1. The account is in the black. The early success with the AMLN trade took our account to 16K very early, but we quickly lost that advantage with a big loss with AMZN right after earnings. The account eventually declined below the original amount with a series of poor bearish trades, in a rallying market. At least we are at the break even line, but with a lot of experience under our belt and ready to take on more challenges.
2. We have learned a few items to avoid.
a. The AMLN trade was a very lucky trade, but attempts to reenter it resulted in losses. It seems to me that a better approach is to transform a winning trade into a PCCRC, as a way to take profits even if the stock is in strong rally mode. Pigs get slaughtered, they would say, so why not just convert the trade.
b. Avoid earnings. IF one fills strongly that earnings are going to be good, transforming a CRC into a PCRC is appropriate. IF I had done this with my AMZN trade, I would have gain, and not lost money.
c. Be more selective. I have the feeling that I got carried away in my trading. It suddenly seemed that all candidates were great opportunities, and that I should not let get away. This is part of the discipline issue. AMLN was a great choice because of the huge market that is diabetes. This is a long-term catalyst, but there are always bumps in the road. Selecting carefully is half the battle.
3. The Sarmiento system has identified good winners, so we should not discard it. It represents a good trigger that brings winners to our attention. The fibonacci stop-loss is going to eliminate a few trades, that is the fact of life that we must accept. However, if one believes strongly in the catalyst, there will be other opportunities to enter. Again, the careful selection of the catalyst is the "art" portion of the system. Even experience may be insuficient.
4. Many of my losing trades were PRC's, when the market reversed after a correction. Calling the top of the market or defining the overall trend is a difficult thing. So I attempted to correct for that with a number of bearish trades. The bullish trades did not compensate for my loss. I have had relatively good performance as of late, by sticking to the bullish trades, despite the recent weakness in the market. Again, the selection of proper catalysts should be the driving force, rather than the determination to keep a balanced portfolio. Instead, we are keeping sufficient neutrality by a) Transforming our winning trades into PCCRC after strong rallies, b) keeping the stop loss fibonacci ratios.
My plan:
1. Continue to look for both bullish and bearish trades, but select them based on catalyst, regardless of the balance of bullish vs. bearish trades in the account.
2. Transform big winners into PCCRC's as a way to select or protect profits.
3. Select catalysts carefully. We can wait for the strong ones, even if we have good amoung of cash.
4. Keep at least 30% of our portfolio in cash, so we can pay for the completion of the PCCRC.
5. Use the Elliott wave analysis technique to pick good candidates.
- IF at first you don't suceed, try and try again.
I said that the PCCRC may be a less traumatic experience, when selected properly. However, it is not that simple to implement. For a small account like this one, that we want to grow, the risk that comes from directional trades may be worth it.
Here is the account when originally place in service on Aug. 15, 2005 for the Challenge. There were no trades in it.
Today, the account is practically at the break even point:
Take note of the trades I have currently in the account. Below is the stop-loss on each one, except for IGT because that trade is a PCCRC. As you would notice, I updated the stop-loss on 3 trades today. You should do that in your account regularly.
9 comments:
Juan,
Interesting how you propose to make changes and a further exercise in trading system development.
Juan,
I like your thoughts on this. It has been an intriguing experience for me and as a trader has been a learning experience to identify my emotions and how I handle it.
"I won't live long enough to make all mistakes by myself"
I have spent the past few months reading Van Tharp books on Psychology and few others.
Only problem with PRC is that you have to watch the trade as opposed to PCCRC you can put on a trade and walk away. In the long run it is not healthy to watch the trade all the time.
My ramblings...
I very much appreciate the imput guys.
You see now how I see it. the PCCRC is less psychologically draining. It is perfect for me, because I don't have a 9-5 job (I have my own business at home), I have 2 large accounts, and I want to be able to go traveling for weeks at a time to far away places with no access to computers.
However, a 10K account is not very suitable for that. If you have a day job, and you don't care so much how long it takes to grow that account, and you are willing to take more risks, the the CRC and PRC's should be your thing. I think that the Sarmiento System is as good as I can make it (please let me know if you have other ideas we should try). But the risk is greater. I agree that Puts are harder to handle because reversals occur in unpredictable ways.
