Daytrading lament... or not?

Today I stayed at home and actually slept in... sort of.

After the kids got away to school and things settled down I did some thinking about the last few weeks without day trading, or, more accurately, without HAVING to trade the morning away. These days have been far more relaxed and less stressful.

As much as I enjoyed the trading while it was in progress I now realize that it was not really what I was looking for in my trading. Someday I may pick it back up or I might jump in for a day or two here and there but for now my current trading plan seems to be a much better fit... and seeing as it is all based solely on my ideas and strategies it is far more satisfying.

I have all my trade data from the stocks from over the last 16 months and change and the easiest thing to do is to continue with those studies while inserting my cash as the next trades come up. This makes a seamless move from study to reality and allows my mind to rest easy knowing that the statistical values will carry me through very nicely as nothing has really changed.

I am into three trades right now, as I already posted, and I am looking forward to more this week.

The plan is to have 20 stocks on my active hit list to start. Of those twenty I anticipate being in 1.5 trades per stock at any given time. That is from the 16 months worth of trade studies under my belt with my first batch of stats (I broke them up to make the number crunching easier and faster). Of course there would be times when that number might be a little low or a little high, it is an average after all. Oh, that includes first entries (67%) second entries (22%) and third entries (11%) into the same trade as the case may be depending upon the setup.

I ran the numbers based on only entering the first trades and found that, due to compounding, it was far more beneficial to plan to enter all trades as they setup. In fact, it almost doubled the profit potential of the account overall.

Well, that's all I have time to write right now.

Jeff.

The day in TICK

Here is the trading day today, as mentioned, all fake traded, most live.

The first chart is the TICK chart that I use for trade entry. This is a larger window of the next chart as this shows a little more detail. The first two arrows are the first two trades of the morning, both in SDS to play the SPX short side.

Green lines represent the trade duration and stop times.
Moving averages are 15, 30, 45, 60 SMA.
Dotted black lines are 390 period moving averages of the high and low of the TICK extremes.

It is worth noting that the first trade could have happened in the minute prior to the arrow or in the following 2 or three minutes and the trade would still have been a decent trade...even a little later than that would have worked out, seeing as the second trade was 9 minutes later and only necessary due to a possible tight stop. In reality I am not certain that I would have kept the stop so wide though... I expect, being so early in the trading day that I would have been up another ten cents on the stop which would still have gotten me out in the same minute.

Here is the day in TICK, up to the second last trade:

This is SSO and the trades made using the TICK entry.

Following is the SDS chart for the trades as well.

It is worth noting that I tried a chart entry early in the day and compared it to a TICK triggered entry. I entered SDS for a 15 cent loss and two minutes later, waiting for the TICK to set up, I entered SSO for a 30 cent gain. I have more faith in the TICK method for these ranging sort of days. We'll see how this whole idea works out in the wash.

I notice only now the pattern of the trade entries. Seeing as the range was set in just over the first hour the day can hardly be called a trending day but the pattern of generally higher lows after 1100h are similar to an uptrend. All of the entries in SSO (long SPX) are at the bottoms during the uptrend pattern. All of the trades in SDS (Short SPX) are somewhat later than the bottom during that same period. This leads me to check out the TICK chart closer for clues as to why...I suspect that an established uptrend has the MAs in synch whereas the counter trend takes longer for the MAs to indicate an entry against the grain...similar to a standard price chart.

Total gain for the thirteen trades was $1.78 per share of SDS and $0.64 per share of SSO.

Assume 100 share trades and deducting commissions that rings in at $112...USD so add about 20% for my currency...but that is all moot as I did not actually trade these trades with my currency.

The point is that, using the TICK entry setup I did not have a losing trade but every single trade at least broke even even after commissions. Checking over my stats from my short trial period leaves me with a 21:4 win/loss ratio. My worst day was 5 out of 9 trades loosing and still showing a net profit for the day.

Time to start the real trials to see if I can get anywhere close to those kind of win/loss numbers.

Jeff.

March 9th, the day

I posted the first trade earlier...the completion was HGD from $8.96 to a stopped exit at $9.08. A 12 cent per share gain. An OK trade.

