COG and the resource stocks... Oil specifically

While plowing through some numbers I was reminded of an old rule I used to observe while coming up with trade ideas.

Do not trade commodity related stocks... or at least ones that are directly tied to some of the volatile commodities. Oil and gas were on the top of the list.

This was driven home as I reviewed the trades for COG, Cabot Oil and Gas Corp.

The profit and loss was barely above break even after 12 months and the winning trade rate was under 60% while my overall average is over 80%. I glanced at the rest of the year to date and saw some very obvious whipsaw chart action. Normally I like that sort of activity but the stock is just of a high enough price and the volatility is also just high enough to compound the effect of knocking me out of more trades.

Actually, I should have discounted this one just from glancing at the chart last year while I was selecting stocks to trade as the volatility and pattern obviously were outside of my parameters. Waste of time.

Keep in mind that all I would have to do in order to trade this stock is to widen the stop losses and hold out for better entry prices... but that means having two trading plans and that is not in the plan right now.

Jeff.

CMC Live Trade Update

I was looking over my charts today and realized that I need to adjust the exit target for CMC. The second exit target needed to be lowered by $0.50 to $13.50 due to my shift in profit targeting but, more importantly, the primary entry needs to be raised to $13. 50 due to the next trade setup.

I already posted the first change in the Live Trade column so I will update the latest exit and post the next trade setup.

Next trade entry will be:

Entry 1 - $13.50 Target - $15.00

Entry 2 - $13.00 Target - $14.50

Entry 3 - $12.50 Target - $14.00

Full Stop at $12.00

The exit targets may shift depending upon how low the next move goes... if it only fills one or two of the trades then the exit may shift down a bit on the first trade in order to secure profits. and to set the next short trade if it sets up as well.

Jeff.

Putting the trade in context, CMC

I have more history on CMC other than just the trade setup that I posted, I have the whole year and change so I thought I should put the stock and activity into context relative to the current open trade.

A quick note about the changing profit targets. While I had to go back to the charts to see how the target limit orders would have filled it was based on the trades that were dictated already. I do wish that I had actually placed on thee trades and made some real cash... too busy with other plans. The primary entries would not change and most of the second and third would not either but I wanted to check the executions. Seeing as in any case where the primary hit full target the 2nd and 3rd would, necessarily, have also hit their targets as they would have been at lower prices.

CMC- Commercial Metals Co.

40 Trades since June 2009 (these are divided between 1st, 2nd and 3rd entry targets)

First Entry = 19 74% hit profit target

Second Entry = 16 81% of these hit their profit target

Third Entry = 5 80% of these hit their profit target

Not every target is a full target as there are some that the targets are set tighter on due to the next entry being so close, playing the short term moves in both directions can do that. Basically, one exit for a long position is at the same price as the next short entry price so the trade essentially flips. The key is in selecting valid targets.

I plug in a trade value of $1,000 and consider that the trades are all simple with no compounding therefore the trade value of $1,000 is always the same.

Total Profits = $1,781.00

Then using a starting trade value of $1,000 and compounding the profits into the very next trade.

Total Profits = $ 4,885.50

Unlike other speculative and subjective back testing these are firm numbers, now they are adjusted for my commission structure with Questrade so figure in 40 round trades worth if yours are higher. I used $5 commissions or $10 for the trade in and out. It's actually $4.95 for up to 495 shares.

Also worth noting, if I were actually in the trades and was putting money on the line every time I would be able to get better entries and exits in many of the cases but I am using my firm rules based system for both entry and exit for the sake of objective consistency.

Jeff.

New targets for stocks under $20

In my data analysis I have found an interesting bit of information having to do with entry prices and profit targets specifically for stocks priced under $20.

I had posted entries for CMC at $14.50 and $15.00 as a short sell and posted the targets as $13.00 and $14.00 respectively creating a $1 and $1.50 gain. I will be changing that.

Basically any trade will have three possible entries for stocks under $20:

Considering a long trade rather than the CMC short above for demonstration purposes:

(BTW CMC scooted back above the $14.50 first entry target today.)

