long term position trading -primarily etf's-
- Thread starter sowterdad
- Start date
Following last week's note of the XBI performance declining relative to PJP, SPY.
XBI swings - up and down- are wider than PJP or SPY.
Considering the 4% decline of the past 2 days, in proper context-
The move YTD is still up +20%.
Look at those declines relative to moves this year.
The debate in my mind- The 2 hr chart suggests i should have been stopped out today.
The Daily chart just today shows a 1st close under the ema.
If i pullback and look at XBI through a wider looking glass- on a daily chart over the last 3 months- Note that past similar closes under the ema have not meant that price would enter into a period of declines- Actually- there has only been 1 occurrence where price succeeded in putting in additional lower prices at the close-
The recent 6 week trend has been a relatively steady up hill climb- just today a Close below the EMA- I expect it will go lower- my present position size is $2,280.00/10 shares.
Where do i set a stop relative to this entry level?
If i applied the 2 hour chart, I would have been stopped out today- for a minor loss as price penetrated below my entry-
A stop under the low of a break of the 2 hr fast ema is very momentum based-
Now that I have a penetration/closing under the fast daily ema- I think enough is enough-
That is a tight stop-loss for my entry of $228.84- and price initially moved in my direction-
Now, the market is indicating that it may not agree- Nothing personal there
I will choose $226.50 - just under the swing low of today- as my stop. Loss would be $-23.40. if filled at the exact stop-loss
For those reading that don't bother to consider their trading this way: and never bothered to learned the math to calculate % - It didn't seem to have any application way back then.......school days.
Since we often trade in different amounts per each trade or position we hold- - to keep things relative- convert the trade amount into %. Percent. The calculation is simple-
Take the number of shares x the entry price
Bought 10 XBI @ $228.84 = 2,228.00 total investment amount.
Set my stop-loss -10 shares sell $226.50 = a 2.34 loss /share x 10 shares = - $23.40 loss
$23.40 loss divided by the initial entry value = 0.0105026..... Move the decimal 2 places to the right . round over any number in the 3rd place 5 or higher
The loss would represent -1.05026% or - 1.05%
Now- this is not a bad loss for an individual trade- if it does not exceed too much of a hit to your overall portfolio value.
Take the loss you might take on this trade $23.40 and divide it by the account total value.
In this case it would be $23.40/ $9700 = a 0.0024123.... or a very low portfolio loss of well under 1% = .24 or about one quarter of 1 percent.
By doing the percent conversion, you get a better sense of what is at Risk than just using Dollar amounts.
By using this calculation- I can see that i am Risking very little overall for the amount this trade represents to the overall portfolio value. Perhaps too little- and the stop is too tight-
Will a wider stop save the trade? end up with a win? No one knows- but a wider stop does not guarantee a positive result.
Most traders allow themselves to Risk too much on an individual trade-in the hopes of being Right- Or , they bet on too few positions within their account- too many eggs in one basket. and then -to make the trade work- they give it too much room to fail.
My XBI position is a good example- It represents almost 1/4 of my trading account value. Traders like myself with small accounts will find commission costs eat into their trade results. If one divides the account into 10 positions, each position is small, and the commissions to Buy and Sell make up a larger % of each position.
If a trader chooses to go with 5 positions- he has cut his commission costs in half-
A factor for small accounts-
If a trader has 4 active trades on and 1 cash position ready to trade, he has 80% of his portfolio in the market. Let's assume for the ease of the math-
an account value of 5,000.00. Each position = $1,000.00
The trader now has $4,000 in the market, with $1,000 cash primed to trade. the 4 trades stop out on market weakness, losing 5% on each position. (-$50.00 ea = 4 x -$50 = -$200.00)
The trader is now left with $4,800.00 cash.
The $200.00 that was lost only represents 2% of the overall trading account value.
