Gareth's Strategy 3 Journal

[garethb]

Not so much Grey1's daily P&L as Garethb's daily comedy of errors.

background

I've been trying to get strategy 3 to work for a while and have not really been succeeding so I've decided to do it in public to see if any of the following might occur a) sometimes posting my thoughts helps me to identify more clearly what they are - not sure why b) somebody may help me identify something wrong either in my "plan" or execution which is causing me to fail.

I will try to keep this up until such time as I manage to make it work but I don't know what the impact will be on my mindset etc. so may stop at any time (like tomorrow if I don't like doing it) so no promises.

status

Currently I have retrenched to "roll forward testing" or paper trading for now but am trying to do it absolutely live being strict about identifying and sticking with decision points in real time. I will report when I switch to real trading. Apart from the fact that I may sometimes be away from my desk for part of the day I will paper trade strategy 3 all day. I am aware of differences of opinion on whether strategy 3 is appropriate to midday consolidation but in paper trading that will be part of the test. I may in the future go live for only part of the day if evidence is it doesn't work all day.


I will also be calculating position sizing in real time and reporting notional P&L in $$$ so:

a) I have to do all the calculations I would do live and write them down before writing down the price I would hope to get a fill
b)We can see more clearly if it works since +20c here and -10c there doesn't actually tell you whether its a profit or loss in "ATR world"

I will base my trade sizing on a notional risk per trade of $150. This is well below 1% of my account but it is a figure which allows my position calculations to produce sensible numbers and is a figure I would hope to be able to commence trading live with. My position sizing algorithm is not quite the same as Grey1's since I divide the risk capital by 3 and apply to this the ATR based stop in 3 timframes.

I will post today's trades tomorrow morning

Gareth

 

[evostik]

Not so much Grey1's daily P&L as Garethb's daily comedy of errors.

background

I've been trying to get strategy 3 to work for a while and have not really been succeeding so I've decided to do it in public to see if any of the following might occur a) sometimes posting my thoughts helps me to identify more clearly what they are - not sure why b) somebody may help me identify something wrong either in my "plan" or execution which is causing me to fail.

I will try to keep this up until such time as I manage to make it work but I don't know what the impact will be on my mindset etc. so may stop at any time (like tomorrow if I don't like doing it) so no promises.

status

Currently I have retrenched to "roll forward testing" or paper trading for now but am trying to do it absolutely live being strict about identifying and sticking with decision points in real time. I will report when I switch to real trading. Apart from the fact that I may sometimes be away from my desk for part of the day I will paper trade strategy 3 all day. I am aware of differences of opinion on whether strategy 3 is appropriate to midday consolidation but in paper trading that will be part of the test. I may in the future go live for only part of the day if evidence is it doesn't work all day.


I will also be calculating position sizing in real time and reporting notional P&L in $$$ so:

a) I have to do all the calculations I would do live and write them down before writing down the price I would hope to get a fill
b)We can see more clearly if it works since +20c here and -10c there doesn't actually tell you whether its a profit or loss in "ATR world"

I will base my trade sizing on a notional risk per trade of $150. This is well below 1% of my account but it is a figure which allows my position calculations to produce sensible numbers and is a figure I would hope to be able to commence trading live with. My position sizing algorithm is not quite the same as Grey1's since I divide the risk capital by 3 and apply to this the ATR based stop in 3 timframes.

I will post today's trades tomorrow morning

Gareth

Gareth

Good luck with it. A couple of comments if I may...

Is there varying views on whether it works 'during lunch'? In my opinion, volitility drops too much during lunch (12ish to 2ish) for Strat 3 to be effective.

What do you mean by "I divide the risk capital by 3 and apply to this the ATR based stop in 3 timframes"?

Cheers

Steve

 

[garethb]

Position Sizing

Steve

If my risk amount is $150 and my stops in the 3 timeframes are 10c, 25c and 50c then my positions by timeframe are

150 / 3 / 10c = 500
150 / 3 /25c = 200
150/3/50c = 100

for a total position of 800 and a total loss of $150 if they all get taken out (ignoring slippage)

I know this is different from Grey1's calculation but I feel more comfortable because I can accept a known loss (slippage aside of course). I know that Grey1 does not let positions run to the stops but I need to feel that I have a known risk going in and accept that risk. With the Grey1 calculation I found myself sometimes in positions where the loss if stops were taken was potentially bigger than my notional risk amount I then end up not accepting the possible loss from the start which for me then causes a problem interpreting events.

