Stop loss!

I have read and heard this many times. “Never key in your stop loss in the system but keep that in the mind”. Many argue that “mental stop loss” is always better than “ system stop loss”. Ok, here is the simple chart to tell you what a “mental stop loss” can do!

Above chart is not from any trading journal or from any historical data. It’s a 15 min crude oil chart of last evening i.e, 23rd Mar’12. There was news around 7.00 pm that Iran’s crude oil stock would come down sharply this month. Crude oil was trading in the tight range of 5425-5450 since morning and it was slightly moving up and making high around 5460 by 7 pm. But, the moment the speculation about Iran’s oil inventory was out, oil had a gigantic spike to hit 4% upper circuit for a moment and then cooled down.

If someone did not place the stop loss in the system, then it would have been a very tough situation to take a decision as the move was such a harsh one to freeze up in an absolute mere time. So, the moral of the story is never keep a mental stop loss and always key in your stop loss along with a trigger price once your buy or sell trade is done. One can argue that it’s once in a while spike and no need to always key in stop loss in the system as biggies might eat your stop loss. But, this once in a while spike can swipe major share of your trading capital completely.

I was actually holding short position which was sold at 5405 and my SAR was at 5465. I always key in my stop loss immediately after my trade and never wait. Due to the keyed in SL, my loss was restricted to just 60 points i.e, Rs.6000 per lot and the reversed longs actually compensated the loss. If it was a mental stop loss, my losses would have been huge and it must have pushed me out of trading for next few days. We all know that that mother of all the trends would start only when we are away!
 

Price filters in SAR trading - Gain or Pain!

There is always a struggle in mechanical trader’s mind as what kind of filter he should use on the sideways market to get away from whipsaws. Simple truth is "no filter value" can benefit in the long run. I personally  experienced the fact that most of the trades gets whipsawed even though the price filters are applied before reversing the trade. Whatever can be the filter value, but price will go there to kiss your SAR order and pull back:)

I hope many mechanical trading system followers would have experienced this.I definitely agree that few trades might survive from whipsaws due to application of price filters. But that's once in many trades. If you run the check with your old trade log, you will realise that there is no point in the fixed price filters.

They are actually a  pain to your mechanical trading system.How?

Look at the below table from my records.

Now, below is the small brief to understand the difference between the returns shown above.

Total trades in a year – 96

Say, we keep filter of 0.1% which is around 5 points per trade (considering average price of crude oil as 5000).So, when you place a order for reversal, you place 5 points above or below your actual SAR value.

Let us assume that we are reversing one short position into long with a loss. We place the order 5 points above the SAR level to enter into long position. One has to understand that we have straight away included loss of 10 points in the above trade. That is, we extend the loss of the existing trade by 5 points as well as we reduce the profit from the next trade also by 5 points with the lateral entry.

It is obvious that you are making loss of 10 points in every trade and if you zoom this calculation in to 1 year period, you lose 960 points ( 96 trades as i shown in table) in the name of filters. It is absolute 384% of returns you have lost by using filters. Even if your system do not generate any major gains for the year, if you would have saved this 384%, that is more than enough for any trader with any system.

Caution : My entire explanation is based on commodities and especially from my testing with crude oil. This cannot be considered as is for trading other contracts for eg, Nifty, without proper testing. And, my system is different and the effectiveness of filter might change among different trading vehicles.Check every contract you trade before making a decision.

My note # 1 : If one is already trading with filters, there is no need to immediately skip the filters. Try to reduce the filter size gradually. It can be flexible and worked based on some important TA levels placed around SAR price.This would work.

My note # 2 : I have stopped trading nifty and don't have the updated data. But I can do a approximate math with my experience in Nifty. If we assume that we execute around 75 trades in a year, then trading Nifty using a SAR system with 10 points of filter will lead to the invisible loss of  75x10x2 = 1500 points  which is 300% ROI. Am I correct?

Bottom line of this post is to highlight the invisible slow poison which dilutes your capital.So, keep a check on that!

Steep travel!

More than the loss, missed profit disturbs me always ! Booked out completely though system was clearly in long.

I don't know how many days it'll take for me to forget this.

Wherd do we stand?!

What we are witnessing in Indian equities are like "gully cricket"!! Real cracking matches are going on at commodity markets. Just look at this table.



I have just given each one counter from energy, base metal and precious metal just to show how the commodities are making a deep cut.. Above are MCX prices. What is more interesting is that, we had a biggest single day drop of USD-INR yesterday in last 15 years .. Despite that, every commodities had fallen this much. If USD-INR was stable, then the cut would have been more.

Copper, Silver and many counters have frozen at second lower circuits today..

Every fat finger across globe are winding their sacks!!!

What else is in store??!! million dollar question!!

Trade Update

Crude oil was reversed to long @ 4181 on 20th and it made high of 4262 yesterday..It had ran up a lot mainly due to heavy weakness witnessed in INR. Due to FOMC statement, there was sell off late night in NYMEX. When we opened today, Oil was down by 3$ but fortunately INR helped the slide in MCX prices. We opened down by 80rs instead of 120-130rs.