Here is the chart for the Global Gold Index for today:

I noted that I anticipated a drop off the close of the London market. The reason is due to the pattern that seems to be reasonably apparent upon checking the FTSE against the Global Gold for each morning. The general trend is that if the SPTGD is wallowing and the FTSE is heading either up or down then the SPTGD will most likely head in the opposite direction of the FTSE upon closing. Seems to be a trading tension thing, I recognize the pattern but I have not investigated it's real reasoning. For now I will trade with it and see how it goes.

Today was a $134 net day. Not a bad start.

I tried tracking the moves of previous days for SPTGD and calculating the rough percentage returns possible with a few trades following my updated rules. I figured that I might be able to make better than that return as the ETFs are leveraged 2x. I calculated the return today and found that I did better then the GD index tracking by about 140%. So that follows my 30% fudge factor closely.

Jeff.

March 9th, initial trial...not by choice

Today is the first day of implementing my newer rendition of my PP200 trading plan by incorporating the London effect and a long haul approach to exiting the trades. My initial intent was to just come out fighting and trade these calls for real to see some profits or performance reflected in the cold hard numbers on the account balance. That was not to be the case, once again.

As I type I am in the middle of a trade that I was prepared to take as I watched the moving averages converge and squeeze the price out. I ended up having to take a call that I could not put off so I just jotted down the worst case inside quote entry price. Had I had 60 seconds more before the call came in I would have been in the trade and still been able to take the call based on my stop approach allowing me to not have to track the trade so closely.

HGD at $ 8.96.

The momentum took the price of HGD up to $9.10 quickly and I placed my stop at the breakeven point of $8.99. I chose to follow the 50sma of HGD for stop movement for now so I have my stop moved up to $9.02.

Note that these will be real stop loss orders placed when I am trading these for real. I am liking the idea of letting the price run rather than sweating over every penny and deciding to take the profit or let it run...well...I don't actually sweat about it, it was fun, but the relaxed approach is a much better plan to use over the longer term. I can still get some regular stuff done while the trade progresses.

It is worth noting that our daylight savings time is not followed by those across the ocean so the London market is now open until 1200h our time instead of 1100h. Interestingly my entry point shifted exactly one hour later, helping to prove my point and giving me that much more confidence in my new method.

As I finish this post my virtual trade is at $9.11 (inside bid) and my stop is at $9.06. My profit, if stopped is $40 based on a 400 share position, less $12 in commissions. $28 tax free for the sake of placing the trade and moving a stop every once in awhile. It's only the beginning.

Jeff.

March 5th

No trading day today. I decided to watch the London effect up to 1100h. Their market was declining and the Global Gold jumped off the start then chopped about right up to 1100h. I was going to just place a trade at an opportune technical entry where indicated on the chart but I was not in a situation to monitor a trade properly so I let it slide, I jotted down the price and set three exit plans up to see what would happen.

The red lines and notes are the normal exits that I might take given a jumpy morning market expectation, out at the first sign of weakness to capture my profits.

Green lines are a more moderate method using pivot points and/or moving average crossovers at the 50sma.

Blue is the long haul trade of the day of just entering and setting my stop just above my entry to capture a minimum of profit, then resetting the stop as each of my targets are passed. convincingly. That would basically follow the 200sma with perhaps a little jump to the 1/2 R2 once it was crossed then just exiting at the end of the day.

Needles to say the long haul was the most profitable today. I intend to go back and review the last 20 days of intraday trading to see the real effect of the London market then to see how a long haul approach may work for more relaxed trading. As long as I see a small profit in a day I feel, without checking yet, that I may capture more of the larger moves. Starting later in the day appeals to me, fits my schedule better and just going in to check stops a few times sounds interesting. I likely will not trade tomorrow.

Jeff.

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 20th...Gold tests $1000

I neglected to save yesterday's chart for the Global Gold index.

The price opened low, headed up and crossed the 200sma far earlier than I expected. This led me to wonder what was up as the price jiggled along this line for a while. I did place a trade expecting a move up but once I saw it not materialize I jumped out just moments before the price plummeted $4 in a few minutes. Had I not been long I would have gone short as soon as the price crossed and tested the 200. Sometimes it is hard to be nimble enough to reverse a trade as quick as these materialize. In hindsight I should have bailed earlier as I did hold the trade too long...although I also should have noted a resistance level in AEM that matched up with the peak in GD after my trade...I could have had a small profit and been ready for the reversal.

