The Timing Method

Limiting losses that are moving against us is one thing, but imagine that we buy something and it flat lines for 10 years. Our capitol will be stuck there, doing nothing. If we don't hit our stop, and we don't make enough profit to sell it for a gain, what then?

Recently I have come across an idea to sell based on time. If nothing else prompts us to dump the position, then a set number of days could be the final hope to save us from a never-ending trade that is a loser because it can't keep up with inflation.

In 2008, the average inflation rate was 3.8% over the 12 month period. That number is very fluid, and changed quite frequently during that time, but 3.8% is a good place to start. Knowing that, any trade that does not make at least 3.8% in any given 12 month period is losing the difference of its net gain and 3.8%.

The group will be starting to experiment with this by adding a 1 month .31% time limit. Each trade has 1 month to make at least .31%. If any trade fails to do that, but also has not stopped out at a loss or been closed to take profits, then it will be closed because it is moving too slow. The money can do a better job somewhere else.

Note: Anyone who would like to change this number, or can see a reason why this is a bad idea should reply to this post.

First Trades Away!

Our first trades were placed at market open this morning. We chose:
AA (Alcoa)
AAPL (apple inc.)
C (Citigroup)
HOV (Hovnanian)
SIRI (Sirius XM Radio Inc.)
QQQQ (Nasdaq Powershares Trust)

Each trade was accompanied by our basic stop loss that has been set at 20,000 loss (2% of account equity) for each position. However, since we had no position sizing technique, each position was opened to be valued at 50,000. This is an obvious hole in the risk management system, and one that should be addressed this week.

You can see the portfolio at http://www.updown.com/Losers-non-anon-anonymous/group/4224

Welcome Information

Hello and welcome to the LNAA. This blog is the home of a group of investors on the updown virtual stockmarket trading game. Every Friday after the US markets close, L-Anon will be setting its portfolio for the following week, whether that means acquiring new positions, selling old positions, or holding.

As losers, we realize the importance of a good risk management system. Therefore, accompanying each and every trade will be a stop limit sized at 2% of the total account equity. For example: If our account is valued at $1,000,000 and we open a $200,000 position, the stop will be based off of 2% of $1,000,000 which is $20,000. If the position ever reaches $180,000, it will be closed at market automatically.

At the same account value ($1,000,000), any position that is opened worth less than 20,000 does not require a stop loss.


At the moment, the group's portfolio is 1,000,000 even and it is distributed:
100% - Cash

You can see the portfolio at http://www.updown.com/Losers-non-anon-anonymous/group/4224


Thats it! Our first picks will happen over the weekend! If you would like to become involved in this group, open an account on http://www.updown.com/ and join up. Its free, and informative.

See you on the weekend!