Van's Journal - 2013

[Van]

Rail fare increases:

 

http://www.bbc.co.uk...siness-23677173

Time to bump the bicycling thread...?

 

 

 

3.80%    2008    6.10%
2.30%    2009    7.60%
1.10%    2010    0.70%
2.60%    2011    6.00%
1.30%    2012    6.20%
1.20%    2013    3.90%
2.40%    2014    (predicted) 4.30%

15.60%         40.20%

[drbubb]

The UK Home Builders XX:NMX3720 haven't shown a similar confirming pattern, yet(!) but it does look like the group is running out of steam on this side of the Atlantic. The US maybe a lead indicator!

 

The US Builders have led UK Builders by a year or so in prior cycles

[notanewmember]

The US Builders have led UK Builders by a year or so in prior cycles

 

My TW. trade is close to being stopped out. Do I pre-empt and take profits this morning or wait for the trade plan to complete. Tricky! Maybe the UK is different with its "Help to Buy". I think I will wait although it is tempting to pull the trigger.

 

This is an interesting post;

 

http://www.lse.co.uk/ShareChat.asp?ShareTicker=TW.

Tue 11:52

The way the government is creating the next property bubble is positively obscene but as an investor one cannot be sentimental. I class myself now as an old fossil but tonight as I sit around with my friends I will bite my lip and say nought. They will all be chortling about their long since paid for houses rising once more. Their buy to lets bringing large quantities of cash they have no need of at their age and the usual "I worked hard all my life".

So Mr Carney thinks he can control interest rates, Ozzy thinks the new feel good factor will stimulate growth, re mortgaging will allow the car industry to prosper but it is all built on the hope that the young who have no chance of ever climbing aboard the train do nothing to derail it.

Si I shall increase my holding here and watch carefully when to jump ship. It does stick in my throat though but needs must...

[Van]

OK, here it is....

My Trading Plan.

---------------------

 

MENTAL CONTROL

• I will strictly adhere to my Trading Rules which are designed to protect against large losses. I can survive many small loses, but a single large loss will be crippling.

• I will focus on maximizing the returns on the good trades over maximizing the number of winning trades.

• I will aim to maximize time spent in winning trades and minimizing time spent in losing trades; working towards this goal will force me to cut losses quickly while patiently letting winners run.

• I will keep a written record of all my trading activity.

 

MONEY MANAGEMENT

• I will keep losses small by taking them early, keeping my drawdown to a minimum.

• I will plan and execute all trades clearly and precisely with initial entry, stoploss, pyramiding, and exiting strategy.

• I will adjust my bet size set according to risk/reward on offer. I will risk enough so that a winning trade is meaningful but a losing trade is not life-style impacting.

 

METHOD

• I trade on Technical Analysis only. Strict application of TA will define my trading edge.

• I use sentiment & technical indicators to catch significant turns in the market, then ride the trend until the trend changes.

• I will trade only when the risk/reward is deemed strongly favourable to protect against overtrading and ensure mental capital is always fresh.

 

---------------

 

More to follow... The 10 commandments.

[Van]

Wenstein analysis of the FTSE 350 sectors:

 

NEUTRAL(BASE) | 2 | 5.7%

ADVANCING | 15 | 42.9%

NEUTRAL(TOP) | 18 | 51.4%

DECLINING | 1 | 2.9%

 

No surprise here; Stan would not be trying to short in this market; too much is still going up, and all boats tend to go up in a rising tide.

[Van]

Hang Seng looks like the best candidate for shorting: peaked back in Feb/March, successive lower highs since, with the price now having rallied back to pierce a DECLINING 144dma:

 

[Van]

Trading Rule #1:

 

1. Losers Average Losers: Never Add To A Losing Position

 

I will never, ever – under any circumstances imaginable – increase my position size when the market moves against me. If I extend the logic of adding to losing positions, then I should continue to add to my losses the more it goes against me all the way to zero or infinity – this is a guaranteed path to bankruptcy. If the trade is in loss then I am on wrong side of the market; the only choice I am faced with is whether to close out my position immediately or allow it to run to my stop loss level.

 

--------------------

 

All my trading rules are important - essential, even - but this one above all others is THE most important of them all. The desire to add to losing positions comes from the need to be right about the market - about boosting my ego. The market doesn't care about my ego, it will go where it's going, and if I am on the wrong side and continue to argue with it and increase my position size then it is a guaranteed way to bankruptcy. All the times I have ever blown up my account it started with this cardinal trading sin, which leads to a cascade of other rule transgressions.

[Van]

Trading Rule #2:

 

2. Cut Your Losses: Always Set A Stop-Loss Point

 

I will set my stop-loss point BEFORE I enter any trade. This is the only time where I have objectivity.

