Bulls and Bears - The Market

[compforce]

So, in a few threads, @lindy and I have been talking about the market. Since then, I've had a few people hit me up about various trading strategies in PMs. So, in the same vein as the Food Thread, I thought I'd start a thread about trading the stock market.

To start with, who here trades? What type of trading, Buy and Hold, Swing trader/day trader or pattern day trader? What do you trade, Options, Equities, ETF/ETNs or Futures? Are you in a particular sector or just whatever feels good at the time? Do you have any particular mechanical trading strategies (don't give away the farm, just the general gist so we know how you trade). Are you a technical trader or fundamentals trader? How long have you been trading? Do you have any good resources that you use to help pick stocks or strategies? What's your biggest challenge?

For me, I started day trading a small account in July (not counting paper trading). At one time in the past, I developed the algorithmic trading for a large bank. I'm trying to leverage what I learned back then to make some money for myself now. I trade monthly Options and ETFs. I've dropped off options for the most part. They can provide small steady income but I'm too impatient to sit around for a month to make a couple of dollars. Now I'm almost exclusively trading a higher risk, higher reward mechanical ETF day trade strategy that I developed around gold ETFs. So far so good.

I'm absolutely a technical trader. I don't care about any of the fundamentals or even the price. I'm just looking for a good trend reversal and diving in to make a few bucks. I use Heiken Ashi charts and candlestick patterns as my primary tools.

The biggest challenge I face right now is the small size of my account. Between having to beat the commissions and fees and having restrictions around the number of day trades I can do, it's tough to make a good profit.

Some of the better resources I've found are:
Bloomberg - News and black swan events
Zack's - Stock screening and trading ideas
Tasty Trade You Tube Channel - Options trading strategies for small accounts (look for tasty bites videos)
Trade King - Basic option strategies

@lindy I finally got out of that gold trade I said went bad at a .48/share profit

 

[Isiah6:8]

I trade for our company and am in control of trading roughly $4.5bn all in equities, primarily small cap.

Trade: Pretty much the suit of products out there. Equities, derivatives, FI, foreign, L/S, etc.

Type: Not day trading, primarily buy and hold although different scenarios allow for different circumstances.

In my personal accounts I buy and hold with a quarterly re-bal on the alpha drivers while holding anchors in the portfolio to mute volatility. It is a quantamental approach. I worked on tweaking a model in grad school and my first employer happened to be the creator of it along with my professor. I am heavily allocated into health care (biotech/biopharma). My skills lend me to more quantitative approaches although I would say there is a lot of merit to looking at technical data and do. I trade those sectors personally because the people I work with are very good in the sectors I am in, and so I leverage their knowledge.

Biggest challenge in the personal account is that since I currently do this for a living I am unable to trade in my personal account freely. Hence how I trade in my PA.

In the workplace, due to our size in the space we are in we have a few ways we add value. In the algo world, it would be working with devs to modify the standard algos.

 

[Devildoc]

Following to learn.....

 

[compforce]

Health care is a good sector for buy and hold right now. Shorting tech is also a pretty solid play for the shorter term (30-60 days).

If Trump follows through on his promise to wipe out state lines for insurance, the health care industry should be the big winner. He's also promised to expedite the FDA approval process which will be a HUGE deal for pharma.

My mechanical trading system for gold is a new one. Historical data showed it at 100% increase in account value over a 4 month period with a 68% hit rate. If it works out the way I expect, I'll probably share it. Right now it's been up and down with what's going on in the market.

 

[compforce]

sigh...really annoyed right now... see the big spike down (probably one of the institutional traders) that stopped me out... I had this one nailed. Oh well, only a small loss. I know better than to set stops that close on something that has this much volatility. I think I'm going to quit using stop losses and just manage the trades myself.

 

[Isiah6:8]

In that HC space I have two names which I am holding due to their drug pipeline. They each have multiple products which will fit in a larger companies portfolio of drugs and should be taken out in the next 2-4 years. Otherwise, I normally rotate a couple of macro themed small caps into my PA trying to capitalize on what I think will be a significant event in that next quarter.

