So I executed a 30 minute paper trade in DDD last Friday. It's very much in contrast with my JDSU trade back in '00.
This time around, I am making baby steps toward reading and understanding charts. I found this nice arcing pattern with DDD around 3:00 on the trading day, and saw that the SMI had crossed over right at the red doji candle, so I decided to try a 30 min. short paper trade, exiting 30 minutes before the close. My feeling was that the momentum had run its course and the stock would pull back a little, before some unpredictable action at the close.
Timing was good, and scaled according to my new risk management settings, it turned out to be a nice little $100 dollar trade. Afterward, I felt that this was another indication that I may be able to turn my trading around. In principle I don't want to be day trading like this, but this was a good exercise anyway.
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I did some research and realized that I can get a huge tax advantage by moving my capital to another jurisdiction. I should have known this before, but I am just getting dialed in here folks! Step by step, brick by brick.
As of this week I am going to start implementing the above-mentioned mechanical monthly rotation strategy with my investment capital. Provided, the vendor that provides the triggers for the monthly rotation target advises using no stops, stating that their backtesting indicates that the use of stops degrades performance. Well, I think I am going to do my own backtesting with various levels of stops, but for the time being I am going to put in a very loose stop of 25%, to cover a Black Swan event.
I should reiterate that, thanks to the journal I kept during this last six months, I was able to go back and backtest looser stops on my trades. Most of my swing trades I had stops set at 10% or so. Backtesting a 25% stop on all those trades showed a huge performance increase. I should be grateful that I made this mistake, since it resulted in losses right off the bat, which kicked my ass, which got me here to futures.io (formerly BMT) for a mental checkup on my trading, instead of continuing to believe myself a young trading genius on the way to blowing up my account again.
The stocks in the rotation position trading strategy are all global index ETFs. The one for this month is EPP, which is Asia ex Japan. However,I am going to modify the vendor's advisory and for the remainder of November I am going with EWJ, as Nikkei is clearly trending now and kicking the ass of the other ETFs in my list: EDV - Vanguard Extended Duration Tsy (25+yr) , EEM - iShares MSCI Emerging Markets, EPP - iShares MSCI Pacific ex-Japan , FEZ - SPDR Euro STOXX 50, ILF - iShares S&P Latin America, MDY - S&P MidCap 400, SHY (cash) - Barclays Low Duration Treasury (2-yr), ZIV - VelocityShares Inverse VIX Medium-Term.
I base this judgement on the fact that the 20 has crossed over the 50 and the 5 has crossed over the 20 and there is good SMI slope on the daily. I'd say resistance is around 16000, the May 2013 peak. I plan to reassess on December 1, and rotate according to instructions (unless EWJ is still trending strongly). Japan is still dropping money out of helicopters, and there will be no talk of tapering until well into the New Year.
Now, as for my trading account, I have decided to lower the amount of trading capital to 3% of total capital. That will leave me just enough funds to have some skin in the game on my swing trades. I am totally convinced that skin in the game is crucial, it makes all the difference as to how much you learn.
In full awareness that I am breaking my rule against Ultras , I went ahead and bought 10 shares of 1568, the TOPIX 2X Bull, at 20,300 yen. T1 is 23,540 (the May 2013 peak) and stop is set at 19,000. I like this 2X ETF better than JPNL, the Direxion 3X Nikkei, because it has pretty good volume. Gameplan-wise, when the 5 crosses back over the 20, and if the SMI indicates an inflection point with a crossover somewhere above 40, I am going to exit this position.
Interestingly enough, the price I got 20,300 is lower than the low for the same day quoted by Reuters, at 20,760. I wonder what the reason for this discrepancy is.
I am starting to spot trading ideas. You heard about this one first right here, folks.
When I investigated the tax situation in the above post, I made a little discovery through Google -- Wall Street Journal article from September, 2013, which stated that Japanese capital gains taxes are being raised from 10% to 20% as of January 1, 2014.
"Please be careful since the supply and demand condition for stocks could deteriorate from the end of November to December," Makoto Hasegawa, director of equity sales at Daiwa Securities (major Japanese broker).
You obviously don't go short Nikkei at this very moment. Look at the charts! But there is plenty of time to have both a massive breakout and then take profits, even at the last minute. And if you just made 50% on your money in the past year, and are facing a massive tax hike, so there is no way you don't take profits.
So, the question is, when does the profit-taking start? And what are the probabilities of the various scenarios:
SCENARIO 1 From the quote above, it seems the smart money is expected to start selling off positions last week November. Which indicates to me that the conventional wisdom is that there will be an orderly retreat, rather than a sudden dash for the exits. But that was the opinion in September, when the market was mired in chop. Does that same logic hold for a market in full breakout? In which case, this breakout has only one more week to run. Is this the most likely?
