ASX Momentum Trade Book - Part 2

[Rypieee]

Well done Peter2, while you have reach your financial goal in your portfolio (and I hope you continue this thread!!!), along the way you have, whether you know it or not, help to develop young and new traders in the market.

I am proud to say that I am one of those that have followed your thread, gained from your experience and knowledge and successfully applied your teachings in my own strategy.

Please don't go away any time soon

 

[peter2]

I'm going to spend the next few days wrapping it all up and reviewing what I done over the past 140 weeks (33 months). Then I'll think about what to do next for the ASF community.

Here's a look at those last 25 trades and a reminder that I haven't sold my open trades. I hope they continue to go higher. My portfolios have had a huge October.

 

[kid hustlr]

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.

View attachment 73025
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.

Incredible Thread Pete and I like that you saved your best post until several weeks ago - this is a ripper

 

[kid hustlr]

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.

View attachment 73024

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.

Pete,

Sorry to dig this up but I was re-reading and figured I'd ask the question before the thread died (or hopefully gets made a sticky).

Before you discovered that re-entry + profit target is actually the best option, does your post above suggest that for all trades (including losers), you would have been better of using the 3x ATR stop rather than say, a discretionary exit where you stop is placed below a recent low?

 

[leyy]

Well done peter2, a terrific result and I am confident that you have inspired many in the ASF community. We thank you for your contribution and I am excited to see your next trading journey

 

[Kryzz]

Congratulations Peter, definitely obtained more from this thread than I have after reading multiple trading books. Cheers

 

[peter2]

@kid hustlr I can see that you're struggling with exit strategies. Relax, everybody struggles with it. I still wonder if I could do it better. That's why I monitor my performance against a few objective methods.

My current approach, that you watched over the past 33 months is to allow the market to test or retest the BO level when the trade is new. I'll only tighten the exit stops when there's a reasonable amount of profit worth protecting.

The trades that I call "turbo" trades have already started to move and don't get a chance to test anything. They hit their price targets or get closed for a small win, small loss or break-even. This style is very similar to tech/a's style.

Exit strategies are matched to compliment the anticipated price movement I'm trading (trend or swing). I allow more room for a trend trade than a swing trade.

As you know market sentiment can change quickly and the probabilities for further price advancement in every trade will change in response to the changed environment. In addition to the individual trade management rules I have a set of portfolio management rules (PMRs). PMRs will override individual trade management rules when market conditions change quickly. It's these PMRs that are primarily responsible for reducing my drawdowns to levels that I'm comfortable with.

The results of the stop loss strategy tables show that what I'm doing is much better than the 3xATR and 2xATR methods but not as good as the third method (3xATR until T2 is reached then use 2xATR).

However if I apply a re-entry rule when it's obvious that I've exited too early I'll make more profit and my overall performance will be better than the performance of the third exit strategy alone.

The primary role of our exit strategies is to control the size of our downside exposure. Their secondary role is to protect profits when they're above average.

 

[peter2]

Let me reassure you that although this thread will reach an honorable end soon, the world's financial markets are still operating and we've grown our capital to 100K AUD.

Don't think that I'm going to put our capital in a term deposit and ride off into the sunset on the QE2.

 

[Triathlete]

Trading update: Portfolio value at EOD today .... +100.2%

View attachment 73249

ps: Exit brokerage is included.

Thanks peter2 for a great thread.....I am sure a lot of followers have learnt a lot from this active trading style and you have shown the benefits of staying the course of your strategy and not deviating. If we take a look at the chart we can see that there were at least 2 x 6 month periods and 2 x 4 month periods were the portfolio went sideways and this can be very disappointing for traders and so most will chop and change there strategies and will not give it time to work.....The last 2 months have been stellar looks like a 30% rise? Keep up the great work.

 

[debtfree]

Peter:
Maybe an extreme ask but I thought it would be valuable to go with the thread that will be reviewed and studied by many (me ) for years to come.
Is there any possibility to have a complete list posted of all trades like in post #1123 with the added columns Buy & Sold Dates?

