Hi all, This must be my first post for over a year, and my first post that will not mention any tech. indicator! I am sharing the following because I have learnt a lot from various folk in this forum, and just maybe something in this post helps someone else and/or helps me again.
5-6 weeks ago I got bored being in cash, and either in a 4 am flash or at the traffic lights, decided to see if it was possible to do all of the following in a trading system: 1. Make a decent living with CFDs (as against my usual form of losing money trying to get rich quickly) starting with $8500 (the balance in the CFD acct at the time 2. Take out almost all the fear associated with the CFD leverage 3. Make money regardless of whether the market is bearish or bullish or whatever 4. Reduce the likelihood of a very nasty morning on the back of a terrorist attack or other calamity in NY!
I decided to: 1. keep position size small and constant. 2. Stick to the australian market 3. be short and long in approximately equal $ amounts all the time 4. Use the technicals to get me into and out of trend following positions in a robotic, emotion free fashion 5. Not put stop orders in the market. Rather, check each position at end of day to see if a new stop loss order was due. This might be at 3.30 pm, or after market close.
Result. After 6 weeks I now have 42 $3000 positions, with slight lean to the longs - maybe 22/42. I have always been a bit biassed to the long side - it seems to be difficult to stop myself thinking as a trader for upside profit!
Account balance has doubled as of Friday (on unrealised profits). I am astounded at how this is going. I expect it to kick me, but I have only had 1 bad day, and no bad weeks.
Would love to here if there is a basic flaw here, or how more experienced CFD traders would improve the system.
Aim number 4 has yet to be tested. I guess there could be an overnight disaster where the market sells my longs and buys my shorts ferociously. Am thinking about that possibility, and how to be ready for a 5% fall in leveraged account balance (ie, at the moment a capital loss of 5% of $128,000. However, even that result would leave me with a $2000 gain (about 20%) for the 6 weeks or so.
I intend continuing reinvesting profits. Am making about $1500-2000 per week now.
Some might think that having to check the charts on 42 stocks every day was a bit tedious. However, the decision as to whether a trend has stopped takes about a 3 seconds look for most of the positions, and a maybe 20 seconds if there is a bit of doubt. I will check 200 stocks in an hour every night if I have to, if the $ is still flowing in the right direction!
A disadvantage will be coming up next week if I cannot get on IC while overseas for a few days. However, the indicator used to alert me to put on a very tight stop loss or a sell order is available in the CFD provider and on yahoo charts.
Thanks adetsec. Do you mean my entry and exit rules?
My alert to put in the stop loss order is an RSI that has clearly crossed to the alternate side of 50. I tolerate the consolidation (ie, do not put in the stop order) if the RSI moves into contact with the 50 RSI, and going sideways on about a 50 RSI at support (for longs) or resistance for shorts. However, if it crosses over, then the stop loss order is entered, jammed up tight below or above the previous close.
Entries. Never trade against the 20 or 100 day ema
Longs. 20 day average Force Index has just crossed from below zero to above, and the RSI has also crossed to above 50, has paused, and then "respected" (ie, bounced up off) the 50 (or a bit more) RSI. If the signal is supported by good volume on the crossover I might just jump in without waiting for the RSI pause, but the 20 day average FI must be above 0. Am trying to get in at the start of trends. This signal would be a similar entry point for many people I suspect.
Shorts entry. Check the 20 and 100 day ema. 20 day average Force index is below zero, and the RSI has also crossed to below 50, has paused, and then "respected" the 50 RSI (ie, bounced down off the 50 (or less). I don't stick to religiously getting the first signal in the new downtrend - taking later signals has been profitable. I try to get them a day or so after they have hit resistance (ie, they have bounced down again after heading up towards the 50 RSI. I also like the 15 day average positive volume index heading south.
Hope this helps , and is what you were referring to by "rules". I have much greater respect for money management rules in this approach - eg, position size.
My losses have been about 5-8% of the position size (ie, about $200 (of $3000) on average). A $200 loss was 200/8500 % (about 2.3%) of cash balance initially. That is now more like $200/16600 (1.2%). Any stock showing a 5% loss gets my attention on the chart!
