March 2. The morning missed

"...The Asian markets are taking a hit...".

I am not one to trade on news but the opening markets on the other side are a very good indicator for the morning bias, especially when the news is "bad". So, even though I had decided to not trade I did keep one of my charts up to see what was happening while I did the mundane regular work that I am required to do.

Global Gold Index. This is the morning activity. As usual red arrows are for short (buying HGD bear fund) and green are for long (HGU bull fund).

I may change one of my rules to allow for more trend following trades rather than playing in the chop. Usually one or two days a week exhibit a really good initial trend and that can be traded far more profitably than trying to get in on the chop.

Today was a nice example of one of those days. Even though the first trade setup was minutes into the morning I would have jumped on as the price peaked and passed 1/2 R1. For reference the HGD entry price was about $8.65 (playing 5 cents higher than my likely entry). The price dropped so cleanly through the primary pivot point (PP in blue) that there was no way I would have bailed on this trade. The price dropped to just below the 50sma, a decision moment as it hovered between the 50 and the 200smas..."Asian markets are taking a hit", the bias is still down for me. There was no rally back above the 50 and that was the sell point for me at this point.

Gap down under the 200sma, now breaking above the 200 would be my sell point. It held and plummeted yet again clean through the 1/2 S1, no sell trigger here either. The price bounced off of the S1 and I would most likely have sold here...but...I held a strong bias to the downside and I had $260 unrealized gain so far...I could afford to hold through and I may have with a very firm mental stop...with this much of a paper profit I probably would have placed a stop order to secure $200 and it would not get hit as it turned out. This is a good application of a VTSO of about 15 cents...that is hindsight though. I would ratchet this manually at 10 cent increments once the price has moved 20 cents away from my stop, raise it 10 cents. Should I want I can just keep moving the stop tighter to secure more profits or cancel the stop and place a market to exit.

I would use the stop moving only after a decent profit is already built in and I had a good feeling about the move. This method this morning would have captured me $1.25 per share...at 400 shares that is a nice $500. I used a trial forex account last evening to practise my stop moving as I have not used stops in a while. Made a decent chunk of virtual change for my playing too. It appears that pivot points have their place in forex just as in stocks...and 24 hour trading.

On the flip side the price followed a very similar pattern back up. The first trade, using the profit stop at 10 cent increments would have kept me in until the time at the 200sma when I would have exited anyway. Getting back in would have been clean right after passing the S1 line on the upside. Nice couple or few trades there as well but I didn't calculate the profits, about 70 cents possible capture though.

All in all a good day had I been in the market. If this follows true to form what will happen is that I will decide to trade tomorrow and the day will be flat and I will have to fight for pennies again. This will just point out that my idea of having to be in the market every day in order to capture the larger moves is better than trying to pick the day that a large move may occur.

Jeff.

February 27th, breaking all the rules

I am not going to post my chart for today as I broke almost every rule that I have and I am paying the price...so I am just going to go over my "what not to do's" for this morning.

I started out the day by making a bit of a guiding plan for my trading of the Global Gold Index funds.

"Price opens high - watch for PP200 bounce on the initial reaction"

This price refers to the index price, which opened up about $8 right off the bat. I figured it might have opened a few dollars higher, but the actual numbers don't really matter.

Price jumped a bit off the start, hit and passed the R2 point. I jumped in short before the line was hit...almost a full dollar out...my rule is wait for the 50 cent range first. Had I waited, the price gapped up $1 or so...then I jumped in long farther than the 50 cent range on the other side. Seeing as I already broke this rule twice and was stung each time...why not do it again? So I jumped in short after the price was lower than 50 cents below the R2 again. Even though this was the right side to be on for the next move, I got in late enough that the small rally spooked me out for a small loss...an earlier entry according to plan would have let me ride the small rally out with more confidence.

These first three trades were not wrong...well, the second one was wrong but one wrong in three would not be bad if I had timed these entries according to my rules.

Had I waited to get short until the 50 cent range was breached I would not even taken the first trade as R2 was crossed, then tested. At this point my long entry could be taken with some confidence except it goes against my morning jotting, but it was technically OK. I would have exited for a very small loss as the price bounced back to R1. As the price crossed R1 on the way down I should have entered short. This was the move that I was looking to have happen in the first place, the bounce off of the R1 as the price closes the over night gap.

