Вы находитесь на странице: 1из 9

February 5, 2012

Dan Shy



One of the true strengths of my three sisters portfolio management system,

A New 'Tack' for Forex Methodology Creation

is the fact that the strongest performing 'sister' accounts distribute their profits with the weakest performing 'sister' accounts. In this way, the entire portfolio can grow, and grow according to different risk profiles. The special reference issue by which I explained this system 1 was in actuality written some years ago. I mention this, in order to say that there are aspects of this system that I have 'tweeked' somewhat since that time. What aspects? Well, in that issue I stated that I tend to review and redistribute profits twice a year. And I do, on July 1st, and December 24th. Nothing has changed about that over the years. However, in addition to what I state in that issue regarding the fact that I review and redistribute twice a year, I have also made a habit of establishing 'goals' to my trading profits. Once I reach a preset 'goal' then I will re-distribute a portion of the profits among the 'three sisters'. This can be done many times throughout the year. Not only on July 1 st, and December 24th. Subscribers to my old newsletter Airelon's Market Tactics saw this. I would set a goal for the trading account in order to redistribute profits. I would then reach that goal, redistribute a small portion of the profits among the different accounts, and then set a new goal. We've enjoyed some nice trading profits thus far in the year. The trading accounts, overall, are up 5.851% since January 1 st, 2012. Not bad for one months work. The stock trading and commodity futures trading balance thus now stands at $9,973.57. So allow me to say that the next goal I have for the A.M.B. trading account, is $10,700.00. Thus, when the trading account for A.M.B. reaches $10,700.00, we will redistribute a small portion of profits

Equities and Dividend Investing Outlook

Trading Outlook

Summary of A.M.B. Model Portfolio

1 Exact Link - http://www.scribd.com/doc/73238645/Aileron-Market-Balance-Special-Reference-Issue-Portfolio-Management

February 5, 2012
(probably around $300.00) from that account to the other 'sister' accounts. I will then set a new goal, and we will continue from there. short. Tails, you go long. Then keep the amount at risk in terms of pips, the same for each and every trade. 1 risk, to 1.5 reward. Every single trade. Think about that. In terms of probability, your accuracy rate should be around 50% or so. With a fixed 1 risk, to 1.5 reward ratio? Simple mathematics tells us that you should have a positive expectancy and yield. One of these individuals runs his own blog. Pulling Ourselves up Financially3. And he recently published the results4 of his own coin flip experiment. The results were interesting and noteworthy, to say the least. So am I looking to flip a coin to go long or short, and that be my new Forex methodology? Not really. In reality, and over long periods of time there are random deviations from the mean 50%, and during those deviations, there would be drawdown that could slow down progress. But this experiment and the earlier conversation did get me thinking long and hard about how I have approached creating a new Forex methodology for myself. My problem, my over-riding problem. Is my accuracy. I have noticed that my average intra-trade drawdown, trade after trade, is beginning to decrease, as well as my average loss. That's well and good. But my accuracy at this point is abysmall. Why? And it suddenly hit me. My problem, really, is what my problem has always been with Forex. I've talked about it on podcasts, and in audio updates, but I haven't stopped to think about what my actual problem is, in terms of trading principles. Trade management. I've talked about how Forex markets are just so different from Commodity Futures. I've talked about the zing and the zip of commodities versus the steady plod of Forex. I've wrestled with how to adjust.
3 Exact Link - http://pullingourselvesup.blogspot.com/ 4 Exact Link http://pullingourselvesup.blogspot.com/2012/01/resultsof-coin-flip-forex-demo-account.html

A New 'Tack' for Forex Methodology Creation

As I mentioned in this weeks Week in Review podcast2, as well as last weeks newsletter I am currently reviewing a new approach to creating a Forex methodology. An approach that will not be so dependent on the trade management skills that I have developed for the Commodity Futures trading arena. So my question is what does the following picture have to do with this new approach?

