Update on Ivy Portfolio

Yeah, it was an OK decision not to get back into VNQ on 1st November, eventhough it signalled a monthly close above the 10month moving average.
10MMA Graphs
Reasons for my hesitancy to re-enter a long position in VNQ were:
1. Everything else except for bonds still below the 10MMA
2. Markets in turmoil. Despite the strong rally, my fundamental view is that Europe is going to cause more pain. (So tell me something new)
3. I was waiting for a weekly close, and now we have it. It's back below the 10mth SMA, and below the 200 day SMA.
4. If I had a strong weekly close (which we did not get), then I could have entered a half position.

As it stands the Ivy Portfolio stays 80% in cash, and 20% in bonds (IEF, BND, TIP).

It's been a good learning experience running both the Ivy Portfolio and the Top 3 sectors Portfolio (which is also only in bonds). Both have suffered drawdowns slightly above 10% but have sat out most of the market turmoil.

I am looking forward to attending the upcoming Chris Lori's Highly Intensive , Price Action Filled Forex Trading Workshop this coming weekend. It'll be great fun and highly educational, of that I am sure. This is but one step in my journey to trading success. I've been keeping busy reviewing Chris Lori's Pro Trader Complete FX Course. Lots of work to do before the weekend. Let's get on with it!

On a side note, that "new toy" I mentioned in the previous blog has been put into the thrash can. Come on, I don't need another indicator or system.. what I need is the discipline, focus and resilience to perfect what I have and to construct it all into my own system. Playing with toys like STP (which has been working quite well) is but a distraction, but it will continue to be part of my armamentarium for now. I'll write about that another time, but right now the focus is on PRICE ACTION and how to PROFIT from it!

Game on!

VM

Ivy still in cash mostly, new toys to play with?

As of now, only bonds are above the 10 month moving average or 200 day simple moving average. Nothing much to do here.

Playing with a few new forex toys... a simple swing indicator that seems to work quite well on hourly charts is one of them. Entries are frequent on multiple pairs, stop loss levels are ok at about 50 pips or so usually, and I can take off 80% when it hits the equivalent of the stop amount and then let the rest run. Good plan?

Longer Term Portfolio Rules Adjustment

I must say that it is so absolutely typical that 3 months after I start a longer term investment portfolio using rules adapted from the Ivy Portfolio, the markets decide to go into turmoil. Just as well that there have been clear signals to exit long term positions in equities (both US and non-US) and REITs. Commodities have just signalled an exit as well, closing well below the 10month SMA for the month ended 30th September 2010. Charts showing the monthly close in relation to the 10 month MA can be found here, thanks to Mebane Faber &Co.

While it might make sense to wait for the monthly close if you really have no time to monitor the markets, I prefer a more pro-active approach, one that adjust quicker but hopefully still keeps the portfolio management in the same spirit as the Ivy Portfolio.

Here are my adjusted rules for entry:
1. Enter long position when monthly close above the 10month MA.
2. Enter half long position on weekly close above the 200 day SMA.

While adding condition 2 into the fray does not really change the spirit of the portfolio, it allows for an earlier entry when markets start improving, though with the risk of getting whip-sawed in a fake move up.

Here are my adjusted rules for exits:
1. Daily close below the 200 day SMA - warning signal. Be on the look out for the weekly close.
2. Weekly close below the 200 day SMA - exit all long positions.
3. Monthly close below the 10 month SMA - exit all long positions.

This would theoretically exit positions sooner, especially if the first break below the 200 day SMA occurs early in the month.

The sectors used here should be the same, and I will stick to the 5 main sectors in US Equities (VTI), non-US equities (VEU), REITs (VNQ), Bonds (IEF) and Commodities (DBC). I am not convinced that expanding the list to 10 or 20 ETFs improves the performance. Simple might still be better in this situation.

Hence now, the only open position should be in Bonds.

I am running another account using the top 3 performers system also detailed in the Ivy portfolio. Right now, that portfolio should be in cash too, except for bonds, and I will be making the necessary adjustments in both accounts (Modified Ivy and Top 3) come Monday.

Here's to longer term success and less ambiguity in management of these accounts.

A new beginning?

The journey is long and I am probably not even half way there yet. It's been years since I started trying to learn to trade. Subscribing to The Kirk Report has been one milestone this year. I've stopped trading actively and decimating my account and learnt something new... that is nothing new! Portfolio management using an asset allocation strategy combined with market timing derived from the book "The Ivy Portfolio".

Hence I've moved most of what was in my thinkorswim account to a new Interactive Brokers account which is cheaper to run as the commissions are only USD1 per trade or adjustment. I now have two accounts, one that runs the basic 10 etf portfolio with montly rebalancing and market timing using the 200 day simple moving average. The other is a Top 3 account, where the average of the rolling 3, 6 and 12 month performances are compared and the Top 3 performers based on these averages kept in the portfolio in equal weightages.

A brief summary of the plan:

Ivy 10 portfolio:
ETFs traded:                             Percentage Weighting
    Bonds:                 BND          5
                                TIP           10
                                IEF            5
    Commodities:       DBA          5
                                DBC          10
                                GLD           5
    US Stocks:           RSP            10
                                VB              10
    World Stocks:      VEU           10
                                VWO           10
    REITS:                 RWO           10
                                 VNQ            10

Every 1st of the month, as long as the closing price is above the 200 day SMA, the ETF is kept within the portfolio.

Currently all positions are in place except for BND. That might well change if this marked correction continues, but until the end of the month, there is nothing to do.

