At the close of the market day, February 25th, 2020.
Just look at that chart above. We were stopped out near the top thanks to our trailing stop. This is why we use stops. If you were caught in this what would you do. Most people stick with it. They console themselves with, it’s bound to come back. Is it? The market doesn’t give a toss for your hopes. It will go where it wants based on many factors. The warning was there. I told you it was. I showed you the divergence that was evident. I probably didn’t emphasise that a divergence doesn’t always appear, but when it does we take action. In that case we tightened our stop.
My normal reaction is to put a simple trendline on my chart when a divergence appears. I explain this in my Basic Trading books. You can have the first one for FREE by clicking: https://charlesgoddard2020-f52a.gr8.com.
Let’s take a look at oil.
The chart above looks as if it wants us to go short. You will not be comfortable with this, so when and if the time comes I will show you an alternative.
Let’s look at the chart of Bitcoin above. You can see at the close of the 25th, the red EMA was crossing the blue EMA – normally a shorting signal. But our system tells us that the blue EMA being above the brown EMA is an uptrend and therefore to go “short” would not only freak many of you out, it would go against our system where are trades need to match the trend.
This downward correction is almost touching the brown EMA. It could be just that – a correction. We will wait until we get a signal before acting on this chart.
At the close of the market February 24th there were no trades triggered. I thought it was worth expanding on the “trailing stop”.
We were stopped out of our trade in the S&P by way of a trailing stop. As you can see from the last candle on the chart yesterday, the market took a bit of a downer. We always use a stop with every trade. A variation on the protective stop is a trailing stop. The regular stop is simply a price below our trade (if we are short, it would be above the trade, but let’s not confuse you at this point). It is a point at which we think we maybe wrong with our trade. Not us, of course, the market – we are never wrong. They key to a protective stop is not to just put it anywhere. There are intelligent places and as you gain experience, you will spot the difference.
So, to the trailing stop. If we have a stop that we have set at $20 below the market price. That stop is static until we move it. We do move our stops as part of our process. If we set a trailing stop at $20 below the market price and the market price moves up, so does the trailing stop. If the price goes up to $200, our trailing stop has moved up like a faithful Sherpa to $180. If the price falls back, the stop stays at $180. If the price drops below $180, we are stopped out. As I have mentioned a number of times, the point of a stop or trailing stop is to take us out of the process. Left to our devices we would think it over and maybe decide with that hoping and wishing thing we have that maybe the price will come back. How else do you explain people holding onto all kinds of examples of the price falling for miles and still believing. I cover this in Basic Trading: Book 1. You can get it for free: https://charlesgoddard2020-f52a.gr8.com. As a trader you can make a point of using trailing stops with every trade and watch your results improve.
The symbols we are watching are all continuing without triggers. Oil may cross today. That, however, would involve a short sell. Since many of you are not prepared to go short at this point, I will show you an alternative. Probably tomorrow.
I will show charts of the 5 symbols we are following and theoretically trading for the purposes of this blog. The overriding point is that basic tools and process are all you need to be a successful trader/investor.
We are using a simple moving average crossover system to trigger our trades. As we examine the charts, I will illustrate our system.
The S&P 500
We just completed a trade in this symbol. This is the set up I use:
21 period EMA
8 period EMA
55 period EMA
21 period ROC (rate of change).
We determined trend by looking at the 21 EMA (blue line) is it above the 55 EMA (brown line) we would say we were in an uptrend. We then waited for the 8 EMA (red line) to cross below the blue line and then back above to trigger our trade, which it did at the beginning of February. I then followed that up with a trailing stop which stopped us out at the end of the week with a profit of $209. I had tightened the stop because the high in price was matched by a high in energy (the ROC with the red line in it at the bottom of the chart).
Next chart is Bitcoin. The blue EMA is above the brown EMA, so we consider this symbol to be in an uptrend. Nothing to see here – yet.
