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The Monthly | Blog Edition | August 2022

A glimpse inside the Factor Member Portal

From the just-completed month

August Numbers

  • Tweets posted on our Private Member Twitter: 87
  • Updates and Special Reports posted on the Member site: 6

Snippets from Thoughts on a Weekend Afternoon

Peter’s thoughts on the finished week and the week ahead | Issued most weekends

A short clip from a member webinar –

An excerpt from a 10 page report on DrawDowns – 

Why do drawdowns occur?

Following I discuss two types of Drawdowns:

• Drawdown ending in destruction or disappointment
• Drawdowns within long-term profitability

Drawdown ending in destruction or disappointment
Here is an important point: Technically the concept of “Drawdowns” applies to long-term profitable trading programs because eventual new NAV highs are implied. A trader whose account zig-zags in a downward slope over time or never really gains traction technically does not experience Drawdown per se.

Over the years brokerage houses, regulatory agencies (such as NFA and CFTC) and academic researchers have consistently reported that fewer than 20% of futures and forex traders are profitable after three years. After five years the proportion increases because of survivors’ bias. My guess is that the data for crypto and equity traders are very different. Crypto traders who began prior to 2021 would have much higher success profiles – crypto traders who began since 2021 would be similar to futures and FX traders. Stock traders who are longterm holders have also done well. Short-term stock traders would fall into line with futures/FX traders.  There are many reasons why a trader might never gain traction. I will highlight several.

Absence of a trading plan.

As insane is it sounds, many people who engage in market speculation do so without a conceived organized plan or goal. This applies to the process of identifying a candidate trade, the sizing of
trades, overall risk management and managing individual trades.
Note: There are a very small proportion of traders who do quite well, even from the start, based on instinct and feel rather than rules, but these individuals are a huge exception. How does a person know if he or she is in this group?

Answer: Profitability comes naturally and continually. I am NOT in this category.

Non-commitment to a trading program (lack of conviction). A trader may have most or all the pieces for a successful trading program, including:

• Insightful market analysis
• Trade identification
• Entry process
• Risk and trade management guidelines/rules
• Organized procedures
• Performance reviews
• Process for adopting modifications to plan
• Safeguards to protect plan from emotional swings

But still, traders may have lacked the conviction to go “all-in” following the plan. Self-doubt and second guessing are huge enemies of trading success. A trader who does not follow his or her trading plan does not really have a trading plan.

 


Factor Member Private Twitter

Top Nine Tweets

 

 


Recommended Reading

Contains an affiliate link to our Amazon Store

Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History by Liam Vaughan


Become a Factor Member

Members receive:

  • Trading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
  • The Weekend: Thoughts on a Sunday (Weekend) Afternoon
  • The Monthly: Issued monthly, will provide an overview of the completed month and highlighted member content
  • Private Twitter Page: Real-time alerts on interesting charts and observations, member dialog, the process of trading, the human aspect of trading, and risk/trade management (streamed on the member site as well)
  • Webinars: Periodic member-only webinars where Peter speaks about current conditions and fields member questions
  • Knowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of trading content
  • Automatic notifications: Email and social media notifications are sent out when new content is published
  • Factor Report Educational Papers: Periodic educational and instructional documents

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. My goal is to shoot straight on what trading is all about.

I hope you will consider joining the Factor community.

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The Monthly – August 2022

This content is for members only

The Monthly – July 2022

This content is for members only

The Monthly | Blog Edition | July 2022

A glimpse inside the Factor Member Portal

From the just-completed month

July Numbers

  • Tweets posted on our Private Member Twitter: 164
  • Updates and Special Reports posted on the Member site: 6

Snippets from Thoughts on a Weekend Afternoon

Peter’s thoughts on the finished week and the week ahead | Issued most weekends

July 9/10 Update

PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE

July 16/17 Update

I am pretty much over-the-edge obsessive, but when I first developed my original trading plan in 1979-1981, I worked through details in all the following boxes.

Of course, there were many more sub-details to each.

Over time I have boiled many of these boxes down to their essence and began to think more in terms of concepts and guidelines rather than details and rules.


Factor Member Private Twitter

Top Seven Tweets

 

 

 

 


Recommended Reading


Become a Factor Member

Members receive:

  • Trading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
  • The Weekend: Thoughts on a Sunday (Weekend) Afternoon
  • The Monthly: Issued monthly, will provide an overview of the completed month and highlighted member content
  • Private Twitter Page: Real-time alerts on interesting charts and observations, member dialog, the process of trading, the human aspect of trading, and risk/trade management (streamed on the member site as well)
  • Webinars: Periodic member-only webinars where Peter speaks about current conditions and fields member questions
  • Knowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of trading content
  • Automatic notifications: Email and social media notifications are sent out when new content is published
  • Factor Report Educational Papers: Periodic educational and instructional documents

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. My goal is to shoot straight on what trading is all about.

