Asset allocation or stock trading for wealth accumulation?

Good morning,

One of the readers of this blog wrote to me asking why I was talking about portfolio allocation if the title of this blog is profitable stock trading. Let me explain. Firstly, there is a different between trading and investing. Investing traditionally refers to buying a stock or other financial instrument for a long period of time, typically over several years whereas trading typically refers to buying and selling stocks or other financial instruments for shorter periods of time, typically less than a few months. A trader will move quickly in and out of stock, picking up a few points here and there whereas an investor is in for the long haul and is more interested in consistent growth in the long term. It's important to understand this simple distinction and keep the two separate; stocks that you trade and stocks in which you invest should be treated completely differently.

Secondly, all of us look forward to the day where we can stop working and enjoy our lives. To be able do so, we need to know what is the lump sum capital required to fund our dreams when we stopped working, our time horizon and the internal rate of returns so that the current capital we have can compound over the period to achieve the lump sum capital. Research tells us that over time, most equity indices return an average of 9% to 12% per annum, so if an efficient portfolio can be created for equities that do not co-vary and meet the investor’s risk profile and rate of return, the dream is attainable. Depending on the risk profile, a percentage of the total asset could be set aside for trading. This amount should be large enough to trade and small enough so that one will not lose sleep if all is lost. Thus when I advise my clients, I will recommend them to invest long term for their future and if both the risk profile and financial ability allow, trade to beat the average market rate of returns to boost their investment total returns, and this profitable stock trading blog objective is to serve this need and educate my readers the systematic method to trade stocks for better returns. At the same time I also clarify to this reader that he may have misunderstood that I am a day trader trading on intra-day data and scalping the markets every minute. I had mentioned previously that I “trade” daily, but what I actually meant was I look at the markets and stocks daily and only trade when either there’s a tail-end event or my previous night’s position was exercised and I need to place new trades. Otherwise I allow the stocks I bought at the week’s opening to appreciate till it achieve my targets. Very often I placed buy and sell limits at prices below previous Friday’s closing prices at the same time I bought into the shares. My trading style is suitable for busy executives since they need to work the next morning. So because of my style, I can rest well and sleep early, which I did last night.

DJIA gained 30 points to 10,437.42 last night. Nasdaq added 6 points to close at 2,203.78, and the S&P 500 was up 1 point to 1,110.32, mostly because of weakness in those retail stocks. There were 44% advances against 52% declines in NYSE and 51% advances against 44% declines in Nasdaq. The KUTE selected stocks NOV closed 1.47% higher at $46.13 and MGLN was up 1.05% higher at $36.57.

CVX was up 0.25% at $78.81, ESV gained 0.17% at $47.53 and MIR lost 1.15% to close at $14.66. So far the selected stocks are in the money and I hope that you have gained as much as I have.

Have a great day!

Francies Cheng
BBus MAppliedFinance