Wednesday, May 6, 2009
Day traded FAS and FAZ today
I day traded FAS and FAZ for a little bit of extra money since I had all day to myself today. Day trading is really hard. I will be using the same setup tomorrow. I had two windows with real time (5 minute - one day) graphs from Ameritrade, one for FAS and the other for FAZ. The secondary indicators are volume, momentum and slow stochastics (3,3). When the stochastics gives an oversold or overbought I check with the momentum and volume to be sure of the reversal and jump in with two orders in equal dollar value - one to buy FAS and one to sell FAZ or the other way. I started with a buy on FAZ at 10:15 AM ET, and then followed with sell FAZ at 10:40 AM and buy FAS at 10:41 AM, and then I continued this game. My gains on FAZ were +0.25, +0.05, -0.10, +0.05, +0.30 in share price and on FAS were -0.1, 0, +0.15, +0.85, +0.4 in share price. I ended the day with selling at the end about 10 minutes before close. The total number of trades was 5*2*2 = 20. My e-mail inbox was filled with confirmations. That will pose problem when writing tax return will come next year. The method generates too many trades, but the percentage of winning trades is decent and will prove to be useful. When you add up the gains then I got 9% from FAZ adn 12% from FAS. That is a really terrific return, but I had to watch the market every single minute. That's no way to live. Clearly +0.05, 0, and -0.1 returns are from false signals, but you do not really know at the time. Any idea to trim my signals will be very helpful. I will also try this on other pairs BGU/BGZ where you can play both sides. I was thinking you need a lot of fluctuation for this method to give good returns like today. I wouldn't mind trying this on SPY/SH pair since I found liquidity to be problem. My big orders were broken into too many smaller parts each time they got filled. Also with 20 trades Ameritrade made $200 from me, so have to play with large enough pool. Today was too much motion in FAS/FAZ and that is why the return is so high. I am not expecting this to repeat every day. I would be content with more down to earth return if it is consistent. I would be looking for other violent pairs to play this strategy on. So if you know of some, I will greatly appreciate it.
Tuesday, May 5, 2009
Money management in investment and the real return of a portfolio
1. First, the trend in the market is up. So, here I am 100% in SSO. My own real money portfolio does not use SSO. I use SPY and I went in today and brought up my SPY holding to 10% of total portfolio with a stop at $88.20. The rest of the portfolio is made up of permanent holdings of all kinds of dividend yielding large stocks, where I have been adding steadily. I always keep 50% of my total portfolio in SP500 mutual funds or cash when the market is below 200-day MA. I play with the other 50% in stocks. Right now the SP500 mutual fund part is totally in cash ever since we went below 200 day MA in Nov 2007. I didn't go short, which is a mistake in the hindsight. But hindsight is always 20/20. I was afraid of getting whipsawed, so I stayed out. I thought of getting back in when we crossed 50day MA but the economic condition really looks bad to me. I will wait till we cross 200-day MA before risking my solid base part of the portfolio.
2. Second thing I want to talk about is how net return of people's portfolio is way less than simple market return. Here is why: I have found that if someone has $X in savings, then he does not have all of X in the market. People usually play with a fraction of r*X and the rest (1-r)*X languishes in a bank account. Suppose they get a return y from the market and z from their bank account, then their return should be: y*r*X + z*(1-r)*X. I will bet that their return is less than SP500.
3. Third - Another problem that I find with people's fake portfolios is that they are nothing like their real money portfolio. Unless you put real money your portfolio does not count.
4. Fourth - Say, you have X dollars that you do not need for a long time (at least 5 years). Then I consider that investable property. Now, the cardinal rule of investing is: Do not lose more than 2% of the total portfolio (ie X) on any trade. How do you make sure of that? Suppose you have $100,000 to invest. Lets work out the example with SPY, which is around $90 right now with a supprt around $88. Now, 2% of 100000 is $2000. Therefore, if you were to put a stop loss order at 88, you stand to lose $2/sh. Therefore, you cannot have more than 1000 shares of SPY. I work with even more conservative scenario and don't place bets that have more than 1% loss in any trade. But, I will go up to 2% if the market is strongly trending.
