Posts Tagged ‘Stock Market’

My strategy of day trading to a larger position in BAC has resulted in a one day gain of 11.11%, meaning I now have 11.11% more shares than I had yesterday-while using no margin and with the same investment.

I started the day by exiting my position at $7.87, which I had entered the day before at $7.16. I then re-entered at $7.7299 when it looked like the stock was done dropping after the open, but sold it at $7.56 when it appeared it was going to drop a lot farther. I then bought it back at $7.4599 and sold it again at $7.60 after a nice rally. I again entered at $7.4599 on a dip and closed my last position of the day on a rally up to $7.6151.

I sent an email into Dan Dicker from TheStreet asking what he thought of my blog posts and strategy, and he advised against day-trading a stock I am bullish on-suggesting that I instead maintain a long position and day trade it separately. That is what I am going to do today-using my margin account to day-trade the dips and rips (buy going long when BAC is cheap and selling when it has rallied). Each time I will book my profit by selling less shares than I bought-and keeping them in my long position-thus constantly re-investing my profit. If I have a losing trade I will then sell more off next time around to bring my margin balance back to $0.00.

I think this is a solid bankroll management strategy. It will surely require some tweaking.

At the open today the stock plunged and I got back in pre-market at $7.22 and day-traded an additional block at $7.22. I sold the day-traded portion on a breakout to $7.32 and according to plan re-invested my profit by selling only enough shares to cover what I had borrowed on margin. My position gained another 1.36% in the process and I now have a position of 12.43% of my original investment – after only two days of employing some variation of my share buying re-investment daytrading strategy.

In early trading my investment shares (all 112.43% of them) are up from $7.22 to $7.34, a solid start to this day.

I’ve never seriously day traded before, though I have studied investing and the stock market semi-actively for several years. About a month ago I decided to use some free capital to make a bold bet on an economic recovery, and began acquiring blue chip stocks. After following them closely the last month I have taken a particular interest in and linking for BAC (Bank of America). I am beginning to sense that I can anticipate where the share price is going-either in the short run (next 10 minutes) or over the further out near term (next half day of trading). I also have a sense that it is headed up over the next two years-and that is a gradual upward climb. Though along a climb like the one BAC is going to make (From $3.60 back to a peak of $50+) there are bound to be corrections from the surges in share price that a stock makes when gaining 1,000%+ of its value. Those corrections are what I think I can sense coming-or at least I have been right often enough to give me a false sense of confidence in my ability to predict them coming. Time will tell whether it is dumb luck or a ‘feel’ or ‘read’ I have on this stock-much like those I learned to make at the poker table.

The last two days have been a big learning experience for me, as I have begun actively day trading BAC. On the 24th I made a couple of bad predictions, and made some costly timing and firing mistakes, that a more experienced trader never would have made-but I stuck to my strategy of limiting my losses and letting my gains ride-and in the end turned a small profit on the day after and end of day rebound in share price. On the 25th I had a great day but again made a silly rookie mistake firing my orders at the opening, and was on a laptop using mobile wireless all day and not online for crucial times like market open and the next half hour after. If I was able to execute my strategy technologically (meaning actually having fired the orders when I wanted them fired) I would have made a further 5% on one of my early trades-and since my trades are all 100% of my position (I do not use margin or leverage)-that would have been a big 5%. However I correctly exited early in the day after a pre-market rally, to have the stock fall from 7.64 to 7.16, where I bought it all back. Effectively reducing my share price by .48. The stock then surged back to 7.70 at the end of the day and now is just under $8.00 in pre-market.

The beauty of a day like that is that if I had gone to the beach and just checked the shares at the end of the day-I’d have seen a $0.06 gain on the day and would have been satisfied with that. However by spotting when the stock might be overheated (at the open after surging pre-market) and then when it might have fallen to far (when it went from 7.93 to 7.16 in less than two hours), I was able to take advantage of those swings, and add a nice cushion to my profit on an otherwise normal +$0.06 day.

