ASX Momentum Trade Book - Part 2

[peter2]

Lots of good break-outs today but we're out of cash. The portfolio is only 108% invested but the higher priced stocks use more capital. We'll raise some exit stops to close trades that go down.

We may also use some of the cash that's in the P2 Trade book account, after all it's part of our trading business.

Another benefit of the market risk filter is to smooth our emotional state. Over the past five months the market gone up and down in 200 point swings. This is hard on our emotions. remember last week when the market tanked hard for three days. Our emotions had us heading for the exits, but our market filter reminded us that the weekly trend is still UP. No reason for panic. We closed one trade (ILU) because the large down day is an exit strategy in the turbo trade plan.

We started a few new trades (BLD, ORI) based on our low heat level and the fact that our filter was bullish. We weren't overly bullish but only cautiously bullish. Emotionally it's always easier to procrastinate and watch.

The combination of a market filter and knowing your own tolerance for risk (portfolio heat level) makes trading more comfortable.

 

[peter2]

If you're not trading comfortably then you're probably risking too much or just gambling. If you're gambling then I can only say, "Stop it". You're risking too much if you get that queasy feeling in your guts when the market or the price of your trades go down. That queasy feeling is your exit stop trigger. Take notice of it.

Once you're trading comfortably it's easy to relax and it's then that we can get careless. Being relaxed and not checking your daily stops every day, that's careless and costly.

If you're not comfortable because the market action is so up and down and you don't know what's going to happen next. Welcome, we all feel like this at times. Having an objective market risk filter will help.

It doesn't matter what it is. Mine is based on the daily and weekly trend of the XAO index. Yours, can be anything. You may even use a "guru" and be bullish when they're bullish and turn bearish when they do. Make sure your risk tolerance matches theirs. Some of them wait for a 20% drop before getting bearish. Be careful.

[One last thing: Don't use the news or any media as a market filter. ]

 

[grah33]

once again thanks Peter for guiding us with so much practical information. those of us who are yet to break through undoubtedly appreciate it. as someone in the forum said, one can do loads of reading but that's not enough. as for me, i'm sitting on roughly the same - made some gains before but lost them. although i didn't trade when i should have . at the very least i'm improving in doing what i'm supposed to be doing and doing it more correcly.

bought 2 parcels this morning - consolidation range brakeouts they were (normally don't buy CBA). hopefully these kinds of picks are good enough. (yellow lines mark trade's entry and isl levels, ignore red, stops out of market, isl 3atr, and trail 3 atr after price moves well out of the isl zone, stops out of market.)

sometimes i think my stops are too big for trend following on the daily timeframe (they seem a tad too big when looking at them on the weekly timeframe), but i semed to get good results in a few manual backtests so i'll see what happens...

https://app.box.com/s/mms5fsl7o48hyf7d86cpqt8s1oveoh8c
CBA

https://app.box.com/s/88sea83ehbtc00dbd29mwh9p7bz8smuf
BRG

 

[peter2]

@grah33 Thank you for your comments and the charts. I like both break-outs and hope they continue higher for you.

3xATR is OK to use as an iSL. I would suggest tightening it when your profits get larger than normal. You should know what is normal (Ave Win) for your trading system. Leaving the TS at 3xATR allows too much loss of open profits when price falls.

You need large stop sizes when trading the trend to allow price to pull-back and form a higher low. This is the huge difference between trading trend and trading swings (short term momentum). Match your exit strategy to your trading style.

 

[peter2]

“The game is afoot.”
― Arthur Conan Doyle, Adventure of the Abbey Grange

Hey Sherlock the market's going higher. All our open trades are winning.

“Excellent!" I cried.
"Elementary," said he.”
― Arthur Conan Doyle, The Complete Sherlock Holmes

We've run out of cash and can't start any more trades.

“There is nothing more deceptive than an obvious fact.”
― Arthur Conan Doyle, The Boscombe Valley Mystery

What are we going to do?

“You know my method. It is founded upon the observation of trifles.”
― Arthur Conan Doyle, The Boscombe Valley Mystery

Umm...

