5) Being Right or Making Money – When to Sell (Exits, End of Uptrend) 2/2

So the tool for the selling is the same for the buying…your indicator for your trend. There are many punters who sell when they “feel” that the market is oversold (oh! Dun sell in when an oscillator eg RSI, Stochastic hits oversold an uptrend…), or when ost of us are badly “influenced” by negative headlines that a “correction” is near or the market has gone too hot etc…where the rationale for that oversold or too high etc…

Just let the market and the prevailing trend decide how strong and how long the current move will last, dont try to dictate how much you should earn this window. Let the markets decide. You just focus on your stops and risk management 🙂 Let me tell you, it can be pretty boring and you can get impatient keeping still…sitting and holding on to long positions… 

The view is that it is not worth attempting to predict when the next correction might occur. To do so would be to put one’s personal opinion ahead of the market. There are two types of participants. One uses her opinion to try to outthink the “market” and the other tries to emulate the market as much as possible by being a trend follower. While opinions can often be wrong, the market usually isn’t.”

Kevin Marder http://www.marketwatch.com/story/a-few-stock-leaders-show-fissures-2013-01-31 

Men who can be right and sit tight are uncommon. I found it one of the hardest things to learn. In a bull market your game is to buy and hold until you believe that the bull market is near it’s end. To do this you must study general conditions and not tips…” Jesse Livermore 

Since I used market breadth to measure trends (or market condition or sentiment), I use it to “time” my exits too. Here the same breadth chart vs the index again.

Breadth05Dec

Remember for buying there is a good time and price to buy? Similiarly here, a good time to sell/exit is when the trend ends, and a good price to sell? Same! Price confirmation! 

A good time to exit doesnt mean sell immediately…it must be confirmed by prices falling down. (yes, I buy on the way up and sell on the way down…) So this way, you keep riding the price trend with a close trailing stop. You only exit when both trend indicator and price is down. 

Lets complete the 5 steps with a brief touch on trailing stops. Trailing stops are often used to “lock” in profits, letting the counter runs its course while keeping a close eye on exiting…very very soon. Here’s 2 simple examples, Parabolic SAR and a Price channel as trailing stop. 

CMA STI TStop

One of the great myths of the stock market is that you have to be in the market all the time in order to be successful…sometimes “good defense is the best offense,” and there will be times when the market direction is not as obvious. During such an environment, being out of the market and in cash may be the wisest play. For this reason, underlying general market conditions will always be a key factor in any of our recommendations.” Gilmo Report http://www.gilmoreport.com/gilmoreport.html 

I have finished my 5 steps. Now is your turn to form your 5 steps. 🙂

While you are pondering about that…here a few good stuffs to read … 

Differs on everything, but agree on 1 thing…

http://www.trading-naked.com/The_Billionaire_Traders.htm 

http://thezikomoletter.com/2012/04/29/interviews-with-paul-tudor-jones-louis-bacon-bruce-kovner/

What’s so special about macro hedge fund managers?

..When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it. 

What’s your take on the next generation of managers?

I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over…We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. 

You’re not necessarily a fan of hiring people straight out of business school.

Today there are young men and women graduating from college who have a tremendous work ethic, but they get lost trying to understand the logic behind a whole variety of market moves. While I’m a staunch advocate of higher education, there is no training – classroom or otherwise – that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it – a sort of baptism by fire. One has to experience both the elation and fear as markets move five and six standard deviations from conventional definitions of value. 

Who are these 3?

http://www.businessinsider.com/richest-hedge-fund-managers-2012-9?op=1 

cheers and safe trading!

Personal Mail_27Mar – Greenlight On_Mid Day Update

Hello!

Banking counters continue to do quite well. Laggers definitely have to the the oil/gas counters (same, as per the previous round huh….) Property looks very promising, now 🙂

Lets hope for a good continued and sustained rally.

Below is the updated pseudo portfolio, updated as at 1430hrs today 🙂

PMail_27MAr

Using STI index as a gauge for entry point and monitoring…

STI 27Mar

cheers and good luck!

Personal Mail_26Mar – Greenlight On

Hello!

It hasn’t been a long wait isnt it. Now we have the 1st window for 2013, and hopefully we can be as good as 2012 🙂

Market sentiment for STI han been creeping steadily upwards, and personally, now is a low risk and safe time to enter the market.

Of course we are still strictly guided buy price confirmation and risk controls (stop loss level, position sizing etc), no sure thing as a sure win in trading. We were 3/5 last year remember?

US was down yesterday with concerns on Cyprus again. So if price does not tick up today, we still wait….

We will start with 280k for 2013, and 3 additional counters.

 

PMail_26Mar (Greenlight On)

5) Being Right or Making Money – When to Sell (Exits, End of Uptrend) 1/2

Yeah! Finally! Last step! Now we decide when to sell…

“…eh siao lian eh…what last step? Where were the 1st few steps?…”

Huh!!!???

“..siao lian eh…joking la…i know this one…I not greedy…got profit I run liao…agar agar la…if buy at $1.50, I aim $1.60, then wait for it to come down to $1.50 again, I buy again…simple…”

Not so simple bro. Different trading set ups have different profit or price targets…eg for chart patterns and S/R lines, the initial target is the projected upside…the same size as the chart pattern… or the next up S/R line…confusing? Ah…you can read Magee or Peterbrandt.com, excellent source for chart pattern trading.