 

[vegas]

Hi Gareth,

FWIW I too am having trouble with finding the consistency regarding Strategy 3. I know it could be many variables on my behalf - I just need to keep working at it.

(IT IS NOT THAT I HAVE'NT READ AND RE-READ THE THREADS BTW !!!!!)


I shall be very interested in your postings and wish you success.


Frank.

 

[garethb]

Tuesday 10/31/06

All times Eastern Time - hope my abbreviations make sense

Signal Long 10:11
L 400 AKAM 46.82
sell 200 - 47.00 - Traded at previous High of Day (HOD) 47.10 but I missed it, mkt making new lows so closed 1 min position

Signal Long 10:21
L 200 AKAM 46.88 - Still holding 200 from previous signal
sell 200 47.27 - hit MPD band so close 1 min position
sell 200 47.35 - stock EE - 135/103/104
trade closed at ~ 10:36

total p/l on two signals +208 net of 1c per share commission each way


Short signal 10:58
11:01 S 600 ERTS 53.43 - wrong stock went for one at VWAP rather than nearest LOD (EXPD)
cover 300 53.37 - traded back above a small consolidation pattern in 1 min TF
11:19 cover remaining 300 53.42 I decided market was resuming its uptrend

P/l +9 - hindsight judgement - missed a significant down move over next hour +


Short signal 13:54
S 1000 ERTS 52.83
cover 500 52.75 - consolidation on 1 min chart and MACCI OS on 5 min, also mkt breaking prior high
stopped out remaining two TFs on trailing stops
200 @ 52.88
300 @ 52.89

P/L -8

Short Signal 15:06
15:08 S 400 SNDK 48.17
cover 200 48.07 - stock partially exhausted (-124/-54/-55)
stopped out on trailing 3 min stop - 100 @ 48.24
cover 100 @ 48.17 - mkt breaking out of long consolidation pattern on 5 min chart

P/L + 5


Overall impressions - better day than sometimes up $214. Market did not trend but seemed to oscillate nicely over a wider range rather than the choppy consolidation interspersed with trending days we seem to have seen so much of recently. Some good signals with the market reversing quite promptly.

Exited a potentially good trade in ERTS on a judgement - was this a mistake (other than in hindsight?) I was conscious in recording the above trades that I give numerous reasons for exit and in may appear to be a bit arbitrary. I do have some rules which I will document shortly.

Gareth

 

[garethb]

So that people can follow and compare my signals with their own here is my setup. For reasons that may very well become obvious over the next few days this is not a recommendation, just what I happen to use.

use MACCI on $INDU to represent market
3 timeframes - 1 min, 3 min and 5 min.
MACCI parameters 6 and 5

I have an alert on my system if all 3 tfs are > +90 or < -90 but I don't consider it an entry signal until all 3 tfs are >+100 or < -100.

 

[garethb]

Trade management

Attached trade management rules

Also I exit if the market starts moving against the postition. This is obviously rather subjective. I cannot decide whether it is better to retain this or just sytematically use trailing stops.

Overall I guess it might be argued that there are too many rules for exit allowing my mind to find a reason to do the wrong thing in a wide range of circumstances

Any input is welcome

Regards
Gareth

 

[evostik]

Hi Gareth

By way of just a quick glance, your successful trade yesterday was from going LONG on a STRONG stock. The others were SHORTs on Strong stocks. (Strong/Weak based on open gaps). Please correct me if I have mis-read it.

Lets see what happens today eh!

Good luck,

Steve

 

[garethb]

Hi Gareth

By way of just a quick glance, your successful trade yesterday was from going LONG on a STRONG stock. The others were SHORTs on Strong stocks. (Strong/Weak based on open gaps). Please correct me if I have mis-read it.

Lets see what happens today eh!