No, we'll not be looking at trading the Mexican Peso, or minor pairs. The answer? A coin toss. Allow me to explain. There are a few folks I have come to know around the internet that share a common interest with investing and trading. And we talk on a variety of subjects. Economics. General Theory. Dividend Investing. Specific plays. Commodities. Specific companies. And yes, Forex trading. The conversation and idea arose what if one were to apply a strict money management risk reward ratio on each and every trade, and simply tossed a coin to determine the direction of the trade? Heads, you go
2 Exact Link http://airelon.podbean.com/2012/02/04/week-in-reviewtrading-part-time-and-focus-of-the-equities-rally/

February 5, 2012
But what is the base principle there? Trade management. And really, if you stop to think about it, it's quite silly to sit and complain about how different Forex behavior is from Commodity futures, and then continue, trade after trade, to try to manage them the same way. I do not even have the same tools available to me in Forex. I have none of those 'aids' that I do in Commodity Futures, which I use to help me manage the trade. With commodity futures trading, if time and sales begins to slow down, and there are no large buy orders? That tells me something if I'm in the midst of a rally. So I'm trying to 'groom' a stop, without aids that I usually have. On top of that, when I look over my Forex trades, I note that there are just too much differing amounts at risk, compared with my rewards. So I'm going to try to take a few lessons from the 'random experiment' conversation. First of all, I will no longer attempt to 'manage' the trade as I do in Commodity Futures. When I enter a Forex trade, I will set my profit at 1.5 times my stop/loss order. I will keep the pip at risk, and the pip of profit target the same, trade after trade. And then walk away. Even with a accuracy rate of 40%, I should still be above break even with such strict risk / reward ratio. Set my profit (1.5), set my stop (1). Keep those sizes the same trade after trade. Walk away. Of course, this is not the extent of my new approach to a Forex methodology. I began to think how do I try to introduce an 'edge' or 'bias' into such a strict approach? After a lot of thought, I came up with a little experiment I'm going to run for creating my methodology. What is this 'experiment'? I will look at a seasonal play in Forex. I will look at the overall trend at work in that market. Such factors will work as my 'edge' or bias. But at the same time, I want to test and make sure that over time, this is a viable 'edge'. How can I do that? How can the bias be 'tested'? I'm glad you asked. As an example, let's look at the GBP/USD. Seasonally, the GBP/USD moves down from February 1st, to March 1st, with a brief rally in between. So, what I will do, is run a dual experiment. Experiment One, Part A: I will only take sell signals on the GBP/USD (since that is the edge being worked with) from a little tool I have developed (my own S Swing point) for timing seasonal entrances. One that tool lets me know that I may be looking at a 'sell signal', I will: Begin this experiments with a position size of 70 units for the Micro account. When the position is initiated, I will risk 42.4 pips. When the position is initiated, I will automatically set my profit target 63.6 pips from my entrance (a 1 to 1.5 risk to reward ratio) When a position goes in my favor by 50.8 pips (or 80% of the way to my profit target), I will move my stop / loss order to break even. This will prohibit me from from getting whipsawed to a large loss, when the trade was actually moving in my direction. In theory, this should also improve my risk / reward ratio. With the exception of the above rule, I will not attempt to manage the trade, once it has begun. It will either be a win, or a loss. That's it. This is in order to make sure that the risk / reward nature of my profit targets works to my advantage. I will not attempt a seasonal move more than 3 times, if each attempt results in a loss (I am increasing this by one) I can begin trading Sunday night / Monday morning at 1:30 am Mexico Central Time I end trading Friday around 3:30 pm Mexico Central Time In an attempt to accentuate the risk / reward theory behind this approach, I will be using

February 5, 2012
my own Kellys S5 money management strategy, and this will affect the number of units I place in the trade. So how do we test the reliability of the bias of this methodology? Experiment One, Part B: At the same moment that a trade is initiated within this experiment? I will flip a coin. Heads, I go short. Tails, I go long. I will do this at the exact same time that the other trade is initiated. I will then use all of the same guiding rules for the 'coin flip' trade. The risk will be the same (42.4 pips), the reward will be the same (63.6 pips). I will not attempt to 'manage' the trade. The only difference from part B in this experiment, and part A? Is my determination of direction. In part A, I will be using a bias, or an edge of seasonality and trend. In part B, it will be the result of a completely random coin toss. I will also use Kellys S for the Coin Flip experiment. I will track the progress of these simultaneous trades. If the seasonal bias or 'edge' that I will be using is valid? It should produce a better result in terms of accuracy rate and yield than the random coin toss. Well, that's the experiment, as it stands at this point. The theory seems sound enough. Now let's test it out and look at the results. As always, I will keep you informed as to this experiments results.

