In the trading portfolio I'm running a little bigger than I'd like, normally I feel I can diversify enough with 6 positions, why make myself crazy tracking 20 when that's "Modern Portfolio Theory" which I'd call "Over-diversification", but Wall Street had to sell it to sell one of their most popular products at the time which most of you probably had at one point or another from your job, the MUTUAL FUND, different than a hedge fund. MF's are mainly long only funds, thus some of you may have taken a really bad beating in them at some point and sold at the bottom.
By law Mutual Funds can't invest more than 5% in any one position so they must have at least 20 positions (5% x 20=100%), this is also where the (I'll say myth) of over-diversification came from. Unlike Hedge Funds that can do just about whatever they want, but you can't be part of one unless you are an "Accredited Investor", Mutual Funds had to sell the notion of this larger diversification to sell the concept of their funds from a regulatory standpoint.
Many do not believe in modern portfolio theory anymore, I think it depends on your individual circumstance, but for me, it's too much.
So the positions open in the trading portfolio, which as of now has hit every swing whether we were long or short, are now positioned largely short with a few longs.
In actuality, EVERY position is long, some though are inverse ETFs or bear ETFs, so the positions are (all long):
MCP
SPXU (3x short SPX)
SQQQ (3x short NASDAQ 100)
UVXY (2x long VIX Short Term Futures)
FAZ (3x short Financials)
IOC
DGAZ (3x short Natural Gas), a play on a UNG pullback.
That's 7 posiitons, about as big as I'd want to be in a trading portfolio (personal preference) and there are longs like IOC and MCP mixed in with the shorts. Typically if I'm bearish (trading) I'll want 75% of the portfolio short and 25% long or cash and vice versa for bullish.
As far as other positions that look interesting as I went through the watchlist...
XLK (Tech) short, I like TECS (long) 3x short Technology) as a play there or just short XLK or get puts.
XLF also is not looking too hot, (Financials), the open position there is FAZ which is 3x short Financials.
AMZN is showing some interesting weakness.
In the Financial arena, GS is showing some weakness
IOC looks interesting still as a long
GOOG looks interesting as a short, but I'm not sold on it beyond a trade at this point for new positions, I'd like to see some intermediate charts shape up or rather deteriorate more.
UNG is looking more like a pullback, but long term I love it so DGAZ is what I chose for that play (3x short natural gas).
SLV looks interesting, I'm keeping a close eye on that one.
MCP long still looks good.
SQQQ long (3x short QQQ) which is an open position.
PCLN has my interest, I'm just having a real hard time biting while it hasn't broke above $1200.
Transports are looking soft, IYT is a play on transports, you'd have to short it.
FXP which is "Short China" I like a lot, I'd love to see a pullback there.
I'll let you know what else comes up, I wanted to get a few of those out because I know some of you have positions in the above.
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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
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