“You have a grand gift for silence, Watson. It makes you quite invaluable as a companion.”
― Arthur Conan Doyle, The Complete Sherlock Holmes

So, that means we have to raise some money from somewhere or get another case to solve?

“How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth?”
― Arthur Conan Doyle, The Sign of Four

How are we going to get another case?

“No man burdens his mind with small matters unless he has some very good reason for doing so.”
― Arthur Conan Doyle, A Study in Scarlet

So, you want me to borrow Mrs Hudson's housekeeping money and trade it?

“I am somewhat exhausted; I wonder how a battery feels when it pours electricity into a non-conductor?”
― Arthur Conan Doyle, The Adventure of the Dying Detective

 

[peter2]

EOW 113 update: ASX Momentum Portfolio +57.7% ( 85% invested in 4 trades)
Benchmark index: SPAX2F15 (Incl. divs and f credits) +11.2% (past 113 wks)

This weeks sells: CSR(+1.5R)
This weeks buys: BAL-cfd

The market continues to sneak higher. Meanwhile this portfolio has had a HUGE week (+9%*). We had numerous +5% weeks but this is a record for this thread. Trading in the larger cap stocks was the right move. The larger cap stocks use more capital and I'm sure you've felt my frustration at not being able to start more trades as we were fully invested.

CSR: Sold today for a +1.5R result. There were three reasons for this sale.
(i) Price traded at our +1.5R target, which is an above average result. Don't sell for a below average result unless price is going down. This is the most important reason and I only placed the limit sell when price was getting close to our level. I didn't think it would get there and it wouldn't have mattered if it didn't.
(ii) Today's price move is abnormally high for a large cap stock. The ATR(14) is 0.10. Today was a 3xATR spike without any obvious news. Unsustainable and I'm happy to grab the profits in a short term trading portfolio. My weekly trade remains open of course (go, you good thing).
(iii) We needed some cash for more trades. This sale allows us to start more trades next week (probably using cfds in the large caps).

After such a good week we can raise all our exit stops. This reduces our portfolio heat to only 0.5% and we're nearly fully invested (85%).

Outlook: I'll try to remain cautiously bullish, even though I'm feeling outrageously bullish. We've got some cash and on the prowl for more setups. May I remind you how good it feels when everything works out well.
[*= % gain on our starting capital, compounding increases these results as we accumulate profit]

 

[grah33]

nice result Peter. considering market conditions since the beginning that's a great result. and you're pulling little trades from all over the place in other markets ... it's something people here may dream to be able to do, but they may not realize it's also a great deal of hard work too.

quite a few quotes there. i'm going to have to re-read them again to discover their meaning...

i'll take your tips on board. when i get more real data i'll start to see what is the best way. it's challenging. i got great results in a few bull market manual backtests and was treading in a range or 2, but whether it will work in real life i'm yet to see.
thx again.

 

[peter2]

Trading update: New trade.

CIM-cfd: Bought at 37.00, iSL at 35.80.
Closed at 37 on Friday, forming the BO-NH. Placed a limit buy at 37 overnight.
Mentioned this chart a few days ago and it's taken it's time to BO.


Also liked the BO's in AAC, AMP and the WTC charts.

 

[peter2]

Trading update: New trade.

MMS-cfd: Bought 13.63, iSL at 13.00. Target 15.00
Price has been climbing strongly for the past six months. Our iSL is conservative and we'll raise it when price goes higher.


Looking for smaller priced stocks to trade, but there's none I like atm. The small caps may come into demand once the larger caps have gone higher (XAO>6000) and people start chasing more risk.

 

[peter2]

You may have noticed that I've started a few reversal type trades (ACX, BAL, ORE) in the weekly portfolio. We included BAL in the daily momentum portfolio as well and it's started nicely. This BAL trade started as a cfd as we were low on cash at the time of entry. Today we've converted the BAL-cfd trade to a BAL share trade. We paid the commission to end the cfd trade and brokerage to buy the shares. We had the cash and the BAL trade has started so well that it might pay us to hold this trade much longer. We won't sell this at +2R (5.65) instead we'll let it get higher.

