Ideas for profit taking

You will forgive me for at times writing shit that may not make sense at all to you. I am developing a trading strategy and I am back-testing it incessantly.

So I will chicken scratch my thoughts on the strategy on this blog since this is my trading journal and I can do with it what I want...y'a hear?

OK...Profit taking idea:

Maybe let the trade ride until the trend is confirmed in the opposite direction by a new entry signal...unless the original trigger bar's stop is violated.

For now I am paper trading based on taking the trade off at any setup in the opposite direction...

This may be one way to refine the strategy and reduce chop.


Don't worry one day I will sell this strategy on the internets...and you all will get a discount.

Outside the bands

Retests outside the bands today:

Long:
AGU

Short:
None

Shorts retesting inside the bands:
LOPE, HPT, IR, ADBE, JCP, BPI

Of these I bolded BPI...the others are really shetty barely retests actually have been skating above the %R threshold for a few days without violating...BPI is a clean inside the band retest...

Some analyst said the educators wont get hit so hard thanks to regulations yet to come out of Washington...Personally, I have a feeling that any stock currently being held down because of pending legislation or the effects thereof from Washington should start to rally as the election nears...it's all but a foregone conclusion that the house will switch hands...(Senate not so much)....so Washington will do what Wall St. loves best...Nothing or alternatively...cater to the lobbyists needs and call it Bi-partisanship.

AGU is probably worth entering.

Outside the bands

Long:
UL

Short...none today outside

Inside the band shorts:
EDZ, SKF, EEV

Interesting stuff here is that all of the retest shorts are actually vehicles that short the market...meaning the short vehicles are giving us a new entry to short them...this is good for stocks.

Breakout longs:

FXY

Breakout Shorts:
YCS

Hmm...both the breakouts are long Yen plays and they have happened after decent retests inside the bands...gonna have to check in with by buddy at BONY who's a yen master about this move....this of course isn't apparent on the USD/JPY pair, weird stuff....Nevermind...Ashraf Laidi over at Seeking alpha has the mystery solved ...not to mention a badass call on July 7th.

ITUB: UPDATE...loser

UPDATE: Stopped out 16-JUL-10 at 20.46 for total loss of $430.50 which was the defined risk I had placed prior to this trade. Trade trigger worked great and I am happy with the execution of the trade...of course this was a breakout and I rather play retests...this is yet another example of why I like doing that...breakouts get faded, retests are nice low risk entry points post breakout fade...

So after my eureka moment. I decided to test the waters using a breakout and using ATR based position sizing.

Based on an ATR (20 period) of $0.70 and my calculated risk tolerance of $430. I determined I could get 615 shares.

Entry point was $21.16

Stop is placed at $20.46

I will use the 2 for 1 method of profit taking here...I will halve the position at $21.86 and leave the current stop in place. This effectively gives me a free trade if I am right....if I get profitable, then I will keep riding this until the exit on %R is apparent (OR should I wait for my trusty 13 day EMA idea to pan out?)...nah I will stick with %R

The setup on ITUB was a breakout on %R and Accel bands confirming close in time. My buddy Shilpi gave me this one so I have him to thank either way.

Charts

Daily:

4hr:

Outside the bands

Yesterday the scans weren't working so I couldn't post retests.

So yesterday's and today's retests are as follows...

No Shorts, No longs

Inside the bands:
Longs:
Yesterday:
PKX, THG (violated today), CBSH, BAX (violated today), LLY, NE, MMP

Today:
VR, WSO, TRH, ARST, NTT, TLEO, WRE, NETL, COF, WERN, OHI, TCB, CHL, PACW, KB, TWTC

Shorts:
Yesterday:
RAH, RTN, GXDX, and SHLD (all three violated today), NOC, VXX, XCO,IGT,

Today:
UHS, CYH, BBBY, KSS, KMX, TTES, HK, CRK, IMA, EMS, PSSI

oi...these inside the band retests take a long time to go through...i may not do this any more...i don't even trade them.

Of all of these, NTT may be the only thing I trade.

My take on the rally

I read the big trends blog fairly religiously. I mostly agree with their advice and their posts. Especially Bob Lang, he runs one of their more lucrative services called Grand Slam options and Extreme Options...anyway I have no idea what his real track record but he claims he kicks ass and I believe him.

None the less today he puts up this post about fear, and how it shouldn't control your trading psychology. Then he posts another one right afterward using the lack of volume as a fear mongering tool.

So which is it? Is it that we should be afraid of this rally that came off some very extremes in sentiment because of lack of volume? Isn't a rally worth reaping if you have setups that are time tested and work in your favor?

I know how market direction is important, and how everyone must take their cues from the market. However, there are many times when you miss out because you don't believe in a rally or a sell off. I missed shorting the May selloff because I didn't believe in it.

