ASX Momentum Trade Book - Part 2

[peter2]

Trading update:

BAL: Sold on the open as mentioned early this morning.
DWS: Exit trigger (ET) raised to 0.78 and limit sell placed in market (0.89).

New trade: SPK: Bought today's BO-NH (2.68) iSL = 2.55.
Looking at the larger timeframe this is a reversal, but I like the daily chart which gives us a low sized risk opportunity to get into a new trend if it continues. I'm not expecting a fast trade like DWS. This will be slow and steady.



Outlook: Pleased to see the market find support here. Hope it holds and there is some follow through immediately.

 

[peter2]

Trading update: Before close. New trades as the market is starting to look bullish.

AAD: Missed/ignored BO-HR but after seeing quick retest of BO and small TC pattern bought today's open. Bid 2.40 got 2.40 iSL = 2.25.

ELD: Another BO-HR with a low sized risk setup. Bid 4.00on open, got 3.97 iSL = 2.75

JHC: Sector seems to be in demand, missed BO yesterday, bid 2.80 on open, got 2.79.
Not a perfect setup like the others as there is a recent high to the left, but there's room to geta reasonable start to trade on a move to 3.00.



Comment: I've been cautious and waiting for the market to start going up. This can mean you miss a few perfect entries, but the extra confirmation improves the probability. Remember that next week anything can happen.

I've a few more comments in the EOW update, later.

 

[peter2]

I'm deliberately targeting a different price range and company type to Daffy's (tech/a) trades. Occasionally we'll trade the same stock (SEN) but that will be rare.

You should also see a difference in activity between our styles. Daffy's is much more active than mine. I don't want to look at the market during the day until late pm. I'll make most management decisions EOD when the market is closed. I'll occasionally buy a BO late in the afternoon before the close, but will mainly buy on the open like most EOD traders.

We're lucky to be able to see different styles traded at the same time. These chart based methods contrast nicely with the longer term value investor threads. (Personally I'm really going to miss craft's input. He earned my respect years ago with his unique way of interacting in the market.)

Patience, I keep on mentioning this, but I do it to get it into my thick head. Patience means keeping your exit triggers away from the market. It's very tempting in a thread like this to get cute and raise them when we don't really need to. Daffy can use tight stops, because he's watching prices closely. I'm not.

Some of you will have noticed that prices in many of our recently closed trades have bolted higher (SEN, AGI, FLN, CAT). That's trading.

SEN was closed as I saw very high volume on the day relative to what was on my charts. My mistake was not realising that the CXA volume is not included in the ASX daily reported volume. I'm happy with the exit based on my information at the time. I learned something. The trading mistake was not re-entering at 0.19 after I realised my error.
AGI: My mistake here was placing the SL too close and not allowing price to form a HL at the 50% retracement level which was right where my iSL was.
FLN, CAT trades were closed due to disappearing bids near the exits. I'm happy with these decisions as capital protection is very important. Price has bolted higher in both stocks as demand reappeared quickly. Who knew this would happen?

Always review your decisions when the emotions of the trades have dissipated.

 

[peter2]

EOW Trading update: ASX Momentum Portfolio +11.7% ( 103% invested in 7 trades) XAO -3.7% (22wk)

This weeks sells: BAL
This weeks buys: SPK, AAD, ELD, JHC

TS adjustments (in yellow in xls): DWS, TNE

This portfolio drifted higher as there seems to be more of a "risk on" sentiment. This is flowing into the mid cap industrials. The portfolio started four trades this week with the improving bullish outlook.

 

[debtfree]

Peter2: A few things on Volume
I have noticed of late that you have had a little difficulty getting out of some stocks when you wanted to, due to liquidity/volume disappearing or thinning out. Has the latest conditions of volume in stocks changed enough for you to review your criteria in your different strategies?

Some of the things I know you have stated before on volume:
I use an average of $120,000 per day level when scanning.
I use different volume filters to reduce the amount of results in the scans.
A high vol filter may miss charts in a low volume consolidation.
Small cap stocks can have great strong looking trends but their daily volume is too low for a large portfolio so they can be missed with a high vol filter.

