Share Trading 17/9/2012

Transcription

1 Share Trading 17/9/2012 Trading the ASX Presented by Peter Castle Peter Castle Owner Easy Share Trading Systems

2 MY Business Trading Statement The idea of trading or active investing is this, you buy a stock and hold it until it continues to rise, once it stops rising and either goes sideways, or falls, you sell it and re employ that money into another stock that is rising. This method done correctly and not too often far outperforms the standard method of buy and hold as well as most short term strategies. Peter Castle

3 Disclaimer The material presented in this discussion neither professes to be, nor is intended to be, advice to trade or to invest in any specific financial instrument or to use any particular methods of trading or investing. Listeners should not act on the basis of any information without properly considering its applicability to their financial circumstances. If not qualified to do this for themselves, readers and listeners should seek professional advice. The decision to invest or trade is for the individual alone. The presenter and author expressly disclaims all and any liability to any person, with respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance upon the whole or any part of the contents during this presentation or seminar. Investing and trading involves risk of loss. Past results are not necessarily indicative of future results. Peter Castle is not a licensed investment adviser.

4 My objective of this seminar today is: Seminar Objectives To ask what's your objective trading? Discuss the pros and cons of back testing. Discuss the benefits of medium term trading. Give you 3 trading systems, rules and results. Tips about sticking to a trading plan.

5 MORE OBJECTIVES Ask yourself is my method working? Is your method mechanical (easiest)? Discretionary with Rules (harder)? All discretionary (the hardest)?

6 Why and how I came to develop my methods. 3 systems tonight

7 What kind of trader are you trying to be? Olympic Golf Beach

8 I am a MEDIUM TERM TREND AND COMPOUND TRADER Profits are re invested to increase equity size, therefore increasing size of trades, therefore increasing equity.

9 WHATS MODELLING OR BACKTESTING? What Merit does it really have? Does Mechanical trading work?

10 NO FUNDAMENTAL ANALYSIS PRICE ONLY used in the following examples

11 5 Easy System Rules st 1 system

12 1st Rule 5 Easy System Rules Only trade the Top 300 shares on the ASX put 10% of your money in each stock

13 5 Easy System Rules 2nd Rule Select stocks priced under 20 dollars (because they go up quicker than more expensive stocks and yes there are plenty of stocks in that price range in the 300)

14 3rd Rule 5 Easy System Rules Buy the stock if it makes a closing 1 year high. E.g. Today s price of $10 is the highest the stock has been for a year that s the buy signal. (If there is more than one stock that week making a one year high buy the cheapest one. )

15 4th Rule 5 Easy System Rules Sell the stock if it at any time from its most recent highest price it falls more than 25%. E.g. if the recent high of the stock is $10 but it falls 25% to $7.50, you sell. Or, you buy at 10 and it rises to 20 but then falls 25% to 15, you sell.

16 5th Rule 5 Easy System Rules Now re employ that money into another stock making a 1 year high, follow the rules 1-4

17 That s it! Easy, can you do it? 95% of traders look for a complex system, but its the lack of a simple method and the inability to stick to it that 95% OF TRADERS LOSE MONEY OR BREAK EVEN Lets look at if the 52 week high system works

18 So the system described before tested on the top 300 shares gives these results Data used: top 300 shares listed on the ASX Testing time frame: 10 years Risk: no more than 10% of portfolio capital allocated per share trade Number of shares held in portfolio: average of 10 Return: 42% p.a. Total trades: 155 or 15 p.a. Starting Capital $100,000 Ending Capital: $3,200,000 Disadvantages: Big (for most unbearable) Draw down of 40%, difficult to buy the highs, particularly in bad markets.

19 Equity Curve

20 Yearly column Chart of the system

21 Closing Prices Line Chart

22 Trailing 25% Stop loss

23 Buy Signal- Highest price in 12 months

24 Sell Signal- Falls 25% from the most recent high

25 Buy and Sell for a Profit 42% in 8 months

26 A Dream Run..but it won t happen if you don t. Hold the winners! The Trend is your Friend until it Bends at the End!

27 Cut the Losers!! At 25%

28 Last 5 years 35% p.a 105 trades

29 Can we improve that system with smart balance? Before we go further...questions so far?

30 Ok, so now let s look at some slight changes What if we use a quicker exit signal? But still very simple nd 2 system

31 Two of the most important things in trading are not what you buy, Or even when you buy But how much you buy and when you get out. First, Lets look at a different exit..

32 Re visiting our TEN Chart...When to Get Out? Moving Average Crossovers of 7 and 12 (EMA)

33 Yearly Column Chart using the 7/12 EMA exit More Performance 45% Return p.a 100k into 4 million over 10 years A few more trades now 152 or 15 a year Inconsistent results though

34 And the Equity Curve Dark Green is cash held, increasing in market down turns, re investing when the market is rising again.

