Its the weekend, time for the Round up. I know you were all excited and had trouble sleeping just knowing it was on its way.
Since we look at all the symbols from the UP or the DOWN perspective, I will do some splainin as we go, Lucy.
Let us begin, we are trading a theoretical portfolio that started in my book, Basic Trading: ‘A Beginner’s Guide to Trading and Investing…PROFITABLY!’ available on Amazon click:
I demonstrated trading with a simple method using 5 symbols from January 1st, 2020 to April 30th, 2020. This blog continues that exercise until the end of the year. I thought it might be useful to see some of the trades unfold.
The current balance of the portfolio is: $138,528.90. It started out at $100,000. Most of the return came from one trade. This is the essence of trading: stay patient, control risk and your emotion, the BIG ONE will come. Then we ride it for all its worth. There is no telling when that will happen. We can see them by looking back – which is not a money making strategy. We probe, taking what gains are available to us and small losses, and stay patient.
S&P 500: represented by SSO UP and SDS DOWN.
We currently have an open trade in the ETF SSO, which mimics the rise of the S&P.
Our process for this exercise and to bring you along slowly is quite basic. We look for trend first. Our EMAs (exponential moving averages) help us with that, there are other ways.
The 8 EMA (red) and the price act as our triggers. The trend is the set up. The 21 EMA (blue) and its position relative to the 55 EMA (green) tell us the trend. If the blue is above the green, we assume an uptrend, if below a downtrend. It helps our chances of a successful trade, if we go with the trend. If the red EMA or the price crosses above the blue EMA and the blue EMA is above the green EMA, we put in a stop-buy just above the high of the candle that did the final crossing.
We have one exception to that rule. If the ROC in the lower panel is above the 0 – line when the price or the red EMA closes above the blue EMA, we are set to place our trade.
The other consideration is resistance and support levels. They are intricate to the trend, therefore important. You can see there was a resistance level just above the trigger. I waited until the price had CLOSED above that level and then placed a stop-buy just above the high of the candle that did the crossing and closing.
Our protective stop – which is a trailing stop – is just below support shown by the lower horizontal line.
This trade is still open as we speak. All trades and details are reported as they occur on this site as well as an update to our theoretical portfolio. The ROC has issued a warning, which we will discuss tomorrow.
Gold: UGL-UP, GLL-DOWN
We have an open trade in UGL which has been clinging on by the skin of its teeth. (Almost stopped out).
I know, if there is an open trade in UGL, why are we looking at GLL. The clue was in the almost getting stopped out, clinging on. It then suggests forcefully to us if UGL is struggling to stay afloat, maybe we should look at its inverse, GLL: the ETF that goes up as gold goes down.
As you can see, the trend is down – blue below green. Neither the price nor the 8 EMA (red) have closed above the 21 EMA (blue). But we shall check this one daily as we do the UGL while the UGL is struggling. It is only logical that if the UP ETF is giving the opposite to a buy, then its inverse may just be giving a buy signal.
My point is that you don’t need to look at all 10 ETFs. Look at the open trades first, then choose one or the other for the rest and judge by what you see whether to keep looking at that side of the coin or flip it. I keep daily notes in my trading book. Not War and Peace, just a word or two.
Oil: UP – UCO, DOWN – SCO
Oil has been in a slide for a while and trying to consolidate. There is a lot of talk and conjecture about the future of oil. We don’t have views on anything – it doesn’t help. Whatever your view, you cannot tell how much of that has been priced in by the time you arrived at that view, or your friend Murray got to you with the HOT tip. It is a tough game mentally. Just go with what we see; what the market is telling us.
As we look at the ETF, UCO, the UP one, we can see that the trend is still down by our definition. The price, however, has closed above the 21 EMA (blue) and the ROC is above the 0 – line. We just have one barrier and that is the zone of resistance right where we want to place our trade. The resistance has been created by a ‘falling window’ in candle terms, a gap in western lingo. I like resistance to be at least far enough away that my trailing stop has had a chance to rise to the point that if we are stopped out, it is at least at break even. For us to act, we need a CLOSE above that zone. Still, it is exciting.
Treasury Bonds: UBT – UP, TBT – DOWN.
Even in a downtrend, this symbol has price and 8 EMA – our triggers – crossing the Rubicon, or the 21 EMA (blue). Even though we are showing downtrend per the blue being below the green, the ROC has obligingly popped its head above the 0 – line. All we need now is the price to close above the resistance line to put in a stop – buy.
Dollar Index: UDN – DOWN, UUP – UP
Down means the US dollar is struggling against a weighted basket of the main global currencies.
Let’s look at that one UDN.
No, your eyes don’t deceive you, we have a flull-blown, all systems go trade on our hands.
Price and red EMA crossed above blue – check
blue above green, not quite, but ROC above 0 – line – check
CLOSE above resistance – check.
Our stop-buy went in at $20.09 and was triggered. This is what our risk controlled position looks like:
$13,000 (10% of portfolio)/$20.09 = 647.088, rounded to 600 shares
stop (placed at the higher support level) $19.72.
$20.09 – $19.72 = .37 X 600 shares = $222 risk ( < $2,500 (2% of portfolio)
Ok, so we finished with a bang.
If you have any questions or comments, please drop me a line at: firstname.lastname@example.org