As we look at the chart of oil we can see that the blue EMA is below the brown EMA meaning downtrend. So we need the red EMA to rise above the blue EMA and then back below it to trigger a trade.
The Gold chart above is showing an uptrend. We have no trade here either. However we can see weakness coming as the high in gold is not matched by a high in the energy readings at the bottom of the chart. This “divergence” is a warning. The energy readings are able to go back and match price.
Now we have a chart of a currency pair. This one will require a little more explanation when a trade triggers. in the meantime, by our definition, it is in an uptrend.
A few points:
– there are a number of ways to determine trend. We are keeping things simple as you learn
– our trade of the S&P was a probing trade as is our style. We keep our trades small as we seek the “big move”. If the small trades offset each other as we wait patiently, the big move is where we make the money. As W.D. Gann said, all you need are 5 trades that involve the big move to have a fantastic return on your money. The question is, do you have the patience to wait for it. To encourage you, lets take a look at a recent big move.
If you look at the bottom left corner of the chart above you can see the blue line above the green (same as the brown line in the previous chart style). You can also see the red line cross above the blue triggering a trade based on this system. The big move takes on greater significance as we pyramid our position . This means on any push back we take another position. In this case it would occur in December. We would take out a new position and bring our stop to a point just under the push back. This means that we have made some of our profit on the first trade risk free. And, on top of that, Apple was kind enough to warn us that a correction was coming with a divergence between the price and the energy reading at the bottom of the chart.
As we go along and trades unfold, I will explain some of the thinking, but if you would like to get a primer in the form of Book 1 of my Basic Trading series (for FREE), click here:
Alright, so we were stopped out of our S&P 500. Let’s take a look at the chart and review our trade and the results.
We entered this trade because the blue (21) EMA was above the brown (55) EMA indicating an uptrend. We were then on the look out for a trigger. It occurred when the red (8) EMA crossed below the 21 and then back above. We placed our trailing stop just below support. You can see from the chart above that the high in price was not matched by a high in the ROC (the label is missing, but the ROC has a red line on it). I ALWAYS treat this divergence as a warning and take action. I don’t exit my trade, but I do tighten my stops. In this case the trailing stop was brought closer to the market price. The price moved up at first yesterday moving my stop up a little before falling back. You can see that the red candle has a long wick (skinny line above or below the candle). It was during that time that my stop was triggered and I am out of the trade.
The result: buy February 5th 3297, stopped out February 20th at 3366 for a gain of 2.09% . ( annualised 47.67% ). I don’t typically keep return records this way, it is a bit misleading, but I want to give you perspective.
Our capital allocation rules allowed us to have a position of 10% of the portfolio ($10,000) and our stop was set to not risk more than $2,000 or 2% of the portfolio.
We made $209 on our trade. Maybe modest, but we use this type of trade to probe for the big move. All of the above are explained more fully in Basic Trading: Book I. You can get a free copy by clicking: https://charlesgoddard2020-f52a.gr8.com.
The rest of our symbols continue in their trends. I will recap all charts on the weekend. Come back and take a look.
Our charts for Bitcoin, Gold, Oil, USD/EUR continue in their trends per our definition with our basic moving average system. Since the beginning of February we have had only one trigger and that was the S&P 500 shown above. You can see that the blue line (21 EMA) was above the green line (55 EMA) meaning an uptrend and then at the beginning of February we received a trade trigger in the form of the red line (8 EMA) crossing, first below the blue and then back up. We placed our trade just above the close of the candle at the close of the day the cross occurred. I placed protective stop just under support and made it a trailing stop. Using a trailing stop has caused our protective stop to move up with the price – always the same distance from the market price.
The pattern that formed yesterday was the beginning of a candle pattern that usually means a reversal. Also, the high that has just formed in the price which is not matched by a high in the ROC. This is a warning. I said I would follow a system that any beginner can understand. These things are explained more fully in my Basic Trading Book I. You can get it for free by clicking on: https://charlesgoddard2020-f52a.gr8.com.