35 Now let s use the same rules but use position sizing Buy the 52 week high Sell if the 7 EMA crosses below the 12 EMA And...

36 Calculating HOW MANY shares to buy based on each stocks volatility (position sizing) Using a 24EMA WEEKLY To measure volatility (1.6 ATR weekly equates to a 8ATR daily)

37 POSITION SIZING BASED ON VOLATILITY OF STOCK

38 RISKING 1.5% OF EQUITY PER SHARE... Testing on the top % p.a. 146 trades or 15 a year 100k into 6.8 million So: By changing just 2 things in our method (the two most important) WHEN WE GET OUT AND HOW MUCH WE BUY OF EACH STOCK WE MORE THAN DOUBLE RESULTS (from the 1st system) Next graph shows equity curve

39

40 Conclusions and Points to consider Exits and position sizing makes more difference to your results than entries However: Psychological challenges exist in buying high, trading through large draw downs, average win rate (48%) and high number of losers in a row(13) Most traders would not be able to cope mentally with this system...unless it was locked away in a super fund or similar

41 CAN WE IMPROVE THIS SYSTEM? 3rd System Bull Market Filters Only buy into the market when it is in an established up trend Only buy when the XAO is above a 24 ema and a 6 ema Examples

42 BUY ONLY IF THE XAO IS ABOVE A 24 EMA AND A 6 EMA

43 NOW TESTING THE ASX 500 / MORE DATA IS GOOD This Bull Filter improves the win rate Now 56% up from 48% Draw down has been reduced to 25% (still too high for many) losers in a row has been reduced to 7 P.A. 45%

44 EQUITY CURVE USING THE BULL FILTER testing now the ASX 500

45 GETTING CONSISTENT AND STILL RISKING JUST 1.5% A TRADE

46 NOW LETS ADD A BEAR FILTER TO THE SYSTEM BECAUSE WE ALL HATE DRAWDOWN Bear Filters Tighten(RAISE STOPS) the exits when the market weakens. In this case we tighten the exit if the XAO falls below a 6 WEEKLY EMA The Exit tightens from a 7/12 ema WEEKLY crossover to a 3/12 ema weekly crossover

47 XAO WITH A 6 EMA, TIGHTEN POSTIONS FROM 7/12 TO 3/12 IF XAO BELOW A 6 EMA

48 LNC WITH 7/12EMA, HOWEVER STOPPED AT 3/12 BECAUSE THE XAO FELL BELOW A 6EMA

49 Results for the 52 Week High system with the 24 bulls and 6 bears 7/12 ema Return still 42% p.a. 100k to 3.2 Million in 10 years Just 200 trades or 20 a year Win Rate 53% DD reduces to 23% Its now getting trade-able!

50 42% P.A re invested WILL DOUBLE YOUR MONEY EVERY 2 YEARS Start with 10K 1st year 14K 2nd year 19.88K 3rd year 28.22K 4th year 40K th 5 year 56.8K 6th year 80.85

51 Smooth equity curve, outperforms the market because we buy strength and sell weakness in the 500 using 1.5% risk per trade

52 Conclusions Its best to buy when the market is strong, reduces unnecessary trades (and stress!) Good exits conserve profits, reduce DD, decreases maximum losers in a row. Buying the strong stocks(52 WEEK HIGHS) when the market is Bullish, selling the under performers when the market is weak, gives our portfolio the best chance.

53 The Last 3 years on the ASX 500 using the 24 Bulls and 6 Bears system, using 2% risk per share, around 10 positions in the portfolio

54 Quarterly results of the system, Discipline and patience is required.

55 Reminder slide Peter, Check the audience for Clarity

56 Trading Course on Sunday 21st October Teaching A Medium Term Momentum System and a Pyramid System with Position Sizing

57 COURSE SYSTEM 1: A WEEKLY MOMENTUM SYSTEM I want a system that does not buy so high (at times hard psychologically) but still buys strength Gets out quicker to reduce DD Still doesn t do too many trades to keep costs low Still simple to follow to increase operator efficiency Uses a bear and bull filter to adapt to the market Weekly but aggressive system that fits in with a busy lifestyle

58 THE MOMENTUM SYSTEM: CONTROLLED AGGRESSION Buys FAST MOVING STOCKS ONLY How many to buy by considering the stocks volatility If the market starts to fall it sells quickly the under performers And holds the over performers slightly longer because they deserve it (think football players).

