CANSLIM & Momentum Investing 01 (May 08 - Jul 09)

[kennynah]

Anyway, we all have our own rules. My rule is not to follow something blindly but to modify the rule to suit my own style.

agree with winston here...

we must all know why we do what we do...or follow what other say as gospel truth... if we follow blindly without a clue as to why .. then, i think it is simply being ignorant...

for example...why ONeil says 7-8% as Cut Loss ? Do you know why it is this figure? Why can't it be 10 or 15% ? or why not 3-5% ?

i duno, do you know ?

[OE2008]

This round, a lot of people made money when they averaged down heavily in March

Hi Winston
U are right if they had averaged down in March. But many would have continually been doing so for a long time b4 March 2009.

These discussions remind me of the advice of Larry Livingstone from WS days (0f cos he is a trend follower and has very much taken to the rule of Jesse Livermore). He was given a hard time by the perma bulls then.

Having our own investing/trading rules is sound but are we still in doubt of his repeated advice: "Do Not Buy On the Way Down"?

[millionairemind]

Anyway, we all have our own rules. My rule is not to follow something blindly but to modify the rule to suit my own style.

agree with winston here...

we must all know why we do what we do...or follow what other say as gospel truth... if we follow blindly without a clue as to why .. then, i think it is simply being ignorant...

for example...why ONeil says 7-8% as Cut Loss ? Do you know why it is this figure? Why can't it be 10 or 15% ? or why not 3-5% ?

i duno, do you know ?

The reason y 7% is advocated is more for the US market.

He advocates taking 20% profit but if the stock moved 20% in less than 8 weeks of breakout, one must hold on tight cos' this could be one of those monster stocks that give you a few hundred to a couple of thousand %tage gains.

So one can technically be wrong 3x and right once and still turn out OK.

Also, in CANSLIM, when a strong stock breaks out, say from a cup and a handle, with the market direction being up, his research has shown that it is VERY RARE that the stock will tumble below 7% from the breakout point.

[iam802]

Here's how I assume O'Neil arrive at his 7% cut loss guideline.

1. O'Neil recommends having a very small holdings (eg. 4-5 counters), correct?

2. If the above assumption is correct, you can work out that the 7% cut loss is almost similar to a 2% stop loss on total capital (similar to other cut-loss strategies).

Eg.

Assume $100k capital

Spread across 4 counters of 25k each.

With 7% cut loss, you will exceed each position with a loss of $1750.

1750 is less than 2% of 100k (if you use 8% cut loss, you will end up with 2% loss from the 100k).

Either way, it aims to protect the major bulk of your capital.

---

The only difference here is O'Neil make it easy to calculate from your existing position rather than figure out how to setup the right position size from the total capital available. Make sense ? (I just guess only)

[cif5000]

...why ONeil says 7-8% as Cut Loss ? Do you know why it is this figure? Why can't it be 10 or 15% ? or why not 3-5% ?

I think I know. If the figure is too small e.g. 3-5% then you will hit it so many times that a winning position becomes a losing one because of the minuscule movement. E.g. a penny stock, you buy at 10cts, then some idiot dump at 9.5cts, which is a 5% drop, by rules, it would hit the stop loss. At the other extreme, if the number is too big, e.g. 10 or 15%, then the loss becomes damaging. The position becomes severely impacted and if too many of these occur, then the pants will be gone. So 7-8% is probably derived from many years of experience and market data. An optimum number.

[winston]

BTW, I try to have a Mental Trailing Stop @ 3%. At 5% loss, I start to review my information. At 7%. I watch it very carefully. Thereafter, i may sell half my position depending on the situation..

MM's style is more clear cut. Mine is more subjective eg. market strength, industry attractiveness. company's fundamentals. gut feeling etc

[blid2def]

I cut when I don't get good sleep.

[b0rderc0llie]

I dun remember cutting before.

[kennynah]

when that exercise regime CAN let me be SLIM.... i canslim...of cos...

[Aspellian]

Hi MM,

In the previous thread (viewtopic.php?f=11&t=1931&start=140) you mentioned :
"Don't worry lah, when market breaks, I will stand side-by-side with you to short the market... this I promise"

May I ask you what is the medium you used to short the Spore market? Is it put options or CFD? I will like to learn more from you. Thanks!
I remember its mentioned in the forum that options in Spore not liquid ("maniupulated" by market makers etc).