Share Trading

Over the last few years I have searched for a trading system that wouldn't take up to much time and require screen watching.

If it wasn't for an anonymous poster on a share forum by the name of 'Snifter' I'd probably be still floundering around in the trading wilderness. This system borrows some ideas from Stan Weinstein and Alex Elder but doesn't trade their systems.

I have used the following system on and off during this time with some success.

At the start of the year I decided to have a good crack, to date the results are fine but it is to early to make a sensible judgement.

The core strategy is the same as always....buy dips during uptrends, short rallies during downtrends. Work entirely from weekly charts and I spend about an hour or so each week in analysing the market. I rarely look at the market during the week, and if I do its only to see how a trade is going....I don't do any analysis or make any decisions from daily charts.
I do no fundamental analysis except to let the weekly trend give me some idea of the soundness or otherwise of a company's fundamentals.
I have no use for either trend lines or volume analysis. I don't look for the dozens of chart patterns ....I'm mainly interested in trends and retracements.
I use the CCI indicator on a setting of 3 to find pullbacks (or rallies during a downtrend). The CCI is purely to give the scanner something to search for...if I was eyeballing each chart I'd visually identify the pullbacks without using an indicator like CCI.
I trade only the blue chips....there are plenty to choose from, more than enough to supply you with plenty of trades even if you follow only the ASX Top 200.
Far from being the 'slow moving dinosaurs of the stock market', as is commonly believed, many blue chips have posted anywhere between 2 and 10 times the gain of the overall market in recent times. Some have done even better than that.
A trend following system like mine performs best in liquid stocks that tend to trend in a relatively stable manner. The good liquidity enhances the effectivness of stop losses. (stops tend to become less effective in thinly traded stocks.)

The template I put on my WEEKLY charts is...

* 11 period ADX with a horizontal line set at 25.
* 3 period CCI histogram with a horizontal line drawn at the zero level.
* 13 week and 26 week EMA's.

Here's what I do in my weekend analysis ...total time spent is about an hour or two to analyse the Markets that I follow.

First, check the WEEKLY chart of the All Ords (or whichever market you trade). If the 13 EMA is above the 26 EMA, both are rising and pulling further apart, and the tops and bottoms of the price action are getting progressively higher, then you know the overall market is bullish and you ABSOLUTELY MUST trade ONLY long positions.
The mirror image of these rules apply to identify a downtrend. If the overall market is downtrending, you ABSOLUTELY MUST trade ONLY short positions.
I cannot overstate the benefits of being in tune with the overall market...its VERY important.

SCANNING.
If the weekly trend of the All Ords is bullish...Scan for 'CCI crosses below zero' This scan finds stocks that are in the process of retracing to the downside.
OR
If the weekly trend of the All Ords is bearish....Scan for 'CCI crosses above zero' This scan finds stocks that are in the process of retracing to the upside.

With just a couple of mouse clicks the stocks picked by this scan can be put into a separate workbook. My weekly template is put on these stocks. Now I look at each stock one by one, but at this stage I'm only interested in the ADX, not the price action. As each chart comes up I'm looking at the bottom right corner of the screen to see if the ADX is above the horizontal line which is set at 25. It takes only a one second glance to check the ADX reading, and if its not strong enough, a further two seconds to put the next chart up on the screen. It sounds inconceivable that you can check out a new chart every three seconds, but remember that the process so far has been mainly to weed out the undesirables rather than to pick the winners.
If I come across a potential winner (one whose ADX is reading 25 or higher), I then check it's price action, Moving Averages etc, and if it shapes up OK in those areas I transfer it to a workbook which I've called 'Watchlist'....this takes just a couple of mouse clicks.
Out of my workbook of 600 US blue chips the scanner usually finds about 10% - 60 odd stocks, that are giving the CCI signal. At less than 5 seconds per chart it doesn't take long to whiz through this list and cull most of them, and save the best 8 or 10 to a watchlist.

