Technical Trading Exercise (Pavilion103 and tech/a) Discussion

[AlterEgo]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

I dont want breakouts I want potential breakouts.
Among other things which are NOT breakout related.
I havent any of this sort up yet but will explain when they are.

I have criteria I scan.

Being an alert of various breakouts 5 days ago.
Along with a liquidity filter.
I have 4 codes which give me many prospects.

Hi Tech,

Thanks very much for starting these threads. I'm following with great interest.

Would be able to elaborate furthur on specifically what you are scanning for? Or preferably, post the code you are using for your scans, if you are willing to share this info.

thanks,
AlterEgo

 

[debtfree]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

With position sizing 2% Risk on most and FLT being stated as a trade and that stock at mid $44.00 my thoughts it would consume over $100K of funds by itself as a risk of .80 cents approx. per share we would end up with about 2,500 shares.

I know we are using 2:1 margin with IB but would we have had enough funds for the 5 trades altogether?

 

[pavilion103]

With position sizing 2% Risk on most and FLT being stated as a trade and that stock at mid $44.00 my thoughts it would consume over $100K of funds by itself as a risk of .80 cents approx. per share we would end up with about 2,500 shares.

I know we are using 2:1 margin with IB but would we have had enough funds for the 5 trades altogether?

FLT
1724 shares - position - $77,431

An over site by me is that I had the risk per trade as $1,000 instead of $2,000 (because of the settings on a previous spreadsheet).

This FLT takes up 39% of our available capital.

This poses a couple of questions
1) do place a maximum % of account that we will use for one trade?
2) do opportunity cost considerations come into this?

I.e do we trade whatever ones on the list are triggered first until we are out of capital? Or do we carefully consider which pending orders we execute in order to provide the best opportunity cost of capital?

 

[debtfree]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Thanks for your reply and info Pav, it's no big deal really but I know they are things to think about indeed.

Thanks once again.

 

[brty]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Pav,

77% of starting capital invested in one stock is an absurd position size, even if it is only 39% of available capital. Even though there is a theoretical risk of 2% (is this 2% of capital or available capital?), all positions are at the mercy of the sudden trading halt and an announcement that the financial controller has run off to the carribean with all the funds.

The other aspect is that if bull market conditions return, then lots of potential trades will become available. If all capital is tied up in 2-3 stocks only then there will be many lost opportunities. Murphy's law dictates that the few you are in will not perform as well as those that you don't have the funds available for.

Personally, I would not be using any more than 10% of available capital in any one position, and more likely 5%. Be interesting what position size Tech suggests for this exercise.

Does the exercise allow for additions to existing positions with positive price movement? If so then 39% of AC is way out of line.

 

[pavilion103]

Pav,

77% of starting capital invested in one stock is an absurd position size, even if it is only 39% of available capital. Even though there is a theoretical risk of 2% (is this 2% of capital or available capital?), all positions are at the mercy of the sudden trading halt and an announcement that the financial controller has run off to the carribean with all the funds.

The other aspect is that if bull market conditions return, then lots of potential trades will become available. If all capital is tied up in 2-3 stocks only then there will be many lost opportunities. Murphy's law dictates that the few you are in will not perform as well as those that you don't have the funds available for.

Personally, I would not be using any more than 10% of available capital in any one position, and more likely 5%. Be interesting what position size Tech suggests for this exercise.

Does the exercise allow for additions to existing positions with positive price movement? If so then 39% of AC is way out of line.

I agree.

Not even considering the opportunity cost, this is dangerous.

Off the top of my head other position sizes included: 53,000 - 37,000 - 35,000

So ranging between 17-27% of available capital and 34-54% of starting capital.

We would really be only able to hold 3-5 positions max at this rate.

Not sure what Tech's thoughts are?
Mine are reduce initial risk to 1% of capital.

This would still create positions sizes that seem risky to many, however seems much more practical than 2% and allows us to hold closer to 7-10 trades at a time.