Playing the election last quarter I went heavy into smaller banks, and industrial companies while holding only two health care names. In my PA I try to keep the positions to 10-15 names for reasons you mentioned above @compforce in your first post. My commissions are .01 per share, or 8.95 if it is a large amount of shares as I am on Fidelity's platform. In that account I go for the higher risk higher return profile since my time horizon is far so any losses in one year are realistically not material unless I lose everything, but I make sure I have my downside protected with hedges. In reality, I don't think that a Clinton election would have really hurt HC in the long run (see UNH in '93). I think the ACA would have failed within the next 2-3 years which the Republicans were counting on and not bringing to light for a few reasons.

I have been debating running a covered call overlay in my PA to try and take advantage of short term volatility. The cons are that I don't have enough time to really spend on researching for my PA so I realistically will not do it. I also don't want to have to create a lot of trade authorization forms to get approval to do it.

When it comes to Gold l I don't think I have ever actually traded it more than once back in 2009, looking forward to learning a lot about it and what you look at. That chart reminds me of the Oil guys, when a big group comes in to hedge or position, limits get swept up quickly.

 

[compforce]

The system I'm using is a trend reversal system with NUGT and DUST, 3X Bull and Bear ETFs. They're strongly correlated with gold, but are actually gold miner ETFs so it's imperfect. The system I developed works if you can day trade with impunity, but I don't have 25-30k that I want to commit to the market right now. If I did, I'd be up about 3k right now over the last two weeks, even with the losers.

The gold futures are a bit too much Buying Power (BP) for my current account.

 

[Isiah6:8]

For the long and short aspect of it, are the weights of the underlying miners the same or is there a little bit of exposure on either end of the trade? Would it be easier to go out and use puts/calls on a group of the miners themselves to decrease cost and increase exposure or is there not a lot of slippage?

Do you have a certain range where you feel really comfortable trading in the channel or do you have signals you look at that key off to go one way or the other? Don't give the sauce, but just wondering how much "feel" (which I think there is definitely) there is when in range and how much are indicators signalling to go or lay off. I get some of it is after watching it daily you become in tune with what different economic indicators or news items will move the names and how much.

I usually stay away from the futures as well, I don't find the return for capital outlay to make sense given the amount I have to play with.

That is an incredible return % regardless of of capital, awesome work! Sorry for all the questions, since I don't trade that space I am always interested in understanding what people who do look at and why. Especially in times of increased future uncertainty.

 

[compforce]

For the long and short aspect of it, are the weights of the underlying miners the same or is there a little bit of exposure on either end of the trade? Would it be easier to go out and use puts/calls on a group of the miners themselves to decrease cost and increase exposure or is there not a lot of slippage?

DUST and NUGT are non-marginable so you are long either NUGT (Bull) or DUST (Bear). They are both heavily traded so there is very little slippage .01-.02 b/a spread on NUGT, about .05 on DUST. They are both deliberately built for day trading. It even says in the prospectus that they are not meant to be held overnight (although I do if I'm losing badly and need to average down). Options would always lose on those because the market prices in the range. You might consider a condor on them, but it would be risky because the up and down would tend to drive your profits out.

Do you have a certain range where you feel really comfortable trading in the channel or do you have signals you look at that key off to go one way or the other? Don't give the sauce, but just wondering how much "feel" (which I think there is definitely) there is when in range and how much are indicators signalling to go or lay off. I get some of it is after watching it daily you become in tune with what different economic indicators or news items will move the names and how much.

This is meant to be an algo trade so there's no feel involved. One day when I decide to commit real money to it, I plan to totally automate the trade. I don't play the news or other binary events for this. It's strictly a momentum play...which is strange since I don't use any momentum indicators, just price action. There's a recurring pattern to the price action that sets up the entry.

In the future, if you look at gold, there's a BIG trend to the trading action. It goes.. up trend, retrace, up trend, retrace, etc.. then consolidate and drop back to support. If I was going to play the future, I'd wait for clear consolidation then short the heck out of it.

I usually stay away from the futures as well, I don't find the return for capital outlay to make sense given the amount I have to play with.

That is an incredible return % regardless of of capital, awesome work! Sorry for all the questions, since I don't trade that space I am always interested in understanding what people who do look at and why. Especially in times of increased future uncertainty.

Like I said, I'm still a bit new at this game using my own cash. It's been an interesting run so far, I've got a ways to go before I am confident in the system.

 

[ThunderHorse]

I'm sort of messing around. I got into this as Fundamentals trader and too a hit in the shorts on an oil ETN, fundamentals styed the same but Saudi just kept opening it's yap.

Right now I'm trading with Chesapeake Oil and Twitter and a gold ETN. I took some change and decided to go long on oil since there was a refinery fire in Torrance yesterday.

