Tuesday, September 28, 2010
There's Definitely More to This Story
If you haven't already, first read my article last night, then read THIS
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Risk Management
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- * Understanding the Head-Fake Move Part 1
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- * The Holy Grail of Investing and Trading-MUST READ-MUST UNDERSTAND IF YOU WANT TO EVER MAKE CONSISTENT MONEY IN THE MARKETS
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- * Placing Stops-What you should consider...
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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
11 comments:
Hi Brandt,
Can you elaborate on what is being insinuated?
Isn't it just what i've been saying, i.e. this market just consists of the FED, HTF and Hedge funds who just make the price go where they want for propaganda reasons? and there are very little retail investors in the market?
Brandt, did we close with a positive or negative divergence going into tomorrow? Last week the FED put another 10 billion into the market outside of the POMO purchase progam. Total of 20 billion was injected into the market by the FED last week.
Jack,
The POMO ends this week, correct?
I don't think so, I remember seeing a couple of dates into the middle of October. I have been trying to find info on the net but can't seem to locate it. I think Zerohedge had it, but can't find it there either. The schedule was released a little over a week ago or so. Guess what I found on investmentwatch blog:
Tentative Outright Treasury Operation Schedule
Across all operations in the schedule listed below, the Desk plans to purchase approximately
$27 billion. This is the amount of principal payments from agency debt and agency MBS expected to be received between mid-September and mid-October.
Printer version
Operation Date1 Settlement Date Operation Type2 Maturity Range
September 15, 2010 September 16, 2010 Outright Treasury Coupon Purchase 9/30/2014 – 8/31/2016
September 16, 2010 September 17, 2010 Outright Treasury Coupon Purchase 3/15/2012 – 2/28/2013
September 20, 2010 September 21, 2010 Outright Treasury Coupon Purchase 9/30/2016 – 8/15/2020
September 22, 2010 September 23, 2010 Outright Treasury Coupon Purchase 3/15/2013 – 8/31/2014
September 24, 2010 September 27, 2010 Outright Treasury Coupon Purchase 9/30/2014 – 8/31/2016
September 28, 2010 September 29, 2010 Outright TIPS Purchase 1/15/2011 – 2/15/2040
September 30, 2010 October 1, 2010 Outright Treasury Coupon Purchase 2/15/2021 – 8/15/2040
October 5, 2010 October 6, 2010 Outright Treasury Coupon Purchase 9/30/2016 – 8/15/2020
October 6, 2010 October 7, 2010 Outright Treasury Coupon Purchase 3/15/2013 – 8/31/2014
The next release of the approximate purchase amount and tentative outright Treasury operation schedule will be at 2 p.m. on October 13, 2010.
Jack,
What's your feeling on the markets at present? Seems like just countless stick save after stick save. And any 'good news' or 'less than expected bad news' they use to drive the market higher. The market has gone up 10% in a month despite distribution into it from day one.
Note: Using traditional methods, the DOW 200DMA and 50DMA are about to cross:
http://stockcharts.com/h-sc/ui?s=$indu
And the FTSE is on the cross over now:
http://stockcharts.com/h-sc/ui?s=$ftse
Also, looking at the VIX chart since the 15th of September it's been trending higher... even as equities have gone higher (30 points on SPY, and nearly 450 points on the DOW)...
Should they move in opposite directions? What's going on there? What does that tell us?
Read Danerics latest post (Sept. 28), especially the Ponzi section. Excellent post and spot on.
http://danericselliottwaves.blogspot.com/
I think you are seeing the FED and Wall Street at odds and it probably can't end well. In the short term, I believe the FED is juicing the market to prevent redemption requests upon the Hedge Funds. Makes sense with what happened last Friday. They are basically going out and telling the world that no matter what, the market is going up because the FED has our backs.
Jack,
Yes, that makes sense of course. It's like one arm of the same beast helping another arm, for the sake of the beast in general.
So, with Q3 coming to an end, are we hopeful that this "holding up the market to prevent redemption requests upon the Hedge Funds" business will come to an end?
Also, on a similar note, zero hedge are suggesting that a few hedge funds may have had to close short positions and thus this has helped pushed up the market:
http://www.zerohedge.com/article/mega-hedge-fund-de-shaw-cuts-10-staff-following-7-billion-redemptions
Lets hope that once the quarter ends, we get back to a typical manipulated market instead one that is on a roid rage. I'd rather have one that is more predictable, has a ebb and tide flow rather than one that just goes up no matter what. Maybe it's because I am on the wrong side of the trade, but I was looking to make money in both directions. Not just on the short side.
We look to have put in a hanging man candle on the SPY daily with the stochastic above 80 on low volume. We are also in a large bear flag from the May Flash Crash and approaching a descending trendline from the '08 high. Not a market pattern that I would want to be long in. Even with the FED pumping money, it is going to lead to another flash crash.
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