After careful consideration, I have decided to try a new investing strategy. I’ve found that I do not have time to use the traditional rules. My rules will have to fit my time constraints. In other words, it has be easy and simple enough to do during my lunch hour.
Here are my Lunch Break Investing Rules:
1. Only buys stocks on the watch list.
2. Must be trending upward.
3. Must have a trending sweep of at least 10%.
4. Buy only at the bottom trend line.
5. Set a loss limit (2-3%).
5. Set a trailing stop loss to 8% below the bought price (dollar amount on the stop loss, not percent)
6. Set a profit limit (5-10%).
6. Allow the stock to trend upward until trailing stop loss is activated.
7. Never break any of these rules.
8. Adapt my strategy as needed.
Over the next several weeks I will be expanding on each of these items. I will also concentrate on the automation and mobile techniques.
I don’t normally trade stocks under $10 (I have and I’ve made money). The lure of catching that next great stock that rockets from single to double (or even triple!!) digits can be so alluring. So, I finally broke down and subscribed to Investor’s Business Daily’s “Top-Rated Stocks Under $10”. I’m hoping this service will help me pick good under $10 stocks. My opinion of stock suggesting services is simple: Make me money and I’ll keep subscribing.
Here is my strategy so far:
1. Small amounts
No more than 25% of my cash in one stock. This will limit my risk.
2. Diversify
No two stocks in the same sector. Diversification is always a good option. This will hopefully keep me from being killed by any bad news for one sector.
3. High Relative Strength (RS)
4. Positive EPS
For annual and next /last quarters. I’m picky about investing in profitable companies.
5. Volume %
I want to see activity on the stock. That may be a good sign of a break out and PROFIT!
6. Simple Moving Average going up
Never invest in a sinking ship.
As I try out this new strategy, I’ll make changes as needed. My goal is to have a strong under $10 strategy that I can use to help increase my portfolio.
Like all valuable lessons, this one cost me money. I did my research and bought my stock. This was the one (aren’t they all). I set my alerts to notify me if it dropped below 5% of my buy point. I even went as far as to set an automated Sell Limit to take profits when the stock would hit (because I knew it would!).
All was well, except!
Meanwhile at my day job (I don’t trade professionally), I was in a meeting and my cell phone was going nuts (I was losing money). I couldn’t leave, I couldn’t sell, I was stuck. Once I got back to my computer, I sold the stock for (yikes!) an 8% loss instead of the 5% that I originally planned (just in case). Moral of the story, I need to set automated Stop Loss and Sell Limits to both protect and profit.
Another reason to automate is to protect from the greed voice. That little voice that whispers, “What if it goes higher?” or “It’ll go back up, really!”. It’s rarely right.
I learned my lesson and hopefully you too won’t make my mistake.
This is a horror story of making and losing money in one hour. One hour!
I bought my stock, set my alerts for my sell price and my loss price (not all are winners and I’m ready to cut my losses after a certain point). Cell phone was charged and ready. The stock was bought on Monday and I knew (yes KNEW!) it would hit my sell point within a few days. I was right. It hit the next day. My cell was buzzing with anticipation of profit! It sang and cheered! It vibrated all over my desk, SELL SELL SELL!
I didn’t sell. No I wasn’t breaking my rules for greed. I didn’t know. I didn’t have my cell phone with me. An hour later, I picked up my cell phone to see the alert! Yes! Profit!
No!!! The price had dropped to just above my loss sell point. The stock peaked where I expected it too (sometimes I get it right). So, the profit that I was expecting turned to a loss and the stock kept dropping. Fortunately, I kept with my rules and sold at the loss limit.
If you are like me and can’t monitor your stocks at the pace that they change, learn from my mistake. Keep your cell phone with you when you expect an alert and always set a Sell Limit. It’s the difference between profit and loss.
Tip:
Set to automatically sell at your expected sell point. No emotions and you get to walk away with the profits without the worry.
