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Some thoughts that might help.
A. Would a longer term indicator like parabolic set to .002 or what ever you
perfer help you to hold on longer?
B. A similar use for parbolic so that you don't buck the trend. Also
watching S&R to see if the strong ones hold or not.
C. This is a very tough one, your idea about cheaper protection is good. It
can be as cheap as you want using options that a furthur and furthur out of
the money.
Prosper
a. Getting scared out of big trends relatively early on in the move.
Partly psychological (willingness to give up the initial profit for the
larger one). I don't "like" to see stuff down so much, so I tended to cover
the shorts or hedge out the declines, and the stuff I was long, I was not
sure how much further they would rise after having risen >62% on average
before I got shaken out. Turns out they went on to rise 250%-300%.
Partly to do with trade size, in that I have to be willing to accept a
higher day-to-day or week-to-week volatility in the P&L statement, in order
to catch the real big move. If I am unable to deal with that volatility, the
solution is to cut trade size down to whatever the comfort level turns out
to be. Eg - on a $10 stock the stock moves to $14 then comes down to $11
then goes up to $17 then comes down to $13 then goes to $20 then comes down
to $17 then goes to $26 then comes down to $22. These "comes down to" are
huge percentage moves for the stock, and fade-trend trades in and of
themselves - which I didn't take. But somewhere between $17 and $22 I gave
up, seeing range expansion bars and outside down days with higher volume.
Turns out these were retracements to 20/50 ma's before the stock went to
$32-$33 etc. So the solution seems to be somewhere in position size and
somewhere in pyramiding.
b. Buying breakouts to new highs in a bear market. For every 1 that worked,
8.6 didn't.
On balance, these made money for me since I tend to enter these delta
neutral and the failures make me net short - then going outright short is a
separate decision. However, the stop-outs on longs are like death by a
thousand cuts on the account. Simply waiting for the overall tape to turn
bullish would have been prudent, because my overall account would be saved a
lot of stop-loss money - and the fade-breakout trade would've been seen as
an independent trade altogether.
c. Cutting off profitability by prematurely hedging profitable trend
positions.
Yeah, like, I didn't know CSCO could trade a $13 handle. In the journey from
$70 south to $14 max potential, theoretically I should make $56 per share in
an short-and-hold-no-pyramid position. Turns out I make $32, having paid the
difference in hedging off against imaginary takeover potential etc.
I think I went overly conservative here, where large caps were concerned. I
mean, apart from a once-in-a-blue-moon merger (Citi-Travelers, GE-Honeywell
kind), there really wasn't much going on. But I was a nervous short on these
momentum earnings/sales growth large cap companies.
I would probably do it again the same way, the only change being buy cheaper
protection. By default that would mean way-out-of-money, hence open profit
would more or less be totally at risk against takeover, hence trade size
would need to also be examined.
Price worth paying for peaceful sleep, versus cleaning up in a really smooth
trend.
Still thinking about optimal solutions, though these are my initial
thoughts.
Gitanshu
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