Go to Jeff Salisbury LWGate Home Page.From: Dave Stem <canslimdave2003@yahoo.com>
Subject: RE: [CANSLIM] Market Trend Charts
Date: Wed, 16 Jul 2003 19:12:17 -0700 (PDT)
Next Article (by Author): Re: RE: [CANSLIM] Market Wizards "Gene Ricci"
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- --0-1085844070-1058407937=:18511 Content-Type: text/plain; charset=us-ascii Tomas, I haven't read the other responses, so maybe they got to this already. The 2% rule only applies to the amount of capital you risk on a given trade. It has nothing to do with the amount of capital you actually use in the trade. For example, if I have a $100,000 portfolio, then I can only risk 2,000 on each trade. If I follow WON's 8% stop-loss rule, then I can only invest 25,000 in each position because 8% * 25,000 = 2,000. That would allow you to buy a minimum of 4 stocks in any portfolio if you are going to use an 8% stop-loss on each one. However, if you use a smaller stop-loss point, you can risk more money. Let's say I find a trade in which I think a good stop-loss point is only 4% away from my entry. In that case, I could actually risk $50,000. Why? Because 4% * 50,000 = 2,000. So, the $2,000 figure remains constant. And how capital you invest in a given trade is determined by how far away your stop-loss point is. You can even risk all $100,000 if you find a stop-loss point that is only 2% away. If you buy a stock at 51 and you are willng to set a very tight stop loss at 50, you can theoretically risk all $100,000. Or if you want to set your stop loss even tighter at 50.50, then you could use all your margin and buy $200,000. Now, clearly this way will stop you out of many stocks with small losses, but it gives you a concrete way to measure risk on each trade. Of course, no matter how careful you are with stop-loss points, the stock can always gap sharply against you and you could lose much more than you planned. Bottom line, you can invest as much of your capital as you want, just so long as you limit your RISK on each trade to 2%. Hope that helps. Dave Tomas <tomas986@yahoo.com> wrote: One comment on the 2% comment. The whole idea using CS is to win big when you are right, as stated by WON. So, with only an investment of 2%, how do you win BIG even if the one stock went up 100%? Of course, you can pyramid up. But if you do that then that stock/investment will be more then 2% of your portfolio. I understand that capital preservation is very important, but I 2% is a bit much or too little. You have to put a lot of eggs in one basket to win big, right? That 2% rule sounds like diworsification. just my $.02 tomas - --- Pritish Shah wrote: > Dave, > > You asked a good question on how to make money in > the range bound market. There in lies the answer > that I hope to use. If the stock market goes to the > bottom of the range, buy. If it goes to the top, > lock in your profits with a trailing stop so if a > stock goes higher, we would still be in. > > I am hoping to purchase breakouts in the top 40 or > 50 industries only and want to do legwork before > hand so I only have to make a "yes" or a "no" > decision when an alert occurs. > > I am still learning and the idea of "8% loss in a > stock should not be greater than 2% of total > portfolio" is a great. So at minimum, I should not > invest more than 1/12th of my total portfolio in any > individual stock. > > Pritish > > > >>> canslimdave2003@yahoo.com 07/15/03 23:11 PM >>> > Pritish -- > > I agree with you exactly. IMHO it will take 14 > years before the markets really break to a new high. > Well, 11 counting the three we've just been > through. In the 1968-82 period, the 1000 point > barrier was called "The Graveyard in the Sky" > because of all the rallies that failed at that > point. > > I'm very interested in learning how to apply CANSLIM > in such a range bound market. But I also want to > trade with the idea in mind that I may well be wrong > about my ideas on what the market will do. > Therefore, I'm looking for buy/sell rules that work > despite my opinions. For example, SELL if a stock > breaks its 50 day moving