SCENARIO 2 Looking at the calendar, the last day of Japanese trading should be Dec. 28, and the last week of the year is short anyway as there's a holiday, people are going abroad, cleaning up the accounts, etc. So, psychology-wise, perhaps people would want to ride this breakout then take a profit and get out of the market by the end of the week before Christmas. Then the selloff should start in earnest, at the latest, during the week starting Monday 16. That gives four weeks. Maybe less likely?
SCENARIO 3 Breakout gathers steam and last minute sell-off after Xmas. This is along the lines of a thesis from JC Parets, looking at the charts, which does not factor in this tax-increase reality. Still less likely?
SCENARIO 4 Massive amounts of money subject to taxation abroad overwhelms the loss of demand among Japanese investors and unchecked momentum powers right through into 2014. If you look back at the Nikkei's year-end performance, sometimes momentum will power it through the holidays, despite profit-taking, which always occurs. However, this year is a one-time unprecedented tax event, so I see this as less likely. Improbable but possible.
Last edited by suko; November 17th, 2013 at 11:18 PM.
Aha! There's a specific regulatory reason for heavy selling to be timed for late November:
"In Kinouchi's view, selling could be heavier this time, as late November coincides with when investors who bought stocks on margin just before the Nikkei peaked on May 23 need to close their position after a maximum allowed six-month period."
I decided to repatriate the bulk of my funds and and am thinking of setting up a limited liability partnership or a trust or something here for tax purposes. So, after the funds arrived, I contacted an acquaintance who's a lawyer to consult me on the best way to set this up. This is a huge step in a positive direction for me.
I was a little suprised that the bank called me up to tell me the funds had cleared. Then they decided to interrogate me about the funds, where was the money from, whose money was it, what was the purpose, etc. I guess this must be the money laundering rules. I think it's an invasion of my privacy. Then I recall that we have no privacy nowadays, that we should just get over it.
Anyway, going forward, this money is going to be safeguarded with strict risk management, and I am going to grow it by by disciplined position trading into something that I can pass on to my children.
I decided to bring the DW in to look over my shoulder on these trades, to provide some accountability. Gee, I hate that idea. I hate having her get all in my face with her questions. As an interrogator, she is a guy's worst nightmare.
So, out of FEAR and negativity. I was going to bail on my 1568 TOPIX trade, but she made me stay in the trade, and today it closed near break even, after being down for several days. I would really like to book this one as a win, even by ten dollars.
Later on today, after talking to the lawyer, I finally got up the nerve to call my CPA, another person who gives me the FEAR, about how to deal with the IRS. I have been trying to get up the nerve to have a sit down with the accountant and take the next step with my business to protect me from the IRS -- for years. So now I have an appointment to do some tax planning, and it looks like the CPA is going to push me to incorporate with a joint stock corporation, a K.K. My investment capital will be used to capitalize the corporation, and then will be invested under a corporate trust or something. It will be totally out of reach of my trading risk (and the IRS). The DW is going to be in charge of doing the monthly investment position rotation trades, and I am going to watch over her shoulder.
Actually, there is no entity on earth that gives me as much irrational FEAR as the IRS. Just seeing those initials raises my blood pressure. Even though my books are immaculately maintained by a CPA, and I am totally squeaky clean, still the idea of the taxman coming sets off my deepest money fears. I get into a state of panic just thinking about it. Like the time I first visited a cardiologist.
FEAR of being etherized on the table
A couple of years back I decided to lose weight and start taking care of my health. This led to a desire to do QS with the health indicators. This led one day to me finally getting up the nerve to go in for a cardio exam. This was another area of long-term irrational fears and procrastination. Worried that I am going to have either a heart attack or stroke at any moment. I would lay awake at night worrying about this, for years.
So I get the blood panels back and the results are mostly good. LDL is a little high so we take the testing to the next level, and the next and the next. Meanwhile I drill down into the literature and become dialed in on lipidology, endocrinology, etc. I begin to realize that LDL by itself doesn't mean squat, it's really more about the HDL/TG ratio. My ratio is 1.10.
Next I go in for a calcium scan. This is where they CAT scan your heart and arteries and give you a score on how much plaque is in there. (costs fifty dollars--something everybody over 40 should get done) Result? Zero. Basically, zero heart attack risk. So much for elevated LDL.
Next they do the carotid ultrasound, result nada. Then a cranial MRI, and again there is zero plaque discovered, the brain is clean, pretty much (except for some spots on the 187th slice from that epic acid trip of 1977). Perfectly normal cardiovascular system and a clean heart and brain. Wow!
Finally, I do the 23andyou $99 genetic testing, and I find out that actually I have significantly lower risk of cardiac disease than the general population.
OK, so now I have a health monitoring QS regime set-up and we are going to track all these health indicators. No more fear. It's all gone.
Ok, so what have I been suffering all this FEAR for, all these years? WTF have I been doing?
This journaling is doing the same thing for my money FEAR. Suddenly, after being stuck in procrastination and dread, I am making a breakout.