a very simple concept many seem to overlook

[hooligan]

if a stock you're holding is going down
and you're negative profit
and you plan on holding it all the way through the storm, as the market dives further down...
all the way until the bright day that the stock is back higher than where you bought it...
and you can sell for a gain

you make more money by selling it now, and reinvesting the money when it reaches a lower price.
this gets you more shares for the same cost.

holding steady, rather than selling, if the short term trend is down, Loses you money.

people seem to venerate holding tough...

but a virtue of investing is Nimbleness, if you can handle it.

if you can handle it, you ought to SELL in a downtrend, so you can BUY LOWER, acquiring more shares for the same amount of money, so that when the stock goes back up, you have more shares to profit from.

playing this way can scramble the mind and requires care. but it's technically correct. as long as you're sure the short term trend is down.

very basic and obvious truth yet i have some feeling it isn't widely understood.

[bpcw]

if a stock you're holding is going down
and you're negative profit
and you plan on holding it all the way through the storm, as the market dives further down...
all the way until the bright day that the stock is back higher than where you bought it...
and you can sell for a gain

you make more money by selling it now, and reinvesting the money when it reaches a lower price.
this gets you more shares for the same price.

holding steady, rather than selling, if the short term trend is down, Loses you money.

people seem to venerate holding tough...

but a virtue of investing is Nimbleness, if you can handle it.

if you can handle it, you ought to SELL in a downtrend, so you can BUY LOWER, acquiring more shares for the same amount of money, so that when the stock goes back up, you have more shares to profit from.

playing this way can scramble the mind and requires care. but it's technically correct. as long as you're sure the short term trend is down.

Yes but you don't make money by selling now and the stock goes up after finding a bottom, what you're really referring to is crystal ball investing, and is just luck if you get it right. The only alternative is to set individual stop losses for a particular stock or a percentage loss that you will sell at.

[SOL]

if a stock you're holding is going down
and you're negative profit
and you plan on holding it all the way through the storm, as the market dives further down...
all the way until the bright day that the stock is back higher than where you bought it...
and you can sell for a gain

you make more money by selling it now, and reinvesting the money when it reaches a lower price.
this gets you more shares for the same cost.

holding steady, rather than selling, if the short term trend is down, Loses you money.

people seem to venerate holding tough...

but a virtue of investing is Nimbleness, if you can handle it.

if you can handle it, you ought to SELL in a downtrend, so you can BUY LOWER, acquiring more shares for the same amount of money, so that when the stock goes back up, you have more shares to profit from.

playing this way can scramble the mind and requires care. but it's technically correct. as long as you're sure the short term trend is down.

very basic and obvious truth yet i have some feeling it isn't widely understood.

In theory, this is brilliant, and it does seem obvious at first sight, but it is not so easy to implement. It generally works, if you are selling when the stock is trading in the overbought range, you will win, but patience is needed as sometimes the stock can trade in the overbought range for months before dropping. But one really needs to be disciplined here, as I have seen many people regret selling them, and they buy back at a higher price (while the stock is trading in the overbought ranges on the monthly charts) and pay a heavy price. One good recent example is TSLA

However, one can modify your strategy and make it work. Sell some of your shares and then sell puts. For example, if you have 400 shares. You could hold 200 and sell 200. On a down day, sell puts on those 200. Either the shares get put into your account at a lower price, or you can use the premium towards the purchase price in the future.


P.S. Maybe it might work for you. There is no such thing as a fixed strategy or fixed rules regarding investing. If you are willing to test it, try it on a small scale and see how it goes.

