Pavilion103's LIVE ASX Momentum Setup Trading Thread

[peter2]

re: ALU:

Short term momentum trader = yikes
Medium term trader = no worries
Longer term trader = yawn

 

[peter2]

EOD trading update: Open trades: SAR JHC SIQ QBE SEA

SEA: Bought as price triggered the buy stop (0.685 - 0.69) iSL is 0.59.
This trade will need the price of oil to keeping going higher.

Comment: Large price spikes like that in ALU (and AGF BAL CVO HSN) are the bane of traders that use tight stops and short term momentum traders. They will continue to happen so traders will need to adapt their trade management rules to cope. It's no use grumbling or whinging. Trades in this thread have been and will be hit by a spike and closed, only to see price bounce back immediately.

The day we don't sell after a large down day, there will be a second large down day. Ouch.

I've already mentioned that I love my re-entry rules. I don't use them as much as I should and it's one thing I must improve.

If you don't like getting kicked out of your trades by a large down bar and you don't want to be as active as these exits are making you then you must allow more room for price to move against you. You may be a much better medium term trader than a short term one. Adapt your trading style to suit yourself and your lifestyle. It's easy.

 

[peter2]

EOD trading update:

TFC: Price traded at my 1.85 trigger, but I have not started the trade (in case you noticed).

The current capital risk is 3.9% and the bear market limit is 4% (bull market limit is 6%). These guidelines prevent me starting too many trades when overall market conditions are unsuitable for the strategy.

In order to start another trade I must wait for the market to return to a bullish state, or wait for a 1% reduction in the capital risk. Capital risk can be reduced by raising the existing sell stops or by closing a trade at it's iSL (-1%).

 

[myrtie100]

Peter, what do you use to measure whether the market is Bullish or Bearish for this strategy?

 

[fiftyeight]

Great thread Pete.

The additional comments on why you are making certain decisions has been very insightful

 

[peter2]

fiftyeight: Thanks for the compliment. I like to think that I have a rule or guideline for every trading decision so I'm happy to explain each decision. I'll describe my occupation as a rules based discretionary trader. My explanations can seem repetitious at times, but repeating the rules (and reading my plans regularly) gets them into my subconscious.

Hello Mytrie100: I mentioned earlier (post#83) that I place lines on my XAO chart to use as indicators. My current XAO chart looks like this.

 

[myrtie100]

Thanks Peter..It's showing lower lows = bearish.

 

[5oclock]

PETER you have put a lot of time and effort into a REALLY good thread, well done and thank you. This is a stand out thread on a great forum !! I know i have not contributed , but have read every post and got a lot out of it--and will keep reading -- appreciate all your work.

 

[Newt]

People can and should get even more value from Peter's posts in the current sideways/down market conditions. That's where sticking to good trading rules and maintaining a calm approach can really protect valuable capital.

 

[Gordon7]

Offering a consideration here if I may.

I like to go beyond the major market index (XAO/XJO) and look at our other major indicies.

From time to time different market groups will have their own sell offs or rallies in excess of the movement in the broad market. In the past month we have had the banks sell off hard and because they constitute a large component of the XAO or XJO, on the face of it it seems as if we should be concerned about the market as a whole. This is clearly indicated in Peter's chart of the XAO.

However, when we look at the chart of the XNJ - the 200 major industrial companies ie. excluding the financial and material stocks, we can see a different picture. Really, just a consolidation correcting an overbought condition.



Let's also take a look at the XSO - smaller companies outside the top 100.



The above charts alone tell me that there are still major pockets in the market which have been holding up quite well during what we are given to believe has been a tumultuous time in the market.

 

[tech/a]

Gordon
I agree.

 

[VSntchr]

These are the codes of the charts where I've framed a setup for this thread. They are all BO-NH as we want to buy stocks in demand.

EPW HFA QBE SIQ TFC WBA LOV SEA IFM

I'll take the next two or three that trigger then review the market at that time.

I have been watching LOV for a little while from a fundamental interest. It's pretty thin to trade but chart looks nice.

LOV breaking out today, as mentioned liquidity makes it tricky.

 

[peter2]

EOW11 Trading update: Pav Portfolio +7.0% ( 70% invested in 5 trades ) XAO -2.8% (11 weeks)

This weeks sells: ALU
This weeks buys: QBE, SEA

The portfolio held its value this week as the index improved a little. Trailing stops on QBE and JHC were raised and this reduces the capital risk to 3.1%. Raising these TSs allows us to start another trade and respect our bearish market limit (<4%).

Gordon7 makes a valid point that the drop in the index is primarily due to the financial sector and other sectors are still tracking sideways (XSO slightly up). Therefore describing the market as bearish based on just the XAO can be misleading. You'll notice that I haven't "shut up shop" due to the change in the XAO daily trend. All I did was reduce the open risk a little and didn't start new trades this week.

Knowing that the open risk is within comfortable levels we can review the market over the week-end and be better informed about the hot/cold sectors.

The great advantage that discretionary traders have is that they can apply some commonsense in every situation. The portfolio can start another trade so it would be logical to find setups in the stronger sectors of the market and be prepared to act on them.

#VSntchr LOV it

 

[peter2]

EOD trading update: Spent time on the weekend looking at the sectors and the charts. It's always time well spent.

