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

[tech/a]

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.

Yes I think your right.
Made him feel better.
Like a pokie player
Its not my money its theirs.
In fact its yours!

 

[pixel]

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.

There is no difference:
Your net wealth is the sum of cash in bank plus today's value of your portfolio (which includes shares, property, and everything else convertible into cash) minus total debt.

Pretending the current value of shares be any different to cash is a favourite mind game of those failing investors who gloss over their cellar dwellers with the excuse "A paper loss isn't a real loss until you sell."
(... and then they average down till the stock hits zero.)

 

[craft]

There is no difference:
Your net wealth is the sum of cash in bank plus today's value of your portfolio (which includes shares, property, and everything else convertible into cash) minus total debt.

Pretending the current value of shares be any different to cash is a favourite mind game of those failing investors who gloss over their cellar dwellers with the excuse "A paper loss isn't a real loss until you sell."
(... and then they average down till the stock hits zero.)

Does the same mindset of differing attitude to capital not also underlie the obsession with break-even stops? Willing to give more wriggle room/ benefit of the doubt in profit than in initial drawdown.

Loss aversion of “new” capital in a trade seems so much greater than the aversion to giving back a bit more of the “open profit” to stay in a trade.

This seems to be so even if the “new” capital has been derived from the market anyway. Seems realising a profit changes how capital is thought about.

Treating losses as "not real" like in your last paragraph would be a different mind game again wouldn't it?

 

[craft]

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!

Tying in with the previous discussion, I'm assuming you are going to treat your capital position as mark to market.

If so and you happen to have a runaway winner in your portfolio – that will skew your position risk calculations as heat and volatility on that large position impacts all the other decisions.

Try your numbers with a stock you brought at 13% of your portfolio and has become a ten bagger whilst the rest have in aggregate basically marked time. funding new positions at the calculated size may not be possible if you don't sell down the large position, so your intended diversification can be compromised as will the risk you apply to the new positions because relatively small swing in the oversized positions have disproportionate swings in the new position risk calculation.

 

[tech/a]

Does the same mindset of differing attitude to capital not also underlie the obsession with break-even stops? Willing to give more wriggle room/ benefit of the doubt in profit than in initial drawdown.

Two things
(1) My testing on real time stop exits shows that well over 70% diminish to my stop if the stock hasn't risen by 1R IE it turns as soon as I buy it.
So no point in throwing money away.
(2) I'm constantly working on better R/R This helps enormously.

Loss aversion of “new” capital in a trade seems so much greater than the aversion to giving back a bit more of the “open profit” to stay in a trade.

I'm happy with my aversion if you wish to call it that to loss. Ill minimise it where I can. Leaving it to hit my stop in over 70% of cases is not the smartest thing to do in my view.

This seems to be so even if the “new” capital has been derived from the market anyway. Seems realising a profit changes how capital is thought about.

When doing numbers on capital invested ---yes.

Treating losses as "not real" like in your last paragraph would be a different mind game again wouldn't it?

These people have no idea how to value their holdings.
Ostriches.

 

[galumay]

These people have no idea how to value their holdings.
Ostriches.

They always seem happy to book the profits as if they were real! You cant really have it both ways.

There is a truth to saying that losses are not real until realised, but then you have to also say gains not realised are not real.

Of course this is ultimately true if you are honestly considering your cash net worth. Because the share market is so liquid it is reasonably safe for the average investor to assume that the paper losses and paper gains would be approximately realised if he were to convert to cash at market on any given day. But, and its an important but, it is only true for any given moment in time.

I can prove this unequivically! My paper profit on SGH was meaningless, just as my paper losses on NWH were.

 

[craft]

Two things
(1) My testing on real time stop exits shows that well over 70% diminish to my stop if the stock hasn't risen by 1R IE it turns as soon as I buy it.
So no point in throwing money away.
(2) I'm constantly working on better R/R This helps enormously.



