Cesar

Author Archives: Cesar

December 14, 2014

How to pick individual stocks

We will list up to 30 trades each week for Weekend Stock Trader.  There are two 10 slot strategies and two 5 slot strategies for up to total of 30 trades.  Some of the trades may, and will overlap.  For most of you, you will trade a single portfolio strategy and stick with that each week that is what Cesar will do.  For me, and others of you, you will choose to pick several stocks from the list.   I will share some insight on what some good strategies are to pick from the lists if you like to choose stocks individually and not trade a set portfolio.

 

Here are two important concepts,

 

  1. The Higher the HV100, the higher the p/l (and higher volatility), the trade is on average.
  2. The bigger the pullback, the higher the p/l is (this is true both in terms of weekly and daily charting–we use the RSI to measure this.

 

Given this information, if you would like to create a framework of picking stocks individually that will most likely give you a higher compounded average return (CAR), I would pick either the 5 highest HV100 stocks, or lowest either RSI(2 or, a combination of both.   Remember, although it seems obvious that you would want the highest CAR–this will come at a price of bigger drawdowns and account volatility.  If you have a tendency of this affecting you emotionally -this is a bad idea.  Many people choose more aggressive/volatile strategies and when they have a 15% drawdown-they tend to switch to something more conservative.–READ THIS ….that will destroy your overall performance.  So, if you know that you can’t handle volatility, don’t do this.

 

On the other hand, you may want something more conservative.  In that case-I would do just the opposite.  For instance-I would create a 10 slot trading strategy.  I would not take stocks from the same sector (for diversification), and I would pick stocks that have low HV100’s and, I probably wouldn’t even look at the RSI.

 

Overall, this is a fun way to trade and it has worked fantastic for me. If you have questions on this please email me at steven@tranquilitytrading.com

 

Good trading,

Steve

December 14, 2014

How to pick which portfolio is best for you

I know it seems obvious that the best portfolio must be the one with the highest compounded annual growth rate (CAGR) which is the Vega portfolio. It has a CAGR of 22.2% since 2005.  The problem with choosing this way is that you need to understand all of the statistics of the strategy.  For instance, this portfolio has an average of the 3 worst drawdowns of 17.1%. That’s the average. The worst drawdown was 18.1%.  And, Cesar and I have saying…

 

”the worst drawdown is the one that’s coming.”

 

We can’t tell you what portfolio to choose and you really have to know yourself.  If you have a large nest egg built up, and you have low risk tolerance, I would trade Capella. This portfolio has had a CAGR of 12.9% and a maximum drawdown of 9.3% with an average of the 3 worst drawdowns of 8.4%.  This strategy is absolutely amazing.  I can tell you right now that is what a pension or large fund would choose.  No question!

 

Well where do the other 2 portfolios fit in your decision making, Deneb and Rigel?  Deneb is the portfolio that had 0 losing years.  It had exposure of only 69% and still had a 17% CAGR.  Rigel had about the same CAGR as Vega with a lower max drawdown, and the highest Sharpe ratio of all of the strategies.

 

You may also consider that Vega and Capella use only 5 slots, so they theoretically have more risk with less diversification.  Also, if you like to minimize trade entry time, you may really want a 5 slot system.  There is less work each Sunday.

 

If you are trading less money and trying to grow your portfolio and have a high risk tolerance I would trade one of the two 20+% higher CAGR portfolios.  If you have a large amount of money I would look at Capella.  Well, if you are in between, I would really consider Deneb.

 

I promise that if you really look at your past trading and your emotions about trading, you already know the answer as to what is the best portfolio for you.

 

If you have any questions, please contact us.

 

Steven and Cesar

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