Weekly Recap

A very quick recap of the weekly activity.

I purchased a new position on Tuesday, HF at $11.60, a tad higher than I wanted but I got busy at work and failed to change my limit order...it doesn't really matter in the long run though as it was my initial entry price anyway. I'll probably move the stop up to $11.25 from $11.15.

I moved my stop on BVF to $12.10 last night.

I looked at the chart for LNR and decided to leave it alone. It's at 17% if it gets stopped out so I feel it's a good spot for a gain and it allows enough room for the price to flucuate while it decides where it is going.

This is a far cry from having to decide and manage 6 or 7 trade entries in one day, jiggling with the stop settings, and all the rest that goes along with higher volume trading.

I like it.

On the weekend I will select 10 more stocks to add to my potential list and chart maybe 5 of the existing potentials that look like they might be ripe for trading in the next week or two. I have three active, 12 iminent, 23 charted potentials, about 30 uncharted potentials and about 200 that fall within my general criteria.

A side comment. What other small enterprise can one start with $5K, no appreciable overhead, no staff, no inventory, no franchise fees, no business permits, very little risk and an almost guaranteed customer base? Oh, next year when the Tax Free Savings Accounts (TFSA) come out , no income taxes, no capital gains taxes.

The only downfall with the TFSA will be that I doubt they will let me use margin in the account, they don't for RRSP accounts already and these are likley to be treated similarly.

Sometime in June I will be transferring a larger sum to work with but I will be keeping this startup running separately as the other will be a transfer from an "advisor" managed RRSP account that has been losing money. I might have to change some of my rules for that one.

JD.

Statistical restart

I was reviewing the account last night and, after paring the last of the non-CTP stocks yesterday, I decided to only track the actual CTP trades. As I have been ahead and behind in my account as far as profit and loss is concerned since I started playing in February I have never really worried much about the real hard numbers, just the generalities. As long as I had enough cash left to continue running my tests I was happy. Now that I am tracking accurately and making consistant gains I feel that I should keep the record straight with regards to the trades that actually follow my plan within this trial...mostly in fairness to the plan and to justify the time I've spent getting this plan on the move. Perhaps it's a little ego rub too... [;^)

So, of the 8 trades four have been according to plan and four have not.

Non-plan - RUS, SW, TET/UN, SIF/UN, I pared the last of these yesterday.

Plan - ATD/B (no longer active), LNR, BVF, HF (active)

The company names are of little import here as I am tracking only price action. If anyone is interested you can go to TSX.com and enter the symbols into the "Get Quote" box. This will give more information and website links for the companies.

I will still base the returns on the initial $5,000 for percentage calculations.

The timeline still stands as one of the first trades, LNR which is still active, did follow the plan even though it would be considered a late stage entry.

My goal has not changed, 1.5% per week. I'd like to see it compounded each month or the equivalent.

While this will make the numbers look better right now, I feel it is a truer representation of the efficacy of the CTP trade strategy. Interestingly 3 of the 4 trades that are removed from the trial were the ones that lost some money while one made a profit.

I will still be keeping general account numbers for my own information but posting only current CTP trade stats. In the long run, having left these stats alone or updating them would make little difference.

JD.

HF - Hanfeng Evergreen

This is a trade that I entered this week.

Ticker symbol - HF
Company - Hanfeng Evergreen

They are based in Toronto and deal in fertilizer with China...which is more than I need to know about the stock but I thought I would share what I can recall of them. With potash pricing taking off and China's development this is a good candidate for some nice prices down the road.

I have traded them in the past and made decent profits on same day and next day trades. Now I am looking to increase the returns by increasing the length of the trade by using the CTP approach. While the price may not take off and make great gains I figure that it is a good trial of the system and, hopefully make some nice Target trades.

I marked the chart the same as for the CTP example...green circles the short sell zone, red circles the buy zone. The little red arrow is the day that I actually placed the trade so I currently have 100 shares of HF.

Here's the six month chart: I'm still working on getting these nice and sharp but this gets the point across.













