Trading based off Fundamentals

[DSchenk]

In regards to funds, I agree. They won't be able to do 50% returns every month, not even close, because of 

a) they have way too much capital. You can't pull off any momentum trading strategies if you manage $100m+ funds

b) Restrictions set by the industry as mentioned by others above

c) Also they need to adhere to certain risk limiting factors. They can't just dump their $100m fund into one ticker one morning (even if it was possible from a volume perspective) to ride some upwards momentum, then get all out back in cash by 10am. The fund manager would get sacked by 12 noon if he would do that  

[DSchenk]

So let's break down what our options are here lads, ey

(How Billy Butcher would say it - who else watched the show?  )

 

100% Technical

Pros

- Immediate results, cause the entry happens when the move happens

- Risk can be reduced by not holding any positions over-night

Cons

- Difficult to consistently pull off, cause of lots of false/misleading/contrary signals

- Trades may hit stop before playing out

- Missing opportunities due to lack of speed on the entry (By the time you see the signal and get ready to enter/work out risk, target, entry size, the move has already happened and it's too late to enter)

- Missing opportunities due to not scanner not picking up the signal

- IG restricting a lot of tickers from trading which have high momentum potential

100% Fundamental

Pros

- Trades can be prepared well in advance, which makes risk management easier. Entry, Stop and Target can be defined long before the trade actually takes place

Cons

- Trades may take a very long time to play out

- Trades may first hit stop before actually playing out

- Trades may not play out at all, because the market doesn't follow the fundamentals

- IG restricting a lot of tickers from trading which have totally rubbish fundamentals, esp. on the short side

Fundamental, Technical Mix

Pros

- Trades can still be prepared well in advance, which makes risk management easier.

- Entry is timed to a technical indicator, which makes trades play out quicker than 100% fundamental, but still slower than 100% technical

Cons

 

- Trades may still take a long time to play out

- Trades may still first hit stop before actually playing out

- Trades may not play out at all, because the market doesn't follow the fundamentals and the technical signal was a false signal

- IG restricting a lot of tickers from trading which have totally rubbish fundamentals, esp on the short side

 

So looking at it like this, it makes me think the Fundamental, Technical Mix might be the way forward. Pretty much what Anton Kreil always says.

[DSchenk]

Let's take AO World for example. IG let's you go short there for now, so that barrier is removed.

Fundamentals:

- Not profitable

- Trading on 18 times book value

- Up 240% YTD

Fundamentals indicating this is heading downwards rather soon, we just don't know when yet  

Current Price: 300

Target Price: 150

All time high was when they floated in 2014: 413.5

 

With a £1000 account you can go short 12 per point.

So what would be the trade here now?

Option 1

Go short straight away with full size.

Stop 425 (above all time high)

Target 150 (that's the 200EMA on the daily)

Risk Reward: 1:1.4

Option 2

Wait for the first daily candle to make a new low vs the previous day and enter short then. Stop above the high of the current move (not all time high). Let's assume it would already do that on Monday, then the high of the current move would be 308

Stop 315

Target 150

Risk Reward: 1:22.6

But possibility of false break-out and then hitting stop afterwards.

 

Option 3

Go short straight away with 10% of full size, then scale in further either as it goes higher towards that all time high or once it breaks lower (new low on the daily like in Option 2 described)

Stop 425

Target 150

Risk Reward depending on how we can scale into this. Somewhere between 1:1.4 and 1:10

 

So, how would you play this?

[DSchenk]

[DSchenk]

Another example: BATM Advanced Communications

Fundamentals:

PE Ratio: 162

Book-to-Market: 5x

Up 213% YTD

Fundamentals indicate this is about to go down  

Technicals already showing signs of a downwards pattern, making lower lows and lower highs

 

Current Price: 116

High of the current move: 150.75

High of the latest push-up: 138.5

Target Price: 85 (former low, around 200EMA on the daily)

 

Trade

Go short on break of current flag it is forming

Size: 35 (£1000 margin)

Stop: 143 (above latest high)

Target: 85

Risk:Reward: 1:1

 

What do you think?

 

[DSchenk]

The good thing is, with trades like this you only really need 1 to play out over 2 months and you already got your 50% account growth avg per month.

Problem is, how to protect yourself from losers, but in theory I would move my stop-loss to break-even as soon as it trades outside my entry range.

[DSchenk]

And last one for today: Fresnillo

PE: 74

Book-to-Market: 4x

Up 100% YTD

 

High of the current Move: 1379

Current Price: 1343

Target Price: 1000

 

Trade

Entry on the break of the Flag which is currently building

Stop: 1407 (above the high of the current move)

Target: 1010

Risk-Reward: 1:4

 

What do you think? 

