ASX Momentum Trade Book - Part 2

[peter2]

There's also been significant development between the active daily trader and the weekly warrior. The YTD performance of the active trading style has finally passed the relaxed weekly performance. The active style got into the rally as it happened while the weekly manager added to the portfolio near the EOW. The Jan17 weekly portfolio is now 84% invested (9 positions).

Hopefully we'll hold on to this lead all the way to the EOY finish line as we attack our own end goal.

 

[rb250660]

Last 3 days were cracking for me. Hopefully some more follow through.

 

[peter2]

Trading update: New trade.

NWH: Bought today at 1.255. iSL at 1.12.
I already hold this one as I participated in the SPP.

 

[peter2]

Update on performance of our actual exits vs 3 exit strategies after 231 trades.

The latest table is at the bottom.

1. Sell on the next open after a close below 3xATR(21) line.
2. Sell on the next open after a close below 2xATR(21) line.
3. Use the 3xATR(21) line until price hits T2 then use 2xATR(21) line.



The 3xATR(21) remains the worst performer and earns the least profit. This strategy allows some price movement but gives back too much open profit on too many occasions, especially in the market conditions we've had over the past 2.5 years.

The 2xATR(21) strategy cuts the losers quickly (lowest AL) and captures profits nicely in low volatile (smooth) trends. Works better on larger priced stocks than smaller price stocks due to the lower volatility of the larger priced stocks.

Strategy 3 remains the best.

Our discretionary approach while better than the first two strategies still lags #3. I have to wonder why I'm not using strategy #3 for my exits. The extra 10K earned would put us above +100%. Who wouldn't like an extra 20% for the same amount of work.

The colloquial definition of insanity comes to mind. Let's improve our performance by applying exit strategy #3 to our trading in this thread or something very similar.

 

[peter2]

Most of the under-performance of our exits is due to selling at profit targets after price spikes up. On many occasions price continues higher and we miss out on additional profit. I've mentioned before that managing trades to smooth our emotions and our equity curve costs us money. The cost to this portfolio since the start has been $10K or 20% of our starting capital.

Comparing our exits to Strategy #3 is quite interesting. This table floored me when I created it. It shows the number of times our exits were better and worse than S#3 and the dollar amounts.


I was totally gobsmacked by this data. I knew about the missing 10K, but I had no idea about the size of the other numbers. I knew that our discretionary exits save us money and that it happens a lot more than when they don't. When they don't, we miss out on a lot more than we save.

Is there something we can do to reduce the amount of these missing profits?

Yes there is and I'm hoping you've thought of it. When price makes a new high after we've sold, how about we buy it back? Simple really, we need to apply a re-entry rule.

Now you're wondering if we applied a re-entry rule how much of the missing profit could we have earned. I went over those 46 charts and found that there was a re-entry triggered in 28 of them. The profits earned from these 28 re-entries totalled . . . . $22,670. About half of what we missed out on. You have to realise that we are buying at higher prices than we sold. Half is pretty good though.

Did the penny drop? Did the light globe turn on? The amount earned by the re-entries was larger than the net amount we thought we missed out on! Whoa. Have we just improved our trading edge by a significant margin?

Summary: Discretionary exits are good if you can show they save you money, BUT they need to be complemented with a re-entry rule when prices go higher.

I don't think I'm ever going to write a more valuable post than this one. We're going to continue with our current trade management style with fewer exits after spikes up and we're going to implement a re-entry/re-buy strategy when price goes higher than our recent exit or makes a new high soon after our exit.

 

[peter2]

Here's a recent example to show the re-entry mechanism.

APX: We bought the BO-NH which went sideways for a while then started moving up. We took a quick +1R profit at the time because the market (XAO) was moving lower and looked likely to go below the sideways channel that it's been in for a while. APX also offset the previous four consecutive losing trades (emotional smoothing).

Four days later APX showed a bullish bar closing at a new high. This is our signal to re-buy APX. We'll probably re-buy the same number of shares and select a tight iSL to reduce any downside exposure.

In this example price has now gone above T2 and this indicates that we should use the tighter 2xATR(21) line as our exit trigger.

With hindsight the exit was pre-mature but the re-entry rule helps us lower the cost of that mistake.

Note: There will be times when the re-entry loses money, but in the long term we know that we're doing the correct thing and improving our trading edge.

 

[kid hustlr]

Pete, this is awesome.

One thought and I could be off here - but does this factor in the concept that an early exit allows for an entry of another trade? Eg if you've let your trades run your total number of trades would be less, costing you money in that sense?

 

[peter2]

No I haven't analysed any what-ifs. I've only analysed the situation when price and the trailing stop of strategy #3 went higher than our exit price. I'm sure there were many other occasions when price went higher but the TS of S#3 did not. In other words our exit might have been early but we actually sold near enough to the S#3 exit.

These results indicate that it's worth while considering re-buying into the price trend on a BO-NH. I'll create a little re-buy checklist to ensure that I only re-buy when there's no overhead resistance and the RSC(XAO) >0. Even if I only get half of what I missed out on with my early exit it'll be profitable.

