RE: [CANSLIM] Market Trend Charts

From: Tomas <tomas986@yahoo.com>
Subject: RE: [CANSLIM] Market Trend Charts
Date: Wed, 16 Jul 2003 19:19:19 -0700 (PDT)
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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 ===


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