Download IBD MEETUP/NORTHRIDGE

IBD MEETUP/NORTHRIDGE
LET’S MEETUP TO DISCUSS STRATEGY FOR THIS NEW YEAR, 2015
AND CREATE OUR 2015 WATCHLIST
January 10, 2015
DISCLAIMER
1. During the course of this meeting we will review stocks that
should be considered as additions to your watch list.
2. These are not trade recommendations. These are
candidate trades. Do your own research, keep position
sizes modest, and stay diversified.
3. Also past performance is no indication of future stock
trends.
4. We will also discuss Trading Strategies we believe to be
effective; however keep in mind that nothing works100% of
the time sothere is no guarantee these strategies will work
for you.
THE JANUARY EFFECT - Will Markets Buck the Trend Again?
• The 2014 Dow closed up 7.5%.
• Per market statistics, we should see a very
similar performance in 2015.
• In years the Dow gained between 0% and
10%, the following year has historically
averaged a 7.2% return.
• A positive year has occurred 66% of the time
coming off a year that gained between 0%
and 10%.
Watch the Dow as it approaches the 50-day
moving average, and see how it reacts.
• There is some initial weakness in January.
• We also saw weakens to begin 2014 (the S&P
500 dropped 3.6% in January of 2014 its first
January loss since 2010.)
• The Stock Trader’s Almanac says this sets a
negative tone for the entire year.
• Stocks finish the year higher 73% of the time
when January is a positive month.
• In 2014 that did not occur. January was lower but the market still ended in positive territory.
AND READ IBD’s BIG PICTURE AND MARKET PULSE DAILY!
FIVE THINGS TO CONSIDER BEFORE A TRADE
I.
II.
III.
IV.
V.
TIME
TREND
MOMENTUM
PATTERNS
SUPPORT AND RESISTANCE
A STOCK TRADING GAME FOR 2015
• Log onto the URL: http://www.marketwatch.com/game/northridge-meetup
• Sign up and select 5 stocks maximum to trade.
• All players can see how any one is progressing.
• Each month, we will have the monthly winner tell us his/her
strategies.
• This will be both a fun contest and a learning experience so I hope
that all will play.
I. TIME
• Mark Twain famously observed that October is one of the most dangerous
months to speculate in stocks. The others, he added, "are July, January,
September, April, November, May, March, June, December, August, and
February.“
• There's ample evidence that the stock market's performance is tied to the time
of year and even the days of a month.
• One of the most visible calendar patterns is the so-called Halloween effect, also
known as the "Sell in May" indicator, which holds that stocks typically are
weaker during summer than winter.
• Another pattern appears in the final trading days of the month and the first
trading days of the new month.
• A subset of that is the "first day of the month trade" -- buying and selling a market index on
the first trading day of the month and not going back in until the first day of the next month.
• Other market biases: Stocks tend to be stronger during the middle of the month,
particularly over the five trading days before St. Patrick's Day, March 17. The
ninth trading day of March has been positive for the Nasdaq index more than
70% of the time since 1986.
• Stocks also tend to rise in the two or three trading days before a market holiday,
such as July Fourth or Christmas.
STOCK MARKET CYCLES
There are many types of business cycles including those that impact the stock
market. The major cycles of the stock market include:
• The four-year presidential cycle in the US, attributed to politics and its impact on
America's economic policies and market sentiment, which could be the cause for
the stock market's statistically improved performance during most of the third and
fourth years of a president's four-year term
• Annual seasonality, also known as Sell in May or the Halloween indicator
• The month-end seasonality cycle is attributed to the automatic purchases associated with
retirement accounts.
• The "January effect"where securities' prices increase in the month of January more than
in any other month. This calendar effect would create an opportunity for investors to
buy stocks for lower prices before January and sell them after their value increases.
• The lunar cycle, where basically, stock prices tend to be higher around the time of the
New Moon each month and reach a temporary low point around the time of the Full
Moon.
• The 17.6 Year Stock Market Cycle sImply put, the stock market will experience 17.6 years
of monster gains followed by 17.6 years of volatility ending with next to no returns.
BALENTHIRAN
17.6 Year Cycle
Which brings us to the
tag-end of the current
secular bear market that
has been under way since
2000 and which Kerry
Balenthiran, a
mathematician, believes
will finally end in 2018, at
which point a major bull
market will get started
and run until 2035.
INTRA-DAY BIAS TO THE MARKET
Figure -->
– $100,000 dollars
invested (8/31/2010 –
2/11/2011) in each
third of the trading day
(Red = 9:30 – 11:40,
Green = 11:40 – 1:50,
Blue = 1:50 – 4:00).
