No one ever said that speculation was easy.
It requires thick skin, patience, humility, and a large dose of perseverance.
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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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12 comments:
ST,
Well said. As for stocks, I'm hearing alot of chatter about the "educational stocks" looking like leadership, however most have big institutional ownership (80%+). Not good. I can't help but think that the public will be sold to on the "break outs" that are way too obvious. And as O'Neil says, what is so obvious rarely works. DV sure looks like a stage 3top (Weinstein), as does biotech GILD. One things for sure, the 5yr/weekly of the indexes looks pretty ominous. The truth share soon be known about these "potential leaders".
I thought bear market resets base. APOL, ESI ?
ST,
I just read investor's corner on friday's IBD. IBD made example of ZUMZ's breakout on 11/2005.
It reminds me of the question I asked you last month. I know canslim should work, but this is how canslim work in the real life.
Look at ZUMZ, it tried to breakout above the pivot, but with only 39%above average volume. A few days later it gapped above the pivot with more than 50% of the average volume but closed below the pivot by the end of the day. Three more days later it gapped up again with more volume and price hit all time high, but the next two days saw down side reversal with even more volume and the stock closed below the low of the gap up day. I assume you would have sold it, too. Guess what, two day after that, once every speculators were cleaned out at least three times, ZUMZ started its steep ascend.
I have noticed many stocks behave just like ZUMZ before move up. Yes, we can argue that the stock never drop 8% below, but if I use 8% as lost cutting rule, I would be killed in 08.
This stuff is tough.
Ge
Ge,
1.zumz very thin traded stock, so this action is expected
2.lots of overhead in the 33-36.69 area some weeks back doesn't help.
3.And yes, even with all above, this is a tough way to make a living over a long term (ie 10 yrs+)
Also, heard your comments and questions regarding market health in Chicago. Very good presentation.
wireman6,
Thanks. I do not remember what I said, but I do learn a lot from the meetup each time. IT is excellent.
Do you have similar feeling that we seldom see good looking bases? Probably ST's method is the safest and surest way of buying stocks.
It also happen in some liquid names. Look at SQM, the biggest monster last year, and look at the tricky March breakout! Eventually volume kicked in, though, and stock was way extended when I realized it. MOre liquid names like WFR (10/26/07, 50% move but very hard to handle), INFY (7/12/06), etc.
I missed one thing on ZUMZ. The overall pattern did become much tighter before breaking out. SO even Ken Heebner and Bill Danoff were not doing anything on ZUMZ, other smaller funds probably accumulating it at that time.
Ge, Yes , good clean bases of charts have been rare for a long time. Since I only trade part time, I only trade in excellent markets can slim wise. Actually, I have made more swing trading SPY the last 12 months, than I ever did can slim. I might get kicked out of this blog for saying this, but I also have a large portion of my portfolio that I invest using MPT with frequent asset alloc. adjustments, especially with the VIX running high. Basically, I invest all 3 ways, and utilize whatever method(s) are best at the moment, both in regards to the market, as well as my personal time that I can allocate to them at that time. I have been doing MPT over 2 decades, and although it is getting a bad rap now, if you do it correctly, it is best for the vast majority. Probably only 1% or less will be successful at can slim over a 20 year period.
Wireman,
What do you mean by MPT?
GE, of course it's hard right now -you're talking about buying growth stocks during one of the worst markets since the great depression. If you use CAN SLIM you need a LOT of patience. There are many times where you just need to be out of the market...and you need to be okay with that...whole quarters and years.
If you want to make money all the time then you need to learn to day/swing trade. Then you can make money in any market, long or short. It all depends on what you want.
We need to learn a lesson from the animal kingdom. There are snakes that feed every day and there are snakes that feed once or twice a year. You can't consider either more successful than the other. The garter snake is happy doing what he does and the Anaconda is happy doing what he does.
What's so hard about CAN SLIM? Seriously. It makes pure sense. Market going up? Go long the best stocks technically and fundamentally: Stocks with triple digit earnings, new products in innovative industries, etc. (Common sense). The only difficulty is balancing the entry with the stop loss of 7%. That window is small. But the windows are small for any predator. You have to find your own methodology for entry. Maybe you take smaller positions and increase your stop until precison gets better. Maybe you get in before the pivot point; use the trendline in the handle for entry - whatever. Narrow down your problem to the entry.
