Year 3, trading training Q1

Year 3

This year 3 my goal is to focus on the swing trading and the acquisition of knowledge and experience on this type of trading.

The ideal swings will take only days (no in-day trading at this minute).

Year 3, Quarter 1

As usual these are the goals for this quarter, following the V2MOM model:

  • Vision: organize the trading activities under a framework and specific commands that enable me to long and short stocks. Manage the portfolio of money based on Automatic trading principles.
  • Values: have fun, learn a lot, do practices and more practices.
  • Method: learn about specific trading tactics, learn about the context of the market and finance fundamentals.
  • Obstacles: Time.
  • Measures:
    • Read 2 books.
    • 3 podcasts listened every week, this will be a total of around 39 hours of podcasts.
    • have a tactic plan.
    • Read at least 13 earning reports.
    • Keep track of the portfolio in a weekly basis.
    • Avoid in-day trading.

Death line = 31/March/2020

Results (April, 2020)

  • Read 2 books.
    • The new trading for a living (Alexander Elder).
    • Fail, I was not able to complete the second book.
  • 3 podcasts listened every week, this will be a total of around 39 hours of podcasts = 42 hours.
  • have a tactic plan: done.
  • Read at least 13 earning reports (done).
    1. Exxon (XOM)
    2. Simon Property Group (SPG)
    3. DuPont (DD)
    4. Corteva (CTVA)
    5. Unum Group (UNM)
    6. Google (GOOG)
    7. Microsoft (MSFT)
    8. Bristol-Myers Squibb (BMY)
    9. Hanes Brands Inc (HBI)
    10. T Rowe Price (TROW)
    11. Lyft (LYFT)
    12. Johnson & Johnson
    13. General Mills (GIS)
  • Keep track of the portfolio in a weekly basis = done
  • Avoid in-day trading = not achieved.

El pequeño libro que aun vence al mercado de Joel Greenblatt

He leído este libro por recomendación de varios blogs que lo recomendaban como un libro altamente útil.

Pues bien, a mi no me ha parecido nada del otro mundo. Joel repite hasta la saciedad que su fómula mágica funciona en múltiples ocasiones, de hecho creo que si quitas toda esa paja, entonces el libro se queda en un 60%.

La fórmula mágica es bien sencilla. Ir a cualquier web de finanzas donde puedes filrar empresas por distintos parámetros, por ejemplo: yahoo finance. Después filtrar las empresas con alto ROCE, un EBIT/EV razonable, poca deuda, quitar sectores que no te gusten (Joel quita bancos, aerolineas…) y algún filtro más.

Con la lista que empresas, quédate con unas 10 – 20, y ve invirtiendo poco a poco. Después vas rotándolas con nuevas empresas al año y algunos días para evitar pagar masivamente impuestos por ganancias.

Si hubiera leído este libro hace 10 años me hubiera venido muy bien, pero ahora la verdad es que me ha sobrado.

Allegro ma non troppo, Marco Cipolla

I read this book because it was recommended by different people so I decided to buy it. It’s a nice book and it’s very light but apart of the review of the impact of the black pepper in Europe, I did not learn so much else.

I had more expectations based on the reviews of the book, and it did not meet my expectations.

Trading learning year 2

In 2018, I created a Robinhood account and I added 1000$. I had a goal, it was to trade with that money, and learn about how to trade in a systematic way and understand how the environment was going on.

I started slowly, with few amount of moves, practicing on stocks I knew and using the learning I acquired trading with crypto-currencies (year 1).

As the money was limited, I divided the trades in 4 units, so every long event should be around 250$. My initial goal was to obtain a 6% growth through 2019.

I did not want to limit myself to a goal number, as the market would have a direction that I cannot control in 12 months, but I wanted to set a reference and initially it was 6%, then I moved to 10%, then I moved to 25%.

The math result? I did a 40%

This final result was an unexpected result, I started doing individual moves and learning from my previous experience, understanding the SPX behavior and trying to learn from the results. Initially I was psychologically stressed with the situation, but I learned how to handle it and the results started to be positive once I keep the actions aligned to my convictions.