Entry 1 - $17.00 Profit target - $18.50 Gain - $1.50

Entry 2 - $16.50 Profit target - $17.50 Gain - $1.00

Entry 3 - $16.00 Profit target - $16.50 Gain - $0.50

Full stop at $15.50 without extenuating circumstances

A full trade hitting the targets would gain and average of$1 per share overall.

A full stop will lose and average $1 overall.

If each entry were 100 shares that would be a $300 gain or a $300 loss.

In crunching the numbers for the trades I have so far found that over 75% (this is not an average, this is the minimum taken from the poorest performing stock) of the first entries hit their target profit of $1.50. It led me to wonder why I should limit the second entry to a $1 profit when, 75% to 92% of the time the larger profit gets hit which means that the lower profit also gets hit on the way past. In fact it will hit between 86% and 100% of the time. The same goes for the 3rd entry although if the third entry gets hit the average of the first getting hit afterwards is between 72% and 80%.

It is worth noting that no matter the entry the Maximum Loss Allowance will always be the same. Therefore it would be prudent to increase the profit potential, given the odds of success, in order to skew the trades in favour of better gains for capital risked.

In that vein I left the entries alone and changed the exits to allow a full $1.50 for each trade entered. This results in an average $1.50 overall compared to the average $1.00 overall.

For the same entry of three trades at 100 shares that would be a $450 gain or the same $300 loss.

I like a profit / loss ratio of better than 1:1 and this at least makes it 1.5:1. Add that to an over 72% win rate for just these larger trades and that really adds up fast.

Jeff.

First live trigger, CMC short

CMC, Commercial Metals Company

Of course the first live trigger that I post is a short sell, and it also was hit last Monday... which makes this "not so live" but still active. This one has been a solid short five times this year alone. Now the price being around the $15 mark makes it a smaller per share target but every profit is a profit.

The setup had been for an entry to sell to open at $14.50 and a second position at $15.00. Both orders were filled.

Profit targets are $13.00 for position one and $14.00 for position two giving $1.50 and $1.00 per share respectively.

Stops to be set at $16.00 for both positions.

Assuming that the targets are hit and based on the average entry price of $14.75 and the average exit price of $13.50 the ROI would be 8.5%

Loss would also be 8.5% for a profit loss ratio of 1:1.

This one is still active and orders may yet be filled for $14.50 today. I would set the stop at $15.75 at this point.

Jeff.

Throwing in the towel and going live

Well, I've decided to close down the day trading subscription. Between waffling on the moderators part with a variety of formats and changes to try to appease the large numbers in the room it has been watered down to a point of no return. I will finish out the week as there are a few trades that we are holding that I do not think will work out, but I will not treat them as total losses until expiration on Friday.

Throwing in the towel, figuratively speaking.

Next up is a new beginning with an old plan.

I have decided, after a long bout of testing other services and having them fall flat on their promises, that I can do much better. In that vein I will be starting my own service in the next short while to provide email alert based trades with website reference backup.

This will be nothing fancy, just straight up trades with clean and clear entry, targets and stops and perhaps two or three ways to play a trade depending on the setup.

I have tried a number of self made plans and have seen some great potentials and had a few go flat over the past while. So rather than get into forecasts and future gains and what not, I decided to grab five, more or less random stocks out of about 50 that I had selected over a year ago to run trades on. With all the data that I have it does not take too much to figure out the profit and loss with a sliding account sizing scale.

Stock trades logged thus far for ABB, ABX, AEO, CAH and GDX. I started just going alphabetical then bumped up a bit, the point being I did not select these for any performance reasons. Out of the total of about 45 trades total over the last 15 months, depending upon using an aggressive or more conservative approach to the strategy, the returns are very nice... no not spectacular, or explosive ... nice and regular.

A cash only account gain was between 70% and 100% depending upon the aggressiveness chosen and between 210% and 290% using 1/3rd the cash in a 3 times margin account to end up with the same buying power.

Now that is only with 5 stocks and thus only having 5 concurrent trades but using full capital in those five trades... not necessarily the absolute best plan. I'll setup a better gauge later and add in the rest of the trades into the mix.

Anyhow... off to bed now and I will post more details later.

Jeff.