Friday, September 24, 2010
The second SPY b/o attempt...
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Risk Management
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- * Understanding the Head-Fake Move Part 1
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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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Futures Update BR-EXIT Edition - So the conventional wisdom couldn't have been more wrong. Those chasing risk and closing hedges couldn't be in a worse place right now. I would still remin...8 years ago
10 comments:
The last three or four days are spelling out a top which could last another couple of days or be done with today in my opinion
Very interesting action in GDX and GDXJ today:
USD down around 1%, GLD up around 0.35%, GDX and GDXJ down a bit. Could this finally be it for gold?
To add to my last post: And of course equities up BIG.
Alesund,
If all fiat currencies are racing to the bottom, i still don't understand why precious metals (priced in $dollars) would go down, certainly not before a huge upward movement like has been seen in previous economic crisis?
And i have been following gold and silver for a long time and they both are more than capable of going up as well as the $US dollar going up.
The reason precious metals are due for a major correction will only become apparent after the fact. I do not know why either. We will know soon enough.
If you are large enough to influence markets, do you want to buy gold at $1200 or $800.
Jack,
All i know is that gold and silver are in huge demand (governments like china, russia, india) have all bought gold even at recent highs. You see 'gold for cash' signs all along the high street and adverts on tv too for 'cash for gold'.
If China, Russia, India are smart money then i don't know what is.
1/2 an hour of trading and we are still up high despite 3C alluding to a sell-off.
What if we close at a high level and then 'gap up' even more on Sunday futures because of more weekend 'intervention'.
I need to feel like i'm following the smart money and not getting sheered like a sheep daily.
Mr. Pink,
I am familiar with these arguments and they make a convincing case. But gold and silver are markets like any other and the smart money never does what everyone else hopes for or expects. Gold and silver to the moon is all I hear these days. Do you really believe the smart money is on the same side of the trade?
Alesund,
Well, if you look at sites like gata.org you'll see that the supposed smart money (JP Morgan, HSBC bank, etc) have had huge short positions (which they can't cover) on precious metals for years and years purely acting as suppression of price.
I think if 3C is seeing anything, they are seeing this 'price suppression selling'. Hasn't stopped gold going up 5x the value in 10 years and demand is as higher even as the price goes higher. Like i said governments like Russia, China, India are buying gold.
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