Trading Large Cap Stocks – Beginning
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Like many stock market investors / traders, I too, lost my shirt in the nineties. High-tech stocks always seemed to offer such huge returns, and when you analyzed the charts they looked like can not miss opportunities. But as the decade wore on my stock portfolio value went on a steady nose dive. Until it actually became non-existent.
At the time I was looking for stocks to hold for a few months, and then sell. Stocks that were likely to increase in a short time. I read all the books, learned fundamental and technical analysis, created and back tested stock trading systems. Subscribed to all the newsletters, the services, the gurus, and jumped around in my opinions so much, that even when I was right, I did not allow my correctness time to pay off. Self-doubt, gut wrenching anxiety, not to mention unnecessary stress on an already dysfunctional marriage all added to my panicking. And the inevitable loss of my entire account.
Through it all I made right buys and short sells, but my convictions was never very strong, I could not stand the fluctuation of hi-tech stocks, and had no idea when to keep my position and when to dump it. Usually I would dump winners at the exact worst time, and keep losers for way too long. I tried system trading, but great weary of systems that worked when back testing but not in real time. In short, I went broke, lost my marriage, my house, and my confidence.
Around 2001, I began sniffing around the market again. Now, though I had no money to trade with. However I remembered a time right at the end of 1999. When I had traded GE, several times successfully, it was in a nice up trend, with sufficient timely dips that allowed buying opportunities, and timely spots to also sell. I began wondering if I could buy and sell large cap stocks, and make a profit. I began, again pouring over charts, it was easier now, with the Internet, you could do it for free. I studied household names, and not so household names but always stocks over 5 billion in capitalization. In 2002, I began paper trading, based on a few quick judgments I made about chart formations, and using a few basic indicators. I did this in real time
I had no money to trade, now going through an expensive divorce, that was to leave me actually broke for 3 years. I, still was fascinated with the idea of using large cap stocks, and the fascination kept me paper trading. I found these advantages to large caps; One they had real value, not blue sky. So often, hi-tech and biotech's only had future earnings to offer. Large caps had real value, real property, real learning, etc. Information on them was readily available. I learned during the nineties, I will never have the latest information on stocks. But with large caps you do not really need it. Large caps charts were also more predictable, more reliable, upturns and down turns were within parameters, that were almost always followed. High tech could drop like a rock from the sky on rumors, rumors that I would not even know about until the end of the day.
But was there enough volatility to trade in large caps. I was always bored with buy and hold and hope for a 7% return over the next ten years type strategy, I wanted some action. But what I found was there is enough volatility, if you can figure out how to predict it. Consider my first real trade of this year, I bought All-State Insurance ticker symbol ALL. I bought it in March of 2005, at that time its 52 week low was 43, and its high was 52. If you had bought it at the exact low and sold it at the exact high you would have made, 20% annual return. Not bad for such a safe investment. Of course it is impossible to do that. But what is very possible is to hold it for about 39 days, and make around 3%, in that time. That is almost a 30% annual return while holding a very safe stock for a very short time. And that is what I did.
I paper traded large cap stocks for 3 years, averaging over 50% return on investment for 3 years. While I scrambled and saved, and hid money until I had a whopping total of $ 3000, to open a stock account. And then I bought All State. This year I again hope to make over 50% return on investment, only in real dollars. Which let me tell you is much more exciting, than paper trading. Oh, I have started a successful side business, which profts I place into my account. But more on this later. You can read my trades as they occur on my blog http://livingonlargecaps.blogspot.com/ . And watch as in real time I attempt to prove you can make huge profits on large cap stocks.
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