The gap was fully closed before noon. I managed to squeeze in a few decent small target trades but continued to break my rules all morning long.

I overtraded, I did not observe patience when I missed a particular indication, I played against a 50sma R1 squeeze, I entered trades too late into the momentum move, I held losers too long, I let winners pullback on me into a loss....I traded on Friday.

Based on the previous days this week I was doing OK, holding my own and learning more of the ins and outs of trading these ETFs against the index.

I am going to try using stops next week to minimize the loser trades...I figure that once a trade has broken into the profit zone I will place a stop order for 3 or 4 cents over my entry price. This will force me to at least get out at a net breakeven point. It is easy to modify the stop order on the fly in order to ratchet the stop up or even just to cancel it in order to place a market order to exit the trade.

I know that VTSOs are not immediately available with Questrade but I don't think I would use them if they were available.

So, items on next week's trading agenda:
- adhere to the 50 cent zone
- practise using the stop orders again
- observe more patience
- let the price run without me if I miss time an entry
- watch the moving average squeeze and don't play short counter trend targets
- stop trading sooner, 18 trades today is too many

Jeff.

ETFs for gold...HGU and HGD. Day 1

ETFs are what they are, an Exchange Traded Fund so their basic price follows the related fund closely with some variance in the actual purchase and sale price due to the auction style of trading, just like a stock in that regard...there is a spread between the bids and asks. Enough about that.

HGU - Horizons Betapro Global Gold Bull Plus Fund
HGD - Horizons Betapro Global Gold Bearl Plus Fund
SPTGD - TSX Global Gold Index
AEM - Agnico-Eagle Mines, a stock for some reference as I am familiar with it and it tends to lead the index slightly.

I will only chart HGU for today's trading (fake)

The short story:

0934h Buy $11.23 Sell $12.00 Gain 77 cents ps Return 6.9%
1009h Buy $12.07 Sell $12.30 Gain 23 cents ps Return 1.9%
1030h Buy $12.31 Sell $12.50 Gain 19 cents ps Return 1.5%
1105h Buy $12.31 Sell $12.51 Gain 20 cents ps Return 1.6%
1154h Buy $12.32 Sell $12.44 Gain 12 cents ps Return 1.0%
1258h Buy $12.62 Sell $12.89 Gain 27 cents ps Return 2.1%

$ 1.78 gain per share or 15% overall return on trades

That translates into $474 virtual dollars profit or 11.9% return on portfolio.

The slightly longer story:

The main reason that I did not actually trade these today was due to the fact that I slept in, health issue and missed alarm, I think I did not wset it properly. I ended up with 10 minutes to do my chart setups for a whole new bunch of stocks and funds. So I saw the first trade setup and just did not have all my ducks in a row.

I followed some pretty hard and fast rules for these trades though once I got them going. Being a newish trading setup I decided, after missing that first large move, that I was asking for trouble trying to make some real money today.

Entries were based on limit orders set 2 cents higher than the pivot point being tested. I could also use market orders to be sure of a full fill each time but I will keep to limit orders to reduce the possible jumpy trade price filling me higher than I would like.

Exits were based on the next pivot target, following if momentum was good and exiting before targets if the buying weakened.

I did track a few trades for HGD, the bear version, but didn't count them as they were less than stellar, profitable but small and really were against the trend altogether, just for practise.

Jeff.

Backtesting

I was a fan of backtesting when I started looking at trading as it gave me some cool numbers to indicate what I "could" have profited had I followed a particular strategy. I learned a few things about the fallacy of backtesting in the process, namely that it is historical and can be misleading.

The key is that the testing proves that a strategy has potential and needs to be followed up with live testing.

I did a bit of historical testing of what I am calling PP200, just 8 trading days worth.

I used the PP, R and S lines primarily, the 200sma for some reference and the 1/2 lines occasionally. I placed the orders on the first pullback to test the respective lines and exited on a re-crossing, weakening of the price, next line hit or, if the move had a large momentum then when the price move weakened after the next target was crossed. Orders were only placed if the pullback came to within 2 cents of the target line to give me a mechanical entry criteria. Price used was the target plus 2 cents for the entry and minus 2 cents on the exit. Trading was stopped every day at 1300h. Commissions are accounted for in the net profits.