The fourth line
represents the day-today returns.
COMPARING MOMENTUM AND MEAN REVERSION
Momentum and mean reversion are common characteristics of stock price movement. These
characteristics have opposite behavioral natures. Their behavior offers a convenient mode for
the testing. At the risk of oversimplification, if mean reversion strategies do not produce
profitable results, then momentum strategies must be profitable; or, if momentum strategies do
not produce profitable results, then mean reversion strategies must be profitable.
- Momentum and Mean Reversion (Average Net Profit for 1–30 input values, since 1983). (Red = 9:30–
11:40, Green = 11:40–1:50, Blue = 1:50–4:00)
II. TREND
Profiting from long-term trends is the most common path to
success for traders. The challenge is recognizing the emergence of
a trend and determining where to enter and exit the market.
• “Let’s break down the term ‘trend following’ into its components.[Van Tharp]
• The first part is ‘trend.’ Every trader needs a trend to make money. If you think
about it, no matter what the technique, if there is not a trend after you buy, then
you will not be able to sell at higher prices.
• ‘Following’ is the next part of the term. We use this word because trend followers
always wait for the trend to shift first, then ‘follow’ it.”
• Trend following trading seeks to capture the majority of a market trend, up or down,
for profit. It aims for profits in all major asset classes—stocks, bonds, currencies, and
commodities.
• Unfortunately, however simple the basic concepts about trend following are, they
have been widely misunderstood by the public.
INVESTOR OR TRADER?
Do you consider yourself an investor or a trader? Most people think of themselves as
investors.
• However, if you knew that the biggest winners in the markets call themselves traders,
wouldn’t you want to know why? Simply put, they don’t invest; they trade.
Investors put their money, or capital, into a market, such as stocks or real estate, under
the assumption that the value will always increase over time.
• As the value increases, so does the person’s “investment.”
• Investors typically do not have a plan for when their investment value decreases.
• They usually hold on to their investment, hoping that the value will reverse itself and
go back up. Investors typically succeed in bull markets and lose in bear markets.
WHAT IS TREND FOLLOWING?
It is a trading strategy that attempts to capture gains through the analysis of an
asset's momentum in a particular direction.
• The trend trader enters into a long position when a stock is trending upward
(successively higher highs).
• Conversely, a short position is taken when the stock is in a down trend
(successively lower highs).
This strategy assumes that the present direction of the stock will continue into the
future.
• It can be used by short-, intermediate- or long-term traders.
• Regardless of their chosen time frame, traders will remain in their position until
they believe the trend has reversed - but reversal may occur at different times
for each time frame.
WHO WINS AND WHO LOSES
Investors anticipate bear (down) markets with fear and trepidation, and therefore, they are unable to plan
how to respond when they start to lose.
• They choose to “hang tight,” and they continue to lose.
• They have an idea that a different approach to their losing involves more complicated trading
techniques such as “selling short,” of which they know little and don’t care to learn.
If the mainstream press continually positions investing as “good” or “safe” and trading as “bad” or “risky,”
people are reluctant to align themselves with traders or even seek to understand what trading is about.
• A trader has a defined plan or strategy to put capital into a market to achieve a single goal: profit.
• Traders don’t care what they own or what they sell as long as they end up with more money than they
started with. They are not investing in anything. They are trading. It is a critical distinction.
A trend follower [Trader] can wait weeks or months for the right trade that puts the odds on his side.
As Ed Seykota was fond of saying, "One good trend pays for them all!". Should a decent trend start to
materialise, then it is quite possible that the run of losses suffered could easily be eliminated. Such is trend
following.
A SIMPLE TREND FOLLOWING SYSTEM
Here are the rules for this system.
• If the current price is higher than the price
one year ago, go long.
• If the current price is lower than one year
ago, go short.
To make it a little easier to read, the lower chart
shows the yearly results as well. The green bars
show the returns and the red bars the maximum
intra-year drawdown.
This simple strategy showed annualized return
of 22% against a max drawdown of 26% and a
Sharpe ratio of 1.1. This is before fees, so you’ll
need to shave a bit on that, but it’s still better
than most do in real life.
TREND FOLLOWING COMPONENTS
Any mechanical system (trend following included) has the following components:
• Entries - Every system has a condition or trigger for entry.
