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About Me
- Solitary Trader
- ohio, United States
- I am a money manager working out of a small cabin on my property. My trading style melds together the market philosophy of Jesse Livermore, Nicholas Darvas, William O'Neil, and many others. I have taken what I learned from them and added to it from my own market observations over the last many years. Before becoming a professional trader, I completed my M.B.A. and spent about eight years doing consulting work with Ernst & Young, Cap Gemini and Deloitte Consulting. Before that, I spent a few years in the seminary studying to be a Priest. My weekdays are spent with my wife and children, and in my cabin, where I study the stock market assiduously. Trading is my passion.
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16 comments:
ST,
Thanks for sharing your wisdom and happy holidays to you.
I read some of your old blogs and I am not sure we have touched the topic on portfolio management, that is, how to hold, force-feed a winner (not just the 2% cut loss rule).
Elder said that trading consists of three pillars: buying, psychology and portfolio management.
TO me, I thinking buying is somewhat on the easy side. We have exactly defined buy point, fundamental and technical criteria to meet before pulling the trigger. Trading psychology is also not that hard when we have rules to control our emotion/ego and make comprehensive plans for every contingencies, and also remain flexible. The hardest part is portfolio management, that is, how to handle a monster once I land one. Conerning this, I have multiple questions.
I did many stock simulations and put time frame back to 03/17/2003 when IGT and Netflix broke out on that historic follow through day. HOwever, IGT stayed in the same price range after breakout for 10 weeks before starting 300% ascend, and Netflix was even worse, it first collapsed, stayed in the bottom for one full quarter before its steep 400% ascend in two month. Who had patient to wait for such a long time in a fast moving market when my holdings are not going anywhere while other stocks are breaking out and moved up left and right? But if I started to chase fast movers and finally land one, e.g., chinese internet stocks, the fast movers stopped moving up while IGT and netflix finally started to catch up.
Bill said to look for 3WT and first pull back to 50ma before adding, but leaders will keep moving up and up and not give you any buy points until the move is finally over. And if I start to chase the leader, the stocks I sold may start to move up.
Besides holding stock for 8 weeks after it going up 20% in the first 3 weeks, P/E projection (it is not accurate in the past bull market cycle anyway), do you have any rules to use to hold a winner?
WHen you get shaken out, what rules you have to make sure you will buy it back? To make one more example, look at cisco IPO and let's assume we bought the tricky double bottom base, from 1990 to 1992 that stock could shake me out at least 3 times. Once shaken out, there was NO way I could get in because the stock moved up without convincing volume (so I am not sure institution investors had conviction behind it). That's how difficult it can be!!
Bill said the biggest mistake is mess up with a big winner once having one, but on HTMMIS he only spend less than one page on how to handle a winner. I know it is more of an art and experience and he could not make any hard and fast rules anyway, so I would like to ask you how you handle a winner and what additional rules you use?
I know in the upcoming bull market I should have enough experience to buy the winner, but I know I will mess it up eventually, I just know it.
Thanks in advance.
Ge
Merry Christmas coach.
gli3,
I can not answer for ST, but....I asked him the same question. He did not answer me and that was the best thing he did for me. I ended up posting all of the 2006 and 2007 winners on a chart and noticed those stocks never make it back to the 50 dma, and when they do....they are forming another base.
GE,
It is difficult to answer your question other than the way O'Neil answered it...thinking about it...
First of all, "buying right" is not easy. If you get that right then a lot of other stuff falls right into place. If you buy right you can get a cushion and you will be able to withstand the stock's first correction. That cushion gives you confidence. Moreover, if all the stocks in your protfolio are in the blue, you will have even more confidence to add as your stocks move out of congestion areas and 50 day lines.
If you don't have a cushion (profit) in your portfolio then it makes it even harder to hold the big winner because the insecure mindset of a trader in the red forces him to sell the big winner just to get back to even...then the whole churning/losing cycle starts all over again.
This question is bigger than it seems. Good trading leads to good trading. It gives you the confidence to pyramid even though you know that you may lose some of your initial gains.
I guess my point is this: holding onto the big winner and adding at the proper times is more a function of "correct thinking" rather than exact "formulaic practice".
The most important thing to do in trading is to get a cushion. Do everything in your power to "stay out of the hole." When you are in "profit" you think differently; positively, confidently ~ properly. When you are in the hole you think insecurely, negatively ~ improperly.
I don't really know what else to say besides that. Remember though -there aren't that many big winners. Take your 20% or so
when you have it. It adds up. Then when the big winner comes along you'll have the guts to trade it properly.
Personally, I try to get a good position fairly quickly. I won't add once earnings draw near if it is a stock I'm really interested in keeping. After earnings are posted, and if the stock is acting well (moving up to new highs on good volume) I'll add then. Most of the time though, if I own a stock that is alright, but that I'm not too excited about, I'll hold it for a while and then relinquish it before they post earnings.
Earnings season is a time of great oportunity s well as great danger.
Sorry I didn't answer you before, Click..was probably thinking about it, then got distracted and forgot...it's not an easy question to answer.
ST,
Thanks for the reply. That's excellent comment.
I remember last year (2007) I did my post analysis and I found that I was in exactly the same stocks as the team leaders of my meetup group. HOwever, my return was only 15% but their return was more than 100%. That was my first year, though.
