Position Drill

[Runner]

You have been granted 500K to invest in only one stock. This stock is HD. Your job is to use good position sizing and get as large of a return as possible you can only buy this stock on the long side so sorry shorts. Your max. down side limit is 7%. You can sell anytime this is a core position and so this is not a swing trade.

The firm has trusted your judgement in the past and so now they are throwing you a bone. How well you perform will only open bigger doors for you and a larger stake of the company.

Drill rules:

Date Time number of shares buy sell.....
Must state “NO CHANGE” if you do nothing for 1 week.

The purpose of this drill is to open a different approach to investing through using position sizing..Understand all are welcome to participate if interested... If enough participate I’m sure we may learn some interesting things here..


ThanX
Runner

[scifos]

do we have to hold our position for the week?

[billyjoe]

Runner,
This is very interesting and I will take part after a little more research into position sizing. In the past my losses have been greatest in my largest positions which is a big no no. This will never happen again as it is one of my New Years Resolutions.


billyjoe

[scifos]

Okay, well here's the system i'm going to start out with for HD:

I'll look at a daily chart over the last 6 months.
I"m going to use oscillators to give me my signals, specifically a Slow STO k=20, d=1 with keltner channels overlaid on it. The higher k removes some whipsaws at the expense of timing, but for now this is the value I'll start with. I've found it a good indicator. I'll use the centerline crossovers of the keltner channel to give me the buy/sell signals. I'll use bollinger band width as a measure of volitility, the goal being low but rising volitility combined with a buy signal will mean that it is accelerating upwards. Here's a chart of what the system would have done over the past 6 months.

http://img469.imageshack.us/img469/1702/hd4gx.th.jpg (http://img469.imageshack.us/my.php?image=hd4gx.jpg)

notice that the last buy signal came at high volitility, and the success of that trade seems to be almost accidential.

Anyways, I'll start with a buy tomorrow on open because the STO line is way above the centerline, and volitility is rising. since I'll be late to the game by my system's rules, I'll take a 200k size position (or do I have to give # shares instead?) Stop loss will be the -7% as per the fiated rule.

[Runner]

I’ve herd many on this forum enjoy going to the casinos. The house loves a certain type of gambler. They are called martingale gamblers. The house knows that these people are easy prey and that the chances of winning is less than 50% and the losing streaks could be huge.

What these people do is this. They double the bet size when they lose. If they lose 1.00 they bet 2.00, then 4.00-8.00-16.00 and so on. After 10 rounds you lose 2,047.00 to get your original dollar back. Thus your win-loss ratio at this point for less than a 50:50 bet is 1 to 4,095. What this means is you will be risking over 4K to get a 1.00 profit.

You can see by this little example that you might not want to be a martingale type of investor. Now the flip side is what they call an anti-martingale. These people risk more during a wining streak. This works on the table and in the markets. Smart gamblers know when to increase the bet size with-in certain limits when they are winning. Position sizing that works calls for you to increase your shares when your ahead.

We will get into more of this as time goes on. Just wanted to give example. If you got Tharp’s book you can find this info in it.

[Runner]

Okay, well here's the system i'm going to start out with for HD:

I'll look at a daily chart over the last 6 months.
I"m going to use oscillators to give me my signals, specifically a Slow STO k=20, d=1 with keltner channels overlaid on it. The higher k removes some whipsaws at the expense of timing, but for now this is the value I'll start with. I've found it a good indicator. I'll use the centerline crossovers of the keltner channel to give me the buy/sell signals. I'll use bollinger band width as a measure of volitility, the goal being low but rising volitility combined with a buy signal will mean that it is accelerating upwards. Here's a chart of what the system would have done over the past 6 months.

http://img469.imageshack.us/img469/1702/hd4gx.th.jpg (http://img469.imageshack.us/my.php?image=hd4gx.jpg)

notice that the last buy signal came at high volitility, and the success of that trade seems to be almost accidential.

Anyways, I'll start with a buy tomorrow on open because the STO line is way above the centerline, and volitility is rising. since I'll be late to the game by my system's rules, I'll take a 200k size position (or do I have to give # shares instead?) Stop loss will be the -7% as per the fiated rule.

Looks like a nice system!!
scifos 200K @ open stop -7%

[IIC]

Double Down...LOL

Hopefully I'm not out of place...but since you mentioned gambling systems you might want to check out one of my many "non-stock" related sites:

http://WinnersAnonymous.com

It is a 12 step site for people who always win ;)

Karel...If I'm out of line...please just delete this post...Thanks, Doug(IIC)

[skiracer]

Runner,
Just a couple of questions. How long does the exercise last. Can you sell off a portion of the position or buy more anytime during the exercise but not exit the position completely. I know you said this was not a swing trade so I'm taking it that exiting completely and re-entering after a few days in not in the rules.