This is my problem I am biased to the bullish side.

Anyway, Bob Lang always talks about how there are a million reasons to sell but only one reason to buy...he doesn't ever say what that reason is. But in his posts today he led us in the direction of the reason NOT to buy...not very like him.

Anyway I also read Cobra a lot and he had a couple of reasons to buy in his post today. Namely, volume is relative AND very seasonal. Which is the point Bob was arguing against...that no matter what the calendar says...volume MUST always accompany a directional move...

However, it is summertime, and volume has died, who cares if its a bit early, all we have is retirees and teachers and idiots like me trading this market...Its all good if the setups are there.

IBD realizes that while it is nice to have above average volume, all that matters in their follow through rules is that the volume is higher than the day before. They realize that the average volume isn't always helpful when it comes to summer or holiday rallies...

Anyway those charts from Cobra say it all, whenever the institutional accumulation and distribution lines cross, its a rally...and it can be believed.

Earnings season moves stocks it always does and it is a bull's best friend. Once the May selloff began, I said to myself we may do this until July earnings season begins...I should have shorted the market then...knowing there was a vacuum of hunky dorey stock based news to move the markets (not to mention the overbought and high bullish sentiment conditions back then)...

Today we have the opposite, sentiment was really negative, and now we have earnings news to chew on and make stocks go higher...so the rally is real and it is tradeable.

Regardless, if you have a good short setup take it, if you have a good long setup, take it. Define your risk and your stops and you will be fine regardless of the market's direction. There is your one reason to buy.

Outside the bands

Uh...no Retests outside the bands today.

Inside there are a crapload of retests:
Shorts:
VZ, HD, LOW, ADBE, CHK, M, BBY, IR, A, TOL, TJX, BBBY, CFN, KMX, FDO, LIFE, APOL, ORLY, HPT, UFS, DDS, LH, VMC, ICE, PENN, MD, MHK, REGN, SSRI, CNC, COLB, GVA, HAIN, PRI, LL

Longs:
PPL, EW, VIT

I will say the following, most of the shorts are long in the tooth, or have flaws, like some of them are on their 2nd retest in less than 1 week...I included those only because of the fact that the first retest was not violated.

Of the longs VIT is probably the most attractive.

Sign up...it's free

It's a bit annoying but well worth your while...

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Price Headley has done wonders for me. I have gained a laser like focus on opportunities to trade as well as when to enter and exit them.

I am a believer in the IBD system, and to me Price just puts a lot more technical indicators behind IBD strategy. In any case, its worth signing up for the free newsletter.


You should do it.

Outside the band

No retests today outside the bands.

Inside the band retests...

Longs:
UN, MDR, ELP, SPR, SID, CIG, VRX, SBAC, HANS, MR, AMT, ARUN

Shorts:
JDAS, BZQ, OMC, SOHU, GPS, AMTD, AUXL

Code for Breakout Scans in TOS

I was toying with the scans to see if I can get a decent scan for breakouts based on Headley's %R and Accel bands.

They are far from perfect, but so is the scanner in TOS for these study based scans...nonetheless we should all be eternally grateful. I used to dig through something like 100 charts per day (once I did 300) to find opportunities. This does that work for you and really clears things up for you.

The following is what I got.

Breakout Longs:

Breakout Shorts:

I wont be posting the results of these just yet...this blog already takes up too much of my time..but I might...

If anyone reads this let me know in comments if you want me to post the results of these scans daily.

Position sizing...

Over the weekend I had what some would call a Eureka moment. I have been trading the Price Headley system for a few months now and I have had mixed to bad success. Not on my entries, a little bit of trouble on the exits, but also position sizing and profit taking. I have had big problems with the latter 2 critical areas of trading.

I had not given much thought to position sizing in the past. I just figured I wouldn't put more than 10% of my folio into a trade...however, recently I had heard a few things...in May Tom Sosnoff was constantly repeating that in periods of high volatility you can reduce your position size and make just as much money as in low volatile times...Then I read the turtle rules. They actually quantified position size based on "N" which was racking my brain for a long time but really its just the Average True Range or ATR.

Then in my googling I found some videos from the fellas at Informedtrades.com in which they delved deeper as to risk determination.

Anyway this weekend I pieced all of these together to make my own position sizing formula. I even toyed with one for options.

1st determine what you are willing to loose on a trade. For me this is 1.5% of my total portfolio (this is a little conservative but still fairly aggressive...then determine the ATR of what you want to trade....divide your risk $by the ATR and viola...you have the # of shares you can trade of whatever it is you are going to trade.

A stop must be in place 1 ATR below your entry point...which is determined by your execution of the trade.

