Speculation about today and PP200

I checked in at the end of the day to see what kind of action the market had and specifically TLM. I quickly plotted the trades that could have been taken based solely on catching the price at or within 2 cents of the pivot point line.

Without getting into each trade the total captured price move over the day would be $1.46 ps(12.2% on the trade)...over 300 shares trade that is a decent $438 (10.9% on the portfolio).

Now, for these I usually apply a fudge factor to account for slippage, early exits and whatnot. IF every trade was made I would use 70%. That's $1.02 ps (8.5%), $306 overall (7.6%).

Here is where the 200 part of the PP comes into play. On all of the trades the 200 sma was as far as the next or last pivot point or half PP line. The one exception is the red circled possible trade as the 200 is right above the nearest 1/2PP line...too close to be considered a target althoughthe first trade might have managed to squeeze 4 or 5 cents profit it is not a good setup for a trade.

This is where I will miss my short sells as there was another $1 movement that I could be short selling based on PP200 as well...perhaps I would only get 70 cents of it but on a down day the returns would be reversed.

Jeff.

VT - buy and hold vs CTP

OK, So the comparison looks like the buy and hold crowd have me beat...but do they really? Let's de-construct the final numbers and see what we see. Keep in mind that I am working with a $5,000 initial capital investment.

I am on a bit of a bandwagon here as I have had some online discussions with active traders and investors and everyone tells me that I cannot produce the returns that I say I can. I don't generally spew inflated numbers, on the contrary, I will always fudge the trades against me and understate the figures. For the trades I have listed here I believe that I likely could have pulled another $25 - $75 per trade ($200 - $ 600 or an extra 4 - 12%) while watching the stock price action and placing the trades. I only used the chart that you saw in the previous posts so it is rough.

This stock is uptrending so well that it actually is in favour of the buy and holders' numbers...so I thought it might be a good example.

Buy and Hold results

There could be two buy and hold methods applied here. The first being the addition of shares along the way which would appear to minimize the risk somewhat and make it easier to get started as only 100 shares are bought up front. Final cost is higher though.

• Start with 100 shares
• 6 trades
• 600 shares today, average cost of $11.58
• yesterday's close = $14.73, paper profit = $1890.00
• capital used for this = $6948.00, the entire capital plus some margin (borrowed money)
• Return on investment...on paper = 37.8% over 10 months, annualized that would be 45.36%
• Potential loss at the start = $150 and it remained so until right near the end.

Buying 600 shares right off the bat would have gained = $2838 BUT the potential loss off the bat would have been $900.00. It would have also required $6000 up front.

• Start with 600 shares at $10.00
• 1 trade
• yesterday's close = $14.73, paper profit = $2838.00
• capital used for this = $6000.00, the entire capital plus some margin (borrowed money)
• Return on investment...on paper = 56.76% over 10 months, annualized that would be 68.1%
• Potential loss at the $900 or 18% of the initial capital. the break even time would have been about late December.

CTP Strategy


I used the same buy in numbers for both styles and for the shorts I applied, more or less, the same fudge factor. This makes it as even as you can get when comparing different strategies.

• Start with 100 shares, and only ever trade 100 shares of this stock
• 8 trades
• yesterday's close = $14.73, paper profit = $173 (only 100 shares still active)
• Realized gain = $1075.00
• capital used for this = $1450.00 at the most
• Return on investment...on paper = 24.92% over 10 months, annualized that would be 29.9%
• Potential loss at the start = $50 and it was only ever that at the beginning of each trade

Ok, so they have me beat unless you consider that I could have bet the farm just like the buy and holders did...plunk $5K down and run the numbers again. I will do one trade and then just give the numbers for the entire run.

• 1st trade - 500 shares @ $10.00, stop at $9.50
• P/R = 4:1 still, potential loss = $250.00
• stop out at $11.50, realized gain = $750.00 (that's already a 15% return)
• the previous gain can fund the next trade at $12.50 without using margin
• final total gain of the trades = $5375.00
• Return on investment = 107.5% over 10 months, annualized = 129%

Hmmmm....makes one wonder.

I am not a gambling man so betting the farm is not in the books so instead I know that I can afford about 4 active trades of 100 shares each. The return might not be stupendous per trade but it's the percentage return that is important. Even if half of those trades had gone wrong, and not the small ones, I would still be up $2500.00 or 50%. I like those odds better then having the one single trade go wrong and loose accordingly.