The gap-fill target is 6.50 (+4R), then there's no resistance until 10.00. This sort of recovery takes a long time and it's unlikely that the ride will be so smooth that this portfolio will hold it all the way.

This is the ideal trade to convert from daily monitoring to weekly if you can do it.

 

[Cam019]

Trading update: New trade.

CIM-cfd: Bought at 37.00, iSL at 35.80.
Closed at 37 on Friday, forming the BO-NH. Placed a limit buy at 37 overnight.
Mentioned this chart a few days ago and it's taken it's time to BO.

Hey Peter, just curious about why the buy limit was set at 37.00, instead of Fridays close of 37.03? Any particular reason for this? My thinking is, if today opened at 37.03 and didn't trade lower then the order would not have been filled.

 

[skc]

You may have noticed that I've started a few reversal type trades (ACX, BAL, ORE) in the weekly portfolio. We included BAL in the daily momentum portfolio as well and it's started nicely. This BAL trade started as a cfd as we were low on cash at the time of entry. Today we've converted the BAL-cfd trade to a BAL share trade. We paid the commission to end the cfd trade and brokerage to buy the shares. We had the cash and the BAL trade has started so well that it might pay us to hold this trade much longer. We won't sell this at +2R (5.65) instead we'll let it get higher.

The gap-fill target is 6.50 (+4R), then there's no resistance until 10.00. This sort of recovery takes a long time and it's unlikely that the ride will be so smooth that this portfolio will hold it all the way.

This is the ideal trade to convert from daily monitoring to weekly if you can do it.

View attachment 70923

Good plan. Agree that the weekly trade has a better chance of withstanding the pull back.

$5.65 is also the high post news which often act as resistance, at least temporarily. So it might worth taking partial profits or tighten the stop.

 

[peter2]

Basically it's pick a price for the limit order. A large priced stock like CIM can move around quite a bit. Yes, prices can open above my limit orders and I miss out. This happens occasionally but it doesn't concern me. I don't like buying an open price that gaps up because it lowers the potential reward and increases the risk.

I can do this when I'm hunting large game. If I was hunting gazelles, like the micro/small caps then I'd have to bid higher as they can really jump when excited. If I was trading these I'd want to watch the open to see what's happening and adjust my orders up to a limit.

 

[peter2]

Trading update: Our perfect run continues. . .

API: Sold at our T2 target (2.35) for a +2R result.
I'm pleased to get this, as API can be a bit tricky to trade using our BO setup.

BLD: Is trading at our initial target (6.30), which is +1.7R for us. Because we've taken some good profit from API, there is less reason to take this profit. We will trail our exit trigger closely (+1R) and let price go higher. Next target 6.60.

BAL: Wow, did not anticipate demand to be so strong. Price charged past 5.65 (T2) and went straight to 6.00. Good decision to not place a limit sell at T2. Now it might be prudent to place our exit trigger (TS) at this level. This "locks" in +2R and allows price to go higher.

[Observation: The China trade seems to be back on. BAL, BKL and TWE all jumped higher today. ]

The regular rises in or other open trades (ORI, CIM,MMS) seem almost slow, but they're contributing to the portfolio.

Going through the scan results (10d break-outs) looking for our next trade. . .

 

[Quant]

BAL: Wow, did not anticipate demand to be so strong. Price charged past 5.65 (T2) and went straight to 6.00. Good decision to not place a limit sell at T2. Now it might be prudent to place our exit trigger (TS) at this level. This "locks" in +2R and allows price to go higher

BAL is an interesting one and part of an idea worth investigating going forwards . BAL is one of the most heavily shorted stocks in ASX and as a result of that when a swing low is formed the run of lows can be fast and solid due to the squeezing of the high short position . I am actually going to build a screener/algo to quantify this . I will look but havent as yet but id suggest the total shorts on this have dropped significantly last week and a bit .. just a heads up fwiw

 

[peter2]

@Quant Thank you for mentioning the idea. All of my recent reversal break-outs (ORE, ACX, BAL) were in the top ten short lists. I think these types of setups still need a catalyst to get them moving. The shorters are a determined lot and seem to be able to tolerate 10% swings against them. A news catalyst that fuels additional demand seems to trouble them and force them to start covering (BAL - new mgt team with a clear plan) and then the rout starts.

