• Portfolio Management for April 3, 2014

    There were a few trades and adjustments to the Portfolio yesterday.



    First, a few minutes after the open, I took a position in MTH and ZNGA. MTH had pulled back close to support, and I felt that ZNGA might run away from me.



    After some time, ZNGA pulled back and I preferred to sell the position for a 0.5% loss.
    I later on re-entered ZNGA at a lower price simply because money moved back during the pull-back and also because with a natural stop just below the most recent low (4.25,) a buy at 4.33 carried much lower risk than a buy at 4.44. ZNGA is however in a down-trend and even if we can see a positive LEV pattern, previous occurrences did not translate into a price bounce. However, the sector is now somewhat better than it was some days ago and hence, the stock could indeed bounce from here.



    I also adjusted the VNDA position. VNDA is a rather volatile stock for which it seems interesting to sell spikes, which I did with 1/3 of the position, whihc I repurcahsed later at a lower price. This means that I could lower the purchasing price of 1/3 of the position by 0.38$, which is 0.128$ calculated on the full position. This does not look big, but combined to the fact that the stop was raised from 14.97 to 15.25, I could decrease the total position risk from a loss of 6.58% to a loss of 4.09% (The real risk is still lower since I sold 1/3 of the position at 16.21 some days ago.)

    Below is the KBH trade. You can see that I could slightly raise the stop, but still kept the 5D probability to hit the stop at 0%. As a reminder, this probability simply states that in the past 60 days, the stock 5D volatility was never strong enough for the current stock price to retrace down to the new stop loss level. Of course, we can see that some sellers appeared at the end of the day yesterday, but we are still early in the trade and the best course of action is to manage the stop and stay in the trade.



    AWAY was somewhat disappointing as it gained at the open and then retraced back. However, LEV is still very positive and if I did not have a full position, I would have been adding here. If the tech sector is weak tomorrow, then AWAY could easily pull back. Something to closely watch.



    With the Portfolio fully invested in its five positions, I will not even start to look at potential new trades for today.

    Out of the Portfolio, I had entered a FB position two days ago, but I sold it yesterday, because of weakness in the social media sector. I booked a 3% profit and be content with it.



    Out of the Portfolio, I also took a IBKR short at around 22.40 yesterday, but had to cover the short when we crossed above the previous high.



    Conclusions:

    The method I use is in itself very simple: buy on a pull-back to support if LEV is positive (or Short on a bounce to resistance if LEV is negative.)

    This method gives a slight trading advantage, but what is most important is risk management: Select a stop level that is not too far from the current position, but that has only a small probability to be hit.

    Risk management allows me to keep the capital intact even when I make mistakes. As a reminder, below is the trade returns for the January/February period. We can see that even with a very poor win ratio, I could manage to keep a Portfolio loss of only -0.7%. However, when the win ratio gets close to 60% and when I can stay in the trades by raising the stops, then profits quickly come.



    This however requests some work to select stocks, enter trades and manage them. Because of the short-time holding period, you'd need to work more with this method than you would probably do by following Mike's High Growth Stock selection.

    Mike shares with us his selection every week here:

    http://www.effectivevolume.com/conte...-s-Watch-Lists

    I always look at his selections.