point is that a poor system cannot be rescued by good money management and poor money management cannot be rescued by a good sysytem. I think most systems fail because you really cannot quantify the reward part, its something you can never ever know in advance
Actually there is a guy called van tharp who theorizes that he can actually make money off a random entry with money management. The other way definitely does not apply. Remember that markets are inherently biased towards long (the main reason I almost never short stocks).
agree, like throwing darts but that requires a totally mechanical system and one must be well capitilised and most mechanical systems will fail if you are undercapitilised. Remember also that random entry system gives you en edge because its 50/50 and most trading systems will not give you more than 30% wins
Nah, don't agree with you at all. I have put R50k aside for a mechanical trading system which I posted on some time ago. It is up 14% since December. It is not random entry, but almost. I try to make 6 trades per month - cut the losers and hold the winners. It is a simple principle - with no chart patterns. Its goal is to build up R500k exposure in the market, and then to take profit (since then a 10% move on the index will double my capital). All it relies on is relative strength and price action. Admittedly, I do rely on moving averages for the index as a whole, but not for the stocks I buy. I am about to commence my next wave of buying now. Point is, that it is not well capitalized at all.
SKAAPTJOP - In keeping with the "random" theme - it seems that the best bet is a simple buy the big stocks after a big fall and sell them after a healthy run" approach. Go in semi-blind. Over the years I have found that the harder I tried to follow the setups (specifically: stochastics / ma's / rsi and macd's,) the worse things got. I have come to the conclusion that the sophisticated approach tries TOO hard to time the market instead of accepting its ebb and flow. It can cause a stroke... but didn't help my portfolio much. What's your experience been?
RANDOM THEME I have had success but only with the BIG stocks as you say - currently in with AGL @R326. I tried the same method a few months ago with AIP when it got slammed and it didn't do so well. Sure it's up a little now. But Yes, it's simply trading the price.
but trading the price is not buying the lows(or buying after a big fall) because you trying to pick the bottom and if you undercapitilised, you can go bust quickly, if you well capilised, you go bust slowly---if you trading derivatives. Cash market, may work?
Has to be derivatives - only way to get 1000% exposure. Threshold, two points. 1)I pay no attention to oscillators - they are useless IMO. The biggest price moves almost never come from oversold positions. 2) The powerstocks guys advocate (with empirical evidence) buying the biggest losers in a downswing. I do the same, but only resource stocks (which are cyclical), and only if their is still an underlying long term trend (i.e. no gold or platinum miners). I do that for 3 of my 6 (max), the rest I buy with the best relative strength to the market. (unfortunately this measure is a bit subjective - I will pick the ones that are holding strong - build a list, and on a potential turning day (like today) - I will buy the ones with the biggest gap up - i.e. the strongest price action. But no more than 2 per day. When I see that the overall index breaks resistance, I will add (either more of the same stock, or something else looking like it is rallying. 1% allocation per trade - 6 stocks in total. If 2 of them make 2* my risk, two break even, and two stop out, then I am net 2%, with running trades. In 12 months, I am working on a target of 24* return minimum - with quite a bit of upside potential - since I am letting my winners run (Palamin giving me 3* return (plus div), for e.g. and Metorex giving me 7* return)
And where is AGL now. Playing out the complex double corrective chart pattern. Trading below 321 but reversing above 306-310 level will mean the bulls are back in control and trading above 321 level to surpass the 356 level will also mean the bulls are back in control.Weekly trend is down, so I think one more leg down likely after this short bounce.