Foreign Exchange

Now for a change of flavor.  I like to trade currencies when I am able.  Even though I cannot trade at the moment I still like to check for signals - having done so I might as well put them in here and track them.

AUDNZD
I see a shooting star rejecting nearby resistance.  I would place an entry order half way up the candle at 1.0725 with a stop at 1.0777.  I would like to see this heading into the old lows at 1.0569 giving a conservative R:R of 1:3 - let's see how it plays out.

Disclaimer
I am not a financial adviser.  I am not suggesting you follow these signals.  If you take any action based on my blog you do so at your own risk.

New trades for Monday 10th March 2014

With three new systems now running I decided it will be easier and cleaner to use one page for the entries and exits.

New trades

Hitcher
 AGI Stop 4.07
 VRL Stop 6.90

Random
ARG Stop 7.05
AJA Stop 3.56
CHC Stop 3.78 - Disclosure - I own shares in CHC
SYD Stop 3.92

Flipper
MDL Stop 1.98
SYR Stop 2.60

Disclaimer
I am not a financial adviser.  I am not suggesting you follow these signals.  If you take any action based on my blog you do so at your own risk.

Flipper System : Introduction

Having introduced the Hitcher and the Random system, I thought maybe a third system with a very different methodology might make a nice counterpoint for comparative purposes.

In his book "Unholy Grails" Nick Radge compares and back tests a number of systems that are all over the internet in one form or another.  To get the full flavor of this type of trading I urge you to buy this book.  I don't receive any fee for endorsing anything I mention in this blog but I'm happy to recommend things that have been significant in my trading journey.  If I could go back in time and only buy 10 trading books rather than the 100 or so I have read then this would be one of them.

One of the systems in Unholy Grails is the 20% flipper.  Quite simply if a stock rises 20% from a low, it's a buy and if it then falls 20% from a high you sell it.  The aim is to hold 20 stocks.  There is an on/off version which gives a smoother equity curve but the raw flipper contains very little in the way of rules.  Hilariously it was one of the best performing methods in the book in terms of outright return, but it also has a fairly significant draw down occasionally which would make it hard for many people to trade in real life.

Here is a quick look at one stock over a period of time.  You can see that the profitable trades outweigh the losing ones but you can also sense the frustration available to the people who need to be right.  In the back tests Nick Radge did, the Flipper had a win rate just over 40% so we need to remember that trading isn't about being right - it's about making money!

Chart courtesy of www.IncredibleCharts.com

As I am not trading with my money here I will run my version of the 20% flipper over the ASX 101 - 300 with no on/off switch.  The money rules have to be a little different because I don't think it's a system suited to using leverage (at least not at the rates my CFD provider charges) so I will pretend I have a $100,000 account with a normal broker and that I am paying $20 a side brokerage.  I will still hold a maximum 16 stocks and start off buying $6,000 at a time.  I will also go all in and buy flat out until the book is full.

27th April 2014 - In an effort to stop the Flipper buying so many dogs I have amended the universe from the ASX 101 to 300 to anything in the All Ords with a minimum turnover of $500,000 a day and a minimum price of 25 cents.  I then amended the maximum (currently $10) price until I got a universe of 200 shares

Random System : Yes that's right, your eyes aren't deceiving you!

As I have mentioned before, I believe that, if your universe is full of up-trending stocks, then buying randomly should produce positive returns over time provided you trail stops sensibly etc etc

In an effort to prove this I will run a random portfolio alongside the Hitcher system using roughly the same rules.  The big difference is that instead of using the RSI, Volatility trigger I will generate a random number and buy that number stock, out of my list of stocks, as long as the initial risk is less than 10% of the price.  I will also only use the Hitcher hard stop rather than the two stop system.  Finally, my profit target will be the hard stop plus 4.5R


One thing is for sure - it will be a lot easier finding a stock to buy than plowing through the 150 - 200 odd charts this universe includes.

So, without further ado, the first four numbers out of the hat are 9, 12, 29 & 96


  Lets look at the charts

9th in the list is ARG - Closed at 7.28 Stop is 7.03

12th is AJA - Closed at 3.95 Stop 3.56 - just meets the stop loss criteria

29th CHC - Closed 4.07 Stop 3.78 (disclosure - I own shares in CHC)

Finally SYD - Closed at 4.22 Stop 3.92

All Charts courtesy of www.incredibleCharts.com

Well see how these open on Monday but don't forget the ...

Disclaimer - I am not a financial adviser, I am not suggesting you follow these signals.  I am only paper trading them myself.  If you take any action based on my blog you do so at your own risk.

Hitcher System 4 : The Plan "If you fail to plan - you plan to fail"

In reality the first three Hitcher posts also form part of the plan too, but this general section will be common among the Hitcher trades and the random trades (more on them soon).

My Imaginary account will start with $50,000

My brokerage will be 0.1% of the trade size (minimum 8%)

The account is leveraged and borrowing costs are RBA Cash Rate + 3%

Maximum Risk per trade ( R ) starts at $800 but will increase each time the trading capital steps up another 10 grand as in the following table.  You can see I want my trade size to grow BUT I want it to become a smaller percentage of the capital

Maximum Trade Count : 16
Maximum new trades each week : 4
Maximum open R : 6R

Hitcher System 3 : Exit(s)

I use the term exit(s) in the title but obviously I can only sell the stock once.  There are three scenarios that will cause me to get out.

chart courtesy of www.IncredibleCharts.com

Initial and soft stop (Orange Line)
this is the low of the last 25 days - I will calculate my position size from this and it will be my trailing stop but only on paper - if there is a close below this line I will move my hard stop up to the low of the day.

Hard Stop (Red dots)
I never leave a trade in the system without some kind of disaster protection.  When the system is on then the lower of the two stops should do the job.  When the system is off then I will be more defensive and use the higher of the two.

Target (Blue Line)
Occasionally things bubble up and I like to take my money and run when they do.  I know that's not a normal part of the trend followers creed but we all have our quirks - note  that my target will never go up and down like this wiggly line - up is the only acceptable direction.  Also, I will set this at 3R profit at trade inception - that is the minimum I want for a snatch and grab style trade.

Hitcher System 2 : Entry

An unseemly amount of time has passed since I discussed the on/off rules for this system.  As they say - "Life is what happens while you are making other plans!"

So let's get stuck into the rest of the plan and start making trades.

Assuming our system is turned on we need a universe and a buy rule.  For this exercise my universe is all ASX stocks priced between 20 cents and 10 dollars where the 20 day moving average of value traded is above $500,000.  I take that list about once a month and immediately remove anything not in a decent up trend.

When will I be buying?

chart courtesy of www.IncredibleCharts.com

Remembering that I once said "If your universe of stocks are all in an uptrend you can just about buy randomly and trail a stop".  It therefore follows that I don't believe in getting too complicated with buy criteria.  Quite simply I'm looking for a dip in the RSI followed by a volatility breakout then I will buy the next open PROVIDED THE RISK IS LESS THAN 10% OF THE OPENING PRICE.

Next...  Exits