Here is my stock trading method. It has worked very well this year (I started in Nov. 1999, and have continued using it since), as I am up by about 356% so far. It is very simple:
-first, I buy only shares in the range of $5.00 - $80.00, of medium to large size companies
-second, I only buy shares that trade above 100,000 shares per day
-third, I identify cyclical pricing behavior; and it doesn’t matter to me whether the trend is up or flat, there just has to be cyclical peaks and troughs in the pricing
This is what I do: I buy blocks of 500 shares, and hold them for as long as it takes to yield a >20% increase, after which I sell and move on. If a stock returns to the range that I bought it at, I buy again and repeat.
So far, so good. However, I remember form my college statistics that there is a theorem in Statistics called “Gambler’s Ruin” Simply stated, this says that if you bet on any random process long enough, you will eventually lose! Have I found the road to riches, or will my fortunes eventually decline? Any mathematicians or statisticians who can set me straight? So far I’m hugely ahead-am I on to something?
Seems to me you’re ahead as long as stocks go up (duh!) What’s your criteria for holding when they go down? Are you prepared to hold forever, waiting for that 20% growth? What do you do if an acquiring company offers, say, a 10% premium over market price – sell out, or take the shares of the acquiring company?
Since your model seems to favor cyclical stocks, remember, what goes up must come down.
The technique you are using is essentially the same as a gambler who ‘locks in’ his winnings and goes home when he’s up, but keeps playing when he’s down.
This strategy will result in a lot of small wins, punctuated by big losses.
Short-term stock movements are essentially random by the time the information gets to the average investor. Your strategy is going to cause random wins and losses fluctuating around a straight-line that marks the overall gain or loss in the market. If the market is going up, you’ll do okay. If it’s neutral or going down, you’ll lose.
Overall, your strategy is a loser, because making all these trades costs you in commissions. You would be better off if you just bought a stock and held it.
> Overall, your strategy is a loser, because making all these trades costs you in commissions
You’ll also pay a lot in short-term capital gains tax from all the profit-taking.
looks like I’m doing OK so far…I do hold the Losing stocks until they recover…anyway, I’ll report back next year!