This is an important concept to grasp- because the reality is that sometimes prices gap much lower on the open- black swan events, and the nominal 2% loss will actually end up being higher- likely a - 3-4% over a number of filled stops-
His each position allotment is now 4800/5 = $960.00 per equal position. His 5% max stop on any single position is now lower- he can only Risk $48.00 per trade-
Stock XYZ costs $50.00. He can Buy only 19 shares 19 x $50 = $950.00
His stop-loss of 5% means the stop must be less than 5% of his $50 entry price- or $-2.50 loss or a stop at $47.50.
A 5% loss on an individual trade is substantial, but common.
If a trader will use a position sizing formula to evaluate his risks and stay within that formula, he will survive to trade another day. If he suffers a series of market declines/losing trades, and the account value goes lower- the position sizing formula forces him to take smaller trades, and lesser Risks-
When the market turns around and starts to go back higher- His winning trades will increase the account value- allowing larger positions to be taken.
If one has a series of losing trades and loses 10% in the market- one needs to cut the position sizing % lower - Risking less in the 4 active trades -
I wanted to pass this on- because when the market gets choppy and non-trending- we often lose much more than we expect. When our trading results reflect that our approach is not as successful as it once may have been- it is time to get more conservative- protect the profits with taking smaller positions and reducing the downside Risk-
It is beter to step in late into
3.24.15-
Markets are weak across the indexes. Concerns are that the strong dollar will result in poor earnings-such disappointments in earnings - with the market already at higher PE levels- would likely see those concerns translate into more selling. Perhaps the impetus for the long expected correction?
Reportedly, most of the S& P 500 are at the higher end of the historical range concerning valuations. When everything is moving higher - rationales are given as to why the higher valuations are sustainable- The US is the 'safest' investment.....Investors chasing Yields-
After 6 years of a bull market- and all the FED manipulation- and a lot of companies buying back shares- If the gas goes out - and the high valuations and balance sheet manipulations still don't deliver the expected lowered- but still positive earnings-If the earnings 'disappoint' That may be reason the markets get more cautious- and sells.
The things that now influence the markets- perhaps were not factors in decades past as they are now. The FED is the biggest influence- since 2009 it would seem. Financial engineering -as it has occurred- has seemed to work these past 6 years -
Market historians will make the final assessment- in hindsight-
Meanwhile- those of us in the present- here and Now- wait for the future to unfold day by day.
If the market has a 15% correction- so what after 6 years of steady gains?
In the interim- until the market makes a directional decision-
I'm more cautious- I raised my stop on Hack as weakness showed-
and was stopped out today $28.29.
Since most biotechs likely list on the nasdaq, the biotech decline also affects the nasdaq trade.
I'm not rushing to jump in -allowing a bit of free cash to accumulate- might find a buying opportunity in the day's ahead. Still have the order on for PJP at a lower price- Patience-
Markets are weak across the indexes. Concerns are that the strong dollar will result in poor earnings-such disappointments in earnings - with the market already at higher PE levels- would likely see those concerns translate into more selling. Perhaps the impetus for the long expected correction?
Reportedly, most of the S& P 500 are at the higher end of the historical range concerning valuations. When everything is moving higher - rationales are given as to why the higher valuations are sustainable- The US is the 'safest' investment.....Investors chasing Yields-
After 6 years of a bull market- and all the FED manipulation- and a lot of companies buying back shares- If the gas goes out - and the high valuations and balance sheet manipulations still don't deliver the expected lowered- but still positive earnings-If the earnings 'disappoint' That may be reason the markets get more cautious- and sells.
The things that now influence the markets- perhaps were not factors in decades past as they are now. The FED is the biggest influence- since 2009 it would seem. Financial engineering -as it has occurred- has seemed to work these past 6 years -
Market historians will make the final assessment- in hindsight-
Meanwhile- those of us in the present- here and Now- wait for the future to unfold day by day.
If the market has a 15% correction- so what after 6 years of steady gains?
In the interim- until the market makes a directional decision-
I'm more cautious- I raised my stop on Hack as weakness showed-
and was stopped out today $28.29.
Since most biotechs likely list on the nasdaq, the biotech decline also affects the nasdaq trade.