I hope you will consider joining the Factor community.

sig

The Monthly | Blog Edition | June 2022

A glimpse inside the Factor Member Portal

From the just-completed month

June Numbers

  • Tweets posted on our Private Member Twitter: 177
  • Updates and Special Reports posted on the Member site: 8

Snippets from Thoughts on a Weekend Afternoon

Peter’s thoughts on the finished week and the week ahead | Issued most weekends

Commentary

There are times when break-even trading is about the best I can expect. I am OK with break-even trading.  Treading water is way better than sinking. No matter if the markets are difficult or if I am making them difficult, if I can keep my capital intact eventually things will get back on track. Five of the last seven tranches I have closed have been for a loss. Over the years I have learned (sometimes reluctantly) to have patience for better times. Over-eagerness to get trading back on track can lead much deeper into a drawdown.

U.S. Dollar Index | June 12th report

The USDX is taking another attempt at the upper boundary of a massive rectangle. If this rectangle is completed, I will look for an opportunity to go long.

Corn | June 26th Report

The weekly continuation chart displays a clear possible H&S top, but the same pattern does not appear in the New Crop contracts. I will review the shorting opportunities in the Dec contract if and when the weekly chart H&S is completed.


Factor Member Private Twitter

Top Seven Tweets


Recommended Watching


Become a Factor Member

Members receive:

  • Trading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
  • The Weekend: Thoughts on a Sunday (Weekend) Afternoon
  • The Monthly: Issued monthly, will provide an overview of the completed month and highlighted member content
  • Private Twitter Page: Real-time alerts on interesting charts and observations, member dialog, the process of trading, the human aspect of trading, and risk/trade management (streamed on the member site as well)
  • Webinars: Periodic member-only webinars where Peter speaks about current conditions and fields member questions
  • Knowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of trading content
  • Automatic notifications: Email and social media notifications are sent out when new content is published
  • Factor Report Educational Papers: Periodic educational and instructional documents

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. My goal is to shoot straight on what trading is all about.

I hope you will consider joining the Factor community.

sig

The Monthly – June 2022

This content is for members only

The Monthly | Blog Edition | May 2022

A glimpse inside the Factor Member Portal

From the just-completed month

May Numbers

  • Tweets posted on our Private Member Twitter: 134
  • Updates and Special Reports posted on the Member site: 8

Snippets from Thoughts on a Weekend Afternoon

Peter’s thoughts on the finished week and the week ahead | Issued most weekends

Excerpt from June 5th report

There is no magic formula to discretionary trading. When I see something with a measured risk and a potential for gain, I step to the line and place a bet. My default assumption is that the next trade I enter will be a loser. In reality at least 80% of the trades I enter will either be losers or NOT produce a large enough profit to contribute to my net profitability. Only 15% to 20% of my trades end up being the outcomes I seek. Hey, that’s a reality for me and there is a great chance it’s reality for you.

Let others in financial Twitter brag about how they are always right and how they were able to figure out in advance every waggle and weave by every market. That’s not reality for me. In fact, I think the pursuit of “BEING RIGHT” in trading is far over-rated. Long-term consistent profitability in trading comes from the ability to manage losing trades. But if you are intent on chasing the illusionary “BEING RIGHT” trading goal, then I completely understand that the Factor Service is not for you. If I did not know that the Emerald City was just a myth I would probably be searching for it too.

The obsession with “BEING RIGHT” by retail traders is something my peers at the CBOT in the 1970s/1980s would
have found mystifying.

May 22nd Report –  Overview of a possible trade in Nov 2022 Soybean futures

  • Major trend in Soybeans has been up
  • Assumption is that congestion periods more often represent continuation patterns than reversal patterns. This is a bullish consideration.
  • On the weekly chart, Nov Beans is in the second elongated congestion period since the inception of this bull trend. Each subsequent congestion in a trend must be treated with more suspicion for failure. This is a neutral to slightly bearish consideration.
  • Soybean prices are at historical resistance as represented by the peaks of previous bull markets. This is a slightly bearish consideration.
  • There is a strong seasonal tendency whereby Beans top in May/June and bottom in Sep/Oct. This is a bearish consideration.
  • Counter-seasonal moves (when they occur) are usually explosive. The reason behind this is that the fundamentals that can move prices counter-seasonally are typically overwhelming to price discovery. This is a bullish consideration.
image.png
The daily and weekly charts present a well-defined symmetrical triangle
image.png

Construction of long-side trade

  • Details of a short side trade (still a consideration) are to be determined
  • Max risk on the trade is 60 BPs (30 each for two tranches)
  • For a pattern of 13 weeks, I use a 50% ATR breakout
  • The ATR breakout level for Nov beans is approx 28 cents above the Apr 22 high, so 14 cents is the 50% mark
  • I don’t trust overnight price discovery in grains, so my buy stop (with limit) order is valid only in daytime hours
  • I also attach protective sell stop orders that become active if/when the buy stop is triggered
  • These protective stop levels initially are just best guesses. Once the buy stop is filled I will modify the sell stops (usually in the direction of less overall risk, often within minutes of the buy stop fill)
  • In this case my protective stops are below the May 20 close for one tranche and below the May 19 low for the second tranche
  • The quantity of each tranche is different in order to equalize the net risk of each tranche
  • I will also enter target orders once the trade is active. The target and protective stop orders will be on an OCO basis (One Cancels the Other)
  • The initial Risk/Reward (R/r) on one tranche is 3.4 /1 and 1.7/1 on the other tranche. R/r is NOT an important metric in my trading because I actively manage trades. As a result, the R/r becomes a moving target.
image.png
If this trade is entered I will provide a daily (if necessary) update on our Private Member Twitter stream.

