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Dynamic stopcharts
- 1. Educational Series: Dynamic Stop Charts Talon Eight Global Wealth Management Presented by: David Stendahl
- 2. NFA Disclosure Commodity trading involves substantial risks due in part to the highly speculative nature of such trading. As a result, an investment in a commodity trading account is only suitable for you if you have adequate means to provide for your current needs and personal contingencies and you can bear the economic risk of losing your entire investment. Past performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. Talon Eight, LLC has had little or no experience in trading actual accounts for itself or for customers. Because there are no actual trading results to compare to the hypothetical performance results customers should be particularly wary of placing undue reliance on these hypothetical performance results. Compliance
- 3. Presentation Summary Dynamic Stop Chart Definition: Dynamic Stop Charts provide a visual reference of all system stops relative to the underlying market and its specific level of volatility. Presentation Overview Part Two: Shows the Dynamic Stop Chart in action as stops adjust over a five-day trading period. Part One: Reviews the three sections that make up the Dynamic Stop Chart.
- 4. Part One Part One Overview: Review the three main sections of the Dynamic Stop Chart Highlight the closing price data with positive/negative volatility levels Breakdown the active (open) Long and Short positions Breakdown the pending Long and Short trade orders Review the various icons used to distinguish between Trend, Momentum and Pattern based systems.
- 5. Overview Dynamic Stop Chart Sections Main sections: 1 2 3 1. Market Information 2. Open Positions 3. Pending Trades Let’s take a closer look at each section on the Dynamic Stop Chart.
- 6. Section One Market Information The Average True Range (ATR) indicator measures a security's volatility. We use +/- 4 ATRs to gauge near term price projections in relation to our trading stops. 1 Market Close Positive Volatility (+4 ATRs) +4 ATRs -4 ATRs Close Negative Volatility (-4 ATRs)
- 7. Section Two Open Positions 2 All Open Positions Long/Bullish Stops Short/Bearish Stops Let’s take a closer look at the Pending Orders in section three. Protective Stops BELOW the Market Protective Stops ABOVE the Market Longs Shorts Market Level
- 8. Section Three Pending Orders 3 All Pending Orders Long/Bullish Buy Orders Short/Bearish Sell Orders Let’s take a closer look at System Icons associated with these Stops. Buy Stops ABOVE the Market Sell Stops BELOW the Market (none shown) Longs Shorts Market Level
- 9. System Icons Three Different Trading Styles Let’s take a closer look at the Dynamic Stop Chart in action. Trend System: Blue Dash Long Stop Position @ 89.1362 Long Pending Order @ 90.2200 Short Stop Position @ 90.8808 Momentum System: Orange Triangle Pattern System: Purple X
- 10. Part Two Part Two Overview: Review the Dynamic Stop Chart over five days of trading Highlight market moves in relation to various system stops Review daily trading order for each system See a pending order execute and immediately activate protective stops
- 11. Day One Dynamic Stop Chart in Action Let’s continue to the next trading day. Market: IEF Open Trades: Momentum Long Stop @ 89.2587 Pattern Long Stop @ 89.1362 Momentum Short Stop @ 90.8808 Pending Trade: Trend Long Buy @ 90.2200 Market Price: @ 89.9300 Trading Order: Each system has its own Stop Order to ensure protective execution during the day. Orders are updated on a daily basis.
- 12. Day Two Dynamic Stop Chart in Action Let’s continue to the next trading day. Market: IEF Open Trades: Momentum Long Stop @ 89.2393 Chg. -0.02% Pattern Long Stop @ 89.1484 Chg. +0.01% Momentum Short Stop @ 90.7422 Chg. -0.15% Pending Trade: Trend Long Buy @ 90.2200 Chg. 0.00%. Market Price: @ 89.7100 Chg. -0.25% No Chg.
- 13. Day Three Dynamic Stop Chart in Action Let’s continue to the next trading day. Market: IEF Open Trades: Momentum Long Stop @ 89.222 Chg. -0.02% Pattern Long Stop @ 89.1689 Chg. +0.02% Momentum Short Stop @ 90.7422 Chg. 0.00% Pending Trade: Trend Long Buy @ 90.2300 Chg. +0.01% Market Price: @ 89.7500 Chg. +0.04% No Chg.
