing this, shorting is not something I've done regularly. It's time for another personal challenge. Avoiding stocks/sectors going down is a lost opportunity. Could we have earned some profit by shorting the REITs sector while going long the materials sector?

TO DO: Create a process to find the stocks we want to short sell. Modify our trade management to grab quick profits and use tight exit stops.

Well that's a lot to consider. We need a TP for the news trading and another to guide our short selling activities.

Please post your comments. Is this all to much? Is this an "about time" moment for you?
After all, this is an educational thread.

 

[skc]

TO DO: Create a process to find the stocks we want to short sell. Modify our trade management to grab quick profits and use tight exit stops.

Well that's a lot to consider. We need a TP for the news trading and another to guide our short selling activities.

Please post your comments. Is this all to much? Is this an "about time" moment for you?
After all, this is an educational thread.

Scan your charts upside-down...

 

[VSntchr]

I'd like a better name so that we take ownership of this trading style. "Chili" Trading , because we're trading hot stuff.
Any suggestions?

As these types of trades are already up, or gapping up in pre-market they are already "in the money" for longs. I do alot of this type of trading and my code is MT for "Money Trade". I think I may have borrowes this from Mike Bella in "One Good Trade".

 

[Lone Wolf]

Please post your comments. Is this all to much? Is this an "about time" moment for you?
After all, this is an educational thread.

I would certainly like to see some expansion to allow for more opportunities in different market conditions. Who knows what the world has in store, we could find a number of years where conditions are difficult for long only systems.

I wouldn't worry about it being "all too much". You do a good job of identifying why each trade was taken, so anyone who isn't interested in short or "chili" trades won't get confused by their addition.

 

[grah33]

the other option is forex - can go both long and short, and it's more liquid. although i just hate the prospect of getting caught in an unlikely disastrous flash crash situation (zero account balance is tolerable, but a debt would be very bad for me, but most people wouldn't be too concerned about that...)

it's a pity the market has been down. hope my countless hours learning share trading wasn't a waste of time. i never knew i was going to actually need money until much later on...

 

[peter2]

EOW 90 update: ASX Momentum Portfolio +38.3% ( 44% invested in 3 trades )
Benchmark index: SPAX2F15 (Incl. divs and f credits) -0.7% (past 90 wk)

The market pauses as it waits for more concrete information from the US president-elect. The USD is about the only market moving atm. We have to be patient. Our open trades are all showing some profit and we can stick with them a little longer in order to let them get bigger.

This weeks sells: MLX (-$680, -1R) This one didn't go higher and we're out.
This weeks buys: nil

Outlook: I posted the comment that it feels like we're flogging a dead bourse. It's easy to lose focus and ignore the market while waiting for it to start moving again. Force yourself to do the scans every day. A good trade can start at any time, but they can also start before the market moves.