greenleaf,
Do you ever worry about sector diversification?
Do you ever worry about sector diversification?
Greenleaf's Journal
- Thread starter greenleaf
- Start date
Hello again, and thanks for the question.
The answer is: Kind of. I know I probably should, but it is hard when I don't even know the names of the companies. I am likely being short-sighted.
I just looked and you are right. I now have drug, drug, drug, and microchip.
I look solely at the charts and just try to be where the action is brewing. I am really afraid that if I start getting into company research, I will bias myself out of some trades.
Maybe there is a happy medium where I look at the industry without getting into the full company profiles, and add diversification as another entry criteria. This way, if two symbols score equally for me, I can take the one that varies my holdings. What do you think?
Thanks again.
I think that some sectors like biotech tend to be highly correlated. It throws your risk management off, because you may think you have three separate positions, but in reality they will act more like one big position.
I don't worry much about fundamentals for short term trades. It's more a matter of some types of business I'm not too interested in. There are two exceptions: one, if the stock has moved on a news item, and two, you probably don't want to be buying just ahead of an earnings release. It's a nuisance to chase all that stuff down.
I don't worry much about fundamentals for short term trades. It's more a matter of some types of business I'm not too interested in. There are two exceptions: one, if the stock has moved on a news item, and two, you probably don't want to be buying just ahead of an earnings release. It's a nuisance to chase all that stuff down.
Great point.
Now I'm nervous about my highly exposed portfolio!
I am going to see if I can find some kind of industry code on my datafeed and work it in. This is good because I've gone a full 24 hours without making any software enhancements. I'm long overdue.
I appreciate your taking the time to share this advice.
I'm really enjoying your journal. Please keep it up. It's a good learning tool for us beginners. I think I'd like to start my own journal once I figure out how to actaully make some money 
I am flattered that you used your first post on this board in my journal.Quote from KramerTech:
I'm really enjoying your journal. Please keep it up. It's a good learning tool for us beginners. I think I'd like to start my own journal once I figure out how to actaully make some money
I have been trading for almost four years. I have blown out twice before. The first time was buying call options on high flyers at the end of the dot com boom. I hit on a couple, got confident, and turned $17,000 into $2000. No trading technique whatsoever. Buying on name only.
The second time, I turned $4500 into $11000 in a few months (I added a couple thousand into the account so it's hard to separate out what the actual returns were). I used some of the techniques I have used in this journal, but in a less refined manner. Then, I saw that BMY and AOL had fallen way too far. I took big positions in them and they dropped another 10 points as I held tight. I think I owned ACF as it dropped to $5, too. My $11000 went back down to $3000. No self-discipline to take my losses. I also strayed away from my plan by buying those dogs after huge drops, thinking that they absolutely HAD to come back.
I liquidated those positions finally last November, and decided not to trade again until I got $10,000 back in my account from savings. It's pretty difficult to grow an account by taking odd lot positions, so I figured it was best to hold off rather than churn my account down. I also wanted to go back to the books with the real life market experiences I got. I finished rewriting my software and spent every free minute reading. Since I started trading, I have purchased 48 trading books (I just counted them on my bookshelf). I read them continuously, even now that I feel like I almost know what I'm doing.
I also opened an account with IB so I wouldn't get chewed up by commissions. It makes a big difference with taking losses when you don't have to really worry about the lost cost of a round trip.
I got the $10,000 saved up by this past April, turned the $10,000 into $13,000 in the market, added $2,000 more, and started this journal with the $15,000.
My goal, as I mentioned, is to get to $25,000. After that, my goal will be to get to $30,000 and take profits out to save up, keeping my account at $30,000. Since I have a job, I would probably feel uncomfortable with large positions sitting there while I got called to a meeting. But I'll cross that bridge when I get there.
Anyway, feel free to ask anything you want. I have found so much useful info in the archives of this site, and there's a lot of entertaining flame wars in there too.
-- DG
I too have bought many, many books but frankly I'm not sure they've been of much help. Which book(s) do you recommend?
Did any of these books help you in coming up with your trading strategy? Also, do you think think you'd be able to mechanize your strategy? (Maybe you don't want to?)
By the way, great trading today. I've been watching TRAD for while. A couple of months back I had planned to buy it when it had reached $5, but I didn't get around to it as broad market rally appeared to be overdone. (I've also been following a couple of subscription services where they've been expecting a sell off. Ah well.)
Richard
Thanks. I appreciate the post.
The lines are placed by the computer at first, if I haven't already placed them on that stock. It places them at the high and low of the last 22 days on the daily chart.
I drag them to where I think the entry/target/and stop should be. The computer then calculates the risk (potential profit divided by potential loss). Since targets are so subjective, sometimes I don't drag the lines until after I'm in a position. So I may have posted a couple of charts with the lines in their "default" positions.
I would like to work more interactively with the charts and lines once I'm in a position, but I find myself watching the ticker and referring to the chart only once every few minutes, looking for signs that the pattern is breaking, etc.
Here's how I do the rankings. I take my universe of stocks (7000 or however many) and narrow them down to 700+ by taking stocks that trade between 10 and 60 and have an average volume above 500,000.
I work with this set of 700+ stocks for a week or two, until I refresh it, usually on a weekend because it takes a bit of time. I take these stocks and get the daily history every day. I then run a filter where I take the ADR of the last 10 days and divide it into the price. If you look at the symbol list screen shot from last night, you will see a column called ADR. This is that number. I rank the 700+ stocks on this number, in descending order, and pull off the top 100. I just ran the filter for today's data. The highest number is XING, with an astounding .118 (meaning its ADR averages almost 12% of it's price), so it got ranked 1. #2 is USG, with a .110. Then LEND, OXGN, and SOHU are ranked 3, 4, and 5. All the way down to NWAC at #99, with a .046 and LRCX at #100, also with a .046.
This ranking system/filter has been surprisingly effective at pointing me right to where the movers are.
The scores are assigned by me, and are subjective. The computer does nothing with them except for save them and sort them for me.
I hope this clarifies a bit. Let me know if you have any other questions.