At the end of every year I do an “after action” analysis of the previous year’s trading. This year I was pleased with the return in both the IRA and Margin accounts given that actual timing part of the Active Trend Trading service only began in June. I want to thank our members who have been started this journey with us and I look forward to a stronger 2015 due to the refinements we’ve made during 2014. I think that between the excellent training and stock focus in the Active Trend Trading Service and the pinpoint accuracy provided with the Early Warning Alerts for Index ETFs, we are well position going in to 2015 to take advantage of the Market’s moves either up or down.
The training this past year has been great and the addition of Text Messages have been great features. I am continuously looking for ways to refine our services to make them clearer and simpler. Here are some of the focus areas for 2015.
– Enhance timeliness of Alerts and Trade Trigger Notification
– Standardize time of day when updates are provided
– Provide more video market updates and trading alerts (specific how to)
– Updated Training Video
If you have not had a chance to check out the research Mike Trager and I have done to start the EWA service you can find a short 10 minute preview at: http://youtu.be/MgC9GMAWh4w
If simplifying your life by trading along with us using the index ETF is of interest you can get the full background video at: http://activetrendtrading.com/etf-early-warning-alerts-video/
Remember if you are a premium or Early Warning Alert member you can receive Text Alerts and Trade Notifications if you send us your mobile phone number. Sent us your number with NO HYPHENS please and we’ll get you on the Text Notification List.
The How to Make Money Trading Stock Show—Free Webinar is back this Friday, January 9th at 10 a.m. PDT. This weekly live and recorded webinar helped traders find great stocks and ETF’s to trade with excellent timing and helped them stay out of the market during times of weakness. Join us by registering at: https://attendee.gotowebinar.com/register/1587585202965539073
To get notifications of the newly recorded and posted Market Stock Talk every week subscribe at the Market Tech Talk Channel: https://www.youtube.com/channel/UCLK-GdCSCGTo5IN2hvuDP0w
If it’s the beginning of the month it’s time for Mike Trager’s Macro Market Musings article! I know our members appreciate gaining wisdom from Mike’s in depth view of the market that has made him a very successful trader, so glad he is on the Active Trend Trading Team! This month’s article speaks very provides great insight into how to be a more patient and “on-purpose” trader!
Mike’s Macro Market Musings: Mean Reversion and the Holy Grail
When first learning about investing and more active trading most, if not all, traders and investors, spend a good bit of time searching for the “holy grail”, that one special indicator or methodology guaranteed to lead to consistent outsized profits in the financial markets, even after being warned by those who are more experienced that there is no dependable “holy grail”. I know that I personally have succumbed to this process only to ultimately realize the wisdom of that particular piece of advice. That being said, though, I have discovered my own version of the “holy grail” – the concept and principle of mean reversion.
When stretched to extremes either to the upside or downside, financial markets always will eventually revert to some sort of mean or median, however that mean is determined and illustrated, whether it be a moving average, trendline, regression channel, etc., and regardless of the time frame under consideration. Additionally, financial markets exhibit over very long periods of observation a tendency to not only revert to a mean of some sort but to overshoot past that reversion target to another extreme in the opposite direction. Just think of a pendulum swinging from one side to another past an equilibrium midpoint, or a schoolyard seesaw (for those of us at a certain age).
So how can this principle be applied to trading in the markets to generate some profits? The answer to this is easy enough and can best be visualized with a quick review of the following one year daily chart of the S&P 500 for 2014 with a 20 period simple moving average drawn on it (the red line):
Consider the 20 day moving average to be the “mean” to which we are referring in this chart. Note how when the price action depicted by the candlesticks has moved far enough away from the 20 dma to create some visible “air” or space between the price and the moving average, the price of the index will always return to the red line of the 20 dma at some point in time and will then have a tendency to shoot past it in the other direction. This dynamic forms the basis of my favorite and most reliable trading set ups. By using a combination of the information provided by the candlesticks, the concept of mean reversion, and the patience and discipline required to wait for the set up and trade in the direction of the overall long term trend of the entity under consideration, I have discovered and implemented my own version of the “holy grail”.
Note the following 3 time periods on the above chart – early February, mid-April, and mid-October. At each of these times we can observe a hammer type candlestick that has formed after a period of selling along with some “air” or empty space between the candlestick and the 20 dma (I personally love hammer candlesticks and the information they convey, but that’s another topic). This set up is my personal “holy grail”. It is highly predictable in each of these instances that not only is price likely to come back to the 20 dma, it will probably overshoot past the 20 dma to the upside. I believe the chart speaks for itself by showing the follow through each time this set up presented itself.
By having the patience and discipline to wait for these set ups to develop and to trade in the direction of the long term upward trend of the U.S. equity markets, and by fully committing substantial portions of one’s trading account when this desired set up occurs, truly remarkable profits and consistency of returns with high win/loss rates can be realized. If one had done nothing more in 2014 than take just these three trades and hold them for only a few weeks each time, and sat on their hands the rest of the year, utilizing the leverage provided by index etf options and/or the leveraged index etf’s, bragging rights to market beating returns for 2014 would be justifiably earned. And, one need not take my word for it, but a review of the charts of the indexes going back several years or even several decades will show that these set ups regularly occur periodically, more frequently in some time periods than others, and in different time frames (i.e daily, weekly, monthly charts). Also, one need not limit the search for mean reversion set ups to only the market indexes. The same concept will apply to individual stocks, also, as well as any other tradable market entity, and in any time frame.
