Strategy
January 2, 2007
When I go long stocks I like to seperate my longs (when we are in a bullish market) into two categories:
1. CANSLIM quality
2. Speculative
Within the first category I split them up to perfect and speculative CANSLIM longs.
Before I get into how I seperate the two I want to list what I look for in all longs.
1. Price must be over the 50 DMA
2. The 50 DMA must be above the 200 DMA (day moving average)
3. Volume must be over the 50 DVA (day volume average)
You can find the PCF scans that I have created that I program into TC2007 on my scans section on my homepage.
After a stock fits all of these requirements, it is then in my scan for me to look at. I will quickly move through all charts that do not interest me. When I find a chart that I like, I will flag it and jot it down. Then when I am done looking through the charts by price percent change today, I will go over the list I wrote down.
I then study each chart and look up the fundamentals of each stock. Depending on the beauty of the chart and the quality of the fundamentals I then make my decision if I am going to go long the stock or not. If I decide to go long, then I must weigh how much I will put in the trade. That decision rest upon the chart. The more perfect the chart, the more $$$ that goes into the stock. The less attractive the chart…well you get the picture.
During bull markets I will be long a lot of stocks as more and more stocks meet the above criteria and breakout. In bear markets, obviously, I will have very few longs, as stocks will not meet the above criteria.
I never risk more than 5% in any one stock. That way a blowup never hurts me. And I can make a ton of money because in a bull market the win to loss ratio is around 4 to 1 with winners beating decliners by a 10 to 3 margin. In bear markets it is 50/50 with margins still the same. This is a method I have been using consistently for years to make a comfortable living.
This is the same criteria and way all the greatest traders traded. Livermore, Darvas, O’Neil, Wyckoff, and Dreyfus all invested this way.
AAII’s study clearly shows the power of investing using the CANSLIM method. Any form of this method, in time, will produce large gains. But you have to keep working every year at it. You can never stop learning.
An independent study by the American Association of Individual Investors said that IBD’s CAN SLIM® Investment Research Tool led the growth category from 1998 to 2005 with a cumulative return of 860.3%, compared to a 28.6% return for the S&P 500.
I never let speculative stocks make up more than 20% of my portfolio. I could be long 300 stocks and still have 250 represent 20% while another 50 represent 80%. It is quality over quantity. But in runaway bull markets like now I am long so many stocks because I am going long ALL winners. If I was not making money in ALL of these stocks I would NOT be long them. This is the first bull market that I have been in when my holdings went over 230 stocks. Before 2004 I have never been long 180 stocks. I am simply long a lot of stocks now because of the current strength of this second greatest bull market ever. In the year of 2003 when I returned over 200%, the most stocks I was long was 147. So it is the market that is the reason for me being long a lot of stocks now. As of now I am long 270 stocks. 125 represent 87% of my portfolio. 145 stocks represent 13%
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3 Comments »
In the strategy section- It would be nice to see Josh’s strategy on position sizing, how many stocks to hold, when to take profits. Right now he gives stop loss levels, but it would also be good to see when and how he takes profits to free up capital for new buys.
WOW!!! Why am I only NOW seeing this comment?…anyways, yes richard. I will try to post a new strategy post about how I buy/short stocks and position size. You must or you should know that everyone is different. When I started I only held like 10 stocks NOW IF I WANTED TO I COULD HOLD 300 plus. However, I like to stay under 200 and I never want any one position to EVER be more than 10% of my account and the usual position size in great stocks is 1-3% and in shitty speculative stocks 0.05% to 1%.
Hopefully, I will have time tomorrow or Sunday to update this.
I want to add that I no longer gamble on sporting events/spreads anymore so I will never go broke by messing around with those low odd bets anymore. It was a “phase” and I believe I am over it.
As for poker….I still plan on having a second life.
But you can be comforted and know that I will trade stocks for the rest of my life. bigwavetrading.com should exist till I die. Which I hope, with me being 28, is another 80 years but, obviously, you never know.