- 14. Day Four Dynamic Stop Chart in Action Let’s continue to the next trading day. Market: IEF Open Trades: Momentum Long Stop @ 89.2090 Chg. -0.01% Pattern Long Stop @ 89.2955 Chg. +0.14% Momentum Short Stop @ 90.7422 Chg. 0.00% Pending Trade: Trend Long Buy @ 90.2100 Chg. -0.02% Market Price: @ 90.0400 Chg. +0.32% No Chg. Pending Trade: The Buy Stop for the Trend based system (Blue Dash) is now within 1 ATR of the market and is close to triggering a new trade. System Stop: The more adaptive stop for the Pattern based system (Purple X) has now moved above the Momentum system (Orange Triangle).
- 15. Day Five Dynamic Stop Chart in Action Let’s review the five days of trading in IEF. Market: IEF Open Trades: Momentum Long Stop @ 89.2014 Chg. -0.01% Pattern Long Stop @ 89.4597 Chg. +0.18% New … Trend Long Stop @ 89.8200 Momentum Short Stop @ 90.7422 Chg. 0.00% Pending Trade: None Market Price: @ 89.83 Chg. -0.23% No Chg. New
- 16. Trading Review Five Day Trading Wrap-up: IEF lost -0.11% over five days of trading 16 Protective Stops were placed on all open positions 4 Buy Stops were placed for a single pending trade A Trend-based systems triggered … which had an immediate Protective Stop in place In total three trading styles (Trend, Momentum and Pattern) actively traded On day five, IEF was partially hedged with three Long positions and one Short position
- 17. Conclusion Dynamic Stop Charts Over five days a lot of trading went on behind the scenes. A total of 20 traders were placed, as we adjusted protective stops for open positions and buy/sell orders for pending trades … all to execute a single trade. Conclusion … On a day-to-day basis the Dynamic Stop Chart helps us organize and monitor our trading stops across all of our markets … making the job of trading all the more efficient.
- 18. Disclosure Note on Modeled Results The asset-allocation framework discussed in this paper is a new strategy for which actual data are not yet available. The portfolio and its performance are hypothetical and do not represent the investment performance or the actual accounts of any investors. The securities in these hypothetical portfolios were selected with the full benefit of hindsight, after their performance over the period shown was known. The results achieved in our simulations do not guarantee future results. The model performance information in this presentation is based on the 100% systematic back-tested performance of hypothetical investments over the time periods indicated. “Back-testing” is a process of objectively simulating historical investment returns by applying a set of rules for buying and selling securities, and other assets, backward in time, testing those rules, and hypothetically investing in the securities and other assets that are chosen. Back-testing is designed to allow investors to understand and evaluate certain strategies by seeing how they would have performed hypothetically during certain time periods. It is possible that the markets will perform better or worse than shown in the projections; that the actual results of an investor who invests in the manner these projections suggest will be better or worse than the projections; and that an investor may lose money by investing in the manner the projections suggest. The model performance information in this presentation is hypothetical, and assumes reinvestment of all gains with an initial portfolio equity value of $250.000 USD incepted on January 1, 2007, includes one-way transaction costs of the greater of $1.00 per trade or $0.0075 per share, per trade, plus $0.10 slippage per share, per trade, a 2% annual yield on unencumbered cash and/or 2% annual interest on all margined monies, and are net of a 2% annual advisory fee deducted at the beginning of each calendar month. Although the information contained herein has been obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. While back-testing results reflect the rigorous application of the investment strategy selected, back-tested results have certain limitations and should not be considered indicative of future results. In particular, they do not reflect actual trading in an account, so there is no guarantee that an actual account would have achieved the results shown. Back-tested results also assume that asset allocations would not have changed over time and in response to market conditions, which might have occurred if an actual account had been managed during the time period shown. Talon Eight, LLC may have a different investment perspective and maintain different asset allocation or other recommendations from those shown here. Note to All Readers The information contained herein reflects, as of the date hereof, the views of Talon Eight, LLC (or its applicable affiliate providing this publication) (“Talon Eight”) and sources believed by Talon Eight to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein. In addition, there can be no guarantee that any projection, forecast or opinion in these materials will be realized. Past performance is neither indicative of, nor a guarantee of, future results. The views