Simple not easy

[atters88]

Weak Stock, Weak Index

It makes sense when looking for a stock to short to look in a weak index. After all, general liquidations will be adding further to the selling pressure on the weaker stocks. For the moment, the CAC40 is my preferred pool to fish in for stocks to short. And the pick of the bunch tonight, in my humble opinion, is St Gobain.

I don't just want to trade on the short side tomorrow. For a long, I'll stick with Goldman Sachs (GS) which did nothing today but which is teasing with breaking upwards.

United Technologies also looks like it is about to do something. I don't know what yet, but when it moves, i intend to get on board.

Finally, anyone who followed my tip last week to short Larfarge and who is still holding that position will be happy.

 

[paszkman]

Hi Atters, how do you keep an eye on so many different stocks?? Do you manually look through so many charts or are you using some sort of stock screener?

 

[atters88]

Identifying stocks to trade

Hi Atters, how do you keep an eye on so many different stocks?? Do you manually look through so many charts or are you using some sort of stock screener?

Hi and thanks for your question.

I mainly try to keep an eye on he stocks in the Dow 30 index, so that's not really that many. I use ProRealTime for my charts and they list the stocks in Dow 30 index together and i find it easy to scroll quickly though the charts. I just press the down arrow key to move to the next chart. Most charts I will dismiss in a matter of seconds as I am looking for set ups where there is either tension or a move which is gaining momentum.

Recently I have also been following the CAC40 stocks as the index has been weak for a while and I thought it would be a good place to look for short candidates - which it has been.

I have tried scanning software in the past but haven't found anything that I think helps me. I think time is better spent learning how to read price action - it takes time but I believe it's the most likely route to success in trading.

 

[atters88]

Today's trades

I've already sold and bought back United Technologies on it's anticipated break lower today. Profit of $1 per share. Could I have made more by holding on longer? Probably, but I tend just to grab my profit as soon as the move I anticipate takes place. The way I look at is this: when I closed my position, the stock no longer looked like a sell to me. It had already shot it's load.

I'm also long Goldman Sachs which is playing out nicely today after having done nothing yesterday But I am short St Gobain and the price is approaching my stop loss.

 

[atters88]

As it says on the tin

I came across this quote today from legendary trade, Ed Seykota:

"The biggest secret about success is that there isn't any big secret about it, or if there is, then it's a secret from me, too. The idea of searching for some secret for trading success misses the point. "

For me, when I come to this realisation for myself, it was the turning point in my trading. I came to see that technical analysis (of the indicator variety) is the alchemy of this century. In past centuries, some great minds including Sir Isaac newton fell for the deluded quest to turn base metals to gold. Today, intelligent people experiment with indicators or, worse still, listen (and pay money) to gurus who promise to unlock the secrets of the markets.

In a playful moment, I devised a rather cheeky (contrary)indicator of my own to see if I can profit from the folly of others and, yes, although I have only paper traded it half a dozen times, so far the hit rate is 100%. No doubt that won't last and I want this just to be fun but I will start posting the signals as I spot them in order to see how many wins I can find.

Turning to today, I'm pleased to report it was another profitable day. I had a good win with my long on Goldnman Sachs and United technologies did indeed move and i was on for the ride (or at least part of it). But my short in St Gobain spoiled the fun a bit. Still a profit is a profit.

It's late and I'm tired and i sense my next few trades may need a bit more thought. Hopefully I will find time to review some charts before the European open in the morning.

 

[atters88]

New exit strategy

I've decided to adopt a more systematic approach to exiting profitable trades. So:

If I am in a winning break-out trade, I will exit at the close if the day's range is less than the preceding day's range or volume is less than the preceding day's volume. This is because the trade will no longer follow my core trading principle which is that I want to ride stocks that are gaining momentum. The fact that the trade is profitable is down to luck and not because I have latched onto a stock that is gaining momentum. So i will snatch my profit with a sigh of relief.

But if the range is greater and the volume is greater than on the preceding day, then I have correctly hitched a ride on a stock that is gaining momentum. I will hold overnight.

There. Simple. Applying this rule would have meant holding Goldman Sachs overnight yesterday and nearly doubling my profit. But I would have exited tonight.

