Hello all, Six years ago I made a small fortune trading single stocks in the stock market. In hindsight, I was probably entering on breakouts and/or trend following. Everything was managed on an EOD basis. The method I used was very simple. There was probably some luck involved, but here's a short translation of what I wrote six years ago to some of my friends. I may not agree with everything I wrote, but this is what I wrote then without having read a single book on trading. The method: 1) Enter www.dn.no/finans (a Norwegian economic paper). Here you'll find many numbers and indexes. The first one I watch is the main index. Negative or positive? Then I watch the column with daily winners and daily losers. If you spot a stock that's sold off massively one day, it's not improbable with a counter-reaction the next day. You can use the tool "My list" to enter stocks you want to follow on a daily basis. 2) Read the daily market commentary to get a feel of what happened today and if there are any rational explanations of today's behavior and possible implications for tomorrow. Most days you'll probably have no idea, but on some days the odds are higher that you'll have an idea of what will happen the next day. 3) You can also read the forum, but be aware that most people there are clueless and often have their own interests to maintain, although sometimes you can become aware of stuff you otherwise would have missed. 4) By now you should have a good framework for discovering a stock that you may be interested in buying. One great example is if big news has hit the wire after the market close. If these news are not discounted and the general market climate is good, you can be pretty sure the stock will rise. Another event is if a stock has risen substantially and made it to the daily winner list. If the news are good, you can expect the trend to continue. One concrete example is Questerre who rose 100% in one day and then 40% the next day on great fundamental news (it rose several 100% in the coming weeks actually). You can also look at what stocks the brokerages are pushing. Usually they are maintaining their own interests, but there's no reason you should not join the crowd for a while if it's a new and 'promising' stock. When you choose a stock, it's always good to have fundamental data to support your decision. Overpriced stocks with high P/E ratios is usually something I'm very skeptical of, although it can make for nice short-term returns. There's usually great risk involved as well though. If you believe you've found a good candidate, go in and watch the price history. This can help you make a choice. You can also see what other people think of the stock, but don't become emotional. Try to remain objective. 5) If you by now have bought a stock, you need to plan your exit strategy. What I do is that I always have a stop-loss in the market outside a multiple of the daily ATR. I update this after the market close and trail it outside the market. If your stop-loss is too tight, a volatile stock will shake you out before it resumes it's intended direction without you. 6) Do not diversify. Diversification is for pussies and fund managers who are happy with a 3% ROI per year. By all means, spread your capital over a few stocks if they are all good candidates, but ideally you want to place your bet on the best stock you can find. 7) If you're comfortable assuming risk, consider gearing your capital. 8) If faced with a loss, take it. 9) If you want to become good at this game, you need to be comfortable risking your money. 10) Don't trade stocks because you're bored or because you feel you have to be in the market. Remember that you do this to make money. Of course, it's fun when things go well, but that's just a bonus. The times I've traded out of boredom has usually not gone very well. Even if you have to wait several weeks or even a month before you find a buy, that's what it takes. That's pretty much all there is to it. --- I see that I did not write anything about entry, but all orders were submitted after the market close and prior to the market open. I probably just entered an order at a reasonable price and hoped I was filled. This was way before smart phones existed, so I recall having SMS updates from a friend who worked at a computer while I was building houses as a carpenter in the day time. Any thoughts? Best regards, Laissez Faire.
Nothing that would impressive anyone here in absolute terms, but I had a nice return on my capital. My initial account was around $5000 and peaked around $35 000 over a period less than a year.
Could this be systemised and/or backtested in any way, or do you think it was simply a case of the time being right for this strategy?
Statistically, that is very probable. I'm aware that it may have been sheer luck. I think it would be tough to backtest in it's current form, at least with my resources. But as I'm thinking about my next move in the world of trading, I can't help wonder if there's something to build on here. Anyway, I thought it was fun to see what I wrote 6 years ago having read close to zero literature on trading. Thousands of hours watching the market and over hundred books later, I wonder if I have really learned anything more at all. : )
Yes, there is a lot of discretion here, at least on the entry part. I don't do it today, but I'm considering starting to trade a small account with this 'method' or an improvement of it.
When did you stop trading that method? Did you manage to keep the small fortune? http://www.infomine.com/investment/stock-markets/indexes/oseax/all/ Six years ago the Oslo market was in a bull run like most of the markets in Europe and US. Without wanting to undermine your good intentions, I think you were just lucky. Did you continue using the same method during the 2008 slam?
Yes, I'd venture that's a good possibillity. It was after all a bull market. I had a loss around $5000 on a leveraged stock trade due to being stubborn and during the same period I had started 'educating' myself and reasoned I did not know what I was doing. Because of that I had actually pulled out all my money before Lehman Brothers went over, since I wanted to 'learn how to trade' before I continued trading.