I'm not rushing to jump in -allowing a bit of free cash to accumulate- might find a buying opportunity in the day's ahead. Still have the order on for PJP at a lower price- Patience-
Quick follow up to the HACK raised stop on weakness-
Today's chart suggests that was a prudent sell- and prudent to raise the stop-loss on the weakness. The advantage- of the 2 hr chart example here- is that price drops below a fast ema sooner than it would on a daily chart.
The disadvantage of of a 2 hr chart- compared to a Daily chart- is that price will demonstrate weakness sooner than on a daily chart- if one refers to price relative to a moving average. Could be simply a minor pullback and price bounces higher- In this case,
Market weakness was across the board, The Nasdaq dropping -2% The Dow, SPY- 1.5%.
HACK declined more than -3% from where i sold it - so this was a good place/time to have reacted early. This was my 2nd trade in Hack, and I think it managed to make a very minor net gain this second time around- The 1st trade captured a nice uptrend move- although my entry was prior to the time shown on the chart- and i held through the decline prior to the momentum up swing. Holding that earlier minor decline seemed to make sense at the time, and i was being discretionary- it happened to work out in my favor- but the market environment was favorable.
In this more recent trade- and with Weakness in the Nasdaq- it made sense to not allow this trade to go further South.
XBI stopped out today at $226.50-
I missed selling it when it pushed so much higher, and i allowed it to come back and display some weakness- which also brought it back to my entry level.
Initially , i had a wider stop-loss, and i reluctantly raised my stop-loss because it feels the momentum of the Tide is definitely outgoing-
I wanted to be able to give this trade some additional room because of the inherent wider volatility- but there is no point in fighting a market wide weakness.
My entry was $228.74- My delayed stop- $226.50 -10 shares This becomes a large % loss for me- -9.8% and in hindsight- There is no rationale to let this occur - I had been asked why I was still holding- and quite honestly, i don't think I appreciated how large a percent decline this represented.
I had a positive year last year- with more losing trades than winning trades- but i cut losing trades off quickly on initial weakness. My goal would be to hold trades for a longer period than a few days- but it's important not to underestimate the impact of a single large losing trade- or two.......
Which will bring me to PJP and today's reentry........
So, today's Dilemna-
PJP limit Buy order filled $76.90
This has been an order I placed with the expectation that price would decline lower
and allow a fill at this level.
This is a tough one to rationalize-
PJP has been the stronger and steady trend- stepchild perhaps to the biotech sector-
some hand holding there- similarities- but PJP has been the much smoother of the two with lesser volatility.
I expected price would pullback from the extreme momentum high-
and i adjusted limit buy orders based on the usual over reaction decline-
OK- let me take a moment for a bit of credit for a very timely exit capturing gains near a momentum high. ...That was a very nice place to exit- to recognize that there was an excessive momentum move in play , and to be willing to SELL with the expectation that price would decline- .
The thinking behind the trade was that I could make a sell at a high, and make a Buy on a decline- and then capture more shares on the higher move up.
So, Today was the follow up decline- where the lower limit order filled.
In this example, I have the advantage of a recent nice gain i n the trade. i also have a Bias that favors this particular sector as trending and outperforming the Market for the past recent years.
Not a bad lower entry % wise- but the question becomes- how low might this market go? This was a relatively minor decline- If the overall market continues lower- and the market decline becomes- a -10 or a -15% decline-
I am accumulating additional freed cash-
Aren't these declines described as Buying opportunities? Where's the bottom to Buy at?
PJP has been a great market outperformer- but if we actually enter a period of market decline, it will decline further as well. In an extended market- there really is no safe haven except cash. I think the PJP story is not overpriced, is relevant , and will be worth considering for a longer term- Such is a 'Bias' - perhaps more founded emotionally than logically. only the charts will tell.
PJP limit Buy order filled $76.90
This has been an order I placed with the expectation that price would decline lower
and allow a fill at this level.