• The turtle system used standard break-out (channel) entries. For example, the highest high (or
lowest low if going short) of the last 55 days was used in one of the turtle systems. Not sexy, nor
does it do much for winning percentage, but it enables that you are there for the ride if a trend
starts.
• Exits - Once we are in a trade, we need to know when to get out if it goes against us
(initial stop loss) or when to exit a profitable trade.
• Standard trend following systems don’t use profit targets. The turtles used the same strategy on
exits as they did with entries – lowest low of the last N number days. As expected, it is impossible to
catch the top with such a strategy. It does, however, keep you in the trade through normal
fluctuations for the full ride.
• Risk % - Almost all trend followers limit their risk to a certain percentage of capital on
each trade. Typical ranges are 1-2%, using fixed fractional position sizing.
• You have some options here, as you can use open equity (more aggressive) or closed equity (more
conservative) for determining position size.
• Using a simple example, if you are trading a $100,000 account and your open equity (capital + open
profits – open losses) is $110,000, risking 2% would yield $2,200 per trade. Using closed equity, you
would risk $2,000 per trade (2% of $100,000).
INVEST IN A FEW GOOD BOOKS
Read a few good books that really steer towards trend following:
1. Market Wizards
2. The Jesse Livermore books also set the wheels in motion.
3. Digging into the “Turtle Traders” in great detail, especially their
thoughts/methods for risk, correlation, normalizing each instrument traded,
and the worthlessness of winning percentage will seal the deal.
You will be sold on the idea of being removed from the markets, being removed
from the NASA type trading screens and simply“REACTING” to price.
The DNA of trend following really comes down to “never arguing with price –
ever”.
III. MOMENTUM
In momentum trading, traders focus on stocks that are moving significantly in one
direction on high volume.
• Momentum traders may hold their positions for a few minutes, a couple of hours
or even the entire length of the trading day, depending on how quickly the stock
moves and when it changes direction.
• One potential explanation for why momentum strategies have been found to be
more promising is that momentum strategies have both a cross-sectional and a
time-series component, whereas pure trend-following strategies have only the
latter.
A DAY IN THE LIFE OF A MOMENTUM TRADER
• Get up an hour before the market opens, switch on the computer, go online and
immediately log into one of the popular trading chat rooms or message boards.
• When looking at these boards, focus on stocks that are generating a significant amount
of buzz. Look at stocks that are the focus of trading alerts based on earnings or analyst
recommendations. These are stocks rumored to be in play, and they are anticipated to
provide the most significant price movements on high volume for that trading day.
• While surfing the web, also turn on CNBC and listen for mentions of companies
releasing news or positioned to undergo significant movement.
• Eye the morning equity options pages to find stocks with significant volume increases in
calls. Any increase in calls written indicates that a price increase or decrease above or
below the option premium is expected.
• Once the market opens, watch your initial list of stocks in relation to the rest of the
market: Are these stocks going up when the market goes down? Are they significantly
increasing in price in relation to the rest of the market? Are they behaving consistently
with expectations based on pre-market assessment?
• Then narrow the watch list to include only the strongest stocks: those increasing more
rapidly on higher volume than the rest of the market, stocks trading contrary to the
market and stocks with movements clearly propelled by external factors.
ANALYZING THE CHARTS
Next, a momentum trader will analyze the list of stocks he has chosen to focus on by examining their
charts.
• The primary technical indicator of interest is the momentum indicator - the accumulated net change of
a stock's closing/ending price over a series of defined time periods.
• The momentum line is plotted as a tandem line to the price chart, and it displays a zero axis, with
positive values indicating a sustained upward movement and negative values indicating a potentially
sustained downward movement.
That upward or downward momentum indicator often immediately portrays a breakout for the stock,
which means that even a period or two of sustained momentum will propel that stock in the direction of
the breakout.
• While watching the momentum chart, he has his Level 2 screen up, looking for evidence of a push,
where bids start to line up (indicated by the presence of market-maker limit orders) and offers start to
disappear.
When the trader believes he has identified a breakout, he does not necessarily need to jump immediately
into the stock.
• He is not generally worried about missing the first one or two breakout ticks, but he has his hand on the
buy trigger (or sell trigger in the case of a short sale, but a short sale must be done on an uptick) for one
of the next momentum periods.
• And he is generally not too concerned about hitting the bid either, as he will have an easier time getting
in at the market price. Then he places a market order.
IV. PATTERNS
Chart patterns are a very useful tool because they occur regularly—providing you with
lots of trade candidates—and also provide everything you need to trade.