I'm happy with my aversion if you wish to call it that to loss. Ill minimise it where I can. Leaving it to hit my stop in over 70% of cases is not the smartest thing to do in my view.



When doing numbers on capital invested ---yes.


These people have no idea how to value their holdings.
Ostriches.

If the story that we use to justify our trade/investment does not accord with reality then we need to exit immediately wherever that may be - breakeven has nothing to do with it. Your immediate momentum story may be valid - if it is then the stop should be wherever you first notice you don't have that initial momentum - full stop - If you want to increase your profitability forget about tying stops to breakeven its an arbitrary level to the market, only important to you driven by an illusion underpinned by the mindset we were discussing.

In relation to (2) don't forget profitability is opportunity x expectancy. Yes scratching at B/E can improve the expectancy but its a negative for opportunity. If you take 20 trades and on average 5 are scratched at B/E then true opportunity is only 15 * your expectancy. Having a lower expectancy but a higher opportunity because you ignore B/E might just be more profitable.

F expectancy - I want maximum profit.

 

[tech/a]

Thanks Craft.

Just quickly thinking about it

if it is then the stop should be wherever you first notice you don't have that initial momentum - full stop

Maybe an even better option.
Ill have to look back on it.

(2) Other trades are generally taken that day or next day.
Think its minimal.

 

[craft]

Thanks Craft.

(2) Other trades are generally taken that day or next day.
Think its minimal.

Hey Tech I think you might be missing the point on opportunity but considering we are being civilised gentlemen I’ll try some examples.


Let’s say we have a batch of twenty trades, 8 profitable for 2R wins 7 losses at -1R and 5 breakeven.


What do we do with the breakeven’s in our expectancy calculation? We can’t add them to just one side we either must ignore them or add them to both.


Our expectancy calc for the 20 trades is either:

Ignoring break evens (which I suspect most do)

(Probability of win [8/15] x average win [2]) minus (Probability of loss [7/15] * average Loss [1])

Which = 0.6R multiplied by 15 opportunities = profitability of 9R


Including break even on both sides

(Probability of win [13/25] x average win [8*2/13]) minus (Probability of loss [12/25] * average Loss [7*1/12])

Which = 0.36R multiplied by 25 opportunities = not surprisingly the same profitability of 9R


Don’t fall into the trap of thinking you multiply 0.6R (from the first calc) by 20 to get the profitability – you either have to subtract or add B/E to both the expectancy calculation and the number of opportunities as proofed by doing either equals the same profitability.


Next scenario:

Let’s say you didn’t scratch any at B/E all 20 trades went on to 2R wins or 1R Loss at a 50% Win ratio.


Here your expectancy is 0.5R – less than the 0.6R above with the B/E stops. But the thing is from this bunch of 20 trades your profitability is higher 20*0.5R = 10R.


Just as win % is only one part of the expectancy equation, expectancy itself is only one part of the profitability equation. We want the most profit we can from the number of trades we place.

 

[Rypieee]

EOW 01
Portfolio performance up to date (Starting 1st of March 2017) = 2.64%
Market performance (ASX200) up to date from 1st March 2017 = 2.32%



Today we sold off REA @ $62.68, which was under our nominated stop loss of $63.00. Was happy to close the trade off because it was nearing previous resistance level and I had the intention to reduce my exposure to the Consumer Disc. sector.

ALL and CGF(intraday) also hit their stop losses. I missed selling them due to being busy at work and not paying as much attention as I normally would. I need to chin up and take action on them come Monday. What if they bounce back up? Monday's going to be hard...

Overall the portfolio sank by about 1.9% while the market closed down 0.7%.

Current mood and today's performance has gotten me a little bit down and starting to doubt the system (I always doubt the system when I have a bad day), I need to be focused on my objective, think rationally and have a handle on my emotions.

On the bright side, I am happy that we have 16% in the cash account that we can use to start up new opportunity.

Shall run my scans this weekend and see if there is any opportunity!

