My Long Term Investment Plan

[MS+Tradesim]

Now my only problem with using a trailing loss is if a known annoucement is coming up do most keep there normal trailing loss or modify.
the reason i ask is if the share price drops due to market movement before annoucement date triggering the trailing loss. Then I'm out with out seeing the outcome of the reason for the investment.

Or does this just mean that it allows me to re-valuate the situation and enter in the trade again if I believe the situation makes it still viable.

This is part of your overall system design. Use a stop that is appropriate for the length of time you want to be in the market while using position sizing that allows you to recover comfortably from drawdowns. And even if you do get stopped out, then you can always re-assess, like you say.

 

[beamstas]

If you feel the position is going against you then it's probably a good idea to sell.

Remeber it's easy to get back in all you need to do is hit buy

 

[JackJackJack]

JackJackJack I have been trying to read as much as i can about, how to get rich, Derivatives, Risk management.
Unfortunetly there are only so many books i can read at once If possible do you know of any good Risk Management books that you would suggest is a must have, I may not get to it now but By the end of the next 1-3months I would have read it.

Forget the get rich books
Focus on the more boring text book types.

I am still learning myself and have found the following to be the best of the 30 or so books I have:


Sam Weinstein - "Secrets for Profiting in Bull and Bear Markets"

Bennet A McDowell - "A Traders Money Management System"

Van Tharp - "Trade Your Way to Financial Freedom"

Marcel Link - "Trading Without Gambling"

Alexander Elder - "Come Into My Trading Room"

I am not big on fundamentals - so cant help you there - but these books will certainly help with capital preservation / risk management and some technical analysis.

 

[IFocus]

Just thought I would introduce myself and get some feed back on my current Share Portfolio investment plan.
A bit of background into my investments so far would lead you to high risk long term investments, mainly speculative shares with the possiblity of high reward but at a high risk.

However this economic downturn has some what enlightened me to modify my investment strategy some what.

Current holdings i would classify as the following
36% Low Risk
BHP
64% High Risk
FMG
AQA
BRM
LNC
Others ( Much Higher Risk)

My current plan is to position myself with the following rough Percentage of Low Med High risk shares. Low - 50%, Med - 25% ,High - 25%

with the goal to move to Low -75%, Med -15%, High - 10%

I have a few companies in mind for my low med and high risk and it will be obvious to some that my opinion to there risk rating will differ however I was interested on people opinion of such a investment strategy.

Your help is much appreciated as I find myself day in day out finding speculative shares with the possiblity of high return filling up my potential buy list but believe it is in my best interested to maintain the 14 i have listed as potential buy.

Whats your time frame? days, months, years?

Do you see yourself as an investor or a trader?

Are you looking for capital growth solely or div return with the possibility of cap growth?

If starting with say $100K today what would define success in 2 years time i.e. whats your expectations.

Great to see you are talking about risk.

 

[enigmatic]

Cheers JackJackJack I will definitely search those ones out.
The get rich ones it is actually one book, was written back in the great depression actually by Napoleon Hill - Think and Grow Rich, but I do catch your drift those books generally arent worth the paper there written on.

This one just was highly recommended to me by someone.

 

[MS+Tradesim]

Another vote for Van Tharp Trade Your Way to Financial Freedom 2nd Edition (is a lot clearer than the first edition).

He discusses, among other things, different risk management strategies that one can employ and he touches on William O'Neill's CANSLIM system as one example so you can see how risk management can work with a fundamental based system.

 

[enigmatic]

IFocus, I guess If I have 100k spare which is about right..
I would expecting a growth rate 10-15% want would be a whole different story.

growth rate of 15%-30% has always been in my plan for the last 2years so i dont see why that value shouldnt be aimed for but i do expect 10%-15% otherwise i could of invested else were and made similiar returns.

Although due to the down turn i do have some expectation of higher return.

 

[enigmatic]

I will definitely look up that book when i get back Home.

One question more related to IFocus post.
I have noticed the question before about how much growth do you expect, is it wise for me to limit my expectations to 10-15%
or should I have the attitude that I must get atleast 15%.

Surely the restriction of my goal may restrict me in my outcome.

 

[enigmatic]

Well I have done what a few of you suggested and have setup a few trailing losses for 20% of my current portfolio.

Does anyone have some good examples on how to calculate a trailing loss.
right now I'm using 1.5stdev 21day MVA.
I was using 2stdev but that seemed to be a little to much for my liking.

Cheers for all your help.

