isa's short term trading journal

This is a discussion on isa's short term trading journal within the Trading Journals forums, part of the Reception category; I’m starting this new thread for my active trading via my spread betting account. I will be focusing on trading ...

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Old Jan 4, 2011, 2:27am   #1
 
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isa's short term trading journal

I’m starting this new thread for my active trading via my spread betting account. I will be focusing on trading the S&P 500 index, Stocks and Commodities. My goal is make 3%+ per month but risk a maximum of only 1.5% of the account a month to achieve this.

I’m a discretionary trader, so I don’t have a set mechanical system to follow, but I’ve been trading fairly actively in an ISA for the last few years and have got to a reasonable level of proficiency (see my other journal Trading in an ISA to pay off my mortgage). So I’m confident that I can continue to be profitable, and hopefully more profitable than before by trading actively with much lower costs than I’ve been able to in an ISA.

I began the spread betting account in the middle of October 2010 with £4024.61. The £24.61 was left over from 2007 when I first tried spread betting and managed to blow up a few small £500 accounts, as I didn’t know what I was doing and was massively undercapitalised. Suffice to say it put me off using a leveraged account and I decided to educate myself and invested in actual stocks and shares in an ISA instead. But now I’m more confident in my trading ability and am very strict with my money management, I thought I could handle a spread betting account better now.

The performance in the account over the first two and half months has been reasonable. October was +1.02%, November was +2.46% and in December I hit my draw down limit of 1.5% in the middle of the month, so I stopped trading and did some analysis of my trades and lots of reading. Which I’m really pleased I did now, as it’s been really helpful to spend time analysing my trades in depth and see where I’m making the biggest mistakes.

I’d say I’m mostly a swing trader, but my recent reading has led me to look into breakouts using stocks that are strong relative to their sector and the market. So instead of buy low and sell high, the aim will be to buy high and sell higher. I think both methods have their strengths, so I will use my discretion and not stick slavishly to one method.

I tend to be a long only trader, but if I see an opportunity to go short then I will if the price action and setup looks right. But I’ve been more successful on the long side.

Money mangement

Maximum risk per month: 1.5%
Target risk per trade: 0.5%

Because of the account size I’m limited in what I can trade which meet my risk tolerances, so a lot of stocks, commodities and indices won’t be accessible to me until I have a bigger account. Especially as I plan to scale into my positions, so as to limit the risk of a wrong decision affecting my account in a big way. In Reminiscences of a Stock Operator the person talked of scaling into a position in five trades and only scaling in when each position was making profit. I’d like to do that, but it would limit what I could trade even more, so I’ll try and aim for 2 to 3 steps.

Trade Rules

Every potential trade needs to be put into my trading spreadsheet before I place an order. Every column needs to be filled in, especially the stop loss, target and risk/reward ratio.

1. Calculate the stop loss position. I use trailing stops with the Elder safezone method.

2. What’s the Daily Channel size? – I use Keltner Channels with a 22 day exponential moving average and a 10 day Average True Range (ATR) with a multiplier of 2.7. This is used to calculate price targets and grade the trades once they are closed.

3. Calculate the exit price target. This is normally the top of the channel if bought in the middle of the channel or the value zone between the 11 Day EMA and 22 Day EMA if a swing trade. But the aim is to get 30% or more of the daily channel size on each trade.

4. Calculate the entry price target.

5. Do I have available risk based on the 1.5% rule?
– If no, then no trade is possible. Place on my watchlist.
– If yes, then calculate the risk reward ratio.
– Is the ratio 2 or above?
– If no, then no trade is possible
– If yes, calculate how much I should risk for the initial postion.

6. Create a diary entry.

7. Once the trade is completed, update the trading spreadsheet and update the diary with the exit charts.

8. Analyse the closed trades at the weekend to see how I can improve.

Trade Grades

Each trade is graded once it is closed by using the percentage of the daily channel captured from when the trade was opened. A to C- grades are profitable trades and D grades and below are a loss.

A+ 40% and above
A 30-40%
B 20-30%
C 10-20%
C- 0-10%
D Below 0%
E Below -10%
F Below -20%
G Below -30%

Weekly

– Update the equity curves
– Update the trading spreadsheet and monitor risk
– Review the weekly and daily charts of the indexes, commodities and major currencies.
– Check the economic data scheduled for the week ahead.

End of Month

– Update the monthly performance chart
– Recalculate the maximum risk for the following month
– Calculate relative performance versus the S&P 500 index
– Review the market breadth charts (New Highs New Lows, NYSE Bullish Percent Index and NYSE Cumulative Advance Decline)
– Review the monthly charts of the indexes, commodities and major currencies.

