Active Stock Trading

[pperl]

Well here are some basic ideas and concepts, some of them from Jesse Livermore, others from various readings over the years, and some just the way I go about things. I am not into talking about how successful we are but will happy to email or talk with anyone to give them a run down.

I am basically a buy and hold, value oriented trader though in years past I have made as many as 450 trades. Most of that was from the time when I was into biotechnology. I did very well in biotechs but the amount of work began to deter my interest so I switched into more value oriented purchasing. If anyone wants pointers on biotech methodology I'll be happy to pass along how I went about it.

Using fundamental & technical analysis I first focus on those areas or categories that interest me. My personal focus is Agriculture, Energy, and Mining. I create a series of watchlists using Worden, my charting software; but, it can be easily done with Stockcharts as well.

Having spent a lot of my earlier life dealing with spreadsheets I enjoy this type of data display. It's for this reason that I use Dtlink's Personal Stock Monitor Gold (PSM) which now even includes charting which I don't use because I am wed to Worden software for that functionality. But PSM allows one to export any data acquired to a spreadsheet format and then one can update their spreadsheets via the link with PSM.

Within Worden I have created a bunch of PCFs, which are simple programs utilizing various formulas inherent in the Worden program TC2000. One that I particularly like is Price % of 52 week high which lists the current price of a stock as a percentage of its 52 week high. Being one who buys when everyone one is selling or what is sometimes called 'bottom fishing', I find this to be an excellent quick means of determining what stocks within the categories I am searching might be interesting purchases.

If you're not using Worden or some other means of accomplishing this, it can be accomplished if you have a spreadsheet listing your watchlists. That's one of the benefits of PSM, that it can export to a spreadsheet like Excel, or LibreCalc.

Occaisonally some of the entry points I have chosen may have been too high. I don't like using stop orders because they are visible to market makers. Fidelity Active trader pro has conditional programming wherein one can create the equivalent of a stop order that isn't seen but since I pretty much have my computer on all day and am around during most trading days I don't utilize stops. If I were to go on vacation I might use the Fidelity features to protect myself.

When I buy, I don't buy in one fell swoop but usually break my purchases into 3 or 4 transactions. This is based on Livermore's advice in Reminiscences of a Stock Operator, by Edwin Lefèvre. Well that's enough blabbing for today. Hope you are all doing well,

as always,

[anethum]

I'm about 50% in stocks, and 3/4 of that is in index/sector funds & ETFs. 1/4 is individual stocks held long-term. At present, the individual stocks are all dividend-producing, but this hasn't always been true. Many of these I first became interested in from Value Line. I do additional research and technical analysis, and then try to buy on dips. In the last 2 years or so, I've also traded up to an additional 5%. These trades range from a day to a few weeks, similar to what others here have said. For trading purposes, I find myself watching technical behavior, trends, and correlations observed over time. I have only actively traded stocks which I believe also have good long-term potential. Over the past 2 years, my return from long-term holds as well as active trades has been much better than from my index funds & ETFs. Over time, I would like to up the proportion of my long-term holds. I don't think I have the stomach for actively trading more than the 5% that I've been doing, however.

[RetireBy90]

Quote:

Originally Posted by Animorph Too much work, plenty of professional competition, and a different set of investing skills I'd have to learn beyond my current level. I haven't run across any compelling strategy that would convince me it would be worth it. Plenty of hedge fund managers that don't do very well. Even the best long-term mutual fund returns are not wildly above average for their investment mix. The upside of quick trading is undoubtedly matched by volatility to the downside as well. I can do without that. Not something I could recommend to anyone without knowing how to explain it to them in a way my mom could understand and execute successfully. I don't believe any one particular system will be effective for long enough to bet a retirement on it. I don't want to be finding a new one at 80.

It is only work if you don't enjoy it ;-)

I'm not a trader, but with the follow the heard mentality, and the short time frame most pros work in, I'm thinking that an investor that can take a longer term outlook can find mis-priced equities, buy and hold while you wait for the price to reflect earnings.

I have a fido account that I use to hold individual stocks, about 10% of my holdings. The other 90% is in funds following my AA strategy. The cash acct doesnt figure into my retirement calculations. I would be interested in valuation discussions if that fits into your trading strategies.

