Juan Sena: Hula Analysis and the Homebrew System

From one of the most innovative traders in the industry, Meet Mr. Juan Sena.

1. Do you have a professional background before you start in trading?

I am an Electronics and Communications Engineer by title/ profession. I held various managerial positions in a Japanese firm in Subic for 17 years from production planning, logistics, corporate planning to finance.

2. Who or what gave you an idea to start a trading career?

In early 2000, I started investing in mutual funds where I commit a fixed portion of my monthly salary. My mutual fund agent noticed that I refer first to previous day’s result of DJIA, S&P and NASDAQ before deciding to place my order. He noticed that I play with volatility which reveals my thrill-seeking behaviour. He suggested that I should try the stock market. 

3. Which one do you trust more when doing trading decisions, your instincts or your logic?

When I don’t have experience and tools yet, the only thing I have is my poor gut feel. Now with experience, I trust my instincts; with tools, I trust my logic.

4. May you please describe your first experience in trading in the stock market?

It was my first disaster. About ten years ago, I bought shares of MABUHAY HOLDINGS CORP (MHC). I bought 100,000 shares at 0.48 early in the morning. The price plummeted to 0.38 at closing. I didn’t even know about “basuras” and liquidity back then.  

5. What indicators do you use in your analysis? What indicator system do you use to spot a stock that you would likely place a trade in? Do you have rules on how you use indicators? Given those indicators, what parameters or set ups have to be hit before you execute the trade?

I pick stocks that pass at least three criteria:  

(1)  Stocks with enough liquidity;

(2)  Stocks with relatively weak overhead supply; and

(3)  Stocks with momentum or “push”

To filter them out, I apply the following indicators:

(1)  Average Daily Trading Value (ADTVa)/ Average Daily Trading Volume (ADTVo);

(2)  Price-By-Volume History/ Histogram; and

(3)  Volume-price indicator “family” which include Volume-Price Trend (VPT), Elder’s Force Index (EFI), Money Flow 

(MF) and On-Balance Volume (OBV)

I use Average Daily Trading Value (ADTVa)/ Average Daily Trading Volume (ADTVo) to gauge the stocks liquidity.

I use Price-By-Volume (PBV) history/ histogram to locate the primary and intermediate support and resistance levels. 

I use volume-price indicators to detect stocks that are under institutional accumulation and exhibits momentum.

As supplement, I use Donchian Channels and Stochastic Oscillator to determine whether the stocks are bottoming or topping, oversold or overbought.

6. How do you plot support and resistance/ do you follow your ma's, fibo, harmonics, trendlines?   

A support is a price level where a stock has difficulty falling below – this is where buyers tend to enter the position. 

Correspondingly, a resistance is a price level above where stock has difficulty climbing – this is where sellers tend to exit the position. Stock's price ranges between these levels (until it breaks out or breaks down).

There are many popular methods used to identify supports and resistances. I prefer the PRICE-BY-VOLUME (PBV) histogram/ history. PBV not only marks the TRUE support and resistance levels (both primary and intermediate). It also gauges the strength of these levels. When it comes to locating support and resistance, this is the only indicator that makes sense to me.

7. How do you determine your take profit level?

Resistance levels determine my exit points and potential profit targets. I locate the primary and intermediate resistance levels and gauge the strength of these levels. 

On stocks with relatively strong or heavy resistance, I set my target just before resistance. 

On stocks with relatively weak resistance, I hold the position as long as the price-volume strength is intact – "the trend is your friend until it hits a bend". 

8. Why do you think a cutloss is necessary and where do you place the stop? How do you determine your cutloss level? 

I keep my risk at a level less that of my average gain. I set my reward-to-risk ratio from 3:1 to 2:1. It means my loss should be no more than one-third to one-half of my average gain. As a rule-of-thumb, I limit my losses to 5% to 10% of my cost. But I do not simply sell just because it is off 5% to 10% from its peak price. 

When the price rises by two to three times my risk, I move my stop up to at least break-even.

Support levels determine my stop loss points. I locate the stocks’ primary and intermediate support levels and gauge the strength of these levels. 

9. Can you share some secrets or tell us what your best practices in trading are?

I will share three:

(1)  I use a stock screener.

“Mirror, mirror, on the wall, who is the fairest of them all". 

I use stock screener instead of some charting software. 

My stock screener provides TIME SERIES, as well as VERTICAL or CROSS-SECTIONAL analysis. It can detect rising and falling stars which allow me to hop-on-hop-off a stock – to play the “hop-on-hop-off the elevator game”. 

I programmed it using Microsoft Access and Excel. My indicators are coded in this program. 

I’m not sure if Amibroker’s AFL can provide this rapidity and nimbleness – but my “homebrew” system works for me. 

(2)  I constantly sharpen my "batting average"

I measure how my tool accurately predicts the actual results. 

I call it batting average. I define batting average as the number of winning trades (top 20 gainers) as percentage of total number of trades.

I backtest to learn signal patterns of stocks prior to breakout and ensure that my previously understood patterns are still valid and effective.

I am in constant search of newer, better indicators.

(3)  My cash conversion cycle as short

Cash conversion cycle is the length of time it takes to get from paying cash for the stocks to getting cash after selling it. The shorter your cash conversion cycle, the more efficient you are in managing your capital. 