This one is not down trending, it is a consolidation triangle which works a bit differently. I am entering this stock later than I would like but I wasn't watching it for these entries in the past. As it is I hope to at least make a small profit and at best be there when the prices takes off...we'll see.














This is a 2 year chart to show the price historically. The last six months is all I have made notes on as it is the most relevant and the most defined trend. Prior to that the price was not very predictable but could have still been traded using the CTP principles with varying results.

This does look like a very shallow downtrend over the last year

Out of curiosity I applied my strategy historically on this stock and four trades would have been made since February. Those trades combined would have profited $4.75 per share. Considering that the very first price bought at would have been about $11.25 that is a 42% realized gain or profit. I skewed this against me as there could have been another $1.25 in there, but I prefer worst cases. This cash would be used as a buffer for the next few trades as the possible profit per trade gets smaller the farther along this particular trend type that you get.

That't the theory, we'll see how well I fair as time passes on other similar trades.

JD.

Strategy - intraday checking...NOT!

I note this today as one of my strategy steps is to not have to deal with trading during the day with the exception of new orders at the market open and setting stop loss orders after a new order is filled. There has to be a sense of confidence in the system rather than feeling that it needs to be monitored.

I sometimes leave my trading software running in the background and check prices out of curiosity or to see that my settings are appropriate. Today I have shut it down. I have all my stop orders placed as I have no intention of moving them anyway, so I really don't need to waste time checking on things until after the close to get the final numbers and make adjustments for tomorrow. I might look at lunch time though.

I figure if I write this down I might actually do what I say...which is a big part of this blog in the first place. It gives me some sense of accountability as I can check back to see that I have followed what I said. A kind of "walk the talk" thing.

JD.

Counter Trend Positioning (CTP) - breakout

I did some thinking on the weekend...yardwork does that to me...I managed to get this into a presentable form.

Keeping in mind that CTP is, as far as I can tell, my own trading style as I haven't seen it anywhere yet and I have read a lot technical blogs, sites and as much as I could glean from services and books while browsing. It is a combination of styles that I have seen though. I find some swing trading, position trading, some level of buy and hold, trading for targets....maybe some others along the lines of technical trading with indicators and patterns. I liked the idea of mixing it up to come up with one general strategy that can work in all market conditions from a select number of stocks.

I went over my goals for this particular strategy.

1) not lose money overall
2) make some target profits
3) be in a really good position when the price breaks in your favour

1 leads to 2 which leads to 3.

Counter Trend Positioning broken down.

Consider that a trend can be one of four types...keeping it simple.

1) the uptrend, everyone's favourite, price is moving up
2) the downtrend, everyone's bane, I like them though...it's the whole basis for CTP
3) the consolidation...mostly horizontal, there are a few styles but that doesn't matter right now
4) the "churn", no real trend the price seems to follow no real pattern at all

Consider also the old mantra "buy low and sell high".

So, the best place to be is buying a stock when it's price is the lowest. That would mean buying a stock at the very end of a downtrend. So how do you tell when a stock is at it's lowest or the trend is reversing? The easy answer is that you can't with any real accuracy. This is where CTP comes into play.


THE DOWNTREND (over simplified)

























I've marked the chart as follows: (now that I look at it it looks like a kid's drawing with crayons...track ball drawing is fun.)

black squiggly line - the price over time
blue lines - trend upper and lower boundaries
red circles - buy zone
green circles - short sell zone

So the plan would go something like this.

1 = short after the peak

2 = cover near the bottom then buy after the bottom bounces (this is the Counter trend part)

3 = sell after the peak using a stop as an exit strategy (the after is critical...more on that another time) then short after the peak

4 = cover near the bottom then buy after the bottom bounces

5 = sell after the peak again, followed by another short sell

6 = Cover near the bottom then buy after the bottom

The price passes the upper trend line at BRK (= break) and planning on selling AFTER this possible peak IF the price had dropped leaves me in the stock as it breaks the trend up and does not drop back yet.

7 = this peak establishes one of the first points of the upper new trend line I will do nothing as I want to stay in

8 = buy more shares here...margin may be used here under certain circumstances.