The Top 3 strategy is even simpler:
ETFs: IEF VTI VEU DBC VNQ
The rolling average of the 3, 6 and 12 month performance for the ETFs is calculated and the top 3 performers are kept in the portfolio, each with a 1/3 weightage.

Currently I have just started the top 3 portfolio, whilst the 10 ETF portfolio has been going for about 5 months. Somehow the 10ETF is lagging the S&P, but we'll see how it does by year's end. It sure beats staring at the charts and wondering what to do next.

His mighty power!

"I keep asking that the God of our Lord Jesus Christ, the glorious Father, may give you the Spirit of wisdom and revelation, so that you may know him better. I pray also that the eyes of your heart may be enlightened in order that you may know...his incomparably great power for us who believe. That power is like the working of his mighty strength, which he exerted in Christ when he raised him from the dead and seated him at his right hand...." [Eph. 1:17-20]


HIS INCOMPARABLY GREAT POWER!

Nothing that I want to achieve is beyond me, if it is really want I want and if it is in accordance with my faith in God and my Lord Jesus. In all that I do, if I remember that, things will be fine.


This blog has been dead for a while, and I will revisit it every now and then just to post a few more notes on what is happening. Following Kirk, I have been trading less actively, and following a diversified portfolio of  ETFs with a simple timing method. I believe this will give the major portion of my funds in USD at least 10% returns per annum, on average. The remainder of it I have been using for shorter term trades, and this is a period of transition for me, in more ways than one.

For one thing, I am moving my TOS funds to IB. That's been prompted by the opening of a TOS Singapore office, and if I am to transfer my trading to a new entity, I might as well take the opportunity to move my longer term timing-based diversified portfolio to a cheaper broker.

I will hold my small options account with TOS Singapore, and explore the use of Tradestation and Infinity.


My stake in a private hedge fund is about to be wound down, for reasons out of my control. That's fine, I should receive about a 30% return over 5 years.. nothing fantastic, a bit under expectations, but nothing really to complain about.

And my decision to continue this trading journey or to pull back even further into less active trading is imminent. Stay tuned.


VM

Read that last blog

After the turmoil in the Middle East over the weekend and over the period where I have been hopelessly long, it's again another reminder that profits not banked are not profits. When the markets opened on Tuesday after the long weekend, there was plenty of red. Notably AAPL traded down severely and this caused the biggest hit to my short term trading account as I had short put spreads that are due to expire this Friday. Those were closed for a bigger than needed loss last night. My other long positions were all closed last night too as it seems to me this market will either consolidate or continue to sell off. All we have are our opinions and we have to act on them. So I've closed long positions in ERTS (was a small gainer, closed for negligible loss, C and GOOG (both for about 25% loss on call value), XLU (two days ago for about breakeven), XLE (nice gain, closed yesterday. The best performer was DTV which I held over earnings. This gapped up and I locked in profits of 75% on my calls. Over all this turmoil of crashing prices amidst a delta positive account, what saved me was I hedged with SPY, almost delta for delta, in ITM 70 delta puts. These did nicely and as I closed out my long positions, I closed out 2/3 of my hedge to reduce the red ink substantially. So now I am left with a small SPY put position and UUP put position (took partial profits yesterday).

As to the Lazy Portfolio, that shows how nice it is to be long in a diversified portfolio. Eventhough it has taken a minor hit too, the commodity portion of the portfolio traded higher and I like the way it is shaping up so far.

It's now mid-week, and I am happy to have lightened positions substantially. There is so much more to life than trading and I'd much rather spend my time with my family than staring at a screen. So this works pretty well:

1. Run the Lazy Portfolio. Rebalance or add monthly.
2. Screen for daily squeeze plays, or daily ATR signals; use the shortlist from Kirk and other stocks like those from Changewave Alliance, which is where I picked DTV.

The lesson from all this? In all the turmoil when you feel like sh*t with the red ink awash, just stay cool, and take the appropriate action. Do what you need to do and move on. In this case, hedging was a good move, sometimes it wouldn't have been so and I might have lost on the hedge but the long portfolio would have balanced that out. In the end, it's a personal call on how I feel the market is going to behave. I won't always be right, but I have to act on my judgement, and not act in panic. In a rapidly dipping market, it's probably better to hedge, especially with rising VIX; then wait for the dust to settle before closing losing positions. With just the SPY puts, I managed to hedge much of the account. That beats staring at 5 different long positions and wondering what to do.

Stay sharp and trade less!

VM

Don't let the euphoria set in

Sure, the market has gone up, YET AGAIN! Sure, the portfolio is doing well. Well, well, this is just the beginning, OK? Keep the risk in check, take profits when indicated, and don't get euphoric to the point that you count the profits before they are banked in cash.

The recent plays I have entered are all doing well. I am long in ERTS, DTV, XLE and XLU with calls, and in puts in UUP. As long as the market continues to trudge higher, these would probably continue to do well, along with the lazy portfolio that I started only recently. I now need to add in the part about the lazy portfolio into my trading plan.

I'm reading voraciously again.. that's a good sign. I am back in the markets and I haven't given up eventhough it seems a couple of weeks back I was really losing momentum. I'm 1/3 way through "The Gone Fishin' Portfolio" by Alexander Green. It's a good read so far, nothing much to add compared to "The Dick Davis Dividend".

Well, again, keep those risks in check. I like the way I am managing minimally and getting more sleep these few days. It's because there are no real decision points yet. My stops are in place and my targets are open.

VM