Saturday, November 2, 2013

Money Managing and Trading Style...By Anthony Calhoun

  My goal here is to explain what I am doing in the market. I am trying to share what I know, and what was shared with me that has helped me a lot in trading.  Take it or leave it.  

Too many people try and get rich in the stock market overnight.  I am not greedy and focus on small monthly goals for long term retirement.
My goal is to use the strategy that I explain below and retire okay.  I will give you examples of how you can hit a nice ten year goal with small portfolio.

Starting with $3,500 portfolio and making 5% a month you would have a nice ten year plan if you could hit your monthly goal.
Principal Amount: 3,500
Monthly Deposit:
Period (month): 120
Annual Interest Rate: 60%
Compounding: Monthly
Balance will be:
Interest Amount: 1,217,691.95
Maturity Value: 1,221,191.95

Starting with $5,000 portfolio hitting 5% a month for ten years would yield the following.

Principal Amount: 5,000
Monthly Deposit:
Period (month): 120
Annual Interest Rate: 60%
Compounding: Monthly
Balance will be:
Interest Amount: 1,739,559.93
Maturity Value: 1,744,559.93

   Lets start with Money Managing.  Just like any business or household if you don't manage your money properly you will be out of business or bankrupt.
Proper money managing is a big part of my business strategy.  Most traders go out of business because of bad money management.  I use a strict scale in plan on any stock.  If I want to invest 10k into a stock I would do it 1k at a time.  The goal here is to be prepared to protect my average if the stock continues on a decline.  I never claim to pick bottoms or tops, but only good entries and exits.  I do not believe in taking a loss on a trade.  I do not work to loose money, but to take profit.  If I protect my average with a strict scale in system I should do fine.  The IFM that you see on this blog is a perfect way for me to track and to alert me on my scale in plan. 
  The key is to be robotic about it.  A lot of traders get caught up in emotions and sell their stock because it may continue to go down, but then only to see it turn around and try and chase it back up.  I believe if I can keep my average under a simple moving average I will take profit on the trade.  Having a margin account does help with this because it gives me more buying power.  I also do not play anything that cost more than 50% margin because I like to double my profits.  What I mean by that is if I spend 10k on a stock at 50% margin my cash used was 5k.  If I then make 5% on that stock it would be $500.  That would equal to 10% of your cash value which in return makes it easier to see your portfolio grow.

  Now I will explain my trading style.  The one thing I will say about fundamentals is I do not use them much.  I am not one to do much studying on a company and it’s future.  I do check short term news, upcoming events, institutional, insider, and short percentage of the float, and previous earnings and upcoming earnings date.  I believe the numbers and algorithms in the chart will tell me all I need to know about a company.  Numbers do not lie like a CEO, they do not have a reason to tell us there opinion like an analysis that is holding the stock.  The chart and the numbers tell us what the overall market thanks of the company.  They tell us good entry points, exits points, and good averages to have in the stock.  I can see all the fundamentals I need by looking at a chart.  So below I will explain my trading style to help anybody understand what I am doing, and why I enter and exit like I do.   Remember a traders worse enemy in the market is greed and emotions, don’t get caught up in either.

  My style of trading uses a couple simple indicators and channels like the Bollinger Bands.  For more on the basics of Bollinger Bands click here. Technicals are slow to respond, they are good to keep an eye on and can tell you how strong a trend is.  A lot of times the stock is already moving in the other direction for a couple days or one big run before they pick up on it.  That is why most of my trades are used based on this strategy.  The key is to find a stock in an uptrend or neutral trend and enter at the Bottom Bollinger Band. My exit point after the entry would be either the 20sma or the Top Bollinger Band based on strength and overall market.  Remember we are not greedy, emotional, and we are using good money management to build a good average.  Below is a chart of HERO which you will see the circles in the chart to show the entries and exits based on this strategy.
If you notice the last strong brake downward I want to wait for it to hit oversold which it just did, then pay attention to the hourly chart for a good entry, then start my scaling plan.  Or I could wait till the 3SMA crosses back over the 5SMA, and Stochastics crossover,  but to enter before that happens possible at a lower price is where watching the hourly chart comes in at.

Other things I look for are trading patterns. Things like ascending triangle. The most recent one that has broke through the triangle is below on the GE chart.  It will be interesting to see GE play out.

Other patterns I want to watch for would be descending triangles, head and shouldersw bottoms and m tops.  It is also good to know candlesticks.  Just remember when they are likely to be correct would be a bullish stick at a support level.
Other indicators I look at are moving averages.  The 50SMA, 100SMA and 200SMA are good support levels, or can be good resistance levels.  They are also good indicators of the stock trend. A stock that is above them would most likely be in a longer term uptrend, and the opposite would most likely be true for a stock that is under both.  I keep an eye on short term moving averages like a 3SMA and a 5SMA.  When the 3 crosses above the 5 that alerts me an upward reversal may be in effect, and when the 3 crosses below the 5 the opposite would be true.

The technicals I use would consist of Macd, Macd histagram, to tell me the direction and if it is time to buy or sell.   I also pay attention to things like the RSI, and Stochastics to tell me if the stock is overbought or oversold.  I look for Stochastics to be oversold then crossover. I watch the Macd histogram to move up, and I also pay attention to a faster crossover for Macd setting 6,13,5.  Hope this helps you understand how I trade.  God bless.

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