My breakout trade in copper - how can do better?

[spacewiz]

Following bearish news on copper triggered this weekend by default of a chinese mainland company, current glut of copper in China, and a recent breakout of lower Bollinger Band on daily and weekly charts I decided to use the opportunity and place a short-term bearish bet on copper futures (/HG on ToS). My idea was to capitalize on the flood of news all predicting further drop in price of copper due to events in China (accounts for 40-45% of world consumption).

This was a totally opportunistic trade. I first noticed a huge drop in copper through lower BB (2std dev) on Friday while monitoring commodity markets.. Then on Sunday checked out the news and it seemed like the market was about to dive again. Below is a daily chart showing big drop on Friday (Mar 7).

This position was open for about 7 minutes and was able to capture about 17 points out of ~53 point move on /HGK4 - May 2014 Copper future. Here a point is 1/1000th of $1, since these futures are quoted in price per pound of copper.

By the time I was able to place a trade the price was around 3.054, I opened using limit order at 3.0535 and exited at 3.0365 for a total profit of $425 (excl. commissions).

On the 5-minute chart above the yellow arrow marks my entry point and green shows the exit. As you can see although my reasoning behind the trade was correct - the move down did materialize and pretty soon after I opened my position - the execution was somewhat suboptimal. I was able to capture less than half of the move.

The move happened so fast - much faster than I was expecting - that my gut reaction was to just grab the profit and run for cover, a sort of guerilla tactic.

Here is a question I have for traders who have experience trading breakouts on similar time frames (notice this is a 5-min chart):

How could I have improved my return, without significantly increasing the risk of giving my quick profit back? Should I have used a trailing stop?


I’m a software developer/architect on my day job, so now I’m thinking about writing a program that would be able to automatically adjust a trailing stop order at a pre-set distance from latest price. The idea is that I would have been able to capture a larger part of the move on the 5-min chart have I done something like that. What do you guys think? Constructive comments are welcome

 

[nazzdack]

----bearish news....
----copper....
----breakout of lower Bollinger Band on daily and weekly charts....
----short-term bearish bet....
----position was open for about 7 minutes....
----capture about 17 points out of ~53 point move....
----total profit of $425 (excl. commissions)....
----yellow arrow marks my entry point....
----green shows the exit.
----reasoning behind the trade was correct....
----move down did materialize and pretty soon after I opened my position....
----execution was somewhat suboptimal.
----capture less than half of the move.
----move happened so fast....
----gut reaction was to just grab the profit....
----How could I have improved my return, without significantly increasing the risk of giving my quick profit back?
----Should I have used a trailing stop?
----software developer/architect....
----writing a program....
----adjust a trailing stop....
----capture a larger part of the move....

1) To use trailing stops to offset a position has "value" in order to limit losses and to be able to let a profitable position move your way.
2) In addition to the stop-order, you can also have a limit-order "on the ladder" to offset a trade if a market quickly spikes in your favor.
3) Part of the "trick" is keeping those orders far enough away so that you are not taken out of a "good" trade too quickly. :eek:
4) This was a trade that went well, quickly. You will have to deal with other trades that chop around and/or you get stopped-out immediately. Will you be able to grind through the various scenarios of profit and loss?
5) Make an effort to squeeze more out of winning trades but have a bias towards producing a sufficient number of trades to put yourself in a better position to be consistently profitable.

 

[syswizard]

Good luck. My experience with trailing stops is they result in a much worse % profitable trade figure. In other words, if you've backtested and have a 60% number, the application of a trailing stop strategy is likely to bring that down to something like 50%.

 

[spacewiz]

Good luck. My experience with trailing stops is they result in a much worse % profitable trade figure. In other words, if you've backtested and have a 60% number, the application of a trailing stop strategy is likely to bring that down to something like 50%.

Yes, I can see how trailing stops could be harmful to trades where a move is not very big, or market is oscillating significantly, unlike in my trade posted above (at least the move straight down that I traded).

That is why I was thinking about writing a program that could use a custom algo to dynamically adjust distance between the trailing stop and current price, depending on price velocity and maybe other factors. If price moves down fast - the algo would keep the trailing stop farther out, if the price hits a support/resistance area and slows down - it would place the stop just above the high of the support (or low of the resistance) area price action. That would close the trade if price is reversing, but keep it open if the move continues in my direction after a pause.

This is just a rough idea still forming in my head for now . If someone has done something similar and could provide some insights or advice - it would be much appreciated.

 

[murray t turtle]

Following bearish news on copper triggered this weekend by default of a chinese mainland company, current glut of copper in China, and a recent breakout of lower Bollinger Band on daily and weekly charts I decided to use the opportunity and place a short-term bearish bet on copper futures (/HG on ToS). My idea was to capitalize on the flood of news all predicting further drop in price of copper due to events in China (accounts for 40-45% of world consumption).