[Runner]

Interesting huge investor reveals interest in HD today
http://news.morningstar.com/doc/article/0,,144207,00.html

[Runner]

Runner,
Just a couple of questions. How long does the exercise last. Can you sell off a portion of the position or buy more anytime during the exercise but not exit the position completely. I know you said this was not a swing trade so I'm taking it that exiting completely and re-entering after a few days in not in the rules.

SKI, no time limit and you can sell anytime you want or buy anytime you want based on your system. I would hope this does not turn into a day trading thing though. I feel that different position sizing examples will prove an important lesson and we may even learn something of value in the exercise..

I would like for sales or stops to be planned instead of just selling because stock is dropping some...

[skiracer]

Runner,
Just trying to get a handle on the parameters. I understand your desire to keep it from becoming a daytrading exercise. Thanks.

[Runner]

I have given this some thought and it sometimes is difficult for me to relay what I’m thinking through my key board.. Please if any questions fire away.

[spikefader]

Hey Runner. This should be fun.

I'll play. Bid a fifth of a position at 35.00 and I'll go to sleep while I wait :D

[RL]

Runner sounds great I'm going to try not sure I understand all that well when Is the start date?

[New-born baby]

Runner,
You can count me in. Now is not the time to buy for me. I am going to wait.

[scifos]

What these people do is this. They double the bet size when they lose. If they lose 1.00 they bet 2.00, then 4.00-8.00-16.00 and so on.

Heh, this is what I do, it works just fine as long as you have deep pockets and the max bet is nice and high. As for the Risk/Reward ratio, its actually in better that 1:1 . You are risking whatever you bet and your reward is either the amount you bet (this is the profit PER BET; I think you were talking about session profit) or potentially more if you hit a blackjack.

[Runner]

Runner sounds great I'm going to try not sure I understand all that well when Is the start date?

You can buy any time you like. Right now we have one person with a 200K size position. I'll track the performance with a excel program..

[Runner]

SCIFOS:

http://img466.imageshack.us/img466/1977/scofis6tv.th.jpg (http://img466.imageshack.us/img466/1977/scofis6tv.jpg)

Does not include Commission cost

[Runner]

SPIKE:

http://img475.imageshack.us/img475/5951/spike5xc.jpg (http://imageshack.us)

[skiracer]

Runner,
Nice work. Is that an Excel program you're running or another program that you plug into the Excel spreadsheet? I'm interested in learning how to set up something like that. Could you explain please.?

[scifos]

SPIKE:

http://img475.imageshack.us/img475/5951/spike5xc.th.jpg (http://imageshack.us/)

Looks like you mixed up spike's numbers... looks like he's lost all his invetment!!

[Runner]

Looks like you mixed up spike's numbers... looks like he's lost all his invetment!!


Spikes order is set as buy limit @ 35.00 for now. So he has shown his intent to enter at a lower price. I simply put his order in my data base and will trigger @ 35.00....

[Runner]

You can manage your position as you see fit. You can move your stop up, but 7% is the max allowed. You don’t have to risk 7% if you desire not to. As you add more shares I’ll track your new order and sell at your request. If I mess up let me know.

I’ll try to post the position(s) update once a week. If order is put in I’ll attempt to post order buy/sell same day. Just a reminder this is not a day trading exercise…..

[skiracer]

Runner,
If I were to buy the stock at todays closing price could I hedge my long position with a put option at the same time? I know you said no short positions but was just asking whether that would be a viable option, no pun intended, to protect a position.

[Runner]

Runner,
If I were to buy the stock at todays closing price could I hedge my long position with a put option at the same time? I know you said no short positions but was just asking whether that would be a viable option, no pun intended, to protect a position.


Ski, I’m not sure how to track it? I’m thinking things could get difficult to control. I understand this takes away from real world, but I’d prefer to keep it as simple as possible for now.

[skiracer]

no problemo.

[Runner]

Here is a daily chart of HD:

http://img456.imageshack.us/img456/1198/hd0ni.jpg (http://imageshack.us)

Weekly:

http://img482.imageshack.us/img482/6037/hd9dv.jpg (http://imageshack.us)

[Runner]

Recovery after drawdowns

5% gain to recover 5.3%
10% 11.1
15% 17.6
20% 25
25% 33
30% 42.9
40% 66.7
50% 100

[Runner]

SCIFOS:

http://img355.imageshack.us/img355/9599/scofis8xg.jpg (http://imageshack.us)

[Runner]

Well based on Scifos’s port I think he might be using a equal units model. He took his 500K and put almost ½ on the line with a risk of 35K. This 35K would be his total risk if he continued to use the 7% stop as the most amount of drawl down. Current position of 5006 shares would give a 13,916.68 drawl down. He could have about 2.5 drawdowns before he would reach his 35K limit.