 

 

 

 

[dmedin]

5 hours ago, DSchenk said:

Pretty much what Anton Kreil always says

Do what I say, not what I do

Trading off fundamentals is a non-starter.  That only works for buy-and-hold, when you buy shares outright.  It doesn't work for trading or even for short-selling.

And that guy is a slimy tw@t

[dmedin]

Tom and Andrew are good at trading in the minute time frame, maybe they can help us by illustrating?

[THT]

6 minutes ago, dmedin said:

rading off fundamentals is a non-starter.  That only works for buy-and-hold, when you buy shares outright.  It doesn't work for trading or even for short-selling.

I agree with dmedin here - as soon as you start trading you are at the behest of the laws of probability and probabilistic returns - which is all laid out in a £20 book by Dr Van Tharp 

and the only way to beat buy and hold is by being able to TIME the market, so you get out when things are about to turn bad and then back in again once over and the uptrend restarts (which can be done - my Time cycle thread will prove that going forward) 

 

[jlz]

In my opinion you can take fundamentals to make a starting point, but that is really it, there is no more than that. After that starting point everything is down to risk management. In some of your examples you mentioned sentences like :

- Company is not profitable

- "About to go down"

Those would be clear places on where to start. You can justify yourself with some indicators as well just for the sake of excusing an entry point, but I would never enter full size on any trade, because that would mean that you are 100% correct on your analysis, and that is never the case. You simply don't have enough information to be correct at that percentage.

I always create chunks of the size that I am planning to risk and I keep sending portions of that size every time I am wrong. The result is a segregated entry into multiple levels in the way that if I was right the first time I let it run and if I wasn't I have more funds to try again. In one of your example you mentioned that you could use 12 points in a trade. I would divide the usual market range, simple highs and lows per day, by that number (12) and consider 1 as the current market level. I could try again 11 more times at multiple levels in case I am wrong in the first place.

I separate those portions into distances that divide the usual volatility of the market into the numbers of chunks that I am able to send. This could be very familiar to Fibonacci grid traders, and at all times I never trade anything that would make the account pass 30% of its equity. 

For me, creating some kind of a multi entry position is what made it to work, up to a point that I was able to remove indicators and ignore fundamentals. Since I am not able to prove myself right anytime in my analysis I am just not using anything else than pure risk management. 

 

[dmedin]

5 hours ago, jlz said:

In my opinion you can take fundamentals to make a starting point, but that is really it, there is no more than that. After that starting point everything is down to risk management. In some of your examples you mentioned sentences like :

- Company is not profitable

- "About to go down"

Those would be clear places on where to start. You can justify yourself with some indicators as well just for the sake of excusing an entry point, but I would never enter full size on any trade, because that would mean that you are 100% correct on your analysis, and that is never the case. You simply don't have enough information to be correct at that percentage.

I always create chunks of the size that I am planning to risk and I keep sending portions of that size every time I am wrong. The result is a segregated entry into multiple levels in the way that if I was right the first time I let it run and if I wasn't I have more funds to try again. In one of your example you mentioned that you could use 12 points in a trade. I would divide the usual market range, simple highs and lows per day, by that number (12) and consider 1 as the current market level. I could try again 11 more times at multiple levels in case I am wrong in the first place.

I separate those portions into distances that divide the usual volatility of the market into the numbers of chunks that I am able to send. This could be very familiar to Fibonacci grid traders, and at all times I never trade anything that would make the account pass 30% of its equity. 

For me, creating some kind of a multi entry position is what made it to work, up to a point that I was able to remove indicators and ignore fundamentals. Since I am not able to prove myself right anytime in my analysis I am just not using anything else than pure risk management. 

 

 

 

So you trade off fundamentals do you?

I thought you programmed algorithms?

Another bullsh!tter who says nothing in a lot of words.  There are lot of them in the trading world.

[dmedin]

6 hours ago, dmedin said:

Tom and Andrew are good at trading in the minute time frame, maybe they can help us by illustrating?

 

And how does Tom respond?  He's been bullsh!tting on an internet forum for FOUR YEARS and never once showed any trades.

What a moronic, mean-spirited, horrible old man

[dmedin]

11 hours ago, DSchenk said:

 

 

What do you think? 

 

 

 

 

 

Okay I'll comment since our money-making experts can't be bothered.

