| | | Here's my "easy" way to balance between trading and investing.
The distinction between trading and investing is mostly arbitrary. A better way to put it is about deciding on your time frame or how frequently you want to trade. This is why I always say that the timeframe is the most important decision you make. But what does this mean in practice?
To put it bluntly, it means that everyone should trade in a timeframe in which they are in the top quartile of their competition. If you are day trading, you are in competition with D.E. Shaw and institutional algos. If you are position trading, you are in competition with mutual fund portfolio managers. As your timeframe expands, your competition shrinks and sometimes the market hands you an amazing gift.
For example, when oil went negative, how hard was it to conclude that those low prices were not sustainable and that if you were willing to hold for a year or two you would have made a killing? Did the pros not know that? Of course they did. But they *have* to trade every day or show quarterly PNL. But if you were like me, you'd accumulate from June to August and then make 7x over the next 3 months.
Anyways, here's my easy investing-trading balanced method: find a cyclical industry. Most industries and companies are cyclical.
Make a Bollinger band equal to the length of the cycle.
Average down in them once it's 3/4 of the way down the range.
Double the size of your investment once it hits the lower BB.
Keep that double investment size until it hits the upper BB.
Once that happens, reduce investment size back to normal.
After that, when the price drops below 50DMA invest only in half sizes and save that money for the next cycle.
If you need to cash out, do it during this latter step. |
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