Monthly Recap for February

2/1: *$103,858.67
2/28: *$107,242.53
PL%: +3.26%

Best Trade of the Month: Coffee, KC[K5], Short, +4.48% gain
Worst Trade of the Month: Wheat, ZW[H5], Short, -3.32 loss

Finished the month off strong the last two weeks. The first week of February, I had a rough start, down -3.45%, but then rebounded to post better gains week by week: +1.4%, +2.29%, and +3.1%. I closed out 11 trades in total, which is slightly lower than my previous two months where I did 16 trades per month. Of these, I had 6 winners, which is significantly higher than my target of 33% (I actually anticipate to lose on most trades but expect a handful of big winners to overcome the small losers). This high win% has me a little concerned as I know this high% won’t last forever.

At the end of each month, I also break down my trades by contract type, pattern, and long/short. I’ve steered clear of currencies since last month and will now steer clear of energies as well. I see no other discernible patterns.

I’m going into March with one open position in Copper HG[K5]. YTD I’m currently up 11.58%.

*Numbers based off adjusted starting capital amount of $100,000

Update: E-Mini Nasdaq, 2/26/15

Short
Entry: 4437
Exit: 4460
PL%: -0.52%

Got stopped out less than a day after I entered this trade. Figured it was a small risk to take with a huge upside if it indeed was the top of a big drop. This doesn’t change my bearish bias and I’ll continue to keep an eye out for possible tops or bearish signals on S&P 500, Dow, and Nasdaq.

E-Mini Nasdaq, 2/25/15

NQ[H5], Short, Discretionary
Entry: 4437
Stop: 4460
Target: 4350
Risk/Reward Ratio: 3.78

I typically avoid doing discretionary trades, but decided to take a small stab at E-Mini Nasdaq. I currently have a bearish bias towards the indices and believe the risk/reward is justified, as the price just recently hit a new high and is near the upper resistance of the greater 3-year channel. If it breaks the 4424 level (small support line on the chart), I plan on adding more to the position.

Copper, 2/25/15

HG[K5], Long, Ascending Triangle
Entry: 2.644
Stop: 2.61
Target: 2.8
Risk/Reward Ratio: 4.58

1-month ascending triangle pattern within a greater 3-year channel. My chief concern is that the action briefly chopped below the channel before moving back up recently. Open Interest recently shot back up from 33,000 to over 100,000 from 2/24 to 2/25. With housing data coming out tomorrow, I expect this to move with that data.

Update: Coffee and Live Cattle, 2/25/15

Exited both Coffee and Live Cattle positions today. Will break down both below:

Coffee, Short
Entry: 156.40
Exit: 149.40
PL%: 4.48%

My initial target was 149, so I adjusted the stop tight last night. This was a very profitable trade, but as you can see, Coffee made a huge move down today and I left a lot of extra $ on the table. However, whenever I hit my initial price targets, unless I set a secondary and/or tertiary price target beforehand, I like to exit and regroup rather than keeping open positions with no clear objective. I understand that missing big moves like this can happen within my parameters, but it’s something I can live with.

Live Cattle, Short
Entry: 148.50
Exit: 146
PL%: 1.68

My original target was 143, but I tightened up my stop from 150.50 to 146 last night and subsequently got stopped out today. Based on the chart structure, I couldn’t justify waiting for the additional 3 point move to the risk I would have had on if I had left the stop at it’s original level of 150.50. I could have adjusted the stop to between 150.50 and 146, but that would have been a “scared” protective move, an arbitrary stop level that could give some $ back with no real purpose. I’ve realized this is a fine line, when to leave enough slack on the stops to absorb pull backs until the trend continues versus giving everything back when the additional profit potential was minimal.

Update: Soybean Meal, 2/22/15

Entry: 344
Exit: 348.30
PL%: +1.25%

Decided to manually exit the trade early with a small profit for a few reasons. I traded the March contract which currently isn’t the front contract (it’s currently May). Although the open interest is still fairly high for the March, I didn’t feel comfortable holding on to it. Secondly, I’ve realized that if a chart doesn’t run within the first few days after it breaks out, it gets more and more likely that the trend won’t run. I’ve gotten burned in the past, prematurely dumping a position only to have it run. However, I can live with this as it’s built into my particular system.