The idea is that certain patterns are seen many times, and that these patterns signal a
certain high probability move in a stock. Based on the historic trend of a chart pattern
setting up a certain price movement, chartists look for these patterns to identify trading
opportunities.
While there are general ideas and components to every chart pattern, there is no chart
pattern that will tell you with 100% certainty where a security is headed. This creates
some leeway and debate as to what a good pattern looks like, and is a major reason why
charting is often seen as more of an art than a science.
There are two types of patterns within this area of technical analysis, reversal
and continuation.
• A reversal pattern signals that a prior trend will reverse upon completion of the pattern.
• A continuation pattern, on the other hand, signals that a trend will continue once the
pattern is complete.
• These patterns can be found over charts of any timeframe. In the next slides, we will
review some of the more popular chart patterns.
HEAD AND SHOULDERS
• This is one of the most popular and reliable chart
patterns in technical analysis. Head and
shoulders is a reversal chart pattern that when
formed, signals that the security is likely to move
against the previous trend.
Figure 1: Head and shoulders top is shown on the left.
Head and shoulders bottom, or inverse head and
shoulders, is on the right.
• As you can see in Figure 1, there are two
versions of the head and shoulders chart pattern.
Head and shoulders top (shown on the left) is a
chart pattern that is formed at the high of an upward
movement and signals that the upward trend is
about to end.
Both of these head and shoulders patterns are similar in
Head and shoulders bottom, also known as inverse that there are four main parts: two shoulders, a head and
a neckline. Also, each individual head and shoulder is
head and shoulders (shown on the right) is the
comprised of a high and a low. For example, in the head
lesser known of the two, but is used to signal a
and shoulders top image shown on the left side in Figure
reversal in a downtrend.
1, the left shoulder is made up of a high followed by a
[An upward trend is a period of higher highs and lows. The
low. In this pattern, the neckline is a level of support or
head and shoulders chart pattern, therefore, shows the
resistance.
deterioration in the succession of the highs and lows. ]
CUP AND HANDLE
• A cup and handle chart is a bullish
continuation pattern in which the upward
trend has paused but will continue in an
upward direction once the pattern is
confirmed.
• As you can see in Figure 2, this price pattern
forms what looks like a cup, which is preceded
by an upward trend.
• The handle follows the cup formation and is
formed by a generally downward/sideways
movement in the security's price.
• Once the price movement pushes above the
resistance lines formed in the handle, the
upward trend can continue.
• There is a wide ranging time frame for this
type of pattern, with the span ranging from
several months to more than a year.
Figure 2
DOUBLE TOP/BOTTOM
• This chart pattern is another wellknown pattern that signals a trend
reversal - it is considered to be one of
the most reliable and is commonly
used.
• These patterns are formed after a
sustained trend and signal to chartists
that the trend is about to reverse.
• The pattern is created when a price
movement tests support or resistance
levels twice and is unable to break
through.
• This pattern is often used to signal
intermediate and long-term trend
reversals.
Figure 3: A double top pattern is shown on the left, while a double
bottom pattern is shown on the right.
In the case of the double top pattern in Figure 3, the
price movement has twice tried to move above a certain
price level. After two unsuccessful attempts at pushing
the price higher, the trend reverses and the price heads
lower. In the case of a double bottom (shown on the
right), the price movement has tried to go lower twice,
but has found support each time. After the second
bounce off of the support, the security enters a new
trend and heads upward.
• Triangles are some of the most well-known chart patterns used in technical
analysis.
• The three types of triangles, which vary in construct and implication, are
the symmetrical triangle, ascending and descending triangle.
• These chart patterns are considered to last anywhere from a couple of weeks to
several months.
FIG. 4
TRIANGLES
The symmetrical triangle is a pattern in which
two trendlines converge toward each other.
This pattern is neutral in that a breakout upside
or downside is a confirmation of a trend in that
direction.
In an ascending triangle, the upper trendline is
flat, while the bottom trendline is upward
sloping.
This is generally thought of as a bullish pattern in
which chartists look for an upside breakout.
In a descending triangle, the lower trendline is
flat and the upper trendline is descending. This is
a bearish pattern for a downside breakout.
FLAG AND PENNANT
FIG. 5
• These two short-term chart patterns
are continuation patterns that are
formed when there is a sharp price
movement followed by a generally
sideways price movement.
• This pattern is then completed upon
another sharp price movement in the
same direction as the move that
started the trend.
• The patterns are generally thought to
last from one to three weeks.
As you can see in Figure 5, there is little difference between a pennant and a flag.
• The main difference between these price movements can be seen in the middle section of the chart pattern.
