David's Portfolio Journal

Good morning/evening everyone.

This thread will serve as my personal trading journal, and naturally will not contain any trades relating to my professional account. As a brief introduction, I trade Australian equities and global FICC.

Apart from the odd opportunistic day trade or two, I generally trade medium term global macro events and use momentum and overbought/oversold indicators as my trading signals. These are incorporated in three separate algorithms, but there has to be a fundamental reason for the trade before I place it.

I always post my trading ideas/light hearted market commentary at www.pimmtrading.blogspot.com, but I'll try to update this thread with more specific trade details.

Every now and again I also get reminded (through good and bad trades) of the tips and advice I've picked up that helped me get on my feet trading, and I update www.tradingpimm.blogspot.com.

For starters, I will be working into a large, short US 10yr T-Note position. 1.86% is an unsustainably low yield in the medium term, and with the reduced interest payments associated with a short position, I'm happy to keep adding to the position whilst yields are under 1.9%, and hold it through 2012.

I am also long gold mining stocks (NCM.AX and KCN.AX), as they are nowhere near pricing in the current gold price (around $1000 an ounce). They still bear a large amount of systematic risk, so there is a tight stop on these, but could potentially be held for a few months if they take a while to price in the spot gold price.

As an afterthought, I'll most likely be including a fair amount about how prop/flow trading is varying in nature from my private trading styles and habits, rather than detailing individual trades.

In short its objective is to help me record reasons and discussions around my successes and failures, enlighten others as to why certain techniques are/aren't working in the current markets and inform others a little more as to what I do at work and home.

Hopefully it is enjoyed/used for good by someone, if not myself!

Entered my first of three legs in a short 10 year US T-Note position at 1.89% yield recently. Bugs me because this is cheap, and I knew yesterday at 1.86% was cheap, but I always hold out a little longer hoping for something better. Sometimes it works, and other times it bites you, like today. Two more legs to go, quite a large medium term position I'm trying to build, and any yields below 1.9% over the next couple of weeks will be taken advantage of.

Same thing happened last night, yields at 1.83% before the market open but strong earnings and IMF has yields sitting at 1.9% again. On the one hand I'm happy enough, as the first leg is making money, but this means my second and third legs will be at less advantageous yields for my short position. On the other hand, falling yields means I get a better entry, but my faith in yields rebounding weakens slightly.

Does anyone else face this dilema? Any tips on how you deal with it? Always annoys me, even though it rarely affects the profitability of the trades in the long run.

Yields are up at 1.98%, means the position has a nice P/L but is only a third of the size I'm after. I'll take the risk of this being a false mini breakout, and that there is no need to put on the 2nd and 3rd legs above 1.95%, before the eventual move towards 2.4%. That logic does suggest to take a quick profit and re-enter when prices fall, but I'll play that trade in a different way, e.g. shorting SPX against the short Treasuries position.

AUDUSD is also creeping into overvalued territory around 1.041, will wait for a break and hold below 1.04 before putting the short on, giving it some momentum.

The AUDUSD position worked okay but should have worked better (with the power of hindsight...). I jumped early and was short at 1.041 on 20/1/12, as my overbought indicator peaked, but of the potential 75 pips on offer in the next 18 hours, I was only able to take 10.

The model doesn't suggest an exit point, which is something I could work on, and human execution is so unpredictable. I'm currently short at 1.046 for the same reasons as above (overbought, waiting for supply/demand imbalance to correct itself), will look to exit Monday or Tuesday.

For the record I'm still bullish on AUDUSD medium term (interest rates, global growth all in Aussie's favour), as the economy isn't looking too bad really The Final Trade: Copper Price Signalling Growth.

Despite the lack of XJO strength, AUDUSD has pushed higher, resulting in the stop kicking in at 30 pips. Not so worried, it's one of my better algorithms so some losses have to be taken, I'm looking for some SPX weakness in the next couple of days though. Might place a short later, see how the numbers look.

AUDUSD has a lot of momentum, pushing for a long position if it can hold 1.07, but fundamentally the strong currency is seriously hurting the manufacturing and retail sectors. Certainly a short retailers long miners trade to be put on should the currency continue to move higher in line with the XJO.

The price of silver is interesting me here too. It sits comfortably between bull and bear targets, having multiple conflicting reasons to suggest $40 was a bubble and that demand will continue to push the price higher. The Final Trade had some comments on it.

I posted a quick summary of my trades on The Final Trade and The First Trade. I find both blogs useful (like this thread) for keeping tabs on ideas, and especially explaining them in full in order to make sure that I fully understand the trade. If you can't explain it to someone else then clearly you don't know what you're doing well enough.

Quite a few flat, some small losses, some small wins and one (11%) large profit. Good start, sort of distribution I'm looking to achieve.

