Trading Trail #12: BUY like a Trader and HOLD like an Investor

When describing my preferred Position Trading approach, a phrase I often use is…

“BUY like a Trader and HOLD like an Investor”

This is borne out by my trading so far in this account.

Last week I wasn’t afraid of dipping in and out of a stock like Homeserve, even several times within the same day, with a frequency that may be symptomatic of day trading. I wasn’t trading in and out so as to capture profits, but to avoid losses while trying to catch the falling knife.

Once I had caught that falling knife satisfactorily without getting cut to shreds, and with it showing a nice profit at the end of the week (guaranteed!), it was then time to switch from trader mode to investor mode. Henceforth I will hold this position — and any others like it — for as long as possible, but no longer, until the upwards price trend reverses and the position stops out of its own accord. While I reserve the right to change my mind, my intention is to trail my stop order cautiously so as not to get stopped out on a market whim. While the price keeps rising and the dividends (if any) keep rolling in, I’m happy.

On the subject of dividends, when I told you a few days ago that Home Retail had stopped-out at 86p and I had re-bought at a slightly higher 86.3p, I didn’t tell you (or hadn’t noticed) that on 8 November I had received a dividend credit of £4.16 on this position.

Today’s Trades

I managed to raise the guaranteed stop order on my Admiral position to 819.9p this morning, which means I’m now guaranteed a profit of £17 minus the £22-or-so this position has cost me so far. In other words, it is now impossible for me to lose any more than £5 on this high-priced stock.

I also managed to raise the stop order on my Commerzbank position to break-even at 151p, and my guaranteed stop order on Homeserve to 251.4p. So much for trailing it cautiously, eh?

A buying spree this morning saw me establishing new long £1-per-point positions in Serica, RSM Tenon Group, Nyota Minerals, European Nickel, Churchill Mining, Bahamas Petroleum, and Topps Tiles. I identified these stocks simply by browsing the UK Small Cap section of the spread betting company’s web site looking for those stocks trading at a mere fraction of their former prices and in which I can take positions at low risk.

I also put opening buy orders (not live trades) on Begbies Traynor and Aurelian Oil & Gas, which I’d like to have in the portfolio but at slightly cheaper prices.

Finally, I placed an opening buy order to average down on my Home Retail and RCG positions if they fell a little. The Home Retail order executed at 84p, which is pretty close to stopping out… and it’s meant to be.

Tony Loton is a private trader, and author of the book “Stop Orders” published by Harriman House.