Titan's Hang Seng Trading Strategy #5 

Trading signals are generated by a fixed percentage rise or fall from the opening stock index futures price in relation to the previous day’s closing price. The strategy is designed to potentially exploit market inefficiencies that exist when stock index futures prices gap up or down too far. When a sufficient gap exists, the strategy generates a market after open order to BUY when the market gaps down, or a SELL order when the market gaps up. The direction of the trade is in the opposite direction of the respective gap. Entry criteria is fully mechanical, hence eliminates subjectivity and procrastination. 

 

Positions are closed by the following:

a)            Via initial stop-loss orders.

After positions have been opened, we immediately and always apply stop-loss orders. Stop-loss orders are mechanically generated at pre-determined point values that represent a fixed percentage of the Average True Range (ATR) rounded to the nearest point. Stops are placed according to the approximate opening price and not the fill price. For example, an average initial stop is around 105 points ($194 AUD) for the 10 HKD MINI Hang Seng futures contract. It is greater than 105 points when the Hang Seng has a higher ATR value. 

b)            Via market on close orders. 

Remaining open positions will be closed at the close of the market on the main respective trading session. This is to enable profits to “run” as much as possible within the given time frame. In circumstances where the close is missed for whatever reason, positions will be exited on the opening of the following session. 

 

If the initial stop-loss is reached, then the position is reversed and we use the original stop value multiplied by 3. For example, the new stop-loss for the reversed position would be 105 points (original stop-loss value) X 3 = 315 points.  Reversing a position is opening a trade in the opposite direction of the initial trade.  If we initially BUY to open, then we SELL double the 10 HKD Hang Seng contracts to execute the initial stop-loss and to open a new SELL (SHORT) position to trade the opposite direction.  We are attempting to capture the possible correct market direction if the initial trade was stopped.  If we are stopped on the second trade we will have lost around 315 points + 105 points or $778 AUD (estimate) per lot + any slippage.  We may experience slippage in the initial trade or the reversal trade caused from a gap in the Hang Seng over the mid-day break.

 

If the reversed entry position is filled, the new stop-loss will be set below the entry price if bought to enter, or above the entry price if sold to enter.  We will not initiate the reversal entry trade if approximately 15 minutes before market close, and all Market-on-Close orders are executed 5 to 30 seconds before close of market.

 

The price parameters relating to the entry of positions are always fixed at pre-determined price levels according to fixed percentages rounded to the nearest point of the overall index based on the previous day’s closing price before the respective trade takes place. However, the aforementioned entry point should be deemed as a variable, because it varies according to the overall index value.

 

For strategy #5 the market after open and market on close orders are executed at the approximate time of the open and close of the Hang Seng Index Futures and CFD contracts.

 

The minimum account start-up is $25,000 AUD for trading Hang Seng CFD contracts.  We suggest starting with $50,000 AUD.

 

Diversifying into derivatives trading is generally accepted as a high risk – high reward class of investment. You must first consider whether CFD futures market speculation suits your situation before trading. The onus is on the client to determine whether or not there is sufficient capital to trade using this strategy. Titan Securities may offer advice as to starting capital amounts, however we accept no liability whatsoever if that advice proves to be incorrect. Similarly, if you are issued with any advice, Titan Securities is not stating or implying that you have sufficient capital. Clients may wish to allocate more or less capital to that which is recommended (if at all). Lower starting capital will result in higher percentage profits or losses and visa versa. Trading account holders may request to trade a fixed quantity of Hang Seng futures contracts instead of the variable lot-sizing method. The lot-sizing and starting account balance to be determined by the client. A $30,000 AUD account will be trading approximately 5x 10 HKD MINI Hang Seng futures contracts when R = 1.5 (Lot-sizing is calculated by R and determined by the client).

 

PLEASE NOTE: All derivatives trading should be considered SPECULATIVE.

 

Standard Risk Warning

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The potential for loss exists as well as profit when trading speculative investments. As with other speculative investments, there is a possibility of losing all your allocated risk capital.  Risk exists with any investment. Investors usually diversify into different types of investments and asset classes to avoid being overexposed in any one market. 

     

Titan Securities Pty Ltd recommends allocating risk capital to trade speculative investments. It is expected that you are aware of the risks and accept the risks associated with this type of investing. Shares and Derivatives trading may not be suitable for all individual entities and can result in losses.  

 

Titan Securities Pty Ltd may have published profitable past performance results (including modelled results) and in doing so is not implying that past performance is indicative of future performance.  Titan Securities Pty Ltd is not implying that any profitable track record is representative of all clients’ accounts.

 

Risk is the chance that an investment will not give you the returns you hoped for or that you lose money. Almost all investments have risk, but some more than others.

 

Generally, investments that are expected to pay higher returns involve more risk. Whilst these investments are likely to produce higher returns over time than more conservative investments, over short periods they can fall in value and lose money.

 

Titan Securities Pty Ltd does not guarantee or give advice as to the performance of any investment, and you may experience volatile market fluctuations with your individual investments.

 

What My Advice Doesn’t Cover

 

The study of this investment strategy does not take into account other factors that may influence the price such as political or macro economic variables. 

 

Fees and Commissions

 

The fee for this statement is $30 + GST. 

 

General Advice Only

 

Any advice contained within this correspondence is general advice only and has been prepared without taking into account your objectives, financial situation or needs. You must therefore assess whether it is appropriate, in light of your own individual objectives, financial situation or needs, to act upon any such advice.

 

DO NOT DUPLICATE, REDISTRIBUTE OR COPY.

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Financial Services Guide (FSG): 

shares.titansecurities.com.au/fsg.pdf

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Date of issue: 14th August 2017