My Trading Diary 2010

February

Graham D. Telfer
Preface

This document is published as a PDF document suitable for reading on an e-reader

of about b5 paper size. I am using LATEX 2ε to write this diary and produce the PDF
document. LATEX is a powerful document processor originally designed to produce
book quality texts which use large amounts of scientific and mathematical nota-
tion.
I’m starting this diary to document my stock trading activity. I will publish it
monthly so keep checking. It is sure to be an adventurous ride and I hope both you
and I learn a lot along the way. Apart from the daily check I will write sections on
specific topics to do with trading and in particular my own methods of trading.

1
February

More about My Method

If you want to succeed at trading then you must find a method of trading which
suits your personality and lifestyle. I am a patient type of person. I do not believe in
rushing into anything and always research in advance. I once went for an interview
for a telephone sales job. As part of the interview, the interviewer tried to sell
me something but completely failed because I asked questions and refused to be
jumped into a quick decision. The whole ethos of telephone sales is to convince the
potential buyer to part quickly with his cash; without too much thought. Needless
to say I did not get the job.
When I decided to trade shares that conservatism meant I researched many
methods before making up my mind how to go. I paper traded for a long time and
still do. Slowly things came together and I found several methods that interested
me. the first was equivolume charting. I liked the fact that time was not part of
the method. My research had convinced me that the market is blind to time. We
want to impose time schedules on the market in the same way we want to find
meaningful patterns.

Equivolume Charts
An equivolume chart shows the price
of an equity but also the volume. Long
narrow boxes show thin volume in a
volatile market. Short fat boxes show
heavy volume in a low volatile market.
They often indicate areas of support
and resistance. This chart is a daily chart and shows many types of box which
indicate the varying interest in the stock.

2
 3

1st February
At last some relief! Tullow Oil went up with solid but unspectacular volume to
finish at £11.81. SSL also went positive which is free profit because it is a swiss roll
trade and the original capital has been recouped. Avis has halted it’s decline.
Sentiment seems to be turning positive again and I expect prices to move up-
ward in trading in Japan and the Far East tomorrow.

2nd February
Stops set for Avis which is not performing. A limit price set for APC which will give
a 17.5 % return. The latter is set for 25 days. Time to leave and let things ride!
I am writing this on the 3rd. It is a bright and sunny morning, a crisp 20 c and
am happy to report a good day yesterday. The stop loss for Avis was hit but the
price rose later. That was a bit unfortunate but I am again thinking about Tullow
becoming my second swiss roll company at £13.90. If I want to do this I will need
to sell 170 shares to recoup the initial capital and leave 30 to profit. SSL which I
am operating under this trade method went up and is now making a 1.3 R return1 .
Although the cash is not great it is profit and the original capital is working again.
Prospects for today seem good as the Nikkei 225 is up at the opening.

Some Programming Thoughts

I mentioned the thought that I might do some programming. My mind has been
steadily ticking over and considering various possibilities. I have long been fasci-
nated by fractals and the idea that somewhere in the series of prices we watch so
avidly there is a hidden strange attractor. I have decided to return to this and will
try to explore the subject.
Many things immediately come to mind:

• the fractal dimension of a price series

• the influence of volume on price
• does volume serve to kick prices?

• can a meandering river hold any clues as to the nature of price bubbles?
• can a meandering river which moves over a landscape be compared to prices?
1 The R measure is discussed in Trade Your Way to Financial Freedom

by Dr. Van K. Tharp

 4

• is there a hidden topology in a price series?

These are some initial thoughts which I will try to investigate. Maybe some of the
questions have already been answered but never mind. There will be some fun
playing around with the ideas and perhaps some useful programs will get written,
or perhaps crafted is a better word.

3rd February
Well, I have some money now and I began hunting around for some juicy stock.
What signals I look for depends rather on my perception of a trade. When the
stock has shown consistent gains over many weeks or months indicated by well
spaced and parallel Guppy Averages. I want to see short term averages dipping a
little and strong support by long term investors. There should also be a healthy
gap between the short and long term averages.
You can see from the diagram how
the blue, short term averages are run-
ning parallel to the red long term av-
erages and there is little meandering
around. With this kind of behaviour
I expect a fairly long term trade with
steady and unspectacular progress. There
will always be price shocks— both ups
and downs. There is therefore the risk
Solid Gains from ARM
of being stopped out or temptation to
take a quick profit.
At the moment I want to look for quicker, swing trades. For these trades I try
to use support and resistance. The cloud of the Ichimoku chart provides clear evi-
dence of these features. Guppy Averages also offer this. When prices are above the
averages then we can regard the averages as support and when prices dip into the
averages and drop below we can regard them as resistance.
The Ichimoku cloud however gives
a clearer idea of how much support or
resistance might be in a stock.
In addition I look at cross-overs. I
look for exits above resistance and prices
moving across boundaries. In effect I
am looking for a meandering stock with
Swing Trades
a lot of price action. It is better if the
 5

