Thursday, April 16, 2009

Importance Of Money Management

I get questions ALL the time about this very important issue: Let me preface by showing how this week's closed trades have faired:

Long MGM at 5.28 Sold at 6.05 = +14.5%(ONH)

LONG PRU at 26.41 Sold at 26.8 = +1.5%(ONH)

Short SNDA at 50.3 Cover at 48.87 = +2.85% (day trade)

Short AAPL at 119.32 Cover at 120.22 = -0.75% (day trade)

LONG PRU at 27.8 stopped out 27.8 = flat (day trade)

Long BXP at 42.65 stopped at 41 = -3.8% (day trade)

Long TSL at 13.9 Sold at 13.55 = -2.5%% day trade)

Long WHR at 35.3 Sold at 33.6 = -4.8% (day trade)

long vno at 37.9 Sold at 38.3 = +1% (day trade)

long NFLX at 46.65 Stopped out at 46 = -1.39% (day trade)

Long TWM at 56.4 Sell at 57.1 = +1.2% (day trade)

Long COF at 16.6 Sell at 17.2 = 3.6% (day trade)



here's how i would I trade a $100,000account in this dangerous schizo market. Obviously i will not be very aggressive because right now defense is gonna win the game for me. Defense First in this market: We can play Offense later when the we have good odds and good edge in our favor...later.

So: on a hypothetical $100,000 account: I recommend you put a nice round number like $10,000 into each trade or what is conservative enough to make you feel comfortable and think clearly without creating anxiety. Not a fixed number of shares(say 1000 shares) but a fixed dollar amount in each trade and treat each EQUALLY. You will also notice that i rarely have a stop loss that is more than 3-5% away from the entry. So on a $10,000 trade and a $100,000 account, you should not lose more than $500 on any given trade.

Now, let's see how we would have done this week using this method and I want to remind you that i consider this week to be a crappy week for me. I started out well but made some dumb mental mistakes yesterday: Ok, here it goes:

Stock Shares P/L
MGM 1893 $+1457
PRU 378 $+147
SNDA 198 $+283
PRU 359 $0
BXP 234 $-386
TSL 719 $-251
WHR 383 $-481
VNO 263 $+100
NFLX 214 $-140
TWM 177 $+124
COF 600 $+361

So, on this crappy week especially on tuesday and we all know what happened there: i didn't take profits quickly enough or at least lock the trades at breakeven when decent profits were produced. Not likely to happen again any time soon. Non the less, based on the trade management tips i just explained above your PnL on the week would be +$1100. So please keep this in mind: that it's ok to stay disciplined that take small losses because eventually you gonna hit a winning streak of trades and book solid winners and they'll carry you to profitability. But remember the key is to stay disciplined and USE PROPER TRADE MANAGEMENT! Try and not be all over the place UNLESS YOU HAVE TREMENDOUS experience and trust your trading abilities to use bigger sizes or random size. But for the most part if you stick to buying a fixed dollar amount rather random size here and there, you'll should ok as long as you have decent stock picking abilities. I hope this helps.

4 comments:

Shawn said...

Stewie, $tran is breaking up. Seems like SPX wanna test $875?

Thanks
Sean

Stewie said...

yes shawn. tran starting to look interesting here. need to see the rest follow.

Blue said...

Stewie, what is your criteria for OHNs in this market now? Without MGM you're looking at a meager week.

Good point about trading defensively. I'm most consistent when I trade like a hokey goalie vs trading like Wayne Gretzky. However, I was only banging around 2% for 3 months. Every time I took a big Gretzky shot I got rejected, then back to being a goalie for break even, rinse and repeat. I guess I'm lacking the patience and experience to know when the right time to really go for it is.

Stewie said...

i just had a bad tuesday is all blue. been trading well all week minus tuesday. i had some nice profits but didn't take em or set stop loss at breakeven. ONH, now i am looking for long setups in highly shorted stocks.

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