• In a pennant, the middle section is characterized by converging trendlines, much like what is seen in a
symmetrical triangle.
• The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence
between the trendlines.
• In both cases, the trend is expected to continue when the price moves above the upper trendline.
SUPPORT AND RESISTANCE
Support and resistance represent key junctures where the forces of
supply and demand meet.
In the financial markets, prices are driven by excessive supply (down)
and demand (up).
Supply is synonymous with bearish, bears and selling.
Demand is synonymous with bullish, bulls and buying.
These terms are used interchangeably throughout articles. As demand
increases, prices advance and as supply increases, prices decline.
When supply and demand are equal, prices move sideways as bulls and
bears slug it out for control.
WHAT IS SUPPORT?
• Support is the price level at which
demand is thought to be strong
enough to prevent the price from
declining further.
• The logic dictates that as the price
declines towards support and gets
cheaper, buyers become more inclined
to buy and sellers become less inclined
to sell.
•
• By the time the price reaches the
•
support level, it is believed that
demand will overcome supply and
prevent the price from falling below •
support.
Support does not always hold and a break below support
signals that the bears have won out over the bulls.
A decline below support indicates a new willingness to sell
and/or a lack of incentive to buy.
Support breaks and new lows signal that sellers have
reduced their expectations and are willing sell at even lower
prices.
• In addition, buyers could not be coerced into buying until
prices declined below support or below the previous low.
• Once support is broken, another support level will have to be
established at a lower level.
WHAT IS RESISTANCE?
• Resistance is the price level at
which selling is thought to be
strong enough to prevent the
price from rising further.
• The logic dictates that as the price
advances towards resistance,
sellers become more inclined to
sell and buyers become less
inclined to buy.
• By the time the price reaches the
resistance level, it is believed that
supply will overcome demand and
prevent the price from rising above
resistance.
• Resistance does not always hold and a break above
resistance signals that the bulls have won out over the
bears.
• A break above resistance shows a new willingness to buy
and/or a lack of incentive to sell.
• Resistance breaks and new highs indicate buyers have
increased their expectations and are willing to buy at even
higher prices.
• In addition, sellers could not be coerced into selling until
prices rose above resistance or above the previous high.
• Once resistance is broken, another resistance level will have
to be established at a higher level.
V. SUPPORT AND RESISTANCE
• Many traders who use technical analysis often hear phrases that suggest a "broken
support level will become a future area of resistance" or that a "previous level of
resistance will become a support". Even many experienced traders never fully
understand or appreciate this intriguing role reversal. These slides will attempt to shed
light on the importance of support and resistance and illustrate why traders should take
note when they reverse roles.
• Support and Resistance – The Basics
To understand the role reversal between support and resistance, you must first have a
basic understanding of these important concepts. Support and resistance are terms
used by technical traders to refer to specific price levels that have historically prevented
traders from pushing the price of an underlying asset in a certain direction.
• For example, let's assume ABC stock has attempted to fall below an ascending
trendline several times over the past few months, but although the price approaches
this line several times, it fails to move below it. In this case, the trendline is known as a
support level because it corresponds to a price level where most investors feel
comfortable buying the asset, preventing the market from sending prices drastically
lower. On the other hand, traders use resistance to describe when the price of an asset
has difficulty moving above a given price level, which then forces the price of the asset
to decline.
THE REVERSAL
One of the most interesting phenomena
regarding support and resistance occurs
when the price of the underlying asset is
finally able to break out and go beyond an
identified support or resistance level.
• When this happens, it is not uncommon
to see a previous level of support change
its role and become a new area of shortterm resistance.
• As you can see from the chart to the
right, the dotted line represents the
price that was able to prop up the price
movement at points 1 and 2, but this
support turns into resistance once the
price falls below it, as illustrated by
points 3 and 4.
FIG. 1 – Support becomes Resistance
AND THE OPPOSITE
• The opposite of this process occurs
when the price breaks above
resistance. As you can see in Figure
2, points 1 and 2 begin as price
barriers, but once the bullsare able
push the price above the dotted
line, it becomes an area of support
(illustrated by points 3 and 4).
FIG. 2 – Resistance becomes Support.
SUPPORT AND RESISTANCE ZONES
• Because technical analysis is not an exact science, it
is useful to create support and resistance zones.
• Each security has its own characteristics, and
analysis should reflect the intricacies of the
security.
• Sometimes, exact support and resistance levels are
best, and, sometimes, zones work better. Generally,
the tighter the range, the more exact the level.
