# The High Risk Trading exercise



## tech/a (16 April 2011)

Following from the high risk thread.
Many have often thought how a longer term high risk portfolio may go.
Personally if you have enough in the portfolio you only need 1 to fly and the rest in my opinion could go broke!
No scientific fact and not about to try and prove it other than this exercise.

Ive picked 18 stocks from those trading at 5c and less. Liquidity more than $300K on a 14 day average.
The only other criteria is that the chart must display some "awakening" of current trading---in my opinion.
No stop will be used.
Buy stops are used.
Will check results quarterly---no profit stop.

Purely an exercise nothing more.

$1000 allocated to each stock at buy price (But could be any amount invested).

Stocks in this exercise.

AKK Buy stop 5.1c
YRR  Buy stop 3.6c
WHN Buys stop 4.6c
VLA Buy stop 5.2c
URA Buy stop 4.5c
SSC Buy stop 3.6c
MOY Buy stop 4 c
LMG Buy stop 4c
HAW Buy stop 2.8c
GGP Buy stop 2.1c
CXY Buy stop 3.4c
CIG Buy stop 1.5c
BRD Buy stop 2.3c
BKP Buy stop 2.1c
ARW Buy stop 3c
ANP Buy stop 2.2c
ADY Buy stop 5.1c
ABU Buy stop 4.5c


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## Gringotts Bank (16 April 2011)

*Re: The High Risk Trading exercise.*

Why not backtest it?  No waiting that way.

Sell = C > 1000000!

I reckon what would happen is that the overall performance would be heavily dependent on the All Ords.


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## trainspotter (16 April 2011)

*Re: The High Risk Trading exercise.*

OK let's see if I have this right in my head. We are buying $1000 of each stock over 18 companies. Total outlay 18k. This is a set and forget exercise wherby we are not allowed to sell any of our holdings if they show signs of slippage. We only require one or hopefully more to fire to cover initial outlay. Our risk is spread due to the numbers involved in our portfolio.

Correct me if I am wrong but would not one of the stocks have to get to at least $1.00 to cover our initial outlay? Assuming a buy price of 5 cents that is?

Hmmmmmmm ...... I'm game. Lets spin the wheel and see what happens.


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## Gringotts Bank (16 April 2011)

*Re: The High Risk Trading exercise.*

You can't assume 17 of them will go bankrupt train!


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## trainspotter (16 April 2011)

*Re: The High Risk Trading exercise.*



Gringotts Bank said:


> You can't assume 17 of them will go bankrupt train!




Ummmmmmmmm Tech/a started when he wrote this _"Personally if you have enough in the portfolio you only need 1 to fly and the rest in my opinion could go broke!"_

I am breaking it down to the worst case scenario. Let's say we have a 50% strike rate therefore we only require to go from 5 cents to 10 cents on half of them. Is that more realistic?


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## tech/a (16 April 2011)

*Re: The High Risk Trading exercise.*



> Why not backtest it? No waiting that way.




I dont know the Code for "Eyeballing".
But suspect it similar to "Intelligent guess" "Gut Feeling" and "Experience"

You could put in a heap of portfolio management plans which would possibly enhance results---but I couldn't be bothered managing it---unless I had $18k invested in it.
Chances are after 3-6 mths I may wish I had!!


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## Gringotts Bank (16 April 2011)

*Re: The High Risk Trading exercise.*

I'd define realistic worst case scenario as say 2/3 of them would halve in value, not that it matters much.

This is the sort of exercise that is very easy to backtest, so long as you know the entry rules.  But I think these 18 stocks are just discretionary picks, and in that sense, this is just what normal speculators do every day - pick a portfolio of 10+ stocks and hope the All Ords does ok!!  Most Hotcopper speculators work this way.


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## Wysiwyg (16 April 2011)

*Re: The High Risk Trading exercise.*



tech/a said:


> Chances are after 3-6 mths I may wish I had!!



Bullish future short-medium term tech/a? Me too and the more the merrier. : 

If so there are bound to be some scorchers in that 18 and it will be interesting to see the results.


