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MTP you're not talking about dollar cost averaging, you're talking
about position cost averaging. There's a major difference between the
two.
PCA is a form of money management for long term investors. All
investors need money management. It's the number reason why all
investors of any time frame fail to make money. PCA is designed to
work over ten to twenty year periods of time. For traders, it's a
death wish. USE STOPS AND GET OUT OF LOSING TRADES BEFORE YOUR MOTHER
FINDS OUT WHAT YOU'RE DOING WITH HER GRANDCHILDREN'S TUITION MONEY!
For short term traders, which I think you said you were, better money
management techiques include Optimal F, fixed ratio, pyramiding in
and out, and the most optimal money management of them all, Trading
Recipes software.
I've already explained pyramiding to you. It will make you far more
money than PCA. If you don't want to trade, and you want to be an
investor for 20 years with no trading at all, then PCA is the ticket.
The reason "new" traders like PCA is it gives them the feeling they
won't have to take any loses. They can trade their way out of them.
Wrong! Sometimes things break your way, but over the long run your
losses are bigger not smaller. This subject has been studied to death
both by traders and fud's (Ph.Ds) (PAC came out of fud studies.)
If you can't take losses, then don't trade because taking losses is
part of it. You can set tighter stops to cut losses sooner, and then
when the trades move in your favor, pyramid the way I showed you.
It's a no brainer.
Too many people try to figure out how to maximize profits instead of
figuring out how to have SOME profit. First things first, and the
first rule is if you try to maximize it, or minimize it--you break
it. Print that in large type and glue it to your monitor!
When you learn the first rule, you'll learn to make money
consistently. At that point in time you will only be taking out
between 20% and 30% of the total amount to be made on any trade. As
you get better and better with your system, that number will go up to
a maximum of about 70% (give it ten years first). Some systems and
traders only reach 50% of the maximum, but they make money every
year. If you make 50% your first year, lose 25% your second year, go
up 10% your third year, and down 20% the fourth year, you're not up
25% for the four years--no, you've actually managed to lose money
after four years of trading, which is not the point of trading. Based
on what you've told me, I think you understand the problem.
(Here's the numbers for the arthimetic challenged--50% plus 20% = 70%
minus 25% minus 20% = 25% Wrong! Ask one of your children for help
with this. Here's another tip! Anything divided by itself is 1. 3
divided by 3 is one. X divided by X equals 1 regardless of what X is.
Now what's 1/2 divided by 1/2? Answer at the bottom of the page.)
Okay back to the subject--if you make only 10 to 15% each year for
the four years, you would be up 60% from where you started from. It's
easy. Make money consistently hitting singles all year long, or swing
for the home runs and say good buy to your capital account.
I tell new traders that I make more just from mutual fund trading
than 99% of the day traders out there. It's relatively easy. But they
laugh. I've been trading with fundementals and I'm already making
money--I just want to use TA to make even more, or I'm going to be
a "real" trader and day trade my way to freedom and prosperity (along
with a sore ass from sitting all day long.) I'll make more money than
anybody makes from mutual funds. Bet me! I day trade and EOD trade
when mutual funds aren't trending so I understand exactly how it
works and how much can be made.
Over the last couple of years I've written several high performance
systems for all three kinds of trading, and there's nothing easier to
develop or more consistent than a mutual fund's system. (EOD trading
of ETFs is almost as good if you have the cojones to stay with the
trend.) Pyramiding is one of the strongest mutual fund money
management techniques there is. Read Gary Smith's How I Trade for a
Living. I alter the pyramiding system and rather than use 10 steps, I
use three in and no steps out, except for the indicators.
If you're busting your chops to learn PAC try X_Dev
http://www.stockwerld.com/qa.htm It's cheap, it's easy to learn, and
it beats keeping records in Excel. No it won't search 6000 stocks a
night because people who buy and hold stocks for many years only need
20.
Okay, that's every thing you need to know about money management.
Time to go lose your capital account!
JO
Answer: For all of those who think 1/2 divided by 1/2 is 1/4, give up
trading immediately--there is no hope. For those who know the answer
is 1, and why the answer is 1, you can probably trade for a little
while longer.
Rule two--if you read this email as a lurker, don't email me back
asking me to send you my trading systems. If you can't follow the
rules, why would I send you any system to begin with.
--- In equismetastock@xxxxxxxxxxxxxxx, "Mickie T. Pitts"
<jaguarvp@xxxx> wrote:
> I do not know if I agree it is a "DEATH TRAP" see below...
>
>
>
>
> Investor A 500 Shares "PCA User"
>
> PCA User has 5K in cash, and 5K in stock
>
> Investor B 1000 Shares Buy & Hold
>
> (Bought 10K in stock and is 100% at risk)
>
>
> Price
>
> Value
>
> Price
>
> Value
>
>
> $10
>
> $10,000
>
> $10
>
> $10,000
>
>
> $5
>
> $7,275
>
> $5
>
> $5,000
>
>
> $4
>
> $6,273
>
> $4
>
> $4,000
>
>
> $8
>
> $12,240
>
> $8
>
> $8,000
>
>
> $10
>
> $14,376
>
> $10
>
> $10,000
>
>
> PCA 44%
>
> PCA Profit $4,376
>
> Stock Price 0%
>
> B & H Profit $0
>
>
>
> I agree it is risky but I believe the rewards are higher then in the
> article you sent:
> (http://www.investopedia.com/university/fiveminute/fiveminute6.asp)
NOTE
> - PCA references is a program that help you "COST AVERAGE".
>
>
>
> Comments are welcome.
>
>
>
> Jaguar
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