Campaign #1 Ends

The siege of Chang An has been lifted. In a most unfavourable manner.

My 36k positions got stopped out 2 nights ago whilst I was sleeping (and snoring really loudly, as Mrs RetailTrader claims). I woke up at 6am in the morning, checked my phone for the market movements first thing, and heaved a sigh of relief because while the market had gone down, it rebounded later in the trading session, and my stop loss did not appear to have been hit.

But it did... Because of enlarged spreads. Lesson learnt - when setting stop losses, if you have brokers who somehow very mysteriously like to widen spreads to hit your stop losses, please account for larger spreads. Thought of disputing this with my broker actually, but don't think I will get anything out of them except for some stock response that spreads can widen like Madonna the virgin in times of volatility yada yada scooby dooby..

So my positions which I have pyramided over some time are lost. But fault is mine alone, because my stop loss levels were also set based on Elliot wave levels that had, at least one day before my positions got closed out, shifted to a lower level. If I am trading rightly in a disciplined way, what I should have done was to shift my stop loss lower in accordance with the new levels, and close out the required number of positions in order to maintain the same amount of risk capital I want to take on for this trade, which was 8k.

So I'm left with 8k realised losses, and lost unrealised gains on these positions of over 20k. Ouch. That's what you get for bad trading. Less than disciplined risk management. Don't blame the broker! Don't hate the markets!

But last night I have opened 5k+ new long positions with another 8k of capital at risk, so here we go again.

Bullish till the 2467 low on SPX is broken.

Northern Campaigns #1 - The Siege of Chang An

Those walls, they will not fall..

The siege of Chang An continues. Unrealised profits are up to 10k, with drawdowns from peak profits for these positions in FAZ about 11k. Am I a fool not to have protected profits? But setting a tight stop loss and pulling out would mean that I will not be able to open the same number of positions again without busting my maximum allocated risk capital amount. The 36k positions in FAZ has taken time to accumulated with the shifting of my stop losses on the way so as to never bust the maximum allocated risk capital. It is akin to slowly training up your troops, and moving your troops and supplies from the capital (Cheng Du) to the border city (Han Zhong) over time to embark on the northern campaigns to take Chang An. Will I be forced to pull back the troops or will I manage to make ground and perhaps take some of the battlefields around Chang An, and even manage to seize the city? The campaign continues.

Hello

Yes it's been a long time. No shit. I could say there has been no time to blog but that's bullshit - it's just a matter of priorities cos everyone has only 24 hours a day.

I just watched some YouTube videos by GaryVee whose message is: if you want to get into content creation, focus more on the execution than the what ifs, than the perfection of this and that. Just get the content out first. Which is what I am doing on my mobile phone using the Blogger app I've just downloaded. With minimal edits save to put up some linkz. Is this a moment of impulse sort of post? Very possibly, if you don't hear from me again for some time after this then you'd know.

So what's up in the almost 3 years? I'm still trading but had to put down the bear suit after it cost me a bit of money. I've now assembled an "army" of short positions in FAZ and prepared to reap in money if the markets turn up, with a max risk of 8k. Positions are up 6k as if now although I've seen a 10k+ drawdown from peak profits with these positions. I'm feeling like Zhuge Liang whose slowly built up his troops and waiting to take Chang An. Will I succeed? First, I'm not Zhuge Liang, and he failed to take Chang An after seven freaking attempts, so.. let's see. I wanna keep the posts short and sharp so will be updating separately. And will be talking about some other stuff every other retail trader will grapple with like sucky jobs, retirement, crypto, mindfulness, and stuff. I think.

Bear Market Probability Grows, Elliot Wave Starter Kit

1. Bears Coming Out to Party?

Rawwwwwr... went the bear last night as the S&P 500 encouragingly broke the first support level that needs to be broken to indicate that the market has topped. I continue to monitor the situation. Earlier on in the week the market chugged up but its movements were laboured and insignificant. Then at the end of the week a nice, big red day.

Behold my fangs

Portfolio wise, I sustained small drawdowns as the markets chugged higher early in the week, before ending the week positive with a gain of US$1k+ thanks to the movements on Friday (as you know, I have cautiously gone net short since last week). If the markets continue to fall, I will gradually be adding to my positions as the bear market grows in probability. As I mentioned last week, I am hardly using leverage for now and hence the returns I have (even though I may be correct in my directional call) may be somewhat muted.

2. The 5 Waves in Elliot Wave

Perhaps it is time to talk a bit about Elliot Wave. In Elliot Wave theory, putting it extremely simply, waves in the trending direction (can be up or down) move in 5 waves. 

The first wave is the "first mover wave", where for instance, after a long bear market between 2007 to 2009, nobody really believed the bulls anymore when the market bottomed in March 2009 and we saw the markets start to rally initially. People were still so fearful to re-enter the markets back then that the rally was heavily doubted and there was no widespread participation.