I'm saying that there's an edge in buying what I exit early.

It's not going to be easy buying something we've just sold. The price is going to be over-extended and we're going to pay more for it than our sell price. It will be quicker and easier than scanning through hundreds of charts to find another setup. It's going to be hard to apply in real time so I'll be re-evaluating my use of price targets in strong trends and in charts with no overhead resistance.

 

[peter2]

Trading update: Trade closed.

MAH: Sold near close at our TS (0.235). Result +2.4R.
I'd re-buy this if 0.255 trades.

I've removed the limit sells on all our open trades. I'll tighten the TS's when price gets near T2.

 

[peter2]

I'm hoping that some of you will see the value in keeping good records. Now that I've got a list of instances that I may have exited early I can review the market conditions at the time of the exits. Am I more likely to exit early in bullish or bearish conditions? I've got a record of my mkt filter at the time and I've also got my thoughts recorded in this thread.

This is work for me to do and I'll keep the results "in house".

 

[seans]

Thanks Peter, this is great stuff. I'm taking notes and look forward to future posts

 

[kid hustlr]

A couple of textbook patterns of our fav setup. It's important to know exactly what we're looking for.

Break-outs of horizontal resistance (BO-HR)
- there's a higher low (HL) before the BO
- TMF (OBV) above 0 and rising (indicates accumulation)
- stock prices stronger than the XAO index (RSC)
- 10 ema > 30 ema recently indicating new trend
- both BO prices were above significant numbers (>1.50, >8.00)
View attachment 72945

ps: BAL was one I didn't want to chase. I didn't place a conditional/pending buy stop order to try to buy it at 8.01, limit 8.05.

I passed on BIG due to capital constraints at the time in effect I had to chose 1 set up from 2 options and I went with the other one - stinging now! I really liked the context longer term on it - big push up, bit of a flat pattern and no real climactic action at the high.

 

[VSntchr]

I'm hoping that some of you will see the value in keeping good records.

A good trade journal is imperative to success IMO.
Trading record keeping is like analyzing the till at the end of the day for a retail store.
First you are checking for any errors. Then you go deeper by looking into the details of your transactions and how to gainer deeper insights.

Upon reviewing sales data someone like Coles might notice that average basket sizes are bigger across all consumers when they place their bakery section near the supermarket entry as compared to the back.
Similarly, a trader like Peter upon reviewing his trading records might notice when he uses a 3xATR stop for his momentum setups that he gives back more profit than when he uses a 2xATR stop.

The better data you capture, the more (and more relevant) inferences you can make.

 

[peter2]

Trading update: New trade

BUB: Bought near close at 0.66, iSL 0.57.
Hope we're not too late to this party.

 

[peter2]

EOW 138 update: ASX Momentum Portfolio +85% (69% invested in 6 trades)
Benchmark index: SPAX2F15 (Incl. divs and f credits) +14% (past 138 wks)

This weeks sells: MAH (+2.4R)
This weeks buys: NWH, BUB

The market continued higher again this week adding +1.4%. Unfortunately none of the stocks in this portfolio followed suit and we end the week where we started. My portfolio's lost ground as there were a few shocks (LLC, EPD). It's disappointing to see the market charge up and our portfolio "stuck in the mud".

The end goal is almost within reach. Another 7.5K (8.5R) to go and if we included the profits from the "forgotten" P2 trade book, only 5.4K (6R) to get. Speaking about the P2TB, I'm going to do a few more trades in there to assist the task of getting to the 100K target quicker. I'd like to get there asap now that we can see the finish line.

Outlook: WU DU. Our market filter has turned totally bullish after the past two weeks of gains taking the index near the recent highs. It will be interesting to see if there is further follow through above 6000. I'd prefer to see a pause here to create small consolidation patterns to develop. We can then use these patterns as trend continuation setups for the rest of the year.

 

[Shaker]

Trading update: New trade

BUB: Bought near close at 0.66, iSL 0.57.
Hope we're not too late to this party.
View attachment 73059

Nice pick Pete. Trading halt with news+ I see and a nice spike this morning

 

[tech/a]

Ducks happy
Think it will pause a bit at 83c

Sold the lot at 80.5c

 

[peter2]

@Shaker Thanks for the compliment. Lucky that we bought before today's news.

BUB: Raised exit stop to 0.76 (T1) - 0.78. I had similar thoughts to tech/a re selling at 0.81 after price came off the high. If price trades below 0.79 this afternoon I'll get concerned and will probably sell also. Our T2 level is 0.85 which wasn't traded today (so far). I'll give it another day to get there.

EHL: Sold today at 0.235 for a near average win (+1.3R).

It took us 41 days to earn +1.3R on EHL and only 4 days for BUB to earn the same.

 

[tech/a]

5 min chart tells me its about to come off!

And it did

 

[peter2]

Trading update: trade closed

BUB: Sold at 0.79 (+1.4R). It didn't take long to fall below 0.80.
I'm always wary when I sell at this time of day. I'll look at this at 3:30 to gauge if there's any demand late in the day.