Had a sell signal at open itself and reversed to shorts at 4135. If INR was a hero yesterday, he is a villain today who spoiled the entire show. Oil in $ tumbled about 3 $ again in intraday which should have reduced the MCX value at least by 120rs but INR is in heavy losing streak as it reached to 49.53 at close against open price of 48.70. This resulted only about 70rs loss in MCX oil prices till am doing this post. Rest of the move is based on how US mkts are going to open and trade tonight. Europe is bleeding about 4-5%. SAR is placed at 4270 for the day.

Copper continuing its mini dream run on downside. Currently its trading at 390. I have missed the entry. You know how much it pains!! Yes! The good trade which you missed will give you more pain than the one which caused heavy loss to you :)

Silver – Let me list down my trades here. Crazy start with this mother of swings counter !!

Short @ 63700 – Made low of 63165 but not booked.

Long @ 64510 – Made high of 65550 but not booked

Short @ 64510 – Today again reversed to shorts and it’s now trading at 63000 and yet not booked :)

In sum, three good swing trades of silver showed me good profits but yet to pocket them. Not booking the profits but just riding the swings with the system which so far gifted me just 700 points profit as of now. If I book the profits and exit, I will surely struggle to enter again and I may miss the huge move as like what is going on with copper. As I just started trading silver, am not ready to exit from position and want to be with the system to test where it takes me.. It’s the best way rather than doing the paper trades.

There will be some clue tonight whether global markets are bottoming out or another “2008-lehman” kind of history is in making!!

Trade Update

Crude oil was sold at 4235 and made low yesterday 4058. Due to expiry, covered the shorts at 4164 in Sep series and shorted Oct series at 4182. SAR is placed at 4180 today.

Copper had made a mini dream run on downside. Should have shorted it around 416 but stayed away from the trade due to preceding whipsawed trades. It made low 403.25 yesterday and SAR is placed at 410.50 today.

Silver - Started trading from yesterday. Sold it at 63700. SAR is placed at 64510 today.

Either crude or silver is making a wrong move and either one of it will hit SL today.

Crude oil

Crude was testing patience for couple of days and finally paid for the waiting.. It was kissing 4215 levels on the downside from wednesday and not breaking the same yesterday till evening. And finally the much awaited break was done which accelerated the downfall to another 100 points i.e, till 4118. It has closed at 4150.

4250 at MCX or 89.50 on dollar will offer some good resistance next week and more price action in store next week. It is trending in these days and am trying to capture the most of its move..

Recent trades read as below for oil.

Short @ 4050
Long@ 3920
Short@ 4085
Long@ 4138
Short@ 4235

Aggregated 340 points in 2 weeks. Should stay focussed and disciplined otherwise all of it will be swayed away :)

Trade Update

Crude oil :

Shorted it at 4050. It made low of 3843 and 3847 on the consecutive days. Didn't book the shorts as system was still in short. Reversed to long @3920 and it made high of 4153 today.Still holding the long in hand with SAR at 4024.

Copper :

Not trading for the last one month. It should have been sold at 423 and reversed to long at 419. Long from 419 should be in hand with SAR at 418.50 as of today.

Trade Update - Intraday

Can't resist myself from doing this intraday update which I normally don't do.



Crude oil was sold at 3919 and it is trading at 3810 now (previously sold one lot at 3977 and booked it at 3930)..let the lady luck smiles at me till tomorrow morning :).




I badly need this success after all missing the good junk from previous carnage.

Trade Update - After the break!!

Excellent trade cycle, I would say once in couple of year opportunity has just passed by. Crude oil sold at 4199 reached 3543 and gave buy signal @3785. Buy has reached 4030 yesterday and about to give SELL today if 3919 is breached.

Copper was sold originally around 435 and reached 387 and gave buy at 400 and still in buy mode now. It is about to give sell today if 400 price level is broken. But copper is making typical which happens quite often now a days.

Also, did not have proper TA levels by tuesday due to long weekend at Indian markets. It may sound funny but that's how I have been slightly struggling with my system. If Indian markets or US markets are closed,I would be having the pinch next day. I will remain mostly neutral on those days.

Back to the trades from today onwards. Since Feb, I have never been with empty hands except by first two weeks of this month when I missed to eat the yummy and fatty stuffed bread fully. I could eat only a slice of it :)

Trade Update

hmm.. what was going on last week? simple.. profits were seen on papers but not landed in my pockets.. whipsaws taken back the profits.. but can't help it..that's how the system was signalling after a good run up..what happened? let's look at it..

Trade details of 19th - 23rd July :

Crudeoil:

Had long@4367 on 18th and it made high of 4420 on 19th. On the 20th, it moved up till 4438 but later made low of 4333 and me reversed to shorts @ 4350. It beautifully bounced from lows to show 4400 again and closed at 4372.For the 21st July, my SAR was at 4430 but i was waiting it to clear previous day high of 4438 and it did clear that. So, obviously entered into longs at 4440. On the 22nd, it was a inside day and SAR was saved by mere 6 points and carried the longs for the weekend.