There were very few losing trades, which surprised me as I expected a fair number, perhaps as high as 40%. I only saw 6%, so I will assume that is higher in real life. There were fifty trades altogether.

TLM, long only trades

Average daily return (based on the full $4K portfolio) was 1.45%
Total for the period was 11.6%

HED, long only trades

Average daily return (based on the full $4K portfolio) was 2.68%
Total for the period was 21.45%

$1322 total combined net return or 33%.

My normal fudge is to drop the net return by another 30%, so that makes $925.40 or 23.1%

Interestingly the HED trades only number 16 but almost doubled the returns from 34 trades of TLM. I think this may be due to the fact that HED follows the capped energy index and smooths out the variances and hiccups along the way whereas TLM is a straight up stock. I believe that this will require some testing under fire as this mitigation may prove useful for smoother trading results.

Either way that is a decent return for two weeks trading. One of these days I will get around to applying this strategy to prove the results.

I keep in mind that all of the live testing that I have done in the past was with real money and I had no qualms about losing a bit here and there in the interest of learning the ropes. This month I have been very hesitant to pull the trigger even though I know my strategy. It would appear that "getting serious" has some psychological implications that I did not anticipate.

Jeff.

Questrade, TFTA, a change of rules, mine

This whole last few months I've been going on about the Tax Free Savings (Trading) Account (TFTA) and how I was going to use it for all of my trading. Yesterday I filled out the application and forwarded it to Questrade. They have a method of e-signing the forms, which may be only available to existing customers, that sped up the whole process. All I have to do is fax them a copy of my driver's license, EFT some cash and I should be ready to go in short order. Pretty simple and quick.

So, in reading the details I ran across the phrase "capital gains" when referring to what can grow tax free within the account. It occurred to me that the profit from short selling stocks is not, technically, capital gains and if push comes to shove with the government they are treated as regular income for tax purposes...again, not capital gains.

I used the online help feature and had my answer in a minute. No, shorting is not allowed in a TFTA. I actually should have known this as I knew that shorting was not allowed in an RRSP account either. I was blinded by the fact that I could short in a margin account and the gains looked really promising...my research was lacking.

I quickly went back over all of my previous trades to see how much of my profit would have been from short selling. This was easy enough as I have always kept a long/short profit ratio for all my tracking spreadsheets. Note that this is not a ratio of number of trades, just profit.

Overall I am running about 1:1. So half of my trading profit would not be counted. Seeing as my performance is close to 2% per day I would be just shy of my daily goal if I dropped half of my trades...or my trading profit. I consider that I usually stop at a daily maximum of 6 trades, more often 4. So if I was concentrating on making that many trades and with long only positions I may have been able to make 75% of the trades. So I might have seen 1.5% per day.

My options to adjust my trading plan include:

1) long only trades with the same plan that I have been using, result may be 25% - 50% reduction in profits

2) long in the TFTA, short in margin, result is taxable (max marginal rate) for all short profits so the overall effect would be pretty close to option 1), within 10%

3) variation of option 2) in that all profits at year end for shorts are contributed to my RRSP account whereby the taxation is negated but the downside is that these will be taxed upon withdrawal... perhaps at a lower tax rate at the time

4) variation of option 1) by using only the TFTA, trading my favourite stocks long and shorting the index that they are tracking through the use of a bear Exchange Traded Fund (ETF), result is the same tax free profit potential as I was planning on originally

Well, option 4 becomes the no brainer solution to my dilemma it would appear. In investigating the ETFs I start to wonder if I can trade them exclusively.

This would be easy enough as I just run the bear and corresponding bull ETF side by side with the related index they track and the TSX for the overall market and trade them back and forth. When one is rallying the other will be pulling back which means that one or the other will always be gaining...except in a true sidways market move. The difference in prices will necessitate using different position sizing for each which will look after the scaling according to the size of the move. Roughly a 1% gain in one will yield a 1% drop in the other.

In the interest of keeping it simple I think I will start out with option 1) only and see how it goes. I believe that the stocks I have selected will be seeing some gains over the next while so long positions will be many, I may have to increase my time trading by a bit though. If that does not pan out then I will play with the ETF and see how they work out for trade executions and perhaps mix it up from there.