Dividend Investing Outlook

We just continue to march higher and higher on the equities market. To reiterate what I mentioned in the Week in Review podcast6, I believe that the rally in the U.S. Stock market is a combination of very low interest rates, combined with improving economic fundamentals. As I mentioned a few weeks ago at the present time, the percentile cash of the dividend investing account is such that I do not wish to decrease it by making another purchase. Therefore, my real goal at this time is to increase the percentile cash of the dividend investing account. Once the percentile cash of the entire account is closer to 80%, then I will look at making another purchase. Some folks save cash to put towards investing efforts. Some investors use the yields they receive from cash instruments such as CD's to raise more capital to put towards new investments. But I'm also a trader. So that is how I would be attempting to raise more capital for this account. For this newsletter, I'll be working at reaching the $10,700.00 goal that I mentioned earlier, so that I can 'redistribute' those profits to the investing 'sister' account. Thus I will have a higher percentage cash so that I can then make a new purchase, or perhaps average down on the stocks that A.M.B. already possesses if that opportunity presents itself. But first we have to get to the $10,700.00. Besides, we've rallied like crazy. I'm wouldn't really be looking to buy a whole lot of stocks at the present time. The only stock at the present levels that I think would be worth a purchase, would be Abbott Laboratories (ABT). If I can raise the percentile cash for the dividend investing 'sister' account, this is a stock I would love to have in the portfolio.

5 Exact Link - http://www.youtube.com/watch?v=zmNv9Cqu_Q&feature=BFa&list=PLD41865A5A41F4283&lf

6 Exact Link - http://airelon.podbean.com/2012/02/04/week-inreview-trading-part-time-and-focus-of-the-equities-rally/

February 5, 2012

Trading Outlook:
Note: By way of reminder, since the Model Portfolio has only $9,973.57 in the Commodity Futures and Stock Trading portion of the portfolio, there will only be 'brief day trades' at this stage of the game for Commodity Futures trading in order to escape the risk of over-leveraged gap opens in the commodity futures markets. This is an attempt to demonstrate how account size relates to trading style. As I mention in my methodology series7, as the 'trading sister' reaches $30,000 I will graduate the account into 'swing-trading' and demonstrate how I would go about doing this. Stock trades may last more than one day. The Forex account has $66.63 and is considered a micro-forex account for the purposes of the model portfolio.

year, 15 year and 30 year averages to diverge at this time. Therefore, we have no clear set 'edge'. Therefore, at the present time I will stand aside the Sugar market. Commodity Market #2 March Soybeans (SH12 or /ZSH2 in the ThinkorSwim Platform): As with Sugar, the Long Soybeans move last week was an incredibly profitable one. March Soybeans One Hour Chart

Commodity Futures Trading Thoughts

Commodity Market #1 March Sugar (SBH12 or /SBH2 in the ThinkorSwim Platform): We had a nice down move last week in March Sugar, that could have been exploited any number of ways March Sugar One Hour Chart

So as with Sugar, is it time to leave Soybeans alone? No. We have lost our 'edge' in the Sugar market. Not so in the Soybeans market. This seasonal move usually lasts at least until the end of March. It could be the start of a larger trend. So what now? Well, I stated last week that I was awaiting for a rally. And as you can see, this rally came on the last trading day, up to the longer period moving averages. Does this mean that I will now wait for congestion, and short a break out of that congestion. No. Unfortunately, this rally came a little too late. You see, it's typical for all seasonal patterns from the 5
7 Exact Link http://nononsensetrading.com/methodology.html

Therefore, I will wait for a pullback on the one hour chart, congestion, and then a break up higher out of such congestion. This is especially so considering the fact that we are hitting some pretty key resistance on the Daily chart, and the small speculators are only now getting long. So I would not be surprised to see a bump away from that resistance ceiling, the small speculators get shaken out, and then we resume the trend. As always, I'll be watching carefully, and keeping you informed as to my thoughts as they continue to evolve.

February 5, 2012
Commodity Market #3 March Soybean Oil (BO12 or /ZLH2 in the ThinkorSwim Platform): As with Soybeans, this is another market to take advantage of, with the exact same characteristics. I would wait for a pullback on the hourly chart, look for congestion, and then look to buy breaks to the upside. Of course, I would not take both a long soybean oil and long soybeans trade at the same time. The advantage of the Soybean Oil market, is the contract is a little smaller for smaller sized accounts, so the moves are not so extreme as the Soybean market. March Copper One Hour Chart

Commodity Market #4 March Copper (/HGH2 or perhaps FCX Call Options in the day session): The fundamental data that I follow has me looking at this market for a long. It is important to keep in mind, that this is a big contract. Both in terms of the size of the contract, as well as the size of the moves that Copper delivers. Personally, I feel about the Copper market, as I do the Crude Oil market. Unless a trader has about $90,000.00 in his account, he should not be attempting to trade the outright futures contract. But this market does have a 'cheat' that is available to it. Freeport McMoran Copper & Gold (FCX). Although this is a stock, I am listing it under the commodity futures trading section, since FCX follows Copper so closely. So let's get to the price action. Copper has already had a nice rally.