Conclusion

I think this quote from Jesse Livermore is suitable as a conclusion to my trading plan. "A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weaknesses."

Below is my trading spreadsheet, monthly performance chart, profit and loss chart and ratio vs the S&P 500 so far.
Attached Thumbnails
trades_spreadsheet_3-1-11.png   monthly-perf_3-1-11.png   equity-curve_3-1-11.png  

ratio-vs-sp500_3-1-11.png  
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Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill Ė Reminiscences of a Stock Operator.

Last edited by isatrader; Jan 4, 2011 at 5:14am.
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Old Jan 4, 2011, 8:35pm   #2
 
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SP 500 Short Entry Ė Mar 11 Spread

isatrader started this thread Iíve gone Short the SP 500 Mar 11 Spread

Entry Price: 1264.80
Stop: 1273.20
Target: 1225.00

Risk/Reward Ratio: 4.74
Attached Thumbnails
sp500_30min_4-1-10_entry.png  
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Old Jan 6, 2011, 2:49am   #3
 
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Re: SP 500 Short Entry Ė Mar 11 Spread

isatrader started this thread
Quote:
Originally Posted by isatrader View Post
Iíve gone Short the SP 500 Mar 11 Spread

Entry Price: 1264.80
Stop: 1273.20
Target: 1225.00

Risk/Reward Ratio: 4.74
I had a power cut at midday today and the sky broadband modem broke. So Iíve had no internet all day. Is really annoying as it is going to take them 5 days to send a replacement box. Finally realised I could still use dial up about 30 mins ago, but only if you turn off all the JavaScript and images. Otherwise it takes an age for a page to load. Anyway, because of all this bother today, I wasnít able to get onto my spread betting platform to close my position out when the down move started to turn around in the S&P. So annoyingly itís been closed out at my stop loss.
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Old Jan 7, 2011, 2:04am   #4
 
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Market Breadth Charts

isatrader started this thread Attached is the the following Market Breadth Charts from stockcharts.com free charts section:

$CPC (CBOE Options Total Put/Call Ratio)
$NYAD (NYSE Advance Decline Issues (EOC)) Ė Iíve put the S&P 500 behind to compare.
$NYSI (NYSE McClellan Chart)
$NYHL (NYSE New Highs-New Lows (EOD))
$BPNYA (NYSE Bullish Percent Index)
$NYA200R (NYSE Percent of stocks above the 200 day moving average)

Also Iíve included the following relative performance charts

$NYA:$USD (NYSE/US Dollar)
$NYA:$SPX (NYSE/S&P 500)
$INDU ($TRAN behind price Ė Dow Theory)
SPY:TLT (S&P 500 SPDRs/iShares Barclays 20+ Year Treasury Bond Fund Ė This is a measure of the risk on, risk off trade. It looks like it needs a pullback to the moving average soon.)
Attached Thumbnails
sc.png   sc-1.png   sc-2.png  

sc-3.png   sharpchartv05.png   sharpchartv05-1.png  

sc-4.png   sc-5.png   sc-7.png  

sc-8.png  
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Old Jan 7, 2011, 5:15pm   #5
 
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SP 500 Short Entry Ė Mar 11 Spread

isatrader started this thread I’ve gone short the SP 500 Mar 11 Spread again after the earlier failed attempt this week. My broadband is fixed and I have a backup USB mobile broadband as well now, so no excuses for missing the move this time.

Non Farm Payrolls created some volatility today, but I waited until the US session had had a chance to digest it a bit and see what direction seems to be forming at the moment.

Trade
SP 500 Mar 11 Spread
Entry Price: 1267.1

Stop: 1278.4
Target: 1244.5

Account Risk: 0.14%
Potential Account Profit: 0.28%
Risk Ratio: 2

Update (5pm): The entry point seems to be ok, prices have broken down towards the main uptrend line which should provide some support, so a new short term down trend line is in place with the meeting of the lines on Tuesday next week.
Attached Thumbnails
sp500_4hr_7-1-10_entry.png   sp500_daily_7-1-10_entry.png  
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Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill Ė Reminiscences of a Stock Operator.

Last edited by isatrader; Jan 7, 2011 at 6:07pm. Reason: Update
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Old Jan 9, 2011, 4:17pm   #6
 
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Weekend Update

isatrader started this thread Iíve had a fairly slow start to the new year and only entered two trades. The first one was correct on the intraday move, but I wasnít able to monitor the position due to broadband problems, so it closed out at the initial stop loss I set when the price rebounded. I put on the second trade yesterday a few hours after the US opened to give it time to absorb the NFP data earlier in the day. I used a very small position size of 0.14% as it was a short entry and the market has struggled to breakdown of late. But my intention is to add to the position if the market looks to be going that way next week. But if it doesnít then the loss to the account will be limited to a maximum of 0.14%.