[Nords]

Rick Ferri put up a good blog post on the subject today:
Index Fund Portfolios Reign Superior

You can guess which side of the active-passive debate he's on...

[photoguy]

Quote:

Originally Posted by Semiretired2008 I would think that a bunch of INTJ's would all be active traders. It kind of fits the personality type (IMO)...

Interesting. I've only had a little exposure to Myers-Briggs personality categorization, but I would think that INTJ would fit many passive-indexers.

[target2019]

Quote:

Originally Posted by Nords Rick Ferri put up a good blog post on the subject today: Index Fund Portfolios Reign Superior You can guess which side of the active-passive debate he's on...

I think the OP and subsequent posts are largely about active trading of individual stocks. The blog post is about the active/passive fund debate. He is very exuberant about his investing business and books. I prefer Bogle, he was "there" first!

[Nords]

Quote:

Originally Posted by target2019 I think the OP and subsequent posts are largely about active trading of individual stocks. The blog post is about the active/passive fund debate. He is very exuberant about his investing business and books. I prefer Bogle, he was "there" first!

If an active manager has a single-digit percentage hope of outperforming the market over 10-20 years, with all his professional training and advanced insider trading analysis tools, then why should us retail investors be so naive as to think we can take advantage of the niches?

Yeah, sure, fund bloat. But individual stockpickers are reluctant to load up on individual shares when they should, and to hold on to them as long as they should.

[target2019]

The thread is about active trading. Wanted to hear more about that topic.

[brewer12345]

Quote:

Originally Posted by target2019 The thread is about active trading. Wanted to hear more about that topic.

Well, define active trading. Are we talking about systematized strategies, stuff driven by technical mumbo jumbo, or something closer to traditional active management? For example, I don't do rapid fire trading and technical analysis reminds me of the use of a dowsing rod, but I do trade in and out of equities, bonds and options based on valuation considerations and what I believe to be potential or actual price overshoots. I recently bought the longest tenor call options I could find on CORN because markets which exhibit very tight supplies, a supply shock, and relatively inelastic demand often wildly overshoot on the upside. No guarantees that this will happen in this case, but all the necessary preconditions exist and the options provide a way to get leveraged upside and limited downside.

[NW-Bound]

Compared to many people here who buy index funds and rebalance, or people who buy a balanced active fund like Wellesley or Wellington, I guess I can call myself an active investor.

I did not even know about the Bogleheads before I surfed this forum. I did not even know that my style was called slice-and-dice, so I could claim that I independently discovered this method.

As I started to experiment with buying individual stocks in the late 90s after rolling out my megacorp 401k after leaving it, and read different books on investment strategies, I observed that there were always hot and cold sectors. And I thought to myself that if one just rebalanced between these sectors, I could make a bit more money.

Of course, it would not help if one kept buying horse buggy sectors in the early 20th century, so it is not that simple. So, my performance has been a bit mixed. Some years I did well and beat the S&P500, some years not so. I take full responsibility for my action, but am reluctant to talk about it. It's simply an individual choice.

So, does the above make me an active investor? I do not do day trades, and can claim that my portfolio turnover is even lower than Wellesley, which is lower than most active funds. Of course, there have been times when I thought to myself that I would do a lot better if I did not hold on to my winners that long and if I traded more.

[Semiretired2008]

Myself, never really read any books. Read quite a few articles over the years (1.000's probably), but no books. Predominately over the years I have analyzed the markets, the methods that are used in determining key statistics and their uses, how individual stocks react to different circumstances and how this is viewed and used by market traders. With all of this I developed my own logical methods and developed my own thoughts on the subject. I continually adjust my methods as the markets change and as required for other reasons that arise.

If I would put a standard name to my style. I guess I would be a slice and dice, patterned volatility day - month trader so to speak for my active (frequent) trading style. For my dividend investments I am a value trader (value by my determinations - I use long term holds as long as they make sense). As I said in an earlier post - I am getting away from extremely high risk trading (long shots so to speak).

I use the standard key statistics that are available, but in a non-standard manner combined with the standard manner. I use what makes sense to me. Stock analyst use pre-built programs, spreadsheets, etc. with pre-built results - I do not believe in this - I do look at it, but do not let that guide my final decision. Over the years I have discovered weaknesses in just using straight forward stats.