With 10yr Treasury yields back around 1.86% I'll add some more size to the trade. The extension of the zero rates policy was widely flagged and expected by the market, the hope is that economic news continues to put a positive spin on the US economy.

The Treasuries trade is looking good with yields around the 2% mark. I'm always nervous around here as 2.1% isn't a level that's been solidly breached recently, but I'll try not to take any profits unless there is a clear shorting signal in the short term.

I'm currently considering a sizeable VIX trade, analysing its correlations with the SPX. The tentative idea is to be long VIX and the index in a pairs trade.

I closed out my long US 10yr Treasury notes today, taking around 20bp in profit. It was originally intended as a longer term trade, but I'm happy to sit on that profit and wait for the next signal, as it has beena bit choppy between 2% and 2.1% recently, with no clear sign of a breakout above that upper limit.

The brent/crude spread is my latest position, having blow out to around $18.5. Medium term I doubt it will hold - the major oil producers have little incentive to oversupply crude and a railroad solution to transporting more brent is feasible, only adding around $2-5 pb depending on what estimates you look at. These would tighten the spread and hopefully make me a handy buck of two along the way.

My spread target is as narrow as $10, but I depending on the speed of developments the funding cost may see me taking profits earlier. I'm prepared for the spread to go as wide as $25, where I'l be taking a large loss but getting ready to return if the trend changes.

The brent/crude futures spread is coming in nicely, down to around $16.5, leaving me with around a $2 gain and a $2000 profit per contract.

Whilst this could be a brief whipsaw in a costly upwards trend, I'm betting that the spread narrows to $15 and waits for its next move there.

I really should have posted the trade idea on The Final Trade and The First Trade before I made it, got to make the most of the good ones

The WTI/Brent spread has come back out again, had a medium sized loss at one stage (relative to the stop for this trade), but this is one that I'll sit on until it does stop out, since it's based on macro fundamentals rather than technicals.

Still eying up the VIX, which has been pretty choppy, but yet to find a suitable entry point to go long.

If anyone is looking for more details regarding the trades I'm putting on, or my reasons for them, The Final Trade normally has a thorough overview of them. The First Trade doesn't really delve into them, just sticks to investing and trading fundamentals for beginners.

Just an fyi for those interested.

I am currently long the Nikkei and short the Australian XJO against it. Not in big size, just a speculative trade.

My only real reason is that with the Bank of Japan demonstrating a willingness to further stimulate their economy (which can't get much worse going by recent trade figures), a weakening of the Yen should give domestic earnings a much needed boost in an export driven economy. Conversely, Australian companies are struggling to record earnings growth with the Australian dollar so strong, and with the RBA's reluctance to reduce rates further, this looks set to continue, giving investors fewer reasons to buy the index. I have more details on The Final Trade, but this is essentially it.

The risk is that the world rights itself, and the higher beta play (Australia) is back in favour due to its exposure to Chinese growth, and this trade blows up quickly.

Since the short Australian SPI long Japanese Nikkei trade was put on (evening of 21st Aus time), the SPI has lost 10 points (0.23%) and the Nikkei has risen 135 points (1.4%), so the trade is up 1.63% so far. I don't trade all that frequently, so it's important for me to hang onto these profitable ones and ride them out. As such, this one won't be closed out yet.

The brent/crude oil spread is back around $17, from as small as $15, so there's still a short spread trade there medium term. I'll hang onto the trade, the fundamentals are still intact, and there's a $1100 profit per contract atm.

I haven't taken any new positions, just kept the current two on, and haven't got any need to at the moment. Momentum is just event driven, making trading choppy and far harder than it needs to be.

The light crude/brent spread is still coming in slightly, and I'm happy to hold on to the medium profit sitting there. The fundamental reasons for it are still intact, and so is the trade.

Since it was put on on the 21st, the Australian XJO is down 0.8%, in comparison to the Nikkei being up 2.58% (recall I was long Nikkei and short XJO), taking the current profit to just under 3.4%. Whilst the trade is working I have no intentions of cutting it, but should the profits reach 5%, on a delta neutral trade, I'd be pretty tempted to take it off.

Both trades are still on, they're the only ones I've placed in a fair while. Normally I'm tempted by intraday price action, normally based on momentum swings, but whilst these two are going well I don't feel the need to push for higher returns and up the risk. The nikkei is up 4.92% and the XJO is down 1.82%, bringing the profit from the pairs trade up to 6.74% now, almost double what it was last week. Whilst the Yen is weakening further I'll leave it on, despite this being an unusually large % profit to hold onto with futures positions.

The WTI/Brent crude spread is back out to just over $18, making me wish I'd taken the decent profits whilst I had them. Now re-evaluating whether I'd make the same trade looking at the charts now, as I'm effectively back where I started.