long term position trading -primarily etf's-

[sowterdad]

ADDED SDS TODAY- IT'S A 2X SHORT OF THE S&p 500. , and took a very small position in QID (shorts the QQQ's
SH would be a 1x short-
One of my considerations for this year is employing short positions as well as long positions- My instincts and past history suggests taking mostly Long trades, trading WITH the trend . But, there are moments where upside momentum gives way to selling, and a potential for some pullbacks- I'd like to develop my skills in both directions. There may be some ample opportunity this year to capture some profits on the downside- For example-
The OIL/Energy industry dropping -and rebounding - Check out the XLE- This is a sector move, that occurred while the market was rising higher. Astute traders got back in on an oversold condition, and caught a nice upside bounce.
If we get into a choppy market cycle- non trending- both shorts and longs get chewed up.
The talking heads I catch on CNBC are all suggesting that this year should be more volatile-
That the "easy" money was made last year, and the year before, and the year before.
Part of the investing theme that ran up US stocks is that we were the best show in the world market for investors to go to. Foreign banks are about to start their own QE, FEd here may start to raise on an improving economy, US Dollar rising carries some impact on the price of goods we sell overseas. US stocks are close to 'traditional value', Oil industry is under pressure, and oil industry jobs will be lost in the US mkt. Saudis are willing to run oil prices lower, Russia is dependant on it's energy production to export-
I have not had great success in the past with taking short trades- I'd get in them late, think that the impending reversal was underway, and get taught a market lesson- Respect the prevailing trend, taking counter trend trades need to be planned with the expectation they are not the next big thing, but quick tactical trades. The only way I can be effective as an EOD trader is to have a fairly finite chart list of long positions and countertrend short positions- and simply be prepared to go through those 10-20 charts. The other limitation will be not having enough assets- or freed money -
Today's SDS trade would have been a better trade made a day earlier- same with QID.
Simply because it would have reduced the distance to where the trade fails. That makes the trade a lesser loss.
The fact that the market tried to rally this am, but gave it up encouraged me to put on the QID trade when I got home pre market close.

 

[sowterdad]

As a contribution to this New Year-
I don't get to read a lot of the threads on ET- should give myself more time to do that. Can be very beneficial .
I caught up on 2 threads that I think certainly offer a lot of value, and i hope to benefit from both of them. I know there are many more out there as well- these 2 are valuable for different reasons.
A multi-year thread by NEKE -http://www.elitetrader.com/et/index.php?threads/2014-the-battle-for-survival.280990/
NEKE keeps an accurate record of his winning and losing trades- He does not share his methods-- He has made and lost a lot of money, and it would appear that his discretionary trading vs his planned trading has resulted in some large losses- He shares some of his issues- and there are indeed some very constructive comments from some in the thread-
He also does not employ a single approach to the market- but has 3 or 4 different approaches that he may use- included in his automated trading- He also appears to employ a large element of Risk or leverage- His journal is opaque as to specifics of his exact trading methods (proprietary) , his accounting is valid- the constructive suggestions for not
shooting himself in the foot are beneficial as it speaks to what we may do impulsively and often regret in our own trading- Not employing stops on an initial loss? Adding to the losing position as in the Cray trade. and then there is the added consideration of taking on additional RISK : something i need to review in my own trading approach and see if i can
justify it in my own trading- More leveraged trades perhaps desiring to see a better than average market return- Why not simply just BUY the market and accept the end result? More on that later.

