QUESTION: I am starting to buy stocks and would like to know how to put together a portfolio. In others words what kinds of percentages of different types of stocks etc?
I’d start by encouraging the reading of my first book, “The Spec-K Trading System”. It’s only $3 on amazon (e-book). Unlike most trading books, it speaks to ALL the components of how to construct and deploy a trading methodology (“system”), including the critical questions of how much of your money to deploy, and how to “spread it around”. While you may or may not want to trade using the specifics of the Spec-K system, I guarantee you will learn a heck of a lot about the subject of how to deploy into the stock market.
My new book in development will address more generally the same subjects (among many others) of trade offs of deploying in a few vs. “many” different positions, as well as the question of when to deploy all your money vs. less (or even none). There are no simple answers to these questions, and that’s why most trading books tend to all be about when and how to enter and how to manage stops. The core trading mechanic. That’s like selling you a book on the engine of a car as a complete car operational manual…doesn’t address the complete subject at all!
To just get to the heart of the question: MORE THAN A FEW. If you have a +EV core trading mechanic, you reduce variance and track the +EV overall much more accurately. And reducing variance (along with jacking up EV) is king. I run typically these days with over 20 independent stock positions for exactly this reason. You do need a combination of size and/or low commissions to do this, particularly if your trading mechanic is focused on short cycle time trades (mine is: I typically target about 3% profit per trade, sometimes allow for 1/2 to continue to ride, sometimes not).
The alternative strategy is to pile your money into a very few # of trades, targeting big run ups in price. In that approach, you want to aggressively (in my opinion) move on to a new and better situation quickly if there isn’t performance, otherwise, your money can sit idle for days, weeks, months! When you are highly distributed in your positions, there’s always some money “working” (going up and exiting with a profit). even as other positions sit idle.
QUESTION: How do you find good stocks to trade?
Here are the “must” parameters I have in any finviz.com stock screen search. I consider all of these really important, and they quickly focus my attention on a “reasonable” number of opportunities where I can start looking for a decent pullback in price and a set up for a possibly trigger into a position.
Got to the “Screener” tab. Then select “All” from the tabs across the top of the screen selections. Moving through the selections from the top left, down each successive column:
- Performance : Half +10%
- Price: Over $15
- Performance 2 : (see below)
- Volatility: Month Over 2%
- 200-Day Simple Moving Average: Price above SMA200
- Average volume: Over 200k
This basic screen gets our list down to around 500 stocks. An alternative to the Volatility setting is Week over 3%, which reduces the number down to under 200.
The Performance 2 setting is the means of focusing on stocks that are pulling back now, vs. extremely extended. You’ll see through my methodology that I recommend the use of pullbacks and turns in trends to get positioned, rather than buying extreme momentum and often overextended and highly risky set ups. Unfortunately the pullback size choices in Performance 2 are very limited. I find “week down” is sufficient to get me less than 100 stocks that have the core criteria I’m looking for. Try this setting and others, and of course, if you have biases in what you think a “good stock” is, by all means use this fantastic screener to dial that in! Just make sure in the end you are focused (for long directional trading purposes) on stocks that are in clear up trends at the monthly time frame, as a foundation.
QUESTION: How can I protect myself from the next stock market crash?
The most sound and lowest cost way to protect yourself is to anticipate the start of a major correction (“crash”) through the monitoring of market models and indicators. These include:
– The complete US market history Elliott wave count and the position of the market today relative to that count.
– The long-term (monthly) and intermediate term (weekly) counts that provide us with critical data of coming corrections: we are concerned with primary and higher corrections in the large markets (SPX, RUT, NDX, DJIA).
– The state of the monthly and weekly NYSE advance/decline line; is there a divergence with price? Most major bear markets have several months worth of divergence before topping.
– The state of the VIX: often (even typically) there is a sharp divergence in the VIX and price at major market tops: the VIX price spikes up even as price continues to advance, warning us of a “just around the corner” correction.
The once per week SPX Elliott wave and technical analysis by Lara Iriarte at www.elliottwavestockmarket.com addresses alloof the above. It’s not much harder than deciding what degree of corrective wave you want to be out of, and waiting for her call that such a corrective wave has started. Her accuracy is extremely high, and in the worst case, you cost yourself a small amount of money (the price of insurance) when you could have been in the market and made some. But when correct…you save yourself serious $$ by being out through major corrections.
QUESTION: Should I use fundamental analysis and world events to decide if a stock market crash is likely?
Generally, no. The problem is that this is emotional data, not hard hard, and it will drive us to emotional decision making. Stay aware, but use the hard technical data of the market first and foremost (even exclusively).
One source of excellent data based market state and health analysis that demonstrates this “clear eyed” view required is the weekly “short takes” updates from Ciovacco Capital. I strongly encourage Specktrader’s to take advantage of this great resource. The URL is: https://www.ccmmarketmodel.com/short-takes.
QUESTION: Do you have training material available?
Some training materials in support of the coming book will be available soon on this site.
QUESTION: Do you provide personal coaching/education for aspiring or struggling traders?
Yes, coaching/training is available. Contact me
QUESTION: What kinds of results do you achieve?
See the “Examples” page for actual trades and results for my primary stock trading account for June and July.