The other advantage is that this stock is going up...buy and holders either lose money or sit on cash while the stock goes down...I trade it and make money even in the rough times. So a downtrending stock can be at least as profitable as an uptrending one.

Had the buy and holders used only the 100 shares to invest like I did then the numbers are much different. Something like a 10% gain overall. Even spread over the 4 or maybe 5 active trades if they all went in their favour might produce 50%....I think it unlikely though as the stock does not consistantly move like this one has over the very long term. That and I may have a few bad trades but they are less of an impact as there are profits taken often.

Having said all that there are some stocks that are real gems and they are super performers...trying to pick them is the key ...and a very elusive one at that. So I do not try to pick them, just trade the charts, take some profits and maybe keep my eye out for a stock that might take off to concentrate on.

I hope this was, at the very least, entertaining.

JD.

VT - a virtual buy and hold

The buy and hold strategy applied.

Note that there are three posts to complete the trading and comparison.


A little historical trading, virtual if you like

I am not going to note the chart for this as it wouldn't be clear and these are very straight forward trades anyway. This one almost has training wheels on it. I will put prices on the trades but they will be skewed against the trades with late entries and rough exits. I will outline two methods to trade this stock. Both will work, I did not figure this one out ahead of time but I have a feeling I know where the comparison will go....no not where you expect for this stock....read on.

Buy and hold

Strategy - Buy a small starting position, 100 shares and add to it at each time the price hits the buy target...the lower trend which is the 200SMA line.

• The 200SMA (green) line can be used as a support line very often and with good reliability


• 1st trade - Mid Aug, buy 100 shares @ $10, set stop below the 200sma by $0.50 ($8.50)


• P/R = unknown as the goal is not a target, potential loss off the start is $150


• 2nd trade - late Nov, buy 100 more shares @ $11.00, stop is at $9.80


• the stop is moving up every once in a while to stay roughly $0.50 under the 200sma


• position = 200 shares average cost = $10.50


• P/R = unknown, potential loss at this point is $140


• 3rd trade - mid Jan, buy 100 more shares @ $11.50, stop is at $10.40 (give the drop down some room even though most might not have anticipated it, it only would have taken $0.05 and the stop is only being moved occasionally so it would likley have been fine)


• position = 300 shares, average cost = $10.83


• P/R = unknown, potential loss is about $129


• 4th trade - Early Feb, 100 shares say $11.50 again, stop = $10.60


• position = 400 shares, average cost = $11.00


• P/R = unknown, potential loss is about $160


• 5th trade - Mid Mar, 100 shares $12.50, stop = $11.00


• position = 500 shares, average cost = $11.30


• P/R = unknown, potential loss is about $150


• last trade - mid may, 100 shares $13.00, stop = $12.00


• position = 600 shares, average cost = $11.58


• P/R = unknown, potential loss is about $0, finally got to the point where the stop is above the average cost. stopped out profit would be $252 at this point and can only go up

The final buy and hold tally to date

600 shares, average cost of $11.58, yesterday's close = $14.73, paper profit = $1890.00. The capital used for this would be $6948.00, the entire capital plus some margin. There are no realized gains at this point.

Buying 600 shares right off the bat would have been = $2838 BUT the potential loss off the bat would have been $900.00. It would have also required $6000.

JD.

VT - CTP strategy applied

CTP - The Counter Trend Positioning Strategy

Note that there are three posts to complete the trading and comparison.

I won't list the stops as they move faster with this method as they follow the price up within the trend...more or less along the green and red TWT lines on the chart. The position will always be 100 shares either short or long. The target is always about $3 but I and skewing the trades against me so I will use $2 for the P/R ratio.

• 1st trade - mid Aug, buy 100 shares @ $10.00, stop starts at $9.50


• P/R = 4:1 potential loss at this point was $50


• stop out at $11.50, realized gain = $150


• 2nd trade - Early Oct, Short 100 shares @ $12.50, stop starts at $13.00


• P/R = 4:1 potential loss at this point is $50...but there is already a gain...so a loss on this trade would be a loss of profit, not a loss of capital...this is a very important part of the strategy, keeping the capital intact.