Yesterday BAC opened at $7.80 but was crashing in pre-market. I had picked it up at $7.00 the last time, and wanted to book my profit-so sold it instantly when it came onto the market. I then set a Short order to sell it if it dropped to 7.28 or lower, and this order executed at 7.26. I was not at an internet connection and did not have an exit plan and for the next short while the stock dropped. then it sharply rebounded and stayed steady. This is where I would have covered, booking a small profit and possibly ready to re-enter my position. I’m trying to take advantage of sharp corrections which are irrational-not normal price fluctuations (which I want to have a long position for-as I think they will rise in the long run). However by the time I got to check where it was at it had risen back to the $7.40 level. I decided here that I both wanted to stop my short losses early (I chose $7.50) and to re-enter the stock if it starting moving up again, as it could easily have another $0.75 upward climb, but it would be unlikely to have that same sort of freefall, as we are now into normal trading). So i chose $7.70 as the place I would go long if it rose to that. I indeed crossed through $7.70 so my short was covered and I was long my full position at $7.70. Well now it corrected again and down to $7.30. I thought this was too low so added another 40% to my position, so I was operating at 140% of what I normally have in BAC. The price did recover and opened today at $7.64 (where I exited-booking a small profit overall after I covered my short-which ended up being a losing bet overall, though only $0.24 per share.

Today should be a fun ride as well, after typing this I see the stock is above $8.00 in pre-market trading, now an $0.84 per share gain from where I got it yesterday. My strategy going into this will be to set a tight trailing sell order so if the stock loses say $0.05 per share early on, I dump it all and take my profit. I wont short it this time, I think I’ll not double my risk and exposure-but I will exit and wait for a re-entry point. Ideally around $7.50 per share, so I can reduce my cost per share by another $0.50+.

Going forward I think my new bankroll management strategy will be to have a specific dollar value in BAC, not a specific number of shares (which is what I have been doing). So for instance if I gain 10% and sell, then re-enter when the stock loses back 5% of that 10% gain-I will be able to by 5% more shares than last time-without using margin or increasing my investment. If I can do this just twice per week, it will have the following effect on my overall investment:

Assume; 100,000 shares for simplicity
Week 1: 105,000 – 110,250
Week 2: 115,762 – 121,550
Week 3 127.628 – 134,009
Week 4 140,710 – 147,745
Week 5 155,132 – 162,889
Week 6 171,003 – 179,585
Week 7 188,564 – 197,993
Week 8 207,892 – 218,287
Week 9 229,201 – 240,661
Week 10 252,695 – 265,329

So in just ten weeks I added 165% to my position. Though notice that adding 10% per week for 10 weeks is only 100%. A bonus 65% with the beauty of compounded interest!

After ten weeks of this I would probably grow bored and want to let the money work for me with much less effort, so if I leave those 265,000 shares alone and my plan works, I could easily have a further 100% gain in less than six months. That would equate to a 400% profit on my investment in less than 10 months. 400% in a day or a week might be a pipe dream. But in a market like this with stocks as low and volatile as they are-it seems more than possible for a savvy investor.

We shall see if I am that savvy investor, or just a sucker who is getting lucky in the casino that is the stock market.

At the opening I added AXP (American Express) to my portfolio. Together with BAC (Bank of America) and GE (General Electric) I think I have an amazing group of Blue Chip stocks that have:

a) been hit particularly hard by the current downturn
b) stand to return to record highs – once markets recover their sanity

-One day into my investment AXP is already up 18%.
-Three weeks in BAC (75% of my overall investment) is up over 120% – and gained over 20% today.
-Three weeks in GE is up over 50% and gained nearly 10% today.

Not a bad start. I don’t expect the gains to be as large and as quick forever, but I expect a steady upward slope for the next 2 years+ or until the stocks are back to record highs, whichever comes first.

“These are the days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.”

John D. Rockefeller, shortly after the Wall Street Crash of 1929.

The answer for how to respond to a situation like we are in now is preached in every credible investment book on the market – when there is blood on the streets, buy real estate – yet otherwise rational and intelligent people  are being caught up in the desperation and perception of hopelessness in the markets. Real Estate and Stock prices are plummeting, with the ’smart’ money staying out of the way.

But they are missing a fantastic opportunity. The stock of virtually every company in the United States is trading at a significant discount to what it was just six months ago. What has changed so drastically about America in that time? The answer…not much, if you focus on the long run.

The crazies are running around talking of the national debt, the US Dollar and the rise of China and India, but they fail to understand history and the way markets predictably boom and bust. The Stock market and Real Estate market will boom again. The people who buy near the bottom are the people who will get rich when markets inevitably correct themselves.

Personally I think we have already reached the bottom, and the gains of the last two weeks will mark the beginning of a long, slow climb back to record highs. I’m personally putting a big bet on the US economy and am building positions in several blue chip companies.