This means that all trades will only loose the amount you have determined you are willing to loose. Plus ATR will determine your position size...if you have a winner and your position size is bigger so will your profits. Of course ATR is independent of winning or loosing but it is a measure of volatility, so if something is moving quickly you will put less capital behind it...but still the same money.

Anyway this is the best way I have determined to quantify position size based on volatility. I will be using this moving forward.

I have also developed it for options, in this case you have to take ATR and multiply it by Delta and use that as your denominator...if you use a high delta, with low theta, this should keep the rest of the greeks from messing with the formula too much....so that being said. It can work on options as well...the problem is with options you generally have more slippage so your risk is always going to be a bit more...even with the most liquid options.

So I am going to trade in equities using this strategy for now...and I will monitor the success of the options position sizing...for one this will allow me to enter breakouts instead of just retests because my risk will still be defined...

However, on retests this is of course even more powerful because that 1 ATR will allow for a bend don't break scenario (up to a point) and that point is the breaking point of the folio.

So no longer will I be waiting for the close...sorry Headley....I will be waiting for the ATR stop to be triggered...even if it happens intraday.

Need to exit another one: CRI

UPDATE:
Exited for $8.30 per contract...this resulted in a minor loss of 10 cents per contract...However, here is where I messed this up. I didn't employ money management ideals in this trade. I was still well within my total risk tolerance. The 13 day EMA was breached however not confirmed, however this is not my primary indicator %R is and that was violated...so I did the right thing based on the indicator...but I hadn't reached my tolerated risk level on this trade (this means I got in at a great price). The 13 period EMA is really starting to become my favorite indicator...Over many of my trades I notice that if I use the 13 EMA as a stop with a confirmation bar requirement I could have saved myself some money...in this case I would still be in this trade...as I would need a 2nd close above the high of the bar that closed over the 13 EMA on the daily...

Such is life.

So CRI was a retest that i enjoyed seeing paper profits of about $250 disappear on. That always sucks but as Tim Hilliard says, "you always leave hot dogs in the cooker."

This violated on the 4 hr before violating on the daily but because volume was soft I thought would wait for the daily chart signals. Plus actual capital loss wasn't that bad.

I will exit this Monday morning and update the post with actual numbers. Again on the daily the 13 EMA is not even close, but it has been breached on the 4hr...also on the 4hr the indicators are turning less bearish.

Charts:

Daily

4hr

Outside the band

Retests outside the bands today include the following:

Long:
None

Short:
TEL, ADS

Inside the band long retests include the following:
JNJ, BND, ESV, NU*

NU has a caveat in that %R (79.72 today for NU) when rounded up is still at 80...so its kinda sorta but not really a retest.

Also a few days ago I said that BJ was a retest, this (my friend Shilpi) pointed out was not true as BJ did not actually confirm on %R prior to retesting.

Exit DCTH

well..lots of action on DCTH today.

Enough to drive me out of the trade. The 4hr chart was my guide here and the 13 EMA was violated in a violent manner...volume was also high. Lately there had been a massive gap that occured in the MACD divergence...meaning that there was a big divergence on the MACD vs. the chart. Also recently this thing flattened out a bit. There is now a DMI cross that occured. While %R is only now retesting....this is just one indicator...

I had already taken profits along the way on DCTH and due to its low dollar nature now is a good a time as any to exit the trade entirely...any profitable trade is a good one and this was a really good one for me.

Here are the details of this trade (this includes the vigs):

06/14/2010 Bought 5 DCTH Jul 17 2010 14.0 Put @ 4.4      -$2,213.74
06/24/2010 Sold 2 DCTH Jul 17 2010 14.0 Put @ 6.4          $1,268.48
06/30/2010 Sold 1 DCTH Jul 17 2010 14.0 Put @ 7.5          $739.24
07/09/2010 Sold 2 DCTH Jul 17 2010 14.0 Put @ 7.1          $1,408.48

Total Profit: $1202.46  or 54% of original investment

Daily chart

4hr Chart

Outside the band

Retests today include the following:

Longs:
FXY

Shorts:
DNB, VZ, LHCG, DNDN, CM, YCS

The rules on retests are that you use the day of the retest's highs and lows for stops for shorts and longs respectively.

So, example is VZ...today's high is 26.78...if you shorted it, this would be your stop. Headley waits for the close of the bar to manifest this stop. Also, Headley says you should try to get in as close to this stop as possible (within 1-2% if possible). This keeps your cost basis in line with a good trade should it go your way.

It also keeps you from chasing things if they run away from you on the next day's open.

Trades today: CSTR exit

So...I relieved myself of a short CSTR position I had been holding for some time today.

My adjusted cost basis was after I had taken profits earlier in this trend.

