ASX Momentum Trade Book - Part 2

[peter2]

Trading update: New trade

BLD: After closing this trade five days ago when the price dropped, we have re-bought today at 5.51 as price traded back at 5.50. I mentioned the possibility of a re-entry if price reversed quickly. The setup is our standard BO-HR (5.50). The only wrinkle is that the position size is limited to our max size (20%) due to the tight iSL (5.30).

There'll be no re-entry into KDR any time soon as price has fallen further.

 

[peter2]

Trading update: Trade closed and I'm to be pilloried.

GXY: Trade closed as price traded at our exit trigger (0.61). We gave it a chance to go higher but it didn't. This was our third trade in GXY during this latest rally. Our results are +1.3R, +0.8R and +1.3R. Seems pretty good heh? If we'd held on to our initial purchase and sold at our last exit price the result for the one trade was +4.4R.

A short term trader can't beat buy and hold if the price trend is reasonably smooth with shallow pull-backs. Of course when a rally starts we don't know how deep the pull-backs will be or when they'll happen. That's why we need a plan. In this thread our plan is to exit early and re-enter if price does reverse quickly after a shallow pull-back. This was demonstrated nicely in the latest GXY campaign.

We'll allow a larger pull-back after entry, if price barely makes it to +1R. This pull-back is seen as a re-test of the BO level. Once price gets to +1.5R or higher we'll protect our profits aggressively.

MEA CULPA: Whoops I did it again! I ignored an exit trigger and it has got me taking a -2R loss. It wasn't in this thread. It was in my own portfolio. It's a stupid error. I only mention it here to remind you that nobody is perfect. I make this mistake about once per year and it always hurts.

 

[debtfree]

Thanks for the updates and the sprinkling of tips and insights into your posts Peter, always so informative.

With your personal trading do you write as much info and thoughts into a blog/diary each day or week as you do here or do you just keep brief notes in your spreadsheets?

As much as it hurts thanks for your open honesty about your personal trade, it is a good reminder for all and something to take on board.
In regards to the picture, I didn't imagine you to have quite that much hair

Cheers ... Debtfree

 

[debtfree]

With your personal trading do you write as much info and thoughts into a blog/diary each day or week as you do here or do you just keep brief notes in your spreadsheets?

I looked at this again this morning and thought you idiot, I've gone back to square one and asked a question that I know we have covered and I know what I have to do. I know everyone is different but if I need a detailed daily log like you do here of each trade and my thoughts on each day to review at a later date, then put it into my plan! If I only need brief descriptions in a spreadsheet, so be it, put it into the plan. It did make me go back and look up where this was mentioned in March 2015 which I included below to remind me.

I have no doubts that it's easier for me to start trades when the market is going up, but does it really add to my edge? I keep detailed stats and record my description of the market condition when I start every trade. I also record the type of trade setup (break-out, pullback and reversal). I know my edge for each type of setup in every market condition. These stats show me that trading with the trend does improve my edge.

I'm not going to provide anymore details of these stats as they are personal and assist me to improve my overall edge. However it should indicate the level of commitment I've made in order to be consistently profitable.[/ATTACH]

Thanks for not replying and giving me a boot up the ...., although I think you did by not replying.

Cheers ... Debtfree

 

[peter2]

EOW 99 update: ASX Momentum Portfolio +50.7% ( 72% invested in 4 trades)
Benchmark index: SPAX2F15 (Incl. divs and f credits) +5.0% (past 99wk)

This weeks sells: REA-cfd (+0.5R), GXY (+1.3R)
This weeks buys: MGX, BLD

Our portfolio drifted down with the market as a little profit taking reduced our open profits.

Outlook: Our market filter switches to a milder bull as the daily trend turned down. Hopefully we'll soon get the opportunity to buy stocks in strong weekly/monthly trends a little cheaper than last week.

 

[peter2]

Trading update: New trade

FPH: Bought today's BO-NH at 8.59, iSL at 8.25. Parcel size limited to 20%.

 

[peter2]

Trading update: New trade

PRG: Bought today in anticipation of further demand (pre-empting the BO) at 1.915, iSL at 1.78.
I know I shouldn't pre-empt a BO, but I like that price traded <1.80 and has risen immediately.
Buying now allows price room for any resistance at the 2.00 and 2.10 levels.

 

[peter2]

EOW 100 update: ASX Momentum Portfolio +51.7% ( 77% invested in 5 trades)
Benchmark index: SPAX2F15 (Incl. divs and f credits) +6.1% (past 100wk)

This weeks sells: JBH-cfd (+0.1R), price adjusted down to account for cfd interest over 35d.
This weeks buys: FPH, PRG

Our portfolio is drifting with the market, one week down, the next, up. We've only one trade that's moving higher (BLD) and we'd like a few more. In order to get into more we have to be a bit more pro-active. I might just post on this over the week-end.

Outlook: With the re-bound in the market we can modify our market sentiment to moderately bullish.

 

[peter2]

Here's an update on a post I made over one year ago. Some of you may wonder about my memory, but it's average. My spreadsheet has these records and it's not too much work to update the results. Why, because it's important that a discretionary trader get feedback on the effectiveness or not of their performance.

Review of Discretionary Exits used in this thread.

Back then (post #276) I showed the performance of the exits used in this thread against three objective stop loss strategies.
(i) 3 x ATR(21)
(ii) 2 x ATR(21)
(iii) 3 x ATR(21) until price gets to +2R, then using a tighter 2 x ATR(21).