Iím in a protective mode at the moment as the market is up over 20% since the summer lows. So using Victor Sperandeoís advice from The New Market Wizards book, that would put the current bull move in 80 year old+ category. So although it might live on for a while yet, the probability of a reversal is getting more likely every day. So Iím going to keep position sizes small and trade without directional bias. i.e. both short and long positions and see how I go.

Attached below is my trades spreadsheet and profit and loss chart.
Attached Thumbnails
trades_spreadsheet_7-1-11.png   equity-curve_7-1-11.png  
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Old Jan 10, 2011, 10:04pm   #7
 
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Re: SP 500 Short Entry Ė Mar 11 Spread

isatrader started this thread
Quote:
Originally Posted by isatrader View Post
Iíve gone short the SP 500 Mar 11 Spread again after the earlier failed attempt this week. My broadband is fixed and I have a backup USB mobile broadband as well now, so no excuses for missing the move this time.

Non Farm Payrolls created some volatility today, but I waited until the US session had had a chance to digest it a bit and see what direction seems to be forming at the moment.

Trade
SP 500 Mar 11 Spread
Entry Price: 1267.1

Stop: 1278.4
Target: 1244.5

Account Risk: 0.14%
Potential Account Profit: 0.28%
Risk Ratio: 2

Update (5pm): The entry point seems to be ok, prices have broken down towards the main uptrend line which should provide some support, so a new short term down trend line is in place with the meeting of the lines on Tuesday next week.
Trade Update

Price in the S&P broke down to test yesterdays lows today during the European session, but have rebounded back up to my entry level of 1267.1. Iíve been moving my trailing stop down and the account risk is now only 0.04%.

Technically thereís a triangle formation on the chart which converges on Tuesday night, so a possibility of a tight range tomorrow between the trend lines. It hasnít reached the downtrend line on the RSI yet and MACD is ticking up as well, so the key for me will be how it reacts to the downtrend line if it reaches it. As Iím planning to add to my position if it makes a convincing top there.

Below is the updated 4 hr chart.
Attached Thumbnails
picture-4.png  
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Old Jan 11, 2011, 6:10pm   #8
 
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SP 500 Short Exit Ė Mar 11 Spread

isatrader started this thread
Quote:
Originally Posted by isatrader View Post
Trade Update

Price in the S&P broke down to test yesterdays lows today during the European session, but have rebounded back up to my entry level of 1267.1. Iíve been moving my trailing stop down and the account risk is now only 0.04%.

Technically thereís a triangle formation on the chart which converges on Tuesday night, so a possibility of a tight range tomorrow between the trend lines. It hasnít reached the downtrend line on the RSI yet and MACD is ticking up as well, so the key for me will be how it reacts to the downtrend line if it reaches it. As Iím planning to add to my position if it makes a convincing top there.

Below is the updated 4 hr chart.
My short position in the SP 500 Mar 11 Spread was stopped out at 1272.5 after the market broke through the short term down trend line earlier today and has continued higher throughout the session. I had raised my trailing stop a few points this morning before going to work - to give it a little bit more room, but the move higher proved too strong. The technicals still look like the market is near a top, but the price action is to the upside still, so although I have a short bias, Iím going to wait for the price action to give a new signal before getting back in again for a third try at shorting the market.

Closing trade
Entry Price: 1267.1
Exit Price: 1272.5
Points: -5.4
Trade Percentage: -0.42%

Daily Channel Captured: -13%
Trade Grade: E

Account P/L: -0.07%

Below is the 2hr chart of the whole trade.
Attached Thumbnails
sp500_2hr_7-1-10_exit.png  
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Old Jan 11, 2011, 8:47pm   #9
 
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Hecla Mining (HL) Ė Entry

isatrader started this thread Trade
Hecla Mining Mar 11 Spread

Entry Price: 1036.5

Stop: 968
Target: 1161.5

Account Risk: 0.55%
Potential Account Profit: 1.01%
Risk Ratio: 1.82

Hecla Mining (HL) is a silver miner and has a big run of late. Looks like itís pivoting to me and following the gold and silver move. My entry wasnít as good as I wanted as I just missed my target price, so the risk is 0.05% higher than my maximum for a single trade of 0.50%

Attached is the 30 minute entry chart and the daily gold chart.
Attached Thumbnails
hl_30min_11-1-11_entry.png   gold-daily-11-1-11.png  
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Old Jan 11, 2011, 9:44pm   #10
 
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Sharp Ratio Target

isatrader started this thread Attached is the sharp ratio calculation for my spread betting portfolio. The annual calculation is my target which is based on my target profit of 3% a month and the current calculation for the first 3 months trading is at the bottom.

