Saturday, August 23, 2008

Success? Not needed in all departments.

Yesterday I spent quite some time trying to figure out what would be the best systematic strategy for trading several stocks at a time, limiting the losses for the unsuccessful trades, and maximizing the profits from the successful ones. I'm still in the process of developing it and would like to put it into practice to make it less theoretical and more pragmatic. I'll post the specifics (or at least a strong general design) at a later date.

I am happy to say I checked my trading records and the 2:5 ratio of successful trades to unsuccessful trades I used for my formula turned out to be a somewhat conservative figure. My overall ratio is 4:7. Anyway, I figured out a method that would allow me to make a couple decimal points higher than 1% a week, as long as two out of five stocks succeed at making approximately 3%. I worked it out to have a max loss of about 1% of the entire size of my account should none of the trades be successful, commission prices remain fixed, and all the stops trigger at maximum loss. Overall, my system is starting to develop a pleasant risk to reward ratio.

Not only that: today I am reading a book on point and figure charting that I picked up from my local library (it was the only book they had on technical analysis). I am very happy to learn about some of the strategies presented in this book (Point and Figure Charting, Thomas J. Dorsey). I have seen point and figure charts before, but I have had little understanding about how they work and how to interpret them. These new analysis methods and strategies will help lower the likelihood of my ever hitting the 1% max loss.

Good trading.

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