Doug
Member
Greetings.
My portfolio is 90% cash and waiting for a change in direction as an opportunity to enter the market up or down. My money is earning practically zero as I see an overbought, overpriced equity market, commodities that appear jeopardized by a rallying dollar, and bonds that are falling fast.
Am I missing something or is the sidelines the only place to be right now if one is not already in the equity market?
Thanks for your perspective,
Doug
Donato
Member
Hi Doug . . .
Two thoughts come to mind pretty quick. First, if 90% is in cash, then I would assume 10% is in the markets. Which is good. Because there are still opportunities out there. And with myself, I find that even a small position can keep me much more interested and involved in what the market is doing. Which is a good thing.
The second thing actually has a multi-part answer. Keep in mind that although the markets have recovered a lot, our economy hasn't; there is a big disconnect betweent the two, and many are not able to distinguish that. So, what is your time frame? For example, in my long term account, I added coal (KOL) a bit ago. Since almost 50% of our electricity comes from coal, KOL is really a long term play on our economic recovery.
The second part of that answer has to do with your trading plan or rules. Do you have any? You should. Although some get lucky, the rest of the successful traders have rules that tell them when to get in and out of a position.
Think about it, if you had a written trading plan, you probably wouldn't be asking the question above. And just for the record, I'm still a bull, even in this market.
Good Luck
Doug
Member
Being a retired person who had a long term investment plan that was well blown up in '07 and '08 I would like to return to a balanced portfolio (50/50) of stocks and fixed income. It seems prudent to invest slowly and put 10% into the markets at a time and wait a period of time between 30 and 90 days depending on conditions and opportunities to put more in.
But for now it seems that everything I look at is questionable due to the big run up since March. Everything seems to have had a wonderful year and is well above key moving averages.
Is that "trading plan"...probably not but I think the question is still a valid one as real opportunity should fit a variety of "written trading plans".
I'll keep an eye on your KOL...it makes sense that it should do well unless China uwinds and/or Obama makes it next to impossible to use coal.
Donato
Member
Hi Doug . . .
Here's the way it really works . . . In the long run, risk (money) management is more important than what you invest in. And a written trading plan takes the emotion out of your trading. Well, much of it anyway.
Trading plans can be as simple as buying in when a faster moving average moves above a slower moving average; and then selling when that same faster moving average falls below the slower one. Try it, you might be pleasantly surprised.
Or they can be much more complicated, including things like eating properly, exercising on a regular basis, and going to Hawaii for two weeks each year. I'm serious, I've seen a trading plan that included those three things!
Regarding coal, you are partially correct about that nit wit in the White House. Steps that have already taken place include restricting access to massive reserves. That was actually done by some eco whacko's during the Clinton administration. The United States has some of the largest and cleanest supplies of coal in the world. Make no mistake, we will be using it for many years to come to generate electricity. Certainly long enough to make a bunch of money by investing in it!
As Always, Good Luck
Donato
Member
Doug . . .
Are you checking in once in awhile? Here's what I'm talking about regarding KOL. I entered a couple of weeks ago. As of the close today, it's up 12% from my entry. Most people are happy to get that kind of return in a whole year. A couple years ago, the market was fifty percent higher than it is right now, and there was no end in sight.
So to say the market at these low levels is over bought today is only a state of mind.
Good Luck
Doug
Member
Hello Donato,
There's no doubt there are selective trades to be made out there and congrats for your KOL call. I have two trades now...short FXB and XLU.
Perspective is individual yes but to say that an opinion is all in the mind well, yes, that would be true for all of us. The major index charts that I look at appear extended, reaching new highs but grudgingly, with some weakness being displayed in the NAZ recently. I think that the last big opportunity to put serious money to work was in July and in that time frame I was short. ooops
There's no way to know if these markets have more room to run but even if they do, my plan (if it were written down) would be to wait to put serious money to work as the reward/risk is just not there now.
just my .02 cents but for now I'm more ready to go short then long...
But, as a footnote, I took your sugggestion and began organizing my strategy on paper including the "what, when, and how" of what I do. As you probably have experienced, developing this can be an ongoing process in the beginning but I can see that once it is done it will be helpful.
Thanks and good luck in 2010!
Donato
Member
Hi Doug . . .
Keep in mind that my play on KOL is strictly about the economic recovery here in the US, nothing more and nothing less. And it is a long term play.
And I've still got about one third of my long term account in cash.
A trading plan is essentially a business plan. And generally, the more serious you are about it, the more successful you will be. Also generally speaking, the more simple that it is, the better.
And yes, the trading plan can be in constant development. But here is a rule to follow: Once you are in a position and have your risk defined (exit point or stop), you cannot change the trading plan to fit that trade. If the trading plan changes, it is only good for future positions.
While we are on the topic, you should never enter a trade before a decision has been made on where you will exit (maximum loss). And that exit point should never be moved to increase your loss. If you do get stopped out of a trade, you can always re-enter the trade with a new stop or exit point. These are just business decisions, pure and simple.
Good Luck
Doug
Member
I've been working on this plan and it's coming quite well. Combining some strategy's that I like that incorporate the 200 dma (Tom Lydon and Ivy League style), sector rotation for index, fixed, commodity, and country etf's (ala ETF Screen style), with enough left over to buy the individual stocks and etf's I like based on the charts alone and not necessaritly part of a sector investment but more of a trade.
Now is the time to nail down specific entry and exit criteria for the different strategies if they will be other then the 200 day for the long term holdings. The criteria shouldn't vary by much and will probably include a moving average crossover, market trend requirement, and position size for each asset selected.
Thanks for helping me move in this direction Donato. the link to the book in the other thread is awesome and i hope I can get to it soon. It does look a bit dangerous though like give a Xacto to a baby! :-)
Donato
Member
Hi Doug . . .
I know that book seems overwhelming at first. At first, the only thing you really need to learn to look for are the reversal patterns. That's how you make your entries after you get stopped out. Because you will ALWAYS be using a stop!
Overall, the simpler you keep it, the better off you'll be.
And always start with small share sizes, so when you get stopped out, it won't bug you as much.
Have Fun and Good Luck
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