As I mentioned, I think it will be more profitable and easier for many of you to have a limited number of stocks we track and trade. Of course, wherever's there's an opportunity, you have to take it so these are not hard and fast rules, but some initial ideas and I'd like some feedback from you all .
First, we'll have several lists for several market conditions. For a market like this, I'd have a "Swing Trade List" and one moving into a trend trade. For the Swing trades, I need to pick the stocks and then backtest strategies with 3C to find out which ones perform the best, however I think that components of the heaviest traded ETFS, with the highest weight and beta would be good for swing trades.
The reason being is that these stocks will see buying and selling regardless of their valuations because funds and ETFs that track an index are buying and selling these components to get their performance in line with their objectives. Like we saw in AAPL, they wanted to bully the market higher, whether AAPL is deserving of it's multiple's is irrelevant, what is, is the buying and if we can see that, then it makes it a good candidate. It's also got enough volume that hopefully we won't see shorts being closed by brokers. It is high priced, so obviously I want to find $10-$20 stocks that people can afford to take a decent position in.
For Trending Trades: Commodity ETFs and Commodity related companies as it is well known that commodities trade in trends far better then typical stocks-look at trends in oil, the dollar, gold, etc.
Also for trending situations, leveraged ETFS. their weakness is in a choppy market, their strength is typically in a trending market, so highly leveraged ETFS for trend trades.
Those are my thoughts for now. We may also add a short term trade 5 days or so, these will typically be volatile bio-techs and low priced stocks, high beta, and volume around $100k. These are favorites for momentum players and we have had many of these make 1 day 20-30% returns. One did 180% in 3 days. there's a particular moment when these trades take off-these will be on a scan basis as the sector rotation in these stocks is quite frequent.
We'll also have market coverage, but I think from what I have seen in backtesting systems, a few stocks, meant for a certain trading system work better then a scatter gun approach.
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Risk Management
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3C Quick Start
Many of the charts you see here at WOWS are my proprietary indicator 3C which reveals underlying institutional money movements and often contradicts price. To understand the annotations made on charts, you must first understand that 3C has no numerical value, it is a pure divergence indicator. Positive divergences represent accumulation by smart money, negative divergences represent distribution by smart money and when 3C trades with price, that is trend confirmation.
The chart annotation system is simple; white arrows represent relative positive divergences, red arrows represent relative negative divergences and green arrows represent trend confirmation. When 3C is in a white or red box, that represents a leading positive or negative divergence, leading divergences are the most powerful.
We analyse 3C in multiple timeframes, the longer the timeframe the stronger the accumulation. 1-2 min timeframes represent intraday moves, a 5 min timeframe can represent a day or two and 15 min timeframes average trends of a swing trade nature. 30 and 60 min charts can move the market for a month or more and daily charts can be over a year.
You'll get use to seeing the charts and understanding how the multiple timeframe analysis works and works well.
Welcome to Wolf on Wall Street.
The trades featured here are meant to maximize returns with the least risk and highest probabilities. Unless otherwise mentioned, all trades are meant to be executed at market. I prefer long-term trending trades which perform well in rising markets, but really stand out in declining markets. However, we get occasional one day gifts 30,40,60% 1-day gains. I'd urge you to consider taking some or all off the table in such cases, the markets don't give gifts like that often or for very long. Most of the returns that make the system outperform so well come in short-entry trades. If you are opposed to short trades, this is not the system for you, unless you are ok with buying an inverse ETF. If you would like more information about the truth about shorting stocks, just email me.
Risk management. I recommend a specific and consistent risk management approach to all positions. In most cases we try for 2% risk money (2% of portfolio) unless such a position size exceeds 15-20% of overall portfolio in actual position size. Each trader is different and each has a different allowance of open trades. I like to keep the overall money in the trade around 10-15% of portfolio per position in case of gaps against you. Stops are generally executed at the end of day and I personally never place a stop order, all my stops are mental; remember, the middle man gets to see everyone's cards. When you are not in tune with the market or opportunities just aren't that spectacular, I take my risk per position down to 1% or even half a percent of portfolio value.
Each trader is different and must determine their own level of comfort with risk. I do have a channel stop which I provide to TeleChart/StockFinder users for automated stops, I appreciate you using my links to sign up if you do. The Trend Channel catches trends and works well as it automatically adjusts for each stock's volatility. Arbitrary exits based on nervousness about the markets WILL decrease the portfolio performance dramatically. This system will not ever get you in at market bottoms or tops. The recent 1 year performance against the Russell 2k buy and hold had the system beating it by 3:1. Ultimately it is up to you as to how you proceed, but I'm always available to help you determine what might work best for you.
Risk management. I recommend a specific and consistent risk management approach to all positions. In most cases we try for 2% risk money (2% of portfolio) unless such a position size exceeds 15-20% of overall portfolio in actual position size. Each trader is different and each has a different allowance of open trades. I like to keep the overall money in the trade around 10-15% of portfolio per position in case of gaps against you. Stops are generally executed at the end of day and I personally never place a stop order, all my stops are mental; remember, the middle man gets to see everyone's cards. When you are not in tune with the market or opportunities just aren't that spectacular, I take my risk per position down to 1% or even half a percent of portfolio value.
Each trader is different and must determine their own level of comfort with risk. I do have a channel stop which I provide to TeleChart/StockFinder users for automated stops, I appreciate you using my links to sign up if you do. The Trend Channel catches trends and works well as it automatically adjusts for each stock's volatility. Arbitrary exits based on nervousness about the markets WILL decrease the portfolio performance dramatically. This system will not ever get you in at market bottoms or tops. The recent 1 year performance against the Russell 2k buy and hold had the system beating it by 3:1. Ultimately it is up to you as to how you proceed, but I'm always available to help you determine what might work best for you.
I do use other scans and systems when market conditions warrant their use and may change strategy with market conditions.
The MOST IMPORTANT tool you have to bring you long term success is RISK MANAGEMENT. There are plenty of articles linked at Trade-Guild.net on Risk Management. We can be wrong 75% of the time and still outperform the market with solid, consistent risk management.
Position Sizing
The position sizes noted in the positions @ 2% risk of portfolio are based on a $20,000 portfolio-adjust as needed. Due to tight stops, there is the possibility, even probability that one position could take up the entire portfolio. You need to decide how many positions you want to trade and reduce the position size according to that. For instance, if you want to trade 5 positions in a $20,000 portfolio, no one position should be valued at more than $4,000-not risk money or 2% rule, but share price entry x shares.
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2 comments:
I agree that a limited number of stocks to track and trade makes for a more 'manageable' operation. I reside in ew zealand and limit US market trading to CFDs on indicies (Nasdaq. S&P, and DOW) mainly and accasionally individual stocks. These tend to be the larger capitalised ones for obvious reasons. Your focus on Apple lately has been appreciated...it seems to be the bellwether stock for market performance...which includes currency trading!
I agree that a limited number of stocks to track and trade makes for a more 'manageable' operation. I reside in ew zealand and limit US market trading to CFDs on indicies (Nasdaq. S&P, and DOW) mainly and accasionally individual stocks. These tend to be the larger capitalised ones for obvious reasons. Your focus on Apple lately has been appreciated...it seems to be the bellwether stock for market performance...which includes currency trading!
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