Go to Jeff Salisbury LWGate Home Page.From: Tomas <tomas986@yahoo.com>
Subject: RE: [CANSLIM] Market Trend Charts
Date: Wed, 16 Jul 2003 19:19:19 -0700 (PDT)
Previous Article (by Author): Re: RE: [CANSLIM] Market Wizards "Roger"
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Dave, thanks. I got the idea. I just misread the oringal post. tomas - --- Dave Stem <canslimdave2003@yahoo.com> wrote: > 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 > === 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.
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