I understand all the above are related to scanning, trying to find potential candidates and that's all ok with me. But, after your scan has completed and when you're reviewing a chart that has good potential, naturally you would look back at the volume for that stock once again. What various things grabs your attention in relation to volume that makes you chuck it out as a candidate even though it having good potential.

A couple of things I thought about was maybe: One or two huge days that has distorted the average volume and on all the other days there is just not enough volume to get out safely. Or, the stock has a few really low volume days at times mixed amongst good volume days. Is there a lot more things to consider in regards to volume than this after scanning that I'm not thinking about?

Even with your weekly trading if you have an exit signal you would sell on Monday I guess, so you would still need to make sure of volume levels but I suppose in this style of your trading you would be in even higher volume stocks, would that be right?

Any extra thoughts on chucking out good candidates because of volume problems scenarios you can think of would be appreciated. Thanks Peter for any tips and your continued work here.

Cheers ... Debtfree

 

[peter2]

Trading update: Open trades will be managed EOD.

DWS: Sold at our sell limit (0.89) which has been in the market for a week (post#101). I did notice the increasing bid depth and considered pulling the order. This sort of decision is best made just before the open or soon after. I'm generally not available at the open and I am going to manage these trades on an EOD basis. As the order wasn't pulled, we sell at our limit (0.89).

A good result for a reversal trade (+5R) using the BO-HR as our setup.

This sell realises a good profit and makes some cash available for further trades. The portfolio was 100% invested for a while and without cash one can't keep opening trades. This aspect is often overlooked by paper traders as they start heaps of trades without realising they have no available cash.

I'd love to start five trades tomorrow. Cut the losses quickly and let the good ones go higher. It's real time trade management practice, which is good, but overlooks the consequences of limited capital. This portfolio has enough cash for one trade with a tight SL or two trades if the SL's are further away. We can't start five trades and if there are five great setups, we can only choose one. What are the odds that the one we select to trade will give us the best result? Sometimes we get lucky (DWS) but mostly we get average results.

Some of you are probably thinking so what? Well, how would you feel seeing the one you selected going sideways while three of the others are charging higher? Would you be ruing the ones that you missed? Would these emotions sabotage your daily trade management decisions? I'm going to say yes and you'll end up making mistakes that will cost you dearly.

Summary: If you're paper trading then keep an eye on the capital used and available cash.

 

[peter2]

Trading update: The index was thumped by an unexpected sell off in the banks.

SPK: New trade that gapped down but hasn't recovered quickly. SELL next open. Re-buy if trades at 2.70.
We may have been a bit early on this one, so take the small loss and get ready for another BO-HR entry at 2.70-71.
If your iSL was at 2.50, then you can be patient and wait.

API, TNE, AAD, ELD JHC: Patience, prices have paused while the index dips.

XAO outlook: Currently between recent high and recent low, so we're cautiously bullish. If the index drops <5500, we'll reduce open risk quickly by culling the losers and raising exit triggers.

I don't mind having two attempts on a BO provided I've kept the first loss small (-0.5R). The first loss doesn't mean I'm wrong. I prefer to think of it as a matter of timing and the first attempt was too early. Don't ask me what I think if it fails on the second attempt.

 

[grah33]

Peter: i've been looking at your trades in these sideways market conditions, and wondering how hard is it to profit now? both bedford and Hull suggest avoiding uptrending share strategies when the market isn't going up , although you seem to be fairly active at it. just wondering can one profit well or is it really hard in these times (sideways XAO conditions)? and are there other more suitable strategies to use for sideways market conditions? the impression i get is that many people only trade when the market is bulling upward, but i'd like to be able to trade even when it's going sideways. thanks again, and glad you did well with DWS. and thanks for journaling your trades. it's helpful to me on a practical level.

 

[peter2]

Firstly, thank you for your post. I'd hope that there would be many more posts from others like you, struggling to get something going.

grah33: You've asked this question at least five times now. If you don't like the answers then it's time to figure it out for yourself. If you think it's hard to make a profit going long in a down market then for you it will. You're stopped, waiting for a push, without turning the ignition key.