May 22nd – Random Charts

Dow Jones Composite. This is NOT a
pretty picture.
Pattern: H&S top


Factor Member Private Twitter

Top Six Tweets

 


Recommended Watching

CHART YOUR WAY THROUGH CHOPPY WATERS

Featuring Jurrien Timmer and Peter Brandt

Published on: May 19th, 2022 • Duration: 69 minutes

With the global economy teetering on the edge of recession and financial markets whipsawing on a daily basis, these are challenging times even for seasoned investors. At times like these, technical analysis helps clarify the bigger picture by establishing correlations with downturns of the past. Few market participants are better positioned to help us navigate current conditions than Jurrien Timmer, Director of Global Macro at Fidelity Investments and a Chartered Market Technician. Timmer speaks to Peter Brandt, founder and CEO of Factor LLP and a renowned technician himself, about the prevailing macro environment. Timmer and Brandt share lessons from the past (did you know the 1994 Federal Reserve tightening cycle was the only one to produce a soft landing or that there was significant “quantitative easing” after World War II?) and identify trends for the future. The two chartists talk about bonds, rates, earnings, and Bitcoin, and they single out what they see as the greatest “chart crimes.” Recorded on April 26, 2022.


Become a Factor Member

Members receive:

  • Trading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
  • The Weekend: Thoughts on a Sunday (Weekend) Afternoon
  • The Monthly: Issued monthly, will provide an overview of the completed month and highlighted member content
  • Private Twitter Page: Real-time alerts on interesting charts and observations, member dialog, the process of trading, the human aspect of trading, and risk/trade management (streamed on the member site as well)
  • Webinars: Periodic member-only webinars where Peter speaks about current conditions and fields member questions
  • Knowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of trading content
  • Automatic notifications: Email and social media notifications are sent out when new content is published
  • Factor Report Educational Papers: Periodic educational and instructional documents

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. My goal is to shoot straight on what trading is all about.

I hope you will consider joining the Factor community.

sig

The Monthly – May 2022

This content is for members only

The Monthly | Blog Edition | April 2022

A glimpse inside the Factor Member Portal

From the just-completed month

April Numbers

  • Tweets posted on our Private Member Twitter: 131
  • Updates and Special Reports posted on the Member site: 7

Snippets from Thoughts on a Weekend Afternoon

Peter’s thoughts on the finished week and the week ahead | Issued most weekends

May 8, 2022

History is not guaranteed to repeat. Yet, when analog situations begin to develop it is important to be on the alert.
The U.S. stock market indexes are developing possible rounding top patterns on the charts, as shown below:

This roll-over reminds me a lot like the 2007-2008 period.

APRIL 29th

There are some things to remember when adopting a trading program with monthly/weekly charts (no daily charts with trading decisions limited to weekends).

1. In my opinion, trading weekly bars in the manner discussed above is COMPLETELY incompatible with monitoring the markets during the week (even if it is an end-of-day review). If I were to adopt this approach to trading it would have direct implications on the nature of communications to members of the Factor Service.

2. In that weekly price bars (or closing prices) would determine entry and initial protective stop levels, a 50 BP risk would likely cut in half or more the sizing of trades. My guess (using assumptions not discussed herein) is that net performance would be less than halved and Profit Factor would deteriorate by 30% or so. Marked-to-the-market drawdowns would also increase to 10% or more.

3. I can easily argue that the risk per trade on a longer-term program could be bumped from 60 or so BPs to 100 BPs as long as highly correlated trades are not simultaneously held.

4. Trade management would need to become much more mechanical and rules-based than is my current practice.

5. All significant changes in a trading program have unintended consequences.


Factor Member Private Twitter

Top Six Tweets

 


Recommended Reading

Contains an affiliate link to our Amazon Store


Become a Factor Member

Members receive:

  • Trading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
  • The Weekend: Thoughts on a Sunday (Weekend) Afternoon
  • The Monthly: Issued monthly, will provide an overview of the completed month and highlighted member content
  • Private Twitter Page: Real-time alerts on interesting charts and observations, member dialog, the process of trading, the human aspect of trading, and risk/trade management (streamed on the member site as well)
  • Webinars: Periodic member-only webinars where Peter speaks about current conditions and fields member questions
  • Knowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of trading content
  • Automatic notifications: Email and social media notifications are sent out when new content is published
  • Factor Report Educational Papers: Periodic educational and instructional documents

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. My goal is to shoot straight on what trading is all about.

I hope you will consider joining the Factor community.

sig

The Monthly – April 2022

This content is for members only