In Stock Neuromaster, any stock is tradable. If you go long or short, either is a viable candidate for use with the software. I generally went 'long' when I first started using the software. I look for stocks that met basic requirements: 1) I look for stocks that are trading for less than their book value. 2) I look for stocks with a positive EPS (earnings per share) 3) I look for stocks with a positive Operating Margin 4) I look for stocks with a positive ROA ( return on assets ) 5) I look for stocks with a positive ROE ( return on equity ). Just these 5 areas allowed me to 'hone in' on stocks that I was comfortable with. You may have other criteria, such as RSI, looking for whether a stock is oversold. But these are short term indicators, and are not really relevant to the long term analysis of a stock as far as modeling is concerned. I am only concerned with the stability of a stock and its financial viability, as far as modeling is concerned.
I am pretty sure that all of you know what 'shorting' a stock is. For those that do not know, you are essentially 'selling' a stock you do not own, then buying it back at a later date, hopefully at a price that is less than what you 'sold' it at. It is a hope that the stock price will go down as opposed to going up. You are dealing in the number of shares. If you short stock 'ABC' for 100 shares at $10 a share, you are promising to return those 100 shares at a later time. If you 'cover' that purchase a while later at $5 a share, then you have made $500 on that trade. You 'sold' 100 shares for a thousand dollars, then you replaced those 100 shares, but at a price of $5 ($500) and you pocket the difference.
Stock Neuromaster covers long purchases as well as short purchases. If you are confident enough, you can go to 'settings' and change you signals from 'long positions only' to both long and short positions both. I have only used long positions myself, but I am looking into doing both, especially with a very wild trending stock that fluctuates on the charts from one extreme to the other.
That's another thing I look at , are the charts. If I see a stock that looks like a right angle, I don't see much action other than it going up over the year. I tend to look for stocks that fluctuates into a pattern of 'up and down'. I know that a stock that seems to be going 'to the moon' can be tempting, but I prefer a stock with a discernible pattern. I want the software to easily distinguish patterns, and any help I can give to start with is always preferable, at least to me.
These are just ideas for starting. I only keep about 5 positions open at any time, as more than that makes my head swim. I sit back and let the software do the work. I just need to keep more on top of it, and wake up on time each day, lol. When you are retired, there is a sense of relaxation that comes over you, but when it comes to money, you really can't relax!
Plus, it helps to have a great sense of humor. You can't live without levity once in a while! For example:
I bought some powdered water yesterday, but I don't know what to mix it with !!!!!
Anyhow, you get what I mean. Going forward, I will try to be more serious, as money is the focus of all of this. Everyone deserves to have the style of life that they deserve. How you handle your money is one of the most important things, not only for yourself but for your family. I will try my best to help.
Have a great day,
Roger
Hi Roger. Thanks for sharing your knowledge and experiences. You've already cleared up a lot questions for me.
ReplyDeleteDo you trade stock options (calls & puts)?
Ken T ... a retired accountant from Canada
Hey Ken,
ReplyDeletePersonally,I have never traded options. I realize they can be great trading instruments, and I have read many articles on how to do so. I have just never tried it before. Great to see a fellow accountant!!
Hi Roger. One of my retirement accounts I manage myself, only allows me trade long stocks or long calls or puts (ie. I cannot short stocks or do option spreads). Hence my interest in high % directional trading.
DeleteAfter training, some of the stocks have very high returns and win/loss ratios. Have you experienced consistently similar results in real trading going forward?
Do you use stops in your trades or do you strictly follow the Neuromaster signals?
You got my curiosity going and I had look up powdered water ...lol.
Ken T
Hello,
DeleteI also manage one of my retirement accounts myself. I also cannot do shorts, thus my writings on only long trades. In real trading, I actually have experienced similar trades. But unless the trades net more than my brokerage costs, then I usually don't make much on those trades. I always subtract about $14 each trade for brokerage fees, but I seldom see a trade that won't cover at least that.
I use stops, but it varies between a fixed amount, and a trailing stop which is my favorite. The trailing stop locks in profits on a stock that is rising rapidly during the day. But, if you set it too tight you can get into a sell too soon. If I have held a stock for several days and see a lot of volume, then I look closer at a trailing stop. I don't like to buy and hold, as I like to swing trade. In Neuromaster, a stock may trigger a 'buy' that lasts 5 days, or maybe as long as 20 days. When I have made perhaps 20% on a trade, and I feel the momentum lessening, then I may place a tight trailing stop of 5%. This is especially true on an equity that trades an average of a million shares a day. If you have every noticed, stocks that average less, let's say, 100,00 shares a day don't really give way to a lot of trading action. That's why I look for stocks that at least have a 50 MA of say 500,000 shares a day.
I sometimes will place a flat stop of 10% on a trade just to make sure I don't loose a lot if the stock crashes, but with the software I really don't worry too much. Trailing stops for me come in useful when I am ending my interest in a trade, or have enough profit to satisfy me, like 20% or so. Even then I wait for a high volume day to do so.
I hope this helps. But, yes, I have experienced results almost exactly what the software predicts. You didn't really look up powdered water, did you?, LOL
Thanks Roger ... yes that helps ... still the skeptical accountant ... I guess ... lol. Liquidity is so important for option trading so I also stick to larger volume stocks. Swing trading suits me also.
DeleteYes I did look it up and powder water really exists much to my surprise. It absorbs & stores CO2 ... so you're onto something as a 'green' solution ..lol.