This was one stock that I had been long at one point with a fairly aggressive 60/55 bull put spread....I did this back in May when I thought the rally was sustainable and CSTR at the time was a relative outperformer. Along with NFLX. Anyway these were July contracts and I had given myself plenty of time. Then the correction came and CSTR decided to trade under its 13 day EMA as well as break the %R stops it had put in place. That's when I covered the short on 60 put and let the 55 put ride. The hourly chart had also given signs that there was strength in the downside move.

After I had taken some profits, I decided that the 4 hr chart and the 13 period EMA would regulate this trade. Yesterday it closed above the 4 hr 13 EMA and today it confirmed by closing above yesterday's high.

So that means I was leaving the trade.

I only lament I didn't get out earlier. But still, at one point this was a heavy loss, I recovered that loss and brought in nearly $600..

Closed the last contract for $8.60...profit on total position $580.

Charts...Daily:

4hr

Update on a trade: HS

Why only yesterday I put HS into the taxable account.

Here is my rational for getting into the trade in the first place:

Short:
Bought 5 HS Aug 21 2010 20.0 Put @ 4.7

I picked this up in my taxable account today. This was something that popped on my scan on Friday. A short retest outside the bands. This is my favorite setup. I did this only in the taxable account because in this account I had missed the CRI trade in this account due to my phsycological crapping out...so I went for the next best thing which is shorting HS. I noticed Friday that this was not the only health care insurer that had this retest phenomenon, AET, UNH, also exhibited this behavior. So the sector is in trouble. However, my psychological issues right now are that we are long in the tooth with the downtrend and I fear these moves are nearer to their end than to the beginning. No matter, I am trading based on the setups.

Stop is 15.55. 

Today it violated the daily chart's %R retest stop of 15.55 by closing today at 15.88. Also it has closed inside the bands...One of my favorite indicators the 13 period EMA was not even close to being violated on the daily...but did in fact get violated on the 4h...So I should exit this position...that's what the indicator's are telling me.

So I will cut out of it tomorrow. However, it is interesting to note that every other indicator is still very bearish on this stock, and just today we had another retest in the Health Insurance sector in WLP.

Today was a very bullish day for stocks, bullish breadth, decent volume, IBD called it a follow through and a new rally...So being short is pretty tough to do...The wavers are saying this was a typical 2nd wave with the big 3rd wave down still to come. Kass also called a bottom.

Anyway the HS charts are below:

Daily

4hr




Bottom Line: Sold 5 contracts for $3.90 this morning (8-JUL-10) as the market in HS ran away from me. Total loss $400 plus vigs.

Outside the Band

%R retests occuring outside the bands today include the following:

Shorts:
BRY, AGP, CI, KCI, FO, WLP, TEL, CSC,

Longs:
BJ

Setups today

OK since this is a new blog, I should say what the rules for the setup are...better still a screen shot of the rules in TOS:

Short setup code:

Long Setup code:

The rules are based on Price Headley's Methods in this case I am looking for %R retests outside of the acceleration bands. I have not backtested this specific part of his methodology, however, he states in seminars that these are the highest quality, lowest risk setups.


Every night, I will post the setups that have popped onto this scan. I will also post %R retests that are inside the bands. Especially when there are no setups outside the bands.

One final rule for my scans, all of these will be optionable, the underlying trades at least 250,000 shares that day (be sure to check the average volume), and finally be at least $15 in price. I am a believer in the IBD methodology as well so that's where these "arbitrary" filter rules come from.

If I post retests inside the bands I will be sure that the retest is valid. Which means that I will confirm that the %R setup is confirmed. I will not post Retests inside the bands if there are any retests outside the bands...I will only post retests inside the bands if there are no retests that come up outside the bands.

That being said...today's setups are as follows:

SHORTS:
EGN, RJF, GIS, DBO, CAJ

LONGs:
NONE outside the bands.

The following are %R retests inside the bands:
RGNC, SWSI, ODSY

u wanna trade hourlys?

TIBX

very fresh breakout on the hourly...not confirmed on the daily but i am fairly certain the thrust it has achieved thus far will carry it easily over that hurdle

Stop is 12.53

All indicators have broken out...Also new tool MACD divergence to price indicator flashing a pretty deep 47 %age point gap....that's a nice air pocket needs filling as  Price Headley say's....which by the way you should all purchase something from Bigtrends.com also, if you are using TOS and want to code a study...go to Thinkscripter.com and get the pro Package...nothing better than paying less than $1 for an indicator...in fact...get 95 indicators for $75 dollars....and then bottomless indicator code language for life....or something like that.

Conservative approach says anything in TIBX with greater than 80 delta....which allows for anything all the way into LEAP territory for a reasonable price...you guys know what that means.

TIBX...hourly chart below: