Sunday, March 25, 2012

Weekly Playbook

Been a little while since I posted, hope I remember how!

Weekly Playbook
One of the most common questions I get is an inquiry how I am able to trade when I have a full time job in the science field. The answer is simplicity and preparation.

In an up trending or even sideways market I like to think of the behavior of stocks as a loose, mildly aggressive poker table. In this kind of environment there will be plenty of players (stocks) in almost every hand and you can certainly play a wide range of hands looking to win a lot of pots. If you are at the table for a long time (as in you trade all day, maybe it is your job or work) there are benefits. Hands like 5-6 and 10-8 even have life in an active table.

But if you can only sit for an hour or two your ability to be active is limited and the draw downs that come from being in so many pots may ruin any chance you have in such a small amount of time to walk away with some chips. This is most like my situation where I cannot be managing many positions during the week and constantly watching new setups emerge as the day goes on. Faced with that, you want to wait for the best hands, the strongest odds to get involved, then get involved aggressive.

So I have a wrist playbook just like an NFL quarterback:

As I am slow to adopt new technology, I do all my market homework the old school way. I write stuff down. I will be doing screens and stock charts tonight and while I use software for the charts and the iBC PPT screener for idea generation, I still write down my set up ideas in a little leather book. The one on the left (brown) is my almost full one from the last year, and my new black one which I will start tonight:

I have a simple one sheet list of my best 2-8 best ideas for the week that I take with me everyday and keep in my pocket. Depending on how I am positioned in regards to open longs I may be looking to get into anywhere from 3 to 8 names in a given week. This week I am pretty full on open longs (7 open) so maybe I only need one or two of the best setups I can find for this week.

What does this do for me?
-Cuts down the noise. On any given day you will see a hundred things that are "going" or just "went". Unless you own them already, that clutter will just eat up your attention.
-Keeps me focused on less. I cannot follow 100-200 stocks, and I doubt I could even if I was at home all day. I want to have a great feel for the small list of names I am interested in and know them in and out.
-Enforces discipline. It's easy to get lost in a sea of sectors and headlines/earnings driven stock moves.

By definition I will miss many plays by the system I am using. That's just the way it goes. By focusing on a limited list of my best ideas I increase my chances of having success that I have prepared for.

On my list the following information for any stock will be noted:
-closing price Friday
-breakout point or important price level
-what price I will pay above and below Friday's close
-stop loss price
-first possible sell target
That's all. Everything else comes from market dynamics and price. I know by heart the important index levels that I am aggressive over and where I would look to back off (I focus on SPX almost 100%).

If you are a regular person that is in markets while you work the day job consider cutting down the noise and really being prepared in a smaller number of names. If you are a pro that feels their trading has been too active or over trading has bitten you, why not step back and try a more focused approach until the "market feel" comes back.

Have a good night.


David Batista said...

Welcome back! I've been away for a very long time, too. Don't really have an excuse except that life happens. You know how it is.

Your strategy here seems very sound. It makes sense when you're so busy during the day and most of the week with a full-time job in an unrelated field. I'm in the same boat as you, time-wise, but of course I'm not a market player. I wouldn't even know which dog to bet on in this fight.

But, you know, I would like to learn. I've been thinking about it for some time now. I'm guessing start small and slowly work my way up. Read up on as much as possible, right?

We'll see.

Have a good week, buddy!

GawainsGhost said...

You think you have trouble adapting to new technology? I'm still struggling with the transition from 8-track tape.

GawainsGhost said...

You think you have trouble adapting to new technology? I'm still struggling with the transition from 8-track tape.

GawainsGhost said...

See what I mean? But then I repeat myself.

Anyway, hey, GYC, did you see that blurb over the weekend about APPL stock prices taking a dive because of flash traders?

This is what I'm talking about, modern technology. The printing press led to the construction of the modern world. The computer led to the destruction of the post-modern world.