Please continue to make your observations, they are helpful to me, too.
Juan,
RE: "the PCCRC is less psychologically draining."
If we agree on that, then that surely is the way forward. Trade what one is more comfortable at.
The PCCRC, whether entering from a CRC or because of rising volatility, or from selling the higher vega in the front month compared to the back month, etc.
Basically it is a number crunching exercise, where the more one does and learns, the more one can be certain of an overall gain.
Fortitude: whether entering from a CRC
Juan: I have a SLAB PCCRC that I entered from a CRC. It has worked very well. You'd start with a CRC, and continue the trade during corrections by adding a PCR to complete the PCCRC.
Fortitude: because of rising volatility
Juan: You'd select the high fliers, that could have a spike in volatility or in Vega. Select them by their volatility profile.
Fortitude: from selling the higher vega in the front month compared to the back month
Juan: You start with a condor on stocks that JUMP. then eventually, as the volatility settles down you buy a long-term straddle.
The secrete is into being very aware of volatility and the factors that trigger its changes, like proximity to earnings, or unforseen news.
Still, to make a small account grow, this technique is commission intensive. The CRC's nad PRC's are more appropriate, IMHO, for such accounts. PLUS, they require less knowledge about greeks and such.
Juan,
I posted something yesterday but there was a fault on the blogger.
My comment was this regarding "this technique is commission intensive"
On IB it is $6 to enter one combination and a further $6 to exit the combination, so you have to make $12 to break even on one trade.
Now I know others are with other brokers, but that is the commission rate with IB.
A few weeks ago you said that your challenge had not been successful, but PCCRCs had worked well and that we should focus on that. I was sceptical about the change.
I have done two PCCRCs so far and both appear to be trading well.
LRCX has traded so far for a small profit. SBUX is going in the right direction as well. I didn't shave as much as I should have, as I forced the trade. But then I was mindful of PALM **Smiles**
Bearing in mind that we are not at the monitors all the time, this more relaxed type of trading would appear to me to have more potential in the long run.
What about another PCCRC trade search.... **Smiles**
fortitude:
I am glad to hear that you like it. Let me know how the commissions factor in your positions.
Why don't you find us some candidates? I'd be glad to comment on positions you may find.
BTW, I just entered a CRC on OATS. Excellent guidance looking forward. A small company today, may grow big. I will post RET analysis (Target is the low 20's).
Juan,
RE: "Why don't you find us some candidates? I'd be glad to comment on positions you may find."
I still have Platinum off. I am trying to make time to review what you have already done. I have made a hard copy of most of your Blogs. I have two files of paper.
My next task is to snapshot all your videos on PCCRCs.
Then I will review them with the Elliotician charts. All this will take time. What you have done is provide some case studies.
The next stage is to do back tests. These can perhaps be done on;
[1] Specific Stocks, that perhaps are good PCCRC money generators. Here we could apply this to Stocks that do well around earnings. [PCCRC Earnings Stocks]
[2] Elliottician PCCRCs which have a particular Elliott wave count which may generate the appropriate PCCRC trade benefits.
[3] Your high fliers using the filtering process you have given as a bench mark. [High Flier PCCRCs].
One further question Juan for today at least. What is the minimum time period left in the front month would you consider still entering the trade?
I know you would not sell the front month one week before expiration. Probably not for two weeks before expiration. What about three weeks?
Juan,
RE: "I am glad to hear that you like it. Let me know how the commissions factor in your positions."
If I define one PCCRC combination, I have bought two Calls in the back month and sold one Call in the front month, as well as buying two Puts in the back month and selling one Put in the front month.
This means commissions of $6 on IB to enter the whole position at once or as a Put and Call Calendar then an additional Put and Call in the back month at another point. To exit it is $6. To roll over one combination at expiration costs $4.
IB is straight forward once you have practised on the virtual trader and Demo. The only snag is if you are assigned, you have less time to sort out the positions.....
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