Even though the overall market (index) has been going down there are >120 stocks that trade $200K/d and have their 10EMA>20EMA>50EMA. You only need to trade a few of them to create an overall profit. I've been doing it, Daffy's been doing it. What have you been doing? What is your favourite chart setup? Have you written your first trading plan yet?

I don't want the answers. Consider this a helpful kick in the pants. You've got to select something to start with and stick to it in every market condition. That's the only way to learn. Your experiences will be more meaningful than anything you read or hear.

The pattern that got me going in the ASX market was the Darvas box pattern. I've paper traded this pattern over one hundred times, then traded it live ever since. When the going gets tough I go back to this pattern. It gets me into the strongest trends. This pattern doesn't trigger very often in a down market (that keeps me safe). I can trade this pattern, short, medium and long term.

It always was and will always be, up to you.

ps: I mentioned that the next ASX trading game was due to start soon. Did you even consider having a go?
I wonder if kushi212 will try his "simple momentum strategy" in the game. I bet he won't.

 

[peter2]

EOW22 Trading update: ASX Momentum Portfolio +9.0% ( 72% invested in 5 trades ) XAO -7.0% (22wk)

To the CEO of ANZ, thanks for nothing. The portfolio lost it's open profits and followed the market down. The only thing to do now is to protect our capital and reduce the open risk. Prices are getting closer to their exit triggers but haven't yet breached them.

This weeks sells: DWS, SPK
This weeks buys: nil

DWS: Our best result yet and it's a great example that our management rules/guidelines will not always give us the best result in every situation. I use sell limit orders to catch spikes in price that hit high targets because I don't watch prices during the day. It would have been easy for me to say that I'd pulled the sell order and we're still in this trade. The market doesn't allow you to change your mind and you should never change your mind when you paper trade.

"Show me the money".
You'll notice how taking the profit and raising the exit triggers reduces the downside exposure (red line moves up, locking in profit).

 

[Nortorious]

Firstly, thank you for your post. I'd hope that there would be many more posts from others like you, struggling to get something going.

grah33: You've asked this question at least five times now. If you don't like the answers then it's time to figure it out for yourself. If you think it's hard to make a profit going long in a down market then for you it will. You're stopped, waiting for a push, without turning the ignition key.

Even though the overall market (index) has been going down there are >120 stocks that trade $200K/d and have their 10EMA>20EMA>50EMA. You only need to trade a few of them to create an overall profit. I've been doing it, Daffy's been doing it. What have you been doing? What is your favourite chart setup? Have you written your first trading plan yet?

I don't want the answers. Consider this a helpful kick in the pants. You've got to select something to start with and stick to it in every market condition. That's the only way to learn. Your experiences will be more meaningful than anything you read or hear.

The pattern that got me going in the ASX market was the Darvas box pattern. I've paper traded this pattern over one hundred times, then traded it live ever since. When the going gets tough I go back to this pattern. It gets me into the strongest trends. This pattern doesn't trigger very often in a down market (that keeps me safe). I can trade this pattern, short, medium and long term.

It always was and will always be, up to you.

ps: I mentioned that the next ASX trading game was due to start soon. Did you even consider having a go?
I wonder if kushi212 will try his "simple momentum strategy" in the game. I bet he won't.

Hi Peter,

Great work on the thread and I can confess to reading the content religiously but not contributing a whole lot so my apologies for not providing additional comments and posts.

Interesting you mentioned the Darvas Box System. It is simple and it is effective. The strategy I have been trading is a combo of Darvas, Wyckoff and Stan Weinstein and as you mentioned above, you need to trade to find what works for you.

I think many people can learn from this thread if they take the time to reflect on the lessons being taught (and shown) as well as trading for themselves. My own portfolio has been doing well this year despite the choppy market, the last few weeks have seen overall portfolio gains of 18%, 6% and 24% for each respective week and then this week I dropped 6%.

For all the newbies and those learning, what Peter is showing is that whilst it is nice enjoying the prosperous times, when the storm clouds start to form, it's time to risk manage and reduce the open risk for your positions. I can't encourage people enough to pay attention...

