ASX Momentum Trade Book - Part 2

[peter2]

Trading update: New trades to increase portfolio heat to our limit (5%).

NWH: Bought at 0.68, iSL at 0.60.
Explained this setup in the ASX Weekly Portfolio thread.

GXY: Bought at 0.535, iSL at 0.48.
Break-out of small consolidation, box pattern. Also near all time high.
The chart also shows our two previous trades in GXY.

 

[peter2]

Trading update: New trade to increase risk to limit in bullish conditions.

KDR: Bought 0.63, iSL at 0.55.
One of the outstanding stocks in 2016 as it develops it's Li and gold resources in WA.

 

[grah33]

merry christmas and happy new year to all. still following here. and thanks again peter for the instruction.

not too many ideal opportunities here for me in this recent bull run (it's mainly the few big stocks that are driving the asx, so not many ideal breakouts to find). but i probably should have picked more 'imperfect' setups and looked harder. anyway, hopefully the market will work well for us soon.

 

[peter2]

EOW 97 update: ASX Momentum Portfolio +51% ( 115% invested in 7 trades)
Benchmark index: SPAX2F15 (Incl. divs and f credits) +6.8% (past 97wk)

This weeks sells: nil
This weeks buys: NWH, GXY, KDR

Our portfolio drifted higher this week along with the market. There were no standout performers and the only management required is to raise a few exit triggers to reduce the portfolio heat. We'll monitor the open trades and exit earlier if prices go down.

Outlook: The market filter remains bullish as it has the past seven weeks. During this period the XAO has risen 8% and our portfolio +12%. The small caps are starting to appear in my scans so there will be an effort to get into them as the heat is lowered.

 

[fiftyeight]

Massive lurker of this thread. Your consistency constantly impresses me

 

[lindsayf]

Hi Peter
Do you still use Protrader for your scanning?
Thks

 

[jjbinks]

ps: One main point of difference for the weekly portfolio would be the stock universe. A much larger account size would exclude trading in lower volume stock codes. Earning 20%pa, while trading only ASX300 stocks would be a challenge in a sideways or down year.

hi peter,

what account sizes are you thinking about?
I assume you mean there is not enough liquidity in the smaller caps. At what position sizes do you feel that that liquidity of the smaller caps becomes an issue?

cheers
j

 

[Lone Wolf]

hi peter,

what account sizes are you thinking about?
I assume you mean there is not enough liquidity in the smaller caps. At what position sizes do you feel that that liquidity of the smaller caps becomes an issue?

cheers
j

I had the same question. Do you have a general rule for the liquidity required for a particular position size?

If the account was several hundred thousand as opposed to $50,000, would you change anything management wise aside from the stock universe?

You could increase the number of open trades at any one time to reduce the position size, but I recall you saying that you try to avoid having to manage more than 10 open positions at a time.

 

[peter2]

Thanks fiftyeight, I appreciate your support.

Yes, lindsayf, I still use the Protrader Darvas and market activity scans.

The weekly portfolio started with 222K and the plan is to hold 8 - 12 trades using the weekly charts. My general guideline is that the stock trades 20x my average parcel size of 10%. That's ~$400K/day, or $2Mill/week. I'm more interested in the market depth because I want to be able to sell whenever the sell signal is triggered. Generally I have no problem buying, its the selling that gets tough because I'm not the only one selling when price starts to go down.

Stocks trading $2M/d can have either thick of thin market depth. You never really know until you look.

A 50K portfolio has parcel sizes of 4K - 10K. There's very little problem getting these filled in one go. Larger portfolios have larger parcel sizes and some small cap stocks can't accommodate a larger parcel when we want to sell. Large orders stand out in thin market depth and I don't like to have my orders so exposed. It's a horrible feeling needing to sell and there are not enough buyers near the price you want to sell at. You wait for more buyers but the price falls and now your losses are bigger and you still can't sell.

The more relaxed style of trading the weekly charts means I use limit orders exclusively. I'll rarely hit the offer and I'm comfortable waiting days to be filled. I'll always hit the offer when buying for the daily momentum thread.

I trade less with the larger accounts and this is because I don't exit as fast as I have in this thread. Sometimes this works out OK and after a small dip price makes a new high. Sometimes I wish I'd sold when I did in this portfolio. Over the past 97wks this portfolio has performed better than my own portfolio that contains a mixture of both weekly and daily trades.