I have not seen anything that jumps out at me to trade tomorrow. JP Morgan and Exxon look promising but don't quite meet my criteria but I will probably end up trading a least one of them.

 

[WklyOptions]

I've decided to adopt a more systematic approach to exiting profitable trades. So:

If I am in a winning break-out trade, I will exit at the close if the day's range is less than the preceding day's range or volume is less than the preceding day's volume. This is because the trade will no longer follow my core trading principle which is that I want to ride stocks that are gaining momentum. The fact that the trade is profitable is down to luck and not because I have latched onto a stock that is gaining momentum. So i will snatch my profit with a sigh of relief.

But if the range is greater and the volume is greater than on the preceding day, then I have correctly hitched a ride on a stock that is gaining momentum. I will hold overnight.

There. Simple. Applying this rule would have meant holding Goldman Sachs overnight yesterday and nearly doubling my profit. But I would have exited tonight.

I have not seen anything that jumps out at me to trade tomorrow. JP Morgan and Exxon look promising but don't quite meet my criteria but I will probably end up trading a least one of them.

Hi, Atters88,

Well, good to see that you are making efforts to study and debrief from ongoing trades and market/volatility climate.

However - it is still "trading on the fly" - making adjustments after only 1 or a few trade results. A couple of aberrant events/results can really alter your trading rules again. Your trading will still be vulnerable to volatility or emotional spikes.

Then your handle may be from "atters88" to "alters88"...

Better to think your entries, profit exits, loss exits, bet sizing, scale in/out, etc., BEFORE the series of trades. :smart:

Being busy, being distracted b/c of a need to trade - both distractors from systematically forming your trading plan and backtesting (and forward testing) - can lead to sharp drops in bankroll equity. :whistling

Plan the trade - trade the plan (sorry...so cliché, I know)! At least for consecutive 20-30 closed trades. :idea:

I know - easy to say, easy to read, easy to post - but - very difficult to do in the real world. But that is why 1% achievers consistently can beat random distribution of outcomes, losing streaks, emotional self sabotage, etc. Raise your trading standards and set yourself a deadline to have the plan done - and the trade through it for 20+ closed trades.

Good luck!

WklyOptions

 

[atters88]

When the facts change

First, to WklyOptns: I will reply properly to your post shortly but I just wanted to say now what my plan is for Friday.

Surprisingly, the CAC40 presents some good buy candidates for tomorrow. Mine is not to question why but to react to what is unfolding in front of me which is that a number of CAC stocks are enjoying a recovery that is gaining moment. So, i will be looking to buy L'Oreal, Orange, Shneider and Vivendi tomorrow and possibly even a French bank (well no, not really, I draw the line at some things - fundamentally they are basket cases whatever the chart shows).

Do I feel comfortable going long on Europe? Not really - i will want to balance it, perhaps with a Dax put option.

 

[atters88]

Long Vivendi

Bought Vivendi (VIV) at 18.55

Will hold fire on other longs for the moment as Europe is trading weaker at the open. May buy L'real however if it shows follow through from yesterday's upward move soon.

 

[atters88]

Relative outperformance

Managers of unit trusts will often talk about "relative out performance" to gloss over the fact that their fund has lost money. So today, I am proud to announce that Vivendi (my pick this morning) significantly out peformed the market. Unfortunately [mumble, mumble] it also lost money.

Any lessons? It was a valid set up but, with general signs of weakness across stock markets, I should have taken hedged long/short positions. I had mentioned buying a Dax put option to balance my long trades today. If I had done that, I would have made money.

My stop was not hit and I was away from screens all afternoon, so I didn't get to close the position which is ok as the set up is still quite attractive.

Coco Cola and McDonalds both sold off this week and may be finding support. One more higher low on the daily chart by McDonalds and I will enter a long trade.

And turning to the CAC40, I think for the moment this is a better source of shorts than longs. Several stocks look vulnerable (eg St Gobain) but one in particular looks bang ready to trade: Michellin (ML).

 

[atters88]

A Belated Response

Hi, Atters88,

Well, good to see that you are making efforts to study and debrief from ongoing trades and market/volatility climate.