The final selection on the top 8 or 10 is purely visual. If the overall market is bullish I'm looking for the stock to have....
* Higher tops and higher bottoms, 13 EMA above 26 EMA, daylight (space) between the two MA's, both MA's rising and pulling apart.
* ADX reading of 25 or higher.
* Stock must be in the process of a pullback.

ENTRY...
Put a buy stop or a buy limit order 1 tick above the candle that pulls CCI below zero. Lower the buy order each week if necessary to just above the top of the last candle. If/when the uptrend resumes, your entry order will be filled.
OR
For a more conservative entry, put the buy order 1 tick above the first bullish candle following the pullback.
All buy orders are placed on a GTC (good till cancelled) basis.

STOP LOSS...
Attach an 'If done' stop loss order to your buy order. If your buy order is done (filled), your stop loss will automatically be put in place.
I like to place the stop somewhere between 8% to 10% from entry, but I've used a 5% stop on occasion. 8 to 10% gives the market a bit of room to fluctuate without stopping you out.
For long positions its prudent to pay a small extra charge to use a GSO (guaranteed stop loss order), if your broker offers this facility. A GSO is designed to protect you against a severe price slump that could gap past your stop loss order.

TRAILING STOPS.
As the trend moves in our favour we need to progressively lock in profit. I do this by moving my stop up to just below each swing low on the weekly chart. Each swing low is of course preceded by a swing high. When each pullback ends, and the revitalised uptrend moves above the last swing high, then and only then will I move my stop loss up to 2% under the swing low.
I repeat this process each time a higher swing low is made, until finally the trend dies and my stop is hit, and I'm taken out of the trade.
There's one other part to my trailing stop strategy....if a weekly candle penetrates the 26 week EMA, at the start of the next week I'll move my stop up to 2% below the bottom of that candle. A penetration of the 26 EMA can sometimes be a warning that the trend is getting tired, in which case its prudent to take the precautionary action of moving your stop up to just under that candle.

MONEY MANAGEMENT.
2% of my trading capital is the maximum I'm willing to risk on a trade.

SUMMARY.
Use weekly charts exclusively.

Once a week check the weekly trend of the overall market, and trade only in that direction.

Find stocks that are trending in the same direction as the market as a whole, but are currently retracing.

Use the ADX to measure the trend strength of these stocks.

Buy these stocks as they finish their retracement and resume their trend.

ALWAYS place a stop loss order, and make it a guaranteed stop loss if you're trading long.

Use trailing stops to progressively lock in profits as the trend moves your way, and to take you out of the trade when the trend dies.

Use the 2% money management rule to prevent serious depletion of your trading capital from a losing trade.

If the overall market is bearish, use the mirror image of the system to go short in bearish stocks.

CONCLUSION.
By cutting losing trades quickly and letting winning trades run as long as the trend remains healthy, by trading only in strongly trending stocks, and by trading only in the direction of the overall market, this system virtually ensures an acceptable ratio of winning trades to losing trades, and that the average profit will be considerably larger than the average loss.
The icing on the cake is that a large number of stocks can be analysed in just an hour or two once a week.
 
Sounds like a reasonable plan.

What results have you achieved so far? Any backtesting? What are the numbers?
What software are you using?
 
in a rising market (which we've had) most "systems" will work.

The key is to find a method of trading that makes a profit when the market is declining as well.

I've spoken to plenty of guys who quit their jobs to become full time traders prior to the GFC when money was easily made (they would buy on the dips etc). All of those blokes are back at work now....
 
in a rising market (which we've had) most "systems" will work.


The key is to find a method of trading that makes a profit when the market is declining as well.


Not sure about that. In a rising market, "long" systems will work. I would've thought you'd need a shorting component if you want it to work in a declining market.

Then you've got to think about what happens in a ranging market.

IMHO, you won't find one that makes money in all of them equally.
 
Sounds like a reasonable plan.

What results have you achieved so far? Any backtesting? What are the numbers?
What software are you using?

