Sunday, June 12, 2005

Trading

In the nineties, my approach to stocks was to position trade, find a stock that exhibited certain trading patterns and follow those patterns into and out of the stock. I used Advanced GET as my main tool for uncovering entries and exits, seeking 25% returns within three months or so. Due to the exuberance of that bull market, I was successful. When that exuberance waned, so did my success.

As described on my profile on the right of this page, since the middle of 2003 I have become a day-trader. Instead of looking for 25% gains over three months, I am looking for 1-2% gains over a few minutes to hours. Whereas before I was buying stocks in a bull market, now I am truly trading the market. It's a whole different ballgame, this trading business. I'm taking ten to twenty trades a day, looking for a few hundred dollars per trade, adding it all up at the end of each day and pasting the results into a spreadsheet. It's like a real business.

But maybe of more interest to my readers is the concept of reaching for 1-2% per trade, instead of finding some buy and hold gorilla, that one decision stock that makes us all geniuses. There are a number of different techniques for generating that 1-2% return in short time frames. I've discussed one of them right here in this blog, the insider-Buys, getting in quickly just as the news of a major I-Buy is being spread across the news channels and Internet, then getting out as the underlying stock pops in the hours and sometimes days after the announcement.

My other techniques are closely held secrets....For now. You can imagine the havoc I would put my trading into if suddenly I shared all my secrets openly on this blog. I'm getting over a hundred hits a day here, more when I write something halfway decent. The last thing I want is for a thousand other traders trying to jump into my day-trades with me.

But my point here is that it is has been a lot easier finding those 1-2% movers then it is finding consistent position trades in this market. On a $20 stock, 1% is twenty cents, 2% is forty cents, that's all it takes. They are out there, I assure you, I started this day-trading with one technique, one that still works, everyday, Now I have three solid systems, all working independent of each other to generate a steady stream of 1-2% winners, all intra-day. Yes, there are losers, but not like there is in position trades, where an overnight downgrade generates 30% haircuts on your favorite stocks. When you are only in a stock for a hour or less, there isn't much in the way of disasters to worry about.

It's a new way of looking at the markets and trading, it's not for everyone, but for this trader, it has been a life-saver. You wouldn't want me to become a lawyer again, now would you?

A

3 comments:

Anonymous said...

Allan,

Alway great to see what you are up to. I would tend to agree with your 1 - 2% analysis model for profitable trading. I would like to hear from you about the mathematics and probabilities behind such a system(s). Perhaps you know of a good reference?

Thanks as always.

Ross

Allan said...

Hi Ross, Good to hear from you again. I can't really point a finger to any single reference that has any relevence to my systems, although Peter Bernstein's, Against the Gods: The Remarkable Story of Risk may be a start. As for probabilities, res ipsa loquitur, "it speaks for itself," as it is just easier to pick a stock that will go up or down 20 cents in day then one that will go up or down 25 percent in three months. Anyway, that was the concept, premise, hypothesis, or what have you, that started me down this daytrading path and as you know, I've never looked back.

A

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