2016 Revised Process

Investment Philosophy: Employing a Top-Down Technical Approach to create a portfolio of non-correlated assets with largely asymmetric risk/reward potential.

Below Is a More In Depth Look at My Approach:

Summary: 

First off, as a technician, my investment process does not involve any fundamental information about the underlying security. I focus on the price action of the security being analyzed and the behavior of the market itself. At the end of the day, it does not matter what a security should or shouldn’t do, but what it is actually doing in the market. Technical analysis introduces risk management into the picture by outlining levels where my analysis is wrong. As a market participant, I expect to be wrong the majority of the time, which is why I look for high risk/reward scenarios to add to the portfolio. The goal of my process is to construct a portfolio of non-correlated assets that currently have a risk/reward profile that is dramatically skewed in my favor. I work from a Top-Down Approach in that I try to identify broader themes present in various markets around the world and then drill down into individual securities to identify how best to take advantage of that theme while managing risk within the portfolio. By applying a technical approach to markets I can analyze and participate in any market whether it be equities, commodities, currencies, fixed income, etc… The factors that are important for my analysis are; absolute and relative performance, momentum, sentiment and seasonality. How these factors are quantified, measured, and utilized differ based on the asset class being looked at, which will be discussed further below.

Absolute Performance: 

An important part of my process is to analyze securities utilizing multiple time-frames: a weekly, daily, and intraday (65 / 60 minute). The weekly chart provides insight into the structural trend, while the daily and intraday charts provide a more tactical view that can help with the risk management process.

Indicators Used for Weekly and Daily Charts:

  1. 14 period RSI.
  2. 14 period ATR.
  3. 200 period simple moving average.
  4. Correlation labels (monthly, quarterly, yearly).

Relative Performance:

Relative performance is an important part of my analysis because I want to be involved in assets where relative performance is either trending or at pivotal turning points where my risk/reward is clearly defined. I can also participate in ratio (long/short) trades when the risk/reward on a relative basis is better than on an absolute basis.

  1. Ratio charts: When analyzing a security I’ll look at how it is performing relative to the broader market, its sector, an industry proxy or individual names in its peer group. This helps to identify the levels on which this particular security is showing relative strength or weakness.
  2. Ratio charts with trendlines and indicators: Once I’ve identified how a ratio looks from a structural perspective, I’ll add trendlines and indicators to identify areas of support and resistance while watching for traditional chart patterns to develop.

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Long WFM Trade Review (+5.81%)

Thesis: The stock is not correlated to the broader market, which is great because I remain neutral / bearish equities for the time being. Prices broke out above a downtrend line that’s been resistance all year, as well as the prior lows, while momentum diverged positively. The risk was well defined, and with prices roughly 30% below their 200 day moving average, the stock looked ripe for mean reversion.chartOriginal Plan: Buy 1/2 a position at the close on the day it broke out, and add on the following day if we got follow through, or a successful retest of support. Take profits near 34 on half the position and let the rest ride with a stop at break-even.  Continue reading

My Favorite Follows on StockTwits

In the three years I’ve been a market participant, StockTwits has quickly become an invaluable tool for me. This community is home to some of the smartest market participants out there, and the platform allows for a constant flow of market information, healthy debate, and knowledge sharing. With that being said, in order to fully take advantage of this powerful tool, it’s important to curate your own stream with users who provide the information that helps you to navigate the markets and improve your own process. Regardless of your timeframe, strategy, or education level, I can guarantee that if you take the time to curate a stream of your own, StockTwits will become a valuable tool for you as well.

Before I get into my 5 favorite follows, I just want to echo the recommendations that Ryan Detrick and J.C. Parets made in the posts that preceded mine. I agree wholeheartedly with their favorite follows, but in an effort to avoid repetition I’ll focus on five that have yet to be mentioned.

Without further ado, here are my 5 favorite follows on StockTwits:

Howard Lindzon @HowardLindzon – I know this one seems like a total copout, but hear me out on my reasoning. When you follow Howard, you’re essentially following 100s of the best market participants on the site.  Not only does Howard share his own trades and commentary on the markets, but he’s constantly sharing work from, and interacting with, some of the best and brightest minds on the site. Plus, Howard has a vested interest in the site; therefore you know he’s going to be consistently adding value to the stream.