I prefer to deduce my own decisions on a subject (not necessarily stocks - almost everything in life actually). Not everything fits into a standard mold. ER's are proof of that... I guess that is why I thought the subject would fit here.

When I started this thread I thought from what I had learned in this forum there would be a number of users interested in the topic - it made sense at the moment.

I truly believed that a bunch of INTJ's in retirement would be active stock traders (buying and selling at an above normal rate, but not necessarily high frequency traders). INTJ's are normally analytical, conceptual and have objective methods that they have developed in life that could be applied to the subject. I thought we could share the conceptual objectivity behind our methods. I can see that if I tried to post my methods the flak would be to high so have decided while I still like the subject I will keep the discussion of my methods at a minimum, but will join in on any discussion of the topic that others would like to post.

[NW-Bound]

Not all INTJs are alike when it comes to investing. Many look at statistics and see that the chance of beating index investing is not that great, and opt to go for the highest possible return for the least amount of work.

[rbmrtn]

I suppose I would be considered a "dirty market timer" by many as I use some technicals to exit/enter the market but I don't trade very often, not a day trader at all.

During the 90s I would have been a buy&hold, I didn't sell much because MrMarket didn't tell me to. I was still accumulating and 10+yrs away from retirement. Since 2000 I've made a couple of round trips. Last couple of years since leaving magacorp, I have focused on dividends for retirement income and capital preservation, and will continue this going forward. Current dividend payers cover expenses, I will add to the dividend payers as opportunities present themselves.

Nothing is 100%, B&H or timing.

There was a thread lasted year that got pretty hot, I think one poster got so frustrated he left, but I enjoyed the exchange of ideas.

http://www.early-retirement.org/foru...egy-57014.html

[rescueme]

Quote:

Originally Posted by NW-Bound Not all INTJs are alike when it comes to investing. Many look at statistics and see that the chance of beating index investing is not that great, and opt to go for the highest possible return for the least amount of work.

Agreed.

As a (retired) INTJ, I would rather look at the norms and let somebody else to do the actual w*rk, while I/DW get on with the "business" of living.

As long as I (and my family) have more than we "need", we're happy.

Of course I/DW have already reached (and greatly exceeded) our "number", so we may have a different POV...

[NW-Bound]

I have always tried to curb my wants, as there are always things that other people have that I don't. As for needs, my needs are very elastic. I certainly can live on less than what I have now. So, why do I want to get more?

I look at investing and trying to get more returns as an intellectual exercise, and an exercise to overcome my greed and fear. It is also a hobby, not too different than what some people do as DIY projects.

When I no longer find it fun (hopefully that does not mean that I have lost too much ), I will put my money in a reliable MF like Wellesley or Wellington.

[EvrClrx311]

It is possible to beat the market consistently, but not by much and it does take a lot of work. I spent about 3 years reading books and researching forums on Mechanical Investing before ever putting my own money into the game. Currently I invest half of my taxable account in it... and leave retirement entirely to Index Funds.

My track record with active investing so far is good, but because I'm young and still don't have much skin in the game, the time involved hasn't been worth the added rate of return. I'd estimate I spend about 5-10 hours a week at it. I spent a good 500 hours a few years ago writing my own data miner and market analyzer to pull quotes and values from Yahoo Finance, it spits out 30 stocks once a month to invest in (I pay a broker $290 a year for unlimited trading). So essentially I'm taking emotion out of it entirely and trusting the numbers. History has shown that certain stocks that fit certain criteria (such as low P/E) tend to fall in the upper half of returns for a given time into the future. Pick enough of them together and you can edge the market average while staying diversified.

Over the last 7 years I've trailed the S&P500 once (by 4%) and beaten it once (by 14%)... the other 5 years I've edged it out by 1-6%. For me... it is more of a hobby... I've always loved programming, statistics and predictive modeling. I figure that if I can consistently beat the S&P by 3% a year on average in the long run it'll pay off... though I'm guessing I'll switch entirely to passive investing once I have enough involved to make me nervous.

Every active investor thinks they have a system that will work, even though 98% of others thought the same and failed. I'm trying my best not to be ignorant to that.

