Ryan's Trading Journal (F/A+T/A Strategy)

Hey ASF readers!

I have finally decided to take the jump and start up my own thread, I wish to open myself and my trading up to ASF readers, new or old, to share my thoughts and my methods, my decision making process and trade management techniques. I hope that by doing this, I will be held accountable by the many experienced traders/investors on this network and be able to fast track my journey. For the new folks, I hope you enjoy this thread by a inexperienced/new trader and maybe even learn a thing or two from my mistakes.

Basic Info of myself
I am a young adult, based in Melbourne, who graduated out of RMIT in 2016 with a Economics and Finance Degree, I am currently working in the financial planning industry with the aspiration to become a financial adviser. I am also interested in the proprietary trading scene and might take a chance with it in the future should the opportunity arises (I get fired from financial planning :x).

Trading History
I started my trading journey back in December 2015 where I started to read up on various books by recommended authors, the Australian Financial Review, websites by fund managers and podcasts to really build my knowledge up. I begun trading real money - did not use a demo account because I was too eager - on June 2016. Between June 2016 till March 2017, I was fine-tuning my strategy and trading plan to come up with something solid, my progress between that time have been a pretty wild swing, overall, from March 2017, I have lost a bit of my original capital. What I got out of that experience though, was a pretty solid trading plan, experience in the market with ups and downs, developed my stomach to take losses and be logical when there are winners. Regrets? No.

Trading Strategy
The trading strategy that I employ consist of 3 levels in the following order:

1) Global/Australian economic view

2) Bottom-up Fundamental Analysis (Outsourced majority of the work to Stock Doctor)
https://www.lincolnindicators.com.au/ <--Here's the link to them

3) Technical Analysis to determine entry, exit, demand, supply & direction.

To simply break it down, I would take a view on the Global & Australian economy and try to locate where the headwinds and tailwinds are. Once I determine which sectors have a headwind behind them, I would then review them fundamentally. For example, if Australia's current headwind is that we could see the AUD depreciating to further levels from it's current point, I would start searching for companies that derive their earnings from overseas to take advantage of the currency advantage. If I located a tailwind that could impact a current stock holding, I would start to see how big the impact would be and consider exiting the stock.

Fundamental research have been outsourced to Lincoln Indicators aka Stock Doctor(SD), and I rely on their financial health ratings. SD have 5 ratings for all companies on the ASX which are listing in the following order of highest to lowest [Strong, Satisfactory, Early Warning, Marginal and Distressed]. I will only, at all times, trade in stocks that are at least STRONG or SATISFACTORY. SD also have recommended stocks called Star Growth Stocks and Borderline Star Growth Stocks (there is also income stocks but as I am growth focused, I will not include them in the thread). I will lean in favour to a Star Growth Stock/Borderline Star Growth Stock over a Non-Star Growth Stock should I have to make a decision between the two. One thing that I like (fundamentally) to see in a stock that I will trade in are strong & continued Earnings per share growth in the double digits, I believe that strong earnings growth and strong share price appreciation have a high correlation.

Once I have a pool of stocks that have passed the above filter, I will then do my technical work on it. My technical analysis does not use any indicators, only Price Action, Volume, Support and Resistance levels, Moving Averages and Average True Range(for determining my stop loss). I would enter a stock from breakout, the main setup that I like would be a B/O above horizontal resistance [shout out to Peter2 for his thread and teaching me what to look for], however, I do use other setups from time to time. I also like to use volume analysis before entering a trade and even managing a trade to see what the markets are doing[buyers and sellers] and for volume analysis, I still have a lot to learn but Tech/A have helped me in learning VSA through his thread "Tech/A's interesting charts".

My trade goals:
My short term focus for each and every trade would be to make money on the breakout, once the breakout is completed and price action continues in that direction, I would alter the trade to a more trend following approach in order to ride it as far as I can go.

Setting my Stop Losses
To make it as brief as possible, I will set up the stop loss levels within x2 to x4 ATR from the entry level. I will try to find a level which sits below 2 points of support.

Outlook for the future
I intend to keep working on this portfolio and it's strategy to the point whereby I am comfortable with it, I know exactly how to manage it in the proper way and it is a profitable system. Once I feel that I have completed the task, I would like to start looking into the futures market and take what I have learnt from this space to start working on futures.

Research Materials
1) Stock Doctor (Paid Service) - Provides research on fundamentals of companies on the ASX
2) Bell Direct - Broker Service, $15 per Trade, simple & easy to use.
3) Australian Financial Review - Newspaper/website that I read every morning
4) Chat with Traders by Aaron Fifield - Listen to traders getting interviewed and hear about other methods out there.
5) Livewire Markets - Free website publishing articles by Fund Managers, this resource has helped me immensely in keeping up to date with things around the world and helps me to formulate my Global/Australian Economic View.
6) Aussie Stock Forums - There are a few threads that I follow on here, to those who are new, ASF is nothing short of a diamond mine for new investors/traders.
7) Podcasts - "Trend Following by Michael Covel (Apple Podcast App), Your money your call - Sky News Business)
8) Trading books - I have collected a few books (10+) since starting my journey and I try to read a new one every 2-3 months.

 

I already have a portfolio that I am currently running so my thread will start with the existing portfolio and I shall start documenting my decision going forward.

My portfolio is almost fully invested with a 7.21% cash balance. I try my best to always have 5-10% Cash within my portfolio because I like the idea that I can participate in a trade that has the stars all aligned should it come up at any time. I should note that if there aren't any opportunities in the market, I am happy to sit in cash and wait for the right opportunity.

My portfolio is Australian Equities - Long Only.