I also have reason the believe Spike is following the same model. He has broken down the 500K into 5 units or about 100K per unit.

I will discuss 3 different position-sizing models and the 5-½ year results using the 3 models. The results of these three models will open some eyes.

[Runner]

SCIFOS:

http://img355.imageshack.us/img355/9599/scofis8xg.jpg (http://imageshack.us)

http://img167.imageshack.us/img167/1224/scofis6ae.jpg (http://imageshack.us)

[spikefader]

..I also have reason the believe Spike is following the same model. He has broken down the 500K into 5 units or about 100K per unit.

I will discuss 3 different position-sizing models and the 5-½ year results using the 3 models. The results of these three models will open some eyes.

Well actually, I'm not intentionally following any pre-defined model. I'm merely applying some spikorama logic to the game and trying to maximize my upside potential. hehe

My logic is that because of the trading restriction you've put on it (HD only) I want to average into the position as it grows. I'm not (at this stage) setting any restriction that I must only buy a fifth each time (and may well buy 4/5 of a postition in the right circumstances).

I would prefer my first entry to be a good one and profitable before I add. This HD position must "act right" and I'll be trying to use tight stops on the adds as I do them unless I get lucky with some fast profits up front and can afford looser ones. My intention is to build a full position as it grows and avoid dollar cost averaging as it falls, which many people like to do.

I may have a great first entry, and price acts in such a way that I can add larger chunks at really smart locations in order to limit the downside risk, and maximize profit-making potential. That would be nice :D But in reality I may have series of yuck entries that frustrate in which case I'll just grin and endure it and keep on keeping on. Bottom line is that even though I've got plenty of cash, I want to LIMIT my behavior for entries and stops, and targets if I get so lucky :D

So to sum up, I will pretty much be trying to follow a TA-based system for entries, with discretion-based allocation. Sizing that will be dictated purely by the degree of success of the entire position, and the nature of price action for my entries. And it would take pages to cover all the possible outcomes. So many variables, not enough time. But the bottom line is I want to be MAKING money with the position, and not exposing myself to risk as I sink into quicksand.

And this week we have a weekly channel turn up after a channel long back in September. There is also a channel turn up on the daily at today's close. I think it's worth chasing this channel turn up considering the broader market bullishness, so I elect to step up now and buy 1/5th position at limit price of 41.36 on Monday, and another 1/5th position at Monday's intraday pivot limit price of 41.13. Immediate stop loss on both positions at 39.50.

Good luck folks.

[Runner]

Very interesting approach here Spike. I have a real position in from 40.26 using a random entry off huge volume spike back on 10/19/05. This chart shows my stops and how I’ve adjusted them using a Volatility stop @ X 3. I was planning on possibly adding to position but will wait until trade moves more in my favor. My current stop of 39.43 will stay and the other stops are no longer a consideration. This stock reports earnings on the 15th.

I have your orders in place and will post Monday after the close!
http://img202.imageshack.us/img202/4663/hd5oa.jpg (http://imageshack.us)

[Runner]

Another stock has been added to this drill. The Stock Tic is C. same rules apply and now your 500K can be used for HD and C.

[Runner]

SPIKE:
http://img70.imageshack.us/img70/2514/spikejou6fq.jpg (http://imageshack.us)
http://img70.imageshack.us/img70/5867/spike5dh.jpg (http://imageshack.us)

[Runner]

C

http://img119.imageshack.us/img119/5910/c6cp.jpg (http://imageshack.us)

[spikefader]

SPIKE:
http://img70.imageshack.us/img70/2514/spikejou6fq.jpg (http://imageshack.us)
http://img70.imageshack.us/img70/5867/spike5dh.jpg (http://imageshack.us)LOL can you believe it; I was off by a penny for the Pivot price calculation. The pivot turned out to be 41.14, not 41.13 and today's low was 41.14!! argh! haha OK, raise my bid up to 41.14 and maybe it'll fill tomorrow. Same stop orders.
http://img104.imageshack.us/img104/1421/hdnov7intra7nu.jpg (http://imageshack.us)

[Runner]

Ok Spike I’ll raise ya one penny on the limit to buy 2,431 shares @ 41.14. I noticed the penny miss also. Close but no cigar..haha

[Lyehopper]

I hope to learn from watching this unfold.

[spikefader]

Ok Spike I’ll raise ya one penny on the limit to buy 2,431 shares @ 41.14. I noticed the penny miss also. Close but no cigar..haha
Gap down today should have filled the 2nd position.
Change of game plan now considering the gap down triple top pattern.