The other thread that I read this weekend is DBPhoenix's-
http://www.elitetrader.com/et/index.php?threads/house-of-if-you-can-draw-a-straight-line.287955/
He takes his interpretation of Wycoff, and presents to the reader his SLA/AMT
with a link to a PDF that can be downloaded on page 1 as well as page 14.
I would encourage any reader here to take the time to go to this thread, download the PDF, read it, read the thread. See if it is not beneficial in your view of charts; in it's simplicity - and concise content.
While i typically look to see what price is doing on the larger time frames, and i want to have a clear understanding of trend directions in the various time frames, I have not usually taken the time to draw trend lines per se- and i think it would be beneficial to incorporate this in my trading- or to have the understanding of what my 2 hr time frame move is doing in regards to the daily or weekly channels. It can only be beneficial.
I do not intend to drop my use of moving averages yet - as- in my mind - they are a smoothed line that curves - but learning to include drawing trend & channel lines will be a complement that may serve to benefit where I choose to scale in or out or simply enter/exit.
I recognize that SLA advocates would consider moving averages as just another lagging indicator. I may come to that conclusion at some point in time as well. I'll keep an open mind on the matter.
The benefit of starting with a wider chart and establish the channels, is that the exercise graphically tells you where price is- and momentum-and helps define the larger trend.
Dropping down to the daily, further refines where price is relative to the larger time frame- and comparing the 2, one gets a reference between the 2-
Stepping down once more into a faster time frame- for me that would be the 2 or 1 hour usually- You can narrow the focus further-
The benefit of the SLA on longer term position trades is that one would be less inclined to close out of a trade early on a relatively minor pullback. Yes, one can employ moving averages, perhaps as well- but having the channel lines in place and extending as the chart progresses would increase one's awareness.

I will look at my present IBB position and see if my reaction on the 2 hr to raise the stop is justified. or just a nervous reaction to make a small gain.

 

[sowterdad]

the last couple of days of selling and market weakness could have been just tax loss selling and closing out of 2014 positions- Starting this week, it should be back to work for wall street-
I am holding a larger cash position on the Investment side, and waiting for some cash to clear on the trading account side.
Starting a new project Monday on the work side- I do not expect to have much intraday access- nor do I particularly want to make snap choices- Friday pm should give me a couple of hours of screen time.
A good friend has suggested consider trading BRKB - something of a fundamental mutual fund without dividends- and i will accept that invitation but do it in a totally separate account. I actually sold BRKB for a small loss a year ago, and combined some accounts in chasing DTN- to see if I could successfully take advantage of market swings-
I will likely return to DTN or a similar dividend paying fund as well- but also in separate accounts from this trading account-
In this IB trading account- I will try a more aggressive approach to the markets-this year.
By more aggressive- I may trade some leveraged funds- or simply sectors- like Biotech- that potentially are more volatile, but with greater potential to move more than the SPY-
I will be experimenting more in this IB account in 2015- and ultimately do not want to settle for a - matched the market - result. If that was my goal- I would buy the Vanguard fund and have no trading costs- If I am going to incur costs- - and some sweat equity in time expended , the return should be worthwhile- Just as the owner of any start up business will expend excess hours for little or no compensation, they hold a vision of that business that many settling for an hourly wage cannot envision- or take the Risk in. A lot of start up businesses fail- but Kudos to those that make the attempt, learn from their "failure' and try again with determination to beat the odds. Those that succeed in any business deserve their success- Those that succeed in Trading as their business- have likely been defeated- perhaps more than once- or twice-
I don't expect to ever get to a level of trading as my "business" - but it is certainly my
goal to see it become my successful 'other' pursuit- whereby I develop confidence to manage a family portfolio- instead of simply allowing it to be directed by generic gingerbread allocation models scripted by a management company - Only by testing myself in a real $$$ - not SIM situation can I develop measurable results. So, this account is a small model of how effective I could possibly be- If i cannot take this model effectively further, I would likely fail when a larger amount was at stake and felt increased pressure to perform.
Taking only limited Risk and having a wide diversification is a strategy for long term
success- getting what the market will give the "safer" allocation. This is prudent for a retirement portfolio, with periodic rebalancing.
In this trading account, it is a much smaller portion- and deserves to be not treated with the same conservatism that I possibly employ in the remainder. It is my Risk capitol
available- If it is managed as a conservative account, it's gains will be conservative as well. There is a time and a place to put greater Risk on though- .Over the years i have perhaps found some consolation in that I had not "blown out" my account-small as it was. I sat it out mostly on the bench, once in a while stepping up to bat- Never saw myself as more than a base line hitter.
My initial thought is that I will divide the account into 4- 25% positions- One of those positions should be a cash position to provide opportunities when my active positions get sold or stopped out and i want to take another position. 3 days waiting for cash to clear can be a missed opportunity and late into a new trade direction. HMM- perhaps $1500.00 is adequate to have as an initial start- the remainder allocated to active trades.
Position Risk- A conservative position strategy would perhaps allocate 10%, 1%-2% Risk- per position. If I maintain that max 2% position Risk, I may need to employ a partial entry with an add as the trade goes in my direction. Perhaps a $1500 initial entry and add as the trade appears to work, exceeds B.E.
Make a decision and narrow the trading unverse to 15- 20 potential index combinations- that -with a long or short leverage- makes for 45 -60 possible combinations- to select from- With only enough assets to consider 3 full positions- that is more than enough charts to look over and learn. While trade selection is indeed important, managing the trade once in it - counts the most- Can I cut the loser quickly? Can i keep from taking small gains? Can i scale in and out of a position to my advantage? Can i balance fear of losing on a trade with the ability to let a trade run to it's fruition?