So, as with Soybeans, I would wait for Copper (That is, /HGH2) to pull back on the one hour chart, congest, and then look to buy the FCX August Calls. I would look for an option that is at least 'two deep in the money'. For example, as of the Close Friday, FCX closed at $46.48. When you look at the Call Options for the month of August, you see two options that are already 'in the money' for FCX. The August 45, and August 46 Call options. These call options are underneath or in the money (ITM) right now for FCX. Naturally, if Copper pulls back, then we will have a different prince for FCX. But if such a pullback comes, then I would be looking at FCX, and then look for the call option with the best volume (or liquidity) in the August options, that is at least two deep ITM. Commodity Market #5 March Corn (CH12 or /ZCH2 on the ThinkorSwim Platform): As with Corn, typically, we begin a long strong 'up' move in Corn at this time of year. March Corn One Hour Chart

February 5, 2012
It seems to be the theme this week. pullback (or rally) before entering. The same is true of March Corn. At this point, I'm wondering if we'll have a large pullback on the daily chart, or the one hour chart. It is for this reason that I will be watching the overnight moves, as well as the open in this market closely come Monday morning. As always, I will keep you updated as to my thoughts. Wait for a methodology standards. I did not close the experimental trade from Friday afternoon. For the sake of this experiment, I am still short the GBP/USD from 1.5811(6) for both the coin toss (it came up heads) as well as the seasonal edge I would be looking to massage. The stop loss is set at 1.5854(0) and the profit stop is set at 1.5748(0). I will lock in profits to break even if the market moves to 1.5760(8).

Forex Market Methodology Creation

I have already mentioned the experiment that I have begun to look at testing. I have already begun this experiment, and will share the results to date. As you can note, I began the 'coin toss' test after I began part (A) of the experiment. However, after I have a large enough sample size, one trade will not really matter in terms of benchmarking Results of Experiment to Date: S Swing Script Experiment Total Trades: 2 Total Loss: 2 Pip Loss: 85.4 Total Win: 0 Pip Win: 0 Accuracy Rate: 0% Risk Reward: 1 risk to 0 reward Total Experiment Results To Date: - $0.6853 Coin Toss Benchmarking Total Trades: 1 Total Loss: 1 Pip Loss: 47.6 Total Win: 0 Pip Win: 0 Accuracy Rate: 0% Risk Reward: 1 risk to 0 reward Total Experiment Results to Date: - $0.2982 Forex Market #1 GBP/USD: For part A of the experiment, I would be looking at this market for short biases to exploit. At the present time, I am working a little outside my

Summary of the A.M.B. Model Portfolio

Note: In the beginning of this hypothetical portfolio, the share purchases of the Dividend Investing 'Sister' will be extremely small. It is my intent to demonstrate how to grow the size of these positions from 2 shares, to 300 shares using the three sisters portfolio management style. It is also understood that readers of this newsletter have a firm understanding of my 'three sisters' portfolio management system (See the Special Reference issue of Aileron Market Balance 8 for an explanation of this system).

S&P 500 Year to Date: +6.835 % AMB Total Portfolio Return Year to Date: + 3.629 % Investing Account Balance: $4,066.00 Return / Yield up +0.2255 % Year to date 4.032263 shares of PEP (DRIP on Yield is 3.12 % )
4 shares at $63.31 on 11/15/2011 w/ $5.01 Commissions 0.032263 shares DRIP at $66.95 on 1/3/2012

4 shares of PG (DRIP on Yield is 3.35 % )

4 shares at $61.94 on 11/28/2011 w/ $5.01 Commissions

4 shares of JNJ (DRIP on Yield is 3.47 % )

4 shares at $62.31 on 11/28/2011 w/ $5.01 Commissions

8 shares of WM (DRIP on Yield is 4.01 % )

8 shares at $32.39 on 12/22/2011 w/ $5.01 Commissions

Cash: $3,000.61 ( 73.84 % )