The rest of the day was a wash as I decided to play with my Forex trial account for a bit instead of trading.

Today, I checked the price of gold before the market open and saw that it looked like it was heading for 4 digit territory. I really did not think it would even touch the $1000 threshold today let alone cross it for a little while. That fact does not change the action expected for today's price in the Global Gold index. A drop off the start to bump the 200 then a return to the day open...the rest was unknown.

So there were 14 trades, marked by the red arrows, that I could have taken, not all great trades but no real losers in the mix. The first circled one was the one that I considered even though it was outside of my boundary, I figured it should be a good high entry as the price dropped off. I won't bother with any of the excuses for why I did not place any of these trades as I saw them set up. While the excuses are all good, they are still excuses. This is something I anticipate correcting for next week.

Trades 2 through 8 are textbook pivot point entries, although #6 was not technically a retest it might have been expected and traded. 5, 7, 8 and 9 are strong PP200 as they meet both trade criteria, testing a pivot point, the primary no less, and the 200 sma at the same time. The last one before 1130h was the kicker and in order to be sure to be in that large move all of the other trades would have to have been made as this move was not guaranteed, it could have happened in either direction at any one of those times earlier...odds favoured a move up though.

The last two were again PP200 trades... the last move on my chart is most of what was left as the price is now hovering around $339. That second last trade was not so great and the less probably one, but I never know for sure...all I could hope is that I realized it was not and got out soon enough to reverse the trade. It looked like a clean retest two minutes after the drop so I would be free an clear for it.

For my own personal gratification of knowing what I might have been able to pull off here I roughly figured the entry and exit trades.

Rise in Global Gold = buying HGU (Bull fund), drop in Global Gold = buying HGD (Bear Fund)

10 trades, I dropped two redundant ones...would have just still been in the previous one and two of the ones off the start that I would not have taken...these just cut the profit by a little bit anyway.

All up was $533 net tax free. So I apply my 30% fudge against me to bring it to $373.

Dropping my two top trades and applying my 30% fudge I still see $159. Still well above my daily goal right now.

All in all I am more than satisfied with the prospect of trading this particular plan and looking forward to the profits to come.

For anyone following along I expect to not be blogging this weekend at all. Other stuff on the go.

Jeff.

February 13th ooops!

I just realized that I did not enter anything about my trading for Friday. I obviously threw out my old rule about not trading Fridays seeing as I was willing to trade on a Friday the 13th. I may not be superstitious but I'll bet others were.

I only ended up placing two trades and I was not really focused on trading, what else is new, eh?

So I had a slight loss day as I was not able to trade the first two really nice moves, I washed my two ideas and took the rest of the day to work on other regular work stuff to not have to do it on the long weekend.

I am in the middle of changing the way that I trade the ETFs. I think that I will make that a separate post though as it is it's own idea. Suffice it to say that I reworked Friday's possible trades to produce a return of 7.8% on the entire portfolio...after using marginal entries and exits to allow for bid/ask spreads and using only 70% of the calculated profits as well as adding a few breakevens to let the commissions draw me down a bit more.

Jeff.

Horizons BetaPro Exchange Traded Funds

More on the ETFs, specifically the Horizons offerings.

Here is a link to their website for any who want to do more reading:

Horizons BetaPro ETFs

Something that I did not mention in my last post was how these folks are doing what they are doing. Unlike a typical fund, like a mutual fund, they are not buying a bunch of stocks in the index to emulate the index, nor are they buying any of the underlying commodities. They deal in futures contracts instead...due to a few reasons that they mention in their FAQ.

Here is a complete list of their products:

Horizons BetaPro ETF Summary

I just did a quick check on a leverage comparison for HGU and Global Gold. (GG)

Since Oct 25th (I just picked a nice long gain as an example) to Feb 11th

GG gained $187.55 or 123%
HGU gained $11.18 or 286%

There is mention of rebalancing and daily valuation of the fund, so I suppose this seeming disparity comes from the effect of some level of compounding at work, and it was mentioned on the HBP site but I discounted it as marketing hyperbole...perhaps not.

This does make a good case for beating the market performance. Seeing as 123% is still a good return for a 3 month investment, 246% would be spectacular and an extra 40% definitely adds a bit of gravy. I expect something similar following the HGD bear fund in a down turn...

Jul 15th to October 26th, another arbitrary period the GG dropped over three months.

