Cutting losses - not the best idea

M

mrmarket

If you take a look at my last 12 closed trades, a little bit of data mining will reveal that most of these positions, at one time, were underwater more than 8%.
Annualized
Stock Date In Date Out Bot Sold Gain Gain
FCFS 7/8/2003 7/21/2003 16.30 18.84 16% 438%
FRED 5/2/2002 8/1/2003 26.23 30.29 15% 12%
SFCC 7/30/2003 9/2/2003 26.01 31.00 19% 206%
ESI 8/7/2003 9/12/2003 39.59 46.38 17% 174%
MDC 7/10/2002 10/1/2003 46.59 54.25 16% 13%
COH 6/9/2003 10/14/2003 25.75 30.21 17% 50%
ARO 10/3/2003 10/14/2003 28.90 33.62 16% 542%
NARA 7/25/2003 10/16/2003 18.91 21.94 16% 70%
DKS 7/29/2003 10/29/2003 39.99 47.21 18% 72%
WRLD 6/3/2003 10/29/2003 14.43 18.63 29% 72%
WLS 10/16/2003 10/29/2003 54.10 62.76 16% 449%
GRMN 5/23/2003 10/29/2003 45.91 53.00 15% 35%

I illustrate this because I believe it is important for the trader to know why a stock is behaving the way it is. A cowardly sell off on bad news does not mean that a company is, all of a sudden, rotten. Unless a company's business model changes, there is no need to sell its stock because of an adverse price move.

Of course having formal training in balance sheet and income statement analysis certainly helps with this algorithm. Comments?
 
Quote from mrmarket:

If you take a look at my last 12 closed trades, a little bit of data mining will reveal that most of these positions, at one time, were underwater more than 8%.
Annualized
Stock Date In Date Out Bot Sold Gain Gain
FCFS 7/8/2003 7/21/2003 16.30 18.84 16% 438%
FRED 5/2/2002 8/1/2003 26.23 30.29 15% 12%
SFCC 7/30/2003 9/2/2003 26.01 31.00 19% 206%
ESI 8/7/2003 9/12/2003 39.59 46.38 17% 174%
MDC 7/10/2002 10/1/2003 46.59 54.25 16% 13%
COH 6/9/2003 10/14/2003 25.75 30.21 17% 50%
ARO 10/3/2003 10/14/2003 28.90 33.62 16% 542%
NARA 7/25/2003 10/16/2003 18.91 21.94 16% 70%
DKS 7/29/2003 10/29/2003 39.99 47.21 18% 72%
WRLD 6/3/2003 10/29/2003 14.43 18.63 29% 72%
WLS 10/16/2003 10/29/2003 54.10 62.76 16% 449%
GRMN 5/23/2003 10/29/2003 45.91 53.00 15% 35%

I illustrate this because I believe it is important for the trader to know why a stock is behaving the way it is. A cowardly sell off on bad news does not mean that a company is, all of a sudden, rotten. Unless a company's business model changes, there is no need to sell its stock because of an adverse price move.

Of course having formal training in balance sheet and income statement analysis certainly helps with this algorithm. Comments?
More...


If memory serves, you only trade from the long side because of your observation of the market's general upward bias over time. It would be interesting to see how well your "no protective stop" method would perform during a sustained downtrend.

As an aside, how well did your strategy perform between, say, September 2000 and the beginning of this year?
 
As long as one maintains a close watch on the fundamentals of a company, and has investment capital that can be tied up, then I am sure there is a lot of truth to your comment.

However the reason that you will tend to garner negative replies is that the vast majority of active members on EliteTrader are technical day and swing traders who do not have the desire to study the fundamentals, or keep their capital tied up for long periods of time.

One of the purposes of cutting a loss quickly is to free up the capital for the purpose of placing another trade.

The Jack Hershey Stock Trading Method is the closest thing to the concept of fundamental trading here. Essentially, the use of RS and EPS filters those companies that have already been evaluated fundamentally, and found to be superior.
 
Quote from inandlong:

As long as one maintains a close watch on the fundamentals of a company, and has investment capital that can be tied up, then I am sure there is a lot of truth to your comment.

However the reason that you will tend to garner negative replies is that the vast majority of active members on EliteTrader are technical day and swing traders who do not have the desire to study the fundamentals, or keep their capital tied up for long periods of time.

One of the purposes of cutting a loss quickly is to free up the capital for the purpose of placing another trade.

The Jack Hershey Stock Trading Method is the closest thing to the concept of fundamental trading here. Essentially, the use of RS and EPS filters those companies that have already been evaluated fundamentally, and found to be superior.
More...

So why does the "Jack Hershey Stock Trading Method" take center ring, and MrMarket is relegated to Chat or wherever?
 
MrMarket,

Have you ever heard of William O'Neil of IBD? I think you have similar growth oriented investing styles, except he pays attention to technicals as well.

He has like 5-8% stop-loss rule. It's just good money management. Let's say you are in a losing position and you keep holding it, then you are missing out other great growth opportunities. You cut your losses fast. Then redeploy those capital for the next growth story.

That's the idea of good long term investing. Though most people here on ET are daytraders. But the same principle applies.
 
db' I appreciate your question.

Only when MrMarket comes here to say he is huge and has so many winners in a row, etc., does that thread go to chit chat.

I'm sure you recall that I kept the mrmarket thread that explained his method in the Trading Forum... this one can stay here too as long as it doesn't turn into a website-promoting meat-and-cheese soliciting thread. If it does, it's chitchat.

The Hershey thread is a fairly succinct explanation of a method that works well and is of interest to a number of members.
 
Quote from inandlong:

db' I appreciate your question.

Only when MrMarket comes here to say he is huge and has so many winners in a row, etc., does that thread go to chit chat.

I'm sure you recall that I kept the mrmarket thread that explained his method in the Trading Forum... this one can stay here too as long as it doesn't turn into a website-promoting meat-and-cheese soliciting thread. If it does, it's chitchat.

The Hershey thread is a fairly succinct explanation of a method that works well and is of interest to a number of members.
More...

I promised Baron that I would be good, and I always keep my promises. That doesn't mean I should be ashamed or mask my trading record, which I believe is outstanding.
 
I agree with you about not masking your record. I support your method of stock selection, although I disagree with carrying losses. But that doesn't matter. And I am sure you will agree that starting new threads just to post your results is counter-productive. Let's hope this thread can continue in peace and provide you and other members a forum in which to discuss this and other ideas.
 
Quote from inandlong:

db' I appreciate your question.

Only when MrMarket comes here to say he is huge and has so many winners in a row, etc., does that thread go to chit chat.

I'm sure you recall that I kept the mrmarket thread that explained his method in the Trading Forum... this one can stay here too as long as it doesn't turn into a website-promoting meat-and-cheese soliciting thread. If it does, it's chitchat.

The Hershey thread is a fairly succinct explanation of a method that works well and is of interest to a number of members.
More...

It's succinct only because you've gone to so much trouble to interpret it. Perhaps you could do the same for MrMarket. Perhaps if members understood it, there would be as much interest as you believe there is for Jack's method. Otherwise, I should think that a thread devoted to Jack belongs in Strategy Trading.
 
You must log in or register to reply here.
Back
Top