12 I was speaking with my dad last night about my recent string of success in navigating the stock market. After a July that saw my account increase by nearly 12%, I have having an August that has also been quite nice.
No matter how long I trade stocks, I continue to be amazed at how many variables play a role in the profitability or loss on a trade.
You see, back in March and April I seemingly could not do anything right. Nearly every trade I made quickly turned into a loser.
Over the course of those two months my account slowly bled equity. Not only was I losing, but as I lost, I continued to take on more risk in an effort to recoup my account balance.
Fuck me, I was in the dregs.
After being up 15% in 2011, I was teetering on the verge of having an absolutely putrid year.
In May, several things happened. First, I decided to go back and review my trades from that period. What immediately stood out was that I was taking on entirely too much risk. Over the years, I have found that placing 1% (or less) of account equity at risk is an ideal threshold. Some of these moronic trades were in upwards of 8% risk. This was a recipe for disaster and I was on the fast track to “blowing up”.
I hit the brakes.
Second, I started writing here. I reckon these blogs probably seem horribly self indulgent to some people, and they really are, but I also find that writing provides a sense of accountability that required me to be much more focused. Since then I have turned things around. My trading in May still sucked…it was not very good…but I felt like I turned the corner. June I was flat (in addition to moving my family ‘cross county). July is in the books and now August is looking quite fine. I am currently sitting on 63% cash up 5.8% for the month.
My plan has been very simple.
It goes something like this: I created a screen in The PPT that finds any stock that has flagged Hyrbid or Technical OVERSOLD (those links should take you my screens in The PPT). I then copy the results from both screens to an Excel spreadsheet. I then create a pivot table that counts the number of times a particular stock has come up in those screens. What I’m looking for are stocks that are currently in an OVERSOLD ‘cycle’ plus the following criteria: Average return > 1% (in an OS ‘cycle’), is profitable > 70% of the time (in OS cycle), and has had more than two ‘cycles’. The results from the pivot table look like this: 
It shows ticker, count of ‘results’ and average volume. Those were plucked from the middle of the pack. Today there were stocks that had counts of 20, 13, 12, 10 and 9. All of those numbers are high and will garner my attention (from what I have observed thusfar at least).
Then I will go and look at “high count” stocks in The PPT to see what the actual results look like. Next I check to see if the stock is making a recognizable pattern (basically so I can define my risk). Recently I have found several stocks that were very close to recent (3 month) highs that were flagging OS. I determine my risk based on (even more recent) price action.
Basically, if these trades are going to work, they usually work fast, so I need to be ready and willing to buy when prices are not showing upward momentum. I usually recognize very quickly if the trade is/is not going to work, and cut it loose.
Any questions, feel free to ask and I’ll do my best to answer them. Like I said, this is pretty simple and crude…but it has been working.
My best to you all.
-EM
12 Responses to “An Update and a Strategy”
redman59
Congratulations on your recent success, that’s an awesome return. There is nothing worse than being in a slump as I know I have been there. The funny thing is I did the same exact thing as you did and decided to take on larger risk as I was losing, makes no sense when you look back on it.
I was able to get out of the slump by taking the steps that you have and also became more organized. I created spreadsheets and also made a play book of setups that I use.
Thanks for sharing your current strategy and keep sticking with what works as this seems to be creating some coin for you.
elizamae
Slumps happen.
They will happen again, over and over. The goal is to recognize them and act accordingly…which is often the most difficult part.
zenhunter
“Over the years, I have found that placing 1% (or less) of account equity at risk is an ideal threshold”
I believe you just found the key to your hidden treasure. Cut you losses FAST and your wins will breed like rabbit…
redman59
Agree my trading turned around when I concentrated on my risk on the individual security and then see how that would effect my overall account.
Once a trader finds their sweet spot (for me it took some blown up accounts) and can structure their account risk allocation into the trade, then they are well on their way to success IMO.
elizamae
Yeah, cutting losses has been a top priority of mine for many years…it’s just the amount of capital at risk that is the key for me. There is a point of diminishing returns that seems to happen once I step over that 1% threshold.
Thanks for reading.
TaoOfPatrick
Thanks, nice just to read what another trader Plans were.How you reacted when thing went to shit.I dont feel so alone in losses and am also having a decent summer.Good Planning and Good Luck.
elizamae
Glad that I can provide some insight. Thanks for reading.
noodle
Dude! Respect for posting Deer Tick.
elizamae
No problem. Heard them on Pandora the other day and something about them struck my “ear”. That song is awesome.
Arctic Gambino
Your blog is fantastic. I will do what I can to promote this one as well. Great job!
elizamae
Thanks a lot for the promotion man…glad to see that you are reading.
alf44
… if Ryan Gosling and Giovanni Ribisi had a child …
it would be that “Deer Tick” front man !
.