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Trading around core positions for extra money.

Friday, November 13, 2015

Some might remember me talking about how I was trading stocks a bit more in the past. I also talked about how it is possible to trade around our core investments for income here and there.

If we are good at it, we could make some extra money from trading and yet retain a portion of our investments for regular income.

I don't trade stocks as much these days because it entails more work. It isn't just about buying stocks and holding them for dividends. We have to look at charts and decide when to sell and, of course, hope that prices might come down again so that we could buy.

However, sometimes, I just feel like doing a bit of trading and one example in the last two weeks was ST Engineering. I partially divested at $3.35 a share at the end of October with the intention to buy again if its stock price should decline meaningfully.

I decided to sell at $3.35 because that was where the mildly declining 200d MA was approximating back then. 

As ST Engineering's stock price declined over a few days, I resisted the urge to buy as connecting the lowest and second lowest price points gave me a trend line which suggests that there is probably going to be stronger support at $2.98 thereabouts which happens to be where the 123.6% Fibo retracement line is also located.

My BUY order at $2.98 today was filled.

Of course, it does not mean that the stock price will not go lower from here. 

Technical analysis simply shows us where the supports are. It doesn't say if the supports will hold. Now, if the support should break, we might see $2.88 tested next. I could buy more then.

Now, what if the stock price did not decline but went higher instead? 

Trading around a core position means that we still have a core investment retained for income generation.

So, some might remember that the mistake I made with ARA a few years ago was not retaining a core position whereas I sold only half of my investment in Old Chang Kee and retained half for income, for example.

So, when employing such a strategy, it is important to buy into stocks which we would be quite happy to hold because of the regular income we will receive. If the opportunity for a trade should present itself, sell a portion of our investment and retain a core position.

If prices go up, we are happy. If prices go down, we are happy too.

I don't think anyone would be unhappy with such a situation or am I mistaken?

Related posts:
1. Have my curry puff and eat it too!

2. ARA: Re-initiating a long position.
3. ST Engineering: Mystical art.


seefei said...

how big is your core and trading portion? 20/80 ratio? do you stick anything on your study wall as a way to monitor your portfolio? i am thinking of doing so but it will drive my wife up the wall...

AK71 said...

Hi seefei,

I don't have a fixed ratio. It could be 20/80 or 50/50 or 80/20. If I feel good about keeping most of my position for income, then, the trading position becomes smaller. If I feel that prices could decline, I could increase the trading position. So, there is some subjectivity.

On the wall? In the past, yes. These days, not much. LOL. ;p

anon said...

Hi AK,
Trying to learn some TA tips from you. Do you always use 200-MA to determine the resistance (for the occasional sell trade) and Fibonacci for the occasional buy trade? Which free & user-friendly platform can I use for Fibonacci? Thanks.
Incidentally the one you are using, which platform and is it free? :) Thanks.

AK71 said...

Hi jojo,

There are many tools available in TA. We decide which ones work best for us. :)

The 200d MA is a long term MA. So, when it acts as resistance or support, it is supposed to be stronger.

Fibonacci lines are fascinating and they are also very useful in showing where the different supports and resistance could be found as prices move up and down.

I use Chartnexus. The basic version is free to download. :)

Unknown said...

Please share how you drew the fibonacci retracements - how did you decide to use 3.14 and 3.82? It closed at 2.88 today!

Unknown said...

Hello AK
How did you draw the fibionacci retracement levels? I mean at 3.14 and 3.82 - why? ST Engineering closed at 2.88 today!

AK71 said...

Hi Jommpyful,

There are charting software to help us do this. ;p

You might want to read up on Technical Analysis to gain some insights. I have provided a book list in my blog's right side bar under the heading "Food for thought". :)

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