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New Trading System (incomplete)

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Joined: 28 Dec 2005
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PostPosted: Mon Mar 05, 2007 2:34 am    Post subject: New Trading System (incomplete) Reply with quote

A new portfolio began in the Trading Log category Dec 1st with $100,000.

1: To eliminate overtrading, all trades will take place within 30 minutes after the market open and 30 minutes before the market close, except trades to lower risk.

2: Two ways to make big gains: 1) Identify a big winning stock. 2) Wait for an excellent opportunity.

3: Primary trades are buying "the best" calls or puts on fundamentally undervalued or overvalued stocks. The cost of these options will be 1.00 or less. Half will be sold if they rise over 50%, to lower risk, and the other half will be kept for a longer-term trade. If the options become too close to expiration, next month options will be bought before the closer to expiration options are sold.

4: OEX options may be traded in the week they expire, including the Fri of expiration.

Three costly mistakes:

1) Trading in irrational markets
2) Daily overtrading
3) Moving out of calls (or puts in bear market) on individual stocks (not ETFs) too soon

****This system may also fail, unless "irrational" market downtrends and uptrends, which take place once or twice a year, are identified early and cash is raised, until irrational periods are completed.****

Performance of previous system: Trading index options, e.g. SPY OIH SMH, etc, had mixed results, because of huge losses during "irrational" periods. However, in the intermediate-term, they turned out to be winners, except in the second half of 2006, which would have resulted in huge losses (although, intermediate-term indicators didn't really turned market bearish). Trading before earnings had mixed results and were worse than index options. Puts on individual stocks were generally losers (although, in a bull market). Calls on individual stocks, i.e. fundamentally undervalued stocks, were huge net winners, although most were sold too soon.

This system will be fine-tuned and updated in this section.


There are at least two ways to capture gains:

A) If a portfolio rises e.g. from $100,000 to $150,000, then $50,000 is withdrawn and invested in "safe" investments. Gains should be withdrawn periodically to lower risk.

B) If a new $100,000 portfolio is invested for management every three months, one of those portfolios should eventually hit it big (e.g. $100,000 into $500,000), because of timing. Consequently, the management fee (based on performance) will be high (e.g. $200,000).
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