So new orders. Stop limit tightened up to 40.43, target S1 now resistance at 41.24. So it's either out break even or -2% on the combined. That's as much risk I'll give this triple top.

http://img15.imageshack.us/img15/5173/hdexitreasoning24vl.jpg (http://imageshack.us)

[Runner]

SPIKE:

http://img149.imageshack.us/img149/3559/spikejou8wv.jpg (http://imageshack.us)
http://img158.imageshack.us/img158/2944/spike0ez.jpg (http://imageshack.us)

[Runner]

Well Spike no trigger out today. As you would say I’m a sleeping bull on HD for right now. I ike the fact that it thus far has held the 40.54 area. It is just mimicking the tone of the sideways action happening in the Indices. It does have some resistance to move through, but for now I remain bull. My stop on my partial position is still 39.43.

[Runner]

Oh took small position in C off the down trend line pop. Thus far it is working as I noticed that money center banks appear to have drawn some interest.

[spikefader]

OK, no prob. I take it you're using RT hours only and not premarket?
http://img351.imageshack.us/img351/6023/hdfill1xs.jpg (http://imageshack.us)

[Runner]

Spike,
If in real world you would have bailed in the Pre-Market then by all means your position is closed. I can do that. So great job Spike with your capital protection and you are now 100% in cash.

http://img490.imageshack.us/img490/5223/spikejou7ym.jpg (http://imageshack.us)
http://img490.imageshack.us/img490/4961/spike8lt.jpg (http://imageshack.us)

[scifos]

Close HD @ market (41.06) Due to BB width peaked and STO (20,1) about to cross keltier channel.

[spikefader]

Spike,
If in real world you would have bailed in the Pre-Market then by all means your position is closed. I can do that. So great job Spike with your capital protection and you are now 100% in cash.

http://img490.imageshack.us/img490/5223/spikejou7ym.jpg (http://imageshack.us)
http://img490.imageshack.us/img490/4961/spike8lt.jpg (http://imageshack.us)Well, that's a fair question. I didn't stipulate it did I. In real life I do use premarket & AH limit orders to both take profit or stop out. I think yer nuts if ya don't. Sometimes pre and AH stops will save you from a nasty gap down, and AH target orders can reward with surprise. Not using them is losing an edge I think.

But in real world there may not have been enough shares traded premarket to exit the position entirely. (I note intraday today it's filled the order now, so I feel more comfortable about it).

You probably should set a definate rule though about limit orders being active pre and AH though, and perhaps we should all stipulate whether our orders are active pre and AH. This is no doubt going to be a long thread over many months, and we're bound to see some AH action.

But thanks for the flat postioning anyway :D

[Runner]

Spike, I did not give the Pre-m or A/H any consideration and I thank you for bringing it up. I think it is best if people specify if they want the order(s) active in the Pre or A/H. I’ll try my best to keep up with it, but I’m human and will make mistakes. We all know that under certain conditions gap fills would not fill at specified price but we really have no way of figuring that out. I’ll just use the submitted order price for simplicity.

Now thus far we have only two stocks HD and C. I would like for others to submit a few more and raise the total number to 5. This I feel will provide a better opportunity and thus allow this drill to be more useful as a teaching tool..

[Runner]

SCOFIS:
http://img421.imageshack.us/img421/8900/scofis7ad.jpg (http://imageshack.us)

[Runner]

Close HD @ market (41.06) Due to BB width peaked and STO (20,1) about to cross keltier channel.

Sorry Scifos I missed your post yesterday.

[Runner]

http://img270.imageshack.us/img270/2013/hd2kn.jpg (http://imageshack.us)

Stop @ 39.51

[Runner]

C- update
http://img475.imageshack.us/img475/3743/c5rj.jpg (http://imageshack.us)

[Runner]

Well based on Scifos’s port I think he might be using a equal units model. He took his 500K and put almost ½ on the line with a risk of 35K. This 35K would be his total risk if he continued to use the 7% stop as the most amount of drawl down. Current position of 5006 shares would give a 13,916.68 drawl down. He could have about 2.5 drawdowns before he would reach his 35K limit.

I also have reason the believe Spike is following the same model. He has broken down the 500K into 5 units or about 100K per unit.

I will discuss 3 different position-sizing models and the 5-½ year results using the 3 models. The results of these three models will open some eyes.

Ok, not sure if my intent is understood about this topic off POSITION SIZING and so here is some info you can read and maybe one person might get it. This topic is deep and If you think it might be an important part of your trading system your 100% right IMHO.

http://tradermike.net/2005/07/position_sizing

The Drill will close out and you can read the links here and gather the info you might need