The hardest thing for people entering this game is the need to be "right". Watching a position go from profit into loss is gut wrenching when you are starting out and your emotions will play havoc. Trade your plan... It took a number of knocks before it got into my thick head but now I'd prefer to exit a position at a small loss and preserve my capital for the next trade. In the end, trading is a numbers game and you trade with the positive expectancy formed through the probabilities of your setups. What's better? To be right or to be profitable....

The ASX game now provides a pretty good platform to test your strategies out on. I will be participating using the same strategy as my real portfolio but this is more for entertainment (and hopefully prize money) value. The list of stocks available is fairly limited (in my opinion) but there will still be opportunities to take positions, plan your trade, position size, manage your exit/stop loss etc. I'd encourage those "paper traders" to play the game.... and commit to it as if it was your real $$$ on the line.

Anyhow, I'm starting to ramble and it's Saturday morning, so I'm outta here!

Thanks again Peter for your great work. Keep it up!

 

[grah33]

Hi Peter

Thanks for the kick in the pants, but i'm not getting slack with it. I've been learning and back-testing manually - going back in time manually to see how my share picks would have turned out for the recent down market while following bedford's advice for shorting (she advises to increase isl space since conditions can be volatile). seemed to get ok results in profit. this kind of back-testing is really good - u get practice this way, go through many stocks straight away and learn what you would do to manage the trade as the days pass (quickly). I should also back-testing my normal strategy for these current sideways market conditions too. I've also been reading about hull's strategies for sideways/down markets but i just don't trust everything out there really works. and experienced people can give different answers . some other forum members seemed to recommend trading other instruments in sideways markets while you are trading shares. if it's possible to profit now with the same strategy than that would be best since i know shares already (to some degree).so i'm glad i asked you as well . can i ask what expectancy (roughly) drop do you get when you trade sideways markets, and what exposure do you use? no need to measure or hash numbers out, but just roughly your impression.

I'm currently waiting for an uptrending xao and xso (hull's indicator, a 10ema to cross over a 30 ema, for both indices). i guess it means that i wait a little longer than you b4 i trade so the market is trending up truly. i've enrolled in the game from b4 and played another sim. still learning...

i assume the darvas box is just breakouts in an uptrend, aka new high, what you have been using most of the time. you look for these breakouts cause they are strong. i trade this and bounces off support trendlines in uptrends (the easy peasy) for now.

my radge newsletter (i'm subscribed talked about a trend following system failing in horizontal market conditions + hull doesn't recommend his trend following system in sideways markets, so that is also why i ask...). but if there is a way to profit in sideways markets with shares, then I must find out what it is.

thanks again.

 

[debtfree]

Nortorious: It's nice to see you jumping in here and I just wanted to say thanks for the encouraging post and also the reinforcing of Peter's message on Trade and Risk Management, excellent.

grah33: Good to see you still seeking answers for your questions. You're not the only one to get a kick in the pants so keep going and move ahead. I've asked questions before, got a kick in the pants and when I've reviewed previous post the answers were there for all to see but sometimes as Nortorious stated "It took a number of knocks before it got into my thick head" as well.

It was only a week ago I asked Peter a few things on Volume, he didn't answer me! It made me think about it, he knew it would and this was his way of giving me a kick in the pants. I thought it was a fair enough post when I posted it but on reflection, I was trying to get perfection in my trading plan down to a nitty gritty and I realise that no one's trading plan is absolutely perfect and one that only spits out winners. It's about Trade and Risk management after you have some potential candidates to trade. Well I think that's why Peter didn't answer me Keep searching grah33.

Cheers ... Debtfree

 

[peter2]

grah33: This pic is just for you. The colours indicate my edge over the last eight years trading ASX equities.

You'll notice that when the trend of the XAO is unclear ( = sideways) there are less opportunities, or it could be that I decide to start less trades because the trend is unclear. The strategy that works best for me in sideways conditions is the pullback(PB) strategy. Many of these setups might be described by you as buying off support. Remember that my daily PB setups require an up trend in the weekly chart. I don't purposely trade channel setups, however some turn out like that as the initial target is the old high (top of channel).



ps: There's no point replying when commonsense provides the answers.