Actually, our friend, Darvas, with 20 years of experience, was in but shaken out of Teledyne and National Semiconductors and had to buy them at much higher price during the bull market after 1973-4. He was also shaken out of Huges Tools 4 times and once he gave up on that stock, it doubled quickly. If he could mishandle monsters with such extensive experience, so could I.
I guess human expectation of the stock's future is always unpredictable, so there should be no good formula. But I can always do a good post-analysis each time and getting better and better each year.
Again, thanks and happy new year.
Ge
Coach,
Don't worry about it. It helped more than anything. It gave me a chance to roll up my sleeves and get dirty. Your blog, list and answers can be a crutch...and not answering me gave me the ability to throw that crutch away.
Everyone wants to buy the breakout and sell at the peak. It's not gonna happen. I had to create some rules and tweak them. I was a seller when the market posted a number of distribution days, and I missed and extra 30% in APWR because of that rule. It was tough but you have to shake it off and make new rules concerning. Stocks peak before the correction (Dell 2000), at the same time, and after the correction has set in (CSCO 2000 , Oil stocks )2007
You hit it on the head with Oneil's 20-30% rule. The problem is....once it is up 20-30%, traders start dreaming and looking for analyst and chat rooms to fill their head with smoke. Then the stock/market turns and they can't move....profits lost and psyche dented.
Outside of looking at the winner's I looked at the big losers. How did they act before rolling over? What was the catalyst...the market (usually), lawsuits, missed, earnings, etc. Using what I learned, I shorted AXYS at 70. It broke it's long term trendline and has been hanging around it (above and below). Oneil said that stocks give people a second chance to get out at a decent price.
Gil you are right, there isn't enough talk on selling, but the reason maybe that it's different for everyone. Another thing that may help is to scale out of a position after pyramiding. If you want to hold at a position longer, look at the weekly chart more rather than the daily.
Once again, thanks Coach. It was meant for you not to answer me.
Hey Coach,
I love that one you put up a month or two ago. "Pick the Low Fruit". Compact message but powerful.
ST, I'd like to wish you a Happy New Year. You had a tremendous impact on my trading since I started reading your blog. I wish you and your family all the best.
Thanks, MM. I hope you have a good year too.
hi ST!!
firstly, happy new year to all!
just wanna ask about smthing with regards to taking profits. o'neil mentioned taking profit upon 20-30% profit. I'm abit caught between this and the idea of riding the uptrend until the stocks tell u that u shld be getting out (like darvas).
so is this 20-30% profit a general guideline u stick to?
Kevin,
It just depends on your personality. If you are up 30%, do you have a problem giving it all back and then possibly recovering it later. You know, it depends on what you want. If you get a 30% return per quarter starting with a 100k account. By the end of the year you will have $285,000 or so. Not a bad return. So if you can nab 2 to 3 stocks per quarter and sell them when they are up 30% or so...well, you can have a good year.
If you hold those same stocks the whole year you could do better or worse - but you will definitely experience more volatility in your account.
Hi all. 1st post ever here so apologies if what im gonna say has already been discussed. I just want to go back on the 7-8%stop loss/20-30% profit rule...Ive been following canslim for a few years now and for me its the best system but from the start, i had a problem with that rule in the sense that i believe each stock has its own volatility. Ive always been surprised by the lack of comments on that. How can we talk about 20-30% in MCD vs POT. It feels like apple and oranges. Ive always used 2ATR-6ATR. What do you guys think?
By the way great blog and sounds advices from ST...
Gilles
Gilles,
Personally, I usually use a $1 to $2 stop....period. I don't follow the 7% to 8% loss rule. I cut much quicker. If the stock isn't acting right I simply get out.
The ATR you mention ~ did you pick that up from Van Tharp, or maybe a Turtle? Turtles use(d) the ATR. Tharp also has recommended it as part of an overall system methodology.
Whatever works - we're all different.
When I first startd investing I used to always allow 7 to 8% losses...that can get painful. I'll never forget the day I read the David Ryan interview in the book "Market Wizards". He talked about selling at least half of his position if the market fell back into its base by even a small percentage. It was then that I realized that everone takes CAN SLIM and personalizes it to fit their pyschological traits.
ST
Believe it or not, i found the ATR because i was bothered with the 7-8% rule , as i was looking at another way to determine stock volatility. Then indeed i read about it in trend following books and Van Tharp which i think has an excellent methodology, especially the position sizing part which is so important relatively to the entry. WHat is your view on Van Tharp?
I agree each trader creates its own version of the system after a while and that is a good thing and best way to fit a system to a personality. I myself had a problem with some losses that, like you, thought were too painful but then used Van Tharp methodology of allocating a fix % of capital to a certain loss and it eliminated the issue knowing exactly what i would lose if stopped out.
So when you mention 1-2$ stop, do you use that rule for 200$ stock like 20$ ones or just avoid trading high prices ones so to keep the 1-2$ as a certain % of the price? (as you can see, im a bit obsessed with %! :) )
Me again...ST ignore the questions in my previous post, just spent a few hours reading your blog and well ive got all the answers :)
once again, great blog (that i just discovered 3 days ago)
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