GG lost $224.14 or 81.3%
HGD gained $68.45 or 187%

Well, considering that gold was dropping, overall, this is a great way to turn the loss on it's head.

Interesting is that the additional gain over the straight 2x leverage is 15% greater than the leveraged percentage return.

None of this makes much difference in my daytrading scenario but certainly makes a great case for using ETFs in my future longer term investments.

From the listing of ETFs that Horizons has you can do the exact same thing with financials, oil, energy, bonds and other popular indexs. I was playing with HGD as a bear strategy against the true stock TLM (Talisman Energy) and earlier I was playing with HGD again AEM (Agnico Mines). I now firmly believe that I have found an alternative to stocks completely.

The funny thing is that six months ago I would have scoffed at the idea of trading ETFs.

Jeff.

Overall strategy progress

I chose to not do any trading today, real or fake for a couple of reasons. I did check out and plotted some trade setups on the previous post. Primarily I will not be trading until the tax free account gets setup and I have submitted all of the paper work, the account is setup, cash is in transit and I am waiting on one verification step. Probably next week now.

I wanted to point out to any reading here that this is not a step by step manual to trade, although there are lots of pieces of the puzzle the one piece is experience that cannot be learned. Realizing that some time ago I have just been jotting stuff here as a bit of a trading journal. The blog platform lets me capture trades, ideas and other information in a media that allows some decent sorting and labelling for future reference.

I don't think that I even cover any particular topic well enough for it to be a real guide, perhaps just a teaser to prompt anyone interested to research further if they are interested in anything posted here, or drop me an email or leave a comment.


So on to more me stuff.

I setup spreadsheets to track my progress for fake, real and combined trading and left them separated by month. Normally each time I restart the starting balance at $5000 for each month so I do not really have a general overall cumulative idea of where I would be other than each month has been profitable and by how much. I do not want to start playing as if i have more money than I have, keep it small. I am not changing my spreadsheet plan quite yet, although I will be tracking my portfolio balance in future and I do not plan any more fake trading other than to try a new twist on an idea.

I restarted a December spreadsheet on the 19th figuring that I would be able to concentrate more on the trading over the holidays as I was taking the week off of work.

Stats:

startup capital = $5,000
days traded = 8
trades executed = 33
Balance today = $6217
Return = 24.34%
Lowest day = $53
Highest day = $366 (yesterday)

Eight days is the equivalent of two weeks trading four days a week, as is my goal. Being really optimistic and extrapolating these numbers for tha 40 week trading year (for me) is a simple return of 486.8% for the year...that's $24,340 tax free profit. Cool.

So if I have three 10% drawdowns over the course of the next three or four months, just pulling numbers out of the air here, I re-ran the spreadsheets.

There was a 5 week delay in meeting my cash return target based on the testing results, above, and an 11 week delay in my 1% per day target forecast.

I will be sizing my positions based on the account balance. A stock that trades at $25 I could trade 200 shares but a stock that trades at $26 I could only trade 100 shares (capital/price = position) and the position must be even lots of 100. So I have chosen a small range of stocks and equivalents ranging from mid $20's to just over $10. As my portfolio increases so to does my capability to trade larger positions and/or larger priced stocks.

Smaller priced stocks also allow the compounding effect to be accelerated as I can increase position size with smaller increments of cash. Over the next year that will add up quickly, as compounding does.

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.

Consolidation setup today.

Here is another take on the same chart as I posted earlier but looking at the one trade that I missed and let run mostly out before entering.

This is a classic example of a triangle consolidation pattern that is the basis of my old CTP strategy, here is an example of the same strategy in day trading.

In CTP the red arrows would indicate trades entered and exited, basically buy low sell high and short high and cover low. Entering these trades would put me in a position to take advantage of the breakout in either direction.

In today's case the trade would be long only and have been entered at about 1000h as the price hits and bounces off of the S1 green line. Entry around $22.75ish for the prime position, $22.80ish and $22.85ish as secondary entries.

Once the price breaks out the trendline gets established (dashed red) at 1018h and holds as it bounces along at 1025h to R1 when it breaks the line around $23.20. I would choose to exit at R1 though. I could choose to exit half of the position at this point for a guaranteed 45 to 60 cents per share then let the rest ride to $23.35 for 60 to 75 per share on the balance. This takes the chance that the price will drop while I still hold a position.

