Tactical Investor Lot Size

This was initially posted in the Market Update forum. The current version is being modified to reflect a potential change in our strategy.

We used this strategy for over 18 years but, over the last 24 months or so, we have noticed that it is getting harder and harder to deploy the 2^nd lot and we are providing several strategies that can be used to determine what lot size to deploy at any given time.

We have also noticed that the markets are becoming more irrational; probably, the term highly illogical would be more appropriate. Hence, this calls for a potential change in strategy. This will be discussed in more detail in the next issue. Today we will provide a general overview of several possible strategies that new subscribers can use. Note also that there are several threads in our forum that are actively covering this topic.

In general, there are three possible routes when it comes to determining what lot size to deploy and when to invest in the markets.

Tactical Investor route in determining lot size

We at TI wait for those mouth-watering opportunities that present themselves when one least expects them. Two that come to mind are; Trump winning the elections and the covid crash. Then one has the opportunity to back the truck up and load up stocks. This strategy consistently outperforms all other strategies, especially what we call the irrational strategy. This is where investors jump in and out of the markets with no plan. The only driving force is fear or joy, and such investors (the majority) almost always lose in the long run.

However, this approach takes extreme discipline and patience. Otherwise, you will go mad and act like the silly young lass plucking petals from a flower while muttering, “he loves, he loves me not.”

The second option is to use sharp pullbacks to add to your positions

Let’s say you have 100K. You divided that into ten parts of 10K and then into sub-lots of 3.3K. Let’s say you invested in 10 stocks, and on average, you deployed 1.5 lots per play. This means you have about 50.5K left in cash. You can opt to deploy those funds into more plays, so this way, you have more positions where you have only deployed 1/3^rd of your funds. Alternatively, you can wait for sharp pullbacks to add to your existing position (as long as they are still in our portfolio). To be considered a sharp pullback, the Dow should shed at least 2400 to 3000 points. This range has been raised due to V readings soaring to new highs.

If you have no position, one can change the lot size

This strategy is similar to option 2, but if one has no position in the underlying play, one can deploy up to ½ lot. Then divide the remaining amount of money into two lots of ¼. The Dow would still have to shed 2400 to 3000 points to put this strategy into play.

The first option requires the patience of a turtle, the disciple of a ninja and the ability to execute at the speed of a peregrine falcon

The other two require less in the form of discipline and patience. However, to put any of the above strategies into use, you must understand our trading methodology backwards. Secondly, you have to be able to look at fear in the face and laugh or, at the very least, smile. Now it’s time to choose your poison

We will discuss a modified version of this strategy where we will deploy ½ lot when intially opening a position. The overall gist of this strategy is that when the markets let out a decent dose of steam (at least 2400 points and preferably 3300 points), our lot size will change; we will deploy ½ a lot. We will only adopt this strategy if the market is currently trading in the extremely oversold zone. We will delve deeper into this in future updates.