Since beginning at the start of January I have 5% realised profits with another 5% profit on 6 open trades, only 3% of this 5% is at risk due to guaranteed stops in place.

No backtesting but have traded the system intermitently with success in the past.

Trade CFDs through IG markets which gives me all the charts I require.

Also can use Freestockcharts.com, IncredibleCharts and have Metastock.
 
in a rising market (which we've had) most "systems" will work.

The key is to find a method of trading that makes a profit when the market is declining as well.

I've spoken to plenty of guys who quit their jobs to become full time traders prior to the GFC when money was easily made (they would buy on the dips etc). All of those blokes are back at work now....

It is early days and time will tell if the system works.

The S&P500 is only up 1% and the Xetra up 3% since I started trading each.

Read my opening post this system works as well in a declining market as well as a rising market.

Takes about 2 hours on a weekend to use no need to quit a job.
 
Not sure about that. In a rising market, "long" systems will work. I would've thought you'd need a shorting component if you want it to work in a declining market.

Then you've got to think about what happens in a ranging market.

IMHO, you won't find one that makes money in all of them equally.

Shorting component in place.

Indicators will keep you out of a ranging market, I also look at levels of support/ resistance.
 
I've spoken to plenty of guys who quit their jobs to become full time traders prior to the GFC when money was easily made (they would buy on the dips etc). All of those blokes are back at work now....

Was listening to James Altucher's podcast once and he mentioned that he personally knows only one person who has managed to make a living trading full time and that this person focusses on trading 24/7.

You'll find that people that immerse themselves in other forms of gambling (poker, horses, etc.) are in the same boat - they have dedicated their entire lives to one activity.
 
Hope China contributes to this thread. Apparently, his system worked for a while until it didn't and unfortunately he has got large sums of money tied up.

Another forum member Aaron also had a trading system which he would occasionally provide update on. See this thread.

It might a good idea to have a chat with them and see if they still recommend and what are the success chances over long term.

Cheers,
Oracle.
 
If you want a low risk strategy I have one for you.

It combines my love of option trading + Geared investing + Index trading.

Step 1: Buy a long date call option over the index XJO at the market (12 months).
Step 2: Wait to expiry
Step 3: Profit.


- This strategy will give you the return profile of someone who has borrowed 100% and invested in the index (less dividends).

- You get all the upside and none of the downside (less the initial premium of the option).

- The cost of the premium should be ~<5% of the initial position.

- The cost of the premium is tax deductible if the trade isn't successful.

- Its less risky than a margin loan

- the strategy is scale-able depending on how much risk you want to take

- If you have a negative view on the market you can always go a Put Option

- You can reduce the initial cost by selling an option at a strike price above the option you purchased. Or by holding an equivalent amount to the size of your contract in cash/bonds

- The downside is that any profit is 100% taxable (so doing this in a low tax environment works best...i.e. super)
 
Would be interesting to see what others have done. If anyone had the perfect system I wonder why they would share it. Also now with Algo's all the rage seems to be high speed trading.

I dont use any systems myself, more traditional value investing.
 
in a rising market (which we've had) most "systems" will work.

The key is to find a method of trading that makes a profit when the market is declining as well.

I've spoken to plenty of guys who quit their jobs to become full time traders prior to the GFC when money was easily made (they would buy on the dips etc). All of those blokes are back at work now....

The other alternative is to have filters that keep you out of the market when it's not trending , so make the money when it's easy , and watch from the sidelines at other times .

I've spent time back testing weekly systems in the past . It's easy to come up with systems that give you good returns on back testing , but the question is how robust the systems are going forward . The one time I went " live " is one of the few times my system doesn't work on back testing ...:(

Currently happy to make money on property .

Cliff
 
The other alternative is to have filters that keep you out of the market when it's not trending , so make the money when it's easy , and watch from the sidelines at other times .