This is a tough one to rationalize-
PJP has been the stronger and steady trend- stepchild perhaps to the biotech sector-
some hand holding there- similarities- but PJP has been the much smoother of the two with lesser volatility.
I expected price would pullback from the extreme momentum high-
and i adjusted limit buy orders based on the usual over reaction decline-
OK- let me take a moment for a bit of credit for a very timely exit capturing gains near a momentum high. ...That was a very nice place to exit- to recognize that there was an excessive momentum move in play , and to be willing to SELL with the expectation that price would decline- .
The thinking behind the trade was that I could make a sell at a high, and make a Buy on a decline- and then capture more shares on the higher move up.
So, Today was the follow up decline- where the lower limit order filled.
In this example, I have the advantage of a recent nice gain i n the trade. i also have a Bias that favors this particular sector as trending and outperforming the Market for the past recent years.
Not a bad lower entry % wise- but the question becomes- how low might this market go? This was a relatively minor decline- If the overall market continues lower- and the market decline becomes- a -10 or a -15% decline-
I am accumulating additional freed cash-
Aren't these declines described as Buying opportunities? Where's the bottom to Buy at?
PJP has been a great market outperformer- but if we actually enter a period of market decline, it will decline further as well. In an extended market- there really is no safe haven except cash. I think the PJP story is not overpriced, is relevant , and will be worth considering for a longer term- Such is a 'Bias' - perhaps more founded emotionally than logically. only the charts will tell.
Incorrect on the loss- Did not adjust the decimal properly 2 places-to the right. It's simple math- I should have immediately caught my error-because it did not make sense in how i approach the active trading account - I have been Burning the candle at both ends recently......and somewhat short on sleep-
I feel much better about the loss- it was actually not a large loss relatively- The -9.8 % loss was actually just below a -1% loss on the trade position -.98. That is much more acceptable- and well in line with my personal approach in the trading account. I moved the decimal 3 places-instead of 2- ........
But, math mistakes aside.....
Does this decline mean that Biotech's big run is done? I do not believe that is the case-
Other than new legislation affecting the industry, as I understand it, many of the larger biotech companies are not carrying huge excessive PE's- not so for the more speculative-
But, this is an industry- along with Pharma- that should have a long term growth trajectory that is ultimately more in demand- and higher. All of us baby boomers are coming of age- OLD age- We also caught the peak in American prosperity during our working years-
That is not to say that this industry/sector would be immune or survive a major market correction- It will decline along with the markets. But there is a demand for the services that this industry group may offer- as the older generation seeks to prolong a quality of life never before achieved in human history- The medical practices- and technology of new science discoveries - offers great promise for extending and improving the quality of life for millions of Americans entering their 'golden years' .
I hope to have some time this weekend to get a wider perspective .
Presently, today's minor low after a larger sell-off is a possibl positive- Downside momentum slowed....
When is it a good time to enter a trade?
Just some things I noticed in my own trading....
Looking at the choppy price swings of SPY- We are virtually flat for the year- and with price rolling in swings up and down- This is a choppy market, and it's difficult for swing traders that hold positions - hoping for a trend to develop- to make money in this market. (I think)
For a Day Trader, it is they jump in on a directional bet, and ride that until it shows signs of tiring and reversing. Swing traders can also try to employ the same approach- but on a slower time frame.
A price action trader may see a bullish open and price moving higher and take that trade-
But a bullish open or price action - should not be viewed in isolation.
I'll make some broad assumptions which I assume are True:
While there are different time frames one can use, general TA principles can be considered valid acrossed all time frames-- I think this would apply to concepts such as trend, and where price is relative to the trend at the moment.
Some concepts -support, resistance-prevailing trend - increase in magnitude as the time frame gets longer. 'Support on the hourly means much less than support found on the daily- than support found on the weekly etc.
Using the Daily chart of SPY over recent months-in this example.
