Time to adjust the plan

8 Weeks In

Well, I've had 8 weeks worth of trial now with the CTP plan. I think that the realized gain of over 5% isn't too bad...my paper gains are just over 8%. About 4% off my goal. I haven't checked today but I think I may be up a hair in the paper gains department.

Annualized those are 30% and 48% respectively, nothing to sneeze at but far enough from where I expected to be at this point to warrant a review.

I figure that it is time to adjust what I am doing. In the past my plan trials have lasted about 2 weeks maximum as it was usually apparent that the consistent gains were not achievable or the time spent getting the gains was overwhelming...or the plan just plain lost more money than it gained. At least this plan has proved itself worthy of a few adjustments.

STEP 1

Reduce the complexity of the plan

I have been aiming for five types of trades and have only got up to the first three.

• short sell for the downtrend
• long position for the uptrend
• long position counter trend
• short sell counter trend
• long position trade for a long term trade

I figure that reducing the number of trade types that I am looking for and trying will allow me to concentrate on maximizing the potential returns on the active trades before adding the others back in. This pares me back to the typical swing trade styles of short selling and long buying with the trends. I may dabble with the odd longer term buy and hold style should the stock warrant it but all three other counter trend trades are off my list, generally speaking. The fact that a counter trend trade is statistically less probable to produce consistant returns is one good reason to drop them for now, but it is a position trade more than anything so it will have it's use and will stay in my list.

Should the returns meet or exceed my goal then I may stick with this style for a while. Although I like to play so I can't see that happening for very long.

Step 2

Improve the return of the trades

This is something that I decided over the weekend that I needed to do. Looking back at my trades I see some inadequacies that relate directly to my stop settings. My picks are generally good ... statistically speaking ... I just need to remain in the trade longer. The only way to accomplish this is by changing the stop setting rules which I have already mentioned more than once in previous posts. While I find that I am changing stops earlier than I should be it is because I have no firm rules guiding my stop setting, just general ideas where they maybe should be.

Changing the stop setting rules doesn't just mean to leave a larger margin initially. My initial stop has typically been OK if my entry was good. it's the stop movement along the life of the trade, getting stopped out early costs at least $0.50 on the trade profits if it was a spike in price as the price settles back into it's trend quickly and any chance to grab it at a better price is gone.

Rules Rule.

Step 3

Reduce the time spent managing the plan

This is a tough one for me.

I try to nail entries to gain the extra few cents edge or study the charts to find the perfect entry point int he first place. These take time. Nailing the trade entry is not as important as it seems at the time. Over the course of a $3 target, $0.10 really doesn't matter. More use of market orders and either setting orders for market open or at 10am or so will be the next plan.

I expect that I should be able to execute trades, manage stops and check imminent trade charts in 1/2hr per day. This assumes that I have the real work done on the weekend over perhaps a 2 hour period. That would include finding a few more stocks to put on my list, charting a few more to have them ready to trade by for the week, adjusting already charted ones that need adjusting. Cutting out three of the five trade types will reduce research time somewhat.

So that amounts to about 5 hours over the course of the week. I know buy and holders will say they spend far less than this over the same period and that I would have to continue trading in order to make money...perhaps. I cannot justify the possible swings that, as buy and holder, I would have to go through to see a gain over the long term. Realized gains now translate into money re-invested now increasing the compounding effect on the rate of return...or being skimmed to put into use in other ways. I like trading, it has become my new hobby this year and depending on how successful I am it may just be a nice income source to help pay for those toys that I need for my other hobbies. So I don't mind justifying the time spent on the trading plan thus far.

I'll update my stats this evening.

JD.

CAE - CAE Inc

Ticker symbol - CAE

Company - CAE Inc


Research - they have something to do with aviation training simulators...I think they contract out their services and simulators for training pilots...something like that.


Long trade, basically the classic buy at $12.50 on June 17th.

They had a news break of some sort last month and the stock jumped. I won't trade on news. Had I been trading these guys already using my CTP strategey I would have been long late April and been there when the news broke and sold June the 6th...but I wasn't.

They are coming off of a six month consolidation period which was broken Early May and I entered the trade thinking the new lower trend boundary had been set and the price had bounced off of the 200sma line. I had to adjust my lines a bit and I hope they are good now. I set a new TWT up line (red dashed). I have noticed that the old upper trend boundary line can sometimes make a good resistance line as the new trend pattern is established. I don't like adjusting lines to accommodate new prices as it looks like I am trying to make the trade setup look good but sometimes it is necessary. Extending the lines is one thing, moving them is another. This were just little juggles though so I feel pretty good about them even though the 200 sma was crossed.

Someone sent me a quote from some analyst fellow saying that this was a good time to get in...I think he said that at about the time I got in, it really had no bearing on my entry as I read it afterwards. I will be lowering my stop on this one a bit in order to keep it where I think it should be based on the slightly altered lines...$11.80.

JD.

BVF - Biovail

This is a Short position that I entered on May 21st

Ticker symbol - BVF

Company - Biovail

I was stopped out on this trade on Thursday for almost a 2% overall realized gain...OK but the target was much higher than that...I got $1 per share and I was going for about $3.50.

I still think there is $2 left in this TWT down so I will most likely sell short tomorrow or Tuesday.

The red arrow is my stopped out point,

The green is my next expected short sell point.

The thick green line just above the upper blue trend line is my stop line...I did well in that it got me past the rally in the first week of June that actually touched the trend line...I learned from the ATD/B stop out to watch for this.

The long red line is the TWT line for the latest uptrend and I expected the price to rally before it crossed this line, I wasn't disappointed.

