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Ryan's Trading Journal (F/A+T/A Strategy)

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Not necessarily, really depends on the P/E assigned, and assumed going forward.

They may be, but in your earlier post you alluded that you wanted 'growth' stocks, as you believe that strong earnings growth is closely correlated to share price appreciation.

So in this example, where you have earnings growth, you want to sell the share based on a technical signal, which could take you out of the very fundamental driver you value.

jog on
duc
 

Technicals are very 'emotion' driven. Buying begets buying, selling begets selling. Fundamentals and technicals can become very disconnected for significant periods of time in both directions.

My point, without belabouring it is: technicals and fundamentals do not mix that well, if at all. To incorporate them both, simultaneously into a trading 'plan', while seemingly logical on paper, rarely works out well in practice.

jog on
duc
 

EPS Growth % 1yr forecast is definitely a figure that I would look at when doing stock selection. Maybe I could try and clarify it up a bit for myself as well. A lot of the fundamental analysis on my trading strategy works during the filtering stage, I might want to find stocks have have double digit EPSG1Year(>10%), ROA/ROE(depending on what type of company it is) on an improving trend from previous reporting periods. and Rev Growth being positive. I also look for stocks that have P/E ratios within +/- 20 of their industry average and have a 1 year forecast P/E that is decreasing (based on current prices).

However, once I enter the stock, the fundamentals analysis and the economy analysis have already been completed and I now rely on technicals to manage the trade. That being said, while technicals are playing the bigger part in the management of the trade. If a stock's economy or fundamental analysis changes drastically(so i think) then I want to be pre-emptive and take a stock out before the technicals say get out.

Say for example, NHF was a stock that ticked all the right boxes:
Macroview - Population growth is growing in Australia, immigration is growing and private health insurance should rise with those tailwinds.
Fundamental - Great company, not gonna go into full detail there but double digit forecast growth figures, reasonably P/E
Technical - Trending strongly since interim report in Feb. Bought on breakout.

But the government's cancellation of the 457 Visa and introducing a new Visa System could impact the earnings of NHF going forward. I took NHF out based on that.

It is a gray area and I am aware about it, I also understand that at times, I will be conflicted with my decision but isn't that me just being a discretionary investor/trader?

BTW just want to say thanks for making me think about my trading plan more
 
Good on you for starting this thread. I'm sure you'll learn a lot and more quickly with the interaction of others. Contributors will raise aspects that may make you question your beliefs and opinions. This will be good as you'll examine and decide what's really important to you and what isn't.

Ducati has already done that and you should consider your responses carefully. Consistent application of your plan is very important so if there are any aspects that are unclear in your mind (eg the contradictions between the fundamentals and the technicals on your exits) you won't be consistent.

Your plans will adapt as you gain experience. Some rules that you use now may become guidelines in the future and vice versa.

@ducati916 Thanks, you've raised many excellent points for a new trader/investor to consider.

Rypieee said:
It is a gray area and I am aware about it, I also understand that at times, I will be conflicted with my decision but isn't that me just being a discretionary investor/trader?
Click to expand...

It's very important that you minimise/eliminate any gray area's if you want to be a highly profitable trader. You may use discretion when selecting stocks to trade and how much of your capital you'll invest but once the trade has started you should be applying a set of rules.
 

Good luck with it.

Well done for being really open and also honest with yourself.

I think another aspect to look at is standard deviation and return of your strategy. Compare this to the return and risk of the market, passive investment.

In the analysis adjust for taxation and commissions. Now try to match the profiles of the two strategies.

You can use borrowing to gear a lower volatility strategy and smaller position size to reduce a higher volatility strategy and vice versa.

Now your strategy should be higher than the market risk return profile. Of course over time this will change and mistakes/learning etc etc. Sometime higher, sometimes lower than the market, but over time from a pure economical perspective it has to be consistently higher in the longer term to be economically profitable.

The rate the strategy is achieving above this passive strategy is the surplus created by active management.

If you want to take it further, to be economically above working

own capital available* surplus return > Wages

prop capital available *profit split* Return > Wages

If that capital is from yourself or prop changes the assumptions etc etc

Also part of it is the hobby and knowledge side, to take responsibility for your own financial future, is normally a good thing. Sometimes we do things because we like it,rather than for money.



My limited two cents
 


I still need to learn how to compare my statistics against the market's performance and what you said, standard dev.

