Results tagged “Strategy” from My Trading Diary

DSP Group - another share trading close to historical lows.  Usually scopes across the day.  Buy up to $5.50.  Not much action in the queue - is this due to the feed I am now using?  Q3 report released today which beats estimates. Should make this bullish but might need to be in at the bell for that?  Learning!  Another forecaster expressed negative sentiment towards their future.  Price has currently gone beyond my price range.  Vindication but means I have missed the boat?  Could reverse. Price continued on towards 25% increase!  Though I missed out on this I could still have made my PR at any time subsequent - but was that the benefit of hindsight or should I have paid more attention to the buy sell dynamics?  Just because I missed a buy level does not mean the price may not go even higher - does not mean it will either but can watch buy sell pressure to gauge this.

Both these shares finished the day about 5% up.

Rent-A-Center - another share trading at historical lows.  Ended up 10% yesterday.  Seems seriously undervalued.  If retraces many dollars to be made!  Price doesn't always scope but due to huge scope down it may continue to scope until returned to usual trading levels.  Disappointing Q4 forecasts have contributed to this fall.  Buy up to $14.  Directionless most of the day but did trend up in the afternoon - could have realized my PR.  Lesson is not to dismiss a directionless share in the morning - if it continues like this in the afternoon then remove from watchlist.

Currently experimenting with a tighter stop loss to increase risk-reward ratio - at current settings 1 profit would equal 3 stop losses which is very good but obviously not if they keep getting triggered reducing the amount of profit stocks.  Noise for example could impact at this level.  Will test it though.  Can adjust accordingly.  Another option is a 1:2.  First one got hit quickly!

Future will look to additional shares if shortlisted ones move against me.  May also assess whilst market in place to target shares that meet my requirements and continuing it into the trading day.

Two shares I chose realized my PR requirement - one though in a way I was not able to capitalise on, another I need to pay more sustained attention to into the afternoon yet the one that did not was the one I bought.  I need to think further about my final trigger decisions.  The buy and sell pressure itself is not entirely reliable - or is it?! - do I need to read it better or is it more about working with pre-identified buy levels and only making the final decision when the buy pressure is significantly ahead of the sell pressure?  But I have just indicated that is unreliable - is it unreliable though? - I need to assess this more critically.

Bellway - bought and sold- made my 6% requirement in about 30 minutes! Can take smaller profits in other stocks now.

Bovis - made the PR but I missed the boat - needed to have bought before 9.00am - however I did not see a buy signal.  Price did return below my buy level but decided due to lack of time in trading day may not make good - though could make 1.5% PR. Will watch end prices for learning though.

The Restaurant Group - bought at £1.15 above my buy price but only because I had thought that was too cautious and also because not requiring full PR.  Sold at profit!  Nearly the full PR too but a quick spate of sellers caused me to hit the sell button at the highest ask.  £440 profit including Bellway.  Still have L&G to close off which looks like a loss - wait or cut the loss.  Might even purchase Bovis late as price as dropped into my buy range.

Having made my 6% PR perhaps I should not have bothered making smaller PR's on the remaining shares.  My thinking is that the share I chose was the one most likely too and the others despite the same averaging effects as waiting for the next day is perhaps less likely to achieve PR because a second or third choice - better to wait for the next day's first choice?  Something to monitor.  Certain would reduce commission and stamp duty costs.

Are the market-makers price positions akin to a support and resistance?  They have more information than we and presumably will take realistic buy and sell positions?

Holding positions overnight - would a stop-loss protect a gap down?  Google.  Thinking about this for L&G - particularly as I am likely to close out the other two positions for a profit.  A stop-loss does not protect against a price being marked-down overnight or a free-fall situation where there are no buyers only sellers.  How often does that happen though?  More likely for smaller companies.  L&G are not going to be short of buyers!  But L&G could suffer from a price mark-down overnight.

Still made £260 overall - due to three profits covering one loss.

Maximum open positions at any one time is 3 so even there that would allow one share to have 2% PR and another 4%.  In theory I could have three as modest as 1%.  At 1% though this has implications for stop-loss.

However my technical analysis is based on predicting likely upward swing not on how big that swing is.  Certainly needs to be developed and revisited overtime.

However a lower profit level is more achievable but if for example I had 4:1 on a week and that was the minimum I required that is putting a lot of pressure on my stock-picking.