Cheers ... Debtfree

 

[myrtie100]

@peter2
Thank you for sharing your knowledge consistently and over such a long time.
My trading has improved enormously since following this thread.
You are definitely one of my 'experts'!

 

[tech/a]

Why did it take you so long??

So which Bar are we joining you for drinks?
Like many here we have enjoyed the show!

 

[peter2]

Trading update: Whoops I don't have to do these anymore.

EHL: Re-entry triggered today at 0.255. My orders are still working and we're all still trading.

 

[peter2]

"What took me so long?" I know you're pulling my leg but I also understand that it could be of interest to some.

When I took over this thread from Pav there was no planned end. I thought I'd commit to the EOY 2015. By then it was a well honed process and very much part of my trading routine. Even now I'm ready to post another setup and entry (the EHL chart just slipped out). The portfolio trades are continuing higher and I'm going to miss posting the EOW update. The portfolio is another few K higher and it's flying. I've realised that posting regularly is an important part of my trading routine. It keeps me accountable, focussed and I enjoy the interaction.

Why so long? It's really important to establish a trading routine. If you want to be successful you must have a routine (or process) and that your progress towards your goals be monitored. It takes time to create a routine that is both efficient and effective. Life gets in the way all the time and people underestimate the importance of establishing a routine. Looking at the charts or analysing company reports whenever you make the time is not good enough. You've got to set aside regular time and ensure no distractions if you're really motivated.

Over the past 140 weeks you've watched my trading routine; late afternoon scans, identify best setups, buy, post chart, manage trades, manage portfolio, post EOW update. Repeat next week. You seen me deal with all types of market conditions. There were busy periods and not so busy times. Those times when it seemed that we were not busy, we were. We were busy being patient.

There's a fine between being patient and losing focus. I have to admit that there were periods where my focus was on other markets and not the daily ASX charts. Triathlete has mentioned a few periods where the equity curve flattened out. I'm proud of those periods because I chose to trade less when the conditions were unfavourable rather that just trade because that's what we do. Why trade when the odds are against us? I'll take a flat curve every time over a downward slope.

It wasn't until we reached the 2.5 yr mark that I selected the +100% goal and that it had to be done before 3yrs. Stupid thing to do really (trembling hand and skc knew it also). The time line added extra pressure. However it also increased focus and you've seen the results of that when the market turned bullish. Eighteen consecutive winning trades and it was all over.

Imagine if we accomplished our goal in a much shorter period or imagine if you'd only started reading this thread a few months ago. Would you have learned the importance of adapting to different market conditions? Would you have learned how to adapt? Would you have learned the importance of taking small losses?

Now you know why active trading and investing is considered a journey. It's a journey of self discovery.

 

[IFocus]

Hey Peter exceptional effort, there have seen very few threads around on the net like yours.
Congratulations on the 100% return you worked your way through some really difficult trading conditions that's where 99% lose it but you really excelled.

Well done and all the best

 

[Wysiwyg]

Yes very rare indeed to see anyone show the nuts n bolts of a trading strategy for an extended and dedicated period. Buy high sell higher works.

 

[peter2]

EOW 140 update: ASX Momentum Portfolio +104% (110% invested in 7 trades)
Benchmark index: SPAX2F15 (Incl. divs and f credits) +15.1% (past 140 wks)

This weeks sells: MMS (+1.5R), BPT (+0.6R), BPT-re entry (+1.1R)
This weeks buys: MND reentry, MMS reentry, EHL reentry

The market drifted higher again this week (+1%) but our portfolio gained ~7% (~6.6R) putting it above our +100% goal. We've done very well out of this bullish rally and showed the potential that can be acheived from a short term trading system when the market conditions are perfectly suited to our trading style. Our results "flew" over the past five weeks going from 170% to 204% ( +20%).

Thank you all for your congratulations during the week when we passed the triple digit number.