5. A fifth aspect of trading is trying too many stocks. I have found that one or two is enough for trading and I will treat the rest as non-trading portfolio. I cannot keep track of more than 10 stocks. My trading portfolio has just SPY 500 which I sometimes short also. I haven't used SH since it has less liquidity.
6. Sixth item I want to talk about is: Recently I have started to learn spot currency market which trades 24 hours. They give you a lot of leverage, but you don't have to use the leverage and only trade EUR/USD or USD/CAD stable pairs. Say, you open an account of $10,000 then if you just trade 1 mini-lot you wouldn't be using any leverage. Clearly you should never go beyond 1:2 leverage, which will allow you to trade 2 mini lots. People trading with 1:10 or higher leverage easily LOSE all their money. Unless one has $100,000 or more in an account, they shouldn't even think of opening a standard account that lets you trade in regular lot of size $100,000. That is what I have been studying. The 24 hour liquid market is appealing to me. But I have not decided to give it a try yet. I am also afraid of really shady brokers. I have been looking at some, dbFX and fxcm are two that I have been looking at closely. I have a practice account with dbFX. Also a website www.babypips.com is a great place to learn currency trading or any kind of trading. I found their presentation educational and entertaining.
2. Second thing I want to talk about is how net return of people's portfolio is way less than simple market return. Here is why: I have found that if someone has $X in savings, then he does not have all of X in the market. People usually play with a fraction of r*X and the rest (1-r)*X languishes in a bank account. Suppose they get a return y from the market and z from their bank account, then their return should be: y*r*X + z*(1-r)*X. I will bet that their return is less than SP500.
3. Third - Another problem that I find with people's fake portfolios is that they are nothing like their real money portfolio. Unless you put real money your portfolio does not count.
4. Fourth - Say, you have X dollars that you do not need for a long time (at least 5 years). Then I consider that investable property. Now, the cardinal rule of investing is: Do not lose more than 2% of the total portfolio (ie X) on any trade. How do you make sure of that? Suppose you have $100,000 to invest. Lets work out the example with SPY, which is around $90 right now with a supprt around $88. Now, 2% of 100000 is $2000. Therefore, if you were to put a stop loss order at 88, you stand to lose $2/sh. Therefore, you cannot have more than 1000 shares of SPY. I work with even more conservative scenario and don't place bets that have more than 1% loss in any trade. But, I will go up to 2% if the market is strongly trending.
5. A fifth aspect of trading is trying too many stocks. I have found that one or two is enough for trading and I will treat the rest as non-trading portfolio. I cannot keep track of more than 10 stocks. My trading portfolio has just SPY 500 which I sometimes short also. I haven't used SH since it has less liquidity.
6. Sixth item I want to talk about is: Recently I have started to learn spot currency market which trades 24 hours. They give you a lot of leverage, but you don't have to use the leverage and only trade EUR/USD or USD/CAD stable pairs. Say, you open an account of $10,000 then if you just trade 1 mini-lot you wouldn't be using any leverage. Clearly you should never go beyond 1:2 leverage, which will allow you to trade 2 mini lots. People trading with 1:10 or higher leverage easily LOSE all their money. Unless one has $100,000 or more in an account, they shouldn't even think of opening a standard account that lets you trade in regular lot of size $100,000. That is what I have been studying. The 24 hour liquid market is appealing to me. But I have not decided to give it a try yet. I am also afraid of really shady brokers. I have been looking at some, dbFX and fxcm are two that I have been looking at closely. I have a practice account with dbFX. Also a website www.babypips.com is a great place to learn currency trading or any kind of trading. I found their presentation educational and entertaining.
Subscribe to:
Posts (Atom)