I am interested in using the Sharpe Ratio to measure my portfolio performance but I don't know where to start and how to measure it... help?

I do have an intent to introduce margin to the portfolio once I am more comfortable with it, would consider leveraging the portfolio by x2 or x3, never more than x5.

Thanks for the encouragement!
 

Yes, I will need to really sort out and define my exits properly, wholeheartedly agree with you on that point.

I shall take my exit strategies back to the workshop and shall come out with something better after some thought!
 

My view is that gearing has a sweet spot. Don't have enough of it and you might as well stay in the bank. Over gear and it causes destruction and ultimately death.

No offense but...

lol mate seriously and you are in financial advisory???

My economics and finance degree covered this in about 30% of units or so...

Sharpe ratio is only one quick indicator.

First you need the data on your strategy and the market/ a passive strategy.

If you can't calculate std and return then that is concerning but it is very easy to google.


You can google the maths, alpa,sharpe,retunr,std etc etc

http://www.investopedia.com/terms/s/sharperatio.asp





For example your discount rate is 5% and your portfolio return is 10% and std is 10%. Then sharpe is
(10-5)/10 =.5 That is you are getting .5 return for each 1 unit of risk. STD is the proxy for risk etc etc

Higher sharpe, higher/better risk return profile etc etc



I prefer to plot it on a graph as well as the stats. Then you can change the assumptions and see how this impacts the equity curve and risk return aspects of the strategy. For example change the gearing discount rate . Change the position size. Change the overall gearing. What is the sweet spot? Which strategy grows money faster. Which strategy has the best profile.Am I beating the market? etc etc

Part of the process is like optimisation. What is the optimal position size? What is the optimal gearing? What is the optimal decision? etc etc It goes back to basic economics and opportunity cost.

Of course all based on the past of course. The future well who knows...

gg
 

I think most financial adviser would have no clue about the sharemarket, let alone a Sharpe Ratio However, does not mean I shouldnt know haha. Yeah I did learn about it in Uni but never went to class nor paid any attention during my tenure... so my memory on it isn't clear.

BTW regarding the calculations, I know how to calculate median rate and RFR, but how do I calculate STD of the portfolio?
 
rnr said:
http://investexcel.net/calculating-the-sharpe-ratio-with-excel/
Click to expand...

Just read the article, thanks for the link, Ill just excel the STD of my portfolio



Disregard my question!
 
Since I just started out and fairly eager to get things moving, I'll do one daily update for the moment, might phase out later on.

Portfolio performance up to date (Starting 1st of March 2017) = 4.64%
Market performance (ASX200) up to date = 3.04%



REA and FPH were bought as the recent downtrend seems to have found some support and a trend reversal is in play, however I would like note that REA has touched the previous high at $65.50 and retreated while FPH is closing in on it's previous high of $10.00.

I have tighten the stop loss on REA to $63.00 to give it a chance to break the resistance @ $65.50. The trade was done late (I should have entered at the $57 B/O for better R/R) so the profit on the trade ,should we hit SL, will be small.

With FPH, the stop loss level will be raise as it approaches the $10.00 mark, hope for the stock to break the resistance level but if not, we will be protecting our profits.

With SDF, SSM, WEB and WTC, the estimated loss on those trades are high at the moment as it was only recently initiated, once the SP make some headway, we will bring up the stop loss levels accordingly.

CGF is a relatively new trade as well but it has always been a slow and steady trender which is a bit too slow for my liking. I did the trade due to it's exposure to the ageing population, low volatility trend and consistency+tightness in the price action. The forecast growth figures of CGF are also in the high single digits to low double digits[not the best as most of the stocks I hold have all their forecast figures in the double digits]. I could get annoyed at this trade, be impatient with it and cut it out in the near future but I need to constantly remind myself of the reason why I bought it in the first place - stability ,predictability and consistency.

For those who wonder if I have a profit taking strategy:
1) Each stock can wavering between 7-13% of the portfolio holding, the highest one atm is ALL which is sitting on 11.40%. Once a stock hits 13%, I would adjust the size down to 10%. [May revise this]
2) If it hits stop loss

I akin myself to a trend follower so I will try to ride a stock all the way to the top. Profit taking on a stock would help me to top up my cash balance while still having exposure to the stock.
 