You've got as reasonable a chance as any other.  It is completely random whether your stop gets taken out or not.  It's a complete gamble, but it's not an unreasonable gamble.  Tomorrow could gap up beyond your stop and then drop straight below it.

Hence, it is unpredictable and not a reliable way to make money going forward.

I have a strong suspicion that anyone who tells you otherwise and starts talking about having a trading plan or backtesting an algorithm or scaling in and out is just telling you tired old bullsh!t that we've all heard a million times before

[jlz]

56 minutes ago, dmedin said:

 

 

So you trade off fundamentals do you?

I thought you programmed algorithms?

Another bullsh!tter who says nothing in a lot of words.  There are lot of them in the trading world.

Read the post again, it is easy to understand

[dmedin]

36 minutes ago, jlz said:

Read the post again, it is easy to understand

 

I only needed to skim it.  It's the usual boring predictable blindingly obvious sh!te.

[dmedin]

Some good trading tips here.

 

[DSchenk]

21 hours ago, jlz said:

I always create chunks of the size that I am planning to risk and I keep sending portions of that size every time I am wrong. The result is a segregated entry into multiple levels in the way that if I was right the first time I let it run and if I wasn't I have more funds to try again. In one of your example you mentioned that you could use 12 points in a trade. I would divide the usual market range, simple highs and lows per day, by that number (12) and consider 1 as the current market level. I could try again 11 more times at multiple levels in case I am wrong in the first place.

I separate those portions into distances that divide the usual volatility of the market into the numbers of chunks that I am able to send. This could be very familiar to Fibonacci grid traders, and at all times I never trade anything that would make the account pass 30% of its equity. 

For me, creating some kind of a multi entry position is what made it to work, up to a point that I was able to remove indicators and ignore fundamentals. Since I am not able to prove myself right anytime in my analysis I am just not using anything else than pure risk management. 

Yep, something similar worked for me earlier this year in May/June.

I was entering only 25% of my full position first, then added another 25% on the next signal and so on until being fully invested. What I also did was, every time I added another 25%, I moved the stop closer to my entry as well as the profit target.

So for example first entry at 400, stop at 600, target at 200. (Short)
Then second entry at e.g. 450, reducing stop to 500, target to 300.
Third entry at 400 (when it is going down again), stop now at 466, target at 333.
Last entry at let's say again 400, stop now at 450, target at 350 and I ride it.
That way my £ risk/reward was always the same, I just moved it around depending on how much I scale in.

It worked very well until it didn't and I lost half my account within 3 days in early July. Essentially, I had 3 open positions and all went simultaneously against me and took me out.
Since I was searching for a slightly adapted system, that is less prone to taking half my account in a short period of time. 

[DSchenk]

Anyway, I think my decision is made.

1) Going back to UK market. Two reasons:

a) More familiar with the market as I'm also an investor in the UK, so I roughly follow what's going on with the general market sentiment

b) Daylight saving time is coming soon, meaning US market open is here where I live at 10.30pm at night (back one hour from 9.30pm). While trading from 9.30-10.30pm is reasonable, trading from 10.30-11.30pm is quite a stretch. While UK market open is around 3pm/4pm (with DST) which seems a better time

2) Identifying tickers with the following fundamentals

- Either unprofitable or PE ratio > 20

- Book-to-market ratio well over at least 2

- Price up at least 100% in the past 12 months

There won't be many tickers at a given time available which meet that criteria plus are eligible to trade with IG. Looking at a stock screener I see 36 tickers which are 100%+ up in the past 12 months right now on LSE. Probably about 5 are tradeable with IG.

3) Technical Entry

- Established high of the current move

- Trading on hourly and daily chart (opposed to 1min and 5min what I'm doing right now)

- Entry on red daily candle making a new low vs  previous day or bear flag or flat bottom break-out

4) Technical Exit

- Stop-Loss at high of the current move + Spread

- Taking profits at 1:1 risk/reward ratio

- Moving stop-loss to BE when 25% of target price is reached

I just exercised this through for BATM Advanced Communications.
This one would've met the fundamental criteria since May 2020 and I count 7 trades which met the technical criteria since.
The result (starting with a £1000 account and assuming I would've only traded this, which obviously wouldn't be correct as there were other similar opportunities in the market since then):
£2048.30 in profits over 34 days invested in the market (out of 109 days in that timeframe, that's 31% in the market)

3x would've been out at BE, 4x in profit.

Marked the 7 trades in the chart below.

 

What do you think?

 

Edited October 18, 2020 by DSchenk

[dmedin]

Okay Dschenk, keep on losing money.  There's a good idiot