Solitaire Trader

Welcome, Newcomers!

A couple of days ago, StockCoach linked to me in a post called Other Worthwhile Blogs.  Thanks, Stockcoach!

In his post, he linked to some other blogs that reveal the traders actual trades.  Stockcoach does this (and he is doing very well).  He links to Charles Kirk, who also reveals his trades (except you have to be a member of his site - boo, hiss).  Dehtrader lists his trades (ouch, maybe he ought to try a new strategy?).   Investing the Middle Way announced himself in the comments of Stockcoach's post.

There are a couple of other blogs that Stockcoach didn't mention that I know about where the blogger reveals his trades.  One Guy's Investments has an interesting portfolio (I really like some of his picks).  Stock Insight also shows his trades.

Between the Stockcoach link and the new blog links at Google Finance, there are a lot of new people visiting this blog so I thought I would repeat my trading philosophy and how this blog works.

As you can see, generally after the close I post all my trades, showing what percentage I gained or lost on each trade.  If you click on My Portfolio in the right column, you can see all the of the stocks I currently own.  Each trading day I post the percentage change in my equity and compare it with the Russell 2000.  Since I trade mostly small caps, that is the best compare.  Also, in recent years it has been the toughest standard.

As you can see, I've been struggling lately to keep up with the Russell, although I'm beating the S&P and Nasdaq.  I buy mostly momentum stocks, looking at stocks that I call "Darvas Stocks", stocks that have doubled from their 52 week lows.  Among these stocks, I use various selection methods, mostly looking to catch them when they are oversold.  Sometimes I will buy breakouts to new highs, particular when the market is acting a lot better than it is now.  I also look at insider buying, although there has been very little interesting insider buying lately.  On occasion I will buy a stock that I think is priced ridiculously low as a value play (recent example: FMD), but I don't do that very often.  I am almost always long, but if the market drops this year (as I expect) I anticipate doing some shorts.

If you look through my trades (see Portfolio Sells in the Categories in the right column), you will notice that there are a lot of losing trades (right now, about 50% losers for the year).  But you'll also notice that most of these losers are small (rarely more than 10%), usually less than 5% losses.  I have no problem taking lots of small losses, if a stock goes down after I buy it I'm quite willing to sell it and move on.  I always place a stop about 7-10% below my buy price, then move it up over time.  I want to get the stop to breakeven as quickly as possible, then slightly over breakeven to allow for slippage.  At that point, I'm willing to let the position ride.

This is why there are so many small losses and also there tend to be a number of small gains as well, as stocks go back down to their buy prices and I get stopped out.  These small gains and losses tend to cancel each other out over time. 

The trades where I make the money are the big winners, the 30%, 40%, 50%, 60%, 70%, and more gains that happen when I can get a good stock and hold it for weeks and months.  When I get a stock that goes up, I pyramid into it.  I buy additional lots, each lot usually smaller than the previous lot.  With big winners I will have 4 or 5 or even more lots.  When these sell out, they make huge gains.  Recent examples include ERS, VRTX,  ARNA, FTO, STXS, BCRX, PLAY, and  GROW.  The net effect is that even though I'm only getting about 50% winners, each winner makes more than twice as much money as each loser loses.  This makes money.  I give the ratio of average winning gain to average losing loss in each day's update.

Of course I'd like to figure out a better way to find these big winners.  But if finding big winners were easy, everybody would be doing it.

Right now, my big problem is that I am holding only one such big winner, FMD.  There are a few others that are trying to become big winners, but they aren't there yet.  PLLL, NEU, and ICON have been recent big up movers.  ICON especially looks like it could be the next star in the portfolio.

Recently, I started posting a watchlist every night which includes the results of some of my scans.  This list shows the stocks that I'm looking at that day.  Usually, I pick one that looks the best to feature.  Many times I will be buying that stock the next day (or will already have bought it), although I don't necessarily buy every day's pick.

So that's it.  The main purpose of the blog is to help my own trading, which it does.  The new Watchlists have helped me organize my scans, which has actually saved me time.  As always, any feedback is appreciated.

Purpose of this Site

Now that this blog has been going for a couple of weeks, I want to take a moment to post about the purpose of this site.

The primary purpose of this site is to provide a trading journal of my trades, the reason for my trades, and their performance.   The hope is that this will improve my trading.  I believe that the site is already successful in that purpose.  By posting my trades, it is helping me be more careful.  By writing about my reasons, I can improve my thinking.

Note that you can see what stocks are in my portfolio at any time by clicking on the My Portfolio link in the right column.  Note that this only gives the stocks in the portfolio and not how many shares or how heavily the stocks are weighted in the portfolio.  Position size is obviously very important and the positions are not equal.  In fact typically my largest position is more than 10 times larger than the smallest position.

All my positions are long positions.  I do not short stocks nor do I deal with options.  I concentrate on small caps, but there may sometimes be larger cap stocks or ETFs in the portfolio.  I measure my performance against the Russell 2000, as this is the most appropriate benchmark (right now, in fact, the single largest position in the portfolio is IWM, the Russell 2000 ETF, so there is a natural tendency for the portfolio to perform like the Russell).

I am still experimenting with my entry techniques, but I like strong momentum stocks that have a track record of large gains and I like stocks with insider buying.  For long term positions I like stocks with increasing dividends.   After buying a stock I place a stop loss, usually around a loss of 10%.  As the stock moves up I move the stop loss higher.  If I get a stock that goes up 10% or more, I definitely do not want to take a loss on that stock.

If a stock is successful, I will often buy multiple lots, always at higher prices.  I almost never average down.  I try to always use limit orders so that I know exactly what price I'm getting.

The hardest thing is determining when to sell a successful stock.  I am still working on my techniques on this one.  I have sold too soon and sold too late, it is hard to find the Goldilocks position.

I have been trading for over 5 years.  I started in 1999.  Ouch.  Since 2001, though, I have been making money, athough not as much as I should be, which is why I hope this blog will help my performance. 

I am a big believer in market cycles, particularly the 4 year cycle, the annual cycle, and the monthly cycle.   Given where we are in the 4 year cycle (ie. near the top), I currently have a short holding period.   Recently the ideal holding period for a winner seems to be 2-3 months, so I am concentrating on playing the monthly cycle.  When the 4 year cycle bottoms out in 2006 or 2007, I will look to make longer term buys. 

Nothing on this site is to be considered any kind of recommendation to buy a stock.  Every investor must do their own research and every investor's situation is different.  Timing is everything, if you buy the right stock at the wrong time you will lose money.  Whoever said that you can't time the market was an idiot, you'd better time the market or you will lose.  A stock that is right for me probably won't be right for you.  I make lots of trading mistakes.