[Yodean]

people seem to venerate holding tough...

but a virtue of investing is Nimbleness, if you can handle it.

if you can handle it, you ought to SELL in a downtrend, so you can BUY LOWER, acquiring more shares for the same amount of money, so that when the stock goes back up, you have more shares to profit from.

playing this way can scramble the mind and requires care. but it's technically correct. as long as you're sure the short term trend is down.

very basic and obvious truth yet i have some feeling it isn't widely understood.

i think during stable times, most investors actually understand all of this.

some problems with this strategy are:

-you can never be truly "sure" that the market is going to go up, or down, or even sideways; so even if you're "sure" the markets are going down, they often don't, so this strategy has a potential point-of-failure here; and of course, as many of us on this board found out this year and in previous bear markets, when one thinks the markets are going up after a drawdown, they often keep going down ... and down;

-Mike Tyson: "everyone's got a plan until he gets punched in the face." during good or stable/trending times in the markets, investors are generally pretty decent at putting a plan into place, but during volatie times (like now), it's much more difficult to do; fear and euphoria will often affect investors in such a manner that they don't sell when they should, and don't buy when they could;

-for example, tsla has been mentioned; imo, it's a terrific stock for swing-trading and running options' plays on top of the shares: it's basically a megacap tech titan meme stock with good liquidity and volatility, everyone's got an emotional opinion on Elon, it's a leader in the EV space, and at this point, it's really more of an A.I. stock (collecting info. on drivers/owners) than anything else; months ago, many investors would have said they would love to buy tsla at current prices, but because of the downside momentum recently, now they find all sorts of reasons why they don't want to buy tsla anymore - elon's distracted by twitter shenaningans, other car companies are going to disrupt tsla, etc.

-even if an investor gets the short-term direction right - let's say for the sake of this example, it's down - the magnitude of the drop could be much greater than envisioned; so this investor keeps buying the dip as stocks drop, until she runs out of cash/margin; in fact, this often contributes significantly to interim bottoms (leaving aside short-sellers for the moment) - investors run out of cash/margin "buying the dip"; then something else happens in their lives (e.g. margin calls, other emergency expenses, etc.) that results in forced-selling at the bottom;

-at or near market bottoms, it's always going to seem like there are a thousand different fundamental and technical reasons why markets should continue to go lower, and at market tops, the opposite is true;

*****

-HODLing seems like a dumb idea when looking through the lens of hindsight, but in real-time trading where no accurate crystal ball is available, it's not too terrible as long as the following caveats hold true:

1) the stock/company you own is not going to go bankrupt, and is still generating (or has the potential to) increasing revenue and contributing to the economy;

2) the stock markets as a whole are not going to disappear anytime soon;

-assuming the two conditions above hold sway, HODLing makes a certain degree of sense, over the long-term; as an aside, i think that's one reason retail investors, as a group, tend to do better with real estate vs. trading stocks/futures/options; real estate is generally relatively illiquid (easier to HODL, harder to sell or buy), which tends to help reduce the average retail investor from selling at bottoms and buying at tops too often;

[bpcw]

Excellent full explanation Yodean!

Woke up in the middle of the night so wrote my bit with an air of frustration! It's so easy to say sell and buy at a lower price, it's better to have this approach when stocks are overbought, not near the bottom of a bear market, as Sol alluded to.

[jlhooter]

if a stock you're holding is going down
and you're negative profit
and you plan on holding it all the way through the storm, as the market dives further down...
all the way until the bright day that the stock is back higher than where you bought it...
and you can sell for a gain

you make more money by selling it now, and reinvesting the money when it reaches a lower price.
this gets you more shares for the same cost.

holding steady, rather than selling, if the short term trend is down, Loses you money.

people seem to venerate holding tough...

but a virtue of investing is Nimbleness, if you can handle it.

if you can handle it, you ought to SELL in a downtrend, so you can BUY LOWER, acquiring more shares for the same amount of money, so that when the stock goes back up, you have more shares to profit from.

playing this way can scramble the mind and requires care. but it's technically correct. as long as you're sure the short term trend is down.

very basic and obvious truth yet i have some feeling it isn't widely understood.

