A Tale of Three Traders.

[Phaedrus]

It is interesting to compare different investment/trading approaches and ETC affords us an excellent opportunity to do just that.

For the purposes of this discussion, I have assumed that all 3 traders featured here entered ETC at around 22 cents, as I did.

Short-term traders like AA bailed out at the first sign of weakness. Many different systems would have signalled an exit at around the same level. This was a well-timed exit, in that the ETC shareprice then fell quite markedly - at least in the short term. Gain 30% (15% per day)
Good Thinking. "I don't mind leaving some gains on the table. I've learnt not to be greedy, better to be safe than sorry. I'm on to the next thing now after locking in that profit.
Bad Thinking. Aaarrgggghh! Look at how much I could have made had I just hung on a little longer. I could have more than doubled my money! Next time my system gives a sell signal, I will ignore it. Look how well Footsie is doing - buy and hold is the answer!

"Medium-term" traders such as myself might use weekly candles. Doji candlesticks show indecision in the market (from all participants) and often mark turning points. That was the case here and both Doji's were followed by weakness - at least in the short term. Two separate trades gave gains of 42% and 102%. Average gain 72% (2.3% per day)
Good Thinking. These were both logical exit points. They were reasonably conservative and gave a nice compromise between risk and return. I am glad that I kept to my system and acted on these signals, regardless of what ETC might do in the future.
Bad Thinking. This "medium-term" lark is no good. It falls between two stools - I don't get the big "% per day" gains of short-term traders and I don't get the potentially bigger gains that long-term traders might. I think I will toss my whole system out and start again. I'll move into short-term, or longterm - maybe both! Anything would be better that what I am doing right now.

"Long-term" traders such as Footsie could use even longer period candlesticks as shown here - and still be holding. Longer-term candles smooth out minor fluctuations and have left a nice series of bullish white candles. No Sell signals here! Footsie is not stuck with this unusual system standing on its own. These candlesticks could be supplimented by conservative indicators such as the Slow (50,3) Stochastic oscillator and the Relative Momentum Index (20,5) as already featured in previous ETC posts such as this (http://www.sharetrader.co.nz/showthread.php?p=249425)one. Neither of these oscillators have signalled a sell yet. Footsie's gain so far (as at Friday's close) is 116% (1.9% per day).
Good Thinking. I'm doing really well on this one, and have made a good profit, so far. I must ensure that I don't end up giving it all back to the market in the event of future weakness. I will update my exit strategy and keep it to the forefront of my mind. This is no time for complacency.
Bad Thinking. See how those TA mugs have all bailed out too early! Not me! The fundamentals of ETC are really good. This is a "Buy and Hold Forever" stock! Mine are going into the bottom drawer for my kids. Exit strategies are for idiots.

You should all (I hope) be able to see from this that each of us are implementing our own individual system and we are each pleased with the results. For any stock monitored over a specific timeframe, one of these systems will always prove to be superior. Which one it is depends solely on the stock and the timeframe selected.

http://h1.ripway.com/78963/ETCx3.gif

Candlesticks for all!

[winner69]

Good stuff Phaedrus ... an interesting perspectice on one share

I probably would put myself in your medium term traders group ... even though the odd times do present themselves for some quick day trading.

Looking at action Monday to Friday is interesting but most decisions are made at the weekend board meeting I have with myself .... with weekly charts the basis of board decisions.

Weekly charts do take out of a lot of noise out of the equations eh Phaedrus

[STRAT]

Interesting Phaedrus.
Im left wondering whether having a time frame is something I should implement.
After I read your post I went off and Charted ETC. As always entry is important but based on an entry of 22c I would have come very close to exiting around 42c but more than likely would be in Footsies camp and still be holding depending on greater market sentiment and basic fundamentals....

[Jay]

Yes Good stuff Phaedrus
Had a look at the chart like Strat.

I would have been in around 25c and probaly still in.
Like Strat I do not have time frame as such but are not into day trsding.

By the way Phaedrus what time period do you consider medium term - some say 3 -weeks to 3 months ??
Something I read the other day that one of the well known traders whose name escapes me at present said their exit strtegy was once the the exit point had reached break even then they sell a 3rd and let the rest carry on.

[Steve]

A good topic for conversation, Phaedrus.

I like the way that you show GOOD thinking vs BAD thinking...

[Phaedrus]

The fact that short and medium-term traders sold their ETC doesn't in any way stop them from re-entering again, of course. This chart shows how a medium-term trader that exited on Weekly candlestick signals would use a daily candlestick chart (perhaps supplemented by a Stochastic oscillator) to re-enter ETC. What they are looking for is the end of the "medium-term" downtrend.
So, from having sold at point (1), you can see that the candles show a series of lower lows and lower highs. A downtrend. You are looking for a trend change, for an uptrend to begin. This needs a candle with a higher high AND a higher low. You can see that this happened at point (2). The Stochastic oscillator triggered at the same time, giving an entry at 35 cents.

Now, having sold again at point (3) and again waiting for a candle with a higher high and a higher low, you would buy at point (4) at 42 cents, also confirmed at the same time by a Stochastic Oscillator buy signal. BUT, see how the candle here had a long black body? - this is bearish, so many traders would perhaps ignore these buy signals. Sure enough, the next day saw a steep drop in price. The uptrend began again at point 5 and this was again accompanied by another Stochastic buy signal. This time, though, it was a white candle and these signals gave an alternate entry point at 41.5 cents.

These results outperform simply "buying and holding" ETC over this period.

http://h1.ripway.com/78963/ETC61.gif

The Stochastic oscillator plotted here is using the standard default values of (5,3) Look Mum, no curve-fitting!

