Great Trade Ideas That Most People Do Not See

Millions of people trade the markets daily and there is a lot of common investing rules. Buy low and sell high, or if you want a bond that is risk free buy US treasuries. I know there is many more rules like this in the world of finance.

But my question to you guys is what are some trading ideas that you guys follow that is not so obvious to everyone else?

 

Unless you have enough money, this philosophy is basically going to preclude you from making any money at all. If you're some kid with a few grand in his IRA and you're taking positions worth only a few hundred, you're basically killing your return by taking such a small position. A $100 position has to net 14% returns just to pay for the commission on the trade...so no, you want to size your position so at the very least, transactional costs are a small fraction of the entire play.

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All in TVIX, obviously. /s

I really do think that pharmaceutical companies that are developing CRISPR drugs are very exciting opportunities on a long-term timeline.

Companies like Editas (UC Berkeley), Intellia, CRISPR Therapeutics (MIT, Harvard). Currently there is a legal battle involving the IP linked to CRISPR so there's the downside.

 

First rule of "trading" (by which you mean, not "buy and hold") is never risk more than you are willing to lose. I don't agree with the people who say that trading is gambling/speculation on face, but I do believe that even the best thesis on the market can go awry due to factors beyond your control. As Keynes said, "The market can remain irrational longer than you can remain solvent." So, never put something at risk in a trade that you aren't prepared to lose fully.

That said, some of my thoughts:

  1. I only buy companies after a huge decline, typically related to earnings revisions or underperformance. I generally will not buy something unless it has experienced a 10+% decline in the previous trading days. I find that this gives them room to grow. That said, if you want to buy into these opportunities, I suggest you familiarize yourself with financial statement analysis. If you're going to buy out-of-favor companies, you must do your due diligence and establish whether the market is just overreacting, or whether there is fraud/legal issues/insolvency at play.

  2. If you have read value investing books, you may have heard of "dollar cost averaging". Most of these strategies mean buying x amount of the same stock consistently over a long period - this ensures that the "average" cost of the stock you bought is low relative to the exit price, since markets tend to go up.

I employ dollar cost averaging on short term trades. Meaning that if a stock falls 10% in a day, I will buy a hundred shares. If it falls another 5%, I will buy 200. Another 5%, 400.

This produces one of two outcomes. Either you are right that the stock is going to eventually bounce back, in which case you should be sitting on a pile of low-price stock once it does, OR you are wrong, the stock goes to zero, and you lose everything. I have never lost money doing this (and I have definitely saved myself from positions that would otherwise be losers), however I was always prepared to lose what I ventured.

Another thing you can do to increase portfolio returns is to write covered out of the money calls. If the underlying you're holding doesn't go up too much, then you can get both the benefit of the underlying appreciating in value, as well as the returns from selling the contracts. Just be aware that if the underlying goes gangbusters, you will have capped your returns at the strike price.

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Stick to your rules/system.

Bad traders act on emotions. Most successful traders, whether they are value investors or technicians, have some set of rules to remove emotion in their decision making process.

So determine what style of trading suits you, develop some sort of system, and stick with it.

 

Don't take advice from anyone.

This also opens a conundrum because if you follow this then you are taking advice from me when I told you not to.

Never discuss with idiots, first they drag you at their level, then they beat you with experience.
 

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Serving my community-adjusted EBITDA
 

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Thanks, Eduardo Lozada

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