Welcome to the Weekly Round Up!
At this time of the week I like to review the charts for the five symbols we trade and in general reset matters for you pokey puppies who are just getting here.
I have a book out, Basic Trading: “A Beginner’s Guide to Trading and Investing…PROFITABLY!” In that book I began a theoretical exercise trading a portfolio of $100,000 using five market instruments and a simple method. The exercise in the book started January 1st, 2020 and ended April 30th, 2020 when the book went up on Amazon. It then occurred to me that it might be useful for beginning or struggling traders, or, for that matter, financial professionals who wanted to do a better job for their clients, to watch the trades continue to unfold.
This blog is the continuation of that exercise. It is as close to real as I can make it. Since the powers that oversee the financial industry have rules about investment advice, I want to remind everyone that this is a teaching exercise only. It should not be construed as investment advice. This exercise will expire with the year 2020 and we shall see how we do.
At time of writing the portfolio is at $138,920.10. Which is not bad considering we are only half way through the year. As I have said the markets move in spurts. We could easily still be at this level when December 31st, 2020 dawns.
One thing we won’t be doing is try to force things because nothing is happening. We will allow the market to come to us, and accept whatever it gives us according to our process. To do anything else is to invite doom (I should stop watching Lord of the Rings).
Let’s take a look at our charts…
S&P 500: SSO = UP, SDS = DOWN. We use stock market proxies for the underlying futures so that the trade can take place in a retirement account, or an account with restrictions. For example, you can buy SDS long. It will rise if the S&P 500 declines. You don’t need to short anything…how good is that?
As you will see our five symbols represent the major components of the investment market place.
We use exponential moving averages for our set up and trigger. If the 21 EMA (blue) is above the 55 EMA (green), we call it an uptrend. In this case we only want to go long since we want to increase our chances of success by going with the tide, not swimming against it. The we use the price or the 8 EMA (red) as a trigger. If either CLOSE above the blue line we place a stop-buy just above the high of the candle that closed across the blue line.
All systems should be a go, but we have an impediment. There is resistance at the upper horizontal line. When resistance is that close to the trade, I need the close to be above resistance not just the blue line.
As a trade triggers I detail the position size, risk management, including stop placement.
We are sitting on our hands with respect to SSO at the moment.
Gold: UGL = UP, GLL = DOWN
You can see on the chart that the resistance line was CLOSED above and that the green candle in the yellow box went by the high of the closing candle and triggered us into the trade. Our stop is a trailing stop that started just below support, $8.44 below the trade price.
We are using trailing stops at this point in time because of the volatility in the marketplace.
When a trade gets stopped out, the details are recorded here and the portfolio balance updated.
This trade is still open.
Oil: SCO = DOWN, UCO = UP
Oil is an interesting case. The biggest part of our return was on the short side of oil with SCO. As you can see oil has been consolidating, wondering what to do next. We could have bought in based on our rules, but there is a zone of resistance created by what Japanese traders term a “falling window”. Once we get a close above the upper horizontal line we will place a stop-buy for UCO just above the high of the candle that CLOSED above resistance.
An aside here. It is the Roundup and I like to repeat messages at this time. One of the problems that beginners and experienced traders have is that you can have a substantial return on your money from just five good trades a year. The secret is patience: making sure we get all we can from nice trends and getting out quickly from losing positions.
We keep probing (and not in an X-files kinda way), taking small winners and small losers until that nice trending position reveals itself. That’s when we make our returns. It is easy to say, tougher to do. Sticking to our process is paramount!
20 year Treasuries: UBT = UP, TBT = DOWN
UBT is actually an open trade. You can see the moving averages doing their job and a CLOSE above resistance that caused us to be triggered into this trade. The trailing stop was positioned just below support at $16.94 below the trade price.
Dollar Index: UUP = UP, UDN = DOWN
The Dollar Index is a bit different. It represents a balance or struggle between the U.S. Dollar and a basket of global currencies. When the price rises, because the US dollar is the base in the pair, it means the U.S. dollar is appreciating against the basket. When the price declines, it mean the basket is gaining strength against the U.S. dollar.
UDN, as you can see from the chart is close to triggering a trade. The moving averages have done their job and we have a close above resistance. A stop-buy has been placed at $20.67. Should the price rise above that level, we would have a brand new trade on our hands. Details will be revealed should that occur.
Well, that is all for this week. I update during the week as trades open or close and then recap everything at the weekend.
I look forward to seeing you again.
If you have any burning questions, please see a doctor, or if they are related to anything you have seen here or, for that matter, anywhere in the investment world, please drop me a line: firstname.lastname@example.org.