In theory, this is brilliant, and it does seem obvious at first sight, but it is not so easy to implement. It generally works, if you are selling when the stock is trading in the overbought range, you will win, but patience is needed as sometimes the stock can trade in the overbought range for months before dropping. But one really needs to be disciplined here, as I have seen many people regret selling them, and they buy back at a higher price (while the stock is trading in the overbought ranges on the monthly charts) and pay a heavy price. One good recent example is TSLA

However, one can modify your strategy and make it work. Sell some of your shares and then sell puts. For example, if you have 400 shares. You could hold 200 and sell 200. On a down day, sell puts on those 200. Either the shares get put into your account at a lower price, or you can use the premium towards the purchase price in the future.


P.S. Maybe it might work for you. There is no such thing as a fixed strategy or fixed rules regarding investing. If you are willing to test it, try it on a small scale and see how it goes.

Sol,
I understand this strategy and recognize that there is no fixed rule, but what if you instead waited for a down day (not necessarily looking for a bottom) and bought a Call. Of course, it could expire worthless, so you plan to by a Call that is maybe 9-12 mos. out to minimize expiring worthless. The risk is losing the extra cash, but capitol doesn't get tied up in the Put sale freeing it up to do other things especially if a FOAB or MOAB is nearing. When (and I mean IF) the stock price goes back up, the gain from the Call (minus the purchase price) reduces the cost basis of the shares held. In the end aren't you planning the same thing regardless of if it is selling puts or buying calls: for the price to eventually go back up?

[SOL]

Sol,
I understand this strategy and recognize that there is no fixed rule, but what if you instead waited for a down day (not necessarily looking for a bottom) and bought a Call. Of course, it could expire worthless, so you plan to by a Call that is maybe 9-12 mos. out to minimize expiring worthless. The risk is losing the extra cash, but capitol doesn't get tied up in the Put sale freeing it up to do other things especially if a FOAB or MOAB is nearing. When (and I mean IF) the stock price goes back up, the gain from the Call (minus the purchase price) reduces the cost basis of the shares held. In the end aren't you planning the same thing regardless of if it is selling puts or buying calls: for the price to eventually go back up?

Like hooligan, there is nothing wrong with your strategy. In theory, it could work. The one thing about theory is that one can always make things look great; that is why there are so many Armchair market technicians and experts. It's only after you dip your beak into the pool that you will find out whether it works or not. Furthermore, experimentation leads to illumination, so while the original concept might not work as planned, you might stumble onto something else that might prove to be very useful.

Having said that, your strategy would be best implemented on stocks that are trading in the extremely oversold ranges on the monthly charts. Do not waste time on any other timelines until you are battle tested. The monthly charts provide the best risk-to-reward ratios. If you want to move the odds further into your camp, then you wait for both the weekly and monthly charts to be in sync. In other words, they should both be trading in extremely oversold ranges. Now you can use a down day to purchase a call. A modification of this would be to sell a put and use the proceeds to purchase a call.

But remember, in theory, we can make an ugly duckling look bloody good. So you will only know if you try and if you start, start small.

[outof thebox]

Sol,
I understand this strategy and recognize that there is no fixed rule, but what if you instead waited for a down day (not necessarily looking for a bottom) and bought a Call. Of course, it could expire worthless, so you plan to by a Call that is maybe 9-12 mos. out to minimize expiring worthless. The risk is losing the extra cash, but capitol doesn't get tied up in the Put sale freeing it up to do other things especially if a FOAB or MOAB is nearing. When (and I mean IF) the stock price goes back up, the gain from the Call (minus the purchase price) reduces the cost basis of the shares held. In the end aren't you planning the same thing regardless of if it is selling puts or buying calls: for the price to eventually go back up?

Like hooligan, there is nothing wrong with your strategy. In theory, it could work. The one thing about theory is that one can always make things look great; that is why there are so many Armchair market technicians and experts. It's only after you dip your beak into the pool that you will find out whether it works or not. Furthermore, experimentation leads to illumination, so while the original concept might not work as planned, you might stumble onto something else that might prove to be very useful.