The period between 6, 7 and 8 is where all the fun is and it can take a number of forms. This rough example is a clean break and determining where #8 is going to be is a whole other topic. Suffice it so say that the gains realized from 1 to 6 should result in a good cash position where the risk tolerance can be increased in order to give the price movement more room to help the break play stick.

Keep in mind that 1 to 8 might take a year so there isn't a lot of trading going on until there are a few stocks in the portfolio that are being managed.

This is the Positioning part of CTP. I have effectively met all of my three primary goals without having to try to time the trend reversal by just being there each time a trend change could occur. From the example and a bit from my actual trading:

1) not lose money overall

This is only one stock example as the overall is really aimed at the entire portfolio, but if half of the stocks do this good a loss isn't in the books. The startup is the risky part while things get going and I am trying to establish excess cash from the initial target trades. Small loss allowances, tight stop loss settings and small sized trades. I set some quantitative goals which I don't really expect to be met in the first few months...but it gives me something to aim for. My first trades were mis-aimed as I jumped the gun on the final plan by a few weeks...but I still learned and I am still ahead so I am satisfied.

2) make some target profits

In the example I have made money with the short/cover buy/sell trades along the way, (the individual initial targets). In m ytrading I have made some and lost some but I am ahead overall and every time a stock gets sold for a small loss or profit I replace it with another and put the recently traded stock back in my watch list for the next cycle...it doesn't get dropped only because I may have set my stop wrong.

3) be in a really good position when the price breaks in your favour

Well, in the example, the price broke and the next steps would be to continue buying as each new low is made in the new trend thereby adding to the position and increasing the rate of gains after each new addition. At this point the strategy is to remain in the stock as long as the trend up continues. If the stock pays dividends, bonus money, if the stock splits, even better. This leads to the comfortable situation of being able to let the stop ride considerably lower than the new lower trend line which leaves the stock price lots of room to swing and continue moving up while buying at each low. My stop will sell the stock automatically when it breaks the trend and heads back down.

Then you can start the process all over again to catch the next bottom.

JD.

The short sell

OK, it looks like I need to get into this one now. I was going to post a trade setup for Monday but it requires some explanation for the trade first.

The short sell:

Selling of a borrowed stock, the profit comes from a DROP in the price when you buy it back...opposite of a Long Trade in some respects.

Everyone knows what a long position is, buying a stock to hold until the price goes up for a capital gain or there are dividends paid to you as a shareholder. Basically buy low and sell high...pretty simple.

The short is more complicated. I've been asked to explain it a number of times so I think I can break this down easily.

When you deal through a broker you don't actually own any shares, they hold them for you and your account reflects the amount you have purchased. So the broker still owns them, this is important.

You short sell the shares to the market.

In a short sell you borrow some shares of the company you are going to trade from your broker. (Sombody has an account that has bought these shares but not always the case) For example, ABC stock is selling for $15 right now so you sell the market 100 of the broker's shares. The cash for the transaction is not yours, it is basically held in trust. So $1500 is held separately and the 100 shares show up as a negative quantity on your account.

In a short sell, as stated above, you are waiting for the price to drop to make your profit.

The price drops to $12. You decide that the $3 difference is enough and you now have to cover the short shares. Covering is buying the shares from the market to give back to the broker. In my trading software the "BUY" button is also the "COVER" button as they are the same transaction as far as the market is concerned.

You buy or cover the shares for $12 and pocket $300

The shares are covered for $1200 total which can be considered as deducted from the $1500 held in trust. You give them back to the broker. $1500 was held from the sale, $1200 was the cost to "cover" or buy back the shares from the money held in trust so you get to pocket the $300 as profit.

The "short" version is that you short sell the shares for $15 per share, then cover the shorted shares at $12 per share and get to keep the $3 per share.

Three things to remember as you hold a short position:

1) holding over the ex-dividend date you will be responsible to pay the dividends to the broker

2) if the stock splits, you will be responsible for buying the appropriate number of shares to cover the number the split was (2 for 1 you need to buy 200 instead of 100...at whatever price you can)

3) last but certainly not least, if the price goes up you lose the difference. This can have serious consequences unless you depend on your strategy.