Probably a bit early for win/loss ratios - I am still in many stocks that I traded a month ago. At the moment there are 12 stocks out of 42 with small losses showing, but many of these are very recent entries. None of these unrealised losses exceed $200. I have several unrealised gains in several stocks of over $800 (poor Eddy G!)- I guess the average might be about $500. Will do the maths to confirm the numbers if you like, but these numbers do bounce a bit day to day.
have been trading CFDs since CMC started in Ozz -- changed over to IG early 2007.
If what your doing is working then great , but from my own trading -- Longs/Shorts/Hedges, Aust Stocks only .
1: with 42 positions I think your leverage is WAY to high . i now go in on the basis of a total of all positions not to exceed 3 times the Account size , hence your $8,500 would mean a Max of $25,000 total for all open positions .
2: NEVER EVER have a " AUTOMATIC STOP " - this is the biggest trap with CFDs in my opinion , far better the way your doing it with EoD -- maybe closer to around 3.50/3.55 pm though if you can otherwise next day around 11.30 am.
3: I,ve found sticking with XJO stocks only to be O/K as you can Short most of these or use them as a short term Hedge.
4: If you can handle all those positions at once then good , i prefer a max of 5 open at any one time over a max 20 day trading period.
5: remember , you are paying interest on the total position size for a Long .
good thread though -- hope we see some positive input , instead of all the bagging by those who do not understand CFDs.
cheers
The "Sea of Uncertainty" is defeated by the nimble vessel "Probability", not the unwieldy vessel "Prediction".
Excellent post thanks for sharing your system with us.
I guess you are basically following a Weinstein type entry system. I have been doing some day trades with CFD's for a while now but may give something like your system a try in the near future.
Not sure that I would have as much exposure as you though. I tend to like Coyotte's suggestion for limiting risk.
Phil
** Let blockheads read what blockheads wrote. Warren Buffett
dydavo. thanks for the info. i'm going to do some testing of your ideas and will send you the results in a private message. might take me a couple of weeks as i'm really busy at the moment. if you then wish to share it with the group that'd be good and i would encourage that. Please take on board comments by cototte and philr as i agree with their sentiments.
Comments for discussion only. Not to be construed as advice.
adetsec - of course I would share your analysis of the system if you were happy with that.
Yes, I guess it is a Weinstein type of entry - I do have a look for stong candles with good volume on long entries, The new 20 day average zero crossover of FI seems to correspond pretty well with the new trend commencing (no guarantees of course!)
I appreciate and understand the comments re risk.
re coyotte's comment; repasted, 1: with 42 positions I think your leverage is WAY to high . I now go in on the basis of a total of all positions not to exceed 3 times the Account size , hence your $8,500 would mean a Max of $25,000 total for all open positions .
I do agree that I am pushing the leverage, and of course there is potential for associated higher risk. Maybe time for me to resist the urge to spend every increase in the account balance! I have thought about the need to avoid a margin call if there was an overnight nastiness. Lets assume that I had 100k exposure, and the asx200 drops 10% on the open. $50K of longs is now worth 45k, and my hope would be, of course that my $50k of shorts are now worth 55k. It might not work out like that, but I would hope that I would not have a gut wrenching day. On recent 3% falls in the asx 200, I have either not lost money, or made some. On last Friday's 3% fall I made about 0.8% on the leveraged amount. Hard to predict what would happen each time, but I do sleep well, and don't give a rats what the Dow, or gold, or oil, or... has done overnight!
On a stock by stock basis, lets say I lose 10% (and no way will this be the average loss!). I am down $300. At the moment that is only a 300/16000 (1.9%) loss, tolerable, and if my number of small positions increased, this % decreases. I guess it is a balance between total borrowings and number of positions. van Tharp in one of his books reckoned 30-50 positions was ideal in an all long portfolio). I need to think about it more for sure.
might be a idea to clear a few things up , mainly in the risk factor side
1: you said you where using a one position size suits all -- what is that size and it's % of the cash bank
2: are you staying within a specific margin area ? ie : 3% or are you going higher
3: are your "HEDGES" against specific stocks, or Sectors or a Mix ? ie: in the gold sector SBM Vs LGL or Sectors such as Trans Vs Energy -- QAN Vs STO or just a Mix -- ANZ Vs BHP.
the above stocks are just picked as a example :
cheers
The "Sea of Uncertainty" is defeated by the nimble vessel "Probability", not the unwieldy vessel "Prediction".