This chart's goal is to illustrate that bullish price in one day cannot be taken as a reason to
jump Long into a trade-
I realize that if I was watching price intraday,and it had been selling off prior days ,
and I saw a bullish open, and price continued to move higher-I would think that this was
a good time to go long perhaps- that the decline was over, buyers were stepping in and I'm getting in near a bottom.
Notice that when price drops lower- and is below a declining moving average, the trend is down. A bullish candle - or bar- lower open, higher price action & higher close- does not mean it's a reversal- (For the day trader on a fast time frame - it served his purpose- as he captures that smaller trend- and gets out)
For a swing trader- If he jumps in becasue it looks like the real thing, he may find that the trend simply goes lower the next day.
In the chart attached- there are some things that are commonly found and seem repitive-
A bullish candle or bar - below a declining ema line that does not close above the prior bearish candle open - does not signify a reversal.
That's perhaps important to recognize and cause one to be a bit cautious.
Consider this a RED FLAG if one is pron to jumping in early on bullish action.
In the chart, there are 6 bullish candles under the declining ema that failed to close above the prior bearish bar and price continued it's decline lower-Those would be failures-losses
Also notice- For every bullish bar that closed above the prior bearish bar's open- price moved higher the following day- (with one exception- but then it moved higher.) .
There were 5 of these bullish bars- that signaled a possible reversal that had follow through higher-
If one made an entry on all 11 bullish trades, 6 of them immediately went lower-
for a loss. If one waited for the bullish candle to close- (or entered right at the the close)
one had bullish upside the next day on 4 of the 5 entries-
How's that for an 80% price action-going in your direction to start- gives the trader an advantage.
Will it always work this way? Probably not - but it certainly eliminates what could be a lot of unnecessary losses by realizing a method that you can employ that gives one a possible edge by reducing losing trades because you applied a 'qualifyer' - a caution-
The one bullish entry 3-12- ended up being the reversal of the trend move higher for the following week- It was followed by a volatile bar that pushed below the bullish candle's low- and would have likely hit a stop-loss- That would have been 1 entry stop-out for a loss and 4 trades moving higher-initially.
Notice also the Jan 7 bullish candle had only the following day move higher -followed by a decline. If one raised the stop to below the low of that bearish bar under the ema, the trade would have been profitable.
This type of entry looks very promising on this particular chart- this particular period in time. It combines elements of Bullish Price Action, and a single moving average- as a starting point for Swing Trader's to consider in whether if they had employed this qualifyer would it have improved their own trading results.
This gives an early entry, a well defined swing low point to evaluate/set a stop-loss
and captures the early part of even a short trend .
Stop-losses - consider the following- Once price is above a moving average and increasing,
perhaps allow the trade to run as long as possible- A single red bar does not mean the trend is over- Some trends will run far further than one expects, and the importance of capturing the larger gains when such a trend does occur is important to improved profitibility in one's account. Locking in gains too early just to lock in a profit and close the trade may be somewhat defeating if the trade resumes moving much higher but you are out of it-
As long as the trade is not showing weakness- perhaps sell a portion- 1/3-1/2 to satisfy locking in some gain- particularly on a big momentum move high-
Then, consider price relative to the uptrending ema- As long as price does not close below the ema- but just penetrates it- but closes higher- there is reason to consider raising the stop to the penetration low- or higher-
Again- one size does not fit all- and traders will need to decide what is appropriate for them. If time allows- I will follow up with a 2nd chart on elements of the bullish engulfing entry- as a qualifyer to go long.
Just some things I noticed in my own trading....
Looking at the choppy price swings of SPY- We are virtually flat for the year- and with price rolling in swings up and down- This is a choppy market, and it's difficult for swing traders that hold positions - hoping for a trend to develop- to make money in this market. (I think)
For a Day Trader, it is they jump in on a directional bet, and ride that until it shows signs of tiring and reversing. Swing traders can also try to employ the same approach- but on a slower time frame.
A price action trader may see a bullish open and price moving higher and take that trade-
But a bullish open or price action - should not be viewed in isolation.