The lower the stop-loss the greater likelihood it will get triggered.  The higher it is the less likelihood but a greater loss will be sustained if it does get triggered.  Also even when it does not get triggered the loss itself is still sustained.  But against that the higher the percentage requirement the less likely it will get realized, the lower the more likely.  I want to increase the number of profitable trades whilst reducing the losses on the inevitable losing trades - whilst keeping the number of losing trades as low as I am able.  The latter is solely about my stock-picking skills, the former is about managing entries and exits.  The former can be made more efficient and effective by stop orders though the entry points also need to be more mindful of the previous day's trading levels.

I need a balance between reducing loss amounts whilst not triggering too many stop losses e.g. where the share is triggered then bounces back up.  I will make wrong selections regularly so should formalize the loss level and relate it to my profit requirement.  I could even change it based on my recent profit performance e.g. last 10 trades.  Stop loss though does not allow for a neutral outcome - either I will achieve profit or loss.  A neutral or minor loss e.g. £20 for trade would not impact my profits in a significant way.  Neutrals can be triggered when the stock is in profit but is not going to meet the percentage requirement then I exit as high as I can above the buy price.  Trailing stops help here as lock in profit as it is made.  A trailing stop and a stop loss mean I don't need to watch the market - as if the price rises profit will be taken, if it falls loss will be minimized.  I then only need to watch last 90 minutes or so of the day where neither outcome has been triggered and exit myself between those two ranges.  As the books say I don't then have to second-guess minute by minute market movement and remove emotions such as fear and greed from the equation.  This is something better to see on a live account but I can replicate on paper by entering the entry and exit levels as I do on Money but always keeping to them - and for the trailing stop can replicate by sticking with a share when it passes my level but automatically sells as soon as it falls a percentage back.

If trading a third of my account on any given stock then my requirement will equal the stop loss - as I am working towards more winning trades than losses does that matter?  Could increase the profit requirement to adjust for slippage, changing performance, relation to stop-loss - but that can be developed over time.  Stop loss could be reduced to 0.9% for example - do advise best not to go for 1%...I could adjust percentages to deal with situation when had 3 profits for 2 losses so that those weeks are profitable too?  You could make stop losses so low they are almost neutral but then also reduce the number of profits in a week.  I think that is better than trying to make 3:2 scenario profitable as in effect that is trying to make the surplus 1 profitable trade per week profitable over the week which is very unrealistic.  Whereas take neutrals or marginal losses then 2 wins over the week can end profitable let alone 3.  Simply don't entertain losses - zero tolerance - you lose you out of here!!  You have to allow some drop though for the general up and down of buy and sell but as said as low as possible.

If stop-loss considered too tight in terms of points I have the option of increasing the stop-loss and reducing the traded amount accordingly e.g. if double stop-loss point then halve trading amount, this then ensures the stop-loss as a percentage of my overall account is not breached.  Alternative is to avoid trades where I would need to do this.

Will revisit profit to stop loss ratio based on experience - that is towards increasing profit level and reducing stop-loss level - with more room obviously for improvement on the profit side.

Could also set level based on how stock usually fluctuates e.g. if usually fluctuates 5% no point setting stop loss to 4%.

Will now give consideration to setting stop-loss based not on a rigid percentage or sterling amount but based on the likely volatility of that stock based on previous days performance.  To be decided how many trading days this to reduce triggers from market-noise but will still be based on reducing losses.  So for example 1% of overall trading account could be the outer level but I may go tighter than that if I believe the stock should not fluctuate that far.  As a novice trader I will to begin with start with a conservative overall stop-loss level but if successful then I would look to bring that in up to 3% possibly even 4%.  I also need to be mindful of my profit percentage requirement as if stop loss larger than that then this also could impact overall profitability.

Access to the Live Feed indicates whether they are responding or not and if so positively with buy pressure.  What this doesn't inform is to what extent the price will rise and its timescales - for the latter it could be blink and miss it.  However a quick TA can inform whether to buy or not.

In these instances should I make another stock purchase where I have already an open position?  Should consider this - firstly by paper-trading the proposal.

For low-volume AIM type stocks better to go with fundamentals only?  May later set up a separate account to try that out.

An example is the events of September 18th with UK government temporary ban of short-trading, US government's decision to intervene to shore up 'toxic' investments and the removal of tax for Chinese stocks - which caused an upswing reversal in financial stocks.  This is something not difficult to anticipate and would have justified a buying of a financial stock such as UK bank subject to usual technical analysis.  This is about being agile.

My focus then is to continue with the TA but be responsive to significant changes in fundamentals.