My mistake was once the line was crossed I got the stop following the heavy dashed green line which you see intersects at my stop point, that line was my new stop line.

The red circle is the point where I should have been watching for my stop to start heading down as the 50sma (pink) and the 30sma (blue) will intersect very close to the intersection of the red TWT and my original green stop line. I got too jumpy in trying to get my stop "in the money". As a result I expect to lose about $0.50 of the possible gains and I now need to re-enter a trade and start with a potential loss all over again.

The plan

Either enter a short sell Monday morning OR wait until Tuesday to see the downtrend re-established...I will tend towards the Monday entry as the MACD looks good for a continuation, circled in blue and the trend is more likely to continue anyway than not. It is worth noting that my price will be very close to where the price would have been without the Thursday jump in price.

The Lesson:

Back to the stop setting. This seems to be a regular thing for me so I need to just pay attention to the moving averages, extend the TWT lines and take note of them as resistance and support and try not to get over anxious about locking in gains while getting the stops set.

JD.

ATD/B - deconstructing the trade

Well, my ATD/B long trade did not go well and I compounded the problem by dinking around with the stop rather than really double checking the chart properly. The stock price hit my price and sold yesterday so this is not really hindsight as it is very recent and this stuff was already in place for me to see before yesterday. I thought that the price was going to rally any time now and I lowered my stop setting to try to stay in below the possible bottom, not in the plan so I got emotional, always a bad move.

This link to HF deconstruction is a post where I deconstructed my failed HF long trade. It outlines what I would have done for the short sell stop progression leading up to the long trade. Notice on that chart that I left the stop above the upper trend line longer than I have been based on the previous history as I noted "it bounced last time so I might expect it to bounce this time." So I might have expected ATD to do something similar based on the last twoTWT up. The HF study waas a hindsight one but again all the indicators were there.

The difference with ATD/B is that the price dropped below the last low point this time ...which still puts it above the lower trend line and indicates that the TWT is still heading down.
This is where the MACD could comes into play. The high momentum from this last TWT peak is lower than the peak from May 12th, the previous TWT high. Trading based on the MACD at this point would have me selling to get out of the trade if I was long and holding if I was short.
It is worth noting that the TWT downtrend that we just came off of has something else to say.

I plotted the initial TWT line (green) from May 12th to May 31st while I held a short position, then on June the 9th I ammended it steeper and adjusted my stops to follow the new line. Today I extended the original line and the current rally in price hit the old line...I should know that the first plotting is significant and kept an eye on it.

I keep saying how significant these lines are but I don't follow my own words and adjust to reduce losses or increase gains too soon and I do not get the results I aim for. So not only should I have expected the bounce and rally, I should have expected the peak of the rally and realized that the TWT down may not be completed yet. So when the price bounced off of the lower trend boundary on June 11th the plan could have been: (considering I had the same short position)

Short then Long trades

1) cover the short as I did

2) enter long as I did but perhaps earlier...I waited an extra day but I would likley still do the same again, that fits the plan

3) expect a possible peak at the original TWT down line and tighten the stop, not loosen it as I did once the price started down

4) stop out could have broke even or close

5) a) perhaps re-short on Friday's open, given the price activity I thought of it, I try not to trade on Fridays though so no go

b) hold and wait for the TWT resolution...next low bounce watching for the original TWT line to act as resistance this course of action will likely produce more trades and more opportunity for small gains...not really a great plan.

c) hold and wait for the TWT resolution...next time the price crosses above the old TWT line convincingly, buy. Best plan

My CTP strategy involves letting long positions run once a downtrend reverses. This is an example of letting the short position run being the better choice rather than looking for the target trade and had the HF example for stop setting been followed the result would have been:

The more ideal Short Trade, "the one that got away"?

1) Leave the stop above the upper trend boundary until it settles into a down trend (May 14th to June 1st)

2) Once the price crosses the 50 SMA it is pretty committed so the stop can track steeply until it hits the 50SMA line (June 5th)

3) A good built in stop line can be the 50 SMA line so I would track along that next, gives the price room to move (June 6th to date)

4) Once the price hits the lower boundary it is time to start tightening the stop closer to the price to maximize profits should the price bounce. (lower the stop to near the TWT line but not past) So according to my own plan, which I didn't really follow, I would not have been stopped out on the latest bounce from a short position and my original short would not have been stopped on the previous little bounce in late May. So not only would I be farther ahead in gains I would not have entered the long position that I did and would not have lost anything. Depending on how steep I followed the stop after the bounce would determine if I were still in the trade or stopped out for a profit.

The point is that either way, had I used my plan I would be much farther ahead in either circumstance. My plan is now to wait until the green TWT line is broken before considering re-entering a long position. I should note that it is worthwhile extending TWT trend lines until they intersect the boundary line that they are approaching as they can act as resistance...ATD/B a case in point.

Something to keep in mind is that a trend is more likely to continue than to reverse...this is definitely true of the larger trend but can also be applied to the Trend Within a Trend to a lesser degree in so far as it applies to setting the stops. Time to start paying more attention to my own ramblings. So, if you extend the lower trend boundary line and the green TWT line they go for some time before they intersect...the price very well could bounce along between the two for a while yet creating a good short position but not a high probability one. I am going to wait it out.

U did the same thing on the way up and I waited for the price to break down past the upward red TWT line before shorting it on the 11th.

I didn't have to but it beat watching the price perhaps bounce of the line one more time, and it is working well. My stop is still near the 50sma and will follow the 30 sma once it crosses the 50 on the way down. I think that following the moving averages and using the various intersections on the way down as targets for the stop may be the way to go...more research needed though.

JD

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.