average. > > On thing I have come up with is the idea of getting > into the market one profitable trade at a time. > Last year, I became convinced that a bull market was > beginning and bought 6 different stocks on > breakouts, convinced that surely 1-2 would remain > above their 7-8% stop loss and therefore bail me > out. Instead, the market turned sharply against me > and I was quickly down 8+ % (because I bought some > on margin). > > This year, when the market started looking good to > me, I only put on one trade. Once that proved > profitable, I raised my stop loss level to break > even and put on a second trade. So, I've scaled my > way into the market. I am hoping that approach will > keep me from taking too big a hit if I am wrong > about market direction in the future. > > Also, I am being vigilant about limiting my > purchases so that if my 7% stop is hit, the loss is > less than 1.5% of my total portfolio. Over and over > in the Market Wizards books professional traders > talk about keeping the risk on any individual trade > to less than 2%. I don't think WON stresses this > rule enough. > > Thanks for your post! > > Dave > > Pritish Shah wrote: > Hi Kelly, > > I have been studying where I am making mistakes. A > lot of my failures were bought when Nasdaq was > touching the upper bollinger bands. Checkout the > following chart. You will notice that Nasdaq is > currently toying with the upper bollinger bands and > has been bouncing from the 20dma. So the best time > to buy would be when Nasdaq again touches 20dma and > there are a flurry of breakouts. > > http://finance.yahoo.com/q?s=^IXIC&d=c&k=c3&a=vm,m26-12-9,ss,fs&p=m20,b&t=6m&l=on&z=l&q=b > > > A lot of people have shown me charts that basically > predict that the market will churn for the next few > years and I believe that would be the trend. This is > where CANSLIM can do much better than any other > method of investing. > > Take a look at the following chart. You will notice > that from 1937 to 1950 (13 yrs), the market was > pretty much flat. From 1965 to 1983 also the market > was flat. There was also a flat period before 1930 > but that is not shown on the graph. > > http://finance.yahoo.com/q?s=^DJI&d=c&k=c3&p=&t=my&l=on&z=l&q=l > > > Basically after every major rise, the market pauses > for several years and then tries again. This has > happened 3 times on DJI. Nasdaq is currently > behaving exactly like DJI from 1930 to 1933. If it > continues to behave like DJI, for next year and > half, we are not going to go anywhere and then there > will be a major move upwards. > > I am open for discussions but not flames please. > > Thanks, > Pritish > > > >>> kelly.short@fw.us.neoris.com 07/15/03 02:40PM > >>> > Gene, > > What was in your patriotic Wheeties this morning?! > Thanks for the explanation though. Have you thought > about a career in politics because that answer was > perfectly on the middle ground. > > Okay, okay. I'll ride the trend. I'm just bitter: > three of my recent BO purchases have gotten SARS and > are in quarantine. I fear I may lose them to the > "disease", or the hurricane, or whatever ailment is > keeping them from soaring. > > That said- I did enjoy reading the information you > passed along- thanks! > > Kelly > > -----Original Message----- > From: Gene Ricci [ mailto:genr@swbell.net] > Sent: Tuesday, July 15, 2003 1:06 PM > To: canslim@lists.xmission.com > Subject: Re: [CANSLIM] Market Trend Charts > > > Kelly, forgive the cliché......... "The trend is > your friend". > > Now here's another profound statement "the trend is > up until proven otherwise". > > Many indicators are showing overbought, but they can > stay overbought for a long long time. Take last > year, they stayed oversold for a long long time. > Most likely there is a bit of consolidation going on > .... but who knows which way the break will occur. > One just has to decide at what point the trend has > changed from up to down (or sideways). And at what > point another breakout to the upside has occurred. > Each person must decide this on his/her own. > > We were told that there would not be a