Wednesday, October 20, 2010
In Suport of my last post...
Detecting accumulation in FAZ and distribution in XLF, seems they've been selling into the rise and buying the dip on the inverse ETFS.
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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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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
3 comments:
Only 40 minutes left to 'fade' a 160 point+ move up on the down Brandt. Not looking good.
Looks like yesterday was just one of those 10% chance days where 3C calls it right.
Meant to say DOW, not 'down'.
Mr. Pink, you say your a critical thinker, then at least use the facts instead of just being plain critical. From last night's post, I said:
"In my opinion and from what I saw in 3C and the retracement of the Euro tonight this is enough to put the market into a short term oversold condition so I still would not be surprised to see a bounce. "
and
"However, as I have been highlighting all this month, the breadth readings (internal health of rally) have been bad and have continued to deteriorate so no matter what we see tomorrow, even a complete retracement of today's weakness, it is just a tree in the forest."
and
"For those wondering, "Is this the reversal", I'd say yes with the caveat that a top or bottom reversal, large or small, is a process, not an event."
Look at any recent top or any top and you will see that they are not "V" shaped, but rather "U" shaped. If you choose to ignore 3C's information showing distribution into today's bounce and bought long, best of luck.
If you look at the QQQQ you will see at 12:00 it started a pattern of lower highs, lower lows-a downtrend.
The SPY at 2:40 a pattern of lower highs , lower lows, again a downtrend.
The DIA at 2:40 a pattern of lower highs/lower lows.
3C showed a strong negative divergence in AAPL as well as IBM, both hit hard, GLD hi hard, the Eur/Dollar which rallied last night, formed a triangle which it broke after a false upside breakout, about 20-30 minutes ago and looks very much like it too is in the process of a top.
I do believe (although I still need to look at internals) today was a tree in the forest as I alluded to last night. You know, as I and QS have explained to you on numerous occasions, 3C shows the underlying character of the trend, it is not a fortune telling indicator. To know that the underlying character of this trend showed distribution is an important piece of knowledge lest you go buying on margin the trend only to see yourself rocked tomorrow.
Some fairness once in awhile would be nice. I do not control what smart money does, I just try to show you.
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