general direction is up but even if the price is generally falling there might be suf-
ficient swing to catch a small profit.
These swings in black show gains ranging from 7 % to 15 %. in a stock trading
essentially in a narrow band. Depending on your transaction costs you might pick
up a few percentage points of profit on every swing. In ultra cautious moods with
swing trades I look very carefully at the candlesticks and if I have a profit when the
first negative candle shows I will exit on the next day. Usually I let things carry
on especially when volume action from the Guppy chart indicates the stock is ‘on
hold’; so to speak.
Looking at various options I came across Ferrexpo which has some nice swings
in the last few months. It also has good support at the moment and has just begun
to climb again. I will put a limit order on for tomorrow.
That’s enough about future plans. My current trades drifted pretty much. SSL
has been drifting lower a little over the last few days but there is still considerable
long term support and volume is only moderate. Tullow Oil also weakened and
there is a more worrying sign of failing long term support! I must watch this more
carefully over the coming days.

4th February
I put in the order for Ferrexpo and got filled at £2.11. The price came off the high
a little and settled at about yesterday’s close.
Considering the falls in prices all
round the world today my own trades
survived well. Tullow remains a worry
but for now I continue to hold it. Per-
haps tomorrow will bring some relief!

5th February Ferrexpo

I am writing this late. I was busy over the weekend and didn’t really get a chance
to look at my trades until this morning. It was a pretty dreadful week. Everything
was down across the board. Volumes were not enormous but volatility was high.
Prospects for the coming week are not much better. In this mood I don’t see any
benefit selling and trying to buy. I will hold my stocks for now because I think all
this will blow over. Like in a typhoon; it is batten down the hatches and wait it out.
I hope Monday will prove to be the start of a better week.
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8th / 9th February

These last 2 days have seen things calm
down a lot. Tullow Oil’s Average True
Range is reverting to the norm and the price is not falling further. There was a lot
of volume traded over the last few days!
Look at the figure and you can see
how the boxes are neatly lined up with
the low price forming a clear base for
the last few days. This indicates a bot-
tom has formed. Sellers are trying to
dump their stock but there are many
buyers who see this as an opportunity
to load up their position. On the 9th Tullow Volume
things begin to turn around and trad-
ing turned positive. I hope this continues tomorrow and the price really takes off.
The other stock rose by small amounts which is a good sign. I have set price
targets for all the stock now based on Point and Figure rules. I will sell sufficient
Tullow stock to recoup capital. The other stock I will sell entirely. I might deposit
the profits back into my bank account.

10th February
The Greek tragedy is playing itself out and confidence is returning. I am happy to
say that all my stocks seem to be turning positive and losses are getting trimmed.

11th February
A real jump today! The market faded at the end but my stocks solidly put on some
gains. Isn’t it strange how, when there is good news to report there seems so little
to say. I just hope that tomorrow will see an equally good end and we can put the
week to bed.
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12th February
Finally the week is over. I have ended the week better than I began. The market
faded from lunch time. Although Tullow Oil and SSL fell I haven’t finished so badly.
FXPO ended strongly and made me feel better. Here is the chart for Ferrexpo show-
ing the heavy volume that was traded on Friday!
I haven’t decided yet what kind of
programming project I will do. There
are several ideas floating around my
head at the moment. I am sure one
or two will come down to rest and I
will be able to make a start. That is the
usual way with my ideas.
A Good Ending

15th February
Trading was very light today. FXPO went up very well and is now testing it’s highs.
Will it be able to break out into a new high? When my price target is attained
should I sell or cancel and set a stop loss order instead of a limit order? Perhaps I
should cancel the limit order now and set a stop loss to protect my profit.
The protect profit financial stop loss is £2.36 which is midway in the trading range.
It might protect the maximum profit but with the stock still looking positive I don’t
want to get cut out. The count back stop loss is £2.07 which gives back 28 % profit.
The average true range stop loss gives a figure of £2.27 which is just a little lower than
the Point and Figure stop loss of £2.28. It looks a little safer, giving up 18.7 % profit if
it is hit.
The other trades faded from the middle of the day. It was a holiday in America
which kept interest down. SSL in particular has faded away. The 16 shares I still
hold are a try at swiss rolling and so I will keep them. When the tide turns again
I shall buy again and follow the swing. Then I shall sell enough to get back my
capital again. My Tullow trade has a limit sale price set at my target to achieve the
same.

