Timeframe shift.

I was a little unimpressed with the daily trading setup I was using when I started looking at longer term trades earlier and I could not put my finger on the reason, until today. I am not trading today even though I am at home for the afternoon. Technical difficulties and everything is so outside of my charts now that I would be doing as much guessing as anything else...best to leave it alone.

So, in the interest of figuring out what is the best approach to get going on I decided to play with the timeframes.

In my daytrading the pivot points are based on the previous day's high low and close, this is the pivot point period. Seeing as there are 390 minutes in a day that makes the base pivot point period (1 day) almost 400 times larger than my trading period (1 minute). I used an intraday chart and plotted 5 minute bars instead of 1 minute bars, it becomes almost untradeable based on the daily pivot points and the ratio is 1:78.

I figured that I should use some similarly large ratio to use for the longer term trades. One month pivot point period used to trade an 30 minute chart is 1:260. Now my stockcharts does not allow 30 minute charts past a certain timeframe so I cannot create a 30 minute for December and still have the averages correct, so I cheated and used the hour chart (longer hourly history available) and just divided the averages by 2. So a 200sma in the 30 minute timeframe is the same as a 100sma in an hourly timeframe.

Here is the same chart for BVF that I started out with before, only in the 1 hour period with the equivalent of moving averages for the 30 minute timeframe.

Red arrows are short sales, green arrows are long. I circled the trades that use the sma for entry or exit. The assumption is that every trade is taken either as the price moves away from the respective line or is crossing and past, the trade is taken in the direction of the move. It's a little more complicated than that as some of this is based upon just doing the trades and knowing how it moves and when to jump in and out. No trades are held for a loss, breakeven before commissions are deducted but the trade is exited before it can go in to the red.

16 trades, $4.05 per share profit. In my case I would be trading 400 shares so the net would be $1428. Now this is not in a tax sheltered account due to the shorts so I would lose marginal income tax off of that, say net after taxes might be around $800. Apply my fudge factor here and the total comes down to $560.

The 400 shares is base upon a $5K working capital. I would plan to have two other trades of a similar value at the same time as I have no qualms about using margin. That should be able to triple my potential returns. Yes, it could triple possible losses if I let a trade go for a loss. Assume that all trades in December were about as profitable the total take could be in the $1500 range.

This obviously needs to be checked out more thoroughly before actually being put to the test, but it is a start.

Next I will play with another timeframe and averages, get this going more long term.

Jeff.

The ETF angle for medium term trading

I see a ton of interest in ETFs lately and specifically oil related ETFs, Horizons BetaPro NYMEX Crude Oil Bull and Bear Plus ETFs, HOU and HOD respectively. The particular ETF or index has not really interested me unless they are in a certain price range, have ample intraday volatility, enough liquidity and have an index that I can track in real time...this all for day trading purposes. So in this regard I really don't care too much which one I am using.

Having said that this particular interest caught my attention and leads me to check into ETFs a little closer.

Link to my post about ETFs from my daytrading blog.

Another link with more particulars and other links to Horizons BetaPro ETFs.

I took a table from the Horizons site, exported it into a spreadsheet and ran a few numbers to get a feel for how the ETFs seem to behave. I figured out some ratios to see a few relationships. Now these may not mean much as a single day snapshot so I may have to track them for a bit but they are interesting none the less.

RELATIVE VOLUME (Relative to the outstanding shares)

To get an idea of the interest in a particular fund I divide the volume for the day by the outstanding shares. I figure that the closer to 1 this number is the higher the trading interest, this is relevant more to compare the bear vs the bull of the same ETF than comparing anything between the various ETFs, although higher interest ratios can lead to at least better liquidity. Interestingly the bear crude oil ETF, HOD, was ahead as it traded more than the number of shares in circulation by a ratio of 1.57:1.

Top five in relative volume:

1.57 - Crude Oil Bear (HOD)
0.48 - Natural Gas Bear (HND)
0.43 - Crude Oil Bull (HOU)
0.31 - Global Gold Bear (HGD)
0.18 - S&P 500 series Bear (HSD)

I'm not sure if this really means anything but the rankings were interesting to note.

PERCENTAGE CHANGE CORRELATION

This shows that the inverse funds track well together...when one goes up the other goes down a corresponding percentage. I think that this is a very important factor in trading these funds as a bear that wildly varies in the inverse relationship from the bull creates an unpredictable result when trying to trade them based on the index that they are supposed to be following...they cannot be tracking well and with less correlation, the worse they are at that.

