I'm going to be 65 in May and I'm not looking for any big drawdowns either. Our retirement is all set up and looking real good if we live to 110. And we are not big spenders. If you ever read the book, "The Millionaire Next Door", or "The Millionaire Mind", we fit that frugal state of mind to a tee. When I read those books, I thought the writer was describing me perfectly. Anyway, this is what I primarily do in the financial markets. I look to buy a strong stock, with RSI at least 70 and preferably 80 or 90. Sometimes, I'll buy a stock that was very strong (high RSI), but has had a normal correction in an uptrend. I will start with a light position of about 20K. And I will keep on doubling my position whenever the stock rallies 5% or 10% pending on the issue. Let me give you a real live example.
Message 31459311
I bought ENVA at $16.75 on 1/26. I only bought 1K shares. At $17.60, I bought another 1K shares on 1/29. At $18.50, I bought 2K shares on 1/30. At $19.45, I bought 4K shares on 2/2. At this point I chickened out because I did not feel comfortable owning more than 8K shares of ENVA. But I am still holding at an average price of $18.64. My paper profit is so far $34,480. I have a trailing stop loss to protect the bulk of my profits.
I outlined my strategy here:
Message 31461011
I cut my losses early on and don't let it get to more than 7% if I can help it. Blow ups due to an earnings miss is another story.
This stock, ENVA, along with SPXS insurance I bought, put me in the black during the correction. The name of the game is to get rid of your losses quickly and ride your winners. If I bought 30 other stocks at an average initial cost of $16,750 per stock and got stopped out on each of them at a 7% average loss, that would give me a loss of $35,175. But this one stock, ENVA, has almost single handedly covered the loss of 30 other stocks. That is what one winner can do even in a vicious correction.
I do trade the major indices on occasion. But when I do, it is mostly for fun and I usually use SPXL and SPXS. I primarily trade stocks on the upside and downside. And I don't believe in a diversified portfolio. Strength begets strength and weakness begets weakness; it's very Machiavellian. But that's my approach to stocks. |
