Wednesday, December 25, 2013

Best Trade 2013

The concept of buying new highs is a hard concept to get used to. We are raised all of our lives being told to buy low and sell high. But, in speculating, we are concerned with the probability of a price movement in the direction that benefits us, in the timeframe we are comfortable with.

Personally, I am comfortable buying at any price as long as I get a quick profit at the start of a trade and therefore have some "wiggle room". I suppose it could be said that I prefer to put on a trade at that point where the price makes a decisive move and momentum is building rapidly. It is sort of like getting a free lottery ticket. The downside can be easily limited and the upside is unlimited.

I have been trading the dry bulk shippers for most of the last half of 2013. This is because I noticed the unusual volume in some of them last summer. It appeared to be caused by accumulation of the stocks. High volume on the rallies and low volume on the declines. As if someone were buying in quantity and then letting the price settle back down before buying again. I later saw that George Soros had put on a small position in the dry bulk shippers. Small for him, a few millions of dollars.

My best trades of 2013 were in getting good position in some of the dry bulkers and riding the eventual trade from about $2 to $4 in DRYS. Some of the others did almost as well. This was not as easy as it looks in retrospect. There were several times that it looked like a breakout was imminent but then the price fell back to near the bottom of the range. This necessitated selling some of my stock to limit my risk. I did not KNOW that the stock would not fall further. My goal is to have a maximum, or near maximum position on when the move takes off. And I only know for sure that it is going to take off after it has taken off.
In the past I would get discouraged after two or three small losses in a stock and quit looking at it. And then miss the move. I have learned a sort of persistence in controlling my risk at the same time I try to maximize my gains on the charts that look promising.
Here are some charts of DRYS. This companies stock price, and the earnings of the dry bulkers in general have been seeing some improvement due to the prices they can charge for their services. Those prices can be monitored in the Baltic Dry Index, which is an average of different dry bulk rates updated daily and can be seen in chart form. Those prices form some of the same chart patterns as traded securities.
But the point of this missive is to point out that it doesn't matter what price you may pay for a speculative stock, only what you can sell it for at some point after it is purchased. No price is too high to buy, and no price is too low to sell. (If you haven't, read "Reminiscences of a Stock Operator"!)

My goal is to find those points where the price makes a shift in direction and sustains that direction for a period of time. The easiest place to find these points is at "new" highs. And all prices are relative in time.

control risk,
And Merry Christmas,

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