Money Management

Just a short post today to cover some of my thoughts on how to manage your money in your trading or gambling account.

Knowing when to buy and sell stocks is pivotal whether you are going to make or lose money in the stock market. To ensure you hang on to as much of your capital as possible it helps to have a set of rules to follow.

I visit a lot of stock discussion boards and it still amazes me how long people hang on to losing positions. If you want to buy and sell stocks to make money you have to absolutely know when to sell and take your profits or losses.

Preservation of your capital and as much as you can is vital to success trading stocks or market speculation.

I set aside $20K and invest in no more than 5 stocks. Spreading your money around in this way allows you to easily monitor how your picks are doing and to spread out your risk to a manageable number of positions.

Identifying Your Stock Picks

• look for stocks trading at least 50% below their 52 week high
• stay on the TSX or Dow big boards for your picks until you hone your skills
• I screen for possible stocks at the end of every trading day
• look for unusual spikes up in volume and price
• momentum has come into play but don't buy until you confirm the uptrend
• eliminate all stocks making 52 week highs
• don't buy the next day first thing, wait to see if the stock continues higher
• I never commit more than $4K to each stock

When to Sell

• when you are down 7-8%
• when you are up 50-100%
• when price and volume accelerate to the downside
• when the price of the stock moves up on lower than average volume
• when volume starts drying up and momentum has stalled

The most important sell indicator of them all is;

CUT YOUR LOSSES EARLY 

It is the best way to keep more of your money and then redeploy it into a stock moving back up. Selling losers is a must to win at the trading game. How long to hang on and wait?

You will hold some positions days, weeks or even months to see significant upside. Don't listen to TV gurus for buying recommendations. Become a student of the market and watch and see what's moving up to buy and what your stocks are doing on a daily basis.

If you've made a mistake just sell and move on. Look at it this way. You only have to be right 1/5 times on your stock picks to come out ahead if you limit your losses. If that one stock gains 50% it will be more than enough to cover losses of 5% each on the other 4 picks.

Only when you've gained more experience should you handle more than 5 positions.

This is NOT day trading. I don't do that or know anything about it. This is more or less my wonky way of momentum investing.

Final Trading Thoughts

Only use money you have set aside as excess and you can afford to lose.

Always use your non-registered account or TFSA for making these trades. Nobody gets rich investing for income, this is what my retirement account is for. I generate income through dividend growth stocks and just hold them and collect the dividends.

This is investing for capital gains and is pure gambling. If you can't handle taking a loss don't try this.

You will be able to claim your trading fees and gains/losses on your income tax return. This is a beautiful thing here in Canada. Losses are not deductible for RRSPs.

Keep a trading log of your trading wins and losses.

Once a year treat yourself with the winnings by taking a well deserved vacation.

My Current Trading Account

ATD.B flat

ACB 37%
LNR 7%

OTEX 2.5%

QSR 5%

TOY 6%

As you can see I am one position over my limit of 5 stock picks. I am looking to lock in my ACB gains soon to get down to 5.

4/6 stocks are winners and this represents a dollar gain of $2125.

I am going to update all my trades at the end of the third quarter on all buys and sells I have made.

This is gambling, don't do it if you can't afford it. This is just what I do as another investment strategy to grow money.

Don't we all want to get to a position of 'FUCK YOU'?