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For those who found my earlier elaborations on the volatility based
MM system quite theoretical, I'd like to post a trade anatomy here,
showing, how this system could be applied. Please consider, when
trying to track this anatomy on a historical chart, that hindsight is
always 20/20 and you have to make your decisions at the best
available information you have at any given moment. Of course, some
decisions could have been avoided, in order to squeeze the optimum
out of this trade - but, rule number 1 is preservation of capital -
so a prudent approach is desired ( at least for me ).
Here's how it worked out so far :
Parameters : Account size 10.000 $, Risk : max 2% of account size per
position. Positionsize is determined by risk / volatility model :
You can track the daily changes by using the model posted on my
previous thread. Pull up the chart of your desired stock and run the
exploration with settings : "current stock" and "lastn days 250"
On Oct. 2nd, TLAB gave a STO 14,3 crossover buy signal.
The MM system returned following values on Oct. 2nd, after data
update for entering the trade the next day ( Oct.3rd. ) :
Close as of Oct. 2nd. : 9.30
Planned Entry for Oct. 3rd. : 9.96
Stop if filled : 8.66
ProfitTarget : 11.63
Risk : 1.30/share
Reward : 1.67/share = > 1:1
Max Position : 154 shares = 150 shares
Oct. 3rd. trading range : open 9.04
high 11.12
low 8.98
close 10.51
Our limit order for 150 shares @ 9.96 was well within days trading
range.
At the end of Oct. 3rd., we placed our stop @ 8.66
Oct. 4th. morning
after updating data for Oct. 3rd. the system returned following
values, reflecting the shift in volatility :
Stop 8.52
PT 12.51
Positionsize 115 shares - well below the position we took on Oct.
3rd, due to much higher volatility.
Now what to do :
1. we keep our Stop @ 8.66 since we never trail a stop-loss down
2. we raise our profit-target from 11.63 to 12.51
3. Since the system signaled much higher volatility and suggested a
smaller position, we decided to reduce our position by 50 shares q a
price close to the initial profittarget of 11.63
We enter a limit sell order for 50 TLAB @ 11.63 and keep the stop for
100 TLAB @ 8.66
Oct. 4th trading day :
Stock opended at 11 and went up to 12.95.
Needless to say, our 50 shares were gone for 11.63 and we netted a
nice profit of 50 X 1.67 = 83.5 - our commissions, using IB as Broker
would have been 2.50 USD so far.( 150 x 0,01 $ buy, 1 USD min. for
sale of 50 )
Oct.5 th.
Data update in the morning.
Systems return for Oct. 4th :
Stop 8.60
PT 13.63 ( see the increase from 2 days before ! )
Positionsize : 91 ( dropped even lower, but not significantly )
What to do for Oct. 5th. trading day ?
1. We keep our stop for the 100 at 8.66. Although the stock has risen
quite a bit, we refrain from raising our stop because the volatility
went up as well. So any intraday move could wiggle us out of this
trade, if we wouldn't stay away from the daily noise.
2. We don't change our position. Although 91 is obviously lower than
100, it's not so signficant as as the drop from 150 to 115.
Furthermore, we locked in some profits already, so there's no need to
become scary.
Oct. 5th trading day :
TLAB opened @ 11.29 and went up to 12.50 - daily high. The low was
10.76 and it closed at 12.30 - still below our new profit target.
Happy weekend
Oct. 8th.
downloading quotes from Friday.
Our system tells us :
Stop 9.07
PT 14.46
Max Pos : 85 shares ( we still hold 100 )
So we raise our stop finally a bit from 8.66 to 9.07
We raise also our PT to 14.46
We don't change our positionsize - the drop from 91 to 85 is again
not really significant and doesn't justify any action here.
Again, we made already some profits and we raised our stop. So not
much to worry about.
Oct. 8th trading day :
TLAB had a narrow range day, compared to the previous days !
