Active Trend Trading System

Transcription

1 Active Trend Trading System Candle Light Trader: Dennis W. Wilborn A Trend Should Be Assumed to Continue in Effect Until Such Time as Its Reversal Has Been Definitely Signaled Edwards & Magee

2 Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don t trade with money you can t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this training. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All Materials presented are for training purposes only. Traders should paper trade any new method prior to risk of personal capital.

3 The History Why Active Trend Trading & What is It? Objective: Clarify, Simplify & Multiply Clear & Simple Rules for all trends & non-trends Excellent Potential Returns: Trend Trading for a Living ~~ Dr. Thomas Carr = 40% +/Year. Efficient & Effective Use of Trading Capital What Is It? Trading System going with the Major Trend for both Cash Flow and Long Term Wealth Building Uses elements of both Swing Trading & Trend Following A Strategy of Patience based on Objective and not Subjective Observations

4 Trading Without a System & Rules

5 Elements of All Trading/Investing Systems What To Trade When To Enter: Entry Action Points When To Exit: Exit Action Points What Strategy To Use

6 System to Strategy to Campaign Stock Strategy ETF Strategy Option Strategy SYSTEM

7 Active Trend Trading System Rules? What to Trade: 1. IBD 50 Running List Stocks 2. Stocks/Index ETFs Priced Over $10 with volume GTE to 500K shares/day 3. Stocks/Index ETFs with Weekly Options 4. Stocks on the Move/Leaderboard/Sector Leaders 5. Stocks/Index ETFs from my personal and Go To List When to Enter: At Objectively defined Action Points 1. Alternative Entry: Bouncing off of Significant Moving Averages 2. IBD Pattern Breakouts 3. Support/Resistance Bounces or Breaks When to Exit: At Objectively defined Action Points 1. Stop Losses: 1-2% above or below swing high or swing low or Closing Price violates moving average that triggered trade 2. Hard Stop 7-8% loss from entry price 3. Profit Stop: Cash Flow Trade a set percentage 5-10%; or closing price violates selected moving average; or at Support/Resistance 4. Profit Stop after candlestick reversal signal & close below/above 8 day EMA

8 Active Trend Trading System Rules? Cont. What Strategy to Use: Define Trade as Cashflow, Capital Growth or both 1. Buy Stock or ETF 2. Buy Puts vs selling stock/etf short 3. Directional Spreads or Directional Options with high Open Interest 4. Short Puts in Uptrending Market

9 What To Trade Weekly & Running IBD 50 Watch List Excellent Yearly Performance Time Efficiency Stocks & ETFs with Weekly Options Other Growth Stocks Trading Over $10 Ave Volume Greater than or Equal to 500K/Day Ave Stocks on the Move/Leaderboard/Sector Leaders Stocks/Index ETFs from my personal Go To List

10 What To Trade: IBD 50 Running List Weekly & Running IBD 50 Watch List Excellent Yearly Performance Time Efficiency Over $15/Share Focus on IBD stocks trading over 500K shares/day The IBD 50 stocks may be more than enough to focus on and here s why.

11 FISH WHERE THE BIG FISH LIVE: We have tracked this elite IBD list since 2007 and each year it has significantly outperformed S&P & Nasdaq Indexes. Secondly, during market corrections this same list also provides excellent short candidates if one s rules allow for trading down markets.

12 Top 5 IBD 2013 Results Best Year Low to Year High. Best from the Close of 2012 thru 2013

13 When To Enter or Exit: At Objective Action Points I absolutely believe that price movement patterns are repeated. They are recurring patterns that appear over and over, with slight variations. This is because the markets are driven by humans and human nature never changes. ~ Jesse Livermore What is an Objective Action Point? - A definable price level on a chart where we can expect something to happen with high probability

14 When To Enter: At Objective Action Points Identify Current Trends, Patterns & Action Points 1. Define The Major Market Trends 2. When trading from an established list, the trend of many stocks on the list will already be definable 3. Trade with the Major Trend This is the Edge 4. Define Key Trend Reversals and Entry Action Points

15 When To Trade: Identify Current Trends Uptrend: 1. Higher Highs & Higher Lows 2. Up Sloping day SMA s day SMA above 50 day SMA (Exceptions: Reversals Patterns or Higher Lows) Downtrend: 1. Lower Lows and Lower Highs 2. Down Sloping day SMA s day SMA below 50 day SMA (Exceptions: Reversals Patterns or Lower Highs Sideways: Chaos 1. Box like pattern or Consolidation Pattern

16 Identify Current Trends At What Points Does the Trend Reverse? Multiple Correct Answers Chaos

17 Identify Current Trends: Moving Averages The Moving Averages are key! Understanding what to expect around the moving averages provides the trader with an edge! The basic thesis behind moving averages is to identify key resistance and support levels of the underlying security so that one can detect the continuation of a price trend or the emergence of a new price trend. Moving averages watched by institutions: 20 or 21 Daily 50 Daily 200 Daily Traders also use shorter timeframe moving averages to better trigger entries and exits. 8 or 10 period EMA works well for these triggers. Weekly Period Moving Averages which approximate the Daily Moving Averages can also be helpful during analysis. 50 Day Moving Average approximately equals the 8-10 Week Moving Average 200 Day Moving Average approximately equals the 40 Week Moving Average

18 Identify Current Trends: Moving Averages Most Important: Decide type to use and then stick with the choice: The solution isn t so much which type of moving average is best but how well the trader masters using the moving average chosen. **Observe how price action responds around the moving averages: Which moving average does the trend respect? Know the probabilities: If Price Action violates a moving average at the close, then there is a higher probability the next most significant moving average will be tested

