Question:
How do you determine your position size and where do you set you
initial stop? Do you enter the entire position at once or look to scale in?
How do you choose among the potential candidates for purchase and maintain a
balance across strong sectors?
My Response:
Good questions. When I’m maintaining a portfolio I typically like to hold
no more than 6 or 7 positions (for a smaller portfolio this may be less, a
larger maybe a bit more). With this in mind, most positions for this
portfolio will be in the 10K to 20K range.
As far as how big a position I take in a stock really depends on the stock
and the action of the market. If the market is uncertain, I’ll initiate
smaller positions to start and add to that position if it continues to act
well and/or market conditions improve.
For stocks that I would consider to be "core" holdings I’ll initiate larger
postions. These are stocks with a longer history of solid results with good
support from institutions. I would consider FFIV such a holding. Other
examples of these kind of companies might include a YHOO, SBUX, EBAY,AAPL,
etc.
As far as setting stops I don’t set stops because I’m able to watch the
market during the day. Stops should generally be set a couple percentage
points below the nearest support level (that could be a moving average OR a
whole number). For example, in the case of ECIL my sell trigger would be a
drop below 8 since this was an area of resistance in the past and appears to
be serving as an area of support right now. Whole, significant numbers
often serve as areas of support/resistance. If the stock price is below 10,
any whole number can be support resistance. As you get to higher priced
stocks, that tends to move to multiples of 5.
As far as choosing candidates, I use the Breakout Tracker just as my members
do. It’s really a system I built for myself because I wasn’t happy with
what’s available. I’m just sharing it : ). Look at the Top Industries tab
and look for common themes among 10, 20 and 30 day performance. If you
take a look right now you’ll notice strength in anything internet related, semis, home
furnishings/appliances. Basically, tech is where the money is moving. You
can see top stocks from top industries by clicking the link "show stocks of
top industries". The default sort is by Total Rank. This instantly gives a
list of the highest rated stocks in the industries that are really moving.
You’ll notice 2 right at the top that were featured in the latest stock
watch report: FFIV and VDSI.
You can also find these top candidates in the Breakout Watch screen (which, by the
way can be filtered to show only those stocks from the Top Industries) in
order to find buy candidates quickly. I use this screen to come up with a
great list of candidates very quickly.