 

[skc]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

I agree.

Not even considering the opportunity cost, this is dangerous.

We would really be only able to hold 3-5 positions max at this rate.

Not sure what Tech's thoughts are?
Mine are reduce initial risk to 1% of capital.

I thought you guys have been doing this since Jan?! Have you not come across this situation or have a rule for position size?

To now the portfolio is running at +50% on initial capital since inception in January.
87 emails and around 125 charts.Of course a heap of other interesting stats on Drawdown win Loss etc.

Is this +50% taking into account issues like you can't always take all the positions? Or is that actually a theoretical portfolio return?

I am just surprised that you seem to be nutting out some fairly important / fundamental issues that most traders come to face pretty early on.

 

[tech/a]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Been out all day.
Will answer all questions tonight.

I trade equities like this all the time.
opinions I knew and know will be plentiful
I expect that and I also expect people wont
agree or want to trade as I do.

Dont care.
All I care is if Im profitable.

I am just surprised that you seem to be nutting out some fairly important / fundamental issues that most traders come to face pretty early on.

Im not suprised you are making judgements before I have an opportunity to comment!

 

[pavilion103]

Having a look through the previous exercise (since Jan), there aren't any the size of FLT.

There were also a number of the stocks which were sub $1-2 which provided a greater % gap from entry to initial stop, allowing us to take more positions.

This allowed us to hold more positions. We would often have 6 or 7 at a time. Also, trailing stops aggressively ensured that the ones not moving were taken out, providing capital for new ones.

 

[Trembling Hand]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Im not suprised you are making judgements before I have an opportunity to comment!

LOL. I think he learnt that art off you.....

 

[tech/a]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

LOL. I think he learnt that art off you.....

Ah thats why he does it so well!

 

[tech/a]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Firstly Keep the questions coming and SKC I apologise for being Kurt.
Without clarification and questions nothing is solved.

Risk is 2% on initial account. Thats $ 50K NOT $100K
So $1000.Max risk---and the most common we will use as our initial risk and position sizing model.
I have and do run positions with 1% risk and less and have done so with
PAV in some that we discussed which were not part of this exercise. These will often be very close stops where we can buy many 1000s of higher priced stocks that would place us way over margin requirements.
Ill make it known when I fill out the chart. Infact from here on Ill make a note on risk on each chart triggered.

THIS IS DISCRETIONARY trading---we--you can do what you like.
The point of the exercise is to (Hopefully) help people understand how to limit risk and maximise profit
trading technically.

Margin ISNT a loan to increase your initial trading capital.
Margin should be used in equities to finance positions that we wish to take
where our initial capital falls short.

As for amount in a single trade.

For short term trading I have had 50% on one position.
These trades here will only run a few days to a week max---unless we get a bull run where they will then run weeks.
When they are running who cares--thats what we want.
If they are stagnant youll see me raising stops or exiting.
I want to be on momentum in as many trades as I can and for as long as I can.

This current market is VERY difficult to find consistent performers where we can get a good run.
In the meantime I want the RESULTS to show low risk on those losses we have.
When we do get winning trades my aim is to be able to show excellent return for risk.
As PAV found out that can be out of the blue and dramatic.
Setting the foundation.

I hope this helps and apologies again SKC I enjoy your input!

 

[Gringotts Bank]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Come as you are,
As you were,
As I want you to be....

:guitar:

 

[tech/a]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Would be able to elaborate further on specifically what you are scanning for? Or preferably, post the code you are using for your scans, if you are willing to share this info.

What I'm looking for are chart patterns.
Specifically tight small consolidations within a move.

I use up to 6 scans all of which will return different
prospects and only a very few pass the visual screen.

No I wont be posting code.
PAV hasn't got my code/s.

Sorry forgot to post up the risks on each trade.
Ill do it tomorrow night.
All are below 2%
Except for FLT

All trades will fall within the capital available for trading.
If there isn't enough capital and a trade is triggered I will
post that on the chart.

