P2 US Equity Portfolio

[peter2]

After the slaughter on Friday I anticipated that there might be a rally or at least a choppy day on Mon so I started a swing trade short in UVXY on Friday. I shorted UVXY at 25.00 on Fri and tonight noticed that price was below 22 in the pre-market. The US rallied a little during the UK session. I logged on to the trading platform, but couldn't work out how to place an active buy order in the pre-market.

Of course while I'm trying to figure it out UVXY was going up as the US rally had ended. There I am scrambling to find out how to place the bloody order in the pre-market as my open profits were disappearing. I finally hit the right order type as UVXY was trading at 22.72. I'd missed out on 0.80 - 1.00. Of course it opened much lower to rub it in before finally going higher.

I've started another short at 23.00 (small pos size because anything can happen these days).

 

[peter2]

As mentioned in another thread I'm keen to short the US VIX that is sky high due to the panic. I'm trading that the current panic will subside soon. I don't know when but soon.

I'm stalking UVXY trading at 53 and placed my orders only to see that they were rejected. What's going on? Then I noticed that my broker has made UVXY hard to borrow, which means I can't short it. Bugger. What else? Then I remember there's VXX. Punched in the code and it's OK to short, fired off my sell order and all the screens froze. WTF? Is it my PC again? Log in to the webtrader and see it's frozen also. Now I don't know if my sell order has been executed. Then it dawns on me that the 2nd exchange circuit breaker has probably been triggered. This is set at -7% and I see the SP500 dropped enough to trigger it.

Now I wait until everything starts again. We're off and running and I see that my short was executed, great as the market has started to go up (VXX down).

Meanwhile I was also stalking a reversal long in a few oil stocks. The main one I look at is XOM. Placed a buy stop order at 42 with a huge iSL at 41. Happy to get a quick $1 to $1.5 with my target at 44. Pleased to see that price hit the target in three minutes. I'm out and going home.



Wait, I just realised that I am home. All this volatility is getting to me. It's better than adrenaline.

The market is still going higher and UVXY is now 46. A quick +7 but I'm not on it.
VXX has only dropped to 37 (+3). This is not a day trade and I hope the panic settles quickly in the next few days.

 

[peter2]

Just a note to mention that I've closed the VIX trades last night, when prices started to go against my preferred direction. Looks like the sellers are still in control as the current pre-market prices indicate a gap up open (market going down further). I'm still keen on the idea that the markets will settle down soon, but not tonight it seems.

 

[peter2]

I'm looking at the behaviour of the CBOE VIX during the GFC as my model. The VIX spiked quickly in the initial price selloff then decreased slowly even as prices fell further. The VIX spikes very early, in the first 20% then slowly settles as people adjust to the inevitable bear market.

The VIX topped out at 96, but was extremely volatile between 55 - 96. Even though it's a high probability trade getting the timing right is almost impossible. Options are probably the best instrument to use because of their limited risk (provided the liquidity is available when you need them).

 

[peter2]

I want to do something a lot more constructive and hopefully more rewarding in this thread.

The thread started with the dilemma of too many opportunities in the US markets so I narrowed down the opportunities to a small list of ETFs. This small list took up minimal time to review for possible opportunities. I outlined the setups. We traded a few and started well. The inclusion of inverse ETFs allowed us to profit when the market went up or down. Well, that was the idea.

Did this thread profit from the sudden selloff? Unfortunately, no. The selloff was so sudden that there was insufficient time for the price action to form our chart setups. The subsequent increase in volatility that accompanied the panic selling increased the traders risk so significantly that it was difficult to join in late. Of course, we never chase the market.

Naturally I'm disappointed that the thread's TP didn't produce the goods on this occasion. Actually, I'm a lot more than disappointed, so something has to change.

I recall the success of the 40 position ASX portfolio and wonder if I can repeat it in the US. That was a long only portfolio because that's what most people manage. However I don't have enough funds in the US account for a 40 position portfolio even with the low brokerage costs. I'm not going to paper trade a portfolio. I want to earn more USD and at a substantially greater rate than 10 - 20%pa.