Here's an updated table after 167 trades.



Our discretionary exits are still earning more than both the 2x and 3x ATR(21) methods. We still lag the third method which let's the trades go higher before tightening the exit stop. This difference of $3800 was due to two outliers (our recent trades in CIM and BKY where we exited too early (with hindsight)). I can live with the fact of missing out on more profits in 2/167 trades.

Overall our discretionary exits are working better than either fixed strategy. However, the lesson is clear. We can earn more if we let the profits get bigger on a few trades where price is going up strongly.

 

[peter2]

Trading update: Trades closed

FBU: Trade closed near TS as price fell and market depth became too thin. Result -0.7R.
BLD: Trade closed on further general market weakness. Trade closed to realise average win +1.5R

Charts will be monitored for re-entry if price break-out again soon.

Note: My personal medium term trades are still open as my TS's are further away.

 

[peter2]

Trading update: New trade

CDD: Bought today's BO-HR at 1.10, iSL at 1.00.

 

[maglincer]

I like your work peter. Good volume past 2 days on CDD looks like another good breakout trade. Was just wondering how you know when to sell? Do you have a set target for each trade or just let it ride with the stop losses.

 

[peter2]

In this thread we're trading short term price movements. Many times we don't see enough follow through after we buy, so these trades are managed with a trend following style (allow a pull-back and a hopefully a higher low pattern) until we get that upward momentum. Once we get that upward price movement and the trades get >+1.5R we tighten the exit triggers. Price targets are used with higher priced stocks because they won't have large % moves. Targets are also used when there is a recent swing high on the chart that may provide some resistance.

Occasionally our market filter indicates it's time to reduce portfolio heat and so we close our losing trades first and raise a few trailing stops or even take above average profits if we have any.

 

[peter2]

I'm sure I've mentioned this before. It's important to know what sort of price movement you're attempting to trade. If you're trading short term price swings (momentum) then your trade management needs to be appropriate to get those swings before they disappear. If you're trading price trends then you need to allow the trend with it's series of higher lows to unfold. The trade management of these two trading styles should be different as the price movements are different.

 

[peter2]

My thanks to those who liked the review of the discretionary exits post. I'm pleased to provide further observations from that work.



1. The main reason that the 3 x ATR(21) exit hasn't produced as much profit as the other exits is that this exit strategy gives too much back when price falls. This strategy lets the price go higher (AW is larger) but the loss of open profits is also larger. This exit strategy suffers during periods of increased volatility and changes in market sentiment to bearish. We've experienced quite a few periods like that over the last two years.

2. The 2 x ATR(21) doesn't give back as much open profit but it doesn't allow any set back soon after entry. If price doesn't continue higher immediately after entry then this strategy gets out too quickly some times. This strategy exits when price retests the BO and then isn't in when price resumes the move higher.

3. I hope you can see the benefit of giving your trades more room at the start. Only consider protecting your open profits when they're big enough to be worth protecting (>+2R).

4. Fixed exit strategies don't take into account changes in volatility and aren't aware of current market sentiment. Our discretionary exits can be successfully implemented as soon as we notice a change in volatility or market sentiment. We can let our profits get bigger then when the market sentiment changes from bullish to bearish we can tighten our exit stops to protect them. You can see the effectivness of doing this in the table.

Note: These observations/opinions only apply to ASX stocks that we traded over the past two years. Other markets move differently, so don't try and apply these exits to different markets. The basic principles of profitable trading will apply across all markets. You know them. Keep your losses small. Let your winners get bigger. Protect your capital at all times.

 

[peter2]

Trading update: New trade

FPH-cfd: We've re-bought this one as price as turned up again. Bought 8.55, iSL at 8.25.
Price has resumed going up after a vicious two day fall that had us closing our first BO trade for a loss. Part of the reason for selling was the thin MD as the price fell. Bids disappear quickly when price falls in these moderately traded stocks. Our exit was to avoid excessive slippage should price fall further. The old high near 9.50 presents a good RR possibility.

 

[Wysiwyg]

Just one thing new traders may not be aware of is the lower up trend line possibly becoming resistance. Not sure how much volume is still caught on the evening star formation.

 

[peter2]

Wysiwyg has a good point regarding the FPH chart shown above. Supply has appeared both times price traded at 8.80 and this would have to be overcome or withdrawn for price to proceed higher.

This setup is not an "A" grade one because of that nearby resistance.

No, this is not a "revenge" trade because we recently exited the first setup, but it is worth considering. I'm happy having two attempts to get into a swing. If I get knocked out twice then price is unlikely to go up soon.

 

[peter2]

EOW 101 update: ASX Momentum Portfolio +49.4% ( 71% invested in 5 trades)
Benchmark index: SPAX2F15 (Incl. divs and f credits) +4.4% (past 101wk)

This weeks sells: FPH, BLD
This weeks buys: FPH-cfd

Our portfolio lost a litle as the market fell this week.

Outlook: Mildly bullish but if the index falls and closes <5650 we'd be more cautious.

 

[peter2]

Trading update: A surprisingly bearish day after Friday's bullish day in the US. Our market filter is close to turning bearish and we're reducing portfolio heat in response.

PRG: Closed today after price fell to our exit trigger (loss -0.9R).
FPH-cfd: Another down day tomorrow will trigger an exit in this trade.

Comment: It's a little late to start thinking about shorts, but perhaps we might short the index if it falls again. This reminds me that I haven't seen anything for a while from our stock contrarian, notting. I hope he's well.