Monday, October 4, 2010
Update
Position wise 3C is still in a positive area, but it is starting to put in some 1 min divergences, so we'll see if it breaks this afternoon trend shortly.
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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...7 years ago
15 comments:
Once again. I am SOOO TIRED of this UP/DOWN (SIDEWAYS) movement for the last 6 DAYS to 4 MONTHS.
What the **(F)** is going on?
I thought we were under negative divergences for the last couple of hours, not positive ones headed into the close. This is not a good sign going into a POMO day tomorrow if that is indeed the case. Can you claify please.
You all have such faith in the Fed and their POMO (porno is more like it). This POMO business is a bunch of BS and cannot stop what is coming.
We have seen just went through a month that returned about 10-11% because of this POMO including additional infusion of at least another $20 billion directly by the FED outside of the POMO. Today is a good indication that they will not let this market fall. They might let it correct slightly, but they are going to intervene so that it doesn't fall. Where do you think they are getting all this money. It is coming from the mortgage backed securities that they bought all of last year. These people are currently refinancing at lower rates and returning the money to the FED. They will have close to a trillion dollars that we be at their disposal. So yeah, it does concern me that they can greatly influence the market and affect my short position.
Jack,
And looks like they are goosing the after hours/futures too to limit any damage done today.
Anyone know when this POMO farce ends? How many more dates? Intervention, followed by intervention, that's all this market is. I just don't feel safe closing my 'hedging' shorts yet knowing that the FED can turn and 100 point down DOW day into a positive day at the flick of a switch.
As far as I know, this is suppose to keep going on based on the last FED minutes that were released. They will release the new schedule around the end of this schedule, so probably later this week or next sometime.
Brandt,
Are you still confident that the market has 'turned' (as of Thursday 23rd September) and that we will head down no matter how much POMO monies (and other interventions) are pumped into the market?
I think this says it all:
http://www.zerohedge.com/article/biggest-german-state-owned-lender-just-sued-goldman-sachs-over-davis-square-cdo#new
And look how Goldman nutsacs performed after hours:
http://www.marketwatch.com/investing/stock/gs
First class stick save by the powers that be.
Come on guys. They wanted to keep the market up until quarter end. That's done. Now all the big money has left the market along with the company insiders and the big players are short. The big players will make sure this market tanks hard if they are short. The Fed will not be able to stop it.
Alesund,
The problem i have is that insiders/big players/The FED are all one and the same entity. So, why would one tentacle of the beast (The FED) hold up the market with all its might when the other tentacles (insiders and big institutional players) now need it to go down?
We've already established that the big players have had plenty of time to distribute the modest amount of shares they had going into this rally and that they have also had plenty of time to go short, so what's the reason for anymore FED 'propping up the market' games? Surely the idea situation now for the big players to gain and to cause the small guy as much pain as possible is a waterfall type sell off?
Mr. Pink,
The big players have left the building. They are gone along with company insiders. They are also short. Retail investors are gone and mutual funds are all in. The Fed is alone in the markets now. When the selling starts, it will be an avalanche. That is why they have scheduled these POMOs - to try and keep things from getting completely out of control. Will they be able to do it? I doubt it. The markets want to crash and are ripe for a big one. Everyone expects the Fed to save the day. They are overestimating their powers. These POMOs are for damage control, but the damage will still be severe.
Look at the previous market tops on Stockcharts and at this one right now. Can you see a difference? There is no difference. Topping takes a while. It's a process. If you believe the Fed is all powerful, then never short the market. Wait for pullbacks or crashes to buy. It's that simple.
Alesund,
I agree to a certain degree.
But by your own admissions:
The big players have left the building, so have retail... and the big players have accumulated big short positions. AND YET, the market is still at a 5 month high! Which shows that the FED, who has been on the other side of this selling, has pretty deep pockets and has been able to offset all the selling and still keep the market up at highs...
... so, why should that stop anytime soon?
The big players just recently finished unloading or now finishing the unloading of their positions. They have in the last 2 weeks gone short the market more than any time since late 2008. The game is over. The Fed will try its best to limit the damage but cannot succeed against such an onslaught of selling. Also, there are forces that would love to crash the markets into the election to screw over the Democrats. What better way to ensure that the Republicans regain control?
Alesund,
I'll hold you to that prediction! ;-)
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