|
PureBytes Links
Trading Reference Links
|
Hi All:
Remember in my previous posts, I mentioned I got into XRX leaps back in
1996 due to a recommendation from Pitbull Investment Service?
Remember I said a week after I first bought the leaps, there was an
unfavorable report and the next day XRX dropped more than $10 and on that
day I bought more leaps (averaging down).
I actually bought (averaged down) more XRX leaps on Oct 18, 1996, after
seeing that the prices seemed to have stablized some time on that day. I
think the price was (after all the adjustments due to splits) around $23
1/2. Note that subsequently, the stock moved up to $42 (and higher yet
later on) in July 1997 and beyond.
Hindsight tells me I was lucky.
Looking back tonight, after reading responses from some of you, I went back
to the price data and pretended if I were to do it all over, what should be
a better way...
One way, for example, is to use a filter - the one I have in mind is the
kaufman amak. (I tried using the Jurik JMA, but it seemed to get me in
much earlier. Mark, if you're reading this post, any advice?)
I would have waited for XRX to close ABOVE the amak indicator, which
happened on Nov 14, 1996, at around $23 3/4. I would have waited for at
least 20 days after the price shock on Oct 18. (If, on the other hand, XRX
never closed ABOVE the amak and continued to move down, I probably would
<theoretically> not have averaged down using this filtering method ...)
Even if I had purchased the leaps on Nov 14 (averaging down), if
subsequently, XRX flopped back downwards, I would have lost.
I know most of you use stop losses etc etc. It happens that my way of
trading (by averaging down) does not allow for stop losses. So in the
unfortunate event that this doesn't work, I would have lost in the initial
buy and the subsequent averaging down buy(s). (That, as I explained
earlier, is not due to my current averaging down buy system. There are
safeguards for such unfortunate outcome in the system. The only thing is I
would still have stayed - bad trading discipline !)
Somewhere I read about successful trading: Each one's style is different.
What's excellent for me may be total disaster for another trader, and vice
versa. A lot of you would frown upon my way of trading. Perhaps I have
been lucky, and one of these days I will be whacked. So far, I'm ok. And
I'm not suggesting anyone should follow what I'm doing. I feel comfortable
with what I do, but I won't force it on anyone else.
This is the way I view about price shocks.
If there are 10 equities having price shocks, I don't mind plunging in, but
perhaps I should be more careful than back in Oct 1996. Perhaps I should
wait for filtering like the amak condition I mention.
Say, I made 10 trades, each with $10,000 total.
Out of these, 5 are disasters. loss = <50,000>
2 are break-even.
The remaing 3 are big winners, say, totally 50,000. gain = 50,000
The net result will still be break-even.
That's how I view it.
Of course most of you may not agree.
But then, as I said, I don't force you to follow what I do.
Regards,
Wong
ps: By the way, I am more of a longer-term player. I usually hold leaps
for at least 9 months, sometimes maybe 1 1/2 years. In that respect, it's
more like buy-and-hold trading.
Attachment Converted: "f:\eudora\attach\price shock - xrx - oct 96.gif"
|