I know CAN SLIM works and it works well...but you have to employ it in the way it was meant to be employed.
I've been successful flyfishing for Rainbow Trout on the White River in Arkansas. However, when they raise the dams and flood the river you might as well go home. Now, if a person went to the White for the first time when it was flooded and tried flyfishing they might leave with the impression that it doesn't work...and that will leave more fish for the others that are at home biding their time tying new flies.
GE,
ZUMZ averaged 81,000 shares traded per day back in 2005...way too thin. The spreads between the bid and the ask must have been massive at times. Rather than look at ZUMZ look at GOOG, SNDK and AAPL. Learn from those. Forget stocks like ZUMZ. Zanger made 180% that year essentially trading those three stocks alone.
You sound like you're getting demoralized...keep your head up.
ST, Sorry, MPT is acronym for Modern Portfolio Theory. ie predetermining the % amount between the 3 main different asset classes of equities, fixed , and cash (ie money market funds ,MMF). Of course you can further subdivide the classes even more. The trick is to keep the % close to the same through thick and thin. I don't subscribe to the once a year reset asset alloc., if the market is swinging up/down 10% in a few days. This year, I did exactly that, and that is where the big difference comes in.
ST, What you say is true about can slim, simplictically. However, in reality, it is very difficult to stay successful at over 10 years plus. Call the problem human nature, changes in the markets, smart money staying one step ahead, or whatever. I know a ton of failures and very few, long term successes. Had nothing to do with IQ or trying either. Even the long term successes I know, all had gut wrenching experiences at times that made them rethink why they chose to trade full time. ie those that traded over 2000-20003 and still trade today. ST, your individual skill is very unique and not common. From what I know about you, I think you have 'IT'.
Although what I do for my day job, seems so easy to me, I realize that only about 200 people/yr in USA ever make it. Many thousands start out trying though every year and don't make it,for one reason or the other. I view trading just as difficult in both training and persevering. In can slim, I'm barely an intern.
Wireman,
Okay... I studied MPT in business school ~ didn't recognize the acronym.
I understand what you are saying, but I know quite a few CAN SLIM investors that are still doing very well. This year they were mostly preserving capital, but I think there are many more out there than we know about. The washout rate for any trader using any methodology is pretty high (about 90% or so I would guess), so, the fact that many market participants that use CAN SLIM wash out is probably true. It takes an amazing amount of perseverance and for that you need an incredible amount of passion and dedication...personally, I think it is a vocation. "a calling".
As I've mentioned before, I think it is our own fragile human nature that makes trading/investing/CAN SLIM so difficult. Our avarice compels us to trade during poor markets. Our fear of "missing out" on a move also compels us. Our emotions war against us all the time...that's the most difficult part of CAN SLIM....and it can wear you down.
That's why I actually enjoy the periods when I'm not in the market. I get to rest and recharge. During bear markets I rest. I write. I read. I hang out with the family. I love bear markets from that aspect.
ST,
That's excellent opinion. Thanks. Sorry I am a little bit late to reply since I was busy with my work.
What I should say is, in the past five years (sorry DGO can only go back for 5 years), even if in a confirmed bull market (not the market right now), many growth stock with institution quality, still had huge move up despite some serious fatal flaws. That makes me think I have to fine tuning my methodology for entry, as you said. And you point out a number of good ways to buy stocks.
E.g., GRMN was a winner in 2007, it did not even come close to touch 50MA on that bloody 8/16/2007. However, the base before it broke out was very hard to read even with a 20/20 hindvision. The same thing can also go to AMX, it formed a picture perfect cup with handle from march to june 2005, but the breakout week had volume not only below average but also lower than the week before. In IBD doctrin, these are fatal flaws, but stock move up 300% from the week of 6/17/2005.
These are high quality growth stocks. Some commodity monsters are much worse. Their patterns are more triky and even harder to read. Look at the investor's corner's analysis of ACI, and I admit that I am really intimidate by them.
I think, after doing research for stocks for such a long time and compare different buying strategies, your methodology is probably the ONLY way to work now. I will adopt your way to buy stocks in the new bull market. It is actually SAFER.
Thanks, ST. I learn quite a bit from this site.
Ge
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