Yesterday I got a great email from Digital Dude who asked me why I didn't use a stop when I went long Citigroup @ $42/share and does buying more, now, make it right? I responded by saying that my strategy for long term is different than my short term one. Soon after I posted my reply I realized that my answer wasn't very clear to Digital Dude and my readers.
Simply put, my strategy in my 401k and IRA accounts is vastly different than my trading accounts, both for stocks and Forex. For my retirement accounts I like to market time the markets (buy in panics, take profits during euphoria), establish long term positions (5 years or more) in specific stocks like XOM, GE, and yes C! I choose these stocks on fundamentals and sentiment mostly and because I believe they're going to be winners 5 years from now.Â Just like on my mutual funds, I don't use stops when entering these positions because I expect to be in them for a long time.Â I'm always net long in my 401k and IRA accounts.
Sometimes this strategy backfires on me, like it did on Citigroup (C). So why buy more? My long term outlook for C still stands, I think its a great company despite its bad decision with its subprime investments. Now that the sentiment is even worse, rumors of another $18 Billion write down are floating around and fundamentally its become more attractive, I'm looking to add a few more shares to my 401k account. My exit strategy for these stocks will probably be bequeathing them to my grandchildren upon my death.
My trading strategy is entirely different. I use my neural nets to determine Forex trends or potential breakout stocks, I swing or position trade them, and I use stops! I typically place these stops using my Monte Carlo simulations. This works extremely well in the Forex markets I found out. My exit strategy on these are within a few days and occasionally weeks.
Just a word of caution, my trading and investment strategies work for me but they may not be right for you. I've learned the hard way over my trading and investing life what works for me and what doesn't. You'll have to find your own strategies.
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