Annual Sharp Ratio Target: 6.09

Current 3 month Sharp Ratio: 0.52
Attached Thumbnails
sharp-ratio-11-1-11.png  
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Old Jan 11, 2011, 9:57pm   #11
Joined Dec 2006
re: isa's short term trading journal

Aren't you wasting your time with target of 3% per month?
No offence.

If you are " an active s/b trader" your target should be around 2-3% a week.
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Old Jan 11, 2011, 10:18pm   #12
 
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re: isa's short term trading journal

isatrader started this thread
Quote:
Originally Posted by top trader View Post
Aren't you wasting your time with target of 3% per month?
No offence.

If you are " an active s/b trader" your target should be around 2-3% a week.
None taken, Iím not a day trader - I have a full time job. So unless I was considering myself in the same category as the market wizards I think a 36% target for the year would be excellent by only risking 1.5% a month. I will be really happy if I manage to make 10% by the year end.
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Old Jan 12, 2011, 1:35am   #13
 
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re: isa's short term trading journal

isatrader started this thread
Quote:
Originally Posted by top trader View Post
If you are " an active s/b trader" your target should be around 2-3% a week.
I thought it would be good to clarify why the title is active spread betting journal. I appreciate the majority of people on this site are day traders and trade mostly forex, so they probably wonít agree that Iím actively trading, so maybe I should have used a different title like 'Whenever I see a trade spread betting journal. But you canít change it, so thatís what Iím stuck with.

Iím not a day trader, I run a graphic design service from home and monitor the market throughout the day. So although I do place intraday trades some of the time. Most of my trades will be a few days or more with the spread betting account and sometimes even longer as I like to use a trailing stop.

My main shares account is in an ISA, and Iíve been told I was trading too actively in it, which was costing me too much money per trade and affecting my profit margin. So Iíve moved my active trading to this spread betting account with lower fees, and am keeping my longer term portfolio in the ISA.

Hope that helps to clarify the rubbish title.
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Old Jan 12, 2011, 2:23am   #14
 
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Money Management

isatrader started this thread
Quote:
Originally Posted by isatrader View Post
Money mangement

Maximum risk per month: 1.5%
Target risk per trade: 0.5%

Because of the account size Iím limited in what I can trade which meet my risk tolerances, so a lot of stocks, commodities and indices wonít be accessible to me until I have a bigger account. Especially as I plan to scale into my positions, so as to limit the risk of a wrong decision affecting my account in a big way. In Reminiscences of a Stock Operator the person talked of scaling into a position in five trades and only scaling in when each position was making profit. Iíd like to do that, but it would limit what I could trade even more, so Iíll try and aim for 2 to 3 steps.
I thought Iíd add to my money management section from the opening post as just saying Maximum risk per month: 1.5% and Target risk per trade: 0.5% isn't very clear as it doesnít mean I'm only risking 1.5% of my account size each month, as the trade sizes would have to be minuscule.

Every trade is placed including a stop loss, which in theory limits the risk to the stop loss level, which I aim to set to a maximum of 0.5% risk per trade. Of course though, the market or share could gap past the stop loss and be closed at a much lower price. So to mitigate against a catastrophic loss (black swan event) my aim is to only trade long in shares and indexes that I could afford to lose 100% in without it blowing up my account. For example if I trade the SP 500 Mar 11 Spread for 50p per point and the price is 1270. The maximum risk to my account is £635 if it crashed to zero. Which is around 15% of my account. However if I go short the risk is much higher on individual shares as a bid or some other news could send it through the roof. So my aim is to only go short on the SP 500 spread as the probability of that going up 100% or more instantly is very low, but could still happen someday. A Flash spike caused by the trading machines maybe or something no oneís thought of yet.

Another account protection I have is that I will generally only have a few or more trades on at the same time and I usually wonít put on the second trade until the first trades stop loss has moved to break even. So if my total black swan risk gets above 50% then I wonít add anymore positions.
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Old Jan 13, 2011, 6:35pm   #15
 
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SP 500 Long Entry Ė Mar 11 Spread

isatrader started this thread Trade
SP 500 Mar 11 Spread

Entry Price: 1282.9

Stop: 1279.9
Target: 1292.9

Account Risk: 0.04%
Potential Account Profit: 0.60%
Risk Ratio: 16.29
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