Good luck,

Steve

Maybe - gap up on ERTS was only about 2c although I agree it did trade up for 1st 15 mins or so. Seemed to be in down trend when I selected it but, as I said in my log, it had pulled back to VWAP (which was the entry point I used to think was recommended) rather than being nearest the low of the day. Nearest the low on my list was probably EXPD but I find it hard to short stocks very near their lows. Hindsight (as well as strict following of rules says I should have shorted EXPD)

SNDK had gapped up perhaps 30c but had been trading down all day I'm not sure you can call a stock strong at 3:00 in the afternoon because of a 30c gap up.

Not sure I perhaps don't take enough notice of gaps.

 

[garethb]

Wed 11/1/06

10:30 Long Signal

L 800 COST
Stopped out
400 @ 53.59
200 @ 53.54
200 @53.41

P/L -134

 

[evostik]

Bad luck on COST Gareth.

It looked like a good setup to me: Had an open Gap up; was in positive territory when you took the trade; MACCI INDU OS in 3 timeframes.

Would be good to here views of more experienced trader of strat3 on this.

Steve

 

[garethb]

Long Signals at 11:54 and again at 12:44 but no strong stocks on my watch list so no trades

Gareth

 

[garethb]

14:19 another long signal - still no strong stock on watchlist

RHAT is nearest candidate (at $16.53) but too narrow range today to be worth risk so no trade

 

[garethb]

long signal 3:08 ish - but I think we might be in a downtrend now - I have no strong stocks still!!

 

[garethb]

Not trading from the open today due to domestic duties. May return for after lunch session.

Gareth

 

[garethb]

Long signal 11:25
L 800 VLO 51.48

edit 11:52
Sell 400 51.65 - new High, upper MPD and EE +107/+105/+12

edit 12:20
Sell 400 51.87 - EE on stock +111/+95/+95

P/L +208 net

 

[garethb]

Finished for today as I am taking children to firework display. Also have no desire to watch VLO making like a rocket now I have closed my position. I will post a log of trades so far as a spreadsheet over the weekend.

Gareth

 

[Nastrader]

Attached trade management rules

Also I exit if the market starts moving against the postition. This is obviously rather subjective. I cannot decide whether it is better to retain this or just sytematically use trailing stops.

Overall I guess it might be argued that there are too many rules for exit allowing my mind to find a reason to do the wrong thing in a wide range of circumstances

Any input is welcome

Regards
Gareth

Hi Garethb,

Great list on your Stop and Exit strategies, which provides rules to trade by. Helps to focus on the trade, and limits one’s emotions (or at least it’s a good attempt – LOL). IMO, this list of yours is great, because over time you will verify whether or not each item listed needs refinement or can stand on their own merit.

I’d like to make a comment about 2 of your exit indications for TAKING PROFITS:

Exit – Previous High for the Day (stock).

Exit – New High for the Day.

Through my years of trading I find that many traders look for new HOD as a trading strategy for various reasons. A few would be the shear momentum of other traders desire to take HOD stocks higher (as long as the stock is not extended), another is by traders who are Short, use HOD as their stop which results in a short squeeze, and this is when the shorts capitulate. Thus the momentum builds with an increase in volume in both cases. To clarify, it’s not the HOD, but by a price above by 10c or so that causes volume and price momentum to increase.

I agree that if a stock’s price is extended on an intra-day basis, this would cause me to place a sell price prior to HOD, but if the Market was in a strong trend, and the stock continued to follow then I’d stay in.

I would just recommend keeping on eye on these situations, and see what you observe.

Good Luck on your trading log,

Nas

 

[garethb]

Nas

Thanks for your feedback. It's much appreciated. I've read it a couple of times but want to think about it some more.

Cheers

Gareth

 

[Nastrader]

Hi Garethb,

No problem mate. Just wanted to add a comment about exits.

Another comment about exits, if I would be in a trade from, lets say between two whole #’s, I’d place a sell stop at about $xx.96. For example, Long from 36.21, and the price just keeps running up, I would place a sell stop at 36.96. Since the next whole # usually acts as resistance. Some times the price blows thru the next whole #, but then violently pulls back thru the same whole number to hover around the $xx.80 to hi $xx.90’s. This concept usually works when there is momentum (volume) in a trending market & with the proper stock.

Cheers,

Nas