...and more time passes....

I have not been idle on the trading front.

I've still been trading but almost none of it has to do with the CTP plan as I set out. I do believe that it is a workable plan on its' own, I just cannot help but tinker and tweak. Usually I end up with something very different than what I started out with. I tried out some different order types, looked at options trading, tinkered a bit with more daytrading and I am currently working on an Exchange Traded Fund (ETF) hedge plan to reduce the exposure to risk by playing a Bear fund aginast a Bull fund in the case of a reversal. I managed to get invited to a 1/2 day workshop which was really a marketing seminar for a trading course but they did drop some interesting tidbits and demonstrated their trading plan in short term day trades with live market and money. I had also joined a website as a 45 day trial member and went through all of their video material on stock and options trading.

Basically I am still learning.

I have found that there really isn't much else out there that is not already available for free if you know where to look.

The kicker is that you can do all the reading you want, know all there is to know about trading, not that I do yet, and still not be a successful trader. You have to trade to become successful...practise just like anything else.

Even so every piece of information I find all leads back to a few basic principles, most of which I found myself and have already posted here.

1) trading must be without emotion

2) loss management is more important than profit, trade to not lose and you will win

3) stick to the plan

I might add a new one that I sometimes have trouble with:

- when the circumstance changes and the trade is not doing what you expect...get out.

I have had many trades that gave me the opportunity to take a small loss, break even or even come out slightly ahead as I realized that the trade is not doing what I thought it should but I chose to adhere to my stop setting. What I failed to realize, in some cases, was that my stop setting was placed according to my Maximim Loss Allowance (MLA) and not necessarily where it should have been. What I mean is a stop should be selected after analyzing the movement THEN the purchase price set and if the Profit/Risk is acceptable make the trade. The stop should have some reason for being where it is other than I think I can afford a certain loss figure.

Back to the ETF for a moment. I opened a trial account with my broker using a more advanced trading platform...handy stuff but if you can trade you can trade with almost anything so I am just playing. It allows $100K play money credit, long positions but not shorts. So I picked 10 ETFs on the TSE, 5 Bear funds and 5 corresponding Bull funds. Basically the bull fund follows the index it is referring to, for example the HXU follows the TSX/S&P 60 and the HXD follows the same index inversely. There is a ratio to figure for this but I won't get into that now.

The theory is that buying an relatively equal number of shares based on price movement in each of the bear and bull funds of the same index will counter each other and you will always break even. I bought $38,000 in the 10 funds on Wednesday. Today I am down $159 ...three things affect that number though.

1) the aftermarket bid/ask quotes throw it off a bit

2) the ratios I came up with were rough, that could throw it off a bit

3) The relationship between bull and bear may not be constant

Still, the variance over 2200 shares is only 0.4%...close enough to prove the point that the funds can be played against each other. I'l leave that simer for the next week and see how far off it is and do a comparison fund by fund.

I'll post the strategy once I get it fleashed out and simplified. I may not use it but it looks like an interesting theory.

JD.

It's been a while

I've been busy, life gets in the road sometimes.

So I have not been able to ge the time to keep my blog up to date.

I have changed a few things...maybe tweaked is a better term as I have not made any substantial changes to my plan. I'll post updates as I can in the next week or so.

I entered a few trades recently that did not work out well. I should know better than to trade energy and income trusts...they have never treated me well. I also let emotion get invloved which ended up in larger losses than I set out when I entered the trades initially, lowered stops to stay in the trade longer anticipating the rally then never materialized. I may or may not list these on the blog in all their glory failure...I will probably at least note the major notables and charts of the trades. I am not even sure where my stats stand right now, I'll try to work on getting those up to date later as well.

That's all for tonight.

JD.

Stock picking revisited

I mentioned my stock picking criteria early on. I have since changed them to provide more, and lower priced stocks to choose from.

The original: $10 to $30, greater then 200K shares per day volume

The new criteria: $5 to $30, greater than 40K shares per day volume

I have the $30 still as it is good to see the stocks that are downtrending early on even though I probably wouldn't trade them long or short until the $20 mark. I wonder if I should do the same for the under $5 range..perhaps go as low as $3 to watch for ones that might be on their way up. Much lower than that and the margin use rules change as the broker considers anything under $2.50 as penny stocks.

The lower price and volume expands the selection and has:

PROS
1) allows some exposure to stock with smaller prices that will allow for tighter stop setting off the start
2) perhaps a little more price volatility
3) I am only trading single lots or 100 shares at a time I am not terribly concerned about not being able to sell when I need to, liquidity should not be an issue at 40K average volume for small trades
4) the lower prices allow more trades to be entered simultaneously

CONS
1) I might not get my ideal price
2) at $5 I would not likely short the stock, limited to long positions at the lower price
3) lower volume MAY make shorting less possible depending on share availability through the broker...I honestly don't know if 40K will be low enough for that to happen
4) perhaps a little more price volatility, good and bad I guess

Worth noting: Lowering the prices to this point would actually allow someone who was interested in starting out with $1000 to actually be able to make a go of it. Staying under $10 might be possible and using margin wisely could allow four trades if they averaged $7.50 at the entry price, more if even lower prices were used. Price movement is price movement afterall, whether it is at the $200 per share or at $5 per share.

All in all this has increased the selection somewhat as I started out with 256 stocks to narrow down to about 17 that were showing signs of being in a tradeable pattern soon to add to my list. For the record that takes about 30 minutes to do with the stockcharts.com candle glance view. I just jot down the ticker symbols of the charts that look good and enter them into a list then view them in a 10 per page format using my default 2 year period with a MACD indicator for reference and a few moving averages. I do get duplicates but I usually am familiar enough with my current list to catch them before they make it into my working list.

The list now has about 140 stocks, 10 or so are higher priced than I will trade but I am watching them...financials mainly. I have only traded about 12 using my plan...about 35 previoulsy traded and most of those are still on this newer list. I will try to keep it at less than 200 as anything larger then that may be to unwieldy to manage efficiently. Some will get pruned along the way and some will get added.

JD.

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.