expressed herein may change at any time subsequent to the date of issue hereof. These materials are provided for informational purposes only, and under no circumstances may any information contained herein be construed as investment advice. Talon Eight, LLC does not provide tax, legal or accounting advice. The information contained herein does not take into account your particular investment objectives, financial situation or needs, and you should, in considering these materials, discuss your individual circumstances with professionals in those areas before making any decisions. Neither this publication, nor any information contained herein, may be construed as any sales or marketing materials in respect of, or an offer or solicitation for the purchase or sale of, any mutual fund or other investment vehicle, financial instrument, product or service sponsored by Talon Eight, LLC or any affiliate or agent thereof. Offers and sales of mutual funds and other investment vehicles may be made only pursuant to the prospectus or other offering materials then in effect for such fund or vehicle. References to indices or specific securities are presented solely in the context of industry analysis and are not to be considered recommendations by Talon Eight. Talon Eight and its affiliates may have positions in, and may affect transactions in, the markets, industry sectors and companies described herein. Trading margin accounts involves substantial risks due in part to the highly speculative nature of such trading. As a result, an investment in a margined trading account is only suitable for you if you have adequate means to provide for your current needs and personal contingencies and you can bear the economic risk of losing your entire investment. Talon Eight, LLC has had little or no experience in trading actual accounts for itself or for customers. Because there are no actual trading results to compare to the hypothetical performance results customers should be particularly wary of placing undue reliance on these hypothetical performance results.
- 19. Contact Talon Eight, LLC Global Wealth Management 1600 Scripps Center 312 Walnut Street Cincinnati, OH 45202 513.288.1134 www.taloneight.com David Stendahl Principal Talon Eight, LLC [email_address]
Editor's Notes
- #2: This is David Stendahl with an educational presentation from Talon Eight. This presentation will focus on Dynamic Stop Charts … A tool we use to monitor the stop orders applied to each of our trading systems we follow.
- #3: For compliance reasons, before we begin the presentation, please take some time read over our discloser statement.
- #4: Let’s begin our presentation with a definition of what Dynamic Stop Charts are all about. Dynamic Stop Charts provide a visual reference of all system stops relative to the underlying market and its specific level of volatility. In other words … it’s a chart that monitors our trading stops and the risks associated with those stops. To provide a complete overview I’ve split this presentation into two parts. Part One will review the three sections that make up the Dynamic Stop Chart. And … Part Two will show the Dynamic Stop Chart in action as stops adjust over a five-day trading period.
- #5: In Part One we’ll … Review the three main sections of the Dynamic Stop Chart Highlight the closing price data with positive/negative volatility levels Breakdown the active (open) Long and Short positions Breakdown the pending Long and Short trade orders And finally … Review the various icons used to distinguish between Trend, Momentum and Pattern based systems.
- #6: As I mentioned the Dynamic Stop Chart is split into three main sections Section one shown in Gray provides market info … such as, Price and Volatility levels Section two shown in Green displays all open trades. And … Section three shown in Yellow displays all pending trades. Let’s take a closer look at each section on the Dynamic Stop Chart.
- #7: Section one, in the middle of the graphic, is made up of Market close shown as the Big Black dot. The Green diamonds shown above represent four levels of upside volatility measured with the Average True Range indicator or ATRs. The Red diamonds below represent four levels of downside volatility. We use +/- ATRs to gauge near term price projections in relation to our trading stops. So in other words these ATR levels tell us if our stops are close to triggering. Let's move onto Section Two.
- #8: Section Two on the left hand side of the chart, displays all open positions. We have highlighted this area in green. This area is actually made up of two columns. The left hand side shows the Long protective stops for the open positions. Notice that the Long stops are below the market level … protecting the positions should the market fall. The second column in the Green area shows the Short protective stops. Notice that in this case the Short stops are above the market … protecting the position should the market rise. I’ll explain what that these highlighted icons mean shortly. Let's continue a take a closer look at the Pending Orders in Section Three.
