How I use Trending Stocks to invest
“The key is to constantly put yourself in a position to win.”
Tiger Woods
First, our thanks and a shout out to Patryk S. for asking for this.
There are many ways to use the data provided by Trending Stocks to identify, select and invest.
My goal is to offer an answer to Patryk’s question “How should someone, new to Trend Following, use the Platform to invest”.
To answer that question, I am going to share how I personally use Trending Stocks to make my investment decisions. I am a fairly conservative investor.
Hopefully this description will provide enough information, and insights, to allow those who have questions to ask them, to feel more comfortable and begin the process.
This is how I do it. It doesn’t mean that you have to do it this way.*
Getting Started
The first phase doesn’t include using any tools at all, not even Trending Stocks! The Platform comes into play in Part 2.
Before I begin to invest, I do the following:
- I decide how much money I am going to use to fund my portfolio. For this example, let’s assume I decide to invest $25,000.
- I decide how many positions, that is, how many different stocks I would like to have in my portfolio when fully invested. Again, let’s assume I decide on 25 positions. That translates into an average position size of $1,000 per stock, at the beginning of the investing process.
- I then decide what percent of my portfolio I would be comfortable (i.e. sleep well at night) having at Risk at any one time. Let’s assume 10% or $2,500 at risk at any one time. That translates into $100 of risk associated with each stock purchase. That is 25 stocks in my portfolio, divided into $2,500.
A formula might look like this: $25,000/25 stocks = $1,000/stock /10%=$100.00
“At Risk” means, I can live with losing this much should the stock’s price experience a downturn. In this case, $2,500 for the entire portfolio based on $100 per stock. I don’t want to lose it, but can sleep at night if that happens.
Here is another way to look at it, the flip side is I am unwilling to risk $22,500 and therefore, use the risk management tools at my disposal to provide as much protection as possible! It’s about perspective.
Quick Review
Now, let’s take a minute to review what just happened.
- I’ve decided on an amount I will use to fund my portfolio.
- I’ve decided how many stocks I will have in my portfolio when fully invested.
- I’ve decided the average position size I will have invested in each stock.
- I know how much I will have at risk with each investment.
- I know how much I will have at risk when totally invested.
- And I have decided how much of my investment I will not risk.
All of this and I’ve yet to even consider a stock to invest in. I don’t know about you, but for me it is very comforting to know that I have that level of control.
Coming up in Part 2
We start the process of selecting stocks for our portfolio and discuss the criteria and tools we use to narrow down the selection!
Never forget to: Ride Your Winners; Cut Your Losses! Want to know more?
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* Trending Stocks is an information platform only. Information provided on the website, newsletters, and TidBits and through the reports is meant to help users with their own analysis and strategies. Users are solely responsible for their investment decisions.