See this familiar pic again, the “height” of the Head & Shoulders patter is about 200 points (3315 – 3115) so the target (we are talking about shorting the H&S pattern here) is 200 points down from the “neck line” at 3115, so minus 200 = 2915…bingo…we nearly hit that target din we?

Then there is Elder’s triple screen…the initial target is the upper channel of the moving average channel.

STI MA Upp

So the price target for now, for example is 3354…the upper line.

Hey…this is another viable price target 😀 hahahaha!

Price Tgt

But please please remember….analysts targets are based on 1year projection and will change according to their whimps and fancy the forecasted business outlook.

“..look at the favorite picks of January 2008..S&P 500 plummeted 39%. For anyone trusting the index, it was a total disaster. But if you’d stuck to the analysts’ 10 favorite stocks instead, you’d have only lost, er, 48%..With that caveat, the most-hated stocks that are still in the S&P 500 today fell 51% in 2008—just three percentage points worse than the top picks.

I also checked some of that year’s more-spectacular blowups. Lehman Brothers? At the start of 2008, 17 analysts covered the stock. Of them nine had it as a “hold,” five as a “buy” and two—amazingly—had it as a “strong buy.” Given that one of the smartest things anyone could have done with their money, ever, was to sell Lehman stock at the start of 2008, how many analysts actually issued that recommendation? One. Out of 17.”
http://online.wsj.com/article/SB10001424052748703808704576062033926741952.html

For me personally…price targets and economic forecasting is just like weather and socer results predictions or forecastings….many people and gurus have many views….always popular…always tend to be inaccurate….

“Got black clouds, sure will rain, bring umbrella” My mother to me.

“Got rain so what? No cat 1…still continue outfield!” Me to recruits.

“It would be fruitless to set targets when our process is controlled by the market. If we can participate in most of the uptrends, we will do well. We strive for equity-type returns with lower beta, lower volatility. We don’t set targets” Greg Morris

“..eh siao lian eh…so no targets…then how and when to sell..siao!”

When you (through your trend spotting glasses) determine that there is no more uptrend (provided you are a trend trader), so you sell, hopefully still in the money, if your uptrend has not generated profit yet…you still have to sell since your trend spotting glasses can no longer see any trend.

The next and the last…my tool for deciding to sell…is damn boring….familiar?

4) Being Right or Making Money – When to Sell (Stops) 2/2

For chart pattern trading (I learn and read up particularly a lot from Peter Brandt, peterbrandt.com), near the failure of the chart pattern formation or breakout point will be your stop loss. I like to lump chart patterns eg Head and Shoulders, Cups, Triangles with trading on support and resistance lines… So similarly…the failure for R/S lines will be the stop loss level.

Here is a screen shot of a good H&S initial failure then follow by a good breakout, a double bottom, and a rectangle trading range formation with good examples of whipsawing breakout failures…can you see? 

STI Patterns

If you like to buy on “dips” or “pullbacks” or “flags” etc during an uptrend (actually, Elder’s Triple Screen is a very good set up for trading this style), then the prior mino low is your stop loss level. 

See the below? The 1st blue circled entry was not stopped out….but the 2nd one is…can see? 

 STI Dip Fail 

The 5 steps or questions are quite interlinked…stop loss helps me dictate how much to buy too…not just an independent step on focusing out stopping out…

So now the last stop (sic…..hehehhe) that I am familiar with….stops based on trailing volatility. There are many tools to help, eg Standard Deviation or Bollinger Bands, ATR, Price Channels, MA Channels, % Change etc….

Basically, you are using the specific volatility or average price movement of the particular counter to dictate when the current movement is too much, based on the average movement of the past. A bit chim huh?

STI Bands 

Sorry ah, I lumped all the channels indicators avaliable to me here 🙂 Purple is bollinger bands, green is MA Envelope, Yellow is MA Channel and Blue is price channel. All are all different forms of price movement or a form of volatility on average for the counter. 

For example, lets say we use MA envelope here…stop will be at 3215 (somewhere there la). So incorporating our position sizing step and if our entry is now at 3285, units to buy is based on amount to risk / (3285 – 3215) = amt to risk / 70points. 

So how do we get this amount to risk? I have actually detailed this in “Maximum Drawdown”…. a lot of us around like to use percentage of capital as a guide. (Alexander Elder advises 2% max per counter, and total 6% current open position exposure….) 

Lets say we have a trading capital of $50k, and would like to risk 1% (for me, based on my personal backtesting and comfortable maximum drawdown of around 10%…risk per trade it will be around 3%), so that will be $500 / 70 = 7 units or contracts or shares to buy etc… 

STI Bands_1 

I like this method as a stop near the extreme end of the volatility means I dun get stopped out by unnecessary market “noise”…. of course you have to choose our parameters yourself….the period to measure and the units of risk etc… Once again…a bit vague here (intentionally) you have to do backtesting to test the best numbers for your system. Im trying to highlight to you about stops…not my actual trading system here :p 

…Of course, there can also be sudden changes to initial moves. These cases normally reverse or stop out my positions but losses are part of the business and they are normal. It is important to trade what you see and not what you are convinced of as convictions are often misleading…Losses are normal; there is nothing wrong in positions getting stopped out. You need to see the long-term picture in the context of your trading approach and view losses as costs of the business you are building….Andrea Unger

http://www.sharesinv.com/articles/2012/10/31/trading-insights-from-three-time-winner-of-world-cup-trading-championships/ 

The last of the 5 steps is next…