 

[sowterdad]

qid trade
Only a partial position- on freed cash available- it is also based on what appeared to be a market decline forming- However, it could simply not be a decline as a flat market for a few days due to lack of market participants with any real assets.
I'm giving this a bit wider stop room on the sell bar than i normally would- I don't feel positive about this trade, but will give it a bit more room than i care to.

 

[sowterdad]

It is quite ODD that the market news this am was all about the expected good jobs report due this Friday- I had to shrug it off and expect that my market short positions would at least stop out- As i got home this pm it turns out this was a large market sell-off day-Fears on Europe- Oil lower....My IBB position held while my 2 short positions -SDS, QID gained.I guess the benign jobs report was overturned with the market choosing to focus on negative input instead of the positive. I regret that I had not retained a partial position in TVIX - that $.02 execution lower than my stop loss would have translated into a substantial gain . TVIX closed at $3.05- today- that would have been a very respectable gain on my initial entry. A self criticism is due- in terms that by jumping up the entire stop-loss to a higher level- the entire position was liquidated- Capitol was tied up, and there was no alternative- I often split a positive trade in terms of closer and wider stops- I don't want to react to this missed opportunity and then go extra wide on stops - Instead of protecting the entry cost with 1/2 and taking profits on the remainder- I took it all to the profit line- and short changed myself from a very nice gain-
My remaining short positions have kept the account value-
My cash has not freed up-perhaps tomorrow- I would add a small amount to the short position- but keeping in mind that these things generally are quick trades and tend to rally hard if the market screams "oversold" .
I am somewhat gratified by having decreased my long positions in the investment side earlier- some weeks ago- However- until those $$$ are put back into use taking long positions for less $$$, it is the same as sliding money under your mattess.
BRKB dropped smartly today- and I expect it and all fundamental funds to decline further- DTN dropping like a waterfall as well- When sound fundamental investments are sold off like this, it suggests the smart money is exiting ien masse. No reason for us less astute retail folks to step in until a slow down is evident.
it appears the selling is market wide-across all major sectors.Down 1.5% - 1.75% in 1 day.
As declines go, SPY is simply down 4% from it's 209 high 12-29- Possibly another 2% decline to match the Dec low.- which was a great buy opportunity-All of this reinforces my belief in tactical trading- when moments like this disrupt the usually benign trend higher-
At some point, this 5-10% decline will be talked about as the Buying Opportunity that traders should have taken advantage of-Perhaps- When it reverses, it will likely be a snap back move reaction to having been oversold.
The question becomes- when is a good time to Sell? Sadly, we sell just as we reach a point of pain and think the pain will get worse. Just about near a bottom most of the time- except 2008......and perhaps 2011- Maybe we should think alternatively- instead of selling on a level where we have lost small profits- and expect further declines- perhaps we take some off as things rise and seem to reach an exceptional high. Maybe it is just selling 1/3 as the stock pushes into an extended new high- and repurchasing on a pullback- Or- do we choose an arbitrary stop-loss- 8% O'neil style-
I recall several of the market pundits -fast money guys- holding large cash positions much earlier in the year- and missing the fall upmove- This in a year that had above average- but not excess gains. It's Bias- personal sentiment- that drives most of us- in our decisions.
As trades develop momentum- and this one appears to be heading in that direction- we can expect it to overshoot to the downside- To take advantage of that, I can trail a stop along the fast ema, adjusting daily- or closer if i'm really pushing it. At the same time, I could put a limit sell on each trade with a limit high that seems excessive on the trade- hoping to catch a momentum blow-off high hitting that 15% - 20% -adjusted daily - limit sell. Tactical trading- trailing stop on the decline- and adjusting the limit sell on the upside- Most of us- self included- don't consider a limit sell- just a stop-loss- So, consider a limit sell of 1/2 the position adjusted daily higher if the trend continues at an outrageous high- Might catch a blow-off high volume peak that is a climax top in the trend-
How would this work? Find a daily ATR and perhaps triple it- Or the widest move a stock made % wise on a major sell-off day- What percent did the stock move?
QID moved 2% today- so- I could choose 3x the average high move- 6% above each day's high- as a potential sell-off point- Have to adjust higher each day- And it could be just for a portion of the trade. What usually happens on a blow-off top, is that price often declines- Instead of a trailing stop below the close- selling some on that push higher may capture the peak daily move- for ultimately larger gains et al. While I have a trailing limit % stop on this trade- I have not looked to see if i can put on a leading limit % sell on a higher momentum move in IB- but it would be an interesting add to a tactical approach. One could choose a very wide and outlandish daily gain- 20%-30% for a portion of the position. Just some musings here in the aftermarket.

