A couple of things to discuss this evening. One was a left over from the Round up.
I had indicated that there was a warning on the SSO chart, so let’s take a look at it.
You will see in the chart above a vertical line at position 1. That is there to demonstrate that while we have a high in price (I allow 60 days to go by before classifying something as a “new high”), we don’t have a new high in the ROC in the lower pane.
This has always been a warning for me that all was not well. That doesn’t mean that the ROC can’t go back to its proper relationship with the price, but in the meantime I add a trend line to the chart. If that trend line is crossed i.e. a candle closes below it, I tighten my stop to just below the low of that candle.
Now, onto a stop-out.
You will note a high at position 1 of $63.20. Our trailing stop which was set at $3.94 under the market price has climbed up with the price. That high anchored the stop at $59.26.
When the price fell back to the low at position 2, we were stopped out at $59.26.
This is how that looks:
$61.57 (purchase price) – $59.26 (stop out price) = $2.31 loss per share.
200 shares X $2.31 = a loss of – ($462)
The portfolio gets updated to reflect the loss: $138,066.90
That’s it for today. If you have any questions or comments, they are most welcome at: firstname.lastname@example.org.
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: email@example.com
First of all, our open trades: UGL and SSO continue to chug along like Thomas the Tank, if not as quickly. Our pending trades have finally turned up something.
The chart above is of UDN. An ETF representing the Dollar Index, which is the dollar vs a weighted basket of the main currencies. If the price rises, the dollar is gaining strength against the basket and vice versa. The UDN represents the dollar struggling.
Our first task is to check the trend. Now, normally that is done by way of the relationship of the 21 EMA (blue) (exponential moving average) to the 55 EMA (green). The blue is slightly below the green indicating by our definition of a trend that it is down. Therefore since we don’t want to swim upstream by placing a long trade against a downtrend, we would normally walk away.
In this case we have an exception. In our world of trades, we can see that the 8 EMA and the price have closed above the blue AND the ROC is above the 0 – line. Our impediment was the resistance that was hanging around just above the current price. I needed to see a CLOSE above that line. Unlike the error I made with UGL, my stop – buy is now just above $20.09. Our protective stop will go just below the support level at $19.47.
If we get a rise above the high of $19.47, we are in.
Lessons this evening, Grasshoppers?
– Resistance levels can cause you grief as well as joy. If you place your order under resistance you can sentence your trade to bounce around awhile then fail, or maybe succeed. We know that buy orders are building just above a resistance level. Our trade, if the time is right, could run like a stabbed rat.
Are we guaranteed of a good out come as a reward for our patience? Absolutely not, but we have increased our odds dramatically.
If you have any questions or comments, they can be sent to me at: firstname.lastname@example.org.
Well, here we are at the end of hump day without much to say. Our open trades in UGL and SSO continue in place. None of our pending trades triggered: those resistance levels proving to be formidable barriers.
I do have an idea. Before we stopped trading the original portfolio at the end of April, 2020 and decided to keep going with the book portfolio, we entered a trade in Apple.
Let’s call an audible and take a look at that chart.
If you track up the diagonal trend line you can see a lone candle having dropped below the 21 EMA (blue). The price then moves up and closes above the 21 EMA, the 8 EMA (red) and the 55 EMA (green). The blue has crossed above the green giving us an uptrend set up. The price rising above it all gives us the go ahead. We just have one little problem: resistance at around the $291. We put our stop-buy in at $292. We are triggered in. We put our trailing stop at $264 or $28 below the trade price.
We have a couple of issues coming up. First of all we are facing resistance at the $327 level. Also, we have divergence. The latest high in price is not matched by a high in the ROC in the pane below. The trend arrow on the ROC is sloping down as the price continues up.
Usually when we see this, we take action. I usually put a trend line on the price and if it is broken I close out the trade. Our trailing stop, like a faithful Sherpa, has been following the price up. If there is a quick decline our stop would get us out at $296.
The reason is that so far, Apple has made a high of $324. Our trailing stop was $28 behind, and therefore anchored at $296. So even in a fast decline we would still get out at a profit of $4 per share. ($324 – $28 = $296). We bought in at $292.
If there is an orderly breaking of the trendline we would more likely be out around $304, a little better result of $12 per share.