I will have to wait for my TFTA to get going first as I really want to stay away from any gains in this 2009 tax year.

I should have known it was not going to be such an easy ride and that the testing was not yet complete. Too bad as I would have liked to have had this ironed out earlier. If I do some testing with the expectation of a loss then it will reduce the capital in my account as I cannot just "top it off" after testing is complete. $5K contributed is the limit no matter the trading losses incurred...unless I over-contribute and pay the monthly penalty. Questrade may enforce the maximum as their policy is worded in such a way at that is possible.

Jeff.

The overview, goals and targets

Perhaps I mentioned before that I like to do spreadsheets and I set up auto filling fields and various columns to... well ...let's just leave it that sometimes the more complicated the better. The first one that I set up to get an idea of the potential of my trading blew me away when I realized exactly what my initial, attainable and realistic small goal would produce. I still use it as a benchmark for all of my trials of trading strategies.

So instead of going on about those sheets I will cut the whole thing down to a few, or not so few, guidelines, goals and targets.

Rather than explain the premise behind, or the validity of each of these points, suffice it to say that I have proven the majority through a variety of trials both real and on paper but all with live data. Basically, no historical chart work. While I did some of that in the past I realized that it is not as valid as it seems as hindsight lifts the fog of the future just enough to make it not as uncertain as true real time testing. Everything that I have based my day trading plan on has been live.

Should anyone reading happen to find error, disagree or just want some further clarification let me know by commenting here or emailing.

Guidelines and rules:

I place $5,000 into a trading account and never add cash to it again
I use a tax free trading account to never have to pay taxes on the proceeds
I trade for 40 weeks of the year (three months of “buffer” in case I fall short of my targets)
I trade four days per week (160 days of a possible 260)
I trade only in the morning (my best time for alertness)
I trade a maximum of 6 trades per day (more have proven less profitable)
I trade one stock from a selection of only four (why make it complicated?)
Limit orders for entries, market orders for exits...so far
No margin use (starting in January)
Even lots of 100 shares traded
Trade size is capped at $45,000 per trade in year two, (I think I can use less and still meet the goals)

Performance:

1% per trading day on average. (I am currently at a 1.26% daily average return)
I am not trying for a quick large win here, just plugging away with a profitable strategy.

The time line:

January 2009, week one.
TFTA setup with Questrade, $5,000 deposited, may take a week or two to get going.
All gains return to the account for growth, even any over performance returns for the time being.

Week 26
Double my money the first time.

Week 40
Tripled my money (this could be as early as October)

January 2010
No additional contribution to the TFTA even though I could put $5K more in, at this point it will only make the difference of about a month or two before I can start drawing back out of the account.

Week 49
Quadrupled my money, I stop noting these marks at this point as I concentrate on cash flow.

Week 56
Returns are at $1000 per week

Week 72
Returns are $1800 per week

December 2010
Plan changes from growth to cash flow and investments
Account balance is $62,000
Investments for dividends are started, still within the TFTA umbrella
Income is $900 per week, investments are $900 per week

December 2011
Annual “wage” has been $36,000 tax free
Investment account deposits have been $36,000
Total account balance less any investment gains or dividends is $98,000
Should I remain working the balance would be $134,000, with $72,000 of that in investments for dividends

Alterations possible:

There are some circumstances that may have me trading more than the 40 weeks per year.

- should I fall short of my goals by the annual targets

- at the end of year two I could have the option of continuing to work a regular salary job or just concentrate on trading alone for my income and portfolio growth, I may trade more as a result

- should interest rates start to rise again I will probably step up mortgage and credit payments

- should my wife decide that she would like to settle out her current job and take on something that pays less but may be more enjoyable for her

- expenses like schooling for the kids kicks in after year three


All in all while this starts to sound like the ads that I see claiming huge returns for little effort, I must say that there has been lots of effort and time put into what looks like a rather simple plan. Countless hours of chart studying, research, trials and lots of emotional roller coaster rides to get to the point where I am now. My three year return on the original investment can be over 2000%. This has been a year in the making now. I have had some fun with this whole trading game but it is time for the games to end and the serious business of trading to begin.

I am looking forward to actually placing this plan into effect in the next few weeks. I consider this my biggest New Year's resolution ever, though I am not one to make resolutions as almost none ever get followed through, I think this will be an exception.