This one is sometimes hard to get. I understand that only around 2% of people investing or trading in the U.S. have ever even done a short sell. It is misunderstood. Most of my trades have been short sells and I like them.

JD.

Stock picking...touching on my theory

I thought that how I pick my stocks may be of interest so I shall elaborate just a little. I won't try to go into much detail as the charts would help a ton here...I'm working on that so this is an overview of what I start out looking for to add a stock to my list of potentials. Picking from that list needs the charts.

My picks are strickly based on the price action on the charts. I mentioned before how I started investigating companies for their fundamental value for long term investments. What I have found since is that the price is a better indicator of the viability of the company to produce profits for me.. Where my method shines is that it eliminates my personal judgement on the health of the company and makes picking potential trades easier, quicker and the base of companies to choose from is larger as a result.

I happen to like a little more activity so picking a stock that is not necessarily a long term performer is not a concern. I will sell for a profit and await the next trade setup.

Basically, any stock has three variables to work with, price, time and Volume. The charts are just graphs with price over time plotted and the volume is a bar graph across the bottom. There are overlays and indicators but they are less important as they are based on these two or three numbers anyway and there are only a certain number of ways to crunch the numbers and their relationship...but I found the simplest to be the best for my purposes.

What I look for is a stock that has a volume average of over 200,000 shares per day, a price averaged over 60 days within $10 and $30. That's about it. These criteria have given me about 200 stocks to pick from, 25-30 are following a pattern that looks like it should produce some interesting trade possibilities and I have charted most of those and proiritized them based on when they may be ripe for a profitable trade.

My current holdings are
Biovail Corp (BVF)
Linamar Corp(LNR)
Energy Savings UN (SIF/UN) (UN = income trust)

Note that BVF is a Short position. That is it's very own topic though.

LNR is the best performing so far. Even though it is currently languishing it is still around 20% gain since buying it a few weeks ago. I choose not to sell it as it looks like it has the potential to move up substantially. If I am wrong I already have a Stop in place to see a $1.90 per share profit. If the price looks unlikely to keep going I may choose to sell or move my stop closer to take more profits. I would be happy with the $1.90 (13.4% gain for the trade) so I will let it flail around for a while and take advantage of any further price moves up....update, since starting this entry I have moved my stop up $0.60 to see a $2.40 profit. I felt that if the price fell below $16.50 then it was time to take some profits and move on. That still leaves enough room for a potential rally to a new level, just in case. That makes this a 17% profit on the trade.

Keep in mind that my trading strategy is still a work in progress. I am tweaking certain aspects of my methodology... weekly...as I see problems arise or good things happening. I have pruned a couple of my early trades now as they wouldn't have fit under my newest version and really didn't look like they were going anywhere except potentially down..


JD.

Definitions expanded

I found this cool bit of code that lets me put little pop up definitions for some of the terms that may not be in every one's repertoire. Just Hover over the bold faced, underlined italicized words or phrases.

If anyone runs across one that I missed and should add, just let me know.

JD.

Slumpy day

The day was certainly not a stellar day for me, but then the market was soft in general. After yesterday's drop following the record high for the TSX of 15000 I shouldn't be surprised. I lost one position today for a small loss (-$44.90). It was close as the price just touched the $12.00 mark which is where my stop was set.

One thing that I always keep in mind is that the market doesn't care about me or my portfolio it just constantly moves according to the whims of all of the people... and programs in some cases...who are trying to make money. My 100 share position is of little consequence. It's not personal so I should not take personally. That is hard to do occasionally when it SEEMS that the market reached out to touch just me...down to the penny.

I must say though that this stock, Trilogy Energy Income Trust (TET/UN), was not really expected to perform well by me. I left the stop below my purchase price only to give it enough room to move upward as it does have some potential. I bought this one farther along it's up trend than I would have liked but that's what happens when I change the strategy slightly on the fly. In hindsight I should have cut it loose when it was around +$50 for me. One other thing that I could have done to perhaps stay in this position longer would have been to lower my stop to the 30 day Exponential Moving Average (EMA) . The price dipped to this line on May 1st in a very similar manner. I even looked at that line this morning and weighed the odds in my head of it repeating the exact same pattern. Ever since mid February the price has been close to the 10 day Simple Moving Average (SMA). Of course in hindsight dropping the price on the stop that extra 5 cents really would have made little difference...except I would still have the fund...but I do expect it to drop more tomorrow before perhaps moving back up.