Profits

Ranging from $80 to $120 depending on entry, exit and scaling strategies.

Yes, this is a hindsight trade but it is only a matter of not having entered this trade at the S1 bounce, just a matter of timing. The consolidation setup would only have been acting as confirmation of my trade, not really part of the entry plan until I have a larger capital to work with. In that case the pattern would indicate adding to the position along the way, scaling into the trade.

I don't normally get into speculating on trades, but, seeing as I am already doing it, let's see what a scaled trade might do here.

Buy at $22.70, 22.80, 22.90 and 23.05, 400 shares average price $22.8625.

Exit half at $23.25 and the balance at $23.35 for a $145 net gain.

Not bad, but I expect I would just buy in all at once at the bottom and scale out instead.

Buy 400 at $22.70.

Sell 100 at $23.10, 23.25, and 200 at $23.35.

Profit of $205 net.

No matter the trade style the fact remains that the trade is a profitable one so there is no sense in trying to speculate on the maximum profitability except for the purpose of getting familiar with differing ideas.

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.

September conclusions

I Stopped all trading activity on September 18th due to business and a holiday. Poor time to stop given the volatility in the markets currently, priorities are priorities.

I combined my fake and real trading results to give a better overview of the possibilities for the last month only. So some days were real and some days were fake. I have validated my fake trading methods to ensure that they would be reasonably accurate by applying the same entry exit pricing as I would normally get for a market order entry. I feel pretty confident that the results are indicative of what I might expect to see under similaar conditions.

So, over 11 trading days I saw a 1.66% daily average return on portfolio.
That is an 18.23% return overall.
Even the fake trades count the commissions so the numbers are net and beat my monthly target by 2.23% while only trading 11 of 16 days (1% per day, 4 days per week, 4 weeks per month)

I ran some checks on Wednesday and Thursday this week and I could have conservatively seen a 16.5% increase for those two days. Another month's worth and change.

I could get used to those kinds of returns, but I still only expect a real 1% return per day to keep me grounded in reality.

So my conclusions have me ahead of my goals. I will start back up with no fake trading next week and plan on sticking with 100 share trades for a bit.

I was lucky enough that the price of AEM is, or was yesterday, down around $50. It was starting to get pricey enough for me to change my position size to smaller to stay in the game with that stock. I will not change stocks mid stream right now as I would have to get familiar with a whole new one...not my idea of a good time in a volatile period of uncertainty as this.

So. October is the true trial by fire as I stick with my plan.

I ran the projections on my spreadsheets and they look really promising. I will get into that another day.

JD.

Larger postion notes.

Currently I am trading 100 share lots. I plan on bumping that to 200 after another week if I can see some consistant gain days.

I am currently sitting at just above 2% after suffering a pair of losing days due to screwing with my method...I should know better. Having said that I have a spread sheet that shows me where I would be if the only difference in my trading was larger position sizes of 200, 300 and 400 shares. I think that my order fills might be affected by the larger positions but I will ignore that factor as I believe it to be pennies per trade, if that.

position        current net gain   return     Goal 
100                  $98            2.45%       5%
200                 $336            4.00%      10%
300                 $574           14.35%      15%
400                 $812           20.30%      20%

Part of the difference is the fact that commissions are only paid once per trade so this adds to the return as they are 0.25% per trade. The other factor is, of course, the more shares the more money made per penny move.

Basically I am under capitalized which severely restricts my trading activity but also keeps me out of serious trouble should my theories not work out. So if I can make a go with $4K then once my portfolio grows, how ever slowly, I should see better results in future.

Of course the other factor could be that I only trade two hours a day. Had I the luxury of chosing to trade all day I would try to find a stock that moves well in the afternoon, if such a stock exists, and work it later in the day.

JD.

Projections... a little more realistic

The following makes the basic premise that I can daytrade as successful as my testing would indicate. There are a lot of mind games involved...more than I anticipated, but that is another topic.

I like to run spreadsheets and forecasts based on minimum expectations so I have some goals in mind that look very good. I was going to try to put some of that here but it gets too messy without just seeing the sheets. Suffice it to say that by this year's end if all goes as expected I will have increased my portfolio by 80% or more after taxes. I plan on using the Tax Free Savings Account as my primary trading account next year so anything over $5K in my account at year end is really just a bonus. I figure that will be my "carrot".