I'll make some broad assumptions which I assume are True:
While there are different time frames one can use, general TA principles can be considered valid acrossed all time frames-- I think this would apply to concepts such as trend, and where price is relative to the trend at the moment.
Some concepts -support, resistance-prevailing trend - increase in magnitude as the time frame gets longer. 'Support on the hourly means much less than support found on the daily- than support found on the weekly etc.
Using the Daily chart of SPY over recent months-in this example.
This chart's goal is to illustrate that bullish price in one day cannot be taken as a reason to
jump Long into a trade-
I realize that if I was watching price intraday,and it had been selling off prior days ,
and I saw a bullish open, and price continued to move higher-I would think that this was
a good time to go long perhaps- that the decline was over, buyers were stepping in and I'm getting in near a bottom.
Notice that when price drops lower- and is below a declining moving average, the trend is down. A bullish candle - or bar- lower open, higher price action & higher close- does not mean it's a reversal- (For the day trader on a fast time frame - it served his purpose- as he captures that smaller trend- and gets out)
For a swing trader- If he jumps in becasue it looks like the real thing, he may find that the trend simply goes lower the next day.
In the chart attached- there are some things that are commonly found and seem repitive-
A bullish candle or bar - below a declining ema line that does not close above the prior bearish candle open - does not signify a reversal.
That's perhaps important to recognize and cause one to be a bit cautious.
Consider this a RED FLAG if one is pron to jumping in early on bullish action.
In the chart, there are 6 bullish candles under the declining ema that failed to close above the prior bearish bar and price continued it's decline lower-Those would be failures-losses
Also notice- For every bullish bar that closed above the prior bearish bar's open- price moved higher the following day- (with one exception- but then it moved higher.) .
There were 5 of these bullish bars- that signaled a possible reversal that had follow through higher-
If one made an entry on all 11 bullish trades, 6 of them immediately went lower-
for a loss. If one waited for the bullish candle to close- (or entered right at the the close)
one had bullish upside the next day on 4 of the 5 entries-
How's that for an 80% price action-going in your direction to start- gives the trader an advantage.
Will it always work this way? Probably not - but it certainly eliminates what could be a lot of unnecessary losses by realizing a method that you can employ that gives one a possible edge by reducing losing trades because you applied a 'qualifyer' - a caution-
The one bullish entry 3-12- ended up being the reversal of the trend move higher for the following week- It was followed by a volatile bar that pushed below the bullish candle's low- and would have likely hit a stop-loss- That would have been 1 entry stop-out for a loss and 4 trades moving higher-initially.
Notice also the Jan 7 bullish candle had only the following day move higher -followed by a decline. If one raised the stop to below the low of that bearish bar under the ema, the trade would have been profitable.
This type of entry looks very promising on this particular chart- this particular period in time. It combines elements of Bullish Price Action, and a single moving average- as a starting point for Swing Trader's to consider in whether if they had employed this qualifyer would it have improved their own trading results.
This gives an early entry, a well defined swing low point to evaluate/set a stop-loss
and captures the early part of even a short trend .
Stop-losses - consider the following- Once price is above a moving average and increasing,
perhaps allow the trade to run as long as possible- A single red bar does not mean the trend is over- Some trends will run far further than one expects, and the importance of capturing the larger gains when such a trend does occur is important to improved profitibility in one's account. Locking in gains too early just to lock in a profit and close the trade may be somewhat defeating if the trade resumes moving much higher but you are out of it-
As long as the trade is not showing weakness- perhaps sell a portion- 1/3-1/2 to satisfy locking in some gain- particularly on a big momentum move high-
Then, consider price relative to the uptrending ema- As long as price does not close below the ema- but just penetrates it- but closes higher- there is reason to consider raising the stop to the penetration low- or higher-
Again- one size does not fit all- and traders will need to decide what is appropriate for them. If time allows- I will follow up with a 2nd chart on elements of the bullish engulfing entry- as a qualifyer to go long.
THE SPY chart illustrating examples of bullish price moves under a declining moving average that do not qualify as bullish -exceeding the prior bearish price open.