 

[debtfree]

Peter2: The market is looking a little poor tonight, prices are close to the Trailing S/Losses. I know Capital at Risk and Total Portfolio Risk are low from your trade management. If overnight markets turn out very poor would this be enough for you to sell all stocks at Open in the morning rather than waiting for the next day's open? Or, is this a case of just sitting tight and letting your T-S/Ls take you out?

Cheers ... Debtfree

 

[peter2]

Trading update: Thanks for the prompt. I may not have thought about this portfolio tonight. The weakness in the index is mostly due to the banks which have been killing me. While the nurse dresses my "bank" wounds, let me have a look at our open trades.

API: Price has made a 3-wave correction to our exit trigger. Yes, I think we should SELL next open (12/8) as I sold mine at today's close. If I had a little more patience our original SL (1.40) is a great "must sell" line in the sand. I like the 3-wave correction, I'll be keeping an eye on this one for a re-buy (>1.75).

ELD: Price is testing the BO level. Another down bar would make me sell on the close. Yes, let's SELL this one on the open also. we can always re-buy when price close >4.00 again.

JHC: Price could be making a HL and I'll like to give it a chance, but this is a momentum thread so SELL this next open.

TNE: Nothing to do with this one as long as the HL holds.

AAD: Nothing to do here. There is enough depth so I'd sell if 2.25 trades, and also sell if it looks like closing <2.30. A good re-entry would be the BO-NH (>2.45).

Low volume retracements when the market is being sold off are hard to sit through. It's important to manage them consistently. For this thread if there is any doubt I'll sell, knowing that we will re-buy them when prices start to rise again. A medium term trader should let the HL's form as they confirm the trend.

 

[debtfree]

Peter2:
I hear what you're saying in regards to "The weakness in the index is mostly due to the banks which have been killing me." since the banks are such a large part of our market. I also noticed on my daily sector chart that Health and Energy over the 8 trading days has taken big hits as well, the weakness is a little more widespread and I'm sure many other traders have suffered a few wounds also.

Thanks for the update, I thought you might be a little proactive today due to market conditions at this time for your momentum trades. All trade management makes sense and I like the way you're still looking forward by mentioning re-entry and at the same time marking your re-entry point/price, another important part of our trading plan.

Thanks Peter and hope you have health insurance for your wounds.
Cheers ... Debtfree

 

[debtfree]

Peter2:
What's your thoughts on TNE today? It rallied higher before heading down with sellers coming in as well, do you think momentum is over now? Is it time to sell today or do you still sit tight? AAD - I presume that's sold today?

Cheers ... Debtfree

 

[peter2]

Trading update: Huge down day. Daily - DOWN, Weekly - DOWN, Monthly(incomplete) - DOWN

AAD: Sold at 2.25.
TNE: Looking OK to hold. I would be concerned on a close <3.80 and would sell if 3.75 trades.

The best way to handle losses is to close the position. All the emotions and that queasy feeling in your guts disappear. Open wounds dry up and the healing starts.

As for the insurance, I'm sorry that we didn't start an ASX200 short to offset our longs. Mea culpa. This is one aspect of my trading that needs to improve.

 

[peter2]

EOW24 Trading update: ASF Momentum Portfolio +8.0% ( 41% invested in 3 trades ) XAO -9.1% (24wks)

Another fun week in our market (4/5 down days). In the past two weeks the market has dropped 5.6%. Our portfolio has dropped 3.7%. We managed to protect a little bit.

This weeks sells: API, ELD, JHC, AAD
This weeks buys: NXT, ELD

ELD: Noticed it spiked up through 4.00 this afternoon and looked like closing >4.00. This was our predetermined re-buy entry trigger. We bought 4.05 (iSL at 3.70).

NXT: Bought BO-HR (at 2.67) iSL placed conservatively at 2.45.

Are we there yet, another low that is, or will it go to 5100 (Oct14, Dec14 lows)? It doesn't really matter. We'll just start a few trades and protect our capital as best we can.