[Phaedrus]

After a Stochastic Buy signal I place a Target Buy Order just above the high of the signal day, so If the signal is false and the trend continues down instead of up my buy order is left standing unfilled, this can filter out some (if not most) of the false signals Stochastic produces. I Call this the "Break above Rule". Price must confirm the signal the next day i.e a break above the previous days High/Resistance.
This Rule would Prevent the False Buy Signal in the chart at Number (4) Your "Break above Rule" doesn't work at all well with this stock AA.

Chart Buy Point (2)
Trend reversal/Stochastic Signal day :- BUY AT 35 (High of 35.5)
"Break above Rule" :- Buy next day at 36.

Chart Buy Point (4)
Trend reversal/Stochastic Signal day :- BUY at 42 (High of 45)
"Break above Rule" :- NO BUY.

Chart Buy Point (5)
Trend reversal/Stochastic Signal day :- BUY at 41.5 (High of 42)
"Break above Rule" :- Buy next day at 42.5
This gives a worse entry than the "'False Buy Signal' in the chart at Number (4)" that it prevented!!!

Bad as these results are, if you apply that confirmation rule to Stochastic Sell signals as well, its negative impact on performance is compounded :-

Chart Sell Point (1)
Weekly candlestick :- SELL at 39 (Low of 39)
"Break below Rule" :- Sell at 38.5

Chart Sell Point (3)
Weekly candlestick :- SELL at 44.5 (Low of 42)
"Break below Rule" :- Sell at 41.5
.......Only to Buy back at (5) for 42.5!

[Footsie]

Thanks Phaedrus

As you know I have both "traded" this stock and Invested.

As discussed via email, my "trading" is momentum based. I have been in and out about 5 or 6 times.

As for my investing p/f.... I have just bought more everytime it pulled back. (although not without some worry as the pullbacks have been a little scary)


By the way, after having around 8-10 momentum trades fail in a row.... I've have had a massive run of success with SLR, ETC & RFE on momentum.

Cheers

[Phaedrus]

AA, your "Break above Rule" is Welles Wilder's "extreme point rule" so I will begin by discussing that.
Why did he make this an integral part of his Directional Movement system? To prevent whipsaws.
Why would whipsaws have otherwise posed a problem? Because his DMI system uses a centreline (ie single) trigger level.
Why would this tend to create an unacceptable number of whipsaws? Because having triggered a buy (or a sell) the indicator at that point is within a gnat's eyelash of triggering the opposite signal - and it only takes a very small contrary price movement for it to do just that.

If an indicator uses separate buy/sell signal levels, this whipsaw problem is pretty much obviated. For a Stochastic oscillator to trigger a Buy signal, it needs to be at an "OverSold" level. This is generally taken as <20. Before it can throw any Sell signal, it needs to move all the way up into "OverBought" territory, generally taken as >80 and it takes more than a single, small price movement for it to do that.

The addition of a "Break above Rule" to any centreline triggered system is quite logical - but the system posted here is not centreline triggered. Quite apart from that, there is little point in adding a "new" rule that simply replicates an already existing part of the system (a requirement for a higher high before buying). In such circumstances, this additional "Break above" rule can be expected to add little or no value to the system and in fact overall performance is negatively affected - as shown above.

[Lizard]

By my count, the next candle is in on the 12d candles of the chart initiating this thread. Out of interest, does it still indicate a "hold" for the long term trader?

[Phaedrus]

By my count, the next candle is in on the 12day candles of the chart initiating this thread... does it still indicate a "hold" for the long term trader?I bet very few people would have noticed that Liz - I'm impressed!

http://h1.ripway.com/78963/ETC618a.gif

The latest candle on this chart is a "Dark Cloud Cover". These are a Bearish reversal pattern and are identified by :-
(1) Being preceded by a candle with a strong white body.
(2) Opening above the previous candles High.
(3) Closing deeply within the previous candles body.
The greater the degree of penetration into the white body, the higher the likelihood that this is a top. If the black candle does not close below the midpoint of the white candlestick body (marked by blue arrow) it is best to wait for more bearish confirmation following the Dark Cloud Cover.

The lower sensitivity of longer-term systems such as this is the desired quality that stops longer-term traders being flicked out by small adverse price movements. The downside is that signals, when they do come, are late. This is nicely illustrated by the trendline-break of a daily data plot, as below. Such a signal gave a much more timely exit than any derived from longer-term candlestick patterns.

http://h1.ripway.com/78963/ETC618b.gif

Note that despite the trendline break, ETC is still in a three month uptrend. While this latest candle is definitely Bearish, it nevertheless does have a higher high and a higher low than the preceding candle and so, technically, the uptrend is still intact. On this basis, longterm investors in ETC might well continue to hold, but not many traders would have ignored the sell signals illustrated here.

[Footsie]

I still hold my long term position

My trading position I wont reentrer to there is a close over 50.5

Phaedrus you haven't used the OBV.... shame on YOU!

regarding my long term position, I am cautious given the price movement and restriced further buying , ie. i wont be buying dips.
but i personally believe this is consolidation and the OBV confirms this.
(combined with a 6% drop in the aussie small cap index over 3 days)

A break of the OBV and 40c (previous low) will see me reduce

PS Phaedrus take a look at PWK.asx.... a strange phenomenon with the OBV falling and the stock rallying. must be a rare thing.

[Lizard]

Thanks for the charts Phaedrus.

My time spent making trading decisions is a bit limited at the moment, so it is interesting looking at different ways of managing that. I seem to find my time constraints don't affect the sell decisions too badly, but buying decisions are difficult - the pool of stocks to buy from being larger and the timing constrained by available cash.

[Footsie]

Well this just confirms its still a traders market and fundamentals dont mean nada when the SHTF.

I should theoretically be stopping myself out of ETC today......

with the stock now 30% off its highs..... It sure is a tough one to do.