Making room for something better

Wednesday, 1 November 2017
Melbourne, Australia
By Bernd Struben

  • Bitcoin hits new records…again
  • An inconvenient truth most traders ignore
  • Avoidable disasters

When quitting is done correctly, it isn’t giving up — it’s making room for something better.’

Adam Kirk Smith

It’s not easy finding someone with anything positive to say about quitting.

To find the opening snippet above I had to scroll more than halfway down a list of 100 top quotes on quitting. It comes from motivational speaker and life coach Adam Kirk Smith.

Most everything else said about quitting — aside from quitting smoking — is negative.

Like former US National Football League coach Vince Lombardi’s, ‘Winners never quit and quitters never win.’

Or Lance Armstrong’s, ‘Pain is temporary. Quitting lasts forever.’

Or General Douglas MacArthur’s, ‘Age wrinkles the body; quitting wrinkles the soul.’

Or…well, you get the idea.

Yet despite all the negative sentiment around quitting, knowing when to cut and run can often prove critical.

And as quant trading guru, Jason McIntosh reveals in his guest essay below, never is that truer than when trading stocks.

It’s just one of the angles to successful trading. And one which Jason will discuss in greater detail in his six-part video training series.

The training series is entirely free to any paid subscriber of Port Phillip Publishing…meaning you. Starting this Friday, 3 November, it will run over six days.

Aside from sharing a stack of ‘insider’ trading tips, Jason will reveal the secrets behind one of the most successful trading methods in Australia. A method he painstakingly developed himself over many years. And one that enabled him to pick 16 of the 20 best performing stocks on the ASX 300 during the last financial year.

This may well be the most valuable training series we’ve ever released. You can reserve your place right here.

Now, a look at the markets.

Markets

Overnight, the Dow Jones Industrial Average closed up 28.50 points, or 0.12%.

The S&P 500 gained 2.43 points, or 0.09%.

In Europe, the Euro Stoxx 50 index finished up 11.77 points, or 0.32%. Meanwhile, the FTSE 100 climbed 0.07%, and Germany’s DAX index was closed for Reformation Day.

In Asian markets, Japan’s Nikkei 225 index is up 313.03 points, or 1.42%. And China’s CSI 300 is up 0.12%.

In Australia, the S&P/ASX 200 is up 26.88 points, or 0.45%.

On the commodities markets, West Texas Intermediate crude oil is US$54.68 per barrel. Brent crude is US$61.20 per barrel.

Gold is trading for US$1,269.03 (AU$1,657.56) per troy ounce. Silver is US$16.71 (AU$21.83) per troy ounce.

One bitcoin is worth US$6,403.23.

The Aussie dollar is worth 76.56 US cents.

Bitcoin hits new records…again

Bitcoin’s critics were eating their hats yesterday when the digital coin hit a new record high of US$6,415.28.

As at writing, bitcoin has slipped just a touch, trading for US$6,403.23 (AU$8,363.68). That’s up from US$1,303.15 on 1 January. You know, back when the mainstream was warning that bitcoin was a bubble and couldn’t go much higher.

Not so our in-house crypto experts, Sam Volkering and Ryan Dinse.

Sam’s not fond of quoting bitcoin in dollars. In fact, he recommends never trading it back in for fiat money, but rather using bitcoin to buy things with. Something which will keep getting easier as ever more merchants accept bitcoin as payment.

Despite his dislike for the bitcoin to dollar comparison, Sam has long stated that he expects bitcoin to reach US$10,000 in the mid-term, with US$20,000 in reach in the longer term. And he adds that those price targets may well be conservative.

Bitcoin’s jump into new highs yesterday was spurred on by an announcement from CME Group, which operates the world’s largest options and futures exchange.

As Bloomberg reports:

Bitcoin prices jumped nearly $200 after CME Group announced it would trade futures tied to the currency…

On Tuesday, the CME Group announced that it plans to list bitcoin futures contracts by the end of the year. The development is positive…

Bitcoin is most likely here to stay. Even excluding bitcoin trading, $350 million in transactions have been completed on average each day for the past six months, and that number has been more like $800 million recently. People who transact in bitcoins will want a place to hedge the currency. And bitcoins are going to get traded.

Goldman Sachs Group Inc. said that it is looking into it, and other banks could follow. Without the CME, banks like Goldman may create opaque contracts to trade the currency. With the CME, investors will have a much clearer and safer view of bitcoin, just like any other grown-up asset.’

Among other things, the move by CME Group will open the door to institutional investors, who so far have been unable to trade the crypto. And this will likely only see bitcoin continue to climb.

Of course, the crypto market is far larger than bitcoin, with more than 1,100 cryptos already in existence. And more hitting the market each day.

Some may hit $10,000 — or more — eventually themselves. Others will surely flop.

That’s one of the reasons Sam and Ryan launched Sam Volkering’s Secret Crypto Network in July this year. To help their readers sort the ‘crapcoins’ — as Sam likes to call them — from the next potential bitcoins.

Atop of bitcoin and ethereum, they’ve already recommended five lesser known cryptos. Ones they believe have the potential to see early adopters pocket gains of 10 times or more.

You can get all the details here.

And now over to Jason McIntosh.

Cheers,
Bernd


An Inconvenient Truth Most Traders Ignore
Jason McIntosh, Editor, Quant Trader

Do you know trading’s great paradox?

It’s possibly the biggest contradiction ever. One that defies the classic principles of success.

You see, life often rewards us for persisting. From the classroom to the boardroom…the sporting field to the concert hall…staying the course can lead to greatness.

Trading is no exception.

First, you need to develop a strategy — this takes time. You then need to stick to that strategy when the markets don’t go your way. Giving up is a sure-fire way to fail.