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## skyQuake (16 April 2011)

*Re: The High Risk Trading exercise.*



Gringotts Bank said:


> I'd define realistic worst case scenario as say 2/3 of them would halve in value, not that it matters much.
> 
> This is the sort of exercise that is very easy to backtest, so long as you know the entry rules.  But I think these 18 stocks are just discretionary picks, and in that sense, this is just what normal speculators do every day - pick a portfolio of 10+ stocks and hope the All Ords does ok!!  Most Hotcopper speculators work this way.




survivorship bias

I suppose you can find a list of stocks from the all orders in say 2005 and test a few of them.


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## bathuu (16 April 2011)

Nice pick, tech/a

I've been eyeing on most of them in the last period of time, too. They currently seem to appear in either in uptrend or in some possible break out state, however failing to develop therefore taking my patience out of me. Most of them appear to have more buyers than sellers in depth. 

Also check out on KIK, EMR, CEO, CRE, ATN, JPR, AQC


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## Tanaka (16 April 2011)

I like where u are going with this thread Tech! I was wondering the same thing recently when I checked the results of a scan I ran during March. Not hijacking your thread just a look at my 1 month results had I done the same. Had I taken every trade and closed on Friday my results would have been:

CVN +8.8%
RHC -3.6%
CZD +122.7%
SPL +12.6%
CTP -41.3%
FKP -1.2%
PMP -9.5%
PNR-10.3%

I think that equals a 9.77% return on $8000 ($1000 per stock) - does not include brokerage and tax.
I look forward to seeing the results!
Tanaka.


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## Gringotts Bank (17 April 2011)

Whoever it was that taught tech/a about this 'gut feel' approach must be smiling to himself at this point in time.  :

What happened to defining RR?
What happened to rigorous back testing?
What happened to positive expectancy?

I don't like.


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## explod (17 April 2011)

Looks like a good exercise Tech.

And on *"Gut feel"*  It comes from all of our combined experience which are fed to our sub-conscious by repetition.  It is worth contemplating and learning to trust your instincts.

A great book on this subject is "The Intuitive Edge" by Philip Goldberg, 1983.


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## tech/a (17 April 2011)

Gringotts Bank said:


> Whoever it was that taught tech/a about this 'gut feel' approach must be smiling to himself at this point in time.  :
> 
> What happened to defining RR?
> What happened to rigorous back testing?
> ...




*Its a "High Risk Trading Exercise"*

I'm not attempting to mitigate risk.
I'm not putting $18k in it myself but its something many have questioned and some do (with far less stock).I see it on the ABC threads on a daily basis.

I think it is possible to give a surprising result---which to me would be a profit of 20% + which is a standard return expectation for most traders.

I am smiling as I taught myself to eyeball charts.
5 out of 18 would be an amazing result (500% + profit-----25c).
Less than 3 delisted.


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## Gringotts Bank (17 April 2011)

It's always good form to credit your teachers.


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## prawn_86 (17 April 2011)

This is pretty much how my old man works his portfolio. As it is not money he needs and he doesnt devote much time to it

Pre-GFC he held about 12 stocks all worth about 2k each on average. Before GFC open profit was about 50%, then overall value fell to about 40% of the original value after the GFC. I know one went bust, one merged at a much lower price than he bought (is still holding the merged stock) and one went as low as 3c with his initial buy being above 40c (now sits at about 10c).

He kept holding however and STB was the one that ran, he made 50k from that alone, withdrew 40k and the rest he holds are 'free carried' to see if he can get another.

So in 5yrs he has locked in a return of 66% (14k) and now has about 30k worth of other specs (open profit). The entire withdrawn profit came from the 1 stock.


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## Julia (17 April 2011)

So has your father considered how much better off he'd have been if at the start of the GFC he sold off the poor performers and put those funds into that one supa dupa stock?
He'd have had a lot more than he has now.

I understand that you're demonstrating the reality of what Tech is saying, but that strategy your father used could have been even better if he'd not held all the losers on the way down.


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## prawn_86 (18 April 2011)

Julia said:


> So has your father considered how much better off he'd have been if at the start of the GFC he sold off the poor performers and put those funds into that one supa dupa stock?
> He'd have had a lot more than he has now.
> 
> I understand that you're demonstrating the reality of what Tech is saying, but that strategy your father used could have been even better if he'd not held all the losers on the way down.




