Tuesday, May 22, 2007

Holy Guacamole Evening Wrap Up

I don't know if I spelled guacamole correctly because I had such a great day today that I really do not care. Even with GIGM giving up 6.83%, the account still moved up over 2%. Fantastic!

Now comes the time for action, or inaction. Do I sit on my hands and watch some of these gains retrace? Or do I pull some triggers tomorrow and take profits. If you follow my trades, I always sell too early. I am well aware of this. However, I have about 10% cash, enough to add to winning positions. So do I add on the pullback, or sell and attempt to buy-back cheaper? These are the questions I will be struggling with tonight.

As I consider my options, I should note that recently I have not been selling in anticipation of a pullback, but have instead been holding through the pullbacks, and adding shares. This seems to be working well.

By the way, the account is up ~6% YTD, so I am still underperforming.

Finally, I hope some of you jumped aboard CMGI on the touch down at the 20 day. While some have commented about the fundamentals of CMGI, I would like to point out that this is a purely technical play. And so far, the technical levels have not been breached.

9 comments:

grant said...

Woodshedder,

You shouldn't be struggling with what you might or might not do. You should already know, because you have a plan, or trading rules.

It is this changing boats in mid-stream that gives you the angst.

Sell everything.
Sit down and form a plan.
Stick to it.

jog on
grant

mdawsz said...

Whoa! I will be pissed off if you purge your account on the open.

Woodshedder said...

Ducati, I think what you are trying to say is that it is the EXIT that often determines the expectancy and potential reward of trading.

If that is what you meant, then I agree with you wholeheartedly. Great entry strategies can be worthless without knowing when to exit. That is a part of the plan that I have yet to formalize.

However, I have been holding through normal pullbacks rather than timing tops, I have been setting looser stops, and I have been establishing smaller positions and adding to them at proper points. I feel these are real improvements over the last 9 months of my trading. In short, to quit now after making improvements does not make much sense to me.

I should also note that I often post about my ruminations and other things that puzzle me to provoke responses from other traders, as well as to document the thought processes of one trader trying to win in the markets.

It is not always out of angst.

grant said...

Woodshedder,

Actually I am an "entry" type of guy, I have predetermined exits, although I may trail a stop if the target is hit and exceeded.

As to expectancy, you should already have a theoretical expectancy based on research.

Holding through pullbacks....and adding to the position....
You know this from research, or, just that currently [last year+] the market has rewarded such a strategy.

If you have [tested] researched a methodology in which this strategy is profitable, then you already should have your strategy.

However, had you *added* and held through the dips during 2000-2003 what would have been the net result?

jog on
grant

Woodshedder said...

Ducati, I'm not sure what you mean by "'entry' type of guy," but I'm sure the other folks here will have fun with that statement.

It is not possible to develop a theoretical expectancy unless one has a data set, preferably one where initial risk was determined with each trade. I currently have every trade logged this year, and could pull up previous years' data. Since this year's data is likely well over 100 trades, I could develop a rough expectancy from them, except that there are several entry and exit strategies being used within that set, and I did not always decide initial risk. It would be best to have tested expectancy for each strategy.

As for holding during pullbacks and adding on dips (duh) this is a very simple trend-following strategy. Of course, one needs to quantify the trend and the strength. There is recent research that shows this type of strategy is robust over longer time frames.

I currently do not possess software that allows for testing of strategies. I am demoing software and researching data providers. Good software and data can require an initial outlay of well over 2K. I want to be sure that what I end up getting does what I want it too and does not turn out to be a waste of money.

Finally, while I could simply paper trade, or crunch numbers and test out different entries combined with different stops and exits while not being in the market, it is_very_important_to_understand that developing a system without understanding the psychology required to trade the system is a HUGE mistake. I am actively physically documenting and mentally documenting my thoughts as they apply to different strategies. I need a strategy that works with my psychology as well as proving to be profitable. I do not think it is possible to develop such a strategy without trading it.

grant said...

Woodshedder,

As in [entry] price is important, consistent with a "value" approach.

As to a tested or researched expectancy, I agree. This is why I suggested that if you do not currently have a robust one that you are confident in....get one.

Backtesting via computer is certainly quick and easy, statistically it has a flaw [as does most stock research] that while ignored by most, could be fatal.

Psychology...
Agreed trading money as to trading theory are very different. But you need at least the basis of a strategy to trade if you are going to trade money, else the results will most likely be disappointing.

As to the buy the dips strategy, I hate it for a number of reasons, but "trend traders" seem to advocate it relentlessly, so I just don't really argue the case much anymore.

jog on
grant

Woodshedder said...

Grant, what I mean by "entry strategy" is a point by which entering increases the probability that the stock will move in the desired direction before one's stop loss is hit, preferably before making large moves for long trend traders or a few quick moves for swing traders. I understand you like value, as it simply lowers your entry risk.

There is research that shows a random entry strategy coupled with good position sizing and exit strategies can be profitable.

I do have several strategies that I plan on testing. I also want to test variations of several well-known trendfollowing strategies which are proven profitable. Your mate trades one.

Broker A said...

Wood and Grant should rent a room and have this "pussified" discussion there.

Quit polluting the internets with such asshattery.

Woodshedder said...

Fly- don't you have some research or something to be doing?