Yes we got lucky, BUT we were prepared and took advantage of the bullish conditions. We were "locked and loaded" when the market was still stuck in the sideways range.

 

[peter2]

What's next? These thoughts are rattling around my brain atm and I'm feeling like a bug on a windscreen, a little flat. .


Posting these weekly updates is part of my trading routine. I may not be able to just turn it off without some side effects (loss of focus/feel of market sentiment, style drift). I'm a trader and I still need to grow my capital and earn a living. It doesn't bother me that you're watching.

I would like to make some modifications though. The first one would be to deflate the "hype" by resetting the performance value to 0% (ie start with 100K).

There's a little "all-up" project I'd like to try (details another time).

I do want to include other major markets as there's potential for additional profits by including them. If we can get 20%pa from the ASX and possibly more from the other markets then our current capital (102K) can potentially create a trading income. I'd like to demonstrate this next stage of trader development and the potential of these other markets but I know it's a lot more work and I've failed to do it before (P2TB thread).

I think the reason I failed with that thread was that I'd always considered it "extra". I only looked at those markets when there was some free time (consequently missing the setups). I didn't make the effort to include it into my routine. I'd have to describe my own trading in these other markets as sporadic (but profitable).

It's also very likely that I was trying to add too many markets. There are 30 - 40. It might be better to add them in to my routine a few at a time. eg I rarely trade gold and oil stocks but I like trading the gold and oil markets directly. These two would be obvious early inclusions along with a couple of indices to offset the long only bias of the ASX equity trades.

It might also be helpful to do all my trading in the one thread and use the one spreadsheet. This will make it easier to keep an eye on everything. I was reluctant to contaminate the ASX Momentum thread with trades from other markets. Now that the ASX thread has hit it's goal we may be able to advance to the next stage in another thread and leave this one "pure".

ps: I'm also going to ditch the benchmark. It's so far behind us that our dust trail has settled and it wouldn't be appropriate when we include other markets.

 

[tech/a]

Just a few thoughts on the Trading over the last 30 mths.

The thing I really like is the first year March 15 to June 16
In this time the Ords traded negatively yet the well managed
portfolio of Petes managed a whopping 20%.

Make no mistake these were very tough trading times.

For whatever reason (Trump effect?) from then on markets
became more in favor---there was/is optimism.

So in came the tide and all boats started to float.
In the next 18 mths the Ords is belting along toward 20%

But in the hands of an experienced trader we have seen 20-100%
So while there is a saying of don't confuse brains with a bull market
Out performing a bull market by such a whopping difference is
truly brilliant.

If we can get 20%pa from the ASX and possibly more from the other markets then our current capital (102K) can potentially create a trading income.

I like this idea and its come up a number of times in differently
worded questions. Id like to see the tax implications covered.
The daily gotta pay the bills grind----a wage .

Make it very REAL

I doubt you could actually do it on 100K as your Businesses
only starting capital and a family to run. Personally think $300K
and $500K + if its really serious particularly when the words in blue are taken
into consideration. EG ( Funds transferred into an offset account (1) Tax (2) Wage for living.)

This is a particularly popular topic.---well I think it is.

My suggestion Pete!
That will keep you on your toes.
Might be able to help with some charts of interest!
But your thing!

 

[peter2]

"Trading for a living". I shouldn't have mentioned the term. Comparing what we've accomplished to tertiary education, all we've done is finish a standard degree course. The next step is a Masters degree where we have to enhance our knowledge and skills and do some independant work (1 - 2yrs) In trading this could be learning to trade options, pairs trading or other markets. Trading for a living is the Doctorate level (min 3yrs).

I agree with tech/a in that 100K is not enough. I don't want to get into a "how much is enough discussion", but rather focus on our next stage. That will include trading other markets that influence some ASX sectors and shorting some indicies so that we're not dependant on bullish markets.

It just so happens that for the next three weeks I'm restricted to trading the ASX on an EOD basis. I'm taking it as a challenge. Once I've done my market scanning I'll show you what I'm looking at but won't post my actual orders.