With hindsight of course he would be better off. I guess the thing with speculative stocks is that they fall (and gain) by a lot larger % than the overall market. So at what point should he buy back in? 50% lower, 65% lower? Or should he buy back in when the ASX200 (not representative of his portfolio) 'turns'? If so, that means he has to add that in to his analysis.

Unless something fundamental changes, such as new projects, or existing ones sold off he continue to have faith in the stocks.

I guess the key to high risk like this case, and what Tech is trying to demonstrate, is to make sure that the money is not needed (my old man could easily afford to lose it all when he started the portfolio) and you can afford a few years of nothing happening (or unrealised losses).


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## motorway (18 April 2011)

A System like this I did see, made an important factor the time the stock had traded below .10 ( or what ever The system used it was  USA and used a 1$ )

The system would not buy  unless the stock was below the low price for at least two years...

1) It meant they were survivors , must have something to them , able to obtain capital etc. Maybe good management etc

2) They were not likely to have hidden problems that were new and could be terminable etc.



Also===> SEVENTH LAW: Dramatic price movements tend to unfold from price structures that minimize profitable participation.   http://www.trend-dynamics.com/TD_Laws.htm

Is likely to come into play.. These stocks would not have much liquidity or participation or be inviting of participation. 


for ASX some adjusting of the price & time thresholds might be necessary.

The two year criteria was key to avoiding real losers and keeping away from the overpriced lottery tickets ( Stocks with participation that had recently fallen ) 

Motorway


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## nomore4s (18 April 2011)

Julia said:


> So has your father considered how much better off he'd have been if at the start of the GFC he sold off the poor performers and put those funds into that one supa dupa stock?
> He'd have had a lot more than he has now.
> 
> I understand that you're demonstrating the reality of what Tech is saying, but that strategy your father used could have been even better if he'd not held all the losers on the way down.




The only flaw I see in this is how would he have known which stock was going to be the supa dupa performer?



motorway said:


> The system would not buy  unless the stock was below the low price for at least two years...
> 
> 1) It meant they were survivors , must have something to them , able to obtain capital etc. Maybe good management etc
> 
> 2) They were not likely to have hidden problems that were new and could be terminable etc.




That appears to be a very good filter, might be worth looking into.


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## tech/a (18 April 2011)

Yes some good points.
Im sure we will be able to comment on various points throughout the course of the exercise.

M/W 
I notice you use T/D analysis on you Point and figure charts.
Interested in your comments. (On T/D)


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## Julia (18 April 2011)

prawn_86 said:


> With hindsight of course he would be better off. I guess the thing with speculative stocks is that they fall (and gain) by a lot larger % than the overall market. So at what point should he buy back in? 50% lower, 65% lower? Or should he buy back in when the ASX200 (not representative of his portfolio) 'turns'? If so, that means he has to add that in to his analysis.
> 
> Unless something fundamental changes, such as new projects, or existing ones sold off he continue to have faith in the stocks.



I guess this is where one's investment philosophy comes to the fore.  If he still had faith in the downtrending stocks, I take the point.  Probably I shouldn't be commenting because I just don't do speculative stocks.




> I guess the key to high risk like this case, and what Tech is trying to demonstrate, is to make sure that the money is not needed (my old man could easily afford to lose it all when he started the portfolio) and you can afford a few years of nothing happening (or unrealised losses).



Sure.  But none of us like to lose money and/or not maximise our profits.  I just sometimes think many don't put enough focus on capital preservation.




nomore4s said:


> The only flaw I see in this is how would he have known which stock was going to be the supa dupa performer?



When it either wasn't falling as the others did, and at least holding its own, if not actually going up?





That appears to be a very good filter, might be worth looking into.[/QUOTE]


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## prawn_86 (18 April 2011)

Julia said:


> When it either wasn't falling as the others did, and at least holding its own, if not actually going up?




Specs pretty much all get sold off during a crash/correction. The stock in question went from a pre GFC high of 36c to a low of 4c, so on this basis it performed exactly as most of the others did. The high it reached this year was $6.25 (now about $3.60)


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