3SOF

This is one golden rule that has accompanied me through the years and saved me a lot of psychological damage.

On Friday I was away on a business trip and let some profits turn into losses. But I've learned my lesson and will now fix some money management rules to the 3stocksonfire.org portfolio:

1) One trade is considered a profit if it shows a gain of 5% or more;
2) Never let a profit turn into a loss, that is, if and after a stock shows a 5% profit automatically put a stop at the buying price;
3) Never let a small loss turn into a bigger loss, and this means always having a 5% stop loss on the market.

There's still another change I would like to make - you know, 3stocksonfire has just 2 weeks of life, I have to adjust the strategy until we feel very confortable with it. The change is the follow:

- Everyday we scan the entire US market to come up with the 3 stocks with the greatest short term potential. Then we buy those 3 stocks at the open. I don't want to continue doing that, I really don't like much to buy at the open, especially when I don't know what the opening price is going to be !

- So, we'll continue filtering the market and write the 3 articles about the 3 stocks that we consider to have upside short term potential, but that doesn't mean we buy the 3 and it doesn't mean we'll buy at the open. We'll choose 1, 2 or 3 of the 3stocksonfire.org picks and then announce the time and price of the trades that will figure on our portfolio on this Forum.

But this is a parallel event on this site's life, which has surpassed all our expectations. Our community discusses stocks, shows charts and considers picks. We're not long term investors, we're speculators.

Thank you !

Well said(I applaud you).  Commander taking charge. 

Lets specualte the shit out of this market!

I completely agree!

But is there a better way to place a stop loss order than just 5% of the entry price?  I would think that the chart should suggest a logical level of support or resistance, one that should provide the best exit point if wrong.

Also, if not proprietary, can you teach us what you are looking for when scanning the markets for short term strength or weakness?  What technical "filters" for market analysis are being exercised by your scans?  Is it trend analysis, momentum, sentiment or something else, or all of them?  And, what gives confidence that these methods will continue to work going forward?  Just trying to learn something with no disrespect intended.

And thanks for an excellent website.

Dan

QuoteLets specualte the shit out of this market!

Damn right eliteG! Never let speculative ventures turn into investments.

QuoteBut is there a better way to place a stop loss order than just 5% of the entry price?  I would think that the chart should suggest a logical level of support or resistance, one that should provide the best exit point if wrong.

You're right. On specific occasions there can be a better way of placing a stop loss order, but generally speaking, when there's no conclusive level of significance, a 5% threshold can help us clear our mind, recognizing a losing trade and forcing us to take action. Many times there's no need to wait for a loss of 5% to know a loss when you have one, since, in general, a good trade is profitable right from the start.

Quotecan you teach us what you are looking for when scanning the markets for short term strength or weakness?

I can't give you the exact formulas, but I'll give you some insights. I don't like stocks that went down the prior day - never try to catch a falling knife. I don't like stocks with black or red candles, that is, the close must be higher than the open, showing demand was stronger than supply. I choose stocks with volume above average.

After I scan and filter the market in this way I throw away between 95 and 100% of stocks. That still leaves me with 100 to 500 charts to consider. I do that and pick the 3 ones I like most, using technical analysis and the visual experience of watching charts for 9 years.

«And, what gives confidence that these methods will continue to work going forward? »

This thing has worked forever and it will continue to work. Stocks move in trends. Stocks need sponsors to bolster their prices, they don't go up by themselves. Volume above average shows a growing interest by investors and speculators on the stock. A white candle shows demand was stronger than supply and those trends tend to persist.

QuoteAnd thanks for an excellent website.

Thank you dan, I welcome you on www.3stocksonfire.org !

Thanks for your insight.

I realize that not every trade is a winner, but after nine years of doing this, can you give us an idea of your win/loss rate?  Nine years pretty much covers both up and down markets so I think the numbers would be representative going forward.  Also, have you an idea of what your average profit to loss ratio might be?  These numbers would help new speculators understand the risks better and what are the potential rewards, assuming one is capitalized well enough to withstand the inevitable drawdowns.

Thanks again.

Dan

QuoteI realize that not every trade is a winner, but after nine years of doing this, can you give us an idea of your win/loss rate?

Well, I don't have those records. You know, I've changed markets a lot during those 9 years (I'm not a US citizen, I've traded in european markets) and most of my trades were in stock index futures (DAX and SPX futures), not stocks.

I believe I have a 50% win/loss ratio, but that is just an empirical number and I don't think that's much important.

QuoteThese numbers would help new speculators understand the risks better and what are the potential rewards, assuming one is capitalized well enough to withstand the inevitable drawdowns.

Yes, they could help, but I don't know about them. I've traded through about 10 or 20 brokers during those years. I've gained a lot of money and lost a lot too, specially trading futures - in stocks I never had a losing year, I was a bear during the bear market and I am still a long term bear.

It looks like you're a system trader ... that's a good thing.

I'm not expecting anyone to follow my trades, you know? I just lay down these words and charts to help us think about stocks that have the potential to move right now !

Thanks for posting, please keep around questioning !