 

[enigmatic]

Been looking arround into Option trading, and was wondering how i could use options to support longterm investment.

This could i guess be for both long term trends or for short term swings.

what are the risks involved in using options for specs compared to blue chips.
Obviously the risk with options is known at the start just like a well managed trade.

 

[So_Cynical]

Been looking arround into Option trading, and was wondering how i could use options to support longterm investment.

This could i guess be for both long term trends or for short term swings.

what are the risks involved in using options for specs compared to blue chips.
Obviously the risk with options is known at the start just like a well managed trade.

Aussie options (ETO's) are only available on blueish chip stocks, and then there's only
decent volume on the top 30 or so.

 

[enigmatic]

I guess the next question for myself is how to use options in my investment strategy to compliment my risk strategy.

 

[MS+Tradesim]

Well I have done what a few of you suggested and have setup a few trailing losses for 20% of my current portfolio.

Does anyone have some good examples on how to calculate a trailing loss.
right now I'm using 1.5stdev 21day MVA.
I was using 2stdev but that seemed to be a little to much for my liking.

Cheers for all your help.

There are a lot of different ways. Using recent support areas, the low of the most recent retracement, stdev as you say, volatility and more.

For myself, I use an average true range (ATR) multiple - ATR tracks volatility. For example, the closing price less 4 x ATR over 21 days - always moving it up or sideways but never down. I use the ATR slightly differently, but same basic principle.

As a rule of thumb use a wider stop if you want to be in a position for the long-term and tighten the stop the shorter the intended timeframe. For long terms investments you want the stop to be unaffected by noise but still protect you when something goes really wrong.

 

[beamstas]

There are a lot of different ways. Using recent support areas, the low of the most recent retracement, stdev as you say, volatility and more.

For myself, I use an average true range (ATR) multiple - ATR tracks volatility. For example, the closing price less 4 x ATR over 21 days - always moving it up or sideways but never down. I use the ATR slightly differently, but same basic principle.

As a rule of thumb use a wider stop if you want to be in a position for the long-term and tighten the stop the shorter the intended timeframe. For long terms investments you want the stop to be unaffected by noise but still protect you when something goes really wrong.

I think van tharp mentions a trailing stop of 20% of the highest high since the buy. but i could be wrong

This would be for longer trends and eliminate any noise

 

[MS+Tradesim]

I remember VT using 25% trails on testing some tipsheets that didn't use any.

Personally, I would not use a % trail because it treats all investments the same.

Ps. enigmatic, I forgot an obvious one which I'm not sure how many people use but it's often touted in books - a long term moving average.

 

[jackson8]

I guess the next question for myself is how to use options in my investment strategy to compliment my risk strategy.

hi enigmatic
put options may be utilised to hedge your portfolio or specific holding against loss
call options used to make a passive income off your portfolio

 

[enigmatic]

enigmatic

MS+Tradesim Cheers for all the ideas for trailing loss.
I noticed with my current one that my trailing loss actually lowered as the Stdev become larger may need to change my tact, as i would prefer a trailing loss which tightens over time.

Concerning the Long term moving average.
This is what i will be using as an indicator to get at of the share although not a trailing loss, Both the 250day MVA of the share and the XAO.

I guess the main Aim is to protect your profit.

 

[nizar]

Enigmatic.

You say you are targetting 15-30% returns?
That's well and good but remember that you don't decide how much money you make, only the market decides that.
BUT you can limit how much you can lose.
What you have to do is put yourself in a position able to take advantage of opportunity.

I think Larry Hite said it well:

I have two basic rules about winning in trading as well as in life: 1. If you don't bet, you can't win. 2. If you lose all your chips, you can't bet

MS.

You made some good points.
You said you use 4*ATR as your trailing stop. Is that on a daily timeframe?

 

[nizar]

Risk management isn't my area

You're in trouble then buddy.
Seriously.

 

[MS+Tradesim]

Re: enigmatic

I noticed with my current one that my trailing loss actually lowered as the Stdev become larger may need to change my tact, as i would prefer a trailing loss which tightens over time.

Just always use the highest recent value of your stop. For example, say the stdev is currently at $1.40 and the price is at $1.80, then the price drops sharply and the stdev value falls to 1.20, keep your stop at 1.40. Only ever move a trailing stop upwards or keep it the same until a new higher value is calculated. Never move it down while you're in the trade.

I guess the main Aim is to protect your profit.

Yes, but more important is to protect your capital.