Now, here’s the paradox…

A successful trader is also a serial quitter.

Yes, you read that correctly — a serial quitter.

They’ll walk away from a losing trade without a second thought. Forget persisting. If it’s not working, get out!

Many people struggle with this concept. Instead, they doggedly hold losing trades in the hope of a rebound. But in this setting, refusing to give up can be a disaster.

In yesterday’s Port Phillip Insider, I told you about trailing stops. This is a key strategy for maximising the gains from your best trades. I use this method to trade stocks that double, treble, and more.

Today I’m going to tell you about stop losses — a hugely important strategy, which could save you a fortune.

Avoidable disasters

Charts are an excellent way to learn about trading. They let you see a trade in a way that words alone can’t do justice. This can really help bring a strategy to life.

You’re about to see three trades from Quant Trader’s portfolio. They show how it’s possible to avoid huge losses. Understanding this is one of the most important lessons in trading.

OK, here’s the first stock:



chart image

Source: Bloomberg
Click to enlarge

Quintis Ltd [ASX:QIN] was the worst performing ASX 300 stock for 2016/17.

And, yes, it was in the Quant Trader portfolio.

QIN’s buy signal was at $1.69 on 16 August 2016. The trigger was an upward break in the share price. A stop loss was set at $1.27 — 24.9% below the entry price.

Probability favours that a trend will continue. But it’s not a guarantee. QIN began to stall soon after Quant Trader’s entry. A routine correction quickly became a larger sell-off.

Now, this is when the stop loss comes into play. A stop loss is the level where you sell if a trade isn’t working. You can see it on the chart — it’s the red line below the share price.

Quant Trader’s strategy in this type of situation is to cut the position. You see, no one knows how long a decline will last. And Quant Trader doesn’t hang around to find out.

Many traders put off the decision to sell. They tell themselves that the shares will eventually come back. Sometimes they do. But it’s when they don’t that you need to worry.

(I’ll tell you about a trader who put off selling in my upcoming training series, which starts this Friday. It’s a story you don’t want to miss. You can register for the six-part video series by clicking here .)

Quant Trader gives a stock room to move — you can’t ride a trend without doing this. But you need a ‘line in the sand’…a point where you walk away and preserve your capital.

Many traders don’t do this. Instead, they let a losing situation turn into a much worse outcome.

QIN lost 78.5% of its value last financial year. But this was completely avoidable. Having an exit strategy, and the discipline to follow it, could have make all the difference.

The next example is Vita Group Ltd [ASX:VTG].



chart image

Source: Bloomberg
Click to enlarge

VTG joins an unfortunate group of stocks. It’s one of the few companies to be on the best ASX performers list one year, and the worst performers list the next.

Quant Trader had earlier success with VTG. The system rode a big uptrend to a 199% gain. You can see the exit point for that trade on the chart (QT initial exit).

As I told you yesterday, trailing stops are an excellent way to manage risk. They can keep you in winning trades longer, and get you out when the trend turns.

But they don’t work with laser accuracy.

Have another look at the chart. You’ll notice Quant Trader initially exits at the bottom of a correction. The shares then race to a new high. This triggers a fresh buy signal.

But, unlike the previous trade, VTG doesn’t keep rising. The uptrend quickly ends and the shares head lower.

Many people form an attachment to their profitable stocks. This often causes them to keep holding long after the trend reverses. I’ve seen people give back huge profits this way.

The solution to this problem is a set of trading rules.

You see, trading rules are like an action plan. They can help you defuse your emotions, and make you a more decisive trader. (I’ll talk more about this in my video training series. It starts on Friday. Don’t forget to register by clicking here. There’s no extra charge to you as a Port Phillip Publishing subscriber.)

Quant Trader’s loss on this trade was 29.3%. But it was a good outcome. Remaining loyal to VTG would have seen the losses blow out to 73.5%.

The final stock is from outside the ASX 300. It made headlines earlier this year when its shares fell 92% in a single day. And yes, this stock had also been in Quant Trader’s portfolio.

Here’s the chart…



chart image

Source: Bloomberg
Click to enlarge

The stock’s name is Innate Immunotherapeutics Ltd [ASX:IIL]. It’s a biotech company that has been testing a drug for multiple sclerosis. I had shares in the company myself.

IIL was a triumph for some, but a disaster for many. It all depends on your trading plan.

As I told you on Monday, Quant Trader only buys into strength. The system’s entry was at 85 cents on 14 October 2016. It then rode the stock’s rise and fall over the next three months.

And that’s where this story ends…

Quant Trader exits with a profit. There was no holding in hope the stock would skyrocket again. The trend — and the trade — was over.

So, how did I go with IIL?

I made a 43% profit. The key to this was my exit strategy. It turned one of the worst stocks of 2016/17 into a solid outcome for my portfolio.

Take some time to study the trades above. They show how you can minimise losses, and potentially stop a downturn from becoming a disaster.

If you’d like to learn more about protecting your capital, while at the same time maintaining unlimited upside potential, be sure to register for my upcoming video series. It begins on Friday, and remember, there’s no extra charge for Port Phillip Publishing subscribers.

Until next time,
Jason

PS: Most people gladly talk about their big wins. This is true of just about every trader, advisor, and fund manager I know. Their ‘war stories’ typically involve huge gains.

But what about their failures?

Learning from past defeats is one of the smartest things you can do. Don’t be afraid to reflect on your less successful trades. You can learn a lot from the ones that don’t work out.

There’s a lot more I want to tell you about. Join me starting this Friday for my free video training series. I have some trading insights to share that could give your returns a real boost.

Quant Trader sources all images and graphs unless otherwise stated.