I should note that this thread will report it's statistics every End-of-week but I scan my watch list every night after the market closes.



Some of my thoughts about my portfolio right now:
1) There are four stocks that sit within the "consumer discretionary", I should only have 2-3 stocks per sector within my portfolio. Having 4 is going over my rule. I also intend to reduce my exposure to the consumer discretionary sector as it is positively correlated to consumer spending. My view on the Australian Economic is that Wage Growth has been flat and will continue to be flat in the near-medium term [not considering the impact of the recently released Budget(2017)]. The property sector will most like be flat or decline in the near to medium term which could erode wealth of Australian families which will further impact Consumer spending.

2) I need to read the budget to understand where the cuts and spending are going to take place. I am quite interested on the budget's infrastructure spending and Medicare Levy + funding of the NDIS. More on this later.

Looking forward to keep you guys updated on my portfolio going forward!

 

Thanks mate, read some of your previous threads and knew you were a melbourne guy, around about my age and went to RMIT

 

This is a real portfolio with real funds in it and I have been tracking the numbers and transaction since the start of March 2017.

Apologies for the info overload, I just wanted to ensure that I sent the introduction right, put it all on the table so readers understand better how my decision process works.

I thought about adding in position sizing rule but hesitated because everyone have their own way to position their trade. However, I shall put them up now so that experienced traders can read my logic and correct me if i'm wrong.

My position sizing:
1) Determine what you entry point of the stock is (let's say $4.00)
2) Determining where the initial stop loss is (let's say $3.50)
3) My maximum risk per trade is 1% of my total capital (let's say 1% of $50,000 = $500)
4) Difference between entry and iSL =$0.50
5)$500/0.50 = 1000 units of the stock.
6) 1000 x $4.00 = $4,000(parcel size) and this is 8% of my total portfolio which is within the range of 7%-13% that I want per position held.

**Dont want my positions to be too small in comparison to the portfolio nor do I want it too big. hence why i use 7-13% as a gauge.

I'll type up my risk management after the trade begins. Gotta go to work now!

 

Talking about CSL which is the stock where I bought in at $127, BASED on the $500 max risk that I am willing to take on the stock, I would be buying 28 units of CSL.

Btw the figure of $50,000 that I'm using is not my actual portfolio value, just an example. I don't want to disclose my balance so hence, everything is in % and no units are provided

 

I had it mixed up! Thanks for clarifying!

Always thought headwind was positive because it's "heading" and that's like a forward moving projection description in my head while tail is like a backwards projection!

I gotta try and remember it in a bird's term, headwind = against you and tailwind=behind you.

Thanks for bringing that up for me

 

Now that my trade book is an open book, I hope that the honesty will help me exercise discipline.

As I rely on both technical analysis and fundamental analysis, there are times where I have to pull a stock out based on a discretionary decision (change in fundamentals but technicals still strong).

I will give an example of two recent stocks whose technicals are strong but fundamentals aren't in play.

NHF - the trend is strong with this one but I exit out of the stock at $6.00 when the news of the visa 457 will be cancelled. SDF is an insurance stock that I hold but it runs the brokers, not the insurance policies so I don't see a material impact to them compared to NHF.

NCK - the trend is strong with this as well but when the news about mortgage stress increasing within Australian families, I decided to pull the stock out and start cutting stocks that have a med-high exposure to the property sector.

Now some might ask me (or me talking to myself) why don't you just wait for the technical analysis to tell you when you get out aka. stock hitting the stop loss? My decision to cut it before then would be that the stock is no longer aligned to my views on the macro-side and that the funds from that stock can be used to find another opportunity in a different stock that has the right things going for them.

The opportunity cost of holding a stock until it hits my iSL is that I can't use those funds in another stock, which could run off while i'm waiting for my one to hit the iSL. Could go the other way as well, I mean, NHF and NCK could run off and couldve made me more money but I am happy to be conservative with my risk and allocate my stocks accordingly.

 

Technical stops must always be adhered to, so in the situation whereby fundamentals are improving but technicals is weakening, I will follow the T/A's stop loss. Should an opportunity present itself again later in the stock with the right T/A and F/A, then I can re-enter

 

Yeah I see your point in the above, in Stock A's basis, I would exit based on a change in fundamentals as a pre-emptive move, I can be wrong all the time using this but I am comfortable with missing out on further gains on the SP - should the fundamental changes not be as impactful as I thought it will be, I will consider re-entering the stock.

In Stock B basis, while the fundamentals are improving, the changes have already been incorporated into the share price. So when the I am already in the stock and I rode up the fundamental changes that were added into the SP before the announcement or change, should the SP hit my stop after a good change in the company, I'm happy to sell - hopefully with a gain.

My belief is that fundamental changes are always incorporated into the share price prior to the actual announcement, whether it is an immediate change or a gradual change over time. So T/A is a tool that can forecast changes in the fundamentals before it is released.

In saying that, there are cases whereby a stock might continue to rise even though the fundamental odds are against them and that is where I am a little bit more careful. I think investors can be emotional at times and continue to push up an up trending stock even though there is a fundamental disadvantage to the stock. In cases like this, I would sell the stock and look else where because the tailwinds aren't there for me anymore.

I also understand that while I have a lot of the basics down in my trading plan, my intend to combine F/A and T/A into a strategy will not be an easy task. I do not want to solely rely on technicals. I will continue to work on my strategy and try to have it more defined as I progress

 

Only have winners left in my portfolio has my losers have been kicked out Tech/a, still early days to call it
My realised losses are higher than my realised winnings but overall (including my open profits), I am up. Shall post up current performance in a tad!