SAR: Sold open after Fridays large down bar (momentum killer).
SEA: Sold open after two down bars.

Note: These exits are for the purposes of this thread. For a gold stock SAR hasn't really responded to the price rise in gold (like SBM). It's been slow and steady and is not turning out to be an ideal trade for a momentum trade book. I'm not happy with the TS at 0.45 which is near the mid point of the recent swing. This is NOT a good place for a TS. Whenever I become confused about how to manage a trade I've found it best to exit. This cleans the slate and I can reassess.

SEA: is responding to the price of oil which has been quite volatile. I don't have a problem with that but this thread bought the BO anticipating a fast move up. It hasn't happened. It was sold after two down days. There is no point holding the trade hoping for a turnaround.

Personally I've not closed my trades in these stocks (SEA, SAR) as they are managed differently and their exit stops are lower. I can cope with the oil and gold price volatility by trading these markets intraday and overnight.

New trade: VTG: Bought the BO-HR (1.80) iSL = 1.60

Note: My personal iSL is 1.50 as I'm managing this trade with a medium term outlook.

Outlook: Not a good day for the XAO (-70pt, -1.2%) considering the SP500 nears it's all time high. Caution is warranted.

 

[tech/a]

Momentum hard to find anywhere.
You've done well Peter to maintain the portfolio.

 

[Nortorious]

EGH a contender for this thread?

 

[peter2]

EGH: The trend is clear and strong, but I'm concerned by the number of low volume days. When I notice the zero volume days (trading halt), I must look at the company announcements. I read that there is a current SPP (at 0.45) to raise capital.

Corporate undertakings like this SPP and other actions like mergers and takeovers move the share price based on fundamental information or buyers/sellers perception of those fundamentals. I prefer to trade in markets without this interference. Others in this forum love these opportunities. I'll leave it for them and I'll look for their spoor later on.

I avoid markets with known corporate activity. Take S32 for example I won't be able to trade this for weeks as there is not enough price data available. The demerger of S32 from BHP will ruin the price patterns in the BHP chart (unless the data is adjusted).

 

[debtfree]

Peter: Good decisions on SAR & SEA, also helps skew the AL towards your projected figure of (0.7R) stated in your 3rd post after taking over. I also remember you saying then "If a breakout trade doesn't go up immediately then I know it's in trouble and I'll take an earlier (smaller) loss than the initial risk (1R)" You followed these words exactly, very good.

Just catching up with everything and since it's a little quite, did we end up with a scanning process to find these potential trades Peter?

Impossible to look at every chart each day and I understand the scanning process is set up in a way to eliminate all the crappy stocks that would have no interest for us. I also guess that it wouldn't matter how we set this up it still would filter out some good setups but overall it would get us quite a few potential trades. I remember at times people would suggest a stock to Pav & Tech/a which they had missed so I thought then, it must not matter which way you set up a scan, sometimes you will miss some and not get every good setup/trade in your scan. Is this true or is it sloppy scanning process?

At the moment I'm only using Incredible Charts scanner and it does a fairly good job overall.

Cheers .... Debtfree

 

[peter2]

Trading update: Patience. Nothing to do with our open trades in JHC, QBE, SIQ, VTG.

I could point out that there is no upward momentum in these trades (except JHC) and we should close them to reduce risk. That would effectively take us out of the market and I'd have nothing to post about eek. We have to be in the market to earn further profits. I'm comfortable with the amount of our open risk in these trades (3.3%) and they seem to be holding up better than the index. There is no point raising their TSs as that would most likely see them closed. Let's keep them going on the understanding that they are being managed as a trend trade rather than a momentum trade until the market rallies once again.

Temptations are everywhere. The banks are much cheaper. Do we buy some? Several BO's that we elected to pass on are now back at their BO level. Do we buy them here? There are nice setups in 8IH BKW EHE SIV SUL. Do we place orders?

I don't know about you but I find it hard to sit on my hands and not buy something that is much cheaper now than a month ago. The thing that stops me is the problem of placing the iSL. Where to put it when the price is going down? I prefer to place them under a HL. I have to remind myself that I'm not a value investor and I wouldn't recognise value even if it slapped me. I must wait for BOs and HLs.

Debtfree: Unfortunately there is no easy scan to find them all. I use two scans.
A Darvas box scan (10d, 15% max size, +50% volume increase)
General scan for up trends (Close > 20ema, 10ema > 20ema >50ema, Value traded >120K/day)

These scans show me about 180 charts and I skip thorough them quickly. Occasionally I find a chart that I want to keep for my own trading so the time spent is not wasted.

Setups for this thread are selected subjectively so we will always miss some. Of course we'll remember those that work out well while conveniently ignoring those that failed. We just need enough to put the odds in our favour.

Important point: Debtfree was able to review and evaluate my trading decisions because there was a written record. How valuable is that? Would your trading decisions be better and more consistent if you had written guidelines to follow that covered every situation?

 

[bonkerrs]

Trading update: Important point: Debtfree was able to review and evaluate my trading decisions because there was a written record. How valuable is that? Would your trading decisions be better and more consistent if you had written guidelines to follow that covered every situation?

Excellent idea. One I have been meaning to do but unfortunately a busy life keeps getting in the way. I guess that is why I'm reading this with such interest... building my momentum (pun intended) :