We followed our process and are out with a small profit – either way. This is what we are about. Probing for the big move, accepting the small gains and losses along the way, knowing that 5 big moves in a year will give us a fantastic return. The portfolio is up over 38% so far thanks to a single trade in oil.
Stay patient, my friends, the Big Moves will come. There is no need to bet the farm or take undue risk.
If you have any questions or comments, please drop me a line: email@example.com.
A new trading week, so to speak. There are no new trades to report. We will speak of the progress of the open trades, or the lack thereof.
SSO: this ETF represents the upside of the S&P 500. Remember that this is a double up exchange traded fund i.e. the S&P advances 1%, the SSO jumps 2%. Terrific, unless it goes the other way. But that is why we ALWAYS use protective stops.
The high today was $119.90. The trailing stop is therefore anchored $16.04 below the high. It has moved up with the price.
UGL: This ETF represents the upside of Gold. I made a mistake with this one: I didn’t wait for it to close above resistance and then place the order just above the high of the candle that closed above resistance. That doesn’t mean it can’t be a good trade. It is just that it can often bounce around if you get in too soon. You need to understand the power and importance of resistance and support to be a consistent trader.
The drop in price today didn’t stop us out, but it was within pennies of doing so. If we were to turn the UGL chart upside down, we may say a trade going the other way.
Let’s take a look at the inverse of UGL.
GLL represents Gold going down in an ETF. We can see above that the price has closed above the 21 EMA (blue), but the blue is below the 55 EMA (green), indicating a down trend.
We can swim against our trend because the ROC has closed above the 0 – line.
We, however, have significant resistance represented by the black, upper horizontal line – position 1. I have started this line at the upper part of a falling window in candle chart terms – a gap in western terms. That gap represents a zone of resistance. The ‘all-hope-is-lost point is the upper part.
Not really all hope is lost. I need the price to close above that line and then to place a stop-buy just above the high of the candle that manages that feat. The protective stop will go just under the lower horizontal line – position 2.
Other symbols of interest: UDN is in a similar boat. Resistance is at $19.08.
TBT: Resistance is at $16.01.
In both cases I need to see the same close setting as with GLL.
Essentially, I need the market to confirm matters – as much as that is possible when trading.
You can scroll down through the weekly round up charts to see them. If they trigger, I will show the chart and the details.
If you have any questions or comments, please drop me a line: firstname.lastname@example.org
The weekly look at all our symbols whether there is a trade or not. Our portfolio ended on April 30th in the Basic Trading book. This blog continues that exercise and will do so until 2020 has expired.
It started out at $100,000 and is currently nestled at: $138,528.90. This is purely a theoretical exercise for teaching purposes only. Do not construe anything you read here as investment advice.
Let’s get started.
S&P 500: ETFs UP SSO DOWN SDS
The S&P 500 has rebounded from a steep and fierce decline. I have placed a Fibonacci retracement tool over the decline. My concern is that there is another leg down. Well, not really a concern. We are going to place our trades based on what the charts tell us, not something as nebulous as “our concerns”.
We shall assume we are in for another downleg as long as the current rebound does not exceed 70% of the decline. Also, I pay attention to divergences. In the case of the ROC, it is not matching the price with a new high. (new high in 60 days). The RSI is having trouble getting up enough drive to exceed 60, which you will note it has done in the past for nice upsides.
We, however, live in the world of trades and stick our tongues out at the trading world. I entered a trade that was to the upside, despite all we have just looked at because that was the signal in our world of trades.
The SSO trade is still alive and kicking. You can see from the horizontal lines on the chart representing a level of resistance and support. We placed our buy at 1 and protective stop at 2. The stop is the trailing variety. If we are stopped out, details and portfolio update will be reported.
Gold: ETFs UP UGL DOWN GLL
UGL is the only other trade we have open as of writing. We needed our moving average conditions to be met and for a close above the horizontal line at $61.57 at 1. The protective stop is at 2. Scroll down to previous days for full details.
Oil: ETFs UP UCO DOWN SCO
We are looking at UCO because it looked closest to giving us a trade.
We have five instruments we look at as represented in the stock market by ETFS. Each instrument having an UP ETF and a DOWN ETF. Look at both. If you have a buy in one, you can skip the inverse.