Captain Chazza, Not a problem. Positions to follow in a follow up post - the 4 yo is desperate for the internet!
coyotte One position size, but it is a fixed dollar amount. I started with about $8500, and a position size of $3000. Margin to spend $3000 varies from 5-50% with IG. Position size is still $3000, so the % of the real cash balance is falling as the account size grows. Not sure what your 2nd question means. Maybe give me an example with the numbers. No, I am not trying to offset longs in one stock with shorts in another from the same sector. ie, the process has been essentially random, with some recognition as I scroll through my watch list that the financials, consumer discr, house building bits of the economic landscape are rubbish at the moment, and the materials are in better shape. I do look at the sector charts to see where the main strength and weakness is, but how I deal with that info is not something I could not describe (or even repeat reliably!). I guess I do try in a fairly unstructured way so far, for eg, to short stocks from different sectors so my exposure is diversified a bit. Maybe I could try to structure this some more.
Seems to me that hedge funds go broke when they try to predict the market direction, or take huge positions in a small number of investments. Comments anyone?
Current positions. 23 long, 20 short Of course this list is not any sort of financial advice or recommendation. It is part of a short term experiment that has not been backtested, and should be treated with the utmost skepticism by the reader!
Davo
long short AWC ABS AQP AUW BHP BOL CEY BKN CSL CGF CSR CEU ERA FXJ EQI FKP FMG FGL MCC JST MGX LLC MMX MQG MYO PBG NCM SEK OXR SEV PLA SHL RIO SUN SBM JHX WPL MTS IPL MOC LGL FLX GNC
I for one at IC will respect you for a very long time no matter how those trades go
It takes too much time to do exits on each stock in public and together with that it's not a bad Idea to catch the odd Nazi out If you know what I mean?
As you can clearly see We don't agree on a few sails but Who on earth can tell us at this moment in time "Who is right?" "Who is wrong"
Hopefully our averages will do better than most others' averages in these chaotic sea and weather conditions?
Salute and Gods' speed
PS Always remember my Dad's Rule #1 "The Only Good Nazi is a Dead Nazi!"
"While we stop and think, we often miss our opportunity." Publilius Syrus, 1st century B.C.
"I believe the future is only the past again, entered through another gate." Sir Arthur Wing Pinero 1893
"There are two times in a man's life when he should not speculate: When he can't afford it, and when he can." Mark Twain, 1897
what i mean is your "CFD required margin " with IG for example, using your $3000 position size
SBM = 25% Margin = $750 out of reserve cash or $8500-$750.
LGL = 10% Margin = $300 out of reserve cash or $8500-$300
you can get upto the likes of STV at 75% margin required.
IG as far as i know will not take in account paper profit for margin requirements, but work on the actual CASH in the Account .
Apparently one of the better books on setting up and trading your own Hedge Fund is " Hedge Funds for Dummies " -- got mine a while back from Amazon sub $us20 + $10 ph
cheers
(Message edited by coyotte on March 10, 2008)
The "Sea of Uncertainty" is defeated by the nimble vessel "Probability", not the unwieldy vessel "Prediction".
dydavo: Solid hedging strategy. You make your profits by the longs going up more than the shorts go up AND by the shorts going down by more than the longs go down.
Your first goal is to profit more than the interest changes, which should be easy while there is price movement. Your worst fears would be if the market stays in a trading range for many weeks. This seems unlikely atm.
Your second goal is to maintain the hedge, or the balance between the longs and shorts. If this gets uneven then you will be subject to the market risk. Currently it is hard to find many longs in the ASX200. This could present a problem for you. Have you considered adding money to your open longs to keep the hedge balanced espec. if you cannot find another stock to go long?
