Markets I Trade: June 25, 2019

In my non-registered account I am developing my trend following strategy continuously. I don’t pretend to have all the answers. I am sharing this ongoing learning journey with you in this series.

I am always exploring new methods of trading, new markets to access, and better control of risk and opportunities. My main goal is to avoid large losses while achieving reasonable returns over time. I try to focus on trades which I believe have good reward-to-risk ratios.

You will see me trade index products, currencies, and commodities primarily with leveraged ETFS, futures contracts, and LEAPS options for maximum capital efficiency. I try to risk small amounts of capital with each trade targeting high return multiples on that risk.

One thing that is easy to notice is most weeks have no action and trading is quite boring. The equity based positions move in relative tandem. Volatility positions are the only place where exciting things seem to happen more frequently.

I've added stop levels for the leveraged ETFs which are based on momentum signals. The stop levels are estimates since I am translating data from a signal ETF which is different from the traded ETF.

Currently my exposure to stocks in the trading account is around 35 percent. Most of my cash is in BSV, a short-term bond ETF.

*Information on this post is dated at market close, Monday, June 24, 2019.

VXX: Options

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Momentum Factor: -8

On May 7, I purchased a call ratio backspread for a small account credit when VXX was trading at approximately $29 per unit. This is a hedged position. VXX is still hovering on that line of upside/downside shorter-term momentum with swings happening daily. This trade is moving into profit based on the account credit I collected setting up the trade with downside protection.

QQQ: LEAPS Options

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Momentum Factor: +10

I opened a position in QQQ on May 17 with a purchase of $160 call options when QQQ was at $184 per unit. My trade is showing a profit again with momentum continuing its upwards path.

Gold: UGLD ETF

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Momentum Factor: +10

I opened a half position in gold on May 29 with a purchase of the 3x leveraged ETF UGLD at a price of $91.15 per unit. With continued upside momentum I moved to a full position on June 3 when UGLD was at around $99.40 with an average position price of $93.20. My stop is currently at around $88 per unit. My entry was based off a signal in GLD.

This trade is a good example of why we bet with the trend, not against it! With the crazy jumps up in the past two weeks I anticipate there may be a pullback coming as buying should eventually calm down a bit.

Brazil: BRZU ETF

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Momentum Factor: +9

I opened a full position in Brazilian stocks on June 7 with a purchase of the 3x leveraged ETF BRZU at a price of $30.25 per unit. My stop is currently set at around $26 per unit. My entry was based off a signal in EWZ.

Europe: EURL ETF

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Momentum Factor: +8

I opened a nearly full position in European stocks on June 7 with a purchase of the 3x leveraged ETF EURL at price around $27.30 per unit. My stop is currently set at about $23 per unit. My entry was based off a signal in VGK.

India: INDL ETF

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Momentum Factor: +9

I opened a full position in Indian stocks on June 18 with a purchase of the 3x leveraged ETF INDL at price around $73.80 per unit. My initial stop price is approximately $60, so there is quite a bit of slack in this trade. My entry was based off a signal in INDA.

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5 Replies to “Markets I Trade: June 25, 2019”

  1. “I’ve added stop levels for the leveraged ETFs which are based on momentum signals. The stop levels are estimates since I am translating data from a signal ETF which is different from the traded ETF.”

    Hi Daren,

    Do you mind expanding on this? How do you go about calculating those stop levels?

    Thanks.

    1. Daren (Editor) says:

      Sure! Lets take my newer position in Brazilian stocks. I based my position, momentum score, and stop level using EWZ not BRZU. EWZ is the standard ETF while BRZU is a 3x leveraged ETF.
      By calculating prices forward in EWZ, I can find my stop level in that instrument. This is basically the price point where momentum breaks down and it is no longer worth holding the trade. By finding that price point at EWZ, I can roughly translate that same point with BRZU.

  2. “This is basically the price point where momentum breaks down”. This is the gem I was looking for. Thanks Daren.

  3. Daren, do you mind clarifying the meaning of “prices forward” in your previous comment?

    Did you mean “Forward Prices”? https://www.investopedia.com/terms/f/forwardprice.asp

    Thanks.

    1. Daren (Editor) says:

      I simulate the price of the base ETF in future weeks to find the points where momentum breaks down in my model. If the current price is $50, I can run the model ahead looking at different price points and see if momentum shifts at $45 or $42, etc. Because time is a factor, the true price needed for momentum to break down will change as time goes on, but it can give me a reasonable starting point.

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