[photoguy]

Quote:

Originally Posted by EvrClrx311 History has shown that certain stocks that fit certain criteria (such as low P/E) tend to fall in the upper half of returns for a given time into the future. Pick enough of them together and you can edge the market average while staying diversified. Over the last 7 years I've trailed the S&P500 once (by 4%) and beaten it once (by 14%)... the other 5 years I've edged it out by 1-6%. For me... it is more of a hobby... I've always loved programming, statistics and predictive modeling. I figure that if I can consistently beat the S&P by 3% a year on average in the long run it'll pay off... though I'm guessing I'll switch entirely to passive investing once I have enough involved to make me nervous.

EvrClrx -- Is your strategy different than simply buying into a value index? At least the way you describe it makes it sound very similar. Estimates of the value premium based on the Fama French models also seem to be around few percent (not sure exactly what the most recent research here shows) which would be consistent with your 3% goal.

[target2019]

Quote:

Originally Posted by Semiretired2008 When I started this thread I thought from what I had learned in this forum there would be a number of users interested in the topic - it made sense at the moment. I truly believed that a bunch of INTJ's in retirement would be active stock traders (buying and selling at an above normal rate, but not necessarily high frequency traders). INTJ's are normally analytical, conceptual and have objective methods that they have developed in life that could be applied to the subject. I thought we could share the conceptual objectivity behind our methods. I can see that if I tried to post my methods the flak would be to high so have decided while I still like the subject I will keep the discussion of my methods at a minimum, but will join in on any discussion of the topic that others would like to post.

I see the wisdom of your initial post now, in testing the waters of discussion. I really do hope you post more on the topic. Perhaps the flak will be kept to a minimum.

As for concepts, I simply hold a diversified portfolio of mutual funds at this time. It's based on what I picked up from Bogle, Bernstein, etc. Only recently have I become interested in markets. On another forum I have become interested in tactical re-allocation and other methods to mitigate draw-down.

[EvrClrx311]

Quote:

Originally Posted by photoguy EvrClrx -- Is your strategy different than simply buying into a value index? At least the way you describe it makes it sound very similar. Estimates of the value premium based on the Fama French models also seem to be around few percent (not sure exactly what the most recent research here shows) which would be consistent with your 3% goal.

Its not quite as simple as Fama French, but uses the same principles. I subscribe to AAII and their SI Pro resources which release weekly updates on 9000 stocks covering 2,000 different data fields.

Way more data than a person can review on their own... but having that information is a fun challenge for computers. Track which stocks do best and then see which of those 2,000+ data fields that have in common... then try to understand why and how that group out performed the rest. Was it just a coincidence that Week? that Month? that Year?... and how likely are they to continue into the future.

Some patterns found are cyclical (I can tell you that the market over a 10 year period gains 50% of its total gains within a 4 day trading period each month... why? Maybe that's when people get their paychecks and invest most?)... others are temporary and as soon as you find them they go on to under perform (reversion back to their mean)

Humans are horrible at pattern recognition... we tend to find and make up correlations that don't exist. That is why I like to let the computer do most of the selecting itself... I just provide it the rules.

[Semiretired2008]

Quote:

Originally Posted by EvrClrx311 Its not quite as simple as Fama French, but uses the same principles. I subscribe to AAII and their SI Pro resources which release weekly updates on 9000 stocks covering 2,000 different data fields. Way more data than a person can review on their own... but having that information is a fun challenge for computers. Track which stocks do best and then see which of those 2,000+ data fields that have in common... then try to understand why and how that group out performed the rest. Was it just a coincidence that Week? that Month? that Year?... and how likely are they to continue into the future. Some patterns found are cyclical (I can tell you that the market over a 10 year period gains 50% of its total gains within a 4 day trading period each month... why? Maybe that's when people get their paychecks and invest most?)... others are temporary and as soon as you find them they go on to under perform (reversion back to their mean) Humans are horrible at pattern recognition... we tend to find and make up correlations that don't exist. That is why I like to let the computer do most of the selecting itself... I just provide it the rules.

That AAII looks interesting. Currently I use a few sources for data to crunch in my tools.

How long have you been using AAII? Is the stream by minute or at least by 5 minute data downloadable for crunching locally?

I agree it is much easier to let the computer do it, but it still takes someone to tell the computer what to look for. I have been unable to find a reasonably priced tool that lets me alter and test rules at a whim and has download support. Fidelity's Active Trader Pro and Wealth Lab Pro offer some capabilities, but will not allow unique tweaks without major effort.