 

[sowterdad]

Tues pm 1.06.15
Got in late, markets had closed down less than 1% on average-
IBB stopped out-I had pulled the stop back slightly to above my entry - and it sold $298.85-
essentially fractionally above my entry with only 10 shares.
Both of my short positions moved higher-and i have some freed cash finally-
I also have both short positions with stops above my entry-As a matter of fact, The 3% trailing stop I had in SDS moved up too close to $22.80- so I widened the stop to 4% and it dropped the stop to $22.56- still above my cost of entry.
I considered adding to the short position in QID,, and perhaps shorting small caps- but it feels as though this market decline is going to level off- And if a good jobs report comes in Friday- it may totally erase the sentiment of down is the safe bet. And overshadow what appears to be a fear of a world wide decline.
Note the TLT trade is gapping higher- (not my position) This is going up on momentum, and should- IMO - be followed with a tighter trailing stop- Get a close under the fast ema, and raise the stop-loss to just below that low- lock in some profits....I still don't have a good grasp of what the drivers are for TLT- because they do not necessarily correlate with the market- with Fed policy- with what/ ?
HDGE- tries to be an actively managed ETF that takes advantage of a market decline- It has a high annual expense ratio-2.92 % and has gained in this decline- but has not been a great performer over it's short 3 year history despite it's active management-and rather narrow short stock positions where an active manager should be able to make selections that lose when the market rises- I mention HDGE- as an ETF that is stock short specific-
and it appears to be benefitting in this overall decline. I would think this would be a trade- and not an investment, if the market weakens further- I will likely select within the short sector etfs though.....
Overall, this in not a huge decline-% wise- let's assume this will not have more than another 2-3% decline- and the market will rally Friday because everyone will be wanting to hear confirmation of good news- Perhaps Thursday is the day to look to start to enter in partially if one Has free cash available? What do you look to Buy?
I want to revisit biotech, Pharma in 2015- with a 1/4 portfolio position .
Caught Cramer tonight- He's pointing out that Biotech has outperformed the market 2x-3x times for the past 4 years- and promoting "speculation" in that sector stocks- I think the ETFs are the way to go - and perhaps leveraged to offset the dilution that an etf brings-
That may be IBB or Cure- and PJP has been a good performer in Pharma.- Or, one could buy an individual basket but- that's costly in both commissions and RISK. There's no telling if yesterday's winners will be tomorrows in the sector.
Volatility might be an interesting method to try to learn to get a sense of the market swings- up and down- So, as an interesting way to enter long a market sentiment/rally- going long the Vix short might be a good tactical trade- Since this is about sentiment- smaller positions are what i may consider.
I mentioned BRKB as almost a value fund- without the dividends. There's a lot of exposure to financials, insurance and other core business. BRKB does not necessarily track the SPY directly, but might be a good barometer of how value is performing- As i have some access to value oriented mutual funds, perhaps BRKB will be the sparrow in the coal mine when it bottoms.