This was a totally opportunistic trade. I first noticed a huge drop in copper through lower BB (2std dev) on Friday while monitoring commodity markets.. Then on Sunday checked out the news and it seemed like the market was about to dive again. Below is a daily chart showing big drop on Friday (Mar 7).

This position was open for about 7 minutes and was able to capture about 17 points out of ~53 point move on /HGK4 - May 2014 Copper future. Here a point is 1/1000th of $1, since these futures are quoted in price per pound of copper.

By the time I was able to place a trade the price was around 3.054, I opened using limit order at 3.0535 and exited at 3.0365 for a total profit of $425 (excl. commissions).

On the 5-minute chart above the yellow arrow marks my entry point and green shows the exit. As you can see although my reasoning behind the trade was correct - the move down did materialize and pretty soon after I opened my position - the execution was somewhat suboptimal. I was able to capture less than half of the move.

The move happened so fast - much faster than I was expecting - that my gut reaction was to just grab the profit and run for cover, a sort of guerilla tactic.

Here is a question I have for traders who have experience trading breakouts on similar time frames (notice this is a 5-min chart):

How could I have improved my return, without significantly increasing the risk of giving my quick profit back? Should I have used a trailing stop?


I’m a software developer/architect on my day job, so now I’m thinking about writing a program that would be able to automatically adjust a trailing stop order at a pre-set distance from latest price. The idea is that I would have been able to capture a larger part of the move on the 5-min chart have I done something like that. What do you guys think? Constructive comments are welcome

===================
Congrats on getting part of the trend;
on a % , looks OK, your charts are crystal clear,also.

As far as improvements, you may want to study weekly charts , more than 5 minutes; seldom see managed money daytraded[sometimes we see that].

Actually I study monthly charts as much as weeklys;
my guts try to get me out WAAAAAY too early of a trend.Having said that ; with a ten year candlechart range of[ US dollar priced $2.50-$3.00-$4.00], frankly I don't like to hog the last nickel especially on leveraged derivatives.LOL


Also I remember mr John Bollingers writing something like price touching bands is NOT an auto sell or buy signal.Amen.

Also, since so many trend followers use a trailing stop;
I like a PSAR principle with discretion[not in a mechanical,mindless manner] .It tightens up as , time is in a trend.Its a form of trailing stop, but tightens up, the longer the trends lastI know this can/has worked on longer time frames; don't know about 5-7 minutes.................................................................

 

[spacewiz]

Yes, breaking BB band by itself is by no means a buy or sell signal. It is, however, a signal that attracts attention to investigate the market, especially when a BB band gets broken decisively on a weekly chart.

I do agree, that making money on intra-day charts, especially on so short as 5-min is extremely hard, especially without using some kind of automated tool that calculates probabilities of move continuation or reversal in real-time. I do normally trade on daily and weekly charts, however this was such an obviously easy short, I just regret I did not have the patience to hold the position through the week.... If I waited a couple of days, it would have been a much more profitable trade.

Still, I do believe that with the right tools I could have done a lot better, and now I'm working on the program that could help in such situations. If anyone is interested in joining / combining efforts or simply providing a recommendation - I would be glad to get a post or PM.

 

[murray t turtle]

Yes, breaking BB band by itself is by no means a buy or sell signal. It is, however, a signal that attracts attention to investigate the market, especially when a BB band gets broken decisively on a weekly chart.

I do agree, that making money on intra-day charts, especially on so short as 5-min is extremely hard, especially without using some kind of automated tool that calculates probabilities of move continuation or reversal in real-time. I do normally trade on daily and weekly charts, however this was such an obviously easy short, I just regret I did not have the patience to hold the position through the week.... If I waited a couple of days, it would have been a much more profitable trade.

Still, I do believe that with the right tools I could have done a lot better, and now I'm working on the program that could help in such situations. If anyone is interested in joining / combining efforts or simply providing a recommendation - I would be glad to get a post or PM.

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Space w trender;
I agree with most of what you wrote.
Frankly i hope you have/keep a copy of that 5 minute copper chart, not just because it was a profitable trade.

Its because daily charts trend like that , weekly charts trend like that, monthly charts trend like that 5 minute chart. .... But even with 20/20 hindsight; even with someone like me who gets his kicks out of riding trends, that was a good place to tighten up stops/think about getting out.


With leveraged derivatives or leveraged anything;
do NOT be late in exits, especially when plenty of buyers of HI grade copper like too buy @$3.00 area,NOT a prediction..Lots of trend following money has beeen made getting in late, espcially with trendy metals,;
lots of blowups, huge losses trying to grap the last nickle,LOL

 

[Visaria]

===================

Also, since so many trend followers use a trailing stop;
I like a PSAR principle with discretion[not in a mechanical,mindless manner] .It tightens up as , time is in a trend.Its a form of trailing stop, but tightens up, the longer the trends lastI know this can/has worked on longer time frames; don't know about 5-7 minutes.................................................................

Hi murray, could you please elaborate more on the PSAR principle?