Charting/Analysis, Phase 1

[pixel]

My last scan run for the year resulted in this:
BKW.AX BRICKWORKS FPO $10.85 [scan...] suggests Long: [condition 1] OK 5 days ago. MACD Speed x zero on the last day.

Given the games that are played at such a significant date, I'll obviously wait and observe how Tuesday's market depth shapes up. But if it looks genuine - or if I saw such a setup in the middle of a month maybe - it's got a strong chance of succeeding. I'll post details in the "proper" BKW thread.

 

[boofis]

If a position of 20% of total capital is taken each time.
1.45 2758.6 1.55 235.8 20235.86207
0.62 6527.6 0.66 221.1 20456.96997
0.15 27275.9 0.15 -40 20416.96997
0.2 20416.9 0.24 816.6 21233.64876
2.34 1814.8 2.34 -40 21193.64876

So, I don't know if I've done a correct comparison but am trying to get my head around how changing aspects of position sizing affects equity curves etc. and so far, I don't really know haha It seems that taking a percent approach of capital smooths things out relative to a fixed position....?
Anyone got any good links/ideas re. position sizing for non futures trading?

 

[Wysiwyg]

Anyone got any good links/ideas re. position sizing for non futures trading?

Yeah man I use Stator to record financial transactions and they have a PDF which shows models of position size from page 8.

 

[Boggo]

Position sizing:
Say we have a series of 5 trades each different shares at different prices:
Scenario 1. Taking a fixed position of $5,000 in each trade.

A common error is to refer to taking a position of a certain value ($5000 in this case above) and calling it "position sizing".

Position sizing is where you place a portion or percentage of your capital at risk on each trade.
When you enter a trade you need to also know where your exit (your stop) would be.
The difference between your entry and your exit should the trade go against you is the amount at risk per share.
Lets say that this is 5c and you are prepared to lose $400 on this trade if it goes wrong (ignore brokerage and slippage for the exercise) then you can only buy 8000 shares (ie $400.00/$0.05 = 8000). The total value of your purchase is determined by the price of each share x 8000 or is limited to a figure below that by your capital or by the amount of your capital that you are prepared to put on any one trade.

A recent trade of mine was RED where I entered on 20/12/11 at 1.75 with a stop at 1.69, ie 6 cents per share at risk and that determined how many shares I bought. I got stopped out and lost precisely what I had at risk which resulted in me only giving back a small amount of what made on a previous profitable trade on the same stock.

So, I don't know if I've done a correct comparison but am trying to get my head around how changing aspects of position sizing affects equity curves etc. and so far, I don't really know haha It seems that taking a percent approach of capital smooths things out relative to a fixed position....?
Anyone got any good links/ideas re. position sizing for non futures trading?

If you ignore the software promo bits you can learn the concept on the link below, view the video.
The bottom line is calculating/knowing how much is at risk and controlling it, profit looks after itself except when you go into profit and then hang on when the price is falling and you give it all back, why bother in the first place if you are going to do that.
http://www.mtpredictor.com/Position-Sizing

I hope that some of this gets everyone thinking about how to stay in business.
Just my

 

[boofis]

A common error is to refer to taking a position of a certain value ($5000 in this case above) and calling it "position sizing".

Position sizing is where you place a portion or percentage of your capital at risk on each trade.
When you enter a trade you need to also know where your exit (your stop) would be.

Do you have a stop set in terms of profit before the trade even plays out or just a stop loss?

 

[Boggo]

Do you have a stop set in terms of profit before the trade even plays out or just a stop loss?

Quite often it is possible to predict a minimum target figure if a stock is following a predictable pattern but generally you have to expect it to move in the direction you want.

I tend to go with a trailing stop and that is often an obvious visual point on most charts. The main initial target is to be able to get your stop up from your predetermined loss point to a breakeven point without getting too impatient or too close to the action that would cause you to be stopped out only to see the price continue on its way upwards.

