Welcome to the Weekend Round-UP!
It is that time of the week when we take a look at at least one chart per instrument we are following.
This is a theoretical exercise that continues on from my mammoth best-seller: Basic Trading: ‘A Beginner’s Guide to Trading and Investing…PROFITABLY!’ Luckily for you, available here:
In that gem of writing and information we started with a theoretical portfolio of $100,000 on January 1st, 2020 and traded five market instruments until the book was published at the end of April. To prove a point and to let any who need it see the trades unfold, we will continue until 2020 expires.
We use 5 major market sectors that cover a lot of the market and then we use ETFs (exchange traded funds) as proxy. This allows the average person to buy and sell in retirement accounts, etc.
Our method is one of elegant simplicity which will be splained as we go along.
Trades are reported here in detail as they occur between these weekly updates.
At the tail end of the week we were stopped out of one of our trades, so we shall start there.
Portfolio Balance at the start of the week: $140,720.10.
20 Year Treasuries: UP = UBT, Down = TBT
UBT is the ETF that represents the long side of 20 year treasuries. Our trade opened per our process at $135.89. The trailing stop was $16.04 under that trade price. As you can see the price rose to a high of $147.30. This anchored the trailing stop, that followed the price up, at $131.26. Once the price fell away, we were stopped out at that price.
The net result was:
$135.89 – $131.26 = $4.63 X 100 shares = ($463 loss).
Subtracted from our portfolio, the balance is: $140,257.10
I want to mention as some of you see the 40% gain to date on our portfolio, and maybe extrapolate to the end of the year – don’t do that. The market moves in spurts. This maybe all we see for the year, or maybe we fall back a little.
Bottom line is we stick to our objective process and don’t try to force matters. We let the instruments we are trading come to us.
We will look at gold next.
Gold: UGL = UP, GLL = DOWN
UGL mimics the rise in gold. GLL the decline. This means that if gold declines, GLL will rise like the Dark Knight.
This chart has markings from a trade we were in and then stopped out of at a profit.
Let’s go through the steps:
In the large yellow box you can see that the blue line (21 exponential moving average) is above the green line (55 EMA). This means uptrend in our simple world. You can guess what the opposite means.
Our trigger is the red line (8 EMA) or the price crossing above the blue line.
So, we have a trigger. We look to the left for about two months (don’t stay where you are for two months – I meant in chart time), is there a higher price than the one that CLOSED above the blue line. Note, it is important that the price CLOSE above the 21, not just cross and scamper back. There is at $64.39. That is resistance. We need a close above that line. We get it and place a stop-buy in just above that close. We are triggered in the smaller yellow box. A trailing stop is immediately placed just under support at $8.48 under the trade price.
The price has a nice little run to the upside and then falls away and we are stopped out at $10 per share profit. Well done us!
The next question is what are we watching for to get back in? You in the back, any ideas?
Yes, very good, that high that you see represents resistance or in this case overhead supply. Some people bought on the way up and then stayed with it as it pulled back. They are cursing their stupidity and have vowed to get out if that price should rise again.
We need that selling pressure to be dissipated before we go back.
We shall sit on our hands in the case of gold until that happens – if it does.
Oil: UCO = UP, SCO = DOWN
Oil has a very flammable character (see what I did there?). It dropped like the proverbial rock (which gave us most of this year’s return). It has been consolidating for quite a while. Our initial roadblocks to a trade are still in place, though an exception may kick in in this case. We will examine it if that is what occurs. This exception is in our process in the book.
We were waiting for a close above the zone of resistance you can see on the chart, which UCO kindly provided.
We have a stop-buy in at $34.83 for UCO
Dollar Index: UDN = DOWN, UUP = UP
The dollar index represents a slightly different battle. If it rises, it means the U.S. Dollar is rising against a basket of global currencies and we would want UUP. If it declines, it means the global currencies are strengthening against the dollar and we would want UDN.
To the chart, Robin…
The chart shows where we entered the trade after our moving averages lined up and the resistance line was vanquished. Don’t use the high of a random spike that you see near the start of the resistance line. There is no telling what trader craziness caused that. Where possible, I try not to use the break down of the price as my high. I try for the high of an UP candle.
Our trailing stop is .51 behind the price and we are still in this trade. The recent high was $21.24. Subtract the stop and we get $20.73. This is above the trade price of $20.67. This means that even if the price collapses we are risk free at this point.
As we have talked about, we are aiming for the risk-free zone and celebrate when we get to it for obvious reasons. It also means if we get enough push back i.e. the price goes back across the 21, but we don’t get stopped out, then the price heads back up, we begin to quiver. Not because we have seen a spider, but rather because we may have a chance to pyramid: add to the existing position without taking on more risk.
This is what we are doing with our initial trades: probing, but not in an X-files kinda way, until we get on a trend that we can ride.
We want to be in place should a Big Move occur, and occur they do. That is why we are patient and take every trade our process kicks out. It is a little tougher using trailing stops to pyramid, but things are so volatile at the moment and likely to remain that way for awhile, we shall remain that way for awhile.
S&P 500: SSO = UP, SDS = DOWN
Not much to say here. We have an open trade. You can see the moving averages line up after a push back and then the price closes back across the blue line (21 EMA). Looking to the left we see a higher price at the horizontal black line. We got in at the red line just above the close above resistance. This trade is still in place.
I think that is enough for this week. If you have anything you want to ask me about the foregoing, or anything in the investment world, drop me a line. If I don’t know the answer, I shall make something up.