How about a portfolio with a combination of longs and shorts? The account has enough for 10 - 15 positions. How about we establish a number of positions to start and add more when we can?

This will require a new TP and a lot of thought into preparing one.

 

[peter2]

If you've read my ASX portfolio threads then you'll be familiar with how I use a market filter in a long only portfolio. The filter guides my trade management and helps me manage the total portfolio heat. When the market filter is downgraded it's time to tighten the exit stops and reduce the number of open positions. This is very helpful in a long only portfolio but will it help in a portfolio with both long and shorts?

ATM it doesn't because all I'm considering is the bullish sentiment in the market. I could consider the bearish side when the filter is downgraded but it may be too late. Thinking about the sudden selloff in the US markets I didn't consider the bearish case at all. My outlook was biased. It's not an easy thing to create and maintain a balanced outlook on the market. There are too many psychological biases to overcome.

If a long/short portfolio is to work then we require an objective indicator to guide the number of longs and shorts in the portfolio.

In a bullish market we may have 8-10 longs and 0-2 shorts.
In a mildly bullish market we may have 5-7 longs and 3-5 shorts.
In a mildly bearish market we may have 3-5 longs and 5-7 shorts.
In a bearish market we may have 0-2 longs and 8-10 shorts.

I'm interested in your thoughts on what we may use.

 

[qldfrog]

First of all, i would avoid rushing into hasty decision:
A recipe for disaster.
Then i wonder how you can efficiently mix short and long thinking in a portfolio
Isn't it going to be a mind game and an uneasy one?do you go with 2 pass one long one short, i think you are asking if not for trouble at the very least for a big challenge.
I understand that by going both long short you maximize your fund which are pooled.
Maybe a possibility
Total fund split in two
On paper one long and one short portfolios.
Allocated 50pc on long 50pc on short, avoid ETF
Even on falling market you can go long: gold for example or funeral parlour
And even when market rise again you can short some
gold for example or funeral parlour
That way you always manage 50pc long 50pc short
With 2 separate (on paper but can use same account) portfolio and mental setup..have a cuppa between working on either
Would that help?

 

[peter2]

@qldfrog Thanks for your reply. Two separate systems, one long and one short operating independently is one solution. The systems would have to be completely mechanical to avoid being influenced by my psychological biases.

Without any market filters the short system will lose money in a bullish market and the long system will lose money in a bearish market. There will be sector and stock exceptions as qldfrog mentions. Other than relying on luck one would need a robust top down analysis to be able to recognise the weak sectors for shorting in a bullish market and the strongest sectors for longs in a bearish market.

The lower the number of positions in a portfolio, the more we rely on luck for our performance. This is something that I want to minimise and the only way to do it is to open more positions. Unfortunately the starting capital won't allow me to operate 20 longs and 20 short trades. This is where back-testing would help.

 

[Newt]

What fascinates me Peter2 is that you not only openly share your thoughts before starting a new portfolio, but also openly admit where and what you learn by pushing yourself into new arenas. I don't like to bias your final decision, but frankly any of the options (for long and/or short trading) you've described would be valuable to see in action in US market.

 

[qldfrog]

I have to admit that i know nothing about the US market.
I use it to have an exposure to USD and access to areas, stock we can not access in oz: research, ETF, ,electronic etc
I do not do any charting trending on that market..
Just to highlight how wrong i could be...

 

[tinhat]

Any song requests?

 

[peter2]

I haven't forgotten this thread. It's just that I've been flattened by a roundhouse punch that I should have seen coming (virus selloff), been chin tagged by some swift jabs (gold selloff) and had my air knocked out by a fierce body blow (trying to buy the bottom on CCP). I'm off the canvas and looking around to see what is going to happen next.

The setups for the imminent long/short portfolio will be based on the 1st BBs and 1st RBs on my charts. The price bars on my charts are coloured blue/red based on the supertrend (ST) indicator. The ST indicator calculates a value above and below the current prices based on a multiple of the average true range (ATR) of the price bars. When price closes above the upper ST value the bar is coloured blue and it's a buy alert. When price closes below the lower ST value the bars are coloured red and it's a sell alert. I've always used a medium period of 21 days for the ATR(21) and I've been comfortable with the changes on the charts.

