Sharing a trading idea

Discussion in 'Trading' started by hajimow, Oct 11, 2005.

  1. I have put together a trading strategy for stocks and I would like to get feedback from you guys and let me know what you think or try to modify it. It is not a secret so everyone can use it and I believe it will reduce your loss.
    Here is the theory:
    Account requirements:
    1- Use a low commission broker
    2- This theory is based on a 25K account to let you do day trading.
    3- Account should be clean so you can concentrate in your single trade. The other reason is that market condition should not dry up that 25K that has been allocated to this trading strategy. Multiple trading is not allowed for small size accounts.
    Theory
    In this theory we will either buy or short a stock in 3 steps. The candidate stock should have the following requirements:
    1- Minimum average daily volume of at least 1million.
    2- Risk factor of less than 200. check www.nasdaq.com to find the risk factor.
    3- The stock should have been trading for at least a year.
    4- The stock should not had a swing of more than 10% in a day in the previous year.
    5- The price of the stock should be so that you should be able to buy at least 600 shares by 25K. The stock should also be above $5. We add 0.5 as margin and come up with $5.5. With $5.5, that max volume for each step of the three steps will be about 1500 shares. So for a 25K account the range of the stock price should be between $5.5 to $41.
    6- Stock should have options.
    7- Margin should not be used in this trading. Only if the stock has the risk factor of all less than Dow, Nasdaq and S&P, using margin is allowed.

    Shorting:
    1- Short 1/3 of shares at Price A
    2- If the stock goes down 1% or profit is $100 cover it or put a stop loss to guarantee that profit. Never cover with less profit to reduce less profitable trades.
    3- If the stock goes up 2.5%, short the second 1/3. If you get the same profit as mentioned above only cover the second part.
    4- If the stock goes up another 2.5% short the third and sell put option for less than a month to get some money for the first part. If the stock goes down only cover the block that is profitable.
    5- If the stock goes up another 2.5% (7.5% from the first trade) cover the third block.
    6- If the stock goes up another 2.5% (10% from the first trade) cover the second block.
    7- If the stock goes up another 2.5% (12.5% from the first trade) cover the first block.
    Your loss will be limited to 5% of the money you put in.
    If that happens ,don’t trade for 3 days.

    Buying:
    8- Buy 1/3 of shares at Price A
    9- If the stock goes up 1% or profit is $100 cover it or put a stop loss to guarantee that profit. Never sell with less profit.
    10- If the stock goes down 2.5%, buy the second 1/3. If you get the same profit as mentioned above only cover the second part.
    11- If the stock goes down another 2.5% buy the third and sell call option for less than a month to get some money for the first part. If the stock goes up only sell the block that is profitable.
    12- If the stock goes down another 2.5% (7.5% from the first trade) sell the third block.
    13- If the stock goes down another 2.5% (10% from the first trade) sell the second block.
    14- If the stock goes up another 2.5% (12.5% from the first trade) sell the first block.
    Your loss will be limited to 5% of the money you put in.
    If that happens ,don’t trade for 3 days.

    Rules:
    If you buy or short a stock and it does not move in the direction that you can take profit or sell or cover at loss for a month. Get rid of that position and try to find another stock to trade.
     


  2. Why do you believe that it will reduces losses?
     
  3. Because you will trade stocks with high volume, low volatility, less or no margin. You also know what you are going to do from the time that you put your order. You will cut your loss at 5%.
     
  4. Is this a strategy or a money management rules?

    To me, this strategy will never work consideringly you'll be stopped out many many times before you see one profitable trade.

    actually I don't see any clear stop lost rules?
     
  5. Is this a strategy or a money management rules?

    To me, this strategy will never work considering you'll be stopped out many many times before you see one profitable trade.

    actually I don't see any clear stop lost rules?


    Thanks for the feedback. I think it is both. Remember you will buy something that you think it is going up and also remember that you are buying lower volatile stocks. You will be stopped out only if the stock moves up or down 5%. Say you buy at a stock at $20 that you think it will go up. If it goes down to 19.5 you buy the second phase and then if goes down to $19 you buy the third time and if it goes down to 18.5 you start selling. If that happens,it shows that the time was not good to buy or the stock was not a buy in the first place.

    Please argue more. I want you to find the loopholes in the strategy and find a solution for it.