 

[sowterdad]

OK, Market rallied today- The IBB position I stopped out on popped $10 today.
My short positions- while still net profitable- (SDS at 3% would have stopped today-) will get hit tomorrow as i have brought my stops up to today's close- Unless a meteor strikes tonight-
I'm going to buy Cure BS 131- lmt 132.50 SSO 124.50 - lmt 126.00

Apparently today's rally was not the upcoming jobs report but some Fed speak?

It's almost impossible to second guess "News" that could move the market in after hours-
Inverse trade XIV opened up higher, but declined slightly- only gained 3.37% from yesterday-But to have caught this gain, you would have had to have taken a position yesterday. Typical of snap back moves.
Not having caught any real news intraday - it's hard to judge whether the water is all clear - was this a buy opportunity ? So, my couple of long trades are not focused on the long term- perhaps Cure will work- This is where BIAS makes me suspicious. But, have to trust the charts.
What about the BRKB-? The value trade? Or DTN? One day does not a trend reversal make- Not that much upside to get back to the prior high- I'm on the bench on these longer term type of positions.

 

[sowterdad]

WELL,
Got caught 2 days late and a dollar short-Used to be a CB Handle for Spouse & I some decades ago. EOD trading has some jet lag built in when the market is turning on a dime.Did not expect any news to prompt the market turn until tomorrow (Friday) Saw the bounce yesterday and put in some buy orders as well as orders to stop on the market short positions.
- had some freed cash and buystop w/limit orders for Cure & SSO- for today's open. Both of which were soundly gapped over at the open- just as my short trades got stopped .01 second into the open- for break even + on both - SDS $22.31 sold, QID $40.13 sold.
Ifelt I had given some decent range on the higher buystop & Limit- CURE was 131-132.00;
SSO was 124-126.50. both were leapfrogged over- which reinforces the idea that it is always best to get that early entry- as long as the trade turns in your direction. I'm not inclined to chase either of these at this point- but I want to pursue healthcare/biotech again this year- I think the industry is still a decade long story as us baby boomers start breaking down and are seeking to live longer- Developments in the field continue to transform the industry and treatments- and are not done yet. there is a sector theme there that has been in force for the past 3+ years and likely continues to be an outperformer going forward. One could consider PJP, IBB, or the leveraged CURE- or something similar as a % of one's allocation.
Where to go from here? EOD- what options are there-?
The energy trade - appears the decline has paused- OIH, XLE are putting in an initial upside from the recent declines. Were these markets oversold? Was the bottom put in last week?
Or, is this rally attempt just a bull trap? History-only once it occurs- will tell us the truth-
Presently, there is an initial oversold bounce occuring- but is this trustworthy? I am not ready to jump in- despite feeling i am missing out on a rally here.
What might be interesting is the nat Gas sector- With the polar vortex dropping across the country- the exceptionally mild winter in the US seems to be a thing of the past- I simply don't trust UNG /UGAZ . But FCG in this sector is perhaps a different way to approach the sector? Perhaps a buy-stop at $10.45? Looks very similar to the oil sector- but the OIH is also identical to the gas sector.
Did not complete this post on Thursday, Doing so now on Friday pm 1.09.15
i got out of work Friday early- in time to find the markets got a better than expected jobs report (That was the expectation for the prior 2 day rally was it not?) but the market did not like that wages actually took a decline - meaning less substantial jobs were created.

