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Hans,
I usually either enter right after a stock bounces off the wall
of a Short Term Trend Channel in the direction of the longer term
trend or when it breaks out of a short or intermediate term trend
channel in the direction of the longer term trend. Sometimes on
breakouts, I'll wait for the pullback to bounce off the wall of the
new short term trend channel. I'll attach an old post below.
JimG
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INVESTMENT STRATEGY SUMMARY
I've decided to keep a file that summarizes my investment
strategy or trading system. Since this system evolves with time, I'll
do my best to keep the file current <G>.
My system begins with a method to narrow the universe of stocks
for consideration to a small number that I can follow. I used to run
several different Telescan Prosearches with both fundamental and
technical criteria to give me charts on the 25 stocks that best fit
the criteria. I now run Microsoft Investor and Schwab searches instead
because the price is right <G>, but the idea is the same. Then I look
at the charts to decide which, if any, I want to add to my MetaStock
database. I try to keep my MetaStock database to under 200 stocks. I
run the Telescan searches weekly and prune my database periodically. I
usually only add a few stocks each week.
Once I decide which stocks to add to my database, I download the
historical stock data. Then I run a MetaStock profit system test
comparison on 1500 days of data. This has two purposes. First, as a
final filter, If none of the tests show at least a 100% gain on 1500
days of test data, I delete that stock from the database. Next, for
those stocks showing more then a 100% gain, I change the indicators
above the chart plot to identify which test performed the best.
Finally I construct the trend channels. That's how I update my
database weekly.
I run weekly explorations on the stocks in my database. I look at
the resulting charts mostly considering the trend channels. I'll also
just look through the database charts periodically with my 20/20
eyeballs to identify stocks for my watch lists. When I like a stock, I
move it to one of my watch lists. I look at charts of my open
positions and my watch lists every day. When I have buying power in my
account and am sure of the market direction, I'll add a new position
weekly in the direction of the intermediate market trend.
I use mostly trend channel analysis for my final selections since
over the years I've found that works best for me. I like to enter a
long position when an Intermediate Term Down Trend Channel reverses.
When the market is already in an Intermediate Term Up Trend Channel, I
like to open long positions after a stock has bounced off the bottom
of the channel and has broken a Short Term Down Trend Channel. A
MetaStock buy signal is nice, but not required. I'll also buy LEAP
calls for leverage.
Since I'm often wrong, I like to limit my losses by getting in
close to the bottom of the ITUTC and setting my mental stops just
under the channel. If the channel is wide enough, I'll also set a
target at the top of the channel. Of course, I move the stops and
targets up as the stock progresses up the channel. I'll close a
position immediately when a target is hit. I'll close a position the
next morning, after a stock closes below my stop.
One final comment is on portfolio management. I limit each new
position to no more then 10% of my portfolio. That diversifies my
portfolio enough for needed protection, without over diversifying to
the extent that I get average performance. I try to keep every
position in different high ranked industry groups, but may have two in
the same group from time to time. If the bond market looks good to me
compared to the stock market, I'll occasionally take a bond position
through bond mutual funds.
That's my quick summary <G>.
----------------------------------------------
Trend Channels
I've come to depend more and more on trend channels as my primary
technical analysis tool. The theory of trend channel investing is
simple. First you have to construct the trend channel. After that is
done the rest is easy. For up trend channels you open a long position
right after a stock bounces off the bottom of a channel and close the
position when it hits the top of a channel. Vice versa for down trend
channels. I treat horizontal channels like up trend channels for
trading purposes.
Of course, I expand on this simple methodology slightly <G>.
First my definition of short, intermediate and long term is flexible.
In general short term is days to up to a few months, intermediate term
is a few months to over a year, and long term is years. I like to
open a position in the direction of the long term trend when an
intermediate term trend channel is broken. After the new short term
trend has formed, there are additional entry points every time the
stock bounces off the bottom of the new short term trend. Using a new
short term up trend channel for example, I always set stops at xx 3/4
with xx being the whole number just under the short term up trend
channel. I set my target based on either the old high before the
intermediate term trend reversed or just under the top of the long
term up trend channel. When the stock gets near the top of the short
term up trend channel I may hedge the position by selling near term
just in the money covered calls. I'll buy the calls back when/if the
stock drops back to mid channel. If it doesn't drop back, I'll just
let the position be called . Again short positions are just the
mirror image except that I don't hedge with puts.
The trick then is how to construct the trend channels. For short
term up trend channels I use the Standard Deviation Channel built into
MetaStock. I start just to the left of the lowest low in the data
being considered and end just to the right of the highest high in the
time frame. Then I set the deviation at 2 and extend the channel to
the right. Anytime a new high is hit, I'll drag the right end of the
channel just to the right of that high. As soon as I get a decent
reaction in the stock data, I'll check to see if I should change the
deviation. I'll use 1, 1.3, 1.5, 1.8, or 2 for the deviation, using
the lowest number that will bound all the data between the end points
without intersecting any. After a few months with at least two good
reactions, I switch to Trader Vic type trend lines. I only use Trader
Vic type trend lines for intermediate and long term channels.
For a Trader Vic up trend line, start with the lowest low in the
timeframe being considered. Draw a line to a low before the highest
high in the time frame such that the line doesn't pass through any
data. It's important that you don't draw to a low past the highest
high in the timeframe. A down trend line is just the mirror image.
To construct the up trend channel, extend the line to the right, then
draw a parallel line through the most extreme high in the time frame
such that the line doesn't intersect any other data points. This is
easy with MetaStock. You can hold the CTRL key down, then hold the
left mouse key down once you are on the original line and drag a
parallel line to where ever you want it. You can do the down trend
channels in a similar manner. Horizontal channels are the easiest.
Just drop a horizontal line on the highest high and lowest low in the
time frame. My final touch is to code the short term channels blue
and use a dashed line, intermediate term red-dashed, long term
magenta-dashed. For my purposes, short term is up to a few months,
intermediate term a few months to over a year, and long term a few
years.
That's all there is to it <G>.
Jim
-----Original Message-----
From: Hans T. Hingst <hhingst@xxxxxxxxxxxx>
To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
Date: Saturday, November 07, 1998 9:45 PM
Subject: Re: Targets & Stops
Jim, I found your entry points interesting, but I'm curious, what
criteria do you use to "pull the trigger?" Do you have an exploration
to find them?
Thanks,
Hans
-----Original Message-----
From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
To: Metastock <metastock@xxxxxxxxxxxxx>
Date: Saturday, November 07, 1998 3:20 PM
Subject: Targets & Stops
All,
I meant to attach the target and stop list to my weekly pick but
forgot. Must be getting old or something <G>. List below.
JimG
Open Positions
Date
Entry
Target
Stop
Current
%
Symbol
Opened
Price
Price
Price
Price
Gain/Loss
AOL
10/09/98
$89.50
$161.00
$128.75
$140.00
56.42%
CY
10/12/98
$8.75
$14.00
$9.75
$11.50
31.43%
DELL
10/09/98
$51.44
$74.00
$60.75
$65.69
27.70%
EGGS
09/28/98
$8.38
$14.00
$6.75
$9.06
8.21%
IOM
11/02/98
$5.50
$13.00
$5.75
$8.69
57.96%
MSFT
10/09/98
$93.19
$119.00
$104.75
$109.31
17.30%
NR
10/05/98
$7.13
$25.00
$8.75
$9.50
33.33%
SCH
11/02/98
$49.88
$47.75
$54.06
8.40%
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