Back to reality. Given the warning, I have tightened the stop. This will get us out without giving up too much of our profit. I will give you all the details of the trade if and when we are stopped out.
At the close of the market on Tuesday (18th), there was no change in our positions. Based on our simple moving average system, S&P, Bitcoin, Gold, and EUR/USD remained in an uptrend. Oil remains in a downtrend.
Again, based on our simple system, there are no triggers at this time. Our only open trade – long the S&P 500 – remains in place with a trailing stop.
Our five symbols carry on in their trends: S&P 500, Bitcoin, Gold, Oil and USD/EUR. They are all in an uptrend per our simple definition of trend, the one exception is oil which continues in a down trend. We have one open trade: S&P 500. It continues to be profitable. As mentioned there is a trailing stop. Once we are stopped out, I will dissect the trade and update the portfolio.
The charts below are in the trends as follows based on the positioning of the blue 21 day moving average and the brown 55 day moving average.
Bitcoin, the S&P 500 and Gold are all in an uptrend, Oil is the only one in a down trend.
See previous post for the charts.
February 4th, 2020
As mentioned we are looking first at trend. In this case because the blue EMA (21) is above the brown EMA (55), we will assume we are in an uptrend. We will be going through other ways of determining trend in my training course. You will also learn how to apply a filter to your analysis as an double check.
But, for now, the chart above. The red EMA (8) has crossed above the blue EMA (21) and since we are in an uptrend, this causes us to put in a buy order just above the candle the closed with the above conditions.
Our next task then was to put in a protective stop. You can see a level of support at the red horizontal line. If the price crosses this line, in other words support is broken, we want out of this trade.
I will note the exact details here in my next entry.
February 10th, 2020
There are no changes to report today. The S&P 500, Oil, Gold and Bitcoin continue in their trends.
The S & P 500 trade is still open. When it was placed, it included a trailing stop which I think is the best kind for any beginners out there.
I would also suggest that those of you who trade now, but are inconsistent, use them. If this trade is stopped out, I will expand on the trailing stop and why I placed it where I did.
February 11th, 2020
No changes to our position. The S&P 500 trade is still open and doing well.
Once I am stopped out by way of my trailing stop, I will provide a more detailed explanation of trailing stops.
In the meantime I can clarify position size. I always start with a 10% of the portfolio with my stop set that if the price goes against me, I will be out with an overall maximum loss of 2% of the whole portfolio. More to come on this.
February 13th, 2020
Nothing much to report. Our open trade – long the S&P 500 – is still doing nicely. The only change is that I have added a currency pair USD/EUR to our list of symbols. As soon as a trade triggers on this symbol, I will show you a chart and explain how a currency pair works.
I have created 5 training modules that I would be most happy to sell to you. The problem is whether this is the right course for you, and am I the right guide as we set out into the stock market jungle.
Also, as I looked around I found that you have many choices to be your guide. I felt the need to differentiate myself. This particular blog has one purpose only: as of February 3rd, 2020, I will trade a theoretical portfolio using one basic method that I teach in the training modules. THIS IS NOT TO BE CONSTRUED AS TRADING ADVICE, IT IS TEACHING METHODS ONLY.
I will start with a theoretical $100,000 and trade only four things: S&P 500, Gold, Oil, and Bitcoin. This gives us a bit of variety and demonstrates that you, yes YOU can use the methods and basic tools I teach to trade anything.
At anytime you can drop me a line at: Charles@bluestonetrading.school if you have a question. I would also be most appreciative for any criticisms and/or complaints.
Scroll to this point; the most recent entries start here:
February 15th, 2020
It is time for the weekly wrap-up. First one, actually. I will put up each of the charts I am following and repeat – briefly – the method I am using to trade a theoretical portfolio.