16th February
A good day today! Starting with Ferrexpo, which is into a trend. The return on
capital for this trade is now 26 %. It is close to considering a swiss roll to recoup
the initial outlay. I like this idea and may put a limit sale at 30 % at about £2.75 to
do this.
 8

Tullow Oil showed only light volume but moved up. It still can’t jump across
the recent downward gap and the long term group of Guppy Averages is down but
this move up has lasted 3 days now. Tomorrow I will buy a few more shares of
Tullow with my second account.
Even SSL which is languishing has a positive side. The long term averages are
running parallel and not showing any sign of weakness. This indicates the down-
ward move is likely being driven by short term traders. The last candlestick had a
strong spring from the centre of the Ichimoku cloud.

17th February
After yesterday’s rise Ferrexpo fell back slightly on profit taking. I might put a
tight stop under this now. It closed at £2.62. The Point and Figure stop of £2.54 is
just below the low of today. Check the diagram!
Tullow Oil and SSL are kind of tread-
ing water on fairly low volume. Tul-
low ended up a touch but is finding it
hard to get back it’s recent highs. Even
though the long term Guppy Averages
are still down the price is clawing back
slowly.
A Tight Stop Line
I made some changes to my spread-
sheet and it is now simpler. I use Open Office which was giving me some problems.
Every so often the spreadsheet hung. I downloaded the latest version of Open Of-
fice and things are working now. I found they have added a filled spider diagram
which is neat. I sometimes plot prices as a spider diagram when I want to remove
the effect of linearity in the usual diagrams.

18th February
Good news and bad news. The good news is that all my stocks showed gains. The
bad news is that my computer has suddenly decided to have a fit of BSOD’S. This is
a real pain. From past experience I know that tracking down the problem can be a
horrible task. I’m saving after virtually every sentence! It’s about time computer
hardware and software manufacturers were treated the same way as car manufac-
turers when their cars develop problems.
 9

19th February
Continued good news. Once again i had some positive gains and finish the week
up. Now I must decide how to set my stops for next week. Given te still continuing
computer problems I might set stops for a longer duration than usual. I don’t want
to risk my computer going down just as I make a trade.

22nd February
Weakness today! All the signs hint at a change. This might be just profit taking
or a longer dip. Anyway I decided to set a stop loss of £2.65 for FXPO. The other
stocks have limit orders for the moment.

23rd February
FXPO’s stop loss was hit. It finished at £2.60. I sold enough to cover the original cost
which means there is a substantial number of shares left. As expected everything
dropped. The BBC said it was due to weak consumer demand in the USA. Who
knows and who cares? The point is I haven’t been caught out. Long term averages
remain good, although SSL’s are beginning to congest which suggests a turn against
the stock. Volume was light and price movement was easy.
So far as the BSOD’S are concerned I got hit by 3 this morning. I have installed
17 out of date Intel chip updates and so there is no system software that is out of
date. I hate Microsoft! After 50 years of computing such things as inelegant blue
screens should not happen.

24th February
There was some recovery today. Ferrexpo gained over 6 %. All the other stock put
on gains as well though Tullow is not looking healthy. Price targets are still in place
and I now have some capital to trade again.

25th February
Have you ever had that drifting feeling? The kind of feeling that makes you want
to do something extreme because nothing else seems to be happening.
Tullow has turned down. There is no disguising the contraction of the long
term Guppy Averages on the top. This indicates a definite change of heart in in-
vestor sentiment. Since the whole idea of being a small trader is to ride the back
of the big investors I cannot ignore the signs. I will try to get out at break even!
 10

I will cancel the original limit sale and put on a new one just inside the expected
range of prices. The price often jumps at opening before trailing off over the day.
With luck, (and you must never forget luck) the pattern will repeat itself tomorrow
and I will get out with only a marginal loss.
The sale will offset my losses in the
other account that I hold which I am
running on a more buy and hold strat-
egy. Even though these Tullow shares
are down around 2 % I want to hold them
because of the plan. I really believe
you should always stick to your plan,
Averages Turning Down
especially when it comes to selling. Just
put it down to one of those bad days and forget about it. There are always oppor-
tunities out there, even in difficult times. If you want to trade you really have no
choice but to get in there and try.

26th February
Another month finishes. It has passed very quickly. It was certainly stormy but
yesterday, at the close there was some claw back on prices. I am happy to say all
my trades are still active. In particular I was able to hold onto Tullow Oil which I
felt sure would fall. Even the apparently dead APC moved up although there was
only a single trade. It all helps though.
Next month there will be a short hiatus because the family is upping sticks and
moving to Nagano from Kyoto. I hope to be off-line just a couple of days. I realise
that I haven’t given any examples of Point and Figure charts yet. That omission
will be rectified in my diary for March when I will explain in more detail about my
use of stop losses.
The programming project is still in mind, but at the moment it is staying there
and has not advanced much. I am glad to say the computer is a bit more stable
again since updating several chip set drivers.