The learning result?

I have learned a lot of things, as in the middle of the process I had no money to trade, or I had problems to be with time in front of the computer, or there were times where the market was not in the conditions I defined to trade. Some of the things I learned:

  • To be as much systematic as possible:
    • defining a set of environmental factors that I checked before to trade.
    • I have defined a set of companies that I use for trading, depending on different conditions.
    • I have been able (not 100% of times) to close the computer and read a book when the conditions where not the right ones.
    • I started to be more systematic after reading Systematic trading 🙂
  • Analysis:
    • Analysis of companies, about how they generate cash-flow, in which part of the cycle they are, etc.
    • I learned how to follow trends (differentiate when market is pushing or is moved by inertia).
    • I learned to focus on quote ranges, not on trends. There is a space where the market is moving, I have tried to focus on that range of realistic moves, focusing on small trades.
  • Act aligned to my convictions, and recognize that I have to be flexible about convictions:
    • I have learned a lot about how bad I am about this. I need to improve a lot if I really want to be successful. To trade with 1000$ is nuts, and when the number will increase I have to be more mature on this area. Let’s say that I am more aware of my problem with early shorts that could gave me bigger returns.
    • I learned that I am mainly a negative skew trader. The good thing is that now I’m aware of that and I’m adding some actions on my habit at the time of adding stop-loss actions.
    • I have to improve better to short on loses before the lose is too high. I have earned an average of 2,32$ per trade, if I remove the 10% of biggest loses I would have obtained an average of 3,78% which is a lot.
    • The thesis I have done have changed with respect the environmental conditions that have been happening. I have used the China-US trade news, brexit, Brent price and euro/dollar exchange as variables to modify my thesis and market behavior.
  • You are managing a portfolio of money, and you have to be consequent with the limits of resources:
    • Sometimes I had no money to trade, when the market was in the best moment to short.
    • I learned to anticipate to the best moments and short some moves with the purpose of doing small margins but have cash for next days.
    • During the last 2 months I was able to do 5 units, as I was over 1200$, so I could trade a little bit more.

Analysis of data

I have done 157 trades during these 12 months.

  • 20 trades were below zero (loses), 137 were over zero (gains).
  • The worst 10% of the trades supposed me to lose 173$. If I would have stopped these loses before I would have earned more. I have to take into account too that the use of stop-loss in the wrong way would have made me to lose some margin on trades that I have finally be over zero.
    • Using pareto principle (six sigma), where solving 20% of the issues you can solve 80% of the consequences, I have added to my habits:
      • Stop losses in a controlled way: do not let the loses to be over the defined range.
      • Use stop loss actions to sell, and in this way not stop the positive trend of a stock.
      • Divide the money in 2 for the longs, so in case of a small negative trend, I use the second part of the money and I reduce the average cost.
  • The average of the earnings have been 2,32$.
  • Without the 10% of the worst trades the average would have been 3,78%.
  • Without the 10% of the best trades the average would have been 1,1%. This is interesting, because reviewing some of the trades, I have realized that I’m not trading with negative skew the 100% of the times. I have progressed to a more positive skew habits.

Distribution of the trades depending on the days that took to open and close a trade:

Best values I traded:

CompanyGross marging
GE$78,08
CRM$38,50
CTVA$32,17
BA$28,74
TXN$28,10
MSFT$25,54
INTC$23,33
GIS$19,05
GMRE$18,68
WDAY$18,66

Worst values I traded:

CompanyGross margin
PTC$2,02
DUK$1,51
WELL$1,50
CELG$0,93
XOM$0,88
T-$1,52
KO-$6,54
JNJ-$7,82
MMM-$8,67
DWDP-$46,08

 

Gazprom

Gazprom, the Russian  oil and gas company.

Major areas and projects

All projects are listed here. For each one, a nice map indicating the number of kilometres and The main ones are:

Maps

More maps: here.