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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: - who wrote (418)	6/10/1999 2:45:00 AM
From: Raymond Duray	Read Replies (2) \| Respond to of 18137

Hi Steve, I assume the post was directed at the general audience of this thread because I can assure you I have no interest in shaving half points and worrying about the "jitter" in the market. I will assure you I am far more concerned about the circuit jitter that occurs on ASICs for OC-48, 192 and 768, that is the bane of companies like VTSS AMCC BRCM CNXT and a few other DSP fabs. Have I lost you "daytraders" yet?..... Good. Someone you daytraders may not be aware of is a bumpkin out in Omaha, Nebraska. His name is Warren Buffett. He has distilled Steve's three rules into two. (Speed matters.) Rule One: Never lose money (Editor: no surprises there). Rule Two: Never forget rule number one. For those of you who are truly clueless, Warren Buffett is the second richest man in the world. He made his money in the stock market. He never, ever day trades, he loathes options. He has made a consistent 25% ROI since 1969. He is richer than Croesus. He has a message for you. Unfortunately, you have too short an attention span to learn that lesson. Too bad. However, his results are replicable. Still with me? Here's an example. The lesson is "panic provides opportunities". First of two scenarios: In the 1970's, electric power authorities in Washington state projected demand that far exceeded the capacity of the Bonneville system. The result was that the Washington Public Power Supply System sold billions of dollars worth of bonds. And started building nuclear power plants. 5 of them. All at once. Just before public sentiment shifted and regulatory policy changed and conservation of energy became the mantra. As you can tell, they didn't call WPPSS, "Whoops" for nothing. So, they pulled the plug on one of the plants. Stiffed the bondholders. Too bad, oh so sad. Mr. Market, genius that he is, decided that the bonds of the other four plants must also be worthless. So sell 'em for whatever you can get. And Warren Buffett stepped up to the plate and said sure I'll buy the bonds of the plants that actually will get built and will throw off cash flow and pay off the bond holders. And I'll do it for 20 cents on the dollar. So Warren bought those bonds. And they paid their normal coupon, which in those days was a hell of a lot richer than it is today. So instead of being paid ~8%pa, he was being paid 40%pa to wait for the return of his capital ~10 years hence when he would be repaid 5 dollars for every 1 he had invested. Why, gentle readers, do I bother you with this arcana? Because the window of opportunity for Warren to take advantage of this astonishing opportunity was about the same amount of time you spend twitching for a 1/4 pt. on some lame Inut issue that won't exist in 2 years. Example 2: Last Friday, a ruling was announced on CNBC at 3:30PM ET. The case was the infamous Portland decision, wherein AT&T was directed by a federal judge to submit to the requirements of the local jurisdiction regarding the sharing of cable facilities with all comers. Immediately, Mr. Market instinctively knew that ATHM was in trouble. So he sold ATHM, and the laws of supply and demand being what they are, I took pity on these poor sellers. I bought, not at the bottom mind you, because I'm just not that smart. But I bought and held. Then Monday came, I was sanguine. I knew the Panner decision was bogus and could not be upheld upon appeal. (See my posts on the ATHM thread for the logic/argumentation.) Monday morning I could have sold out at a loss. Mr. Market was still stupid. But then the magic happened. Monday afternoon, Mr. Market not only "got it" but went into euphoria mode. A mini relief rally in the late afternoon and slam bam thank you mam. I sell out at 103.25. Again, not the best price of the day, but I'll take that kind of gain any time I can get it. Today ATHM trades at 96. I'm hoping for more bad news, <gg>. Sorry if I bored you Nintendo graduates. Ciao, Ry

To: - who wrote (418)	6/10/1999 8:37:00 AM
From: AI Master	Read Replies (1) \| Respond to of 18137

Learning how and when to exit a trade is probably the hardest thing to grasp. Your post was excellent. I hope what I provide below can add to (or reinforce) your exit strategies... Knowing when to buy is only half the battle of becoming a successful trader. Knowing when to exit a trade is equally important. One of the hardest things to realize as a new trader is to never never never get emotionally attached to a stock. After you enter a trade, always place a stop loss order. Place your original stop loss at ½ basis point from your entry price. You can put your stop loss any place you feel comfortable with but never lose more than 5% on any one trade. This strategy will help you avoid losing your shirt. Never let a trade languish for more than 5 trading days. If you enter a trade and the trade does not develop after 5 trading days, exit the trade. There are too many good trades out there to get stuck in a none-mover. Low commission rates, especially those offered by online brokers, have made this technique possible. Place a breakeven stop loss once you have attained a ½ basis point profit on your trade. Make sure you use the bid price on stocks you are long and the ask price on stocks you are short to determine where to place your breakeven stop loss. This step can help reduce your number of losing trades dramatically. Consider taking some money off the table once your trade has produced more than a 1 basis point profit. Sell ½ your position at this point in your trade. Also place a breakeven stop loss on the remaining ½ of the trade. If your trade makes it to this point, you are guaranteed a profit. This one little step guarantees you of not letting a winning trade turn into a losing trade. At this point, the pressure is off and the trading becomes fun. If the trade continues to move in your favor, simply adjust your stop loss for every ½ basis point move in the stock. Some brokers will place a trailing stop loss on the trade for you. Others will require you to do this step manually. Now just sit back and watch your profits grow and grow and grow. This step will help maximize your returns. Good luck and happy trading! Rocky