I used the percentage price change of the last day between the bear and bull of the same fund. I divide the increase of one by the decrease of the other then also calculate the decrease by the increase. If they are tracking well I would expect both numbers to be close to 1. They were not all, so to make the results easier to see quickly I just use the difference between the two calculations. The closer to zero this number is the closer the overall correlation.

The top five in percentage change correlation:

0.02 - TSX 60 series (HXU/HXD)
0.07 - Global Gold (HGU/HGD)
0.08 - S&P 500 series (HSU/HSD)
0.13 - Financial series (HFU/HFD)
0.29 - Crude Oil (HOU/HOD)

MEAN VARIANCE

The last number that I noted was the Mean Variance or how far away from the mean of the two funds, bear and bull, the current prices were as a percentage of the mean. This sort of falls into the category of Reversion to the Mean as a method of determining the probability of a trade.

I think, but have not thought long on this, that the mean might represent the underlying index if it were represented as a number relating to the two derivative funds and charted over time. In theory I would expect that the funds would track equally on either side of this number...but they won't in practise I am sure. So it may serve as a snapshot indication of the current state of the price only. I would like to see a large variance to consider a larger likely price change to return to the mean...which should happen at some point.

The top five in wide mean variance:

88% - Natural Gas (HNU/HND)
80% - Financials (HFU/HFD)
76% - Crude Oil (HOU/HOD)
70% - S&P 500 (HSU/HSD)
69% - NASDAQ 100 (HQU/HQD)

So, after playing with these numbers it is interesting to see who has the best showing in the top five lists, I suppose that I could have easily guessed this answer without doing any of these calculations. Having said that, it suggests that perhaps my spreadsheet may be useful in the future when it is not quite so "cut and dried".

Crude Oil. Both the bear and bull funds made the high relative volume list and placed in the change correlation and wide mean variance lists as well.

I was surprised to see the S&P 500 show on all three lists as well. I think I may have a closer look at these fund offerings to see if they match my other normal criteria.

Do note that these are not recommendations for trading any of these funds even though I will probably check them out closer and perhaps even do some trading on them myself...afterall, that is the only real way to prove an idea one way or the other.

Jeff.

BVF, Biovail December week two

Yesterday I plotted week one in December for the trade, as it turned out, for the week.

On the Friday the price hit the S1 point and "bounced". Given the proximity to the 50sma as resistance and the potential for a target of the 200sma and/or the Primary Pivot Point it would be worth the entry long, at least for the day. Since I have been day trading I no longer like keeping a trade overnight let alone over the weekend but I used to do this fairly regularly before, so let's go with it. This is not a commodity related stock so it is not as prone to weekend gaps like gold and oil might be.

Chart for BVF week two in December.

So, I was in on the previous Friday, held over the weekend and watched the activity after Monday.

While I have not figured a stop plan into this yet, I would likely go with something like:

"Should the price change from one PP to the next, the stop should be set to half of the distance between the PPs. This guarantees 1/2 of the first target profits as the first target is always the next PP. This is set regardless what the volatility, technical setup or other indicators might intimate, the target is the next PP and profit."

I might amend this to setting the stop to 1/2 of the move...I will consider that after seeing how the testing turns out.

Back to the chart. The red exit arrows are on Wednesday and Thursday. Seeing as the initial target was the blue PP, the price breached R1, so I would already be past the second target, exit here anywhere as profit is already achieved. Letting the winners run is not part of the plan at this point but there is no sense in just cutting them short. So, let's apply the rules for stops as they appear so far:

Monday breaches R1. Set the stop at R1 for Tuesday.
It does not get hit so move the stop to 1/2 of the move.
The R1 is $11.32, the high for Tuesday is $11.65...so stop for $11.49.

I could either set a VTSO or just go with the stops or spend some time in the morning watching the activity to determine where I might want to exit. I'll just go with the hard stops for the purpose of this testing though.

Buy $10.40 Sell $11.49 Gain $1.09 ps Return 10.5%

Jeff.

BVF.TO - Biovail Corp.

True to form I did some research...the company is called Biovail...something to do with medical stuff. Ok, enough of that, now on to the fun stuff.

Here is a chart for November through January. The horizontal lines are the pivot points plotted on the weekend of November 29th and 30th for the following first week of December.
Blue is the primary pivot point (PP)
Red are the ascending Resistance points R1, R2 and R3
Green are the descending Support points S1, S2 and S3...S1 only appears
The blue box is the trading week in question.
Click on the chart to get the clearer picture if needed.