SeeItMarket @SeeItMarket – Though this second one may seem like a plug since the members of DRC and I have started to contribute to this site recently, the reasoning for its presence on the list is very similar to Howard’s. When you follow this account your stream is going to be filled with quality, timely content from all of their contributors. The list seems almost endless and ranges from folks like Ryan Detrick to Ben Carlson and Venky Srinivasan.  Andrew Nyquist, the site’s founder, has done a great job at building a stream that offers a variety of perspectives on almost any market you can think of. Regardless of timeframe, strategy, or education level, there’s bound to be something for everyone on this stream.

Jon Boorman @JBoorman – If trend following is your thing, Boorman is a must follow! He was one of my first follows when I first began learning about markets almost three years ago and I can honestly say his insights have been invaluable. Whether you’re looking for thoughts on position sizing and portfolio management, or for stocks setting up for big moves, Jon’s stream is the place to be. Also, if you happen to catch his streams on Periscope you can witness him crushing the music game as well!

Greg Harmon @HarmonGreg – If you’re interested in incorporating options into your process, Greg Harmon is the guy to follow. He’s consistently sharing great charts and market analysis for a variety of asset classes from around the world. Greg is always looking to utilize options in a way to manage risk and express his market views in a more capital-efficient way, which offers a nice change of perspective from those simply trading the underlying.

Ivaylo Ivanov @Ivanhoff – Whether it is interesting charts or setups, quotes and insights from the best market participants, or just quick comments or analysis of a particular market or stock, Ivan’s shares are always timely and insightful. I find myself constantly referring to his stream for stocks making moves that I may have missed during my own analysis, as well as to gain a perspective on where the momentum in the market is.

There are a lot more great follows on the stream, but these are a few of my favorites. Check out the full list of people I follow on StockTwits and build your own curated list to help you navigate financial markets and accelerate your learning process.

Long SQQQ Trade Review (+7.63%)

Thesis: The major indices had a huge run up toward ATHs with breadth and momentum diverging from price (as compared to old highs). The Nasdaq 100 had been the strongest of the major indices, but had failed to hold above the July highs, providing a nice short opportunity against those highs of 114.40 on the QQQs. Additionally, the Nasdaq 100 futures had held above the 200 hour sma since early October and broke below on 11/9/15. Prices had since consolidated below it and allowed it to begin downward sloping with RSI in a bearish range, suggesting that momentum was turning in favor of the sellers.The price target was a gap fill toward 109.70 and a test of the 200 day at 108.

chart

Original Plan: Buy 1/2 a position on Wednesday’s close and add on Thursday’s close if we got downside follow through. Take profits on 1/2 once the gap filled and leave the other 1/2 for a test of the 200 day.

SQQQ
Entry 18.7
Stop 18.1
Target 22
Shares 1
Profit 3.3
Loss 0.6
Risk/Reward 5.50

Actual Entry: Bought 1/2 a position on Wednesday’s close at 18.73, but did not add on Thursday.

End Result: chart

Symbol Date Entered Entry Price Date Exited Exit Price Profit (Loss)
SQQQ 11/11/2015 18.73 11/13/2015 20.16 7.63%

Trading Notes: First off, I did not fully capitalize on this opportunity because I did not stick to my original plan. Had I put on an additional 1/2 a position on Wednesday’s close I would have had the opportunity to close half on the gap fill at Friday’s close and leave the rest on as a trailer in case we tag the 200 day like I suspected originally. Additionally, on the exit on Friday’s close, I took profits earlier than I would have wanted to because I began looking at intraday charts (5 minute, 1 minute), that cause me to lose all perspective of the bigger picture and my original plan.

Lessons: Follow your original plan so that I can fully capitalize on the opportunities that the market presents to me. Stop looking at intraday charts, they’re not part of my process and lead to nothing but overthinking and poor execution.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.