Jeff.

December trading begins, days one and two.

I got back in yesterday but I seemed to have lost a little of my edge.

I still have Agnico Eagle Mines as my target stock, AEM.TO with trade sizes of 100 shares.

I popped two decent biggish losses in the mix, only biggish (over $20) because I let them go too long, both would have been small profits if I had exited when I said I was going to. The rest were small losses. (-4.74%) for the day, nice. This was more a "jump back in and see what happens day". I didn't anticipate gains.

Today I faired better. One trade, +1.39%. I caught a small 72 cent slider for 52 of the cents. I just watched and called this like I would have in the past... For the record this would have me stop for the day as it is already 0.39% over my daily goal...unless I saw a nice setup taking place...today looks like a wallowing day though. Had I been on the ball yesterday I should have been able to do better as the price slid pretty well. All in the fun though.

This leads to a rule review.

Daily losses should be cut closer AND next day trading must not be performed to try to recoupe a previous loss...it MUST stand alone as a daily goal otherwise emotion gets in the way...I would have placed additional trades this morning and I can almost guarantee that they would have been losers on some level due to the wallowing. This rule needs to be used even for individual trades.

I learned that one on my high volume testing day a while ago...12-16 trades with about a $400 loss for the day, one trade fed the next which fed the next and only a very few were well placed and gained, and even those were just luck.

I updated my spreadsheet today while waiting for the next trade setup, which is not materializing at all, to calculate my returns based on my actual account balance running as I enter the trade data. This gives me a more accurate picture rather than just going from a preset balance all the time. It makes the gains look better but makes the losses look worse...all in all it is real and adds a certain amount of compounding if I always meet my goal based on the current balance... Headgame with the numbers at this point though.

An interesting observation about setting the return percentages off of the running balance. This will serve to move me into higher volume trading gradually and automaticcally. As the balance grows the trading either has to be more profitable per trade (which is not really the goal) or just more trades per day, then on to larger sized trades as time progresses. I consider it a built in training tool, kind of like increasing the weights at the gym. The other factor is that this can serve to attenuate the trading frequency and curb any chance of overtrading...which is what leads to losses often. Headgames, if I follow this to the "T" then my results will determine how my trading practices develop.

I did massage my combined (real and fake) sheet to match as well. I pop the odd faker in the mix as I see a speculative move setup and call it but don't quite have the balls, or un-interrupted time, to actually place the trade...or perhaps I hesitated that moment before the change starts. I changed it to allow fake trades on the same days as real trades. This gives me a real performance, pure fake performance and combined performance numbers. If the fakers outstrip the real then I should pay more attention to my gut calls.

Followup to the trading, about 10:45 the wallowing came to an end and I was not really there to trade the first slide right off of the pivot point for the day... $41.20 was my target entry with the PP of $41.24...not that they always work out that close but it did today, I had that price in my order box often. Generally the price remained bracketed between yesterday's low and today's early morning high. I usually try to pick some points that look like they may be significant from the previous day price, usually the close or high/low prices in addition to the pivot points, just gives me some targets and references. They don't always work out to be resistance or support but can very often prove so.

That's about all for today. Just a little rambling.

Jeff

Getting out early.

I did get out earlier on trades that felt like they were turning today. I use indicators like a related index (not delayed), volume, T&S, market depth but mainly the price movement.

Without getting technical, once the price "slowed down", and even slightly before, I could "feel" the strength of the move fading by what my indicators were doing. I am good at calling the exits based on this, I still need to work on my entries a bit though. I need to employ this exit method to "feel" the entries, which I tried a bit today. It got me my fourth trade in the money as I entered at the top of the first large downmove (minute chart). It felt like it was ready to head down and that is the first move that I typically miss.

A side note about getting out early. Two of my trades I could have held through for some more gains and one I could have held through a paper loss for gains as well, one was about 30cents more...the other I cannot recall. In either case I would have given up a profitable position for a possibly more profitable position...the problem with "possibly" is that I would have to rely on probability. I would rather take what I know and what I expect and if the price follows what I might expect then I will hold it. I don't give my expectations much leeway. The trouble is that as soon as the price is let go past the mental stop there are no rules governing when to get out...in cases where this may be a possibility I will place a warning stop and a bail stop. Once I hit the warning I watch the indicators very closely... specifically the T&S and depth...this tells me whether holding past my warning may be a good idea or not. For example lots of supply on a short at my warning stop is worth holding unless the asks stack up then get demolished and the price fails to go lower...I don't wait for my bail price then as it is likely to jump past it anyway with thin depth behind the inside asks, get out while they are still selling at my price.

