an example of compounding quick gains vs fixating on catching the big fish

In recent weeks, I have emphasized my expectations for US stock prices to decline. Recently, I mentioned that I was looking at specific companies, which is not typical for me. However, certain companies have been SO overpriced that I was open to spreading exposure in to a few of them. (I lately took positions that would rise in value as the stock price of AMAZON fell.) Here is the stock chart for AMAZON since 5/19:

In the chart of AMAZON, you can see that the price range was about 6 or 7%… much of that being from the decline this morning. However, I did not target making only a few percent of profit on a price change of a few percent. I targeted a series of “modest gains.” (See the orange text below in the image for the actual gains I made – click the image to make it bigger – plus see my comments on “walking up the staircase”.)


Above are some actual trades I placed. Note first that I entered on 5/19 (as in prior to the actual extreme in price on 5/21).

If I had started with $1000 and then made a 15% gain, then used the entire $1150 to make a 34% gain, then the entire balance to make a 30% gain, that would be just over gain of 100% total. I did not do exactly that… partly because I was clear that this market was only “ripe for a big change,” but I was not certain that it would happen immediately.

If I had only positioned for the longer-term price move, then I might have only made one of those trades (skipping the 2 “daytrades”). In that case, then the one that I closed for a gain of 34% would be the only position I opened.

Further, with a long-term orientation, I would not have closed it yet. It’s last trade executed today was at 2.75… which is way below where I sold it at $3.30. Plus, the current bid price is right now 2.26 (which is less than what paid to buy it).

In other words, with a longer-term orientation, my results would have been far worse. I would never have positioned for the daytrades (gains of 15% and 30%) and I would not have exited the one that was the biggest gain (of 34%). So, that trade would be behind by about 10% as of right now.

But I do expect the price of that investment to soon “make a higher high.” With that in mind, I do expect to get back in to another position (maybe today or this week… but maybe not so soon).

Note that “in the short run,” this type of approach may or may not be the most profitable. However, in the long run, this type of approach (of getting in early and taking frequent profits) can be very good.

While in my “marketing” I emphasize things like that TVIX went up over 2000% from February to mid-March, I would not (and did not) target “exiting at the peak.” To me, that is a silly idea.

I targeted getting in early (in mid-January), then, if prices rose (which they did in to late January), I targeted an exit on ANY drop (or if market conditions indicated that I should “exit for now”). When I am clear about the long-term, then I might get 2 or 3 or 4 sizable profits before the “big one” resolves the “underlying market pressures.”

I’m actually not very interested in exiting the “big one” near the price extreme. Knowing that a “big one” is coming allows for a *series* of decent profits.

Ideally, when the ‘big one” is clearly manifesting, then I will REDUCE my exposure (or tighten my exit signals). The best profitability is before the masses are aware that anything unusual is happening. Once the masses start to pay attention and react, then the opportunity has gone from “imminent” to “maturing.” At that point, I tend to focus on finding the next “imminent” big move.

I may continue to trade the “big move,” but I may greatly decrease my exposure as the move “matures.” I am not a “monolithic trader” trying to find “the biggest profit” and then buy at the exact low and sell at the exact high. I do focus on identifying the best opportunities, but to trade it with incremental increases and decreases in exposure.

I am much happier getting out early than getting out late. While others are reacting (generally out of surprise as in without much comprehension), I am forecasting their next sequence of reactions.

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