Have a look at the chart of RED, not necessarily a great example as it really is a 15 cent stock that has had a consolidation and the erratic volume etc confirms that.
Lets say you went long in the first week of November and you were still holding when it peaked on the 1st of December, just by looking at the chart where is it obvious that the uptrend has most likely ended.
Its really as simple as being the reverse of why you entered at a particular point or breakout.
If you tip the chart upside down, where might you enter if thought that it had bottomed, the same applies when you think it has topped, if that makes sense !

 

[pixel]

Quite often it is possible to predict a minimum target figure if a stock is following a predictable pattern but generally you have to expect it to move in the direction you want.

I tend to go with a trailing stop and that is often an obvious visual point on most charts. The main initial target is to be able to get your stop up from your predetermined loss point to a breakeven point without getting too impatient or too close to the action that would cause you to be stopped out only to see the price continue on its way upwards.

Have a look at the chart of RED, not necessarily a great example as it really is a 15 cent stock that has had a consolidation and the erratic volume etc confirms that.
Lets say you went long in the first week of November and you were still holding when it peaked on the 1st of December, just by looking at the chart where is it obvious that the uptrend has most likely ended.
Its really as simple as being the reverse of why you entered at a particular point or breakout.
If you tip the chart upside down, where might you enter if thought that it had bottomed, the same applies when you think it has topped, if that makes sense !

Re Trailing Stop: I agree 100%, Boggo

Talking about small retail investors - as opposed to market makers, movers, shakers - one of my tutors used to say "The Market doesn't care where you bought. The Market doesn't even know you exist." When we really think about it, that makes a stop that's based on our buy price rather haphazard. I let the chart guide me as to where the promised change of trend is failing to eventuate. That's either a must-hold support that's evident in the market depth (provided that's a credible help), or a neutralising suggestion that the uptrend is coming to an end.
To my way of trading, this neutralising signal can come from a Bearish candle formation or simply a Fibonacci target from a previous breakout where trades appear to hit a ceiling. If such a signal happens and the stock in question has a history of "playing" by this particular rule (which some of us refer to as "the stock's DNA") I don't wait around until my lower stop level gets broken. Usually, I find the break comes a few days later anyway, only at a lower price than I managed to get.

As regards "flipping the chart over", I know that suggestion is being made quite often and may well be used as a rough guide. But it usually gets one out of a trade much too late. The reason lies in the fundamental psychological difference between the decision processes that lead to buying as opposed to selling.
In general, fear of losing value is a far stronger emotion than greed that makes us want to get on board cheaply. Our brain may "know" that emotions don't have a place in trading, but the brain is rarely the sole decision centre.

Compare the sections of a chart, where the price and volume move up: steadily, hesitantly, with backing and filling; as opposed to periods, when a sell-off occurs: the first sign of somebody selling a noticeable amount, and it's panic stations! Get out! Get out! The ship is sinking!

Sometimes, this stampede can be artificially introduced when someone has access to an online server that holds many retailers' conditional (stop) orders; or someone merely "guesses" correctly, where those stop orders are sitting. It only takes a few judiciously placed sell orders to trigger an avalanche of stop orders, called a "Stop Raid".
(I have heard brokers brag about their ability to scare it out of their retail clients and build a good parcel 10 or 20% below Market - usually within minutes.)

Which has cured me of any notion about leaving contingent orders with somebody else's computer. When my stop condition gets hit, I always take the time to analyse the situation and check the background. When I detect a stop raid is on, I'm rather inclined to join the low buyers than feed my perfectly good holding to them in the general panic.

PS for boofis: In order to calculate my position size, I must know before placing the order which stop level currently applies. Without it, I wouldn't be able to know how much of my capital I'm risking.

 

[Boggo]

Sometimes, this stampede can be artificially introduced when someone has access to an online server that holds many retailers' conditional (stop) orders; or someone merely "guesses" correctly, where those stop orders are sitting. It only takes a few judiciously placed sell orders to trigger an avalanche of stop orders, called a "Stop Raid".
(I have heard brokers brag about their ability to scare it out of their retail clients and build a good parcel 10 or 20% below Market - usually within minutes.)