19 Identify Current Trends: Moving Average Slope, Stack and Spread of moving averages help define the Trend & Strength & Trade Posture 50 SMA 8 EMA 20 SMA 200 SMA Bullish Stack with Increasing Spread between Moving Averages

20 Identify Current Trends: Moving Average Slope, Stack and Spread of moving averages help define the Trend & Strength & Trade Posture

21 Identify Current Trends, Patterns & Action Points Uptrend to Downtrend Rally Failure: Lower High 8 EMA 20 SMA 50 SMA Lower Low 200 SMA

22 Identify Current Trends: Moving Average No Trend : Chaos Mode!

23 Patterns: Define Action Points 1. IBD Patterns 2. Candle Stick Patterns (Separate Presentation) 3. Moving Average Bounces 4. Trend Line Breaks Supporting Clues: Keltner Channels, Stochastics & Momentum

24 Entry Action Points 1. IBD Proper Buy Points 2. Active Trend Trading Buy Points Critical Requirement: Objective Buy Points for Both

25 Identify Proper Strategic Entries & Position Sizing - William O Neil: Fewer is better. Hold no more than 5-8 stocks. For accounts less than $100K should be no more than 4-5 stocks. - Options: size to meet 7-8% loss in stock or less - Learn how Margin works - Objective not Subjective

26 Identify Proper Strategic Entry Action Points 5 Cup Break Out Trend Line Break 1 Action Point: Moving Average Bounce

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28 Identify Proper Strategic Bearish Entry Action Points 1 5 Cup Break Out 4 Trend Line Break 2 Action Point: Moving Average Bounce 3

29 Thoughts on Strategic Exit Action Points Executing a proper exit can be challenging unless the trader acts automatically at well-defined strategic exits Action Points. Again with an aim at keeping this initial strategy simple and objective the following exits are suggested. Stop Loss: 1. Hard Stop Loss at 7-8% of entry price if entering off an IBD Breakout 2. Breaking Swing Low or High on Alternative entries by 1-2% or tighter 3. Close below Moving average that triggered trade Profit Stops: Define Cashflow or Capital Growth 1. Profit Target at 20-25% of entry price (Move on underlying for Options) 2. Areas of Resistance/Support like moving averages 3. Close below Moving average that triggered trade 3. Stay in trade until a close below the 8 day EMA 4. Cash Flow Trades: Once paper profit is up over 10% adjust trailing stop to entry price plus 5% and then increase trailing stop by 2.5% for every 5% increase in stock price. Or close below 8 day EMA.

30 Thoughts on Strategic Exit Action Points Determine if the trade is a Cash Flow Trade, a Capital Growth Trade or both. Consider: 1. Is the trade in an IRA or 401K? Might want to just do Capital Growth Trades 2. Do you need Cash Flow? 3. Do you need both? How one answers these questions can help with pre-trade strategies on where and how to take profit. See Alternative Exits at the BAMM Site under files.

31 Profit Targets Exit Trade 2: Cash Flow 12.7% in 6 days Exit Trade 5: 26.5% in 24 days 5 Entry 5: Cup Break Out 2 Entry 2: Bounce off 200 day SMA

32 Cash Flow Trade: Take profit at the Moving Average Resistance Objective or Subjective? Cash Flow and Capital Growth Trades can be concurrent taking ½ position profit at a defined level of resistance or % Gain. Then the Capital Growth portion can be held until a longer term profit objective is hit or a trailing stop based on a close below a significant moving average take place.

33 Profit Targets Max Profit Target on Downside Trades = 20-25% Entry 3 Moving Average Bounce/Break 3 Exit Trade 3: 8% in 27 days

34 What Strategy to Use 1. Buy Stock or ETF s: IMHO this is the best strategy to use, fewer variables, thus the simplest to manage!!! Learn to be successful here first. 2. Buy Puts vs selling stock/etf short 3. Directional Spreads 4. Short Puts in Uptrending Market

35 A Few Recent Trades It doesn t happen every time, but it does happen all the time! Yogi-ism from Mike Trager

36 Enter Exit % in 13 days

37 Order place on 9/11 didn t fill. Good No Trade after Shooting Star Pattern

38 Enter As of day % in 21 days

39 Active Trend Trading System Rules? What to Trade: 1. IBD 50 Running List Stocks 2. Stocks/Index ETFs Priced Over $10 with volume GTE to 500K shares/day 3. Stocks/Index ETFs with Weekly Options 4. Stocks on the Move/Leaderboard/Sector Leaders 5. Stocks/Index ETFs from my personal and Go To List When to Enter: At Objectively defined Action Points 1. Alternative Entry: Bouncing off of Significant Moving Averages 2. IBD Pattern Breakouts 3. Support/Resistance Bounces or Breaks When to Exit: At Objectively defined Action Points 1. Stop Losses: 1-2% above or below swing high or swing low or Closing Price violates moving average that triggered trade 2. Hard Stop 7-8% loss from entry price 3. Profit Stop: Cash Flow Trade a set percentage 5-10%; or closing price violates selected moving average; or at Support/Resistance 4. Profit Stop after candlestick reversal signal & close below/above 8 day EMA

40 Active Trend Trading System Rules? Cont. What Strategy to Use: Define Trade as Cashflow, Capital Growth or both 1. Buy Stock or ETF 2. Buy Puts vs selling stock/etf short 3. Directional Spreads or Directional Options with high Open Interest 4. Short Puts in Uptrending Market

41 It doesn t happen every time, but it does happen all the time! Yogi-ism from Mike Trager

42 I absolutely believe that price movement patterns are repeated. They are recurring patterns that appear over and over, with slight variations. This is because the markets are driven by humans and human nature never changes. ~ Jesse Livermore Art & Science of Active Trend Trading Bi-Weekly Free Newsletter Dennis W. Wilborn DWW@activetrendtrading.com

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