Friday, October 20, 2017

What the FAQs : Cut vs Trail



Disclaimer : The post you are about to read is my personal opinion and may not necessarily represent the truth of others. This is my truth and you are free to disagree with me. 




3. What is the difference between cutting losses and executing trail stops? How and when do you set these?

In a nutshell, trail stops are there to preserve your gains while cut points are there to protect your capital.

By now, you've probably noticed how I do things in tranches. Because executing your buys and sells in tranches lessens your impact on price swings.  

When cutting, I make sure I have two cut points: the first cut point is within the 2-3% range where I lighten up positions, and yes tax and commissions are included in this computation. The 2nd is my maximum cut point of -5% which means that if my position reaches or falls below this level, I cut ALL my positions regardless of the time of day - this rule applies to ALL my trade setups.


"Ayaw nyo hintayin yung closing sir? Baka tumaas pa! Why not sell on the bounce?"


What if it doesn't? Always expect the worst case scenario.



 "Pwede ba sa 20ma ilagay yung cut point?"

Never confuse a trail stop for a cut loss point. Here's an example of what can possibly happen if you do.



-5% vs -18%

 When my cut levels are hit, I make sure that by the end of the day, I have no positions left. Why? Because whenever you violate your rules, it damages your trading psyche. Imagine if you held on to the loss for the night or drag it on for days and months. You'd have a hard time consoling and convincing yourself if what you did was right. And trust me, this is going to mercilessly torment you.

"Should you have cut? Would it go higher? Maybe if I break my rules just this one time..."




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As for trailing stops, I usually have two sets. One for moving averages and another for Darvas - this is for me to maximize the potentials of both worlds. 

Assuming that my average entry price (AEP) is already far away from the current price, only then will I set my MA trail stop. I usually do this when my positions are at least 10% distance from my designated MA stop. For example:




Having an AEP equal to your MA stop is impractical. If you do this, I won't be surprised if you say "Pera na, naging bato pa!" 




So here are two alternatives that I frequently use in setting stops. The first is set just several flucs below previous closing price. So if MAC's previous closing was 19.2, then I'll set my stops at 19.1. The second is set on the nearest darvas support. Sometimes, much of your profits get eaten on this stop, but if you're banking on the possibility of a continuation since you're following the trend, you might just get more out of the trade. So carefully weigh your odds.



If you owned this port, what would you do?




In both scenarios of cutting and executing trail stops, whenever I'm loaded with volume and have a hard time selling intraday, I always sell my final tranche during the matching of prices EOD since that's where bulk of the buyers show up. If the last traded price was at 19.2, I'll sagasa sell 10-20 flucs down.   


As a final reminder,




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Related posts on Cutting and Setting Trails
(Please do post on the comments section the links I've missed)

http://zeefreaks.blogspot.com/2014/11/trading-101-art-of-cutting-losses.html
http://zeefreaks.blogspot.com/2012/10/apm-rise-of-borg.html





Wednesday, October 18, 2017

What the FAQs




Disclaimer : The post you are about to read is my personal opinion and may not necessarily represent the truth of others. I am a high risk trader that loves volatility. This is my truth and you are free to disagree with me. 


1. What are your top trading tools and indicators?

In ZFT, we only use Moving Averages (MAs), Darvas Box Method, Fibonacci and the RSI (Relative Strength Index). Many might be surprised how we only have these four in our arsenal. 

"So you telling me, yan lang? Wala bang secret indicator?"


"Well, Wala!"

I'm not saying other indicators aren't going to make you money. I'm saying mastery is key. A person who has an understanding and can use 10% potential of 10 different martial arts will never match up to a person who has a 100% mastery over one technique.


2. How do you buy and what time of the day is it best to buy stocks?

Whatever the setup or play, I always buy in tranches - 3 tranches to be exact : Before, During, and After breakout point. The volume for all three can be equal or different depending on your risk appetite. The tranches can be done in weeks, several days or all in one day.

Here are some related posts to this topic


This is a good risk management strategy as it can minimize potential losses in case of a fake-out. This would also maximize your time and lessen your opportunity loss when your current stock hasn't broken out yet with your initial tranche while other stocks are moving. Wouldn't it be such a shame if you were fully committed on a stock that isn't moving and suddenly a super play appears?


As for when is the best time to buy, that would depend on your risk appetite. 

If you are a risk-taker, have the time, then buy during the intraday breakout and cross your fingers the trade won't explode. If the breakout happened in the morning session, expect a lot of price fluctuation and get ready to cut loss when necessary. If the breakout happened in the afternoon, there's a good chance momentum will continue until market close. 

The safest to buy is during the matching or run-off at 3:15-3:20 PM since at that point, the possibility of a whipsaw is close to none. Only problem is if prices have already gone beyond your levels of comfort. If that happens, then just say NO to that trade.

I personally buy sets of my tranches between 2:30 - 3:20 PM since this is the time where prices would likely show their true intentions - whether they would like to break-out, break-down or stay boringly put.


3. What is the difference between cutting losses and executing trail stops? How and when do you set these?

In a nutshell, trail stops are there to preserve your gains while cut points are there to protect your capital.

If you owned this port, what would you do?




Read more by clicking on this link.




If you have Questions that aren't in this post (click here), feel free to post it on the comments.