 

[compforce]

I'm sort of messing around. I got into this as Fundamentals trader and too a hit in the shorts on an oil ETN, fundamentals styed the same but Saudi just kept opening it's yap.

Right now I'm trading with Chesapeake Oil and Twitter and a gold ETN. I took some change and decided to short oil since there was a refinery fire in Torrance yesterday.

I think you're backwards on that oil play. A refinery fire lowers supply, raising prices. That should be a long (although I don't think that the fire is actually material)

 

[ThunderHorse]

I think you're backwards on that oil play. A refinery fire lowers supply, raising prices. That should be a long (although I don't think that the fire is actually material)

I should probably read my own messages. I went long, on a 3x ETN.

 

[The Hate Ape]

@compforce

where is the problem (your personal accounts) in doing options trading? If you're confident in your ability to chart/perform technical analysis you stand to make an amazing percentage gain with minimal loss compared to margins, volatile stocks, etc...

I'm mostly a paper trader learning the concepts and studying. I'm working on an Econ & Finance Degree with Penn State World Campus to, hopefully, shoot for an MBA or Esquire title down the road. My current background is Poli Sci / Civics from another School (education wise).

I as well, shoot for the swings, I perform technical analysis with a sprinkle of speculation on fundamentals. I was confident in the potential gains leading up to the election, then the drop, then the new entry point for what will return far above current resistance levels. Keep in mind, I am absolutely no expert, but I've been educating myself for almost a year now and am pretty enthusiastic about it.

Candlestick Charts (usually phone apps or google finance), E-Trade (will switch down the road), and that's about it. I enjoy volatile choices but have since moved out of those to eventually move for Options trading contracts on big names like AMZN, AAPL, MSFT, FB, etc..

 

[compforce]

@compforce

where is the problem (your personal accounts) in doing options trading? If you're confident in your ability to chart/perform technical analysis you stand to make an amazing percentage gain with minimal loss compared to margins, volatile stocks, etc...

Candlestick Charts (usually phone apps or google finance), E-Trade (will switch down the road), and that's about it. I enjoy volatile choices but have since moved out of those to eventually move for Options trading contracts on big names like AMZN, AAPL, MSFT, FB, etc..

To make money with options, you certainly get leverage and such, but if you're wrong, you lose and if you're directionally right, you lose about half the time. Don't get me wrong, you can make money by selling credit spreads in high volatility underlyings. With a tiny account, you can only do a small number of spreads, then you have to wait for them to get right before you can take profits and move to the next trade. The reason is that you have buying power reduction of the max loss on the spread. So you sell a spread that has a max profit of say $100/contract and a mass loss of $200/contract. You get a credit of $100/contract (minus fees and commissions) applied to your account, but you also get a buying power reduction of $200. So if you sell 5 contracts, your net account is -$500 (less fees and commissions). On a $5k account that is 10% of your account tied up in that trade for the next 30-60 days before you can buy it back at a reasonable profit after fees and commissions. That's fine if you're looking for a couple of hundred dollars every month or so. Day trading equities I can make (or lose) a hundred a day. If my system is right, and it has been so far, then I am going to make money 3.5 days out of 5. That's 150 or so a week positive on this small account. Meanwhile, with options I am stuck with things which tie up my capital and my buying power waiting for them to expire so I can try again... Not to mention you always run the risk of assignment if you are selling them.

I just don't have the patience to wait a few weeks for an options trade to get right. If I was fully confident in the system I am trading, I'd be all in and trading in and out of positions 4-6 times a day. Since I'm not ready to meet the margin for pattern day trading (minimum 25000 equity at all times) I'm being more selective picking and choosing what I am trading, but doing it on a daily basis.

 

[Isiah6:8]

Options are a great tool, but I would caution people on using them too much in personal accounts. If you want to use long dated options you run into the capital commitment issue named above.

If you are in the blade of the option cycle (close to expiration) you might be paying up for something not worth it or paying for a low probability event to happen.

The other issue is you want to be nimble or able to change if you need to, getting out of options can be incredibly costly if you are wrong even if you didn't spend a lot putting the trade on.

 

[compforce]

Options are a great tool, but I would caution people on using them too much in personal accounts. If you want to use long dated options you run into the capital commitment issue named above.