Then comes the second wave. It is the "wave of doubt" because the second wave actually retraces the movement of the first wave. This means it wipes out most of the first wave and creates doubt in the markets about the viability of the first wave. This is the role the second wave is meant to play. In a bull market, it would get people thinking "cheh, the rally in the markets last week (i.e. the first wave up) was just a smokescreen. Better don't enter the markets first!!" 

Then we come to the famous third wave of Elliot Wave theory. It is the "wave of recognition". It is the wave that finally reveals to the mass markets (and leaves no doubt in everyone's minds) as to what the true trend in the markets is. Third waves are usually forceful and ferocious and in bear markets they can be very sudden, leaving investors with little or no chances to exit. Remember the days in 2008 when AIG and Citi ran into problems and the markets were tanking 3% on some days? That's the heart of a bear market wave 3 for you. In a bull market wave 3s tend to be more serene events. In a bull market wave 3 you tend to see the markets going up steadily by 0.5% for many, many days in a row. Then a correction once in a while to keep the bears hopeful, before more up days. Nice and steady.

Wave 4 is the wave of consolidation. It is the period where the mass market have, seduced or awed by the force of the wave 3, are thoroughly convinced about the market trend and have entered the market because they want their share of the pie now (but sadly they are usually too late)! But in Wave 4s, the markets keep ding-donging without any net movement, and can frustrate many investors. Wave 4 is usually seen as the worst period to be in the markets. Even traders can get blue-black from all the whipsaws that wave 4s can throw at them and there are quite plenty who choose to sit wave 4s out. 

Wave 5 is the final wave where all the "stupid money" comes in. This is where you see your shoeshine boys and "ah-gong ah mah" investors come out to play in the markets because they have very belatedly heard about the market movements and want to make some money. Sometime in the wave 5 the smart money would have exited with profits in the bag, leaving most of the retail market to hold the fort. And while there are returns to be had, wave 5s are usually for suckers. While wave 5s are typically never as forceful as wave 3s and are usually of the same scale as wave 1s, there is still money that can be made out of them (getting long during the 2000 NASDAQ rally where the markets went parabolic would have bagged you a ton of money, provided you exited in time) but one must tread cautiously because at the end of a wave 5 is a trend change. 

The classic application of Elliot Wave is to wait for a wave 1 to clearly pan out in order to confirm the beginning of a trend. Then enter at the end of wave 2, and ride wave 3 for maximum profits at minimal risk. Sit out wave 4, and ride wave 5 cautiously with a tight stop. 

Also, the beauty of Elliot Wave is that it is fractal in nature. Which means for instance, within a wave 1, there are actually 5 mini-waves within that wave 1. And within each of the 5 mini-waves, there are actually 5 micro-waves inside. You get the idea. It's something like SIM cards, you have mini, micro and nano. Just that in Elliot Wave we call them Cycle waves, Primary waves, Major waves, Minor waves, and so on. In addition, if you look at the insides of every wave 2 and wave 4, they very generally tend to correct in 3 waves, i.e. a wave A, wave B and wave C. And to complicate things, wave As and Cs themselves consist of 5 smaller waves, while wave B consists of 3 smaller waves.

An illustration of the fractal nature of the waves. You see how a wave [1] is actually made up of 5 smaller waves? And how there are ABCs within waves 2 and 5 of the smaller waves, and for wave [2] as well?

Ok this is all a bit "jelat" already so we end off here!

Gone Short!

1. Finally gone short

After talking and talking about it, I have finally gone short in my portfolio. This is in line with the view that: 1) if we are still in an uptrend, we are in a final leg whereby the upside is capped about about SPX 2170 and 2) there is a decent chance that the bear market has already begun (although the rally later in the week shows the bulls still want to give it a good go).

Not too much change in the portfolio. Total year-to-date profits went down by a few hundred dollars from last week. If you think about it, this can be accounted to the commission charges when I exited some of my positions. The size of the portfolio has also been scaled down (to using almost zero leverage currently) pending confirmation of the trend change. Once we are very clear that we are in the bear market. I will upsize my positions again.

Not what I meant when I told you to go short.

2. Using IG Markets

Progress continues in my plans to integrate a second broker in my trading, for counterparty risk purposes. My eventual plan is to park all my bearish positions with one broker, and all the bullish positions with another. What I have done viz-a-vis IG Markets so far is that I have parked a thousand dollars into their account and will start executing a few small trades to test out their interface. When I have suffiicent liquidity in my savings account to put up full trading positions, I will migrate half of my positions to IG Markets. This is of course assuming that I am happy with their trading platform.

3. Penang

This post comes a little late as I am actually away on a business trip in Penang. Back in Singapore tomorrow. Updating this blog had to take a step back behind other matters I had to attend to. Well the weather here is either very hot or rainy so I'm very happy to hole myself up in the hotel when I have free time to chip away at my long to-do-list, nap, get some exercise done and listen to TED talks and Eckhart Tolle whilst other colleagues are out golfing, drinking or having Penang char kway teow and Penang laksa. In the face of limited time, life is about choices huh?