The red arrow denotes a short position taken at the beginning of the day sometime. As the opening price was just below the R1 but crossed above it briefly then closed the day at about $11 the position would have been taken short into the morning activity as the price failed to remain above the R1. This trade would last until a target was reached or the R1 was recrossed or even approached. A small profit is better than any loss and commissions are low enough with Questrade as to be next to inconsequential...$5 per trade in my position size range so far. (they do cap them at $9.95 though).

The cover is on the Friday as the price opens below the PP and heads up. As soon as the price opens lower than the PP I think I would place a stop order just above the line to be sure to get out near the target. Now I would likely choose a VTSO at this point just in case the price actually headed down. The active price once the VTSO was set would end up just above the line as well.

Short $11.25 Cover $10.40 Gain 85 cents ps Return 7.6% (fudged against me somewhat)

Total profit for a 100 share position is only $45 after taxes and commissions which is still a 4% return on the trade for the week. This is one of the reasons that I am choosing to use the TFSA for my trading. I may still dabble with these in my margin account and just suck it up and take a tax hit...I only should pay any taxes while in a profit situation so it is not all bad, and the taxes are collected after the year is up so at least the money gets to remain in place to grow for the year.

I know this is a hindsight trade but it is basically the same method I am using live with my day trading tests and it seems to work out rather well. Of course I am always entering these trades with a particular target in mind but I have no qualms about letting the position ride for a bit if it looks like it has a very high probability of continuing in my favour.

The whole point of this little test is to demonstrate to me the validity of the pivot points over longer time frames, so even though this is a historical trade the lines were accurate.

I'll just post new charts as I get to them here.

I notice that BVF is actually very near a trade entry today as it closed within 3 cents of the current weekly R2 and seven cents of the monthly R1 as well as an upper trend boundary line a bit above that. I would be watching for a short entry tomorrow if the stock shows weakness on a 10 minute chart...but more on that another time.

Jeff.

New stock picks

I decided to go ahead and run these medium term trades with a previous plan that I used before. The primary consideration was to keep the time spent studying, researching and charting to an absolute minimum. I would like it to be reasonably simple to be able to check up on and make trades in the various stocks.

So in keeping with this idea I am going to cut this right down to the bare minimum.

This afternoon I spent about 40 minutes running a scan and paring the charts then plotting various lines to help visualize the trades. I will run pivot points on these as well but for the time being I am just going with some trend lines and a handful of moving averages...oh, and the mean over some time frames that looked to be the current trend.

Stocks to pick from were:

-between $10 and $30
-greater than 500,000 shares traded per day on average
-TSX listed


This gave me 39 to start. I dropped everything over $25, ETFs, trusts and the like which left me with 16. Rather than getting complicated I just picked 5 out of the bunch without regard to anything in particular, they could have been random. If nothing else this keeps these from being some sort of stock advisories as they have no intrinsic value to me. Ideally I would like between 20 and 30 to choose from but in the interest of keeping this manageable I will stick tot he five.


I have traded BVF a few times in the past though, even made a few dollars on it as well, but that had no bearing here or I would have picked other stocks that have performed in the past.


Final list:

Biovail (BVF)
TransAlta (TA)
Kincross Gold (K)
Manulife Financial (MFC)
Nexen (NXY)


I will post some charts for these later as well.


Jeff.

Intent

In my first blog I started with a trading strategy that used a timeframe of one day or longer. I since changed my scope to day trading and therefore my blogging reflected that change. Here I intend to re-visit that strategy and perhaps modify it to include other bits and pieces that I have stumbled upon along the way.

Off the start I will not actually be trading any of these setups as I am still concentrating on the daytrading in my Tax Free Savings Account as I think that, short term, is my best option. Shortly I will be transferring my mutual funds from their existing home to my Questrade RRSP account. Rather than trasnferring them "in kind" they will be liquidated and transferred as cash. This will form the capital base for my medium term trades as the balance will be higher which will allow me the room that I need for my loss allowances in these trades.

A side note, Questrade currently has a promotion that they will pay up to $150 of any transfer fees incurred with a transfer of $25000 or more until March 2nd. While $150 is a pretty small part of the transfer it is a nice little perk, especially seeing as I was going to transfer this stuff anyway.

So, I may not have any trade setups ready to go right now so I will run a few backtests on some of the stocks that I was following in the past. This is a little cheat as I am hoping that my previous picks are still valid picks today. I did keep all of my old lists of charts so it should be a simple matter to check these for volume and price action.

Given the large downturn in most of the stocks on the market in the last months I am hoping to grab a few near their price troughs. Seeing as an RRSP account does not allow for short selling I may use some ETF's to play any downturns or perhaps just rotate sectors or some strategy that allows me to keep my cash in play at all times, or as close as I can get.

Jeff.