Today my SAR was at 4400 and it got hit at open itself and now carrying shorts with SAR at 4490.

Copper:

Reversed to shorts on 21st at 434.90 and again gone long@435.20 on 22nd July with SAR at 431.But it made high of 435.35 just 15 paisa above my buy. SAR hit at open today and holding shorts now with SAR at 436.00

Trade Update

Trade details of 19th July:

Crudeoil : Bought@4367. It made high of 4420 and closed at 4412. Carrying longs with SAR@4349.

Copper : Holding buy. Made high of 442.75 but closed at 440.40. Cleared 21Day high yesterday.SAR is placed at 436.20

Trade Update

Trade details of 18th July:

Crude oil:

Covered shorts@4245 as it was taking support there. No position in hand now. Will short it below 4200 or will go long above 4330.

Copper :

Still carrying long with SAR at 432.50

Trade Update

Trade details of 15th July :

Crudeoil:

Shorts were in hand from 4319. It bounced later in the evening due to no negative outcome of stress bank results and made high of 4347. SAR was placed at 4350 hence shorts were saved by mere 3 points. It later closed at 4309 on friday and closed at 4329 on saturday. SAR is at 4370 now and still carrying shorts.

Copper:

Still in consolidation with small range. Holding the longs with SAR at 431.50

Trade Update

Trade details of 14th July:

Crude oil :

Booked long@4285 as it was having stiff resistance around 4390. Even after mute retail sales and unemployment data, price was not able to take out 4400. Later in the evening, it crashed. Sold @4319 and holding the shorts now. It made low of 4215 i.e, 100 points from the entry but didn't want to book the shorts as 4400 had given a good resistance and prices just started coming down. Wanted to see if i am getting consecutive sell signal today otherwise will close the short today. SAR is placed at 4350 now.

Copper :

Making consolidation for last 3-4 days. Holding the long with SAR at 429.50.

Trade Update

Trade details of 13th July:


Crude oil - Long from 4265 was in hand. After inventories data and US fed chief speech, oil had a good run-up. It made high of 4412 and closed at 4380. Holding long with SAR at 4215.

Copper - Long from 434.25 was in hand. It made high of 438.70 but later slid to 431.25 and closed at 433.Holding long now with SAR at 428.75

Trade Update

Trade details of 12th July:


Crude oil - Shorts from 4300 was in hand. price broken previous day low and went till 4190. But it bounced from 4190 and had to reverse shorts to long yesterday at 4265. It made high of 4330 later and closed at 4320. So, carrying long now with SAR at 4240.

Copper - Shorts from 431 was in hand. It made low of 427.50 yesterday but later had a bounce. Had to reverse the shorts to long at 434.25. It didn't move high but closed at 434.So, carrying long now with SAR at 429.75

Trade Update

Trade details of 11th July:

Crude oil - Short@4300 still in hand. It made low of 4196 yesterday and closed at 4220. Still carrying the shorts with SAR at 4265 now.

Copper - Short@431 still in hand. It made low of 428 yesterday and closed at 430. Still carrying the shorts with SAR at 434.20 now.

After the break - Trade Update

Had a busy schedule at office for the last two weeks and could not update here. Ok, what is going on with my trades?

Crude oil : After that unhappy hedging, managed to came out without a damage :).. Oil has bounced nicely from the 4060 lows and raised till 4400 last week. Glad that captured 70% of this move.. Had a thought of booking the profits around 4400 but some how held back thinking of some more highs. But it has reversed from the peak last evening after poor data from U.S and given a sell around 4300. Now holding SELL with SAR at 4360.

Copper: Dr.Copper was a darling for the couple of weeks :). Was expecting the big move for some time but didn't know which direction it would be.. Had some typical whipsaws which alerted me for the big move..and it finally came. long entered at 407 was moving all the way above to 437 without taking my stop till the U.S poor data news last evening.. didn't book the long at high but reversed them to shorts when i got the sell signal at 431.. one of the good trade from copper after somany whipsaws and still some losses to be recovered.not bothering about the loss and just following the price action.. Holding the SELL now with SAR at 438.

Trade Update

Trade details of 24th June:

Crude oil :

Yesterday after the short@4230, it crashed down to 4065 and bounced sharply to close at 4140. It maintained the down trend today also. It just kissed yesterday's low i.e, 4067 and again bounced to close at 4120. I made mistake of adding another short when it reached day's low.. it was a pure gamble trade as i was predicting that it will crash heavily if it breaks yesterday's low. I didn't follow the price action and just gambled it!! And it gave me the prompt slap as it bounced from the low i.e, after my short.. Had to hedge the shorts with Aug contracts and am not at all comfortable with this hedging business.. but had gone for hedging coz got panic as the bounce happened just few minutes before the closing!! poor boy, read your slideshow again and again !!

Copper :

Dr.copper really testing the patience. Everyone - at least me, biting the dust as its consecutive 5th whipsaw today.. Copper was reversed to longs @407. It made high of 410.40 and closed at 407.30.

Holding the longs with SAR@403.75