• stop out at $12.00, realized gain = $50


• 3rd trade - early Nov, short 100 shares @ $12.50, stop starts at $13.00


• P/R = 4:1 potential loss at this point was $50


• stop out at $11.25, realized gain = $125


• 4th trade - Late Nov, buy 100 shares @ $11.00, stop starts at $10.50


• P/R = 4:1 potential loss at this point was $50


• stop out at $12.50, realized gain = $150


• 5th trade - Early Jan, short 100 shares @ $13.00, stop starts at $13.50


• P/R = 4:1 potential loss at this point was $50


• stop out at $11.50, realized gain = $150


• 6th trade - early Feb, buy 100 shares @ $11.50, stop starts at $11.00


• P/R = 4:1 potential loss at this point was $50


• stop out at $12.75, realized gain = $125


• 7th trade - Mid Mar, buy 100 shares @ $12.00, stop starts at $11.50


• P/R = 4:1 potential loss at this point was $50


• stop out at $14.25, realized gain = $225


• 8th trade - Late Nov, short 100 shares @ $14.50, stop starts at $15.00


• P/R = 4:1 potential loss at this point was $50


• stop out at $13.50, realized gain = $100


• last trade - Mid May, buy 100 shares @ $13.00, stop starts at $12.50


• P/R = 4:1 potential loss again is $50


• the stop today would be at $14.00, the close yesterday of $14.73

The final CTP tally to date

At yesterday's close = $14.73, the paper profit for the outstanding trade = $173.00. The realized gains would be $1075.00. The capital used for this would be $1450.00 for the highest cost trade, about 25% of the capital.

JD.

SIF/UN and the real trend

This is a chart of a recent non-CTP trade that I have learned a few things from, the real mistake is outlined at the bottom.

SIF/UN

OK, the blue circled arrows represent the buy and sell that I actually did, my stop is the purple line again. I bought in at $14 and sold at $13.65 for a $0.35 loss. I managed to miss the first price dip after my purchase but decided to not let it go as low next time figuring that it would have been a reversal. WRONG

Had I been following my CTP strategy (which I was only just getting into at this point) I might have followed the red circled arrows. Seeing as this is an income trust I try not to short sell as I would have to pay out the dividend should I time it wrong.

For ease of calculations and to reflect what my actual trades might have been, every purchase would have been 100 shares. Ideally I would already have profits on this stock to let me be more comfortable with a wide stop so I would leave the stop set below the lower blue trend boundary line which was established May 21st.

1) 100 shares at $13.00, stop at $12.25

Maximum Loss Allowance (MLA) of $0.75 per share or $75

2) 100 more shares at $13.75, my Average Cost Base (ACB) for 200 shares is now:

((100x$13) + (100x$13.75)) / 200 = $13.375 per share

My stop would be at $13 so my MLA would be $0.375 per share or $75 total

3) 100 more shares at $14.00, so my ACB would be, for 300 shares:

((100x$14) + (200x$13.375)) / 300 = $13.583 per share

My stop would be at $13.40 so my MLA would be $0.183 per share or $54.90 total

Today I might have moved my stop up to $14.75 to be ready for a drop to make some profit and still leave a little room to move or to $14.25 to leave it more room to climb. I do expect the price to open around $14.80 after such a steep climb to $15.13. either way I would have been in the money.

Paper gain would be at $1.547 per share X 300 shares = $464.10.

If I just let the original 100 shares ride the whole time I would be at :

Paper gain would be at $2.13 per share X 100 shares = $213

The real mistake

OK, here is the six month chart after going to the one year and plotting the longer term trend boundary lines, the upper and lower blue lines. These last three months were only a Trend Within a Trend!!! While the above trade with multiple entries might have actually worked, the entire premise for the trade was wrong. Pulling the stop up snug would be prudent as the price is not too likely to break the trend...$14.50 might be the best. The target for this TWT was only $2.50 per share and that stop would only net $1.50. Not worth the risk of adding additional shares tot he trade. Historical studues are fine but they ALWAYS look better after the fact.

The upper trend boundary had been established between November and January and pegs the next peak almost exactly at $15.13 ... today. This is not apparent on the initial six month chart. As my CTP strategy has the trades occurring as close to the trend lines as possible my actual trade was right in the middle, not my ideal trade by any stretch of the imagination.

Now the price is at the upper so I would expect that it will drop from here over the next couple of days and could continue to drop over the next month or two. I need to determine if short selling is going to pay enough to make having to pay out the disbursements worth it at $0.10 per share per month. A little weekend work as I try not to trade on Fridays.

JD.