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%)

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.

Updated trades on site

So I still don’t have the internet at home yet but am getting more settled everyday. Still no furniture, but who needs that anyway. Back to the trades, the week I was out wasn’t the best. As usual there were some winners and losers. However, the losses were larger then expected as a result of not monitoring the positions enough, but still within reason. The trade positions have been updated from last week however they have since rolled off the listing as new trades have been closed. See CoVestor for details on prior trades.

So far this week has been a mixed bag. Some good wins and some stupid losses which is putting me nearly even on the week. Watched an 18% gain in AVR turn into a 11% loss in the a few hours. It’s a learning experience. Currently paying close attention to few positions as the uncertainty is quite high presently. See the trade positions for where things stand today.

Trading Update

I am in the process of moving right now with limited connectivity. Will be pretty inactive in the markets this week. Mostly just monitoring existing positions. Will be back with more commentary later in the week or next week. positions have been updated.

New trading positions page

I recently began using Covestor to provide a transparent means to display my trades and investing track record. All-in-all I have to say it is a really nice tool. Simple to use, collaborative, and provides a verification layer. However, for my purposes (and for many people these may not be issues) I don’t believe it provides the best means to provide information about my short-term trading for a few reasons: 1) I, for the most part,  Iuse one trading account for my long-term and short-term positions. As a result, Covestor’s performance is indicative of my total performance not just the short-term trades, and 2) it appears to calculate returns (and  benchmarks) on a total portfolio value and not just committed capital.

Now, I will fully agree there are plenty of reason for why Covestor works like it does, it SHOULD work this way. If i was an investor looking to judge performance I would want to see all holdings and have the return based on the total portfolio value, not just committed capital. That is why I am keeping Covestor. However, I feel providing additional information  regarding the short-term trades provides additional value. Why you might ask. My goal is to improve my short-term trading performance and ability.

So I have created a new page here, positions, which will list my current short-term holdings and the last five closed short-term trades (the page is also linked from the side bar). This current snap-shot provides this data (and in a little bit clearer format then CoVestor).