You are now in the realms of a portfolio manager and there are many more tactics available to you. Mostly you will be doing your daily maintenance to maintain the hedge.
Have you considered moving your trades to the weekly time frame? This will reduce your daily workload and possibly reduce your transaction costs (less trades).
You will have noticed that your open risk is most of the open profits, if your hedge is maintained then it will be very unlikely that you get hit hard with a "black swan" event. If one occurs then the margin requirements may change very quickly, if you are over leveraged then many of your positions will be closed automatically when your margin goes above a certain value (eg.150%) This will be bad for you. I suggest that you work slowly to reduce your leverage to a manageable level. A positive edge needs time to work out so you don't want to be forced into closing.
As your profits build and you seek to reduce your reliance on leverage consider transferring some of your long trades to equities (no leverage). You will then lower your interest costs. Lower costs = more profits. Look to do this as the market starts going up and when you expect to be in the long trades for longer. Your goal might be, to be long equities (no leverage) and only use the cfds (with leverage) to be short.
Hi peter1, Thank you for the feedback. The consensus feedback was that my leverage was way too high, and I have now halved my number of positions. Some have hit stops, and in a few cases the profit looked tempting enough to take it off the table.
Yes, finding longs is a bit of a battle, and I now see that the balance is way out - 16 shorts, 6 longs. I have resisted pyramiding (?pyramidding) in the belief that I should not overexpose to any particular position. I am maintaining the $3000 position size. So the leveraged $ is still much more than 3 x the cash!
Not a bad week after a bad start. Cash account now up 35%.
I'm not a fan of weekly charts. In IC it used to only update the weekly after Friday, but maybe that has changed. I also like to keep a daily eye on the RSI (or Williams %) and the force index (which sometimes gets me out near a weak resistance in the longs (basically, the daily FI has moved below the average (15 or 20), and then cannot get back above (ie, respects) the moving average.
Having given my last class yesterday after 19 years in the teaching game there will be a bit more time to keep an eye on things!
Just in case it is of any interest, I found something interesting this week in the name of income diversification - see forbestrading.com.au re sports arbitrage.
Dydavo, well done on thinking out a trading scheme so different to the main stream.
My only suggestion is to consider why the scheme is currently making money and therefore raise the scenario when it might lose money.
I say that because my own scheme is currently throwing up the same list of candidates as your short list is. They are very sector specific even if they weren't chosen that way.
A very superficial analysis would say that as long as the shorts keep trending lower as that group has done, and the longs keep trending higher as your list has done, you will make money hand over fist.
It is true that if the whole market moves either up or down you are protected. You aren't however protected should the market decide that resource stocks have had their day and that financials and property are the new flavour of the month. In that event you will lose money rapidly until you completely rework your portfolio.
Interestingly, during the early part of this week that is exactly what happened. Of my list of stocks to short, something like 10 of 16 had risen. Of my list of stocks to buy, something like 8 of 10 had fallen.
Whilst that event is currently not on the horizon, I thought it would be worthwhile identifying the greatest risk.
In the end, money management is the key. With good money management you can almost flip a coin on whether to buy or sell and still make money.
Two of them say they're Jesus. One of them must be wrong.
Thanks for your comments easymoney. I guess the expectation when I started was that the only thing I can trust is a trend, and that even with leverage and appropriate money management, avoiding ranging stocks should make money, and on average, shorts should resist buying and longs should resist selling.
Your scenario of the market selling my longs and buying my shorts is exactly what happened on Tuesday this week. Portfolio reversed by about 4%! However, on the up since then.
I have no idea how to avoid that sort of setback. As you correctly suggest the clue is probably money management, and to limit the leverage (=greed, overconfidence) so that I cannot get hurt too much. My equity curve won't be so impressive (if the approach continues to make $), but the ride won't be so bumpy. Maybe I need to be more sensitive to taking $ off the table too, eg, after a 20%? 30% move, but some of these trends just go on and on, eg, FKP. Has someone found some margin loans in there? Maybe more sector diversification in each direction?
