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Risk Management

This section includes personal best practices we implement. Diversification and other risk management practice details can be found here. It is always best to consult with a financial advisor before making any investment decision and conduct your own indecent research. The following are not suggestions but simply our personal practices which we have found beneficial. 

SMS Trades

  • Support/Resistance = the trailing 5-day low/high
    • Closes below support = sell signal
    • Fails resistance twice = sell signal
  • We avoid getting caught in FOMO (fear of missing out). Sometimes we might miss our entry range and see the stock moving up. It’s okay to miss it, there will always be another.
  • We use 1-5% of our account value for SMS trades
  • We monitor support and resistance levels by setting price alerts on a mobile device (cell phone). 
  • We don’t hesitate to sell before the price target is hit. SMS trades are all about hitting singles and doubles.
  • Holding periods range from 1 day to several weeks

Trade Insights

  • We like to hone in on 1-2 trades we want to focus on. We avoid feeling like we need to or are expected to buy a stock on every email. 
  • We like to buy on weakness, ideally on a red day( -5%+) and at the lower end of the 5 day range. 
  • We accumulate in 1/3rds within the predefined buy zone
    • Example: We have $1,000 to invest. We take $333 and invest at price 1. The price then drops and is still in a comfortable entry range for us so we buy another $333 worth at price 2. The price then either goes up or down and is still in the desired entry range so we place our final purchase for $333 worth at price 3.
  • We like to monitor support and resistance levels as indications of where to sell a position and either take profits or cut our losses if the trade has become unfavorable
  • Holding period shouldn’t exceed 3 months

  Core Positions

  • This is where we hit our home runs
  • We invest 50-90% of our account value
  • These are stocks trading at an obvious and significant discount
  • Often the depressed prices do not last long so it’s important to act decisively
  • Examples of past core position buying opportunities include LJPC at $2.30 (ran to $9), VBIV at $0.50 (ran to $7), NGM at $10 (ran to $28), and BCRX at $1.80 (ran to $6.30).  
  • We like to lock profits once gains reach 100-300%+
  • Thoroughly researched fundamentals
  • Holding periods are 1-6 months

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