post war > rally - is that true? > We were told the new dividend law would not affect > stock prices - is that true? > > Although I don't see signs of a renewed bear.... I > hear them in the background.... moaning and groaning > as they try to save face after losing their > butts.... shorting this year. > > I feel that the market has to continue its upward > trend because the public wants it to (to say nothing > about the administration). When I attend meetings, > read user group email and talk to friends I'm > reminded of the Statue of Liberty.... > > "give me your tired, your poor, your huddled masses > yearning to breathe free" > > translated to: > > We're tired (poor management, manipulation, lies, > cooked books), we're poor, your investors are > yearning to once again believe!!!! ... kind of corny > but what the heck! > > Gene > > > > > ----- Original Message ----- > From: Kelly Short < > mailto:kelly.short@fw.us.neoris.com > > To: canslim@lists.xmission.com > Sent: Tuesday, July 15, 2003 10:53 AM > Subject: RE: [CANSLIM] Market Trend Charts > > > Gene, > > Do you have any opinions to offer regarding this > information? === message truncated === __________________________________ Do you Yahoo!? SBC Yahoo! DSL - Now only $29.95 per month! http://sbc.yahoo.com - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. - --------------------------------- Do you Yahoo!? SBC Yahoo! DSL - Now only $29.95 per month! - --0-1085844070-1058407937=:18511 Content-Type: text/html; charset=us-ascii <DIV>Tomas,</DIV> <DIV> </DIV> <DIV>I haven't read the other responses, so maybe they got to this already. The 2% rule only applies to the amount of capital you risk on a given trade. It has nothing to do with the amount of capital you actually use in the trade. For example, if I have a $100,000 portfolio, then I can only risk 2,000 on each trade. If I follow WON's 8% stop-loss rule, then I can only invest 25,000 in each position because 8% * 25,000 = 2,000.</DIV> <DIV> </DIV> <DIV>That would allow you to buy a minimum of 4 stocks in any portfolio if you are going to use an 8% stop-loss on each one. </DIV> <DIV> </DIV> <DIV>However, if you use a smaller stop-loss point, you can risk more money. Let's say I find a trade in which I think a good stop-loss point is only 4% away from my entry. In that case, I could actually risk $50,000. Why? Because 4% * 50,000 = 2,000. So, the $2,000 figure remains constant. And how capital you invest in a given trade is determined by how far away your stop-loss point is. </DIV> <DIV> </DIV> <DIV>You can even risk all $100,000 if you find a stop-loss point that is only 2% away. If you buy a stock at 51 and you are willng to set a very tight stop loss at 50, you can theoretically risk all $100,000. Or if you want to set your stop loss even tighter at 50.50, then you could use all your margin and buy $200,000. </DIV> <DIV> </DIV> <DIV>Now, clearly this way will stop you out of many stocks with small losses, but it gives you a concrete way to measure risk on each trade. Of course, no matter how careful you are with stop-loss points, the stock can always gap sharply against you and you could lose much more than you planned.</DIV> <DIV> </DIV> <DIV>Bottom line, you can invest as much of your capital as you want, just so long as you limit your RISK on each trade to 2%. </DIV> <DIV> </DIV> <DIV>Hope that helps.</DIV> <DIV> </DIV> <DIV>Dave</DIV> <DIV> </DIV> <DIV> </DIV> <DIV> </DIV> <DIV><B><I>Tomas <tomas986@yahoo.com></I></B> wrote:</DIV> <DIV> <BLOCKQUOTE style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #1010ff 2px solid; WIDTH: 100%">One comment on the 2% comment. The whole idea using<BR>CS is to win big when you are right, as stated by WON.<BR>So, with only an investment of 2%, how do you win BIG<BR>even if the one stock went up 100%? Of course, you<BR>can pyramid up. But if you do that then that<BR>stock/investment will be more then 2% of your<BR>portfolio. I understand that capital preservation is<BR>very important, but I 2% is a bit much or too little.<BR><BR>You have to put a lot of eggs in one basket to win<BR>big, right? That 2% rule sounds like diworsification.