• If the trading range spans less than 2 months and
the price range is relatively tight, then more exact
support and resistance levels are best suited.
• If a trading range spans many months and the price
range is relatively large, then it is best to use
support and resistance zones.
Returning to the analysis of Halliburton (HAL)[Hal], we can see that the November high of the trading range (32 to 44)
extended more than 20% past the October low, making the range quite large relative to the price.
Because the September support break forms our first resistance level, we are ready to set up a resistance zone after the
November high is formed, probably around early December.
At this point though, we are still unsure if a large trading range will develop.
The subsequent low in December, which was just higher than the October low, offers evidence that a trading range is
forming, and we are ready to set the support zone.
As long as the stock trades within the boundaries set by the support and resistance zone, we will consider the trading
range to be valid.
GETTING STARTED
I.
II.
III.
IV.
V.
GOOD TRADING METHOD
NO OF STOCKS TO OWN
ROUTINE
ESTABLISHING POSITIONS
MONEY MANAGEMENT
GOOD TRADING METHOD
1. Manage Trade – Starts with trading plan which must be written and followed at
all times; revise as required.
2. Identify Lower Risk – Higher Probability trade which leads to a net positive
income. If you don’t know what your trading edge is, you don’t have one.
3. Set-up conditions are mandatory parameters that must be met before placing
an order.
a) Entry Rules actually get you into a position.
b) Initial Stop when the market goes where you didn’t expect it to go.
c) Exit Strategy allows you to manage the trade with profit target limits where you close at
least 50% of the trade and move your trailing stop to protect the second half of the trade.
4. Risk Management is key – Never risk more than 2% to 5% per trade
ANOTHER SIMPLE TRADING PLAN
i.
Market is in an UPTREND and pulls back to SUPPORT.
a)
b)
c)
d)
New 30 bar highs within 8 bars of new 30 bar lows.
Market breaks out above Highest High of last 3 bars.
Market is in an UPTREND = Buy
Market is in a DOWNTREND = Sell
ii. Initial Stop
a)
b)
Sell below recent lows [Long] or Buy above recent Highs [Short]
Place where you don’t expect to go
iii. Exit Strategy
a)
b)
c)
d)
Sell 50% at initial target
Change stop to breakeven on remaining half
Exit at Lowest Low of past three bars in UP Trend; or
Exit at Highest High of past three bars in DOWN Trend
EXAMPLE
APR 4
APR 11
APR 15
APR 16
MAY 12
CLOSE
17.31
16.78
17.04
18.20
21.36
OPEN
17.41
16.75
17.16
17.54
21.23
HIGH
17.75
16.95
17.29
18.28
21.42
LOW
17.07
16.68
16.73
17.36
21.05
• Apr 4 is a new 30 day bar high within 8
bars (5) of new 30 bar low. Market breaks
out within 3 bars above Highest High of
last three bars on Apr 15. We place
Market Order for open on April 16 with
stop 3 ticks below the Low of April 11. We
are filled at $17.54 with a stop at $16.65
hence our risk is $0.89. We set our profit
target at 4 times risk, or $3.56 ($21.10).
We exit trade on May 12 at open of $21.23
for a profit of $3.69/share.
• NOW HOW MANY SHARES? – We can risk
2%-5% of our portfolio depending on size.
Say our current portfolio is $25,000 and
we are willing to risk 3%, or $750 per
trade. On this transaction our risk per
share was $0.89 so we divide $750 by
$0.89 which equals 842.7 shares. If we
buy in round lots we could by 800 or 900
shares. At 800 shares, ignoring fees we
would have a gross profit on this trade of
$2952 in 26 days.
SUMMARY
• Someone once said the reason more people don’t take advantage of
opportunity is it often looks like work.
• Unfortunately, investing/trading is work.
• The people who work the hardest reap the biggest gains.
• There is no sure fire system that wins 100% of the time. However if
you have a system and win only 30%+ of the time, you will make
money by good money management which keeps your losses<7%.
• A good routine is a written routine that is absolutely followed.
• If you stick to Trend Following and limit your trades to low risk, higher
reward trades, you will make money.
MARKET SMITH
SUMMIT
• Hello Members!
• Scott O'Neil will be hosting a LA
Trading Summit in a few weeks. The
link to RSVP is below.
• Other speakers include: Amy Smith,
Justin Nielsen, Irusha Peiris & Scott
St. Clair
• http://www.marketsmith.com/special/
tradingsummit/?src=MCIM51
• See you there!!
• - IBD Meetup