As you can see in the chart the price looks like it wants to close above the 21 EMA (blue). Oil is still in a downtrend based on our blue is below green set up. When and if the market confirms matters by CLOSING above the 21 EMA, we may act. If the ROC is above the 0 – line at the time, or gets there on a closing basis within three days, we are good to go. Our next concern is nearby resistance. The next level is at $35.58. Not an immediate concern.
U.S. Dollar Index: ETFs UP UUP, DOWN UDN
I am showing the UP version of the Dollar index. Both charts are betwixt and between. There are no trade signals per our method at the moment.
20 year treasuries: ETFs UP UBT DOWN TBT
I put support and resistance levels on this chart because there was a point a few days ago that our moving average conditions were met, I needed a close above resistance at position 1 to pull the trigger.
This is where we learn patience. It is important to wait for the market to confirm our trade before acting.
That does it for this Round-Up. If you have any questions or comments, please send them to: email@example.com.
Look at me, putting the correct date at the top of this page. I am really stringing ’em together now!
Not too much to report this evening. Our two open trades continue to advance a little and then fall back a little. The trailing stops maintain their careful watch over our behinds – sorry about that, trailing stops.
I had promised that we would look at the futures or the underlying instrument that fuels our stock chart symbols.
Tonight, let’s take a look at Gold. Just the sound of that word is fantastic. Enough of that, to the chart, Gollum…
The chart just above us – look up – is of the spot price of gold (my precious). As we can see, based on our moving average system the 8 EMA (Exponential Moving Average) (red) is above the 21 EMA (blue) and they are both above the 55 EMA (green) that we are in an uptrend.
Our setup therefore is for a long trade. Our triggers: the price and the red EMA have obligingly closed above the blue EMA. We should be good to go. Our problem is the resistance level shown by a horizontal, black line. This level is proving to be quite the barrier. It is why I added support and resistance considerations to our simple moving average system. Because they can be so darn important to the success or failure of a trade. It is why I like to use stop-buys, so that I can get the price above resistance, congestion, whatever. We should have put our stop-buy for UGL just above the candle that CLOSED above the resistance level.
There are other exciting reasons for doing so. I detail them thoroughly in my book, Basic Trading. Take a look, click:
Even though we live in a world of trades and stick our tongues out at the trading world, is there some clue we can get that might tell us what is in store for our gold trade.
Let’s take a look at the RSI. Typically used as an oversold/overbought measure. It doesn’t help us much in our world of trades. I will give you a little insight into a better way of using this indicator. I actually go deeper in my course which will be available for purchase fairly soon. Typical bearish measures for the RSI are between 20 and lower to 60. The bullish measure from 40 to 80. These boundaries can be adjusted by examining the history of the symbol.
Since mid-March you will notice that the RSI has had trouble clearing the 60 level. Whereas prior to mid-March, the readings venture a little above 80 a couple of times. When the RSI ventures into the other territory, it is a warning that things may have changed. It is looking as if the RSI is telling us that it is remaining with the bears.
This was more of an intellectual exercise. We would still place our trades based on our process. Some of you may take my course and decide you like the predictive abilities of the RSI. Or, let’s call them “set-up” abilities. The set up at the moment is bearish, consequently, you don’t take a long trade. You would not be long UGL – the gold ETF – like this blog.
That does it for gold.
If you have any comments or questions, please drop me a line at: firstname.lastname@example.org
I summoned up my charts this evening as Merlin might have the spirits at the TOR above. I follow the same procedure as the one I teach new traders and traders struggling to make consistent profits. I check five symbols. The same ones I started trading theoretically in my book: Basic Trading: ‘A Beginner’s Guide to Trading and Investing…PROFITABLY!’ Freshly edited and uploaded to Amazon.
‘What’s new?’ you are thinking after all that self promotion.
Well, let’s start with our open trade in UGL. It has strengthened a little again today. We had placed our trade a little above resistance to avoid being rebuffed. Alas, our stop-buy was triggered and then, despite our caution, the price, as Japanese Candle Traders call it, “fell off the roof”. Not sure what that is in Japanese – you wouldn’t have understood it anyway. I mention this because these things happen. It is part of trading. Now in this case, our stop was placed just below support. We were not stopped out. The price is now almost back at the buy in point.
Over the last couple of trading days, actually back to the weekend round up, I mentioned a couple of symbols that were almost at a buy in point. They just needed to close above a resistance level.
We had one that did, so we are in that one. Let’s take a look at the chart.
