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Thomas...
Your post contains allot of ideas. I think your basic thinking has merit
but there may be some details that you might want to work out. Using
your excellent analogy of the horse race, I would suggest that you may
want to experiment with the data to decide when the "race" starts and
how often it "re-starts" If the race went on indefinitely(many months or
years) the lead horse(stock) could be 100s of percent ahead of the 2nd
horse. If the lead horse started to falter and drop in price you may
experience a large downhill drop in equity before horse #2 catches up. I
would guess that the first example you show using Money's 30 of SUNW @
190% and MSFT @ 74% gain would be a good illustration of the possibility
of this even though the race is only 6 months old. This is figuring that
the #1 stock should fluctuate and could have significant retracements at
times. There would be different problems at the beginning of the race
with how large a gain would suffice to call one horse number one and as
the fly, land on its nose. You might experience many whipsaw trades
until one pulled out well ahead of the others.
What you are proposing I believe is a momentum type of system using
relative strength, you might find something like IBD's relative strength
numbers helpful, maybe buying stocks with very high IBD Relative
Strength numbers as a proxy for the "fastest horse". Doing something
like this would help solve any problems of when to start or stop the
race or adding new issues. Of course there are questions of buying an
overbought issue as well as the volatility in doing any of this.
Hope I've helped, there are many more experienced traders than myself on
this list that may have some other considerations for you.
Good luck... John
> THOMAS BECK wrote:
>
> Hello all Realtraders:
>
> I have been following this site for well over a year now. I've
> been the proverbiale fly on the wall only once or twice jumping in
> with a question. Much of the conversation seems rotate around how hard
> it is to consistently make a profit daytradeing, mental attitudes, and
> paying your dues to learn this misterious art. The negativity is
> discourageing to us newbies, However I'm sure I'm not alone in
> continueing to search for the Holy Grail of systems and indicators
> that will lead me to the promised land of easy money.
> I'm a rank amateur in tradeing with a few years experience and a
> couple of short term successes to pump my ego. I focus on larger cap
> stocks, avoiding options, commodities and bonds etc... too scary. I've
> read numerous books and magazines enough to know the basics. I've come
> up with some simple ideas of my own I'd like to propose and open to
> constructive critisism by those with more experience.
> One of the things I've picked up from reading this page is that
> you need to find or develop a system that fits your situation and
> comfort level. I need to develop a system that won't require minute to
> minute monitoring, I don't want to be tied to a monitor, I have a real
> job too. My system needs to draw on the experience and skills of
> others, this isn't parasitic, but I'm realistic about my limitations.
> I won't be quiting my current occupation anytime soon to join a
> brokerage house to gain experience by working as a floor trader for 10
> years. My method needs to have realistic chance of beating the market
> on a consistent basis, if not I'll just go to a no brainer like
> vangaurd's 500 index fund. My method needs to capitalise on my only
> advantages as an amateur trader that is access to data, speed of
> tradeing, and small account size. Perhaps these aren't advantages as
> such but they are the only areas were I might at least have a level
> playing field chance to accel. Because of my non-diversified approach
> I'll need to concentrate on large stocks that are less likely to whip
> me around and are very liquid.
> We've all looked at a stock like microsoft, dell, aol and wished
> we could have bought it back when it was a fraction of it's current
> worth. We torment ourselves by calculating what our account might look
> like if we'd had bought it and held on. Many of us have jumped in and
> out of a stock for a quick profit only to see it a year later many
> times higher than when we owned it. Truth is few of us would have
> picked that one stock out of 17,000 or so, and if we had, chances are
> you probably wouldn't have put enough into it or had held on to it for
> long enough. The future MSFT are out there waiting to be discovered.
> The other day I looked through the rankings of the richest
> people in america as ranked by the fortune 500 magazine. There were a
> number of investors but I don't remember any traders. Some held a
> small number of stocks like Warren Buffet; others, by owning there own
> business, held the equivalent of one stock. This observation leads me
> to think broad diversification of assets leads to medeocre results
> (like mutual funds) and true fortunes are built on a non-diversified
> approach. Perhaps this is stateing the obvious to some but bear with
> me.
>
> ASSUMPTION NUMBER ONE- HOLD VERY FEW STOCKS, PREFERABLY JUST ONE,
> PREFERABLY THE BEST
>
> ASSUMPTION NUMBER TWO- STAY FULLY INVESTED, DON'T JUMP IN AND OUT OF
> THE MARKET, BUT DO SWITCH STOCKS OR THAT ONE STOCK AS NEEDED
>
> OK...so which is the best stock?
> Stock analysis seems to be split into two camps fundamental analysis
> and technical analysis.
