Re: [CANSLIM] clarification

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] clarification
Date: Wed, 12 Dec 2001 13:17:54 -0600

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You bring up a good point Eric. You're so right that there is nothing in
WON's rules that addresses money management, yet this is a key element in
generating successful profits. I think it boils down to:

85% psychology/discipline
10% money management
5%  system (CANSLIM or other).

While the money management % seems small, it is still twice as important as
the system itself. I think each person would also place a different degree
of importance on each of these, but no system is any good if too much
capital is at risk or if the trader is inclined to make donut-head decisions
or deer-in-the-headlights reactions when rules tell them to take the trade.

>>If you put 7-8% of your trading capital
> at risk on any one trade, you will eventually pay some really serious Wall
> Street tuition on the path to becoming successful trader.

I think that this would imply that you are putting all your eggs in one
basket. That is, 100% of your capital would have to go into the trade for a
7-8% stop loss rule to put this much at risk. But I do see this as a money
management tool as well, in that it forces you out of a losing trade at a
predetermined %. I call it the "I was wrong rule." I think in CANSLIM it's
critical to do good due diligence before selecting any B/O. It raises the
probabilities that a B/O will go on and make good money. But good money
management for me means that if the "I was wrong rule" kicks in, 1% or less
of my total capital is at risk in the trade. But once again, lack of due
diligence or poor chart reading can eat away at your capital if each loss
chinks away at it 1% at a time.

Katherine



- ----- Original Message -----
From: "Tangen, Eric" <tangene@tycoelectronics.com>
To: <canslim@lists.xmission.com>
Sent: Wednesday, December 12, 2001 1:46 PM
Subject: RE: [CANSLIM] clarification


> Welcome to the club! Breakouts are a high risk and high reward strategy -
if
> you're batting .500, that's pretty darn good. You should expect 40%
success
> at finding successful breakouts long-term.
>
> I just have to get this off my chest for the new subscribers...WON's 7-8%
> stop below the pivot is a technical stop. It is a rule of thumb based on
> volatility in the handle region before a stock takes off.
>
> It is NOT A MONEY MANAGEMENT STOP!. If you put 7-8% of your trading
capital
> at risk on any one trade, you will eventually pay some really serious Wall
> Street tuition on the path to becoming successful trader.
>
> WON's work has virtually nothing in the area of money management (what he
> does say is just plain outdated...by 5 stocks with 100k...more appropriate
> to an era of high commissions and lower volatility).
>
> Tharp's books are the best (only?) work in this area and should be
required
> reading before you head out to the great casino that is Wall Street.
>
> ERIC TANGEN
>
>
>
>
>
> -----Original Message-----
> From: larry l worden [mailto:worden33@juno.com]
> Sent: Wednesday, December 12, 2001 12:03 AM
> To: canslim@lists.xmission.com
> Subject: [CANSLIM] clarification
>
>
> Thanks Tom and Katherien
>  I looked at DGO last week, expensive. I read HTMMIS and get IBD paper
> and web sight. I am having trouble with BO. I am getting stopped out more
> than 50%. thanks again I think I have the terms right.
>
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