SSO is the ETF that imitates the rise of the S&P 500 – double time. You can see we had our resistance line set at $114.74.
Today, it’s little head popped up and closed above the resistance level. We are in at $114.74. I made a tiny error here. I was supposed to wait until we had a CLOSE above that level. The stop-buy should have gone just above the high of the candle that closed above resistance. This is a theoretical exercise, so I could just fix my mistake, but I am trying to make this as close to real as possible.
Details of the trade look like this:
10% of the portfolio = 13,000/$114.74 = 113.29, rounded to 120 shares
Stop at $98.70 (position 2) = $16.04 X 120 shares = risk of $1,924.80 (<$2,000).
I shall update this one also as we go along.
I want to take a quick peek at oil.
Oil has been a bit of a freak show lately. Not for us as that was where we made our biggest gain.
UCO is the ETF that mimics the rise in oil – double time.
Our set up is downtrend as the 21 EMA (blue) is below the 55 EMA (green). This means that even though the price looks like it is about to cross above the blue, we cannot trade long against a downtrend. There is an add on to the rule. If the price closes above the blue and the ROC in the lower pane is above 0 at the time, or within three days, we will enter a stop-buy just above the candle that closes above the blue EMA.
As always details will be reported here as we continue to trade the portfolio that was in the book.
If you have any questions or comments, please drop me a line at: email@example.com
Our update this evening will start with our one and only open trade, UGL. It regained some of the decline it suffered yesterday. The decline yesterday was well within the range of our protective trailing stop.
The other prospective trades we had mentioned. You can scroll down to see them, did not trigger. SSO would not close above $114; TBT would not close above $16.73. I would also like to see UDN close above $19.97.
I promised that each day we would look at the actual futures or instrument that drives the values of our stock market symbols.
The SSO refuses to co-operate by closing above its resistance level, so let’s look at the underlying that determines the value of SSO – the S&P 500.
As many of you know my methods have us in a world of trades as opposed to a trading world. Every once and awhile I take a look at the bigger picture. Not because it changes anything or that I really care – it is because I am curious, it is why they call me Whiskers.
Let’s take a look at the chart above. My first curiosity is the brick wall that is providing the resistance to the SSO. We experienced a horrible decline in the S&P 500 (in terms of points combined with the short amount of time it took).
I put a Fibonacci retracement on the chart and you can see that there is a level of resistance at 61.8% retracement of the down leg. What you may not know is that this is a fairly classic point for a rebound to stop rebounding. Now the next classic thing to follow is a further decline of at least the same amount as the previous decline, making a zigzag pattern.
The RSI, which I have said I don’t use in the typical oversold/overbought method is telling me the zigzag is more likely than the breaking of resistance.
What are we to do with this information? It is not anything close to a for sure.
We can remind ourselves that we are in the world of trades and in that world as opposed to the trading world we act on what we see. That means if the SSO closes above resistance, we will enter a buy just above the candle that does the closing above it.
To get this, you need to get my book, click here for it:
I like to show prospective trades we are considering before they happen.
We were triggered into a gold trade last week by way of the proxy UGL. That symbol fell a little today, but we were not stopped out. Scroll down for all the details.
The SSO which is a proxy for the S&P 500 on the long side is ready to go. If you scroll down you will see that we are waiting for a close above $114.74 to enter a trade. The price today jumped above that level, but then fell back. We will check after the close tomorrow as we go through our symbols.
Let’s take a look at the chart for TBT…
TBT is the symbol that represents 20 year treasuries on the stock market as an ETF. As you can see from the chart, the 21 EMA (blue) is below the 55 EMA (green), this indicates a downtrend. Normally we don’t trade against the trend: a long trade against a downtrend.
We have an exception. The triggers, the 8 EMA (red) and the price have closed above the 21 EMA (blue). In a case like this if we find that the ROC in the lower pane is above the 0 line, or rises above the 0 line while the rest of our set up is in place (within three days), we will enter the trade.
The next question is where to place our trade. Normally it would be just above the high of the candle that completed our pattern. But there is a level of resistance at $16.66. I will place the stop-buy just above that level at $16.73. Position 1.
Our protective stop will go just below support at $14.93. Position 2.
Check back tomorrow for an update on our UGL trade and whether we were triggered into either of the two above.
If you have any questions or details, please drop me a line at: firstname.lastname@example.org