It was not a bad mistake. Precious metal corrected over the next 2 days. More important, it allows me to re evaluate my positions and its strategies before I reestablish all my trades again. It gives me time to analyze, review and establish the plan.
For those who are following some of my trades, I had closed the following:
- XEC covered call for 12.09% return over 38 days
- WMT double diagonal for 9.71% over 203 days or 17.46% ROI annualized. This trade was closed prematurely and I have restarted a new position which I will put the trade on a new post later.
- AEP bear put diagonal closed with positions neutral. Also, reestablished a new bear put calendar which I will post later.
- JNJ double diagonal - after less than a month and was closed accidentally, I was on break even. Not bad! This is supposed to be at least a 12 months trade.
My recent trade for BYD is intact. It is both positive for the stock and the SC now.
1. Analysis
"A great trader who has made tens of millions of dollars from the stock and commodities markets told me the one individual universal reason for failure is the inability to take a loss. This has become my motto, as the true path to riches lies not with the wins, but managing the losses in a prudent, confrontational manner," says Cook.
The performance below are extracted from my broker statements. Individual trades are derived from my personal trading journals. It should be sufficiently accurate though not perfect.
Performance - 2009
ROI = 33.87%
Performance - 2010 YTD
ROI for 9 months = 4.98%
It was a difficult year. I did not do well with the drop in Jan and May.I am still targeting to reach 8% ROI this year.
Analysis of trades
I did a total of around 106 trades for the last 18 months. Some of them were trades before I started using options. I started using options seriously only in September last year.
I have 21 losers out of 106 trades. The winning percentage is >80%. The biggest percentage gain is 44.3%. The biggest loss is -18.3%.
Directionally in terms of timing, I estimate I am right about 60% at the time of entering the trade.
Winners - percent gains vs no. of trades
Losers - percent gains vs no. of trades.
Trades and number of days held
Strategic Plan
Overview
This is the strategic plan going forward to 2011. My trading strategies are as posted on the blog. It includes choosing stocks using fundamentals, timing for entries and exits using my own technical system and the use of options for hedging. More than 80% will be using dynamic collars and double diagonals for safe returns and the remaining percent will be allocated to more speculative strategies like Calendars, Strangles and some small caps.
The average holding period is 2-3 months.
Portfolio can go long or short depending on the market. Most of time there will be some bearish trades even in a bullish environment.
Objectives
o Annual return of >10% ROI
o Risk management is a key part of the strategies. The execution will follow strict rules listed on this blog.
Competitive Advantages
o Based on many years of business experience including co-founder of a number of new start-ups, I believe I have sound understanding of what drives a company to perform and the ability to identify winners in the market in various environment.
o A proven technical system that has been used for >10 years with percentage wins more than 70%.
o A hedging strategy that :
- allow recovery of >50% of directionally wrong trade to turn from losers to winners and limit the loss.
- allow winners to ride the trend and maximize profits.
- allow trades to make money when market is stagnant, slightly bearish or slightly bullish.
Portfolio Allocation:
This is a key component of the strategy. The portfolio is divided into various category with allocated percent of the portfolio to trade.
1. Trading Income - 20%
These are short term trades of 1-2 months main for income. Trades are conservatives and will make about 1-5% per month.
Typical trades are ITM / NTM covered calls, collars and high probability bull puts.
Companies are usually aligned with the fundamental and technical directions but many of them are too big to ride longer term for double digits gains.
2. Growth Portfolio - 55%
This is a selection of stocks with objectives of 50% ROI over longer term. This is the bulk of the portfolio. While the risk and volatility are higher but it is believed that if you know how to control the risk, it is safe trading these stocks.
The holding period varies from 2 months to 2 years.
Positions will be hedged most of the time. From experience even if the stock drops 50%, the position may lose <10%. It will allow time to double the position and ride up once the uptrend resume. This is only done only if the fundamentals remain intact for the stock
At any time, no position will suffer more than 20% loss. If it close to 20% loss, the trade will be closed. Red alert will be activated if the stock loses >10%. Company fundamentals and trend will be seriously evaluated.
If the trend is stagnant, the trade will continue to make money
If trend is up, strategy will allow the position to ride on the trend and make good gains.
i. Growth Stocks - 15%
These are size companies with high growth in the right segment and has the potential to double its price in 2-3 years. Examples are stocks in the internet, alternative energy and technology ( electric cars etc ).
ii. Precious metals - Gold and Silver
I am very bullish on gold and silver for at least the next 2 years. It is my belief that these metals will go through a parabolic maniac phase as a matter of time. If it happens, strategies are in place to ride on this trends
Portfolio will consist of gold and sliver mining stocks and ETFs.
A small portfion will be allocated to speculative juniors that can return few 100%
iii. Commodities - oil, agriculture, palladium, rare metal etc
Also bullish on these commodities over the next 2 years.
Natural gas is the only commodity that is not as bullish. But once there is sign of turning around, it can yield handsomely.
3. Shorts - 10%
Most of the time there are some shorts in my portfolio. My experience is that in a bullish market, there will be still companies for shorts. I have made money consistently on these trades.
Trade strategies used are covered puts, synthetic puts and reversed collars
5. Safe, Pure Income trades for stocks with High Dividends - 15%
These are world denominators that pay out good dividends, good cash position, huge market capital and normally trade in a range. But year after year, they buy back shares and increase their dividends.
I use my proprietary "double diagonal" to trade. The trick is to find stocks with high dividend and with a low extrinsic value for the long term put.
The trade normally becomes risk free within 2-3 months. Premium are collected from short calls and short puts. With some management, it will be collected pure monthly income.
I will implement my trading according to the above strategies. From time to time I will change my allocation. For example, if the market goes bearish, I may increase my allocation for shorts.
Business environment is dynamic and thus the plan will be modified when necessary. For the time being, I do not anticipate major changes.
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