However - it is still "trading on the fly" - making adjustments after only 1 or a few trade results. A couple of aberrant events/results can really alter your trading rules again. Your trading will still be vulnerable to volatility or emotional spikes.

Then your handle may be from "atters88" to "alters88"...

Better to think your entries, profit exits, loss exits, bet sizing, scale in/out, etc., BEFORE the series of trades. :smart:

Being busy, being distracted b/c of a need to trade - both distractors from systematically forming your trading plan and backtesting (and forward testing) - can lead to sharp drops in bankroll equity. :whistling

Plan the trade - trade the plan (sorry...so cliché, I know)! At least for consecutive 20-30 closed trades. :idea:

I know - easy to say, easy to read, easy to post - but - very difficult to do in the real world. But that is why 1% achievers consistently can beat random distribution of outcomes, losing streaks, emotional self sabotage, etc. Raise your trading standards and set yourself a deadline to have the plan done - and the trade through it for 20+ closed trades.

Good luck!

WklyOptions

Thank you for your constructive post. I agree with much of what you say: One must have a plan and discipline and one must not trade on the fly. But I would draw a distinction between trading on the fly and using intuition to refine your approach.

I aspire to be an intuitive and not a systematic trader and, whilst I cannot say I have researched the subject, my experience is that there are more successful traders who temper their method with intuition/judgement than traders who operate entirely systematically. But horses for courses as they say.

I am a horse that sees trading as an art. Not because I can present any great insight as to why trading is an art rather than a precise science but because that is how I enjoy approaching trading. I work in a specialised profession where daily I apply judgement (rather than algorithms) to imprecise information in order to assess risk. That is how I have been trained to think and where I believe an edge can lie. So, I trade with defined set ups and rules regarding trade management but, to a degree, I will be weighing things up as I go along because no two sets ups are the same and the precise factors which will determine whether a trade succeeds or not will always be different. In summary, there are clear parameters that I operate within but I also use intuition and judgement in order to fine tune my trading.

Going back to WklyOptns's post, my decision to have a rule for whether to carry a winning position overnight is based on many (i.e. hundreds, even thousands) of trades because I felt that a rule of thumb would be helpful to combat my biggest weakness which is that I take my profit very quickly. The rule of thumb reflects the fact that, applying logic, I wouldn't want to hold a position overnight that i would not be interested in entering as a new position whilst also hopefully encouraging me to let valid positions run.

I hope to have more time over the next week in which to trade. I will sell Michellin tomorrow and also keep an eye on my long trade in Vivendi but will be looking also to US stocks for new opportunities.

Oh, and I said a few posts ago that I would be posting the signals from a fun system I have devised. Rather snootily, I will say that the system is intended to exploit the folly of the crowd but the first signal instinctively feels wrong to me. Oh well, here goes: Short Google. Close the trade after either a 2% profit or a 2% loss. (my backtesting of this system extends to 6 trades, so these signals are posted purely on a fun, experimental basis). Twitter is almost a short (which instinctively does feel right), but one data point isn't quite right.

 

[atters88]

Quick Monday update

My Vivendi (VIV) long is now at break even.

But the Michellin (ML) short I paced this morning is below water.

In the US, General Electric (GE) is a possible short as is American Express (AXP).

 

[atters88]

Vivendi comes good

I have 4 open positions:

Vivendi (VIV) long. Now comfortably in the money.
Michellin (ML) short. Currently below water. A long legged doji was formed today, so what happens next is anyone's guess but I couldn't get online this afternoon to check up on the trade and it didn't hit my stop, so it's being held overnight.

In the US, I am short General Electric (GE) as posted earlier, which is nicely in the money and will be held overnight (because the trade remains valid in my book due to both range and volume being greater today than Friday).
But I wanted my positions to be neutral so I also bought McDonalds (MCD). Maybe a bit premature as there are signs of the price running into resistance but at least there is a very obvious place for a stop only one dollar away. My McDonalds trade is showing a tiny profit.

All in all, a good day but I am holding all positions overnight which is unusual for me. Will look to close the CAC trades early tomorrow unless there are clear signs of follow through in the desired direction.

There are a few DJ30 socks I will also keep an eye on for possible long trades: 3M and Exxon. Will post charts later.