Agree, you see that happen but usually on stocks that are on an uptrend, they have that "little" correction that takes a lot of stops out and that is partly why I suggested in a previous post that you need to be patient when trying to get your stop up to breakeven or else you will become a victim.

In some cases though (my RED trade being an example with stop at 1.69) it is fairly obvious where every stop will be but it is a case of just wanting to get out especially when you are fairly sure that it is going to drop by over 20c if it turns down again.

This is an extract from the article on the link below...
This may sound simple – “do more of what is working and less of what is not” – but it runs contrary to human nature. We want to be right. We naturally want to hold on to losses, hoping that “things will turn around” and that our trade “will be right”. Meanwhile, we want to take our profitable trades off the table early, because we become afraid of losing the profits that we’ve already made. This is how you lose money trading. When trading, it is more important to be profitable than to be right. So take your losses early, and let your profits run.

http://www.dailyfx.com/forex/educat...he_Number_One_Mistake_Forex_Traders_Make.html

 

[joea]

Hi Joe,
the beauty of the Market Analyser lies in its ability to scan the entire ASX in minutes and list only those stocks that match the criteria I'm looking for (i.o.w. that my scanning script has been written to pop up on the day the condition triggers.)

Hi. Pixel (exactly)
In another post it was mentioned that approx. only 5% of the traders have a plan in ink.

So to only approx. 5% of traders would be consistently using the same scan that they are confident with. (or indicators ) .or strategy.

The 90% are trying this, trying that, and continually trying to build indicators and scans to conquer the almighty market. also they waste 90% of their time doing so.

In your case you are consistently using a technique that works( or profitable). When you make or find an improvement (i would bet) you upgrade your plan or strategy immediately.

Finally, there a couple of threads developing into great ideas and pointers, so I hope they continue.

What would be interesting, would be for the tipping competition entries to be linked to some of the selection strategies and the top few be released to the forum. After all it will only be the selection process and scan!!! or are they just impulse guesses?
joea

 

[boofis]

The 90% are trying this, trying that, and continually trying to build indicators and scans to conquer the almighty market. also they waste 90% of their time doing so.

In your case you are consistently using a technique that works( or profitable). When you make or find an improvement (i would bet) you upgrade your plan or strategy immediately.

Ralph Vince - The Maths of Money Management
"The key to ensuring that you have a positive mathematical expectation in the future is to not restrict your system's degrees of freedom. You want to keep your system's d.o.f. as high as possible to ensure positive mathematical expectation in the future. This is accomplished not only by eliminating, or at least minimizing, the number of optimizable parameters, but also by eliminating, or at least minimizing, as many of the system rules as possible."
Seems to be in sync with what you are saying re. indicators and scans to conquer the market.

 

[joea]

Ralph Vince - The Maths of Money Management
"The key to ensuring that you have a positive mathematical expectation in the future is to not restrict your system's degrees of freedom. You want to keep your system's d.o.f. as high as possible to ensure positive mathematical expectation in the future. This is accomplished not only by eliminating, or at least minimizing, the number of optimizable parameters, but also by eliminating, or at least minimizing, as many of the system rules as possible."
Seems to be in sync with what you are saying re. indicators and scans to conquer the market.

With books, and software(we have over a 120 indicators), the authors or providers make their money selling and marketing. for some trading software is just another computer game.
Today with computers and software providers, the trader is doing the complex first, then coming to realize the simple things that work, second.

The old semi- retired farmer up the road, has no computer but has a broker. He buys a paper each Saturday and has a portfolio of >$600k, and has dividend payout of over $50K per year, and enjoys reading about his stocks each weekend. He does not know what d.o.f. stands for.
That"s what I call a relaxed trader enjoying life. But that's his life choice.

For all the young gun traders who have purchased 5 books or more (and software), ask them what they have put down on paper to help them trade.