I know I posted a previous "projection" but I consider it flawed and a little outside of my real expectation as it was based on heavy margin use. My goal is to not have to use margin.

Next year is the roll out of the Tax Free Savings Account which can be traded like a regular account, except with no margin use. $5K can be added each year and all earnings are tax free if withdrawn or allowed to accumulate. So I plop $5K in Jan and run my 1% per day based on the value of the trade (so a $5K trade is $50 and a $10K trade is $100 etc.). I increase my trade size by even $5K increments as the account can handle it. I double my money in 26 trading weeks and triple it by week 40, the end of the trading year if I so choose...tax free. By the end of year two I will have increased my portfolio by $1160%, capped my trade size at $35K, be pulling in $1400 per week tax free.

Full margin account as a comparison and using only double margin would see me double my money in 14 trading weeks and 6x by week 40, then cometh the tax man and drop the real return to 443%. By the end of year two I will have increased my after tax portfolio by 1332% capped my trade size at $50K and be pulling in $1300 per week after taxes.

Year three is the interesting year and shows the power of tax free accumulation assuming the same trade cap is applied as the margin account, $50K.

TFSA: 2856% return, $2000 weekly net income,
Margin: 2932% return, $1300 weekly net income

I prefer the higher tax free income as I can skim the excess over the 1% per day and see some play money. With margin and taxes the income gets eaten up and the TFSA pulls ahead in net income after 1.7 years or so...with a $35K trade value. Just plain easier money as my goal is income rather than mass cash accumulation, although it will come along with the income anyway.




For the record I would consider any gains over the 1% goal as "bonus" money and, if I am consistant enough, this could be skimmed for use outside of the trading account.



JD.

Updating the stats column...an optomistic projection?

I was just updating the stats column. I stopped entering them early this month and my previous goal had been 24.45% return after 16 weeks for the CTP plan. That was 1.5% weekly compounded monthly which doubles the capital about every year.

I am 13 days into the day trading plan, no real goal as I am testing right now, but I am at 21%...that's almost 6 times faster than my previous plan goal.

So, for arguments sake I ran a one year spreadsheet using 6% return per five trading day period, and running 40 weeks or 200 days. This is lower than my current by a fair margin as three weeks at the current rate would put me over 25%, so 18% for the same period. I did not compound the return but at the point where the portfolio increases by $5K I roll that back into a second lot for trading purposes...effectively doubling my dollar return at the same percentage return. With 12 weeks buffer, (I like that, 3 months potential holiday), I could add a few weeks if the returns are lower to get to the same point in a calender year.

By the end of the year I will be:
trading 6 lots
profiting $1800 per week
have a portfolio value of about $35,000
Have used little to no margin

I figure that if, (yes I do say if as it is possible for this to not work as planned), I get to the point of trading 6 lots a few things may have to happen.

I will need to...
1- switch to a more expensive stock to keep the lot sizes down for liquidity purposes
2- get more efficient at entry and exits to be able to move the larger trade sizes
3- have more than one stock to trade to take advantage of the lower beta periods of one stock
4- have 2 stocks trading simultaneously to boost my dollar returns and keep liquidity
(only one can trade at a time so a stock that is not in sync would be best)

Crap, if I use margin and I stopped increasing the trade size when it hit $60K (my $30K and $30K margin...keeping in mind that margin in my account is 3x, this is only 2x use) I would end up with $3000 per week and a portfolio balance of $85,500...based on 5% per week instead of 6%...A small fudge factor. That is $3000 per week.

So, dreaming big here for a moment...if I use these numbers and set an income replacement goal of $1000 per week before taxes and left everything else in play I could easily stop working after one year (the soonest I would) then I would be re-investing $2000 per week after the one year. That's living off of $40K and re-investing $80K...I'd balance those a bit depending on needs.

BAH! Got to keep thinking small here for now. No sense in getting grand ideas while I am still a fledging trader here as that is just begging for a huge ego bubble burst and setting me up to get emotional about the trades.

Back on track here, as I have started to track my returns based on a percentage of the daily beta captured I should be able to use this to calculate roughly what I might expect from any other stock. That makes a few assumptions about the stock being as predictable as what I am used to so there may be a paper trading trial time...or not....

JD.