 

[peter2]

Current mood and today's performance has gotten me a little bit down and starting to doubt the system (I always doubt the system when I have a bad day), I need to be focused on my objective, think rationally and have a handle on my emotions.

1. Obviously that doesn't augur well. Today is only one down day. If you want to be a trend trader then you have to tolerate the ups and downs. The pull-backs (like today) set up higher lows that tell us the trend is intact. It could also be the start of a reversal. Nobody knows, but I hope you recognise the difference when it forms. One day against the prevailing trend is not a reversal unless you're a swing or momentum trader.

One huge down day with bad FA news might be one of your exits.

2. If one down day triggers some sells then I'd say your stops are too tight for a trend trader, unless you tightened them based on your trade management rules. eg protecting above average profits, change in market trend, unsatisfactory FA news etc...

3. Once your exit triggers, sell asap without exception. Even if the DOW rises 300pts overnight. If you wait to see what happens after 10am Monday, you're setting a bad example (and making a trading mistake - which you'll record). You can always re-buy it if price action makes a new high showing the trend is still going.

I could go on, but I wanted to let you know we're watching and hoping you do a good job. If you make any profit in the next six months that'll be a bonus.

I hope this thread helps you to stick to your plans. You've got to be excited about 40+ years of compounding profits. Wow.

 

[Cam019]

Good to see you finally got this thread up and running Ryan! Just had a read through the thread and any questions I was going to raise have already been addressed.

ALL and CGF(intraday) also hit their stop losses. I missed selling them due to being busy at work and not paying as much attention as I normally would. I need to chin up and take action on them come Monday. What if they bounce back up? Monday's going to be hard...

I'm going to reiterate what Peter has said about no matter what, if a SP trades at or below your stop loss and this is part of your trading plan, you must sell. What if they bounce up and then tank? You can never predict what is going to happen. Emotion needs to be removed from trading decisions.

Apart from that, good luck and I'm interested to see what the future holds for this portfolio.

*subscribed*

 

[Cam019]

Ryan, is there any reason why your stop losses are not in the market?

 

[Rypieee]

1. Obviously that doesn't augur well. Today is only one down day. If you want to be a trend trader then you have to tolerate the ups and downs. The pull-backs (like today) set up higher lows that tell us the trend is intact. It could also be the start of a reversal. Nobody knows, but I hope you recognise the difference when it forms. One day against the prevailing trend is not a reversal unless you're a swing or momentum trader.

One huge down day with bad FA news might be one of your exits.

2. If one down day triggers some sells then I'd say your stops are too tight for a trend trader, unless you tightened them based on your trade management rules. eg protecting above average profits, change in market trend, unsatisfactory FA news etc...

3. Once your exit triggers, sell asap without exception. Even if the DOW rises 300pts overnight. If you wait to see what happens after 10am Monday, you're setting a bad example (and making a trading mistake - which you'll record). You can always re-buy it if price action makes a new high showing the trend is still going.

I could go on, but I wanted to let you know we're watching and hoping you do a good job. If you make any profit in the next six months that'll be a bonus.

I hope this thread helps you to stick to your plans. You've got to be excited about 40+ years of compounding profits. Wow.

I feel that my stops are a little to tight for trend trading at times - either that or the recent run up in my portfolio has made me want to retain my profits, hence why my stop losses might be relatively close to the SP.

R.E selling asap without exception, I thought I was getting good at selling without thinking twice once it hit my stop loss but I guess I still have a little bit of hesitancy within me! Stocks will be out on Monday regardless, if there is opportunity to re-enter like you said, then I shall do so at the time.

I am hoping that this thread helps to keep me in line, one of the main reasons why I started this thread!

40 Years+ of compounding profit!! Long way to go though

 

[Rypieee]

Good to see you finally got this thread up and running Ryan! Just had a read through the thread and any questions I was going to raise have already been addressed.
I'm going to reiterate what Peter has said about no matter what, if a SP trades at or below your stop loss and this is part of your trading plan, you must sell. What if they bounce up and then tank? You can never predict what is going to happen. Emotion needs to be removed from trading decisions.