 

[Kryzz]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Great thread guys, have only just discovered it.

I have also been recording the initial stop when I enter any given trade, my current stop and the price I am stopped out at (obviously). However I haven't put too much thought into how interpret this info however.

My query is what insight does this provide? Knowing that my stop has moved up x% tells me what?

I can assume a few basic insights, i.e. looking at what trades are profitable vs not, and seeing how much my stop has moved may indicate whether or not I am moving my stop up too quick or not.

Any thoughts on the above line of thinking?

 

[Country Lad]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Plus one for the watch list from PAV

I recognise that one - I have been watching it for a breakout again. It has been a buy on half a dozen occasions and I have kicked myself for not buying it again after being stopped out the first time.




Funny how we all interpret charts differently. I saw the pattern thus:



Cheers
Country Lad

 

[skc]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Im not suprised you are making judgements before I have an opportunity to comment!

Firstly Keep the questions coming and SKC I apologise for being curt.
Without clarification and questions nothing is solved.

All good, Tech/a. No apologies requrired.

I was surprised only because I assumed you would have discussed these issues during your 6 month mentorship with PAV. I assumed that because you are an experienced trader and would definitely have encountered this issue through your years of trading. I was genuinely surprised so thanks for the clarifications.

Risk is 2% on initial account. Thats $ 50K NOT $100K
So $1000.Max risk---and the most common we will use as our initial risk and position sizing model.

As for amount in a single trade.

For short term trading I have had 50% on one position.
These trades here will only run a few days to a week max---unless we get a bull run where they will then run weeks.

In my own trading I limit my position size to 15% of capital. As I trade mostly ASX 200 stocks, a major gap is probably around 30-40%. If I hit one of these I lose up to 6% of my capital which would really hurt but it'd be OK in a couple of months. The chance of me hitting one of these major gaps is only small... but they are real and must be managed.

I guess that you may be comfortable putting 50% on one position because your trading capital is only a small proportion of your total assets, and you don't trade for a living. I would suggest any person looking to trade full time who plan to use a greater portion of their asset as trading capital, use a lower figure.

The right number may be limiting the loss to 4% of your total asset in the event of a 30% unfavourable gap. So if someone has $200k in assets and trading a $100k account, the maximum single position size should be $200k x 4% / 30% = $26.7k. If $100k account is all you got in terms of assets, then $13k is the limit. The number might be lower again if you are using debt to fund the account.

77% of starting capital invested in one stock is an absurd position size, even if it is only 39% of available capital. Even though there is a theoretical risk of 2% (is this 2% of capital or available capital?), all positions are at the mercy of the sudden trading halt and an announcement that the financial controller has run off to the carribean with all the funds.

Agree... trade long enough and you are bound to hit one of them. I shorted MCC one afternoon and it received a takeover offer after the close on that very same day. Not to mention that it was exactly one day after the announcement of the carbon tax. Luckily for me the position was only 6% of my capital (I was just putting on the first layer and was prepared to go up to 10%). The gap up was ~40% so it was not too devastating. But that's only because I stuck with a conservative position sizing rule.

 

[tech/a]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

Great thread guys, have only just discovered it.

I have also been recording the initial stop when I enter any given trade, my current stop and the price I am stopped out at (obviously). However I haven't put too much thought into how interpret this info however.

My query is what insight does this provide? Knowing that my stop has moved up x% tells me what?

I can assume a few basic insights, i.e. looking at what trades are profitable vs not, and seeing how much my stop has moved may indicate whether or not I am moving my stop up too quick or not.

Any thoughts on the above line of thinking?

Glad you raised the question.

Using a standard 2% risk is accepted as " normal "
In these markets I'm pretty aggressive
I want momentum and won't give a trade much room at all unless
It demonstrates that it's trading in the direction of my position .