Percentages of that Cash - $2,680.61 of this cash I reserve for 'maneuvering' capital / hedging / new purchases ( 89.34 % ) -$80.00 of this cash I reserve to Dollar Cost Average PEP further in the future (2.66%)

8 Exact Link http://www.scribd.com/doc/73238645/Aileron-MarketBalance-Special-Reference-Issue-Portfolio-Management

February 5, 2012
-$80.00 of this cash I reserve to Dollar Cost Average PG further in the future (2.66%) -$80.00 of this cash I reserve to Dollar Cost Average JNJ further in the future (2.66%) -$80.00 of this cash I reserve to Dollar Cost Average WM further in the future (2.66%)

As follows are the new Commodity Futures and Stock Money Management Performance Statistics

$503.49 available from Slush Fund (12.38 % ) Dividend Investing Sister Inception to Date

Stock / Futures / Forex Trading Balance: $10,040.20 ( Return / Yield up +5.851 % Year to Date ) Commodity Futures Balance: $9,973.57 Return / Yield up +5.898 % Year to Date Next Re-Distribution Goal: $10,700.00 Original 3% risk tolerance gives us approximately $282.54 for my drawdown tolerance. $503.49 available from Slush Fund We had three trades last week, that led to a gain for the trading 'sister' accounts. Short 1 SBH2 from 24.13 to 23.93 PROFIT - $216.96 on 1/30/2012 (including commissions of $7.04) Long 1 ZSH2 from 1197 to 199.50 PROFIT - $117.96 on 1/31/2012 (including commissions of $7.04) Long 1 April 133 SPY Put from 4.85 to 3.91 LOSS - $99.95 on 2/3/2012 (including commissions of $5.95) Futures 'Sister' Account Inception to Date

February 5, 2012
Micro-Forex Balance: $66.63 Return / Yield -2.345 % Year to Date $503.49 available from Slush Fund Forex 'Sister' Account Inception to Date Switch fund $1,009.69 for a Base Savings
Percentages of that Cash:

$813.69 of this cash reserved for 'burn rate / maneuvering' capital ( 80.59 %) $120.00 of this cash reserved for CD Ladder creation ( 11.88 % ) - One $10.00 One Year CD purchased on 11/21/2011 at 0.60% - One $10.00 One Year CD Purchase on 12/21/2011 at 0.50% - One $10.00 One Year CD Purchase on 1/21/2012 at 0.50% $20.00 of this cash reserved for the first side-pocket purchase ( 1.981 % ) $20.00 of this cash I reserve for the second sidepocket purchase ( 1.981 % ) $36.00 of this cash I reserve for the hedging account ( 3.565 % )

$504.84 for Emergency Savings Getting Paid Fund: $10.00 Total Portfolio Balance: $16,135.57 - Total Inception to Date Return: +7.57 % Return / Yield up +3.629 % year to date) S&P 500 Year to Date: +6.835 %

Savings Side-Pocket Account Balance: $2,029.37 Return / Yield up +0.04289 % Year to Date $2.00 from Interest Payment on 1/31/2012 $504.84 for a Slush fund / Drawdown Kill

If you have any questions regarding my personal outlook, or any other comments, please feel free to contact me at dan.shy@gmail.com. I will say that if you have questions about your own trading and you want to ask for my input? Please include your most recent money management performance statistics in any email correspondence.
Until next time, stay safe trade well, and remember that loving other people doesn't cost a dime.
Note: I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. The above statements should not be construed as an investment or trading recommendation. Aileron Market Balance is a newsletter that allows subscribers to look 'over my shoulder' as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change. Any trades or investments that I discuss within this newsletter are simply my own thoughts regarding my own investing and trading outlook. Remember that entering any market is an individual decision. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this newsletter; as larger accounts may require a different strategy as the ones presented here. This newsletter simply contains my trading and investing thoughts for the next week. I personally only enter any market after watching and reading the tape and I trade using money management principles9. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 15 years of experience in trading and investing in these markets. The Model Portfolio accounts are hypothetical accounts,with all of the inherent problems therein, which are used within this newsletter in an attempt to track the results of this newsletter, and is run for the education of other traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this newsletter are believed to be public domain. Any charts that are displayed using the ThinkorSwim platform, and other pictures were obtained through Wikipedia's public domain policy.

Exact Link - http://nononsensetrading.com/MoneyManagement.html