New trading risk management rules

Well I have been absent for the past two months because of work. I am back now and have learned a few lessons along the way, all on risk management. Taking a look the Covestor and the last trades page the last two months have been pretty disastrous for me and the market as a whole. My biggest mistake was not having the proper risk management rules in place for trades. Trades that were intended for a short term hold did not have stops to protect from price declines while I was unable to watch the positions. This was the biggest mistake every. I walked into these position believing I could monitor them, however I learned very quickly that my profession doesn’t always allow for me to monitor my trades throughout the day. As a result, when I returned home there were multiple position with significant declines At this point, my only real option was to close them and take the loss. Which I did. Most of the position have been closed and new positions have been entered. With each new position I am refining the risk management rules. Right now each trade will have a lower bound trailing stop based on a percentage decline with an upper bound limit  based on a predetermined percentage gain. The idea with this strategy is, should I be away from the platform the system will take a gain if it hits and cut the position if it starts the loss starts to mount. The problem I see with such rules are 1) I have limited the profit potential with the upper bound stop and 2) risk the potential that the lower bound stop will be triggered by a quick market fluctuation dip (ie, the first 30 minutes of trading). However, I intend on using these rules on every trade ‘in case’ I am unable to watch the market, and these are risk management rules. I fully intend on managing the trades to the extent I am able to monitor them. Enabling me to cut a position before the loss becomes too big (if it’s just not working out) or let the gains continue.

What do you think of the risk management rules listed above? and suggestions for the percentage ranges (my initial thoughts are -7% and +10%)

MIA

I have been MIA for over a month. Have been working on a job out across the country, who knows when this project will end. Hopefully the hours will improve as I have had absolutely no time for anything other than work. In the last month my trading positions have taken a turn for the worse, in lock step with the rest of the market. I am looking for signals in the existing portfolio and for new positions, will keep the site updated.

6/16 positions updated

Updated trading positions for some gains taken and new entries.

6/12/08 Trading update

updated the trades page for the last few days. Been pretty inactive lately, real world stuff and all.

6/9 Trading positions updated

Trades updated here. Took a beating today in QTWW, ouch. APPL which is in my long term portfolio also didnt get the pop i was expecting today. Hopefully i will be able to post about the new iPhone shortly, overall i am pretty excited about it.

6/6/08 Trading positions updated

Trading positions have been updated, see page. All-in-all the week could have been better considering the move we had in Oil. Got out of my USO position to yesterday only to watch it move +7.9% today. Now, to try to relax and not work as much this weekend as last. See you Monday.

6/5/08 Trade Positions Updated

I’ve been away and busy for the last week or so. As a result i havent been able to update the site with my latest trades. The trading position page has been updated for todays actions. There was one closed trade that is not displayed as there were 6 closed positions to update.  Here is how it should have been posted on the trade page.

BTU    5/30    73.82    6/2    77.25    3.43    4.65%

Today’s trading activity

Trading position have been updated for today’s activity. See positions page. It was a good day in LEI, there will always be winners and losers. LEI was a major winner today.

Today’s trading activity

I had a lot of activity today and yesterday. Closed a lot of positions yesterday some at larger losses than I would have liked, but some gains were had. Today’s I put more cash to work mostly in the energy sector, people seem to be talking a lot about it these days. On the whole today was mediocre. Two of my longer term positions were hit brining down the whole portfolio (AAPL and V) on the other had most of the trading positions were up. A little worrisome of FTK, a downgrade came out after my entry but it bounced back some in the afternoon after the panic selling, I believe it still has legs to run. Tomorrow will reevaluate my positions and determine what I want to carry into the long holiday weekend, a lot will depend upon the volume and any events that come out. Key indicators I am looking at: oil and ethanol. Positions updated.

My Trading philosophy – right now

Recently I decided to change my investment strategy from entirely a long term approach to taking a portion of the portfolio and actively trading it. Why? Well, first I am young enough that such an approach fits within my risk profile and second, working within the capital markets (M&A consulting, not S&T or equity) I wanted to lean more about trading. Now I am not trying to scalp or day trade. I have a real job or two that makes doing so impractical. Not to mention such a strategy rarely works for a small fish. Ideally I am looking for the swing trade. A position I will hold anywhere from a day to maybe a week. Part of this involves the market momentum and part technical analysis. Two areas I have very little experience. So, much of my trading right now is driving by a desire to learn. As such, not only am I reading about technical analysis and back testing strategies I am also taking queues from others such as Howard Lindzon, The Fly, and Ragin Cajun. I will continue to add to this list. Most importantly watching these people trade provides some insight into what works and what doesn’t. Twitter is a great use for sharing information. Since many of my trades in the near term may be based on information for these other sources I will refrain from tweeting them that would be repetitive wouldn’t it. Off the learn more about my new adventure.