The other issue is you want to be nimble or able to change if you need to, getting out of options can be incredibly costly if you are wrong even if you didn't spend a lot putting the trade on.

Let me make this real for some people that have been asking about options trading. I've closed most of my options positions now. What's left are the ones that I couldn't get out of before they swung the wrong way too fast for me to roll them.



yes, that's -619.00 It's OK because I am net ahead and not all of that is real loss (it totals the current value, but some of them are below the max loss until they expire) BUT, you see that 1901.50? That's my buying power reduction. That's 2000 dollars that I have in cash that I can't touch or use until these options expire on Friday. That money has been tied up for almost 60 days now. (the 251 is the Delta) . For a small account, that is a huge amount to have tied up and unusable for that long. BTW, that represents positions (3-5 contracts/spreads each) on 5 symbols.

Options aren't for the faint of heart. I've had one down $700 and go back up to a $400 profit in one day (8 contracts). I've also had quite a few that were just short of my profit target and then plunged, seemingly without reason, never to get back to even. One of the ones above is Intel (INTC). It was up $150 at close on 11/9 and was deep in the money. That was several long 12 calls (not spreads) that I paid $200 for and which would have been worth about $800 at expiration at the current price. The price dropped $2 on 11/10 dropping the option out of the money and down to $25 profit. On 11/11 the price dropped another $5 and I lost all of it. There's no chance of recovery and rolling it would just be throwing good money after bad. All I can do is hope some miracle brings the price back up to over 12 so I can exercise it. At this point, I won't be able to sell the contracts for anything even if the price rose to 11.99.

I still don't know why that price fell. There was no news items at all and the fundamentals are strong. The only thing I can think of is that it got pulled down by the rest of the tech sector when Trump was elected and said he was going to kill TPP and put tariffs on China where the chips are manufactured.

 

[Isiah6:8]

Great example @compforce and stinks it comes from real money but that is how it goes. I usually view large cap stocks as trend trading when I am trading them. When a stock trades 25-30 million shares a day even if you have a few million shares to do you are but a drop of water over the waterfall in reality. Some days the names just swing like that because of garbage news in the sector that has nothing to do with them. We own a position in INTC for the record.

If someone was going to use options in the PA, the best thing I can think of is a covered call strategy. The problem is that you need some $$ in the underlying positions to do it.

For those unfamiliar: Say you have 10 positions in your personal account all owning more than 100 shares in them (options contracts are for 100 shares of stock, oil contracts are 1000 barrels or 42,000 gallons). You look at your portfolio and you have positions which are easily replaced, but are stable fundamentally. A great example would be KO (Coca Cola). Coke and Pepsi stock are interchangeable really, own one, own the other, you aren't going to change the world with them or drive major returns from them. KO is trading at $41.25 today and I don't care if I own it because I have a replacement in PEP, so I look at the options ladder. I want to look out MAX 60 days and MINIMUM 10% above where it is trading for the strike (the price you will be forced to sell at if exercised). I notice the 11/18/16 C47 trading at .03 per contract right now. So I sell 1 contract at .03 (100*.03=$3) which I receive today. If KO is trading above $47 tomorrow which is a 13% move, someone can exercise the option I sold them and take my stock at $47. If it is below, they can still exercise the option at $47 (rarely happens unless KO is 46.97 but it does) or most likely it expires worthless and I keep the $3 I made from selling the contract. If KO called away from me, then I just buy PEP in the portfolio or maybe I look for KO to retreat off a 13% move up and buy it back less than I sold it and write more calls on it. That is just an example of what I personally would think would make sense.

Options are not for the faint of heart when doing speculative trades. I use them often, I create them sometimes and I personally think that the average investor should stay away from them completely.

Also - never write calls on your alpha drivers, they are there to make you $ by just holding.

 

[The Hate Ape]

I wish I bought a shit ton of AAPL when it was at 90 earlier this year. Same with FB and AMZN (last year).

 

[Isiah6:8]

I wish I bought a shit ton of AAPL when it was at 90 earlier this year. Same with FB and AMZN (last year).

Do you view AAPL as over or under valued currently and what do you think about it over the next 18 months given they might have the ability to re-patriot the overseas cash ($215.6bn)?

 

[compforce]

Do you view AAPL as over or under valued currently and what do you think about it over the next 18 months given they might have the ability to re-patriot the overseas cash ($215.6bn)?

I'd call it over valued because Trump is threatening their supply chain. (and their US labor force)