First a recap. The method is a moving crossover system. I use three EMAs: 8, (red) 21,(blue) 55 (brown). We start by establishing the trend. Is the blue above or below the brown? In the chart above, we can see an uptrend. We are now waiting for a trade signal: I want the red to come below the blue and cross back above to trigger a trade. I will go through each trade in a little more detail as they occur. Also, a bit of explanation re: the currency pair and how they work.
You can find this and more by clicking on my preamble. You can get my book and a couple of videos before buying anything.
The chart above of the S&P 500 shows our current trade. You can see the blue EMA is above the brown indicating an uptrend. We bought in just above the candle as the close caused the red EMA to cross above the blue EMA. I looked for recent support and placed my protective stop. To keep things simple and basic I used a trailing stop. The trade is doing quite well. It is the only one triggered since I started this project in early February. I want to also demonstrate that patience is a virtue when it comes to trading. When I am stopped out, I will provide a complete breakdown of the ins and outs of the trade. If we get a chance to pyramid, I will also explain what that is as we are always on the lookout to ride the “big move”.
The chart above is of Bitcoin. We can see that it is in an uptrend. We are waiting for the crossover that will cause us to act. From my description above, you should be able to see the opportunity that occurred had we been trading this earlier.
The chart of Gold above also shows an uptrend. Once again we are happy with the set up – just need a trigger.
The chart above of Oil shows a downtrend. Can you see it. Try to spot why before I tell you.
The blue EMA is below the brown EMA. We are waiting for some kind of trigger for this chart as well to match the trend. As I have mentioned there are other ways to determine trend. They are covered in my course.
The moving averages are wonderful tools. They come in a number of forms. The simple is the one used the most often. The only drawback is that it lags the market. In the charts above I have used the exponential moving average. It is calculated along the same lines as its simple brother (we all have a simple brother). The difference is it gives more weight to recent prices in the math.
February 6th, 2020
Based on our simple trade method, a trade in the S&P 500 was triggered.
I had placed a stop just under resistance and made it a trailing stop. The assorted stops are covered in my books and my course. I will have a link to the first book so that you can receive Book I free of charge.
Why did I use a trailing stop instead of a static stop?
It is because the market place feels quite volatile an jittery. I don’t particularly like language like “feels like” when discussing trades, but in this case it is within my process.
As detailed in my Book and course I am interested in the big move. To that end I make probing trades. The net result, typically, is you get a few winners and a few losers. Then several times a year you are on the back of a juicy winner. The way we convert from a small trade to a much larger trade without taking on any more risk is detailed in the Book and the course.
February 3rd, 2020
Starting today I am trading four items: S&P 500, Gold, Oil and Bitcoin.
We will start with a theoretical portfolio of $100,000. Please note the point of this exercise is to show those who are new and those who are struggling with their trading how I can help them learn/improve.
This chart (above) is of Bitcoin
The chart (above) is of Gold
The chart (above) is of the S&P 500
The chart (above) is of Oil
This is what we are looking for. The set up of the charts above are quite simple. It is the set up I use all the time.
We have three moving averages. As you know, moving averages smooth out the price, making it a little easier to work with.
The Moving Averages in the charts above are as follows:
8 day EMA (exponential moving average) Red
21 day EMA Blue
55 day EMA Brown
Our first consideration is that of the trend. We want to go along with the trend as much as possible. Always at the start of a trade.
There are a number of ways to identify the trend which is going to be up – down – sideways. I teach others in my training.
We are going to use a very simple method for the purposes of this demonstration. When the 21 EMA is above the 55 EMA, we will consider the trend to be UP. When it is below the 55 EMA, we will consider the trend to be DOWN.
Our trades will be instigated by the 8 day moving average crossing the 21 day moving average. So if the red line crosses above the blue line we have what is called a long trade – we will profit if the price of the entity we are trading goes up. But since we only want to go with the trend, the blue line needs to be above the brown when the red crosses the blue for us to act.
Your homework is to identify the trend – up or down – of each chart for tomorrow.