Been creating a short-term trading strategy. Obviously this is outside the norm of the patient buy-and-hold investor, but in thinking of the professional, it could yield consistent cash flows if seeking to add such a strategy to one’s investment toolkit and round out skillsets. Have notes specific to 2-3 companies for it, will report back if I execute on it in any sustained way.
Overarching Thesis:
Company is quality and innovating strongly, so investment is positive generally.
Buy in a good market on red days, especially outsize reds to make a profit on the rebound. The investor would mitigate out a major outsize down move because of buying immediately after the move, with a 1-3 day investment horizon to allow for a pop. The investor can then cement an even more cost advantageous position by doubling if further down moves, or, if it moves up, already in the money on at least 50% of max size. This would then be used consistently (day in and day out) to build a larger cash position.
Rules:
- Buy only on red (down) days of 4.5% or greater
- Sell on the rebound green day 1-3 days following event.
- Keep daily ledger of news related to the stock.
Risk Management (Control variables)
- Target hold 1-3 days (see #2 above)
- Trade this strategy only in this market with this thesis – separate thesis for each company
- Stop loss 4%
- Buy only on red days
- Only one portfolio with a specific number of shares for one company, repeated
- Entry/Exit – enter half position, then remaining half.[1] Exit [down 4%] [1/2 up 4%] [remainder up 10%+] [3-day hold][Friday closeout] – mitigates holding risk
- 1 trade daily, depending on liquidity
Research:
- Connections to commodity markets
- Pricing bands
- Debt Market for the company
- Options market
- 10k/statistics/fundamentals
- Relative to S&P and competition
Capital allocation strategy: measure profit weekly, sell out of all positions Friday afternoon regardless of Profit/Loss. Taking profits: 50% tax reserve, 25% cash savings, 25% reserve to increase position size.
Cherry pick any and all ideas, leave the rest.
[1] This could be done to 1/ad infinitum, but why quibble over fourths and twelfths?