It was mention previously, "trading is a business". And it is a harder one than just turning up for 8 hrs to be paid.
I just think are lot of new traders are making the "simple", more "complex".

It's just my opinion that is all, not to say anybody is doing it wrong.
That is why I made reference to the tipping competition. It would make it more interesting.
joea

 

[boofis]

Whilst I agree re. the farmer up the road in his success, I think we might be talking about two slightly different things; trading vs. investing, yeah?

Would definitely be interesting to see comparisons on methods used and success but even still, that probably wouldn't give an accurate picture of how successful the method is, rather, how competent the individual is at sticking to the method or implementing it lol.

 

[joea]

Whilst I agree re. the farmer up the road in his success, I think we might be talking about two slightly different things; trading vs. investing, yeah?

Hi boofis.
Actually I am referring to something that Tech/a has mentioned many times,
" profitable trading ".
Trading, Investing, Forex, Commodities, makes no difference.
Technical Analysis, Fundamental Analysis or a blend of both. At the end of the year there will be a profit or loss, and I though the objective was to pull a profit relative to time and money invested in the process.

Quote:: "Anyone who buys or sells a stock, a bond, or a commodiity for profit is speculating if he employs foresight. If he does not, he is gambling."
Richard D. Wyckoff.

The point I was attempting to make was, "trading is a journey" and it does not particularly matter how you get there. However to arrive safely(profit) should be high on the agenda. (Actually its the only agenda.)

cheers joea

 

[joea]

Would definitely be interesting to see comparisons on methods used and success but even still, that probably wouldn't give an accurate picture of how successful the method is, rather, how competent the individual is at sticking to the method or implementing it lol.

To Quote Elder in "How to take profits, cut losses, and benefit from price declines".
"To be a successful trader you need an edge......A beginner has no plan and no edge.
My own search for an edge led me to focus on the gap between price and value.
Price and value are not the same".

In people's mind and in trading, the word "edge" covers hundreds of concepts, and that is why its so hard for anyone on this Forum to describe a method. It will never apply to all.
Finally Elder suggests a way to "Grade your Performance", by calculating The Buy Grade, The Sell Grade and The Trade Grade. This then allows you to continually improve your trading.
Should probably get back to thread discussion. Will post the grades on an appropriate thread.
joea

 

[pixel]

This may take us even farther away from the topic Charting/Analysis, but in reference to the old semi-retired farmer, I'd contend that many a member of this group may have felt an urge to drive the front loader into town and do to the broker's Beemer what he reckons the broker has done to his portfolio. Unless the broker has well and truly "managed" the stocks he used to buy each week, ensuring that they continued to pay 8.33% dividend every year.

In any case, the said farmer as "investor" by proxy is probably a dying breed, as I find an increasing number of semi-retired farmers, small business owners, brickies, bus drivers... among those that try and actively manage their own nest eggs. Not all of them succeed, some even fail dysmally - especially those, who cannot get their minds around the new paradigm of "technical" disciplines, but still believe in the myths of an "honest advisor" and "fair fundamental valuation."

The ones, who have spent the time and effort to grasp what a few selected "indicators" tell them, are in a minority, but they are also forming the small elusive group that makes a living from whatever it is they call it: "investing", "day-trading", "playing the money market". The label doesn't matter. The Plan does.

 

[cudderbean]

Re: Charting/Analysis, Phase 1.

I can't find much wrong with either analysis:
Support 33c, primary resistance 40c, confirmed buy area 36-37;

however, in my experience,, a setup like this will often present an opportunity to stock up more for less than today's trade range. Moves like this tend to retrace by around half of the range; those retracements I usually trade off a 30-minute Intraday chart such as this:

View attachment 45657

Applying the same principle to Thursday's range, when primary resistance was 38.5c, would have suggested a buy order at 36.5c (Fibonacci 61.8%).

View attachment 45658

You were certainly spot on with your retracement analysis of SDL .... High of 40, retracement to 36.5 as predicted, now trying to push through 40 again.