 

I will never widen my stop once it is set and the trade entered. I will take the loss and move on if the stop is hit. It is necessary in trading to be wrong and be able to take a small loss- losses are a natural part of the game; winning speculators manage to keep their losses small; losing speculators try to minimize the number of losses they experience by letting their losses run in the hope of a turnaround.

 

I will never let my losses run in hope of a turnaround

[Van]

Dow is heading for it's SIXTH daily loss in a row. That is comparatively rare.

 

http://blog.stocktradersalmanac.com/post/6-Day-Losing-Streak-Suggests-Trouble-Ahead-DJIA-DIA

[happy]

Trading Rule #2:

 

2. Cut Your Losses: Always Set A Stop-Loss Point

 

 

From The New Market Wizards by Jack D. Schwager, interview with William Eckhardt

 

Can you expand on what you consider the normal human habits that lead to losing?

 

Decision theorists have performed experiments in which people are given various choices between sure things (amounts of money) and simple lotteries in order to see if the subjects' preferences are rationally ordered. They find that people will generally choose a sure gain over a lottery with a higher expected gain but that they will shun a sure loss in favor of an even worse lottery (as long as the lottery gives them a chance of coming out ahead). These evidently instinctive human tendencies spell doom for the trader - take your profits, but play with your losses.

 

This attitude is also crucially reinforced, as exemplified by the advice: Seize opportunities, but hold your ground in adversity. Better advice to the trader would be: Watch idly while profit-taking opportunities arise, but in adversity run like a jackrabbit.

 

One common adage on this subject that is completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.

[Van]

From The New Market Wizards by Jack D. Schwager, interview with William Eckhardt

 

 

 

I think Ed Seykota's quote sums it up best for me:

 

The elements of good trading are: 1. cutting losses, 2. cutting losses, and 3. cutting losses. If you can follow these 3 rules, you may have a chance.

http://newtraderu.com/?p=157

----

 

If you cannot cut your losses, you will not be successful.

100% Guaranteed.

[Van]

Here is rule #3:

 

3. Let Winners Run: Only Close Winning Trades When Exit Conditions Are Met

 

I must be patient with my winning trades. Ask: is the market doing what I expected? If so, there is no reason to exit the trade. If I stay with the market and it continues to move in my direction, a small profit can turn into a large profit, and a large profit into a very large profit. This will never happen if I am too quick to bank my winners in fear that they the market will take back any profits. If the market whipsaws back to my stop and wipes out the profits, then it was never mine in the first place. I will set initial target and stop-loss levels that will give me an intial risk:reward of at least 4:1, and will move my trailing stop to protect a profitable trade, while leaving the position to run if the move continues further in my favour. I will leave my winning position open until the market turns and hits my trailing stop, or my target price is met. I am not allowed to simply close a winning trade that has not met either of these conditions.

[drbubb]

good stuff here

[Van]

4. Add To Winners: Position Size Must Always be increased on New High and New Lows

 

I must be willing to increase my position if and when the market moves in my favour. If it feels difficult, it is the right action. The market doesn’t reward you for doing what feels comfortable. If and until the last position added shows a loss should the whole trade be closed. I will move my stops to protect profit already accrued on the whole position. I will continue pyramiding until the last trade is no longer profitable. I will limit my additional trades to 50% or less of current position size. Position size must always be increased when new highs are made in any of these time frames:

 

Monthly

3-Monthly

6-Monthly

Annual

All-Time

 

The rules of increasing existing position size must, of course, also follow the rules of initiating a trade.

 

---------------

 

I am getting much better at this! Pyramiding on positions already in profit and breaking new significant highs/lows is starting to become much more second nature, but it has taken me a lot of failure to get there. New highs and new lows mean that you are trading with the trend - stay with it up and until the trend changes!! Again, in a mirror image of the logic of never adding to losers (see rule #1), this rule would force me to pyramid long positions all the way until the price reaches infinity (or zero if shorting) - imagine putting on such a trade and riding it all the way to conclusion!!

[Van]

The UK Home Builders XX:NMX3720 haven't shown a similar confirming pattern, yet(!) but it does look like the group is running out of steam on this side of the Atlantic. The US maybe a lead indicator!

 

XX:NMX3720 now firmly in stage 3 topping, as the long term MA is flatterning out. We already had one brief dip below the 144dma. Ideally I want to see another visit sub-144dma to turn the MA from rising to falling; that will be the time to enter short.

 

Note the bear-trap in early stage 2 advance - this would have been an ideal time to get long; and Weinstein followers know to enter long here rather than short because of the direction of the MAs.