Waiting is an opportunity cost. I regard buy-and-hold as inefficient. The concept of time-value-of-money does not preach time as inexhaustible resource. So I trade and re-trade my capital plus previous gains – to exploit the power of compounding NOT with the LENGTH OF TIME but with the NUMBER OF TURNS.

10. What is your trading strategy? How did you come up with it? 

My stock picking criteria, choice of indicators, batting average, vertical/ cross-sectional analysis, playing the “hop-on-hop-off the elevator game”, short cash-conversion cycle, reward-to-risk ratio, cutloss and trail stop rules, playbook and so on – all these constitute my trading tactics and strategy.

11. Can you describe your most successful trade so far? What is your track record in terms of profit margin in the last 5 years? 

Market is dynamic, and so is my performance. My batting average varies (from 50% to 80%). Likewise, my average profit per trade, timeframe, and the number and size of positions I hold varies. 

There is a gap between my simulated and real-life performance. Using reasonable assumptions, my system can achieve 7 to 60 times gain per year (do I need a sanity check?). 

In actual, some controllable factors still influence my trade such as optimism bias, “nag-paniwala sa tsismis”, “katigasan ng ulo”, “na-in-love sa stock”, etc.. – I am still a human being you know?

I will not brag about my portfolio. I will not reveal my figures for some reason. 

You can check-out my FB posts, “HULA ANALYSIS” to see how I am doing. 

12. What do you think is the most important thing a trader must know in order to become successful in trading?

First, establish your framework. Ask yourself what or which concept makes sense to you? Ask yourself, what do you believe in? Say, for example, random walk or reversion-to-the-mean? Fundamental or technical analysis? And so on.

Then build your system based on your framework. Pick tools (indicators, methods, platform, etc.) that are congruent with your framework. 

13. What is your favorite quote about Finance?

In trading, Murphy’s Law is universal: "whatever can go wrong, will go wrong."

14. Can you recommend sources that will give us idea on how to start in trading such as books, videos or a spokesperson? 

If you are a beginner, I suggest the following books:

Technical Analysis:

Introduction to Technical Analysis by Martin Pring

Technical Analysis Explained by Martin Pring

Technical Analysis of the Financial Markets by John Murphy

How to Make Money in Stocks by William O’neil

Trade Like a Stock Market Wizard by Mark Minervini

Fundamental Analysis:

The Intelligent Investor by Benjamin Graham

Security Analysis by Benjamin Graham

If you are an advanced trader, or math or finance savvy and wish to build your own stock screener, I suggest the following:

Introducing the MIDAS Method of Technical Analysis by Paul Levine

MIDAS Technical Analysis by Andrew Coles and David Hawkins

Investing with Volume Analysis by Buff Pelz Dormeier

Trading for a Living by Alexander Elder

Rocket Science for Traders by John F. Ehlers 

Rule#1 by Phil Town

Buffetology by Mary Buffet and David Clark

16. Some advice

Dream. 

Is there such a thing as the holy grail of trading? I believe there is. Even something that is close to it is worth the quest. 

Have passion.

Someone asked me if I earn money from my posting of HULA ANALYSIS. I said I am an amateur trader. I don’t trade for a living. It’s a hobby. But I say trading is by far the greatest game I have ever loved to play!

ON JUAN SENA:

Juan Sena contains the traits of the ideal stock trader, he knows how to risk and explore the possibilities of the trading game. When he was starting out his career, it was evident that he is already exhibiting prowess when it comes to thrill seeking, and this is a trait that could be applied in the stock trading game. You need to be able to love the trading game itself, in order to be able to stay longer at it. A strong and pure gut feel is needed if you don’t have the necessary tools, for this reason, he now strives to understand what tools are needed. Traders must know the strengths and weakness of the game and this is where they would have to apply both instinct and logic. 

Due to the willingness to learn more, he plotted his way to creating an effective tool that could be beneficial for daily trades. Newbies or individuals who want to improve their game need to have a solid plan created. Juan Sena is a trader that knows how to plot effectively. Instead of just relying on just any charting software, he was able to devise an analysis through a system that he has programmed. If you want to be innovative and effective in trading, you need to create your own system. His homebrew system was formulated out of Microsoft Access and Excel and this is a system that was created out of his own perseverance to know what will work.

In the stock market, there is no such thing as one effective system, you need to find a method that works for you, but if you do not find a system that you are comfortable enough doing, then that is the time that you would have to create a new one, just like Juan Sena. According to some, there is Holy Grail for trading, but he is one of the strongest believers that there are effective tools that could be used, you just need to give your focus in finding it or creating it yourself.

It is apparent that Juan Sena is an innovator of thoughts; he claims that he is just an amateur trader, but this does not mean that his analysis is unfounded. It just means that he is still looking for new ways to improve the ways we understand the stock trading market as a whole.

In order to enjoy the game of trading, and to maintain his head in this mental game, he comes up with his own Hula analysis and posts them on social media as a way to connect and have a feel of the trading market situation. He updates the daily hula analysis, and it will be up to the newbie traders and expert traders to understand the clues that are presented herewith.

Juan Sena does not collect fees for providing this analysis and is an open and credible source of information. He stands with the belief that numbers don’t lie and maximizes this principle, apart from that he is also a respected character in the trading market industry.  If you want to learn how to decipher if the trade market has parameters, he is one of best traders to read and learn from.