 

[PeterJ]

Hi Peter
also here regularly

 

[Rypieee]

Good evening fellas,

I was going to PM Peter2 directly but instead, I have decided to post my question on the thread so that others may possibly benefit from it even though it seems like only seasoned veterans of the game follow this

My strategy is very similar towards your ASX Momentum Book and your P2 ASX Weekly thread and I wanted to know what your perspective is on diversification within a portfolio (short-medium term time frame). Based on this thread and the weekly thread, it seems like diversification is something out of the picture for the strategy as it is sole based on each individual stock within it's own parameters.

The dilemma I am having right now is that there is an abundance of "opportunities" coming up within the resource/energy space and my current portfolio is made up of 25% resources and 10% with about 40% held in cash - meaning my open trades are made up with about 60% resources and energy stocks.

My mindset towards portfolio management lends from a lot of the books that I have read prior to trading and authors tend to say something along the lines of "you should have no more than 25%(fixed) of your PV invested in a given sector" or "you can have between 10-30%(variable) of your PV invested in a given sector".

Do you recommend using diversification within a portfolio to control yourself from over-exerting?

I know Warren Buffet (kind of irrelevant to a technical analysis thread but anyways..) has a saying about diversification being something "ignorant people use to protect themselves" and that "if you know what you are doing then diversification isn't necessary" [quote is not word by word!!]

Thoughts?
Happy for anyone else to add it, I shall take on all the feedback provided to formulate my own perspective

 

[debtfree]

Good evening fellas,

I was going to PM Peter2 directly but instead, I have decided to post my question on the thread so that others may possibly benefit from it

Good idea Rypieee.

Others will be using this thread for years to come and any info or questions that we have will surely be asked by them at some time so, if it's all in here you will be doing them and us all a favor. Thanks for you input, appreciate it.

Cheers ... debtfree

 

[peter2]

"seasoned veterans" sounds like something you'd eat with fava beans and a nice chianti.

I'm assuming your second paragraph asks about, allocation of assets to different systems within a portfolio. How much is allocated to short term trades and the weekly trades. I have no set parameters for this. Which ever system/method is winning at the time gets the assets. The level of activity of the short term system is much greater than the weekly system. The short term system turns over trades much quicker than the weekly system. This re-uses capital rather than requiring additional capital. The activity of the ST system waxes and wanes with the market. It gets busy when the market rallies and slows when the market falls. The weekly system attempts to ride out the daily gyrations.

What happens to most stock prices when the market falls 20%. They also fall significantly. Will a portfolio holding twenty different companies avoid this market fall? NO. Diversification is a misunderstood, over-rated, over mentioned and mis-represented concept. I use common-sense and restrict my portfolios to a limit of two trades in the same corporate activity. Note, I mention corporate activity not market sector. Production of iron ore, gold, lithium or uranium are related (same sector) but their stocks prices move with different commodity prices. I'll buy gold stocks when the price of gold moves up and I'll buy lithium stocks when the sentiment for Li is bullish. I'll buy iron ore producers when the price of iron ore rises. If these three things happen at the same time then I'm long a heap of resource stocks.

The fact that most commodities are priced in USD means that commodity prices often move together. I'll go with the flow and manage my portfolio heat closely.

 

[Rypieee]

Hi Peter2,

Thank you for that response, and your second main paragraph have given me some sort of enlightenment on how I would approach diversification within my portfolio. I love the fact that you use "corporate activity" over sectors of the market because that was what I was thinking as well... The example I was looking at was that Gold stocks and Mining stocks are in separate sectors - Gold and Mining Ex-Gold respectively, but they do the same thing, mining things out from the ground... and I went further down to see why iron ore should be classified within the same sector as say lithium? Both are vastly different and their underlying commodities don't hold any connection. You have given me some confidence in my thinking so thank you for that.

If you don't mind, I just want to take this a bit further so I understand your concept completely. When you mention that you have a limitation of 2 stocks within the same corporate activity - let's use iron ore mining as the example, if you have FMG and GRR, you won't be able to add another iron ore miner such as MGX to your portfolio as you already have two doing the same thing.
Example/Question 1:
Can you add another stock such as BSL though? Because the corporate activity is different but the underlying commodity is the same?
Example/Question 2:
Can you add another stock such as AWC who is involved with Aluminium which has a part component of iron within it's manufacturing?

Hope you don't mind the long questions as I am using these insights to further formulate my TP and polishing up the end bits!

Thanks for your assistance once again
Ryan

 

[peter2]

Trading update: Trade management.