Having said that, your strategy would be best implemented on stocks that are trading in the extremely oversold ranges on the monthly charts. Do not waste time on any other timelines until you are battle tested. The monthly charts provide the best risk-to-reward ratios. If you want to move the odds further into your camp, then you wait for both the weekly and monthly charts to be in sync. In other words, they should both be trading in extremely oversold ranges. Now you can use a down day to purchase a call. A modification of this would be to sell a put and use the proceeds to purchase a call.

But remember, in theory, we can make an ugly duckling look bloody good. So you will only know if you try and if you start, start small.

If you don't try you will never know and if you never try you will always be left wondering what might or should or could have happened.

[chippermon]

Sol,
I understand this strategy and recognize that there is no fixed rule, but what if you instead waited for a down day (not necessarily looking for a bottom) and bought a Call. Of course, it could expire worthless, so you plan to by a Call that is maybe 9-12 mos. out to minimize expiring worthless. The risk is losing the extra cash, but capitol doesn't get tied up in the Put sale freeing it up to do other things especially if a FOAB or MOAB is nearing. When (and I mean IF) the stock price goes back up, the gain from the Call (minus the purchase price) reduces the cost basis of the shares held. In the end aren't you planning the same thing regardless of if it is selling puts or buying calls: for the price to eventually go back up?

Like hooligan, there is nothing wrong with your strategy. In theory, it could work. The one thing about theory is that one can always make things look great; that is why there are so many Armchair market technicians and experts. It's only after you dip your beak into the pool that you will find out whether it works or not. Furthermore, experimentation leads to illumination, so while the original concept might not work as planned, you might stumble onto something else that might prove to be very useful.

Having said that, your strategy would be best implemented on stocks that are trading in the extremely oversold ranges on the monthly charts. Do not waste time on any other timelines until you are battle tested. The monthly charts provide the best risk-to-reward ratios. If you want to move the odds further into your camp, then you wait for both the weekly and monthly charts to be in sync. In other words, they should both be trading in extremely oversold ranges. Now you can use a down day to purchase a call. A modification of this would be to sell a put and use the proceeds to purchase a call.

But remember, in theory, we can make an ugly duckling look bloody good. So you will only know if you try and if you start, start small.

I am a huge proponent of keeping a paper trading account. When ever I have time I will do "exercises" in my paper trading account. I call them exercises because you are literally training your brain to see patterns or little nuances that occur with different financial instruments or how to deal with derivatives pertaining to the stock or bond or commodity or currency in many different situations ie. options. Your brain stores this information and works subconsciously in tandem with your conscious decisions. You are generally more able to respond quickly or more efficiently to different situations that randomly occur. It doesn't even matter if the account is making money or not. You need to make trades and see how price responds and how you respond.

You need to practice and you need to find out what speaks to you, in terms of set ups, instruments to trade, time periods to trade. Our advantage in the markets is our own interpretation of what is going on at the time. We are all very different and we all look at the same chart with very different eyes. I find this has helped and continues to help me discover my own advantage. No two traders are alike.

[Centeron631]

Do u think buying solid dividend payers with long record of increasing dividends cuts the odds in ur favor even more?
Maybe especially with hodlers or even buying long out calls when the market is in oversold state?

[deepthinker]

Do u think buying solid dividend payers with long record of increasing dividends cuts the odds in ur favor even more?
Maybe especially with hodlers or even buying long out calls when the market is in oversold state?

I suspect it would. I have been playing with a few lower volatile stocks. Some paid nice dividends. I buy calls only on stocks that as TI puts its are trading in the insanely oversold ranges. VALE was good example. I sold puts and bought calls.

[Jaz]

Do u think buying solid dividend payers with long record of increasing dividends cuts the odds in ur favor even more?
Maybe especially with hodlers or even buying long out calls when the market is in oversold state?

Yes. When a solid company with a long history of raising Dividends rises to 6% Yield, usually indicates a major low, and large move lies ahead.

I've brought INTC, IBM, CAT when Yields near 6%, and aim to sell when Yield falls below 2%.

Don't buy it just because it has a history of raising Dividends, but it when the Yield gets silly.