By moving my stop aggressively ( when things get going you'll notice a less aggressive trailing stop placement ---- until the position shows signs of stalling or reversing at which time it will return to aggression to protect profit)
This reduces my ACTUAL risk on all trades taken.
In reality closed trade results will show a far less % of capital at risk.
That is WHY I move stops.

Yes from time to time I'll be stopped and the trade will march back up and on.
But on far more occasions the trade WILL take out my 2% stop just as it took out my moved up and lesser stop.

It will become clear as PAV puts up some spread sheets and happy to go through it as we get a history.

SKC
PAV and I have discussed the very point you have raised. We are both aware of the situation.
I put up FLT as it was an excellent pattern.
Anyway chances are that stocks over $20 will be very rare.

Small micro patterns are my choice here as purchase to stop is very small.
Most moves are pretty small and return on risk can be striking on the odd one.
As you'll see it's that " odd one " that slam dunks the portfolio.

 

[qldfrog]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

just to say that I am following this thread with interest and it answers a lot of my questions and will influence the way I trade

One question: I also use stop (automated )
if Share XYZ equal or below let 's say 2$ sell at $2 (I am with bell direct)
Sometimes these fail (too quick a drop and I am left at the end of the day with big loosers),
I have also noticed that very often, my stop triggers, get executed but I could easily have set a sligthly higher exit price (still ok with the idea of exiting but may need to increase the sell at value?)
How do you reconcile these two aspects???
ensure stop are activated and when decision is made to exit automatically, actually ensuring you do not get too bad a deal

These are only affecting a few percents that is what make me loose some money last year
And lastly, does the type of share affect your exit decision or do you just look at trends
example:
Thursday bought BBG, went 33% yesterday and having no faith in this company I existed; nice profit but could it be the case of not maximising my profit..
This was a pure emotive act so not a good thing but once I clicked during the lunch break too late to go back
Would you have raise your stop by 30%???


anyway, too many questions but once again, thanks for your input

 

[tech/a]

Re: Technical Trading Exercise---Discretionary, (Pavilion103 & tech/a)

just to say that I am following this thread with interest and it answers a lot of my questions and will influence the way I trade

One question: I also use stop (automated )
if Share XYZ equal or below let 's say 2$ sell at $2 (I am with bell direct)
Sometimes these fail (too quick a drop and I am left at the end of the day with big loosers),

I dont know if Bell do it but set a limit order.

I have also noticed that very often, my stop triggers, get executed but I could easily have set a sligthly higher exit price (still ok with the idea of exiting but may need to increase the sell at value?)
How do you reconcile these two aspects???
ensure stop are activated and when decision is made to exit automatically, actually ensuring you do not get too bad a deal

Its a cost of doing business you want out and a limit order will get you the best price available AT THE TIME.

These are only affecting a few percents that is what make me loose some money last yearAnd lastly, does the type of share affect your exit decision or do you just look at trends
example:
Thursday bought BBG, went 33% yesterday and having no faith in this company I existed; nice profit but could it be the case of not maximising my profit..
This was a pure emotive act so not a good thing but once I clicked during the lunch break too late to go back
Would you have raise your stop by 30%???

I analyse charts.
Its simply a business decision.
To your quandry.
If there is a large exponential move often I'll take the profit.
Generally these moves (unless they are a take over at x Value) will increase volatility.
If your out early enough best to sit back and watch the show with money in your pocket.
It will settle and if opportunity presents itself again (in the way of pattern and price action) then you are at liberty to take it.

Highlighted section
I suspect not enough profit in winners if your cutting losses.
This is the hard part!

There are a number of ways of "helping" with this with very short term trades.
The best way is to be trading in a raging bull market!

Failing that we need to be able to---at the best of our ability---
(1) Identify weakness (That will threaten our position) or simply a pause in any move that is likely to continue.
(2) Pyramid as quickly and as effectively as possible anything that moves quickly in our direction.
THEN see point 1