KDR: I didn't like yesterdays close below 0.60. Sold today as price traded lower at 0.58.
We'll re-buy this if price goes back up to 0.65 quickly.
If there's a fake-out price bar at 0.55 (obvious retail stop loss level). We'll buy it sooner.

FBU: Price is trading near our iSL (9.80). We'll sell this when it trades at 9.80 again.
This will close the daily trade but the weekly trade is still open and uses an iSL of 9.50.

GXY: Our second Li stock is going great guns. Price is currently at our +2R target price (T2). We're going to let this go higher as the price momentum is strong and there hasn't been any climactic volume. We'll move our TS up to +1R (0.60) and place a limit sell order at our +3R target price.

JBH-cfd: TS moved to BE.
REA-cfd: TS moved higher to 55 locking in small profit, while allowing price to go higher.
NWH: TS moved to 0.66 under the new HL.

Summary: These actions reduce our portfolio heat and this allows us to start more trades. Our trade management also allows prices to go higher.

 

[peter2]

If I've got open trades in FMG, GRR and then notice a buy setup in BSL. I won't just buy it until I check the total open heat (downside exposure) of the open trades within this corporate activity (iron ore, steel producers).

If the trades in FMG and GRR have been recently started their total heat will be 2 x 1% (2%). I won't start another trade in the same activity. However if the FMG trade has been open for a while and I've been able to move the TS above BE, I'm allowed to start another trade in this sector as the total heat is <2%. I'll buy the setup in BSL.

This is a refelection of my guidelines for pyramiding in that I don't add more risk until the initial risk is gone.

AWC: This aluminium producer/retailer is comfortably different than steel producers. I don't think I've ever traded AWC.

I hope this helps you create your own risk management gudelines.

 

[Rypieee]

Hi Peter2,

Yes it does help me with my developing TP so I thank you once again for your input on the matter

Especially when you went into portfolio heat and how reducing risk through increasing stop losses can allow an additional position to be taken as long as the total heat is below your target levels! First time of hearing the term pyramiding so that will be something I shall investigate further!

Shall post up again should i come across another dilemma

Ryan

 

[peter2]

EOW 98 update: ASX Momentum Portfolio +52.3% ( 65% invested in 4 trades)
Benchmark index: SPAX2F15 (Incl. divs and f credits) +6.2% (past 98wk)

This weeks sells: KDR (-0.6R), FBU (-1R), BLD (-0.4R)
This weeks buys: nil

Our portfolio continues to drift higher, while the market just drifts. We closed three losing trades this week as their prices fell. BLD has been going sideways for two weeks and was sold as it touched our exit trigger today. Like KDR, BLD will be re-bought if price breaks-out again.

I've been a bit slack not actively looking for new opportunities. Sorry about that. We'll put some of the available cash into use next week. There's bound to be plenty of break-out, pull-back or reversal setups for us to use.

Outlook: Remains bullish. One down day won't change that. If the market continues to fall, we won't worry as we've already taken defensive measures (closing our losing trades).

 

[peter2]

Trading update: New trade

MGX: Bought at open 0.38, iSL at 0.35.
Liked last weeks bullish key reversal bar (mentioned in Weekly thread).
Price moves slowly and it could be a long ride.

I'll do normal BO scans after 2.30pm.

 

[peter2]

Trading update: Comments on trade management.

Our market filter has been downgraded to mildly bullish with the daily XAO chart turning red. This is notice to reduce heat by closing losing trades, raising exit triggers and locking in better than average profits.

We closed our losing trades and raised our exit triggers last week. Occasionally, individual trade management pre-empts these general market indicators. If you're paying attention.

REA-cfd: Closed today as price traded at it's exit sell stop (56.00). Our exit price (55.75) has been reduced to account for cfd interest paid throughout the 28 days of the trade.

JBH-cfd, NWH: exit triggers set at BE, to allow price to go sideways but not down.

GXY: We didn't sell at +2R, electing to let price go higher. It hasn't and the market has dropped enough to downgrade our market filter. We have two options in the management of this GXY trade. Sell now, near the +2R level in response to the market downgrade or let it go with the TS at +1R knowing that GXY has been one of the markets strongest stocks (RSC(XAO)).
Since we have the portfolio heat well under control, I've decided to leave GXY open with the TS at 0.61.

MGX: Newly open trade that needs more time to prove itself.

edit: If the portfolio had two trades at/near +2R profits then I would have closed the weakest looking one and leave the stronger open. This is similar to taking 1/2 profits.