<BR><BR>just my $.02<BR>tomas<BR><BR>--- Pritish Shah <PSHAH@LASON.COM>wrote:<BR>> Dave, <BR>> <BR>> You asked a good question on how to make money in<BR>> the range bound market. There in lies the answer<BR>> that I hope to use. If the stock market goes to the<BR>> bottom of the range, buy. If it goes to the top,<BR>> lock in your profits with a trailing stop so if a<BR>> stock goes higher, we would still be in.<BR>> <BR>> I am hoping to purchase breakouts in the top 40 or<BR>> 50 industries only and want to do legwork before<BR>> hand so I only have to make a "yes" or a "no"<BR>> decision when an alert occurs.<BR>> <BR>> I am still learning and the idea of "8% loss in a<BR>> stock should not be greater than 2% of total<BR>> portfolio" is a great. So at minimum, I should not<BR>> invest more than 1/12th of my total portfolio in any<BR>> individual stock.<BR>> <BR>> Pritish<BR>> <BR>> <BR>> >>> canslimdave2003@yahoo.com 07/15/03 23:11 PM >>><BR>> Pritish -- <BR>> <BR>> I agree with you exactly. IMHO it will take 14<BR>> years before the markets really break to a new high.<BR>> Well, 11 counting the three we've just been<BR>> through. In the 1968-82 period, the 1000 point<BR>> barrier was called "The Graveyard in the Sky"<BR>> because of all the rallies that failed at that<BR>> point. <BR>> <BR>> I'm very interested in learning how to apply CANSLIM<BR>> in such a range bound market. But I also want to<BR>> trade with the idea in mind that I may well be wrong<BR>> about my ideas on what the market will do. <BR>> Therefore, I'm looking for buy/sell rules that work<BR>> despite my opinions. For example, SELL if a stock<BR>> breaks its 50 day moving average. <BR>> <BR>> On thing I have come up with is the idea of getting<BR>> into the market one profitable trade at a time. <BR>> Last year, I became convinced that a bull market was<BR>> beginning and bought 6 different stocks on<BR>> breakouts, convinced that surely 1-2 would remain<BR>> above their 7-8% stop loss and therefore bail me<BR>> out. Instead, the market turned sharply against me<BR>> and I was quickly down 8+ % (because I bought some<BR>> on margin). <BR>> <BR>> This year, when the market started looking good to<BR>> me, I only put on one trade. Once that proved<BR>> profitable, I raised my stop loss level to break<BR>> even and put on a second trade. So, I've scaled my<BR>> way into the market. I am hoping that approach will<BR>> keep me from taking too big a hit if I am wrong<BR>> about market direction in the future. <BR>> <BR>> Also, I am being vigilant about limiting my<BR>> purchases so that if my 7% stop is hit, the loss is<BR>> less than 1.5% of my total portfolio. Over and over<BR>> in the Market Wizards books professional traders<BR>> talk about keeping the risk on any individual trade<BR>> to less than 2%. I don't think WON stresses this<BR>> rule enough.<BR>> <BR>> Thanks for your post!<BR>> <BR>> Dave<BR>> <BR>> Pritish Shah <PSHAH@LASON.COM>wrote:<BR>> Hi Kelly, <BR>> <BR>> I have been studying where I am making mistakes. A<BR>> lot of my failures were bought when Nasdaq was<BR>> touching the upper bollinger bands. Checkout the<BR>> following chart. You will notice that Nasdaq is<BR>> currently toying with the upper bollinger bands and<BR>> has been bouncing from the 20dma. So the best time<BR>> to buy would be when Nasdaq again touches 20dma and<BR>> there are a flurry of breakouts. <BR>> <BR>><BR>http://finance.yahoo.com/q?s=^IXIC&d=c&k=c3&a=vm,m26-12-9,ss,fs&p=m20,b&t=6m&l=on&z=l&q=b<BR>> <BR>> <BR>> A lot of people have shown me charts that basically<BR>> predict that the market will churn for the next few<BR>> years and I believe that would be the trend. This is<BR>> where CANSLIM can do much better than any other<BR>> method of investing. <BR>> <BR>> Take a look at the following chart. You will notice<BR>> that from 1937 to 1950 (13 yrs), the market was<BR>> pretty much flat. From 1965 to 1983 also the market<BR>> was flat. There was also a flat period before 1930<BR>> but that is not shown on the graph. <BR>> <BR>><BR>http://finance.yahoo.com/q?s=^DJI&d=c&k=c3&p=&t=my&l=on&z=l&q=l<BR>> <BR>> <BR>> Basically after every major rise, the market pauses<BR>> for several years and then tries again. This has<BR>> happened 3 times on DJI. Nasdaq is currently<BR>> behaving exactly like DJI from 1930 to 1933. If it<BR>> continues to behave like DJI, for next year and<BR>> half, we are not going to go anywhere and then there<BR>> will be a major move upwards.