Semi-new and improved
I think I'm closing in on a good overall strategy to put, or tweak, into play. I'm hell bent on making trading easy, in the sense that I can't take a lot of time during the day to dink around with the portfolio. I don't mind researching and scanning and studying at all at night or on the weekends, but my day job requires my attention. So, quick trades where I need to stay on top of things are out. Unfortunately, quick trades are pretty much what I've always focused on in the past, and with good results.
The new game in town is trend following. I have a simple and common definition of a trend, and that is a series of rising lows, three or more of which can be connected by a straight line. There are times where I've used two lows connected by the line instead of three if it looks right.
I want to jump on the trend as close to the trend line as possible. In no case should the buy price be more than a month away from intersecting the trend line. When the stock price breaks below the trend line, I sell the stock. There are other times I may sell the stock early, such as if the price rises significantly above an established trend channel, or if an unatractive takeover is pending. I'm sure I'll find other reasons.
There are several reasons I like this strategy. Of course, I may find that the theory works a whole lot better than the practice, but that's something I'll learn along the way.
First, this is easy to manage. I find a stock that fits my definition of "trending" and I watch for a good entry price. Once I buy, I set a stop below the trend line, and move it as needed - probably about once a week or so. Done.
Second, I know what to expect. The approximate trending rate can be calculated, so I know what sort of annualized return to expect. I call this the "Trend Return". The Trend Return is simply the amount by which the trend line increases over a given period of time. Since the position will generally not be exited until the trend line is breached, the Trend Return is the only return that carries any real "end of day" significance.
Third, the stop loss is crystal clear and constantly moves up. I don't have to guess where the support and resistance lines are. I follow the trend. the stops are set just below the trend line. If I buy close to the trend line, I can manage a low risk, unlimited reward scenario.
At this point, the majority of my stocks are in trends, if only by accident. However, many of them were purchased high in their trend channels away from the supporting trend line. So, I have a ways to go before I'm generating trend gains that would translate into realized gains in many of my positions. That's fine. I really view this first year of longer-term trading as school. Hopefully when I graduate I'll have learned something!
The new game in town is trend following. I have a simple and common definition of a trend, and that is a series of rising lows, three or more of which can be connected by a straight line. There are times where I've used two lows connected by the line instead of three if it looks right.
I want to jump on the trend as close to the trend line as possible. In no case should the buy price be more than a month away from intersecting the trend line. When the stock price breaks below the trend line, I sell the stock. There are other times I may sell the stock early, such as if the price rises significantly above an established trend channel, or if an unatractive takeover is pending. I'm sure I'll find other reasons.
There are several reasons I like this strategy. Of course, I may find that the theory works a whole lot better than the practice, but that's something I'll learn along the way.
First, this is easy to manage. I find a stock that fits my definition of "trending" and I watch for a good entry price. Once I buy, I set a stop below the trend line, and move it as needed - probably about once a week or so. Done.
Second, I know what to expect. The approximate trending rate can be calculated, so I know what sort of annualized return to expect. I call this the "Trend Return". The Trend Return is simply the amount by which the trend line increases over a given period of time. Since the position will generally not be exited until the trend line is breached, the Trend Return is the only return that carries any real "end of day" significance.
Third, the stop loss is crystal clear and constantly moves up. I don't have to guess where the support and resistance lines are. I follow the trend. the stops are set just below the trend line. If I buy close to the trend line, I can manage a low risk, unlimited reward scenario.
At this point, the majority of my stocks are in trends, if only by accident. However, many of them were purchased high in their trend channels away from the supporting trend line. So, I have a ways to go before I'm generating trend gains that would translate into realized gains in many of my positions. That's fine. I really view this first year of longer-term trading as school. Hopefully when I graduate I'll have learned something!
posted by mccrok @ 10:22 PM
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