Friday, August 11, 2006

 

The George Costanza Trading System


My portfolio continues to tread water. For the week, I lost $4,875 (0.7 percent). This does, however, compare favorably with the rest of the market, which saw even deeper declines, with the S&P 500 losing 1.0 percent, the NASDAQ declining 1.3 percent, and the Russell 2000 shedding 3.2 percent.

For nearly a year now, I've been thinking of ways to compliment my longer-term focused investing with shorter-term trading. Because I have a full time job, one prerequisite is that whatever system I introduce has to allow me to enter orders when the market is closed and rely on preset limit orders to exit the position during the day while I am busy at work. Obviously, this limits my choices, but that's just the way it has to be since I really don't want to be distracted with the stock market during the day.

Since that lousy NTGR trade, I've basically gone back to the drawing board and put together a variety of "systems" to test out. While I'm not going to give away the details, all the systems I am testing have one idea in common. This idea is almost so simple that you'll laugh. It's common knowledge that beginning traders who have no clue about the stock market and no discipline in their trading decisions lose money. Who could argue with that? Fine. The idea is to isolate what these traders do and do the opposite (The George Costanza Trading System). Go long when they go short and go short when they go long. Exit a trade when they enter and enter a trade when they exit it. I have been following the market long enough that I think I have a pretty good sense of how beginners trade so coming up with ideas for a system to exploit newbies hasn't been all that difficult. Right now I'm paper trading a couple of systems, and one in particular looks very promising. I'll keep you posted!

Comments:
Hope that you can share your picks with us. I have been in the same dilema doing full time job and dont want to distracted by the market during day time. Will be watching your moves.
 
Treading water and beating the indices is doing really well if you are fully invested in stocks. The market has been trending down for months, and treading water I would call a success. I doubt you could do better unless you are willing and able to be an active and talented daytrader, which would require watching the market intraday.
 
I just started my own blog and posted my long position there.
 
Amateurs, who typically lose money, will only buy something that's already gone up and then on the first downtick get discouraged and sell. It's easy to make money against them, just buy when a good stock is down and sell when it's rising (that's when the amateurs are buying). Another way of saying this is, supply liquidity the way a market maker or specialist does -- make money the way they do.
 
Hey COACH !

Thanks for trying to educate people. Appreciate your efforts.

But, one suggestion though ... As one of the other comments alluded, you r not a COACH. If you objective is different from coaching others, then you might want to change ur name to StockPicker or something. If your objective is infact coaching, then you are not doing a good job at all.

I understand each one of us have few things we wouldn't like to share. Hope you will share little more than just picks in process of educating others.

Thanks
 
Point taken. If I were starting the blog now, I'd pick a different name but I'm not sure how easy it would be to switch over to a new blog title now without losing my archive and other settings.
 
I don't think doing the opposite of most losing traders would work. Many have no "edge" and are basically 50-50 random traders. But they lose because of excess slippage and commissions.

If you did the opposite, you would also lose because of slippage. Maybe using the George Costanza strategy for long term investing would work, since slippage is much less of a factor.

George
quantinvestor.blogspot.com
 
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