I just remind myself that recognizing the error is the second step in learning from a mistake...the first is making the mistake.

I would drop a chart in here to show this a lot clearer but this BLOG is new to me so I will work on getting decent charts for future.

Friday now...by a few minutes. I usually try not to execute any new trades on Fridays so it should be a wait for the market to close and see where I am for the weekend. Gives me a break at the end of the week.

JD.

Maximum Loss Allowance (MLA)

I was trying to come up with the single most important rule that applies to every single trade entered and I kept coming back to the Maximum Loss Allowance, (MLA) which amounts to risk management.

I figured this one out very early on, I have an MLA for every trade. In my case I picked a conservative 2% of portfolio value. I've seen as high as 5% with 3% being normal. Having said that I didn't follow it every time and those times, generally, resulted in single trade losses in the hundreds of dollars. In one case in particular I had to chase the price down just to get rid of the stock at somewhere near a $400 loss, 8% overall. Small losses compared to some that I have been told about though.

The reason this is so important is many fold. It is involved in determining the position size (number of shares) the stop setting (price to sell at if the price drops), the target size (expected change in price), and it tells you what your worst case scenario is.

As I started with $5000 my MLA was $100 which now becomes my guide as I am willing to risk $100 for any given trade. This is a maximum though, I have used $50 if the price looks like it is a good position to move quickly and I want to cut my potential loss short if I am wrong.

Position : for a stock priced around $20 I would expect that a stop at $19 (purchase price less $1) might be appropriate. Therefore $100/$1 per share = 100 shares or 1 lot (the lot is a just a term for shares in groups or "lots" of 100 shares, like buying eggs by the dozen). I am using 100 shares or 1 lot for almost all of my trades so any examples will assume that Position size.

The Stop Setting is really aimed at safety at this point so it is referred to as a Stop Loss. Once the price has moved to a point where I can move the stop up into the money (profit if stopped out) then the game becomes more interesting as the stop gets set to maximize profits should the stock tumble or leave enough room for the price to continue past the initial target. It's no longer considered a stop loss so much as a profit protection after this point.

Target size: The potential profit or target needs to be greater than my MLA by 2 or 3 times. For a $100 MLA and 100 shares the stock should be expected to have the potential to move for at least $3 per share. I have charted out a number of stocks and in the chart name, upon saving the chart, I put the expected movement range. If it is less than $2 I won't generally consider it ready to trade. Much less than that and the price has a good chance of not even making it high enough for my stop to net any profit.

Worst Case Scenario: I always fall back to this when figuring trades. I have a column on my spreadsheet that I track my portfolio on that is takes my current stop settings, commissions and purchase prices and calculates my Profit / Loss based on the worst case scenario as if all my stocks tumble at the same time. This number is important as it is the real bill of health for me. I can spin profit numbers...in fact I was over 8% in my second week...but had everything gone sour I would have been around (-5%).

I had opportunity to have a Stop triggered today. I had moved the stop setting twice so my loss was limited to $44.90. like so many times a stop gets triggered it seemed as though the price reached down just for me as the lowest price for the day was my stop price setting. I couldn't have told you that would happen even had I been watching it so I would not have moved it anyway.

The market closing today

Some quick day end stats.


Paper gains to date: +6.63%

Profit/Loss if stopped out :+0.01%
As this is my theoretical worst case scenario should my entire portfolio go south at once, I feel that this is more important than the paper gains...although not as impressive. Today I consider this a milestone as this number does not change unless I change my stocks in the portfolio...even then it could go up depending on the pick and stop loss set and tomorrow's price increases.

4 active positions

Best performer: +22.91%

JD.

The Market Opening Today

I will concentrate on my portfolio and potential stock hit list rather than the market in general so don't be dissappointed that there is no market analysis here, others can do a far better job at that than myself.