<BR>> <BR>> I am open for discussions but not flames please.<BR>> <BR>> Thanks,<BR>> Pritish<BR>> <BR>> <BR>> >>> kelly.short@fw.us.neoris.com 07/15/03 02:40PM<BR>> >>> <BR>> Gene, <BR>> <BR>> What was in your patriotic Wheeties this morning?!<BR>> Thanks for the explanation though. Have you thought<BR>> about a career in politics because that answer was<BR>> perfectly on the middle ground. <BR>> <BR>> Okay, okay. I'll ride the trend. I'm just bitter:<BR>> three of my recent BO purchases have gotten SARS and<BR>> are in quarantine. I fear I may lose them to the<BR>> "disease", or the hurricane, or whatever ailment is<BR>> keeping them from soaring. <BR>> <BR>> That said- I did enjoy reading the information you<BR>> passed along- thanks! <BR>> <BR>> Kelly <BR>> <BR>> -----Original Message----- <BR>> From: Gene Ricci [ mailto:genr@swbell.net] <BR>> Sent: Tuesday, July 15, 2003 1:06 PM <BR>> To: canslim@lists.xmission.com <BR>> Subject: Re: [CANSLIM] Market Trend Charts <BR>> <BR>> <BR>> Kelly, forgive the cliché......... "The trend is<BR>> your friend". <BR>> <BR>> Now here's another profound statement "the trend is<BR>> up until proven otherwise". <BR>> <BR>> Many indicators are showing overbought, but they can<BR>> stay overbought for a long long time. Take last<BR>> year, they stayed oversold for a long long time.<BR>> Most likely there is a bit of consolidation going on<BR>> .... but who knows which way the break will occur.<BR>> One just has to decide at what point the trend has<BR>> changed from up to down (or sideways). And at what<BR>> point another breakout to the upside has occurred.<BR>> Each person must decide this on his/her own. <BR>> <BR>> We were told that there would not be a post war<BR>> rally - is that true? <BR>> We were told the new dividend law would not affect<BR>> stock prices - is that true? <BR>> <BR>> Although I don't see signs of a renewed bear.... I<BR>> hear them in the background.... moaning and groaning<BR>> as they try to save face after losing their<BR>> butts.... shorting this year. <BR>> <BR>> I feel that the market has to continue its upward<BR>> trend because the public wants it to (to say nothing<BR>> about the administration). When I attend meetings,<BR>> read user group email and talk to friends I'm<BR>> reminded of the Statue of Liberty.... <BR>> <BR>> "give me your tired, your poor, your huddled masses<BR>> yearning to breathe free" <BR>> <BR>> translated to: <BR>> <BR>> We're tired (poor management, manipulation, lies,<BR>> cooked books), we're poor, your investors are<BR>> yearning to once again believe!!!! ... kind of corny<BR>> but what the heck! <BR>> <BR>> Gene <BR>> <BR>> <BR>> <BR>> <BR>> ----- Original Message ----- <BR>> From: Kelly Short <<BR>> mailto:kelly.short@fw.us.neoris.com > <BR>> To: canslim@lists.xmission.com <BR>> Sent: Tuesday, July 15, 2003 10:53 AM <BR>> Subject: RE: [CANSLIM] Market Trend Charts <BR>> <BR>> <BR>> Gene, <BR>> <BR>> Do you have any opinions to offer regarding this<BR>> information? <BR>=== message truncated ===<BR><BR><BR>__________________________________<BR>Do you Yahoo!?<BR>SBC Yahoo! DSL - Now only $29.95 per month!<BR>http://sbc.yahoo.com<BR><BR>-<BR>-To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>-In the email body, write "subscribe canslim" or<BR>-"unsubscribe canslim". Do not use quotes in your email.</BLOCKQUOTE></DIV><p><hr SIZE=1> Do you Yahoo!?<br> <a href="http://pa.yahoo.com/*http://rd.yahoo.com/evt=1207/*http://promo.yahoo.com/sbc/">SBC Yahoo! DSL</a> - Now only $29.95 per month! - --0-1085844070-1058407937=:18511-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email.
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