I've spent time back testing weekly systems in the past . It's easy to come up with systems that give you good returns on back testing , but the question is how robust the systems are going forward . The one time I went " live " is one of the few times my system doesn't work on back testing ...:(

Currently happy to make money on property .

Cliff

As you know the problem with back testing is that you optimize your strategy to past results. Which doesn't mean it will work with future data.
 
The other alternative is to have filters that keep you out of the market when it's not trending , so make the money when it's easy , and watch from the sidelines at other times .


Cliff

That is the core of this system with the filters it uses, to only trade strongly trending shares in strongly trending markets.

Once the market trend falters find a new market or sit on the sidelines.
 
I've spent time back testing weekly systems in the past . It's easy to come up with systems that give you good returns on back testing , but the question is how robust the systems are going forward . The one time I went " live " is one of the few times my system doesn't work on back testing ...:(

Currently happy to make money on property .

Cliff

So the rest of us can benefit from your mistake :), can you tell us what happened? Was it something that you could have foreseen? (easy in hindsight, I know)
 
If you want a low risk strategy I have one for you.

It combines my love of option trading + Geared investing + Index trading.

Step 1: Buy a long date call option over the index XJO at the market (12 months).
Step 2: Wait to expiry
Step 3: Profit.


- This strategy will give you the return profile of someone who has borrowed 100% and invested in the index (less dividends).

- You get all the upside and none of the downside (less the initial premium of the option).

- The cost of the premium should be ~<5% of the initial position.

- The cost of the premium is tax deductible if the trade isn't successful.

- Its less risky than a margin loan

- the strategy is scale-able depending on how much risk you want to take

- If you have a negative view on the market you can always go a Put Option

- You can reduce the initial cost by selling an option at a strike price above the option you purchased. Or by holding an equivalent amount to the size of your contract in cash/bonds

- The downside is that any profit is 100% taxable (so doing this in a low tax environment works best...i.e. super)


Usually do these quite out of the money?
 
According to the great Peter Lynch: "There's no such thing as a wealthy technical analyst."

I am a former fan of Metastock. Spent hundreds of hours learning metastock language and creating my own proprietorial indicators. It was a lot of fun. Pity it was not more profitable
 
According to the great Peter Lynch: "There's no such thing as a wealthy technical analyst."

I am a former fan of Metastock. Spent hundreds of hours learning metastock language and creating my own proprietorial indicators. It was a lot of fun. Pity it was not more profitable

Yes Peter Lynch is a legend with his investment results in the Magellan Fund.


This trading plan is not about using technical analysis to predict what the individual share will do, you don't need to know Metastock language or create proprietorial indicators.

With experience you could delete the indicators and just eyeball the chart.

The philosophy is to simply find a strongly trending share in a strongly trending market and buy after a pullback.

This plan does the following

1. Identify the start of a trend.
2. Asseses the strength of the trend to see if its worth trading.
3. Use one or two simple strategies to enter the trend.
4. Ride the trend as long as possible while at the same time progressively locking in profit.
5. Exit the trend when its over.
6. Control losses.
 
l traded f/t for 3 1/2yrs . l used a similar strategy but went for a far different outcome and it did work quite well mostly . l actually never lost on one trade for 6mths and made fantastic margins and only lost a few over 15mths.
The crash bit me pretty bad though bc l thought it was a still a few wks off . However l was quitting long before that and l was just finishing up at the time of the crash , great timing haha .

lt just wasn't for me personally with all those numbers and letters, drove me a bit barmy and yeah it was damn stressful to make any reliable money .
But had l had not deviated through boredom and impatience, from my original strategy after 15mths or so, l've always thought that would've kept on going well. No way to know now for sure though.
Sometimes l still go on to do a few trades or check some stocks but l find all those numbers and crap have me logging out in 15 and saying to hell with it these days .

But l've always thought there would be ways of trading that will return good reliable money or l don't even see why with say a 200k purse , you couldn't just even do safe 2 - 4 % trades almost wk in and wk out which would still be pretty good money for a few hours a wk.
 
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