Wednesday, May 6, 2015

Do You Value Your Time?

In March I discussed the importance of planning a trade which was quite well received.  In April I discussed my method of "addition by subtraction" for watch list building which ultimately led to this post where I provided a real world example based on $CLDN.  In May, I'm going to show you how and why I monitor positions.

Value Your Time

Like most others, you probably track a trade in order to keep tabs on the daily ups and downs, however, that's not the best use of your time.  I don't know about you, but I like to have a life outside of my trades, and that means keeping my time management in order.

Without a clear goal it's easy to get off track so that's where it has to start.  In my case, I automate my profit, loss, and timing exit so I don't monitor a position for clues on when to get out.  Instead, I monitor positions for the sake of testing my system.

Changing my mindset from tracking positions for reactive reasons to tracking positions for learning purposes took a bit of work on my part but I'm glad I stuck with it!

Automate!

If you're going to change your mindset the way I did, you'll have to learn to automate the way I did as well.  There are a number of reasons I include automation in my process but mainly I do it to remove my emotions from a trade.  In addition, automation frees up cycles for me and discourages me from getting tunnel vision on one particular position.

Automating is actually a pretty easy affair and I do it for every exit condition in my framework.
  1. Profit: Every time I place an order I include a contingency to close my position if my pre determined profit target is achieved.
  2. Loss:  After including my profit contingency I enter in my pre determined loss contingency.
  3. Timing: Sometimes a stock plots a sideways course so I also include a contingency to close out the position before the end of 40 trading sessions.
In all 3 scenarios, the planning and math have been done before I get involved on the trade.  Automation can only work properly if you create your rules up front and if you stick to them.

Keep A Trade Journal

The most successful traders keep detailed trade journals for every position they take, win or lose and you should follow suit if you aren't already.  Think of this as the post mortem stage of the process.  You need to know what to do more of, and what to avoid moving forward.

It's also important to stay organized by keeping your journals in one place.  In the past, that meant putting notebooks into my filing cabinet.  These days I'm able to store everything in the cloud which is much more convenient.  Services like Google Drive, DropBox, and iCloud are all available either free or at a low cost and are definitely worth consideration for your investing tool kit.

When it comes to documenting a winning trade, make sure you can identify why it was a winner and how you can identify others like it in the future. 

A Winner

A recent example of a winner for me would be $SWKS.  This stock gave me a profit of 10%  within 10 days in late January 2015. Looking over my journal, I noticed that the stock was in a definite defined uptrend channel ever since market correction in mid October of 2014.  It was good that I kept a detailed journal because once again this stock came through my watch list filter in early March 2015. I hit another 10% profit target in 18 days this time. 

In terms of documenting a loss, it's important to understand when and where things went wrong.  If it's something in your control, look for ways to eliminate the barrier moving forward.  If it's because of something out of your power (bad press, a national tragedy etc), that information is important too.

A Loser

A recent example of a loss for me would be $AVGO where I lost 3.33% in late March 2015.  There was nothing fundamentally wrong with the stock as it passed through all of my watch list criteria.  The reason it turned against me is because institutions began to be major sellers market wide on all stocks just 3 sessions into my position. I was stopped out for a loss within 3 days but I conserved my capital. The stock ended up dipping down 16% so the stop loss saved me from disaster. 

What's Next

Next week I'm going to highlight what I see as weaknesses in the structure of the current Bull Market and why I see back testing as a critical component for managing risk.  As always, keep me posted with your questions and comments.

Happy trading!

Amin


DISCLAIMER



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.


The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.


YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A LICENSED PROFESSIONAL. You understand that you are using this Information AT YOUR OWN RISK.