>
> I find fundamental analysis to be flustrating and not for
> amateurs like me; the more the variables, the more confusion and there
> are hundreds of variables to consider. Even if your data is accurate,
> timely and you have the experience to put it together into a
> conclusion and the courage to act on it the market may still go
> against you. You can be right and still go unrewarded. Or you can be
> right at the wrong time. Or you can be right and everone else with
> the same data can come to the same conclusion, but no one acts
> untill they see some movement in the price.
>
> Technical analysis is more comforting to me, I can understand
> numbers but I think it can go too far. I think it can lead you into a
> false sense of security. The exacting nature of numbers can make you
> think its a science when its probably more of an art. I see
> all technical analysis as based on only two things PRICE and
> VOLUME...and I don't see volume as being very helpful. And so my
> system is based on price action only. Others have come to this
> conclusion I'm far from original on this.
>
> What do you want from a stock?...you want it to go up
> Which is the best stock?...the one that goes up the most
>
> ASSUMTION THREE-THE BEST STOCK IS THE ONE THAT GOES UP THE MOST OVER
> TIME...duh, stay with me
>
> Few people even the pros can pick that one stock accuratly, but most
> of us can pick a set of stocks to concentrate on that have a high
> probability of containing a true winner.
> To find the fastest horse in a group simply race the horses, the
> fastest one will cross the finish line first.
> Likewise to find the fastest appreciating stock, race them. Choose
> your set of stocks, maybe 12 to 30 of them., drawing on the a fixed
> set like the dow 30 or money magazines 30, taking the advice of your
> favorite guru or newsletter to come up with your set. convert their
> prices to a simple percent start them at the same point in time, buy
> the one that pulls ahead first by about 10% or so. If anouther stock
> closes from behind jump to that stock as it passes the first. If the
> stock your in losses momentum and the second best catches up, jump to
> it when it becomes the best. The second best stock acts as a relative
> stop, it is affected by overall market conditions the same as the
> first and as such is less ridgid than a straight percentage stop loss
> or fixed dollar amount.The hope is that it will keep you in the best
> stock as the market girates. To make a jump, monitor the progress of
> your choosen stocks nightly useing end of day data. As the second best
> eqauls or excedes the first put in an order to sell on open the stock
> you own and buy on open the new stock. Both orders are executed
> without you there in a nano second and at a low commission rate.
> Switching like this would be frequent at first but as you move through
> time it would become less common.
>
> To keep with the horse race analogy you are the fly on the nose
> of the lead horse. Jump from horse to horse but always stay in the
> race. At times you'll be way ahead then fall back but as long as you
> stay in the race and on the nose of the lead horse you will cross the
> finish line with the best stock (uh...horse).no matter what time frame
> you choose.
>
> Perhaps this isn't a system after all, but is more of a
> non-diversified money management method. But before you dismiss this
> approach as too simplistic to work look at some of the results I've
> been tracking, many of these initial portfolios are found on the
> Motley Fools home page.
>
> Using this group of stocks
> Since Return wo/taxes commissions slippage etc
>
> Money 30
> 9/98 190% with SUNW (2nd best MSFT @
> 74%)
> Fool Portfolio
> 9/98 507% with AOL (2nd best KLAC @ 96%)
> IBD Relative Strength (Foolish Workshop) 1/99
> 117% with VISX (2nd best SCH @ 50%)
> Spark 10
> 1/99 40% with EMC (2nd best MSFT @23%)
> PEG 5
> 1/99 49% with BBY (2nd best BGEN 35%)
>
> I've seen a number of posts stateing annual daytradeing returns in
> the 28% to 50% range. It would seem to me that useing the above method
> would give greater returns with far less effort. Do any of you
> Realtraders have returns that match or exceed the above?
>
> ADVANTAGES
> *only one stock to concentrate on
> *monitor portfolio once daily useing end of day data, maybe 10 minutes
> *low transaction cost, expecially when compared to daytradeing
> *obvious and simple switching signals, a straight percentage
> *less anxiety wondering if your in the right stock, you will be in
> the right stock of that set
>
> DISADVANTAGES
> *not diversified-one could use more than one "race" with
> non-overlapping sets of stocks
> *vulnerable to gap up or down openings on switch day-using larger
> cap. stocks could minimize this
> *fixed set of stocks-one could devise a way to add other stocks into
> the set as long as it behind the leader
>
> For those who have read this far, Thanks. I would invite those of
> you who, like me, are trying to find that method that makes sense and
> one you can live with to use or improve on this model I've
> proposed. I'd love to hear from those of you who might like this
> approach; even more so I'd like to hear from those of you who might
> hate this approach and can see obvious problems with it that I can't
> see....please stop me, before I hurt myself.
>
> Sorry about the poor grammer and spelling I'm typeing this
> between patients at my real job and have little time to proof
> read, but I'm sure you get the point warts and all.
>
>
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