Well, I managed to watch my portfolio as the market opened today. I get a little apprehensive if my picks open strong, which they did. All in all though it was a good morning. I have streaming live quotes with my trading account so this can be kind of fun to watch. Everything is green...perhaps it's just the season...


I saw my gains hit 6.8%, drop back to 5.71%, rally back to 6.67% then settle into a groove. These are all net of commissions and are for the entire (all four of them) stock portfolio.


One of the goals of my strategy has been to try and simplify the portfolio management to a point where, ideally, it only needs to be checked after the market close. Perhaps some stop orders need to be tweaked or some new orders decided upon for the next day. As this is still a work in progress I tend to check too frequently to be sure that things are on track. So far my checking has not been necessary...but I need some reassurances occasionally.


JD.

A little note about my intentions

I know I have not entered anything about my trading strategy or my stock portfolio yet, this blogging is very new to me so I have to do some level of organization of my thoughts first.

A few things that I plan on sticking to is to talk about my trials and experiences without inflating performance numbers or using charts or stats that are not mine unless they apply to, or clarify a point or perhaps they are interesting to point out on their own merit.

Should anyone actually read this I would hope that they find it informative...perhaps somewhat entertaining...and not terribly technical. I can get carried away with an explanation sometimes so if ever someone finds something confusing or just not clear, please point it out.

Meanwhile, I'll share some of what goes through my head as the time passes and I will get to the "beefier" stuff another time.



JD.

Looking back to day 1

In the beginning....

Well, while rather pretentious it sounded good....I think someone has already used this one though.

I'll summarize what has led me to trading stocks

I started out last year, sometime around September, looking into Dividend Reinvestment Plans (DRIPS) to start up a retirement plan. These amount to buying shares of a company through the company's transfer agent which cuts out the broker and therefore is commission free. The good part is you can register to have the dividends re-invested into more shares automatically and buy more shares directly, in some cases at a discount, which increases the size of the dividend payment which increases the number of shares purchased, etc.. Ultimately you have an investment that grows through compounding the rate of return. It is a very good long term plan.

The biggest upside was that you could start an investment plan with very little money, $50 -$100 would do it, and add to it monthly. The hardest part of any plan is getting started anyway. The downsides I found were that a lot of investigation into the companies to choose is needed, if you do it right, and there are a limited selection of Canadian companies. This list continues to dwindle through acquisitions and plan closures.

Somewhere along the line in my research I stumbled upon some stock trading sites. I found these interesting and read some of what was posted. I didn't really think that was for me so I didn't pursue trading...but I kept reading.

I was investigating companies for DRIPping and had a number selected, started four DRIPs, and kept researching others so I could add to my portfolio as I could. In looking for good companies I found a number that had DRIPs but you couldn't buy additional shares without going through a broker...they were good looking companies too. Keeping that in the back of my mind I continued my researches.

I started to keep track of my DRIP holdings and potential DRIP holdings on the Toronto Stock Exchange (TSX) website where they have a virtual account setup. I could watch as the price changed...I was curious so I started adding other companies, non-DRIPping companies, and watched how the prices behaved. This really attracted my attention as some of the stocks that I picked were doing very well over the short term. I decided that I should look at this further.

Over the Christmas holidays I started looking for better ways of tracking stocks and investigating companies from list rankings I gleaned from the TSX site. I found a charting service that let me create charts for free and print them off to make notes on. I saw opportunities to make some decent money but lacked the knowledge of how to do it.

Mid January I decided to start buying through a broker and only buy for long term investing to take advantage of dividend payments from non-DRIPping companies and to harness some of the growth as well. I figured I could put the investigations that I had already done to good work this way. I started the new account process with a discount broker.

Then January 21st came. I was watching my companies (possible companies) and saw the rather large drop in prices across the exchange...what an opportunity...I could probably buy anything and expect it to bounce...but my account process was dragging, I funded the account, I willed it to speed up but by the time it was ready to trade I figured I had missed the opportunity of a quick gain.

...I was hooked and I knew there was no turning back.

JD