- #9: Section Three on the right hand side of the chart, displays all pending positions. We have highlighted this area in yellow. This area is actually made up of two columns. The left hand side shows the Long pending stop orders. Notice that the Long pending orders are above the market … waiting for the market rise to activate the Long trade. The second column in the Yellow area shows the Short pending stop orders. Although none are shown … these stop orders would be below the market … waiting for the market to fall to active the Short trade. As I mention previously, let’s take a closer look at the Systems Icons associated with these Stops.
- #10: The three icon shown on the chart represent systems with different trading styles. The Blue Dash represents a Trending based systems. In this case it’s a Long pending order to buy the market at 90.22. The Orange Triangle is used for Momentum based systems. In this case it’s a protective stop order to cover a Short position at 90.8808. And finally … The Purple X represents a Pattern based systems … in this case it’s a protective stop order to cover a Long position at 89.1362. So each of the four systems shown … One Trending (Blue Dash), Two Momentum (Orange Triangles) and one Pattern (Purple X), all have physical stops to enter or exit, new or existing positions. Let’s move onto Part Two of this presentation to see the Dynamic Stop Chart in action.
- #11: In Part Two of our presentation let's … Review the Dynamic Stop Chart over five days of trading Highlight market moves in relation to various system stops Review daily trading order for each system See a pending order execute and immediately activate its protective stop
- #12: On day one we see the same trades that we used to review the Dynamic Stop Chart. The market being traded is the Exchange Traded Fund IEF … which tracks the interest rate sector. On day one the market is at 89.93. We have three open orders … two long and one short We also have one pending trade. Notice that Each system has its own Stop Order to ensure protective execution during the day. These Orders are updated on a daily basis. Hence they are dynamic and not fixed. With the table set … let's move to the next trading day.
- #13: On day two we see that the market fell .25% The protective stop order for the longs moved in different directions … the Momentum based stop (orange triangle) moved lower while the Pattern based stop (purple X) moved higher. These stops are independent to the individual system, hence they move in their own way. The short order moved with the market… and the pending trend based systems was unchanged. Each day new orders are placed with the broker … to reflect changes to the systems. Lets continue to the third trading day.
- #14: On day three we see that the market recovered just a bit by .04% In this case the stop for the Long momentum system fell and the stop for the pattern based system rose higher. The Short momentum system remained unchanged and the pending long position moved higher. Again subtle changes to the market will affect the systems stop orders each and every day. Next … let’s take a look at day four in the trading of IEF.
- #15: On day four we see a nice gain in IEF with a .32% rise. The long momentum stop fell slightly and the Long pattern based stop continued to rise … in fact the Pattern based system order is now above the Momentum based system. Looking at the other trades The Short stop order remained unchanged and the pending Trend based systems had moved very close to the closing price lever for IEF.
- #16: On day five we see that IEF fell .23% and some changes have been made to the chart The Long momentum and pattern positions continue to diverge … with the protective stop for the pattern based system inching ever closer to the market. The Short position remained unchanged as it’s a slow moving system … the big change however came in the trend based system … which triggered a new Long position in IEF. What we see now is the new protective stop for this new Long position. The order executed during the day when the market moved higher intraday but reversed course at the end of day. As mentioned before protective stop orders and new pending Buy/Sell orders are updated every day allowing our systems to react appropriately to market moves. Let’s review and summarize the past five trading days in IEF.
- #17: So what happened over five days of trading …. IEF lost -0.11% over five days of trading 16 Protective Stops were placed on all open positions 4 Buy Stops were placed for a single pending trade A Trend-based systems triggered … which had an immediate Protective Stop put in place In total three trading styles (Trend, Momentum and Pattern) actively traded On day five, IEF was partially hedged with three Long positions and one Short position So what’s the conclusion …
- #18: Over five days a lot of trading went on behind the scenes. A total of 20 trades were placed, as we adjusted protective stops for open positions and buy/sell orders for pending trades … all to execute a single trade. So the conclusion is On a day-to-day basis the Dynamic Stop Chart helps us organize and monitor our trading stops across all of our markets … making the job of trading all the more efficient.
- #20: I hope you have enjoyed this presentation on Dynamic Stop Charts … my name is David Stendahl If you have questions on this or other presentations, please feel free to contact me directly.