While no set up or methodology will yield 100% win rates when trading in the financial markets, Dennis and I believe this concept is as close as it gets and thus we utilize this concept and philosophy as the core basis for the set ups and triggers we seek for the Early Warning Alerts service. Our backtesting results have been truly impressive and have even surprised us. While we deem it unrealistic to expect backtesting results to be perfectly replicated in real time, there is no question that if the backtesting results are only approximated in real time that the results will be extraordinary and quite possibly life changing.
General Market Observation: Of the three Indexes we track both the S&P and Russell have now shown a failed break out. The Nasdaq 100 moved up from the mid-December low with the least momentum of the three. The first day of trading for 2015 resulted in a mixed market with the S&P showing a gain but both the RUT and NDX showing a loss for the day. This action added to the downside which began the day before New Year’s Eve. As we highlighted in last week’s updates indicators on both the daily and weekly charts are showing negative divergences.
If we are looking to trade any of the Index ETF’s, one thing with the market starts getting volatile finding entry signals to trade in either direction can be a challenge because of the tendency of big daily swings or gaps with little follow through. In situations like this we either trade at objective support or resistance in the appropriate direction, or we simply stand aside and wait for order to return to the Indexes. Waiting of course is the most conservative and safest strategy, but it also keeps us out of the markets for some very good tradable moves. This type of market requires that we adjust expectation and be more quick to take profit which tends to shorten our holding periods. While we would like to enter a trade and stick with it for weeks and or months—occasionally this is not what the market provides.
Additionally we will be observing the clues price action provides for the January Effect which is a tendency for the market to go the way the first week or two of the New Year goes. While the predictive nature of this Effect is not 100% correct, a down couple of weeks at the beginning of the year can foreshadow a challenging trading year! But there will tradable rallies and tradable downsides even in this type of environment for those who best interpret the convergence of clues.
Summary of Monthly Closed Trades as of the Dec 31st since June 1, 2014:
We are in CASH as the market is struggling with the Uptrend Under Pressure.
Total Booked Profits since June 1 when the timing service began: $15.0K
Current YTD Account Returns
Margin Account: Up Net 28.1% YTD; Gross Up = 30.9% (no commissions costs)
IRA Account: Up Net 55.4% YTD; Gross Up = 57.3% (no commissions costs)
For those just joining Active Trend Trading, the reason for the difference between the Margin and IRA account returns is because the Margin account up until June of this year was used as a test account for various strategies. On June 1st we have only made trades using the ATTS system in this account along with a demonstration trade with TSLA. This account is up 15.1% net since June 1, 2014.
Active Trend Trading’s Yearly Objectives:
– Yearly Return of 40%
– 60% Winning Trades
For a complete view of specific trades closed visit the website at: http://activetrendtrading.com/current-positions/
Updated at the beginning of each month.
Outs & Ins: The Outs and Ins and the Running List reset at the beginning of each year. The first IBD 50 of 2014 has been analyzed and again it produced some big winners with 80% of the stocks on this list outperforming the S&P from the low of the year to the high of the year. The key to trading this list was patience. Much like Mike identified in his article, life changing results come to those willing to be patient and discipline. Focus on theses character strengths this year and this you may cross the threshold and become a wise, discipline and profitable, Master Trader in 2015!
Comments and opinions written below this line of text may be provocative and only obliquely related to trading. Some may find these “Off the Wall” comments challenging to their outlook on life. I will not post any comments made on subject matter below this line, so if you disagree blast away.
OFF THE WALL
Off the Wall: “Success is not accidental—it takes a game plan implemented with discipline.” Becoming a master trader is more than just showing up. I love to watch some newbies when they decided to try trading! Often time they have been very successful in other parts of their lives and even considered to be experts in their fields. They make the fatal mistake of presumption when it comes to learning how to trade. The fatal mistake of presumption is an ego driven assumption that convinces them that because they’ve been successful in other areas of their lives it will automatically transfer to trading success. The fact is—this is the exception and not the rule.
In reality the market doesn’t care one iota how successful the rookie trader has been in the past! In fact the market doesn’t care one iota how successful your last trade was! In fact the market doesn’t really care who we are, how much money we bring to it or how many degrees we have or how many letters we have after or before our names. The market is the great equalizer who rewards those who learn to respect the market for what it is and approach it with a sound established game plan. The next required ingredient is discipline to implement the game plan! Discipline exercised with consistency and diligence even if our schedules only allow us to do this one time a week! A proper game plan will focus a trader on the majors and not the minors even if that means trading just one entity.
If you hang around this trading adventure long enough you will discover that it is not about the magnitude of what you do but about the quality of how you do it. As we saw in the IBD 50 from the start of 2014 20% of the stocks had a tradable rally of over 60% during the year. The traders who best implemented their game plan walked away with a significant amount of that rally! Let’s learn how to take more off the table this year!
Share Your Success: Many of you have sent me notes regarding the success you are having with the Active Trend Trading System. Please send your stories to me at firstname.lastname@example.org or leave a post on the website. Thanks!