 

[atters88]

The trouble with rules

Trade the plan, so the saying goes, and I know that in the long run doing this helps protect one from oneself. But there are also times when subjective judgement should be allowed perhaps to override what your rules tell you to do (better override the plan than refinements so as to "curve fit" your plan).

Today I sold General Electric (GE) at the open. That was a good trade and it quickly went into profit. But knowing that my biggest weakness is that I take my money off the table quickly, I have held the position overnight even though the stock was recovering before the close. The reason I held the trade was that both range and volume were greater than the previous day, which are my criteria for gathering momentum which is at the core of much of my trading. We'll have to see what tomorrow brings but my intuition tells me I should have closed this position already.

I'm going to keep my eye on Exxon and 3M which look like they might pop upwards (there is some build up of volume and, for the most part, higher lows and plenty of support below the current price).

 

[atters88]

Profit, but new opportunities drying up

I closed my Vivendi long (good profit) and General Electric short today (modest proft) and also closed my Michellin short which gave back half of the profit.

But I am holding McDonalds (MCD) overnight even though I expect any further advance to be choppy because I liked the increased volume toady.

Opportunities seem thin on the ground for tomorrow, at least in the pools in which i like to fish (DJ30 and CAC40). Publicis doesn't look like its finished falling, so I will likely try to take a very short term ride on that. If I'm wrong, that should be apparent pretty much immediately.

 

[atters88]

Heading south?

For a while now, I've noticed the increasing number of CAC40 stocks wit weak chart formations and I scoured the CAC40 for short candidates. I now sens the same is happening to the Dow 30 stocks. One by one they are weakening. The Dow itself is holding up better but it is being held up by a smaller number of stocks.

On the Nasdaq, the position is even worse, with very narrow participation.http://jlfmi.tumblr.com/post/928254...c72302c81fedcf572c3498c499e3d242d2d8250a95adf

I have no crystal ball but I must prepare for the possibility that successful shorts will be easier to find than longs. On the Dow30, Walmart and Procter & Gamble are possible shorts. Nike and, further off, Johnson & Johnson are interesting possible longs. Over on the CAC, you are spoilt for choice when it comes to short candidates.

In terms of my trading today, you could have made money by following my suggestion and shorting Publicis but you would have had to be nimble. The trade initially moved nicely in my direction but I was stopped out a break even the price turned up. I also closed McDonalds for a small profit (though not as great as if I had sold it yesterday).

P.S. I sold Procter & Gamble (PG) just before the New York close.

 

[paszkman]

Hi Atters, do you think that your trading has improved since you started this journal? Has it made you more careful about which trades to enter?

 

[atters88]

A very quick scalp - Lafarge

I left a market order early this morning to sell Larfarge (LG) at the open after its heavy fall yesterday which carried on into the close. Within 4 minutes, that trade had generated nearly a 1% profit. As I am out and about today, I have decided just to collect my winnings. Sorry, this trade wasn't posted in advance. If you choose not to believe me about this trade, that's fine by me.

Hopefully I will be able to watch New York open as I would like to keep an eye on my short in Procter & Gamble (PG).

 

[atters88]

Profitable short P&G trade closed

Having given back so much of my profit in my short General Electric trade a couple of days ago, I feel inclined to take my money off the table quickly today. I've closed my short in Procter & Gamble with a nice profit after a 0.8% drop in the first 10 minutes of US trading.

 

[atters88]

Does my journal help my trading?

Hi Atters, do you think that your trading has improved since you started this journal? Has it made you more careful about which trades to enter?

Yes, this journal is helping me, though I am still not as disciplined or methodical in my trading as some traders advise.

The journal helps in that it ensures that I think through my trades properly. If a trade doesn't make sense when I try to explain it in the journal, then it probably is not a good trade (in the sense of rational/valid rather than successful).

It also makes me accountable for my trading. My wins and more importantly my losses will be apparent, whereas previously I would often try to fudge losses by thinking of them as a longer term trade or selling a call in an effort to soften the loss. My trading is more straight forward as a result, which is a good thing. When I have got burnt before, it has usually been because I tried to nurse a trade back to health using options rather than take the loss straight away. I know that that sort of fannying won't stand up to scrutiny if exposed in a journal.