Rypieee said:
1) Each stock can wavering between 7-13% of the portfolio holding, the highest one atm is ALL which is sitting on 11.40%. Once a stock hits 13%, I would adjust the size down to 10%. [May revise this]
Click to expand...

I think this must be revised. Any trend following strategy needs outsized winners. Chopping it down everytime it reaches 13% of your capital will likely do more harm than good.

You have already managed your capital risk by limiting initial position size relative to capital base. You don't need to do it again when the share is trending in the right direction.

If you must bank some profits, say take half off when it reaches 5-8 Rs or something like that. And do it only once, and let the rest ride on your trailing stop.

Use CGF and ALL as examples and say you bought 12 months ago. How would your return be impacted by this 13% boundary? My guess is pretty meaningfully negative.
 

I would want to revise the figure as I go, the reason why I'm currently happy with the 13% max threshold is because I have a positive expectancy on my portfolio so as say ALL's size grows, my portfolio's size would grow as well + other contributions from other stocks. Maybe I could do a 15% max threshold?

Though I do get your point as well @skc about taking profits impacting my return. I'll take that back to the workshop and decide how to refine it.

Appreciate your comments and time!
 

Just run some numbers and see. Your portfolio will grow over time if you have positive expectancy, but it won't always grow in sync with your best performing position.
 

Using 7%-13% for position sizing when you first enter a stock is good.
Once in a stock you will also need to maximize the trend by also adding to positions along the way.
I use a strategy where I add in the ratios 4:2:1.....

e.g 1st entry $4000
Add positions $2000
Add positions $1000

I have entered a stock at $1.00 the stock then runs up to $2.00 before starting to retrace at this point I sell half the original position.
If the stock then retraces less than 50% of the original range say to $1.50,so the trend looks strong and likely to continue...It is now an opportunity to add to the existing position and buy in at this $1.50 level using the $2000

Remember you now have money from the previous sale of half of your first entry to use.
I will now be looking for the stock to rise towards $3.00 before retracing at this point I sell another 50% of position size.

I then repeat what I have mentioned above only you have one more entry of $1000 left should the trend continue.
 
20 yrs ago I heard of a strategy where by an investor sold his original
Capital in the stock when the stock doubled in price.

He would then hold the remaining stock indefinitely or until he needed some capital

I don't know how he went long term but do know he had 2000 CBA which at the time were a lot less than today! He had 14 holdings then.
 
skc said:
Just run some numbers and see. Your portfolio will grow over time if you have positive expectancy, but it won't always grow in sync with your best performing position.
Click to expand...

After much thought and thinking about what sort of trading strategy I want to employ, I've decided that I am going to be a trend follower. You are right, I have already sized my risk based on my capital, why am I restricting the trade again with the trade's size against my capital. Doesn't make any sense.

A trend follower is one who will ride it as far as the trend takes them and that is what I want to do.

Going forward, I'm going to scrap the 7-13% rule for trade management. However, I am still going to keep the 7-13% rule for trades that are new. Keeping the 7-13% rule ensures that the trade's initial size isn't too big or small and adheres to my trading plan of holding between 8-12 stocks within my portfolio!


I have thought about micromanaging the trade to maximize the return on a higher high higher low trend but have put that thought in the "improvement folder" for later. Might revisit this as I knuckle down the basics first!

Thanks for the tip though


Probably in some part of the world enjoying his money
Have also thought about "Zero Cost Averaging" in the past, implemented it but wasn't tracking my portfolio probably - lest to say, things got a bit messy. Might revisit zero cost averaging in the future.
 


Been watching RHC for some time now, made a B/O over the $72.00 2 days ago. Would I have taken the trade based on the breakout? I can see potential for the stock to hit $84.00 which is the prev high. However, would imagine a heap of supply coming in at $78.00 from the gap down.
Some positive things I note with my amateur VSA skills (@tech/a help!!), the recent dip managed to find a lot of demand for the stock (fundies could be buying in at the time).
Won't be entering the stock because I already have 2 healthcare stocks in the portfolio and I am saving the excess cash for stocks that will benefit from the budget!


CAR another one that b/o recently, the red lines mark the resistance range that I see with the recent price action. The B/O retested the new support level and it has some potential to hit $13.60.
 

What's the difference between leaving capital earned from the market as opposed to other capital? Surely that's just a mind trick. The strategy of selective holdings for the long term surely can not be impacted by the source of the capital.
 
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