Mary,
You should be able to back-test your theory using closing prices from a range of days in the past (1 month, 3 months, 1 year).
Your challenge is deciding on a regiment for when to buy back in. Dell shares are fairly volatile. If you take for example yesterday we ranged from 98+ to 105+. The stock is a random walk. When it is down a buck, do you buy back in, or when it is down 5 bucks.
The other question is limiting your losses on the upside.. After you sell and you find yourself sitting in cash with the stock up $2-3, what is your strategy for getting back in. For example if you sold at the top of around 73 in mid November last year, when would you buy back in? If you waited too long for another big correction like in September, you might miss the boat and be on rocket ride from December to Jan.
I have rarely made headway when trying this strategy. I find myself selling low and buying high.
look at this chart:
iqc.com
We all would have liked to dump our entire position in late september only to pick it back up at the low in early October. However, there were various up ticks in the stock on the whole way down. Also, on the way up, there are many downticks.
From a life impact persepective, you will have to decide how closely you care to follow the stock. Is daily pricing enough for you or are you willing to watch it constantly. I find that when I have a trading position in play, there is little else I can do effectively. Market makers are in the business of getting us to panic and sell our shares at exactly the wrong times. Do you have a calm disposition and a strong internal compass? (Being long Dell is a good sign).
Finally, you have to consider the tax consequences. Buy and hold defers the taxes on gains. Your strategy would cost you in taxes every year on at least 10% of your gains which would act as a drag on your net worth. If you are in an IRA, this consideration is moot.
Just some perspective from someone who has tried without much luck.
Craig |