 

The US builders chart is looking very bearish now. The long term MAs are now firmly sloping down, and Friday was a big downday in a strong overall market. A fall below 382 could see the sector collapse very quickly imo.

http://bigcharts.mar...&insttype=Index

[happy]

^ Nice looking chart!

 

I recently read his 'Secrets For Profiting in Bull and Bear Markets', a good read and a solid no non-sense approach to the markets. Good stuff.

[Van]

Here is rule #5:

 

5. Only risk what I can afford – Limit Account Funding to £1000 At A Time

 

I am allowed to deposit up to £1000 cash in my trading account at any one time. I am not allowed to top up my account with cash if negative trading equity takes the values of my account below £1000. I will NEVER risk more than £1000 at a time.

 

--------------

 

My life is more than just my trading. At this stage, I trade as a means to supplement my main income. Trading can help me achieve money to help with financial independence and material comfort, but money is not the ultimate goal - happiness is the ultimate goal. If my risk is keeping me up at night and having a negative impact on my lifestyle, then that is the anthesis of happiness. Whatever happens, I must not let a total devastating loss significantly impact my life and my long term commitments. Also, if I cannot be a successful trader when relatively little is risked, I will certainly be an unsucessful trader when more is risked.

[Van]

ATR is a volatility technical indicator

http://www.greenener...65

 

As well as being useful to know the risk of an instrument and therefore determining position sizing, it can be used to tell where to place your stops. Simply pick a multiple of ATR and apply it to all your positions; that should be the distance of your stop from the current price that give the same stop level, account for volatility.

 

Eg,

Gold @1400

ATR20=27.12

 

Silver @ 24.05

ATR20=0.745

 

A stop set at 1.5xATR20 would be 1359.3 for gold and 22.93 for silver.

[Van]

Here is rule #6:

 

6. Size Trades According To Bankroll – Risk Between 5%-10% Per Trade

 

Bets must be meaningfully sized – big enough to provide tangible reward if right, and small enough not to be fearful about being wrong. This bet size is designed to keep the bet large enough to warrant my due care & attention and adhere to my trading rules, yet small enough so that losses do not materially affect me.

 

---------

 

Many will think that up to 10% per trade is too large and I have more chance of blowing up my account, but together with rule #5 (only risk what I can afford) I'm happy with this level of risk. It gives me the chance to make more money with leverage if I am right on a particular trade. If my account grows much larger then I will become more conservative with amount risked per trade... but let's get there first.

[Van]

Just initiated a Long SPX position.

We are still above strongly rising 144dma despite last week's correction, so the odds are good that we will continue to move higher, perhaps to new highs (especially as NDX is going ballistic). If not, the recent low gives us a very easy exit point.

 

I know I have been talking about a major top over the course of this year, but I am "trading what I am seeing".

[Van]

The noose around the USD is closing. Not that Japan is in any fundamentally better shape than the US, but who cares about those funny-mentals.

 

[Van]

Trading Rule #7:

 

7. Breaking a bad run – All Losing Positions Must Be Liquidated After a 3-trade Losing Run

 

If I make 3 losses in a row, whether or not I close out manually or am stopped out, I must close out any and all positions currently in loss. Only profitable positions are allowed to be kept. No new trades or increases in position will be allowed for a minimum of 3 trading days.

[drbubb]

Just initiated a Long SPX position.

We are still above strongly rising 144dma despite last week's correction, so the odds are good that we will continue to move higher, perhaps to new highs (especially as NDX is going ballistic). If not, the recent low gives us a very easy exit point.

 

I know I have been talking about a major top over the course of this year, but I am "trading what I am seeing".

 

Have you looked at Tony C's charts ?:

http://caldaro.wordpress.com/

 

I tend to do that when I do Stock trades now, since he has been more right than I have been on the direction of stock indices

[Van]

Have you looked at Tony C's charts ?:

http://caldaro.wordpress.com/

 

I tend to do that when I do Stock trades now, since he has been more right than I have been on the direction of stock indices

 

No, and I don't think it's healthy for me to, either - whether its this particular market guru or anyone else whose methods I am not strongly in tune with.

Too many have tried to call an end to the bull market and been on the sides or - worse - tried to short it when it's blindingly obvious that the market is still going UP!

 

Overall, I find I'm getting much better at ignoring the advice and forecasts of others these days.

[Van]

Today's snippet of trading wisdom:

 

Worry less about the headline is and more about what the market's reaction to it is.

 

---

 

The headline:

US House prices rise 2.2% in June

http://www.cnbc.com/id/100988918

 

The market's reaction to it:

US housebuilders

-1.82%

 

http://bigcharts.mar...pe=&freq=&show=