Monday trading fiasco

Well, another down day. I can blame all sorts of outside factors, mainly interruptions or distractions that resulted in loss of focus, and I would be correct but there is one underlying factor that is the crux of my current loss.

I haven't bothered to run the numbers but it would be in the $60 net range. I have set a $50 loss limit per day, before commissions. Once I hit that I am not to trade any more as I would consider that I have "lost it" for the day...I didn't expect to hit that in two trades and I didn't actually expect those to be my first two trades of the day. I chose to bail early, even though I thought there was a good move left, I just was in the wrong frame of mind...perhaps I should have faked it just for the learning curve.

I started out the day seeing a good gap up from Friday's close. Given the recent activity this would lead me to favour short trades today, so that is what I did. My 20 minute rule had me sit out too much of the first move ($1 of it) to feel comfortable getting in...so I waited until what looked like a good setup to develop for the downside after a brief rally or consolidation at a support/resistance level.

1024h and it looked OK. Price had dipped nicely below the primary PP for the day and I might have expected it to continue to head down. I planned for a tight mental stop as I was not sure that it would head back down convincingly. I held through a small profit to only have it turn up and I got out at a small loss. Depending on how you look at it, in too soon, out too late. Although had I been in sooner I would have captured a bit more of the last drop to the low and might have been more satisfied to close early.

I tried again at 1103h and had the same thing happen, except worse. larger loss even after calling the target, hitting the target and bouncing off the target. I held on too long.

Problems:

The limit order is taking to much thinking and time to execute well.
Me not listening to my intuition. Get in when I think get in. Get out when I think get out.
A little greed making me hold on
A little fear keeping me from getting in earlier

I must admit that had I placed the third trade I would have been on the leading edge of the last large move down for the day. Even if I had waited for full PP break confirmation there was still $1 left in the move.

I checked in before lunch and saw the activity and at least knew enough to not try to trade beyond that point. The trading range for the rest of the day is likely to be within a dollar with lots of small moves, not worth the hassle.

All in all a good learning day even if I close it on a loss.

JD.

Realization

I started this blog originally to try to not only track what I was doing but also to give some ideas to others who might want to try trading for fun or profit. My first blogged strategy was a reasonably sound one but needs some small tweaking and boundary changes to make it profitable. It also needs more than I have for capital to allow it room to grow which is why I dropped it a while ago in favour of the day trade.


My blog has changed to more of a tracking blog with no real information that is valuable to a new trader other than as a blow by blow of my foray into a what I think a misunderstood trading methodology or style. I will attempt to get into some of the thought processes and technical setups but the daytrade is so subjective in it's execution that it would be very hard to descibe in much of a useful framework. It cannot be duplicated except using live or delayed data feeds.


The one major piece of advice that I can add that is of great usefulness is to start small and work your way up after proving that a particular style works. Almost all of the losing stories I have heard...in fact all of them, have started out too large too soon and that has been their downfall. Whether this be through large positions or large volume of trades it amounts to the same thing, large losses as the learning curve was short circuited.


While I have not seen long term consistant results yet I do not anticipate great losses either. I am trading small enough to manage losses easily.

Rules: the 30 minute rule addendum

Opening Rule Change

My normal rule is to not trade until after the first 30 minutes to let the market settle out a bit. I have toyed with changing that rule if the opening price is very close to the closing price...as today's was. With a gap I need 20 minutes to get my two key moving averages caught up and an extra 10 to let the price settle into a trend or get in sync with the indices I am using for correlation. Without a gap the averages are already on the mark and the indication is that the price does not need a correction by the market makers, orders are flowing well and no automatic orders or programs have been triggered to throw the price into a huge unwarranted swing and this may just be a continuation of the previous day. I think that it would make a difference if the price opens so near a support/resistance area and it holds as opposed to perhaps halfway betwwen two lines.