It opend at 12.10, went up to 13 and closed the day at 12.34 with a
low of 11.87
Oct. 9th - morning data update
Our system returned following values :
Stop 9.55 ( trailing gets closer due to lower volatility )
PT 14.77 not much more than the previous day
Positionsize : 87 - we still have our 100 shares
Accordingly , we raise our stop. No other changes
Oct.9th. trading day
Another, very narrow range day for TLAB.
Open 12.41
High 12.65
Low 12.19
Close 12.36
Oct. 10th. data update.
Our system returns following values
Stop 10.06
( now we have locken in at least a bit more than breakeven on the
remaining position. Notice how closely shrinking volatility is
trailed )
PT 14.67 - lower than the previous day, but only by 10 cent. We'll
adopt this one.
PosSize : 99 shares - we still hold our 100 shares
Oct. 10th trading day
Slightly higher volatility for TLAB.
Open 12.37
High 13.35
Low 12.30
close 13.03
Oct.11th - data update
Our system shows following values
Stop 10.50 - half a point increase from the prior day
PT 15.04
Max Pos : 101 - we still keep our 100 shares
We increase our stop accordingly and also our PT
Oct. 11th - trading day
TLAB opened at 13.38, moved to a high of 14.53 ( close to our PT as
of Oct. 10th. - remember ?
It closed at 13.92 after posting a low of 13.30
Oct. 12th. data update
System values :
Stop 10.97
PT 15.78 - significant change from the day before
Max Pos. 95 - no change
What to do for the trading day - it's Friday, the war is going on and
who knows, what the weekend might hold in store for us. TLAB is
trading well above our initial PT of 11.63, and somewhat below our
raised 2nd. PT of 14.67. Volatility went down and
We think, it might be time to take some money off the table.
We give a sell order for 50 TLAB @ 14.25. A price within the trading
range of the prior day and slightly below our revised PT .
Since 14.53 had been the high of Thursday, we think, it's prudent,
not to squeeze out the last penny on a friday
Oct. 12th trading day
TLAB had almost an inside day.Our Stoch Indicator is close to a
downside crossover at 86.7 and MACD is just about crossing the 0 line
from the downside.
Open 13.93
High 14.80
Low 12.98
close 13.81
Needless to say, that our sell-order for 14.25 had been hit, locking
in another 4.29/share or 214.50 - 1 USD comm. = 213.50.
Our total position is now 50 TLAB. The position has paperprofits of
50 x 3.85 = 192.50
We realized already 213.50 + 81.50 = 295 $ on Profits
after commissions
That all from an initial position of 150 x 9.96 = 1495 $
Oct.13th : data update
Our system shows following values
Stop : 11.16
PT : 16.41
Max Pos : 87
What are we going to do for monday ?
Since STO Indicator signals a shortterm overbought condition, while
the MACD is still rising ( lags somewhat behind STO, of course ) and
TLAB was not able to close at a higher high on Friday, we will be
cautios and watch out for any signs of breakdowens in TLAB in the
course of next week.
We raise our stop-loss for the remaining position to 11.16, locking
in at least 1.20/share, if TLAB breaks down on Monday.
The drop in Max positionsize from thursday to friday is not very
significant, but still a break of the trend towards larger positions
in recent days. So we expect higher volatility on Monday / Tuesday.
We have realized a decent gain on this trade so far, without risking
a lot and have only used a comparably small percentage of our trading
capital of 10K.
Applying the full capital ( evtl. + Margin ) would allow us to hold
4 - 6 different positions and manage them according this model.Still,
we would only risk up to 12% of our total trading capital in all
trades.
Of course, not every trade works out like this one, but with the
money-management approach described here, one could easily sustain
the drawdons inherent in trading-systems like STO and MACD.
I believe, system-development should focus more on these subjects of
how to manage position and youir capital wisely rather than trying to
find the ultimate holy grail in signal generation.
Bad money-managment and poor risk-control can ruin the best trading
system.
Hope this helped a bit.
Best regards and good trading
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