Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Swingtrading - Tricks of the Trade -- Ignore unavailable to you. Want to Upgrade?

To: Brandon who wrote (5)	10/3/1999 6:59:00 PM
From: Robert Meany	Respond to of 551

Brandon, Nice to see your thread, am looking forward to some good information, have been in Ken's room and yours for some time! Bob

To: Brandon who wrote (5)	10/3/1999 7:43:00 PM
From: William W. Dwyer, Jr.	Read Replies (1) \| Respond to of 551

Brandon, You've offered up some nice and interesting comments. I am looking forward to hearing more of what you do and how you do it. I've been daytrading and swing trading for a good while, now, and enjoy swing trading more because it is much less stressful and seems to have fewer things that can go wrong during a trade. For example, I might trade CMGI over a week, but I would prefer to avoid trying to get something out of it in five minutes and hope my ISP connection or broker software doesn't let me down. Your thoughts on money management are right-on in my opinion. Better to be a good money manager and an average trader than the other way around. Along those lines, do you incorporate any concern with market timing in your analysis for picking stocks? That is, do you require an "up" market timing signal (perhaps from some software) in order for you to initiate a long position, or, conversely, do you require a market "down" signal in order to open a short position? Do you get involved with sector and industry group analysis and try to make your picks in specific sectors and groups that are under accumulation or current heavy momentum? Or, do you just select a stock that meets your technical criteria, regardless of it's sector or group? What about the general and fundamental criteria for the stocks from which you make your picks? Do you use fundamental scans first to get a database from which to run technical scans, for instance? Also, will your stock picks be primarily large caps, mid-caps, small caps, tech stocks, certain sectors/groups, Dow-30, S&P500, N-100, Nasdaq only? Or, will you be looking at stocks from all of these areas? Finally, do you use any specific technical analysis software for your picks and, if so, will you be sharing that info with us so that we can follow along with your reasoning and learn from the process while taking on the trades you recommend that agree with our own analysis? I wish you the best in your endeavor and hope to see lots more of you around this and Ken's site. Incidentally, I haven't seen Ken Wolff's site for several months, but it sure looks to have improved significantly since my last visit. I'm impressed, and optimistic. Good luck! Bill Dwyer

To: Brandon who wrote (5)	10/3/1999 7:55:00 PM
From: doniam	Read Replies (1) \| Respond to of 551

I'm expecting to learn a lot and thanks in advance for your efforts. Will you also be providing real time picks? -Don

To: Brandon who wrote (5)	10/3/1999 10:17:00 PM
From: Windseye	Read Replies (1) \| Respond to of 551

Glad to see you posting here Brandon... I have been interested (and do read your daily emails) but I find this forum more convenient. I like your money management scheme... only risking 2% at any one time. How do you guarantee that the stops work? Doug

To: Brandon who wrote (5)	10/3/1999 10:53:00 PM
From: Brandon	Read Replies (1) \| Respond to of 551

Proper Money Management and Risk Control means never putting yourself in a position that one bad trade, or even a series of 10, will put you out of business. Remember, your primary business objective must be to stay in business. What is Money Management and Risk Control? Money Management and Risk Control is the portion of ones business plan (trading system) that tells you how much you can risk on one trade. What amount of risk should you be willing to take? A proper Money Management component to your business plan not only assures your longevity simply by not allowing large positions, but also by removing significant psychological barriers in trading. Let us quickly quote Larry Hite from the book Market Wizards (which we would recommend you all read) by Jack Schwager. "Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical." Larry Hite. Mr. Hite manages futures, and the risk control modules used are slightly different, never-the-less the principles are much the same. Incidently should you be thinking you can not make good returns taking such small risk you should know that when Market Wizards was written (1988) Larry Hites funds had a compounded average yearly return of 30%. This was done taking probably the lowest risk of any trader I have heard of. How many funds consistently do 30%, not many. If you can consistently make 30%, people will beat your door down begging you to manage money for them. Brandon www.mtrader.com/swingtrade

To: Brandon who wrote (5)	10/3/1999 11:10:00 PM
From: Brandon	Read Replies (4) \| Respond to of 551

Our return goals are higher than those set by Mr. Hite, as such we must be willing to take a bit more risk per trade then he does. Remember the principle however that one trade should not matter. The risk control module we recommend for the techniques you will learn here is 2%. You could go up as high as 3%, but the swings in your account, and thus potentially your state of mind, will be large. We prefer to risk a bit less and pay the shrinks a lot less. What does this 2% risk module mean? We will use an example of a $50,000 Swing Trading accounts for the purposes of illustration. You find an opportunity in XYZ as a short if it trades below 55 1/8, and your stop according the methods you use should be 56 5/8. This means your risk per share is $1.50. At this point you must determine how much your risk you can risk according to your risk control plan. In this case you will be risking $1000, which means if you are wrong and are stopped out, you will lose $1000. Risking $1000 you can trade up to 666 shares of xyz as a swingtrade. In this case we would advise rounding down to at least 650, and probably 600 just for ease of executions sake. However, if you want to be absolute on your risks, which isn't a bad plan, you can trade 666 shares. Just remember to never round up. If you do any rounding, make it down as this will not put you in the uncomfortable position of risking too much of your capital on one trade. Using this risk module each time you make or lose money the absolute dollar amount risked will of course change, but it is important once you have a percentage you are comfortable with to stick with it. As an example, say the XYZ trade doesn't work out and you take your stop, your account now has $49,000 in it. On your next trade you wish to buy ABDC at a price of 21 3/4 with a stop of 20 7/8. You can risk $980 on this trade. Each share of ABCD has a risk of $0.875. This means that as a Swing Trade, using a 2% risk module you can take up to 1120 shares. We will assume this trade works out and you sell 3 days latter at a price of 23 1/2 for a gain of 1 3/4 per share, we are also assuming that this is the only trade you've made during this time frame for the sake of simplicity. Assuming you took a position of 1100 shares this brings your account up to $50,750. The next trade is in VVV, it is a buy at 45 1/8 and your stop is a rather wide one at 42 1/4. This puts your risk at $2.875 per share. With $50,750 in your account you will be risking $1015. As such you can take a position of 350 shares. Two days latter when you sell VVV at 50. This brings your account up to $52,456.25, which means that you will be risking $1049 on the next trade. As you can see, after three trades using this module your account is up a very respectable 4.9125%. If this represented one months worth of trading, you would be on track to return at least 58.9%, a number most fund managers would sacrifice their first born to achieve. What would happen if we used an arbitrary number of shares in each position, say 300 shares per trade as many swing traders do. You would vastly under perform, after these three trades you would have an account size of $51,537.5 for a return of 3.075%, which is very respectable, but not as good as you should have done. The real risk however with this arbitrary system is that it is quite possible you will find yourself in a position of risking entirely too much money on one trade. Say you want to Swing Trade something like Amazon.com. Stocks such as Amazon very commonly have stops of $10 or more. In this case you could be risking $3000 on one trade with an account of $50,000. This is a 6% risk, which is entirely too large a position to consider taking. It is this kind of position that will put you out of business and keep the psychiatrists in business. Brandon www.mtrader.com/swingtrade