59 The system only buys strong stocks that are appreciating quickly

60 2nd Example, this one stopped but re entered

61 Testing on the ASX 500 last 4 years Number of trades around 26 a year 54 % p.a DD 16% (getting very good now) Maximum 10 winners in a row Maximum 6 losers in a row 56% win rate (that's good for a trend system) Portfolio holds around 9 positions using 2% Risk

62 ASX 500 last 4 years

63 The Quarterly Results: Discipline and patience required, one day one week or even one quarter does not make a system!

64 The system the last eight years

65 Too good to be true? Is there a catch and has Peter massaged the numbers? There are no catches but some considerations The big winners in the system are low priced stocks (but we already know low price stocks outperform) 80% of the gains come from 20% of the trades, so you MUST BE DISCIPLINED AND SELL LOSERS AND HOLD WINNERS

66 ZEN SAYING When it is not necessary to do anything it is necessary to do nothing (do nothing until you get a trade signal) patience and discipline

67 ALSO TEACHING ON THE 21ST OCTOBER Pyramid System ASX 200

68 Objective of this system To be always in the market, to take advantage of dividends, takeovers, splits, tax advantages, DIY super fund, writing covered puts and calls etc. Trades all stock prices, not just the cheaper ones. However, bear in mind, the low price ones outperform, even in the 200.

69 THE PURPOSE OF PYRAMID SYSTEM To buy a small initial position Adding to trades in profit Losing trades get cut with a small loss Performers rewarded with more capital Under performers sacked! USING POSITION SIZING AS A COMPLIMENTARY TOOL TO TRADE GOOD AND BAD MARKETS, ALONG WITH OUR BEAR FILTER

70 Trade Example FXL

71 Last 4 years ASX 200, 40% p.a. 52% winners, DD 12% 16 maximum winners in a row, 9 maximum losers in a row

72 ASX 300 last 2 years

73 ASX 500 last 2 years

74 THE PYRAMID SYSTEM IMPROVES IF YOU FOCUS ON FAST STOCKS LIKE THE MOMENTUM SYSTEM DOES YOU FOCUS ON CHEAPER STOCKS BUT LETS START WITH THIS 95% PROBABILITY

75 95% PROBABILITY YOU WONT TRADE ONE OF THESE SYSTEMS Why? Because you don't believe Because you haven t done the back testing work Because you don't trust because you haven t convinced yourself by doing the work Because you don't fully understand how it works because you haven't done the work So you need to do some convincing/believing work!

76 THE PATH TO TRADING SUCCESS 1/ Learn and fully understand the trading foundations. Buying, positioning, selling. Start with a simple high probability mechanical system. 2/ Trade the system, focus on execution, discipline and patience. 3/ After grasping an understanding of stage 1 and 2, only then look at moving on to a rules based discretionary system. 4/ Discretionary trade only after fully grasping the first 3 stages, this is a Zen trading state of mind, if done consistently, is a rare achievement.

77 Most traders attempt to do this order in reverse, That's why the success rate is so low

78 Do you want a trading challenge? Nothing is more challenging than to become simple and nothing brings a greater reward Siddartha Gautama (Buddha)

79 Arguably the most important slide tonight DO YOU COMPLETLEY UNDERSTAND POSITION SIZING AND HOW IMPORTANT IT IS? IF NOT, COME TO THE COURSE (a knowledge of ATR will be very helpful, but not essential)

80 IF ARE INTERESTED IN THIS TYPE OF TRADING COURSE VENUE AND DETAILS

81 COURSE VENUE KHEDRUBJE KADAMPA BUDDHIST CENTRE 165 Willoughby Rd Wamberal (near Terrigal)

82 Kadampa Wamberal

83 Seminar Room

84 COURSE FEE BY DONATION Your first course trading lesson from me starts tonight. Trading requires decision making (Buy) Trading requires discipline (Position Sizing and doing nothing until required) Trading requires letting go of outcome (Having no expectations but rather a learned probability)

85 1st course lesson continues Decide if you will come and you trust it will be worthwhile You decide what's it worth (perhaps do some research on other course costs) I have no expectation of reward, I do my best, the market (you) will pay me what I am worth. Just like YOUR and MY trading I need to trust my work and ability

86 How and what do I pay? Bowl at the rear of room, put your money in a sealed envelope so no else can see or be influenced by your amount. If you want it to be anonymous...pay by cash. Cash or cheque please, no cards Tax claimable receipts available, but of course you will have to give me your name with the amount. A percentage of the money received will go to the meditation centre Remember I do have costs to cover

87 More Details Time 10 am to 5 pm Morning and afternoon tea and lunch provided Kadampa Meditation Centre (western Buddhist monastery) Teaching two systems Momentum for aggressive traders Pyramid for conservative or wealth building Please donate enough to cover costs and food, add your own value to the teachings.

88 Wisdom from a martial master One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity Bruce Lee

89 HAVE A SIMPLE WORKABLE METHOD OR BECOME PART OF SOMEONE ELSE S

90 Goodbye Thank you for listening and may the trade winds flow for you Peter Castle