As I viewed where the market was mid-day- the indexes were down -.5 to -.75- not a big sell-off - but not a confirmation of the prior 2 days rally either.
I decided i was going to take a less volatile entry on playing the VIX, and bought 100 VIXY $21.20 @ 12:59. Ultra position re: the Vix.long. The thinking here is the Vix reacts to the market movements and is perhaps a good way to take advantage of a decline in the SPY- I haven't done the homework yet to determine the average ratio .
I gave it a couple of hours, listened to some market commentary-
and figured small caps will be taking a hit on this decline potentially- bot some TZA as small caps may be more sensitive to market weakness.....Also looked at the energy sector trying to bottom- thought about the polar vortex sweeping across the country- Bot some FCG $10.31 close to a P.O.F. lower Risk entry. And a diverse play also riding on the energy sector having sold off sharply. While OIL is selling off- Nat Gas is not the same animal- although it is indeed an energy product. USO continued lower today, while UNG-FCG both moved higher- This is perhaps a divergence- a separtation in the minds of some buyers and sellers - that perhaps it is all not simply the same- Fundamentally, there is not a major Nat Gas export business-although I believe we also have an excess, there is not a capacity to export- but - who is to say?
And then i started to overthink that volatility may be much more a force in this year's market going forward- so I added a smaller position in the more highly leveraged TVIX. $2.82 @ 15:54.
And, finally I made a decision on the biotech sector- I think the biotech/healthcare sector will also be a way to outperform the SPY- by a 2-3x factor as it has done for several years- After watching the price action most of the afternoon, Cure, RXL, IBB, PJP,
The IBB was barely down at all- so i purchased a few shares $313.65 @ 15:55 - and plan to build on this entry- perhaps as the volatility shares get sold off-I will increase the position size. YES, I am asking myself- How much downside could i sit through if this initial position was to finally sell-off- I got caught by $.02 on my prior entry stop-loss.
I also looked at the recent ETF HACK- cyber security- If I had more assets in this account- I think this should be a viable market segment to consider a position. Let's face it, the industry is always under attack- .
i need to remind myself that while what appears to be fundamentally correct - does not always relate to a profitable trade or ETF.
For several years, I have heard that clean drinking water is the OIL trade of this next century- so PHO would seem to be a fundamentally needed way to approach a diminishing and more valuable resource- Not too impressive returns on the ETF. Flat for the past year.
As "investors" , what may seem sensible and valuable does not always translate into a higher return. this is where TA assists- I can easily 'believe' ETF xyz is in the sweet spot- but the market can be irrational longer than I can stand the pain of being in a losing position.
I potentially could be 'correct' based on the available information- but it's not about being 'Right" it's about dancing WITH the market- and allowing her to lead-
My wife gave up trying to teach me to 2 step-very quickly- My boots and her bare feet were not compatible.
With today's trades- I've made a commitment that is focused mostly that there will be added market volatility,(Vixy, TVIX) potential short term decline next week (TZA) ,
a need for energy (FCG) , market weakness -poor jobs-(TZA) , and a healthcare-biotech initial position higher (IBB) -
This is not the market of last year ? Or is it? Is this market more undecided? Waiting on the FED?
Can we stay on top despite the rest of the world floundering? Are they floundering?
Have i Looked? IS the US market really overvalued? Where will the smart money be looking to invest in ?

 

[sowterdad]

Sat 1.10.15
I decided to start at square 1 and look at the VXX- with some longer term charts, closing in on the more recent daily. What is apparent from the longer term charts was the low volume in past years as the VXX essentially was in decline. As we get into this past year, the VXX has broken the decline line, and has tried to rally higher, often with increased volume.
Since the $vix is seen as a market sentiment indicator- higher volatility reflects investors
"fear' as they are seeking to protect their positions with options-
The VXX does not perfectly follow the $VIX, indeed, as the attached link to an article will explain- Instruments like the VXX can decline even when the $VIX increases-This can be exaggerated in the more leveraged ETF's tracking the moves of the $VIX- So, best considered as short term trading positions.
http://www.thestreet.com/story/11976706/1/5-misperceptions-about-vxx.html
Understanding the costs- and limitations- of what one trades can be a challenge-
Even though I read the article, terms like backwardation and contango are not common to my universe as a retail trader. But, I do understand the limitations of the ETF's- So I bought a larger position in VIXY 1:1, and a smaller position in TVIX 2:1 .
Charts I am attaching are of the VXX- should closely be matched with VIXY.

 

[sowterdad]

Learning a bit more about the $vix and those instruments that are based on it's movements. A price performance chart over the past 3 years showing both the $SPX, SPY,
THE $VIX AND both the VXX that tracks the daily actions of the $VIX, and XIV which tracks the inverse.
The decline in the fund that tracks the $vix daily is surprising.
While the $vix shows a decline of approx 27% , it's trading counterpart VXX shows a decline over 94% but XIV shows an outperformance of 400% over that duration.
looking at the price relative chart- notice the relatively recent breakdown in the inverse fund. Potentially, this bodes well for my $vix long plays I took.