It's worth remembering that one of our forum members (Sir Osisofliver) advocated this idea in a beginners thread. His trade involved the heavily shorted (at the time) JBH and he rode it higher valiantly (even knightly).

I agree that more "quant" research might be worthwhile.

 

[Quant]

agree that more "quant" research might be worthwhile.

Yes for sure , many investigate these types of thing with minimal context and forget the " catalyst " , volume a large part of this catalyst and is reasonably easily quantified . Without going to of topic here i think the best edges in these events may well be at lows rather than highs , volume breakouts and volume climax swing low type events , Anywho at some stage when ive got time to follow up i will start a thread on this . I really need 3 of me ...

 

[peter2]

Trading update: Nothing like a down day to neutralise the euphoria. New trade

JHC: Bought today at 2.12, iSL at 2.00
Tried to buy this at my price late yesterday, failed and the order was triggered today.

 

[peter2]

Trading update: One big bad down day.

So, after a big down day like today (showing that the insto traders are wimps just like the retail traders), what do we do in our momentum portfolio?

Let me remind you that we're trading upward price momentum and when that pauses and reverses we must exit. Occasionally sentiment reverses so quickly that prices don't pause and we see big reversal price bars. We trade what we see, so big reversal bars are exit signals.

Obviously our weekly system doesn't care about one down day. We must wait for the EOW.

I should also remind you that our AW is 1.35R and our AL is -0.59R (194 trades). Taking profit at +1.5 and above improves our edge and keeping our losses below -0.6 also improves our edge.

BAL(5.75, +2.3R): Our current TS is 5.65 (+2R). I'll set an alert at 5.70 and sell between 5.70 and 5.65. It's the correct thing to do in this portfolio. It'll allow price to go up tomorrow, but if there is further selling we'll grab an above average profit.

BLD (6.37, +2R): Our current TS is 6.25 (+1.5R) We'll let this go higher tomorrow but sell if 6.29 trades. Our exit stop will be in the market as the liquidity is OK.

ORI (18.42, +0.5R): Our current TS is at 18.10 (BE).
CIM (37.82, +0.6R): Our current TS is 36.50 (-0.45R).
MMS (13.65, -0.1R): Our current TS is 13.30 (-0.55R).
JHC is a newest trade and regular management applies (-1R at risk)

Summary: We're allowing prices to go up (when the traders realise they're wimps) and we're managing our exits to realise above average profits and small losses.

 

[peter2]

Trading update: The US market traded down to the support level and found support. It also shrugged off the FOMC news and ended pretty much even. It seems the bearish sentiment is limited to the Aussie market. Overnight I was optimistic that we wouldn't lose any trades.

BAL: Appeared to be opening at our alert and exit so we closed it at the open. Result +2.2R.
Thought about re-buying this as it traded >5.75, but this would be against our TP and not this thread's trading style. If price pauses at this level we may get another regular buy signal.

BLD: Opened well above our exit stop and I wasn't concerned until the order pinged. Damn. Result +1.7R.

ORI: Closed trade today as I'd noted that it was due to report tomorrow. Result +0.6R.
This trade didn't have enough profit to let it ride through the news. Looking at the eco calendar again I see that the ORI report has been moved to Monday. Damn, again.

The end result is that if we'd none nothing we'd be better off! Prices have traded at and below our exit stops and have found support and are now higher. Is this frustrating ? Hell yeah, but I know we did the right thing. Dealing with the market is always about probabilities. On this occasion our actions have caused us to miss out on more profit, but over time these actions will end up saving us a lot of money.

We've got our TP and plenty of cash. Let's find some more setups.