There are comments both from dydavo and captain chaza that reflect my feelings.
My method seeks to find shares which are moving independently of the indexes. The final criterion I use to select the acquisition for the week is the steadiness of the pattern, as dydavo says "avoiding ranging stocks". My wife is the "chooser" and she does it entirely by eye.
Once the portfolio is "full" (6% at risk) then as captain chaza says I look at the worst performer and replace it. The snifter system or David Hulls systems both provide simple and effective exit critera. I definitely avoid taking money off the table without objective criteria.
I think the idea of mixing both long and short positions as a buffer to the volatility of the market is excellent and I will most likely start taking some long positions as soon as I can find one that doesn't constantly ebb and flow.
Compared to FKP, I wouldn't touch DXL with a barge pole. Whereas FKP will scream at you that it has changed direction, DXL could wobble either way and take off without notice.
Before and after that there are the standard three rules: money management, money management, and money management.
Two of them say they're Jesus. One of them must be wrong.
Your first objective was "1. Make a decent living with CFDs" but you don't mention how you are planning on achieving this.
Are you currently exacting a regular "income" from this plan? eg $1000 / week (or whatever you need to live) Or do you still see the need to grow your capital further before being able to do so?
Hi sittingduck, Sorry for the slow response - have been away and then otherwise distracted. At this stage CFD trading can only hope to supplement other sources of income. This is of particular relevance right now, at the end of my first week in retirement/self employment. Probably need 3-6 months of steady equity curve growth before I can claim to have a reliable income stream from the approach.
Before I left the country for a week I put tight stops on everything, and came back to a short list of remnant positions! Am now rebuilding the portfoilio, and taking into account all the generous feedback.
Thanks for that. Catherine Davey's book on CFD trading shows how she managed to extract $1,000 / week from a $13,000 starting point, and still managed to grow her capital to $30,000 over 3 months. I think though that she was writing in the middle of the BULL, so easier times than these. She doesn't discuss her direct trading methods though. Certainly not as open as this post :-)
Yeah the book was pretty light on as far as method is concerned. For me it's more an example of what is possible and what some of the potential problems outside of reading the charts can occur. Her other CFD book is more useful.
tbreak,
I think it's a trap when you are using slightly longer time frames (ie not trading 5 - 30 minute charts). One spike down and you are out of an otherwise good position. Stops are pretty basic, so that you can only say if the price hits $X then sell/buy. It would be better to be able to set a stop rule that said, on a close of below/above $X (whatever period) then sell/buy. That way the spikes will only get you if they occur right at the end of the period.
Feel free to correct me if I am wrong. My CFD experience is limited to books and the ASX trading game (which I am going crap in!)
Was wondering if there was some characteristics with CFD's and stops that caused the statement. Was looking to profit from coyotte's experience. I get what your saying sitting duck with manual stops but was wondering if anything is different with CFD's compared to stocks. One thing I could think of that is different with CFD's and stocks is the liquidy. You can get completely out of a position with only one share on the buy side at your price.
Is The CFD provider slow to close your position? Was curious were coyotte was coming from.
Hmm, I'd like to hear a more learned opinion on that as well. I believe for your CFD trade to go through there has to be equivalent volume on the underlying share, but it would only take one share at a price point to trigger a stop rule. GSL's would probably be taken out without the volume requirement.
What I was thinking was a better strategy than no stop, is a GSL with a wide enough limit to allow for some play (while still covering risk) that was left to sit at the original value, and then pyramid as the price rises, moving the GSL only to ensure a disaster won't take out your account. So in effect you have two stops, one to prevent disaster (GSL) and one that you manage yourself based on close price.
Why do you think this is,Ken? Is it because the Open is for the exuberant?therefore one gets a better selling price ie into the "amateurs",the Gung Ho? I think it's a myth now that the "professionals" make the Close but still think that backtesting would show the Dare2Be Great Brigade form the Open. cheers.
Depends what the US does if US is up then our market will spring up on open (good time to sell). If US is down our market will spring lower on open wait till it settles before selling.
Phil
** Let blockheads read what blockheads wrote. Warren Buffett