Apart from that, good luck and I'm interested to see what the future holds for this portfolio.

*subscribed*

Thanks for the encouragement mate! Yeah it is a battle for me to remove emotions from my actions, something I definitely need to work on going forward.

Ryan, is there any reason why your stop losses are not in the market?

I'm actually not sure why I don't haha... I check my portfolio pretty often and never saw the need to. Yesterday have been the only time that I didn't act on my stop loss properly. Emotions got the better of me.

 

[Rypieee]

Peter2 made me think about my stop losses so I went to review my past trades that failed and I found something very common in many of them... I did not give the stock enough time to perform and I was strangling the stocks with tight stop losses. As my strategy is a trend following, I need to allow for the stocks to pull back to it's higher low before continuing. I hardly allowed a stock to do that... ASDGADFHFDG so angry with myself right now!!

Here is an example of a trade that I missed - A2M:

I bought into A2M in the green arrow,with a stop loss at $2.80. I got impatient through the week and I was finding any excuse to reduce my portfolio's open losses so I raised the SL to $3.00 which was hit on the day before the SP resumed its trend.

Impatient, being frugal with my losses and strangling the stock has made me miss out on the run up... There's more than one example btw in my past.

I also reviewed my portfolio this weekend and noticed that while ALL and CGF has hit it's stop loss, it is still behaving in a normal trend behaviour.

I am going to review the current stop losses on my portfolio tonight and may need to re-adjust some stop losses.

Very annoyed with myself now but at the time same, glad I picked this up early.

 

[tech/a]

Why didn't you re enter
You had plenty of opportunities
Being stopped to minimise potential losses shouldn't mean the stock should be forgotten

Often my best trades are 2/3/4 th attempts

No point beating yourself up

 

[Triathlete]

Peter2 made me think about my stop losses so I went to review my past trades that failed and I found something very common in many of them... I did not give the stock enough time to perform and I was strangling the stocks with tight stop losses. As my strategy is a trend following, I need to allow for the stocks to pull back to it's higher low before continuing. I hardly allowed a stock to do that... ASDGADFHFDG so angry with myself right now!!

Here is an example of a trade that I missed - A2M:View attachment 71091

I bought into A2M in the green arrow,with a stop loss at $2.80. I got impatient through the week and I was finding any excuse to reduce my portfolio's open losses so I raised the SL to $3.00 which was hit on the day before the SP resumed its trend.

Impatient, being frugal with my losses and strangling the stock has made me miss out on the run up... There's more than one example btw in my past.

I also reviewed my portfolio this weekend and noticed that while ALL and CGF has hit it's stop loss, it is still behaving in a normal trend behaviour.

I am going to review the current stop losses on my portfolio tonight and may need to re-adjust some stop losses.

Very annoyed with myself now but at the time same, glad I picked this up early.

I think you have the wrong chart up????? this is costa group not A2...????

 

[Quant]

I bought into A2M in the green arrow,with a stop loss at $2.80. I got impatient through the week and I was finding any excuse to reduce my portfolio's open losses so I raised the SL to $3.00 which was hit on the day before the SP resumed its trend

Not sure what that chart is but I don't think its A2M , have you considered using a binary algo stop although that will present problems applying it . Skillset , software and applications needed . But the harder , smarter you work the easier it will become . helps if you quantify your stops and do a statistical analysis to determine how tight/loose to obtain the optimum outcome . If you measure it , it becomes easier to improve it . Systematic approaches take a lot of the emotion out of it with defined probabilities ...

 

[Rypieee]

Oh god. LOL, I uploaded the wrong chart. But CGC was one of my other example.

A2M was another one where I entered at $2.40, after a few days I brought my stop loss up(for no reason) and got stopped out at $2.00. Sad to say, I missed out on all the recent run up too.