Adapting to current market conditions.
The huge increase in volatility and price movements have made my normal settings for the ST indicator unsuitable as the medium values are much too small for the current volatility. I've started using 2 x ATR(7) on the daily charts as this allows more room.

The underlying tactic for using this indicator is to identify a significant increase in price movement in periods of low volatility that might be the start of a much larger price movement. Typical examples are the obvious BO-HR bar and the moves when a corrective pull-back has ended.

When volatility is high (like now) the R:R of these setups is mostly unacceptable. I must wait for the volatility to subside. It's the same underlying tactic of a Darvas BO, O'Neils "pocket pivots", the CAM blue/green bars. Other means of identifying this price action uses the parabolic stop and reverse (PSAR) indicator, count-back lines and the horizontal and sloping resistance lines that define BOs. I can hide the ST indicator on my charts and avoid the clutter than the dots and lines produce.

 

[peter2]

I've got remaining issues to resolve concerning the trade plan and I'll discuss this later.

While I think of it and before the US opens tonight I want to record a few long positions in this long/short portfolio that I've mentioned elsewhere.

This portfolio will start with an account balance near $25K. This account is used for both swing and day trading although I'm only going to report the results of the swing trades in this thread. I have mentioned that this account will be traded a little more aggressively. Now that the AUD is so weak lets earn as many USD as we can.

The positions I want to record now are both long leveraged gold ETFs.
Bought NUGT x100 @ $6 = cost $605
Bought JNUG x100 @ $4 = cost $405.
These positions have no SL. They can go to zero but that's highly improbable. If they fall lower it's likely that the administrator would consolidate the number of shares (reverse split) to allow more price movement.

This means the current portfolio heat is 4% long and nil short.

I am considering buying other commodity ETFs at the lower prices rather than stocks atm. The recent strength in the USD has seen many commodities fall rather a lot.
ERX (energy bull x3) ??? The Saudi's have more money than me. (The market can stay irrational far longer than I can stay solvent.)

 

[InsvestoBoy]

hey @peter2 did you see there was some discussion on twitter about JNUG and NUGT?

See this thread:


and update:

 

[InsvestoBoy]

I am considering buying other commodity ETFs at the lower prices rather than stocks atm.

Commodity ETFs suck if the underlying futs are in contango.

See USO or UNG.

Why bother when you can buy the likes of Glencore, Freeport McMoran, BHP, US Steel, Exxon, etc? They also have decent options market if you want the leverage with no stops feature.

 

[peter2]

I did buy some UNG last night and closely considered USO. Missed the BO on USO for a day trade.

I consider companies to have more risk than commodity markets at the moment. Many companies will start to report virus cases and have to isolate and quarantine entire crews. Larger companies will be able to cope better than smaller ones.

Yes, I agree that the options markets are the most suitable instrument for this type of activity. I know some of the basics and have a C.Schwab option account somewhere. It might have gone to the US last I heard. I've decided to not fund it.

ps: I couldn't resist the urge to ask what's twitter? Good to see others see the same potential.

 

[Warr87]

I did buy some UNG last night and closely considered USO. Missed the BO on USO for a day trade.

I consider companies to have more risk than commodity markets at the moment. Many companies will start to report virus cases and have to isolate and quarantine entire crews. Larger companies will be able to cope better than smaller ones.

Yes, I agree that the options markets are the most suitable instrument for this type of activity. I know some of the basics and have a C.Schwab option account somewhere. It might have gone to the US last I heard. I've decided to not fund it.

ps: I couldn't resist the urge to ask what's twitter? Good to see others see the same potential.

I wasn't trading at the time, but from what I understand even in 2008 during the GFC, it was a great time for commodities.

And FYI, I know some quant systems use things like twitter for a sentiment index to include in their buying rules .

 

[peter2]

Direxion is responding to the increased volatility by reducing the leverage on a few of its ETFs.

 

[InsvestoBoy]

200, -200 or you know, just whatever

 

[qldfrog]

that easy..... just change the rules as convenient
this is terrible