I’ve learned that for any trade or position, if it just doesn’t feel right for any reason, it’s better to get out of it than to hold on and gamble. More often than not, your instincts are correct. If your gut proves to be wrong on a particular trade and it runs after you unload it, at least you can still sleep better at night and know that there will be more opportunities in the future.

Live Cattle, 2/22/15

LE[J5], Short, Support/Resistance
Entry: 148.50
Stop: 150.60
Target: 143
Risk/Reward Ratio: 2.75

 

1-month support line that broke with a big move on Friday 2/20. My concerns are that the line is slightly dirty and the structure duration is shorter than what I typically prefer. Thus, I decided to enter it with a tight stop risking far less than 1% of my total capital.

Looking at the weekly chart, it looks like there’s a possible head and shoulders pattern developing, with the neckline starting back in June 2014. If this does develop as such, the target for this current trade will be slightly higher than projected at 145.

Book: The Big Short by Michael Lewis

From time to time, I’ll post interesting books and articles that I read pertaining to finance. These aren’t intended to be reviews, there’s plenty of reviews on these books and articles that can be found elsewhere on the internet. I’ll pick out a point or two in the book or article that I find most interesting and add my own thoughts.

The Big Short by Michael Lewis gives an inside look of the 2008 financial crisis through the eyes of a few key players who were involved leading up to and during the 2008 crash. The sheer lack of accountability and corruption that pervaded the industry (and probably continues to pervade today) is simply egregious. Traders on the wrong side of toxic CDOs still came away with huge monetary compensation, despite losing billions of their clients’ and firms’ money, only to get bailed out at the expense of the US taxpayer. The documentary film Inside Job directed by Charles Ferguson, which I also highly recommend, expands on this corruption and excess.

The problem simply comes down to incentives. Towards the end, Lewis discusses how his former boss John Gutfreund really set all this off when he took Salomon Brothers from being a private partnership to a publicly traded company. The firm’s risk thus shifted from the partners at the top to shareholders, many who are left in the dark as banks continue to get more and more complex. When executives, traders, and other employees are held accountable by their shareholders who are at a clear information disadvantage and rely on these same people to provide them such information, who holds them accountable? The regulators? Politicians? These are the same people who depend on the financial donations, support, and backing of the powerful banking elite for their own careers. This is a very simplistic distillation of the interrelationships and I’m not sure what the answer is, but there’s a clear misalignment of incentives which causes a lot of problems, not only in the finance and banking industry, but in a lot of other areas in global economics, governments, and social structures.

The character I found most compelling was Michael Burry. Despite being correct on the crisis and generating unreal triple digit returns for his clients through the duration of his fund, he never received the recognition or any apologies from those who criticized and berated him. I also found his non-traditional finance background and approach to life inspiring and comforting.

Weekly Recap for 2/15/15

2/15: *$101,685.77
2/21: *$104,015.99
PL%: +2.29%

Have had back to back weekly gains after a poor start to the month to now be up slightly for February. Booked solid gains from the Cotton and E-Mini Nasdaq trades earlier this week. Currently hold two positions, long Soybean Meal and short Coffee. Both made very nice advances yesterday but pulled back a touch today. Plan on tightening the stops for both to lock in some profits if they do continue pulling back going into Sunday’s overnight opening and into the week.

I like to scour the markets over the weekends while they’re closed to look for fresh opportunities. I typically like scanning the weekly charts (and monthly charts from time to time) to identify promising patterns then use daily charts to drill down specific entries/exits/targets/stops which I monitor throughout the trading week.

*Numbers based off adjusted starting capital amount of $100,000

Coffee, 2/19/15

KC[K5], Short, Support/Resistance
Entry: 156.40
Stop: 161
Target: 149
Risk/Reward Ratio: 1.61

6-month support line, entered this trade yesterday but didn’t get a chance to write this post until today. My risk is significantly higher on this trade, at nearly 1.5% of capital combined with a less than ideal 1.61 risk/reward ratio, however I’ve been following this chart for the last few months and feel that the extra risk is justified by the chart structure explained below.

As you can see on the daily chart, the trading range had consolidated in the past month into a clean channel. Each time, when it slowly inched up, there was a big single day move back down but then bounced right back up, only to get knocked down again. I knew it would only be a matter of time before the bears would finally push below the support line. I’ll continue to monitor this closely and adjust the stop accordingly.